UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2015
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2015
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE AGGRESSIVE FUND]
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SEMIANNUAL REPORT
USAA CORNERSTONE AGGRESSIVE FUND
NOVEMBER 30, 2015
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PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
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JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
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to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may
also be subject to foreign taxes. Investments made in emerging market countries
may be particularly volatile. Economies of emerging market countries are
generally less diverse and mature than more developed countries and may have
less stable political systems. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers, and affiliates.
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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 33
Financial Statements 37
Notes to Financial Statements 40
EXPENSE EXAMPLE 55
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)2016, USAA. All rights reserved.
200987-0116
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FUND OBJECTIVE
THE USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) SEEKS CAPITAL APPRECIATION OVER
THE LONG TERM. THE FUND ALSO CONSIDERS THE POTENTIAL FOR CURRENT INCOME.
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TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, and money market instruments. The
Fund will have a target asset class allocation of approximately 80% equity
securities and 20% fixed-income securities. The actual asset class allocation
can deviate from time to time from these targets as market conditions warrant.
The implementation of the asset allocation may involve the extensive use of
equity and fixed-income exchange-traded funds (ETFs). The Fund may invest in
securities issued by domestic or foreign companies. The Fund also may invest in
fixed-income securities that are investment grade and below investment grade.
The Fund also may use alternative investment strategies, such as investments in
real estate investment trusts and precious metals and minerals companies, and
other instruments, including futures and options, from time to time, in an
attempt to reduce its volatility over time and to enhance the Fund's return and
diversification.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
JOHN P. TOOHEY, CFA ARNOLD J. ESPE, CFA
WASIF A. LATIF DAN DENBOW, CFA
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o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging
time for the world financial markets as concerns about slow global growth,
China's currency devaluation, and the potential for an interest rate
increase by the Federal Reserve (the Fed) combined to weigh upon investor
sentiment.
U.S. equities generally finished the reporting period with a negative
return, but they generated returns above those of the international markets.
The U.S. economy appeared to be on track to deliver growth of approximately
2% in the second half of 2015 amid strength in the housing market,
employment, and consumer spending. While low compared to historical
standards, this rate is nonetheless higher than the majority of the world's
developed economies - a positive for U.S. stocks' relative performance
during the reporting period. Within the domestic market, small-cap stocks
generally underperformed large-cap stocks as investors appear averse to
risk.
Developed market international stocks finished with a loss and
underperformed U.S. equities which was likely due to mounting concerns
about slowing economic growth in both Europe and Japan. In addition, the
weakness in foreign currencies relative to the U.S. dollar translated to
lower total returns for U.S.-based investors. Emerging market stocks also
generally finished the reporting period with a loss. Falling commodity
prices, together with China's move toward a consumer-led economy from one
driven
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2 | USAA CORNERSTONE AGGRESSIVE FUND
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primarily by fixed-asset investment, likely led to slower growth in the many
exporting economies within the asset class. In addition, currency weakness
compelled many central banks to raise interest rates even as growth slowed.
Together, these factors caused the emerging markets to close the reporting
period near the low end of their range for the past five years.
The impact of weaker commodity prices was not limited to the emerging
markets. Stocks in the gold-mining sector fell sharply as well, reflecting
the effect of falling gold prices on their profit outlook.
In the investment-grade bond market, U.S. Treasuries finished relatively
flat. While investors remained on edge about the possibility of the Fed
increasing interest rates, bonds gained a degree of support from the
backdrop of below-trend growth and low inflation. Investment-grade
corporate debt lagged, due largely to an increase in new-issue supply.
High-yield bonds underperformed the investment-grade market by a
considerable margin, as the weakness in commodity prices pressured the
credit outlook for the many energy and mining issuers within the asset
class.
o HOW DID THE USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2015, the Fund had a total
return of -5.43%. This compares to return of -5.43% for the MSCI
All-Country World Index and -3.87% for the Cornerstone Aggressive Composite
Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary
management for the Fund's assets.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund employs a diversified, long-term approach that favors undervalued
market segments and avoids those that appear more richly
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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MANAGERS' COMMENTARY ON THE FUND | 3
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priced. While this strategy led to underperformance during the reporting
period, we remain confident in the Fund's overall positioning.
The Fund's overweight in the developed international markets was the
primary factor affecting relative performance during a time in which U.S.
equities delivered superior returns. Nevertheless, we retain this
positioning for the Fund on the belief that the foreign markets offer both
attractive relative valuations and the potential for improving corporate
earnings. In addition, we believe international equities can benefit from
accommodative monetary policies of the central banks in Europe and Japan
relative to the Fed's current monetary policy.
The Fund's allocation to the emerging markets also pressured results given
the substantial underperformance of this market segment. Although we
trimmed the Fund's position during the course of the reporting period in
order to manage risk, we maintained an allocation to emerging markets for
the Fund on the belief that emerging-market stocks continue to offer
superior long-term return potential relative to developed markets.
The Fund's U.S. equity portfolio lost ground in the aggregate, but it
outpaced the other allocations within the Fund. We continue to invest the
Fund's domestic equity portfolio in large-cap stocks based on our belief
that they offer attractive valuations relative to their mid- and small-cap
counterparts. This aspect of our positioning for the Fund contributed to
its performance during the reporting period, illustrating the potential
benefits of our value-oriented approach.
The Fund's investment-grade bond portfolio also decreased in value, but it
provided both income and a measure of stability to the Fund's performance.
At a time in which investors seemed to avoid bond market segments with the
highest sensitivity to the growth outlook, the Fund's positions in
high-yield and lower-rated investment grade corporate bonds detracted from
its performance. We would note, however, that the Fund's allocation to
these credit sectors has had a substantial positive impact on the bond
portfolio's longer-term results. We offset some of the shortfall in the
credit sectors through the Fund's allocation to longer maturity U.S.
Treasuries, which finished the reporting period with a gain. We added this
position earlier in the year as a "hedge" against market volatility, a move
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4 | USAA CORNERSTONE AGGRESSIVE FUND
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that proved well-timed given the subsequent underperformance of the
credit-sensitive areas of the market.
The Fund's commodities exposure, which is achieved through investments in a
basket of exchange-traded funds (ETFs), natural resources companies, and
gold stocks detracted from the Fund's performance. Although commodity
prices fell sharply during the reporting period, we believe this asset
class remains essential to diversification because of its potential to
offset the potential long-term impact of inflation.
The market backdrop remains uncertain as we move toward 2016, with the
Fed's monetary policy, China's growth outlook, and geopolitical headlines
all representing factors that are affecting investor sentiment. In this
environment, our approach is to remain focused on identifying asset classes
that have the potential to offer value. The reason for this is simple:
valuation is one of the strongest predictors of longer-term returns. While
a value-driven approach may not always work for a quarter-to-quarter basis,
we measure success in years, not months. With this as background, we
believe the Fund will be better served by a continued emphasis on
diversification and a preference for market segments with attractive
valuations.
Thank you for your investment in the Fund.
Asset Allocation funds may be invested in, among other things: (1)
exchange-traded funds; (2) futures, options, and other derivatives; (3)
non-investment grade securities; (4) precious metals and minerals companies;
(5) real estate investment trusts; (6) money market instruments; (7) foreign
and emerging markets. These types of investments and asset classes may be
more volatile and prone to experience significant loss than others. In
addition, its is possible that a particular asset allocation used by the
Manager may not produce the intended result. 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 Foreign
investing is subject to additional risks, such as currency fluctuations,
market illiquidity, and political instability. Emerging market countries are
less diverse and mature than other countries and tend to be politically less
stable. o Precious metals and minerals is a volatile asset class and is
subject to additional risks, such as currency fluctuation, market
illiquidity, political instability, and increased price volatility. It may
be more volatile than other asset classes that diversify across many
industries and companies. o Non-investment grade securities are considered
speculative and are subject to significant credit risk. They are sometimes
referred to as "junk" bonds since they represent a greater risk of default
than more creditworthy investment-grade securities. o Diversification is a
technique intended to help reduce risk and does not guarantee a profit or
prevent a loss. o Exchange Traded Funds (ETFs) are subject to risks similar
to those of stocks. Investment returns may fluctuate and are subject to
market volatility, so that an investor's shares, when redeemed or sold, may
be worth more or less than their original cost.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) (Ticker Symbol: UCAGX)
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11/30/15 5/31/15
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Net Assets $208.2 Million $202.3 Million
Net Asset Value Per Share $11.68 $12.35
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
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5/31/15-11/30/15* 1 YEAR SINCE INCEPTION 6/8/12
-5.43% -2.84% 7.06%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
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1 YEAR SINCE INCEPTION 6/8/12
-3.43% 6.25%
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EXPENSE RATIOS AS OF 5/31/15**
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BEFORE REIMBURSEMENT 1.54% AFTER REIMBURSEMENT 1.24%
(Includes acquired fund fees and expenses of 0.14%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees to limit the expenses of the
Fund so that the total annual operating expenses (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 1.10% of the Fund's
average net assets. This reimbursement arrangement may not be changed or
terminated during this time period without approval of the Fund's Board of
Trustees and may be changed or terminated by the Manager at any time after
October 1, 2016. If the total annual operating expense ratio of the Fund is
lower than 1.10%, the Fund will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses. Effective, October
1, 2015, the investment management fee was decreased from 0.75% to 0.70% of the
Fund's average net assets.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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6 | USAA CORNERSTONE AGGRESSIVE FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI ALL-COUNTRY CORNERSTONE AGGRESSIVE USAA CORNERSTONE
WORLD INDEX COMPOSITE INDEX AGGRESSIVE FUND
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,493.89 10,375.19 10,330.00
07/31/12 10,637.55 10,512.07 10,390.00
08/31/12 10,868.84 10,708.77 10,610.00
09/30/12 11,211.17 10,965.51 10,850.00
10/31/12 11,136.45 10,884.98 10,810.00
11/30/12 11,278.85 10,984.63 10,870.00
12/31/12 11,534.33 11,164.56 11,071.06
01/31/13 12,065.70 11,586.21 11,399.70
02/28/13 12,063.82 11,627.36 11,327.81
03/31/13 12,281.81 11,858.61 11,502.40
04/30/13 12,635.33 12,110.82 11,656.45
05/31/13 12,600.66 12,100.44 11,605.10
06/30/13 12,232.36 11,814.94 11,276.46
07/31/13 12,817.95 12,280.90 11,697.53
08/31/13 12,550.90 12,052.86 11,471.59
09/30/13 13,199.17 12,536.33 11,820.77
10/31/13 13,729.68 12,947.18 12,211.03
11/30/13 13,924.12 13,100.30 12,344.54
12/31/13 14,164.33 13,292.33 12,509.86
01/31/14 13,597.75 12,973.13 12,155.11
02/28/14 14,254.63 13,499.26 12,624.63
03/31/14 14,318.01 13,541.51 12,645.49
04/30/14 14,454.31 13,631.63 12,739.40
05/31/14 14,761.74 13,875.31 12,937.63
06/30/14 15,039.67 14,121.09 13,188.04
07/31/14 14,857.12 13,926.31 12,989.80
08/31/14 15,185.29 14,250.64 13,219.34
09/30/14 14,693.04 13,846.68 12,812.43
10/31/14 14,796.48 14,021.69 12,895.90
11/30/14 15,043.98 14,208.40 13,052.40
12/31/14 14,753.68 14,042.85 12,855.85
01/31/15 14,523.01 13,914.63 12,758.13
02/28/15 15,331.53 14,497.23 13,290.17
03/31/15 15,093.98 14,359.85 13,105.58
04/30/15 15,531.92 14,614.57 13,344.46
05/31/15 15,511.65 14,641.37 13,409.60
06/30/15 15,146.48 14,370.10 13,116.44
07/31/15 15,278.01 14,457.58 13,192.45
08/31/15 14,230.69 13,708.05 12,454.10
09/30/15 13,715.12 13,351.28 12,074.07
10/31/15 14,791.55 14,148.43 12,768.98
11/30/15 14,669.41 14,074.73 12,682.12
[END CHART]
Data from 5/31/12 through 11/30/15.*
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
*The performance of the MSCI All-Country World Index and the Cornerstone
Aggressive Composite Index are calculated from the end of the month, May 31,
2012, while the inception date of the Cornerstone Aggressive Fund is June 8,
2012. There may be a slight variation of the performance numbers because of this
difference.
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INVESTMENT OVERVIEW | 7
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The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Aggressive Fund to the benchmarks listed
below. The Manager has developed the Cornerstone Aggressive Composite Index,
which is used to measure the Fund's performance. The custom benchmark was
created by the Manager to show how the Fund's performance compares with the
returns of an index or indexes with similar asset allocations.
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
o The Cornerstone Aggressive Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) (46%), the MSCI ACWI ex USA IMI (30%), the
Barclays U.S. Universal Index (18%), the Bloomberg Commodity Index Total
Return (2%), the MSCI U.S. Real Estate Investment Trust (REIT) Index (2%),
and the Barclays U.S. Treasury - Bills (1-3M) (2%).
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8 | USAA CORNERSTONE AGGRESSIVE FUND
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o TOP 10 HOLDINGS* - 11/30/15 o
(% of Net Assets)
iShares Core MSCI EAFE ETF** ............................................. 10.7%
iShares MSCI EAFE ETF** .................................................. 4.5%
Vanguard FTSE Europe ETF** ............................................... 3.3%
iShares Core MSCI Emerging Markets ETF** ................................. 3.2%
Vanguard FTSE Developed Markets ETF** .................................... 3.1%
iShares Core S&P 500 ETF** ............................................... 2.9%
Vanguard S&P 500 ETF** ................................................... 2.0%
Vanguard Small-Cap Value ETF** ........................................... 1.9%
General Electric Co. ..................................................... 1.3%
Bank of America Corp. .................................................... 1.2%
* Excludes money market instruments.
** The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
You will find a complete list of securities that the Fund owns on pages 11-32.
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INVESTMENT OVERVIEW | 9
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o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
U.S. EQUITY SECURITIES* 46.7%
INTERNATIONAL EQUITY SECURITIES* 33.4%
CORPORATE OBLIGATIONS 5.3%
MONEY MARKET INSTRUMENTS 4.6%
U.S. TREASURY SECURITIES 3.3%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES* 1.8%
COMMERCIAL MORTGAGE SECURITIES 1.7%
EURODOLLAR AND YANKEE OBLIGATIONS 1.6%
GLOBAL REAL ESTATE EQUITY SECURITIES 1.0%
U.S. GOVERNMENT AGENCY ISSUES 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.2%
[END CHART]
* The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 11-32.
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10 | USAA CORNERSTONE AGGRESSIVE FUND
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PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (46.7%)
COMMON STOCKS (34.8%)
CONSUMER DISCRETIONARY (5.2%)
-----------------------------
ADVERTISING (0.5%)
15,100 Omnicom Group, Inc. $ 1,116
--------
APPAREL RETAIL (0.5%)
1,290 Caleres, Inc. 36
1,650 Finish Line, Inc. "A" 27
13,100 TJX Companies, Inc. 925
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988
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AUTO PARTS & EQUIPMENT (0.9%)
15,700 BorgWarner, Inc. 670
2,570 Dana Holding Corp. 42
2,410 Gentex Corp. 40
610 Gentherm, Inc.* 31
12,300 Johnson Controls, Inc. 566
12,200 Magna International, Inc. 555
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1,904
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AUTOMOBILE MANUFACTURERS (0.3%)
37,900 Ford Motor Co. 543
940 Thor Industries, Inc. 55
--------
598
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AUTOMOTIVE RETAIL (0.1%)
1,310 CST Brands, Inc. 49
580 Lithia Motors, Inc. "A" 72
560 Murphy USA, Inc.* 33
--------
154
--------
BROADCASTING (0.5%)
19,000 CBS Corp. "B" 959
--------
FOOTWEAR (0.0%)
2,370 Wolverine World Wide, Inc. 43
--------
GENERAL MERCHANDISE STORES (0.5%)
15,300 Dollar General Corp. 1,001
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (0.1%)
1,500 Home Depot, Inc. $ 201
--------
HOMEBUILDING (0.1%)
2,130 M/I Homes, Inc.* 50
1,260 Meritage Homes Corp.* 47
40 NVR, Inc.* 67
5,660 TRI Pointe Group, Inc.* 79
--------
243
--------
HOTELS, RESORTS & CRUISE LINES (1.4%)
19,000 Carnival Corp. 960
5,000 Hilton Worldwide Holdings, Inc. 116
32,000 Norwegian Cruise Line Holdings Ltd.* 1,838
--------
2,914
--------
INTERNET RETAIL (0.1%)
2,200 Expedia, Inc. 271
--------
PUBLISHING (0.0%)
2,240 Gannett Co., Inc. 38
930 Meredith Corp. 44
--------
82
--------
SPECIALIZED CONSUMER SERVICES (0.2%)
8,100 H&R Block, Inc. 297
1,560 Sotheby's 44
--------
341
--------
SPECIALTY STORES (0.0%)
1,320 Dick's Sporting Goods, Inc. 52
980 Hibbett Sports, Inc.* 32
--------
84
--------
Total Consumer Discretionary 10,899
--------
CONSUMER STAPLES (1.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.0%)
870 Ingredion, Inc. 86
--------
DRUG RETAIL (0.7%)
7,850 CVS Health Corp. 739
9,200 Walgreens Boots Alliance, Inc. 773
--------
1,512
--------
FOOD RETAIL (0.3%)
620 Casey's General Stores, Inc. 72
14,900 Kroger Co. 561
--------
633
--------
================================================================================
12 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.3%)
7,400 Procter & Gamble Co. $ 554
--------
PACKAGED FOODS & MEAT (0.0%)
2,660 Flowers Foods, Inc. 62
--------
PERSONAL PRODUCTS (0.0%)
570 Edgewell Personal Care Co. 46
--------
SOFT DRINKS (0.4%)
7,400 PepsiCo, Inc. 741
--------
Total Consumer Staples 3,634
--------
ENERGY (2.3%)
-------------
INTEGRATED OIL & GAS (1.1%)
6,350 Chevron Corp. 580
22,520 Occidental Petroleum Corp. 1,702
--------
2,282
--------
OIL & GAS DRILLING (0.0%)
3,170 Atwood Oceanics, Inc. 50
--------
OIL & GAS EQUIPMENT & SERVICES (0.4%)
7,540 Halliburton Co. 300
3,500 Helix Energy Solutions Group, Inc.* 23
2,530 Hornbeck Offshore Services, Inc.* 31
5,400 Schlumberger Ltd. 417
--------
771
--------
OIL & GAS EXPLORATION & PRODUCTION (0.8%)
7,100 Anadarko Petroleum Corp. 425
6,328 California Resources Corp. 26
1,900 Cimarex Energy Co. 226
10,400 ConocoPhillips(a) 562
3,400 EOG Resources, Inc. 284
8,400 Marathon Oil Corp. 147
--------
1,670
--------
OIL & GAS REFINING & MARKETING (0.0%)
1,730 Green Plains, Inc. 41
650 REX American Resources Corp.* 41
--------
82
--------
Total Energy 4,855
--------
FINANCIALS (6.0%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
3,600 Ameriprise Financial, Inc. 406
4,600 Bank of New York Mellon Corp. 202
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,460 Eaton Vance Corp. $ 88
1,520 Waddell & Reed Financial, Inc. "A" 57
--------
753
--------
CONSUMER FINANCE (0.8%)
17,120 Capital One Financial Corp. 1,344
790 Encore Capital Group, Inc.* 26
12,314 Synchrony Financial* 392
--------
1,762
--------
DIVERSIFIED BANKS (2.8%)
146,100 Bank of America Corp. 2,547
27,310 Citigroup, Inc. 1,477
21,810 JPMorgan Chase & Co. 1,454
5,030 Wells Fargo & Co. 277
--------
5,755
--------
INVESTMENT BANKING & BROKERAGE (0.1%)
2,260 Raymond James Financial, Inc. 133
--------
LIFE & HEALTH INSURANCE (0.2%)
1,390 American Equity Investment Life Insurance Co. 37
6,000 MetLife, Inc. 307
--------
344
--------
MULTI-LINE INSURANCE (0.0%)
410 American Financial Group, Inc. 30
--------
PROPERTY & CASUALTY INSURANCE (0.1%)
790 AMERISAFE, Inc. 43
540 Hanover Insurance Group, Inc. 46
2,820 Old Republic International Corp. 53
1,550 Selective Insurance Group, Inc. 53
850 W.R. Berkley Corp. 47
--------
242
--------
REGIONAL BANKS (1.4%)
530 Bank of Hawaii Corp. 37
2,190 Cathay General Bancorp 75
520 Cullen/Frost Bankers, Inc. 36
2,920 F.N.B. Corp. 42
48,900 Fifth Third Bancorp 1,011
1,810 FirstMerit Corp. 37
2,300 Fulton Financial Corp. 33
102,600 KeyCorp 1,345
4,380 National Penn Bancshares, Inc. 55
1,700 PNC Financial Services Group, Inc. 162
================================================================================
14 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
660 Prosperity Bancshares, Inc. $ 37
2,640 TCF Financial Corp. 40
1,640 Webster Financial Corp. 66
3,610 Wilshire Bancorp, Inc. 45
--------
3,021
--------
REINSURANCE (0.1%)
80 Alleghany Corp.* 41
590 Endurance Specialty Holdings Ltd. 39
500 Reinsurance Group of America, Inc. 46
--------
126
--------
SPECIALIZED FINANCE (0.0%)
860 Atlas Air Worldwide Holdings, Inc.* 36
--------
THRIFTS & MORTGAGE FINANCE (0.1%)
3,220 Astoria Financial Corp. 52
6,220 New York Community Bancorp, Inc. 102
2,120 Washington Federal, Inc. 55
--------
209
--------
Total Financials 12,411
--------
HEALTH CARE (6.1%)
------------------
BIOTECHNOLOGY (2.2%)
34,400 AbbVie, Inc. 2,000
4,400 Amgen, Inc. 709
910 Enanta Pharmaceuticals, Inc.* 29
15,950 Gilead Sciences, Inc. 1,690
480 United Therapeutics Corp.* 73
--------
4,501
--------
HEALTH CARE DISTRIBUTORS (0.3%)
3,110 Cardinal Health, Inc. 270
1,900 McKesson Corp. 360
1,270 Owens & Minor, Inc. 49
--------
679
--------
HEALTH CARE EQUIPMENT (1.2%)
1,440 CONMED Corp. 61
1,010 Greatbatch, Inc.* 59
24,200 Hologic, Inc.* 977
1,610 Masimo Corp.* 67
16,000 Medtronic plc 1,205
700 Teleflex, Inc. 92
--------
2,461
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.0%)
1,100 Ensign Group, Inc. $ 52
--------
HEALTH CARE SERVICES (0.1%)
340 Chemed Corp. 53
1,030 MEDNAX, Inc.* 73
--------
126
--------
HEALTH CARE SUPPLIES (0.0%)
1,010 Anika Therapeutics, Inc.* 42
--------
LIFE SCIENCES TOOLS & SERVICES (0.1%)
440 Bio-Rad Laboratories, Inc. "A"* 62
840 Cambrex Corp.* 45
--------
107
--------
MANAGED HEALTH CARE (0.1%)
2,700 UnitedHealth Group, Inc. 304
--------
PHARMACEUTICALS (2.1%)
2,400 Allergan plc* 754
320 DepoMed, Inc.* 6
7,490 Johnson & Johnson 758
670 Lannett Co., Inc.* 25
21,100 Merck & Co., Inc. 1,119
52,676 Pfizer, Inc. 1,726
1,400 Prestige Brands Holdings, Inc.* 71
--------
4,459
--------
Total Health Care 12,731
--------
INDUSTRIALS (3.9%)
------------------
AEROSPACE & DEFENSE (0.7%)
7,200 Honeywell International, Inc. 749
680 Moog, Inc. "A"* 45
1,800 Raytheon Co. 223
520 Teledyne Technologies, Inc.* 48
1,700 TransDigm Group, Inc.* 399
--------
1,464
--------
AGRICULTURAL & FARM MACHINERY (0.0%)
740 AGCO Corp. 37
--------
AIRLINES (0.5%)
10,300 Southwest Airlines Co. 472
10,400 United Continental Holdings, Inc.* 580
--------
1,052
--------
================================================================================
16 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS (0.0%)
690 Universal Forest Products, Inc. $ 53
--------
COMMERCIAL PRINTING (0.0%)
950 Deluxe Corp. 56
--------
CONSTRUCTION & ENGINEERING (0.0%)
940 EMCOR Group, Inc. 48
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.0%)
1,220 Trinity Industries, Inc. 33
--------
DIVERSIFIED SUPPORT SERVICES (0.1%)
640 G & K Services, Inc. "A" 43
300 UniFirst Corp. 32
--------
75
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
6,550 Eaton Corp. plc 381
760 EnerSys 45
--------
426
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
1,240 ABM Industries, Inc. 37
1,260 Tetra Tech, Inc. 35
--------
72
--------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
670 AZZ, Inc. 40
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.1%)
1,240 Korn/Ferry International 46
1,010 ManpowerGroup, Inc. 91
1,060 On Assignment, Inc.* 49
--------
186
--------
INDUSTRIAL CONGLOMERATES (1.5%)
4,750 Carlisle Companies, Inc. 420
87,347 General Electric Co. 2,615
--------
3,035
--------
INDUSTRIAL MACHINERY (0.6%)
870 Barnes Group, Inc. 34
610 Crane Co. 32
470 Graco, Inc. 35
1,170 Mueller Industries, Inc. 37
660 Nordson Corp. 48
10,300 Stanley Black & Decker, Inc. 1,124
--------
1,310
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
OFFICE SERVICES & SUPPLIES (0.0%)
1,000 Essendant, Inc. $ 36
--------
RAILROADS (0.0%)
720 Genesee & Wyoming, Inc. "A"* 50
--------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
720 Applied Industrial Technologies, Inc. 31
770 GATX Corp. 35
--------
66
--------
TRUCKING (0.0%)
2,220 Knight Transportation, Inc. 59
--------
Total Industrials 8,098
--------
INFORMATION TECHNOLOGY (6.7%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
1,180 Ebix, Inc. 44
3,340 Mentor Graphics Corp. 63
2,760 Synopsys, Inc.* 138
--------
245
--------
COMMUNICATIONS EQUIPMENT (1.1%)
1,990 ARRIS Group, Inc.* 61
74,300 Cisco Systems, Inc. 2,025
1,290 Plantronics, Inc. 68
3,300 QUALCOMM, Inc. 161
--------
2,315
--------
DATA PROCESSING & OUTSOURCED SERVICES (0.9%)
1,900 Alliance Data Systems Corp.* 545
1,470 Broadridge Financial Solutions, Inc. 81
2,380 Convergys Corp. 62
1,320 CSG Systems International, Inc. 47
460 DST Systems, Inc. 56
1,580 Global Payments, Inc. 112
7,100 MasterCard, Inc. "A" 695
1,420 Sykes Enterprises, Inc.* 45
1,900 Visa, Inc. "A" 150
--------
1,793
--------
ELECTRONIC COMPONENTS (0.0%)
400 Littelfuse, Inc. 43
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
1,390 Keysight Technologies, Inc.* 43
--------
================================================================================
18 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
2,810 Jabil Circuit, Inc. $ 72
940 Methode Electronics, Inc. 34
1,010 Plexus Corp.* 37
--------
143
--------
INTERNET SOFTWARE & SERVICES (1.3%)
2,645 Alphabet, Inc. "A"* 2,018
5,300 Facebook, Inc. "A"* 553
1,060 J2 Global, Inc. 85
--------
2,656
--------
SEMICONDUCTOR EQUIPMENT (0.1%)
12,500 Applied Materials, Inc. 235
710 Cabot Microelectronics Corp.* 30
900 MKS Instruments, Inc. 33
1,130 Tessera Technologies, Inc. 36
--------
334
--------
SEMICONDUCTORS (0.2%)
5,490 Intel Corp. 191
15,000 Micron Technology, Inc.* 239
--------
430
--------
SYSTEMS SOFTWARE (1.7%)
46,100 Microsoft Corp. 2,505
24,600 Oracle Corp. 959
--------
3,464
--------
TECHNOLOGY DISTRIBUTORS (0.1%)
1,120 Arrow Electronics, Inc.* 63
1,220 Avnet, Inc. 55
450 ePlus, Inc.* 40
1,830 Ingram Micro, Inc. "A" 57
500 SYNNEX Corp. 47
670 Tech Data Corp.* 45
--------
307
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.1%)
9,615 Apple, Inc. 1,137
50,600 HP, Inc. 635
4,300 Seagate Technology plc 155
4,600 Western Digital Corp. 287
--------
2,214
--------
Total Information Technology 13,987
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (1.3%)
----------------
COMMODITY CHEMICALS (0.1%)
2,500 LyondellBasell Industries N.V. "A" $ 240
--------
DIVERSIFIED CHEMICALS (0.5%)
79,400 Huntsman Corp. 994
--------
DIVERSIFIED METALS & MINING (0.3%)
460 Compass Minerals International, Inc. 38
64,400 Freeport-McMoRan, Inc. 527
--------
565
--------
METAL & GLASS CONTAINERS (0.0%)
560 AptarGroup, Inc. 42
--------
PAPER PACKAGING (0.2%)
9,030 Bemis Co., Inc. 425
810 Sonoco Products Co. 36
--------
461
--------
PAPER PRODUCTS (0.0%)
1,870 KapStone Paper & Packaging Corp. 45
--------
SPECIALTY CHEMICALS (0.1%)
1,330 Albemarle Corp. 71
660 Innospec, Inc. 39
720 Stepan Co. 37
1,060 Valspar Corp. 90
--------
237
--------
STEEL (0.1%)
890 Reliance Steel & Aluminum Co. 52
--------
Total Materials 2,636
--------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
25,561 Verizon Communications, Inc. 1,162
--------
UTILITIES (1.0%)
----------------
ELECTRIC UTILITIES (0.9%)
840 ALLETE, Inc. 43
7,800 American Electric Power Co., Inc. 437
17,100 Edison International 1,015
3,100 NextEra Energy, Inc. 310
2,010 OGE Energy Corp. 52
--------
1,857
--------
================================================================================
20 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GAS UTILITIES (0.1%)
1,220 Laclede Group, Inc. $ 71
2,150 South Jersey Industries, Inc. 49
--------
120
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
4,380 Talen Energy Corp.* 34
--------
MULTI-UTILITIES (0.0%)
1,140 Avista Corp. 39
1,020 NorthWestern Corp. 56
--------
95
--------
Total Utilities 2,106
--------
Total Common Stocks (cost: $67,160) 72,519
--------
PREFERRED STOCKS (0.7%)
CONSUMER STAPLES (0.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
8,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 231
2,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 210
--------
441
--------
Total Consumer Staples 441
--------
ENERGY (0.2%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.0%)
300 Chesapeake Energy Corp., 5.75%, perpetual(b) 82
--------
82
--------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
150 Kinder Morgan G.P., Inc., 4.13%, cumulative redeemable(b) 139
10,645 NuStar Logistics, LP, 7.63% 267
--------
406
--------
Total Energy 488
--------
FINANCIALS (0.3%)
-----------------
LIFE & HEALTH INSURANCE (0.2%)
12,000 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 298
--------
REGIONAL BANKS (0.1%)
235 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 243
--------
Total Financials 541
--------
Total Preferred Stocks (cost: $1,624) 1,470
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY EXCHANGE-TRADED FUNDS (8.3%)
28,700 iShares Core S&P 500 ETF $ 6,023
2,100 iShares Core S&P Mid-Cap ETF 307
8,990 SPDR S&P 500 ETF Trust 1,876
8,200 Vanguard Mid-Cap ETF 1,017
21,340 Vanguard S&P 500 ETF 4,083
37,900 Vanguard Small-Cap Value ETF 3,966
--------
Total Equity Exchange-Traded Funds (cost: $16,714) 17,272
--------
FIXED-INCOME EXCHANGE-TRADED FUNDS (2.9%)
16,940 iShares 20+ Year Treasury Bond ETF 2,057
10,300 iShares 7-10 Year Treasury Bond ETF 1,096
30,400 iShares iBoxx High Yield Corporate Bond ETF 2,525
3,700 Vanguard Total Bond Market ETF 301
--------
Total Fixed-Income Exchange-Traded Funds (cost: $6,045) 5,979
--------
Total U.S. Equity Securities (cost: $91,543) 97,240
--------
INTERNATIONAL EQUITY SECURITIES (33.4%)
COMMON STOCKS (1.4%)
ENERGY (0.5%)
-------------
INTEGRATED OIL & GAS (0.5%)
23,100 Royal Dutch Shell plc ADR "A" 1,149
--------
FINANCIALS (0.2%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.2%)
11,600 XL Group plc 443
--------
HEALTH CARE (0.4%)
------------------
PHARMACEUTICALS (0.4%)
4,400 Novartis AG ADR 375
10,900 Roche Holdings Ltd. ADR 365
--------
740
--------
Total Health Care 740
--------
INFORMATION TECHNOLOGY (0.3%)
-----------------------------
SEMICONDUCTORS (0.3%)
6,472 NXP Semiconductors N.V.* 605
--------
Total Common Stocks (cost: $2,805) 2,937
--------
================================================================================
22 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (32.0%)
14,112 EGShares Emerging Markets Consumer ETF $ 325
398,000 iShares Core MSCI EAFE ETF 22,224
160,700 iShares Core MSCI Emerging Markets ETF 6,648
40,200 iShares Currency Hedged MSCI EAFE ETF 1,076
154,493 iShares MSCI EAFE ETF 9,370
34,100 iShares MSCI EAFE Minimum Volatility ETF 2,223
90,710 iShares MSCI Japan ETF 1,124
14,236 iShares MSCI Turkey ETF 546
7,300 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 276
96,600 PowerShares FTSE RAFI Emerging Markets Portfolio 1,438
79,800 Schwab Fundamental International Large Co. Index ETF 2,005
6,200 SPDR S&P China ETF 478
14,790 SPDR S&P Emerging Markets SmallCap ETF 575
172,300 Vanguard FTSE Developed Markets ETF 6,504
133,300 Vanguard FTSE Europe ETF 6,856
8,244 WisdomTree Emerging Markets High Dividend Fund 277
16,645 WisdomTree Emerging Markets SmallCap Dividend Fund 603
22,200 WisdomTree Europe Hedged Equity Fund 1,397
55,907 WisdomTree India Earnings Fund 1,110
29,900 WisdomTree Japan Hedged Equity Fund 1,645
--------
Total Exchange-Traded Funds (cost: $69,301) 66,700
--------
Total International Equity Securities (cost: $72,106) 69,637
--------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.8%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
8,197 Hycroft Mining Corp., acquired 5/21/2015 - 6/09/2015; cost $258*(c),(d) 6
--------
EXCHANGE-TRADED FUNDS (1.8%)
24,300 First Trust Global Tactical Commodity Strategy Fund* 506
51,700 Market Vectors Gold Miners ETF 711
28,600 PowerShares DB Commodity Index Tracking Fund* 406
50,600 United States Commodity Index Fund* 2,047
--------
Total Exchange-Traded Funds 3,670
--------
Total Precious Metals and Commodity-Related Securities (cost: $4,936) 3,676
--------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.0%)
COMMON STOCKS (0.4%)
REAL ESTATE SERVICES (0.0%)
600 Jones Lang LaSalle, Inc. 100
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REITs - DIVERSIFIED (0.1%)
1,670 PS Business Parks, Inc. $ 148
--------
REITs - HEALTH CARE (0.1%)
4,310 Care Capital Properties, Inc. 136
--------
REITs - RETAIL (0.1%)
1,480 Taubman Centers, Inc. 106
--------
REITs - SPECIALIZED (0.1%)
4,750 Corrections Corp. of America 122
2,600 Lamar Advertising Co. 152
--------
Total REITs - Specialized 274
--------
Total Common Stocks (cost: $791) 764
--------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
8,000 Arbor Realty Trust, Inc., 7.38% 198
--------
REITs - OFFICE (0.0%)
4,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 103
--------
Total Preferred Stocks (cost: $297) 301
--------
EXCHANGE-TRADED FUNDS (0.5%)
13,760 Vanguard REIT ETF (cost: $1,057) 1,092
--------
Total Global Real Estate Equity Securities (cost: $2,145) 2,157
--------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
BONDS (12.4%)
CORPORATE OBLIGATIONS (5.3%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 99 J.C. Penney Corp., Inc.(e) 6.00% 5/22/2018 99
--------
PUBLISHING (0.0%)
97 Cengage Learning Acquisitions, Inc.(e) 7.00 3/31/2020 95
--------
SPECIALTY STORES (0.3%)
200 Guitar Center, Inc.(b) 6.50 4/15/2019 183
300 Staples, Inc.(e),(f) 3.50 4/07/2021 297
150 Toys R Us Property Co. II, LLC 8.50 12/01/2017 141
--------
621
--------
Total Consumer Discretionary 815
--------
================================================================================
24 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (0.1%)
-----------------------
PACKAGED FOODS & MEAT (0.1%)
$ 100 JM Smucker Co. 4.38% 3/15/2045 $ 98
--------
ENERGY (0.7%)
-------------
OIL & GAS DRILLING (0.0%)
261 Schahin II Finance Co. SPV Ltd.(b),(g) 5.88 9/25/2023 56
--------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
200 Newfield Exploration Co. 5.38 1/01/2026 183
--------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
350 DCP Midstream, LLC(b) 5.85 5/21/2043 278
100 Enbridge Energy Partners, LP 7.38 10/15/2045 102
200 Enbridge Energy Partners, LP 8.05 10/01/2077 179
300 Energy Transfer Partners, LP 3.35(h) 11/01/2066 209
200 Enterprise Products Operating, LLC 7.00 6/01/2067 179
100 Martin Midstream Partners, LP 7.25 2/15/2021 95
190 Southern Union Co. 3.35(h) 11/01/2066 115
--------
1,157
--------
Total Energy 1,396
--------
FINANCIALS (2.2%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
200 Prospect Capital Corp. 5.00 7/15/2019 203
--------
LIFE & HEALTH INSURANCE (0.5%)
300 Lincoln National Corp. 7.00(h) 5/17/2066 248
200 MetLife, Inc. 6.40 12/15/2066 221
200 Prudential Financial, Inc. 5.63 6/15/2043 209
350 StanCorp Financial Group, Inc. 6.90 6/01/2067 300
--------
978
--------
MULTI-LINE INSURANCE (0.4%)
325 Genworth Holdings, Inc. 6.15 11/15/2066 125
500 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 432
300 Nationwide Mutual Insurance Co.(b) 2.63(h) 12/15/2024 288
--------
845
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
250 GE Capital Trust I 6.38 11/15/2067 267
50 General Electric Capital Corp. 6.38 11/15/2067 53
--------
320
--------
PROPERTY & CASUALTY INSURANCE (0.6%)
200 Allstate Corp. 5.75 8/15/2053 207
200 AmTrust Financial Services, Inc. 6.13 8/15/2023 210
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 200 HSB Group, Inc.(d) 1.23%(h) 7/15/2027 $ 150
250 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 290
395 Oil Insurance Ltd.(b) 3.31(h) -(i) 352
100 Progressive Corp. 6.70 6/15/2067 100
--------
1,309
--------
REAL ESTATE DEVELOPMENT (0.1%)
200 Forestar USA Real Estate Group, Inc.(b) 8.50 6/01/2022 201
--------
REGIONAL BANKS (0.3%)
200 Compass Bank 3.88 4/10/2025 186
175 Cullen/Frost Capital Trust II 1.87(h) 3/01/2034 156
50 First Maryland Capital Trust I 1.32(h) 1/15/2027 42
200 SunTrust Capital I 1.03(h) 5/15/2027 167
--------
551
--------
THRIFTS & MORTGAGE FINANCE (0.1%)
100 Ocwen Financial Corp.(b) 6.63 5/15/2019 90
200 Walter Investment Management Corp. 7.88 12/15/2021 159
--------
249
--------
Total Financials 4,656
--------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
200 Valeant Pharmaceuticals International, Inc.(b) 6.38 10/15/2020 184
--------
INDUSTRIALS (0.3%)
------------------
AEROSPACE & DEFENSE (0.2%)
350 Constellis Holdings, LLC & Constellis Finance
Corp.(b) 9.75 5/15/2020 292
100 Moog, Inc.(b) 5.25 12/01/2022 102
--------
394
--------
AIRLINES (0.0%)
52 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 55
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
100 Artesyn Embedded Technologies, Inc.(b) 9.75 10/15/2020 95
--------
MARINE (0.0%)
100 Navios Maritime Holdings, Inc.(b) 7.38 1/15/2022 76
--------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
75 ILFC E-Capital Trust I(b) 4.57(h) 12/21/2065 71
--------
Total Industrials 691
--------
================================================================================
26 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SYSTEMS SOFTWARE (0.1%)
$ 100 Ensemble S Merger Sub, Inc.(b) 9.00% 9/30/2023 $ 100
--------
150 Informatica, LLC(b) 7.13 7/15/2023 144
--------
244
--------
Total Information Technology 244
--------
MATERIALS (0.1%)
----------------
DIVERSIFIED METALS & MINING (0.1%)
400 Freeport-McMoRan, Inc. 5.45 3/15/2043 253
--------
TELECOMMUNICATION SERVICES (0.4%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
100 CenturyLink, Inc. 7.65 3/15/2042 81
300 Frontier Communications Corp.(b) 11.00 9/15/2025 295
100 GCI, Inc. 6.88 4/15/2025 104
--------
480
--------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
350 Sprint Corp. 7.13 6/15/2024 269
--------
Total Telecommunication Services 749
--------
UTILITIES (0.9%)
----------------
ELECTRIC UTILITIES (0.3%)
200 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 156
174 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 140
50 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 49
300 PPL Capital Funding, Inc. 6.70 3/30/2067 248
251 Texas Competitive Electric Holdings Co., LLC(e) 4.68 10/10/2017 86
--------
679
--------
MULTI-UTILITIES (0.6%)
50 Dominion Resources, Inc. 7.50 6/30/2066 44
150 Dominion Resources, Inc. 2.63(h) 9/30/2066 118
300 Integrys Holding, Inc. 6.11 12/01/2066 242
500 Puget Sound Energy, Inc. 6.97 6/01/2067 419
500 WEC Energy Group, Inc. 6.25 5/15/2067 412
--------
1,235
--------
Total Utilities 1,914
--------
Total Corporate Obligations (cost: $12,339) 11,000
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (1.6%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
CABLE & SATELLITE (0.1%)
$ 100 Neptune Finco Corp.(b) 10.88% 10/15/2025 $ 106
ENERGY (0.1%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
400 TransCanada PipeLines Ltd. 6.35 5/15/2067 327
--------
FINANCIALS (0.5%)
-----------------
DIVERSIFIED BANKS (0.1%)
50 Barclays Bank plc(b) 7.70 -(i) 55
200 Lloyds Bank plc 0.69(h) -(i) 122
--------
177
--------
LIFE & HEALTH INSURANCE (0.2%)
370 Great-West Life & Annuity Insurance Capital, LP(b) 7.15(h) 5/16/2046 373
--------
MULTI-LINE INSURANCE (0.1%)
150 ZFS Finance USA Trust V(b) 6.50 5/09/2067 154
--------
PROPERTY & CASUALTY INSURANCE (0.1%)
200 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 222
--------
REINSURANCE (0.0%)
100 Swiss Re Capital I, LP(b) 6.85(h) -(i) 102
--------
Total Financials 1,028
--------
GOVERNMENT (0.1%)
-----------------
FOREIGN GOVERNMENT (0.1%)
200 Italy Government International Bond 5.38 6/15/2033 230
--------
MATERIALS (0.5%)
----------------
COMMODITY CHEMICALS (0.1%)
200 Braskem Finance Ltd. 6.45 2/03/2024 185
--------
DIVERSIFIED METALS & MINING (0.0%)
100 Vedanta Resources plc(b) 6.00 1/31/2019 77
--------
GOLD (0.4%)
400 Kinross Gold Corp. 5.95 3/15/2024 316
300 Newcrest Finance Proprietary Ltd.(b) 4.45 11/15/2021 279
300 St. Barbara Ltd.(b) 8.88 4/15/2018 288
--------
883
--------
Total Materials 1,145
--------
================================================================================
28 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
$ 250 Electricite De France S.A.(b) 5.25% -(i) $ 242
300 Enel S.p.A.(b) 8.75 9/24/2073 346
--------
588
--------
Total Utilities 588
--------
Total Eurodollar and Yankee Obligations (cost: $3,564) 3,424
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
FINANCIALS (0.2%)
-----------------
86 Sequoia Mortgage Trust 1.11(h) 9/20/2033 75
261 Structured Asset Mortgage Investments, Inc. 0.70(h) 7/19/2035 240
78 Wells Fargo Mortgage Backed Securities Trust 2.69(h) 4/25/2035 74
--------
Total Financials 389
--------
Total Collateralized Mortgage Obligations (cost: $394) 389
--------
COMMERCIAL MORTGAGE SECURITIES (1.7%)
FINANCIALS (1.7%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.7%)
100 Banc of America Commercial Mortgage, Inc. 6.04 7/10/2044 101
100 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 102
200 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 204
200 Bear Stearns Commercial Mortgage Securities, Inc.(b) 5.66 9/11/2041 197
50 Bear Stearns Commercial Mortgage Securities, Inc. 5.60 10/12/2041 50
50 Citigroup Commercial Mortgage Trust 5.99 3/15/2049 51
50 Citigroup Commercial Mortgage Trust 6.35 12/10/2049 45
350 Commercial Mortgage Trust 5.38 12/10/2046 348
350 Credit Suisse Commercial Mortgage Pass-Through Trust 0.39 2/15/2040 318
300 GE Capital Commercial Mortgage Corp. 5.60 11/10/2045 299
250 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 258
51 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 52
300 GS Mortgage Securities Trust 5.76 4/10/2038 300
250 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.10 4/15/2045 233
300 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 306
50 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 50
200 Merrill Lynch Mortgage Trust 6.03 6/12/2050 207
150 Morgan Stanley Capital I Trust 5.39 11/14/2042 150
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 100 Morgan Stanley Capital I Trust 5.69% 3/12/2044 $ 100
200 Wachovia Bank Commercial Mortgage Trust 5.90 5/15/2043 202
--------
3,573
--------
Total Financials 3,573
--------
Total Commercial Mortgage Securities (cost: $3,575) 3,573
--------
U.S. GOVERNMENT AGENCY ISSUES (0.3%)(j)
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.3%)
500 Freddie Mac(+) (cost: $510) 3.51 4/25/2030 519
--------
U.S. TREASURY SECURITIES (3.3%)
BONDS (2.3%)
1,030 3.09%, 8/15/2044 (STRIP Principal)(k) 420
2,250 3.13%, 8/15/2044 2,307
800 3.00%, 11/15/2044 800
100 2.50%, 2/15/2045 90
1,000 3.00%, 5/15/2045 999
500 3.10%, 5/15/2045 (STRIP Principal)(k) 197
--------
4,813
--------
NOTES (1.0%)
401 1.75%, 5/15/2022 396
245 2.00%, 2/15/2023 245
300 2.75%, 11/15/2023 315
600 2.50%, 5/15/2024 617
250 2.38%, 8/15/2024 254
200 2.25%, 11/15/2024 201
100 2.00%, 2/15/2025 98
--------
2,126
--------
Total U.S. Treasury Securities (cost: $6,872) 6,939
--------
Total Bonds (cost: $27,254) 25,844
--------
--------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.6%)
MONEY MARKET FUNDS (4.6%)
9,457,693 State Street Institutional Liquid Reserves Fund
Premier Class, 0.15%(l)
(cost: $9,458) 9,458
--------
TOTAL INVESTMENTS (COST: $207,442) $208,012
========
================================================================================
30 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS: FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 72,519 $ - $ - $ 72,519
Preferred Stocks - 1,470 - 1,470
Equity Exchange-Traded Funds 17,272 - - 17,272
Fixed-Income Exchange-
Traded Funds 5,979 - - 5,979
International Equity Securities:
Common Stocks 2,937 - - 2,937
Exchange-Traded Funds 66,700 - - 66,700
Precious Metals and
Commodity-Related Securities:
Gold - - 6 6
Exchange-Traded Funds 3,670 - - 3,670
Global Real Estate Equity Securities:
Common Stocks 764 - - 764
Preferred Stocks - 301 - 301
Exchange-Traded Funds 1,092 - - 1,092
Bonds:
Corporate Obligations - 10,850 150 11,000
Eurodollar and Yankee Obligations - 3,424 - 3,424
Collateralized Mortgage Obligations - 389 - 389
Commercial Mortgage Securities - 3,573 - 3,573
U.S. Government Agency Issues - 519 - 519
U.S. Treasury Securities 6,322 617 - 6,939
Money Market Instruments:
Money Market Funds 9,458 - - 9,458
-----------------------------------------------------------------------------------------------------------------
Total $186,713 $21,143 $156 $208,012
-----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------------------
COMMON CORPORATE
STOCKS OBLIGATIONS
-----------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2015 $ - $126
Purchases 258 -
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation) of investments (252) 24
-----------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2015 $ 6 $150
-----------------------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 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.
================================================================================
32 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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 36.7% of net assets at
November 30, 2015.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments that are issued by foreign
issuers in the U.S. capital markets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
or fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities but such maturities can be difficult to predict because of the
effect of prepayments.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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
STRIPS Separate trading of registered interest and principal of securities
o SPECIFIC NOTES
(a) At November 30, 2015, the security, or a portion thereof, was segregated
to cover delayed-delivery purchases.
================================================================================
34 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at November 30, 2015, was $6,000, which represented less than 0.1% of
the Fund's net assets.
(d) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $156,000, which represented 0.1% of the
Fund's net assets.
(e) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the senior loan facility and
includes commitment fees on unfunded loan commitments. The interest rate
is adjusted periodically, and the rate disclosed represents the current
rate at November 30, 2015. The weighted average life of the loan is
likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(f) At November 30, 2015, the aggregate market value of securities purchased
on a delayed-delivery basis was $297,000.
(g) At November 30, 2015, the issuer was in default with respect to interest
and/or principal payments.
(h) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2015.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
(i) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(j) U.S. government agency issues - Mortgage-backed securities issued
by certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency (FHFA)
to act as conservator and oversee their daily operations. In addition,
the U.S. Treasury entered into purchase agreements with Fannie Mae and
Freddie Mac to provide them with capital in exchange for senior
preferred stock. While these arrangements are intended to ensure that
Fannie Mae and Freddie Mac can continue to meet their obligations, it
is possible that actions by the U.S. Treasury, FHFA, or others could
adversely impact the value of the Fund's investments in securities
issued by Fannie Mae and Freddie Mac.
(k) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(l) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
36 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $207,442) $208,012
Cash 3
Receivables:
Capital shares sold 325
USAA Asset Management Company (Note 5C) 64
Dividends and interest 407
Securities sold 2,307
--------
Total assets 211,118
--------
LIABILITIES
Payables:
Securities purchased 2,468
Capital shares redeemed 210
Accrued management fees 120
Accrued transfer agent's fees 24
Other accrued expenses and payables 50
--------
Total liabilities 2,872
--------
Net assets applicable to capital shares outstanding $208,246
========
NET ASSETS CONSIST OF:
Paid-in capital $203,419
Accumulated undistributed net investment income 2,077
Accumulated net realized gain on investments and options 2,180
Net unrealized appreciation of investments 570
--------
Net assets applicable to capital shares outstanding $208,246
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 17,824
========
Net asset value, redemption price, and offering price per share $ 11.68
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $6) $ 2,131
Interest 741
--------
Total income 2,872
--------
EXPENSES
Management fees 744
Administration and servicing fees 152
Transfer agent's fees 393
Custody and accounting fees 78
Postage 23
Shareholder reporting fees 12
Trustees' fees 13
Registration fees 13
Professional fees 39
Other 4
--------
Total expenses 1,471
Expenses reimbursed (355)
--------
Net expenses 1,116
--------
NET INVESTMENT INCOME 1,756
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND OPTIONS
Net realized gain (loss) on:
Investments:
Unaffiliated transactions 2,533
Affiliated transactions (Note 7) (2)
Options 9
Change in net unrealized appreciation/(depreciation) of:
Investments (15,504)
Options 57
--------
Net realized and unrealized loss (12,907)
--------
Decrease in net assets resulting from operations $(11,151)
========
See accompanying notes to financial statements.
================================================================================
38 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,756 $ 2,300
Net realized gain on investments 2,531 2,935
Net realized gain on long-term capital gain distributions
from other investment companies - 46
Net realized gain (loss) on options 9 (349)
Change in net unrealized appreciation/(depreciation) of:
Investments (15,504) 1,359
Options 57 307
-------------------------------
Increase (decrease) in net assets resulting from operations (11,151) 6,598
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (2,386)
Net realized gains - (4,286)
-------------------------------
Distributions to shareholders - (6,672)
-------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 38,803 92,674
Reinvested dividends - 5,709
Cost of shares redeemed (21,733) (46,340)
-------------------------------
Increase in net assets from capital share transactions 17,070 52,043
-------------------------------
Net increase in net assets 5,919 51,969
NET ASSETS
Beginning of period 202,327 150,358
-------------------------------
End of period $208,246 $202,327
===============================
Accumulated undistributed net investment income:
End of period $ 2,077 $ 321
===============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,286 7,556
Shares issued for dividends reinvested - 473
Shares redeemed (1,846) (3,772)
-------------------------------
Increase in shares outstanding 1,440 4,257
===============================
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Cornerstone Aggressive Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek capital appreciation over the long term and also
considers the potential for current income.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund.
================================================================================
40 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according
to local market convention, available at the time the Fund is valued.
If no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open,
the foreign markets may be closed. Therefore, the calculation of the
Fund's net asset value (NAV) may not take place at the same time the
prices of certain foreign securities held by the Fund are determined.
In many 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 need to be reflected in the value of
the Fund's foreign securities. However, the Manager will monitor for
events that would materially affect the value of the Fund's foreign
securities. If the Manager determines that a particular event would
materially affect the value of the Fund's foreign securities, then the
Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
to reflect what the Committee 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, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
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 value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which 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.
7. Futures are valued at the last sale price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the last sale price on the prior trading date
if it is within the spread between the closing bid and asked prices
closest to the last reported sale price.
8. Options are valued by a pricing service at the National Best
Bid/Offer (NBBO) composite price, which is derived from the best
available bid and asked prices in all participating options exchanges
determined to most closely reflect market value of the options at the
time of computation of the Fund's NAV.
================================================================================
42 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service.
10. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
market-corroborated inputs such as market indexes. Level 2 securities
include preferred stocks, which are valued based on methods discussed in
Note 1A2, and certain bonds, which are valued based on methods discussed in
Note 1A5.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
some securities falling in the Level 3 category are primarily supported by
quoted prices obtained from broker-dealers participating in the market for
these securities. However, these securities are included in the Level 3
category due to limited market transparency and/or a lack of corroboration
to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's
================================================================================
44 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
clearinghouse which, as counterparty to all exchange-traded futures
contracts and options, guarantees the transactions against default from the
actual counterparty to the trade. The Fund's derivative agreements held at
November 30, 2015, did not include master netting provisions.
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified
price during a specified period. The purchaser of the option pays a premium
to the writer of the option.
Premiums paid for purchased options are included in the Fund's Statement of
Assets and Liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's Statement
of Assets and Liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss
on the security sold is determined from the exercise price, the original
cost of the security, and the premium received. If a written put option on
a security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on
indexes or ETFs that represent the Fund's exposure against a highly
correlated stock portfolio. The combination of the diversified stock
portfolio with index or ETF options is designed to provide the Fund with
consistent returns over a wide range of equity market environments. This
strategy may not fully protect the Fund against declines in the portfolio's
value, and the Fund could experience a loss. Options on ETFs are similar to
options on individual securities in that the holder of the ETF call (or
put) has the right to receive (or sell) shares of the underlying ETF at the
strike price on or before exercise date. Options on securities indexes are
different from options on individual securities in that the holder of the
index option has the right to receive an amount of cash equal to the
difference between the exercise price and the settlement value of the
underlying index as defined by the exchange. If an index option is
exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2015 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on $9 $57
Options / Change in
net unrealized appreciation/
(depreciation) of Options
------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
================================================================================
46 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities. Foreign income and capital gains on some foreign securities may
be subject to foreign taxes, which are accrued as applicable, as a reduction
to such income and realized gains. These foreign taxes have been provided
for in accordance with the understanding of the applicable countries' tax
rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference
between amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the
amounts received. At the end of the Fund's fiscal year, these net realized
foreign currency 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
exchange gains/losses arise from changes in the value of assets and
liabilities, other than investments in securities, resulting from changes in
the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -
Delivery and payment for securities that have been purchased by the Fund on
a delayed-delivery or when-issued basis or for delayed draws on loans can
take place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
As of November 30, 2015, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $299,000.
H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2015, there were no custodian and other bank credits.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that may affect the reported amounts in
the financial statements.
================================================================================
48 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of less than $500, which represents 0.3% of the total fees paid to CAPCO by
the USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$89,348,000 and $68,111,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $11,074,000 and $10,504,000, respectively, resulting in net
unrealized appreciation of $570,000.
For the six-month period ended November 30, 2015, transactions in written
call and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000's)
---------------------------------
Outstanding at May 31, 2015 56 $108
Options written - -
Options terminated in closing purchase transactions (28) (67)
Options expired (28) (41)
---------------------------------
Outstanding at November 30, 2015 - $ -
=================================
*Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
================================================================================
50 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager also
is authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the actual day-to-day investment
of a portion of the Fund's assets. For the six-month period ended November
30, 2015, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.70% of the Fund's average net assets. Prior to October
1, 2015, the investment management fee was 0.75% of the Fund's average net
assets. For the six-month period ended November 30, 2015, the Fund incurred
total management fees, paid or payable to the Manager, of $744,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2015, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $152,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2015, the Fund reimbursed the
Manager $3,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to
limit the total annual operating expenses of the Fund to 1.10% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the Fund for all expenses
in excess of that amount. This expense limitation arrangement may not be
changed or terminated through October 1, 2016, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2015, the Fund
incurred reimbursable expenses of $355,000, of which $64,000 was receivable
from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of these
fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. For the six-month period
ended November 30, 2015, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $393,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 1,869,000 shares, which represents 10.5% of
the Fund.
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.
================================================================================
52 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2015, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN/(LOSS)
SELLER PURCHASER PURCHASER TO SELLER
------------------------------------------------------------------------------
USAA Cornerstone Aggressive USAA Short-Term Bond $3,273,000 $(2,000)
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
----------------------------------------------------------
2015 2015 2014 2013***
----------------------------------------------------------
Net asset value at beginning of period $ 12.35 $ 12.40 $ 11.30 $ 10.00
-------------------------------------------------------
Income (loss) from investment operations:
Net investment income .10 .15 .16 .16(a)
Net realized and unrealized gain (loss) (.77) .29 1.13 1.43(a)
-------------------------------------------------------
Total from investment operations (.67) .44 1.29 1.59(a)
-------------------------------------------------------
Less distributions from:
Net investment income - (.17) (.14) (.12)
Realized capital gains - (.32) (.05) (.17)
-------------------------------------------------------
Total distributions - (.49) (.19) (.29)
-------------------------------------------------------
Net asset value at end of period $ 11.68 $ 12.35 $ 12.40 $ 11.30
=======================================================
Total return (%)* (5.43) 3.65 11.48 16.05
Net assets at end of period (000) $208,246 $202,327 $150,358 $83,585
Ratios to average net assets:**
Expenses (%)(b) 1.10(c) 1.10 1.10 1.10(c)
Expenses, excluding reimbursements (%)(b) 1.45(c) 1.45 1.47 1.65(c)
Net investment income (%) 1.73(c) 1.32 1.48 1.46(c)
Portfolio turnover (%) 35 46 46 74
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$202,875,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
54 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account
================================================================================
EXPENSE EXAMPLE | 55
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
----------------------------------------------------------------
Actual $1,000.00 $ 945.70 $5.35
Hypothetical
(5% return before expenses) 1,000.00 1,019.50 5.55
*Expenses are equal to the Fund's annualized expense ratio of 1.10%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/366 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of (5.43)% for the six-month period of June 1, 2015, through
November 30, 2015.
================================================================================
56 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
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=============================================================================
97452-0116 (C)2016, USAA. All rights reserved.
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USAA(R)
[GRAPHIC OF USAA CORNERSTONE CONSERVATIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE CONSERVATIVE FUND
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
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================================================================================
TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 13
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 26
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)2016, USAA. All rights reserved.
201007-0116
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FUND OBJECTIVE
THE USAA CORNERSTONE CONSERVATIVE FUND (THE FUND) SEEKS CURRENT INCOME. THE FUND
ALSO CONSIDERS THE POTENTIAL FOR CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in a selection of USAA mutual funds (underlying USAA Funds)
consisting of a target asset class allocation of approximately 20% equity
securities and 80% fixed-income securities. This is often referred to as a
fund-of-funds investment strategy. The actual asset class allocation can deviate
from time to time from these targets as market conditions warrant. The Fund may
invest in investment-grade and below-investment-grade securities.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF JOHN P. TOOHEY] [PHOTO OF WASIF A. LATIF]
JOHN P. TOOHEY WASIF A. LATIF
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging time
for the world financial markets, as concerns about slow global growth,
China's currency devaluation, and the potential for an interest rate increase
by the Federal Reserve (the Fed) combined to weigh on investor sentiment.
U.S. equities finished the reporting period with a negative return, but they
generated returns above those of the international markets. The U.S. economy
is on track to deliver growth of approximately 2% in the second half of 2015
amid strength in housing, employment, and consumer spending. While low
compared to historical standards, this rate is nonetheless superior to the
majority of the world's developed economies - a positive for U.S. stocks'
relative performance during the reporting period. Within the domestic market,
small-cap stocks underperformed large-cap stocks in a reflection of
investors' elevated aversion to risk.
Developed market international stocks finished with a loss and underperformed
U.S. equities which was likely due to mounting concerns about slowing
economic growth in both Europe and Japan. In addition, the
================================================================================
2 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
weakness in foreign currencies relative to the U.S. dollar translated to
lower total returns for U.S.-based investors. Emerging market stocks also
finished the reporting period with a loss. Falling commodity prices, together
with China's move toward a consumer-led economy from one driven primarily by
fixed-asset investment, led to slower growth in the many exporting economies
within the asset class. In addition, currency weakness compelled many central
banks to raise interest rates even as growth slowed. Together, these factors
caused the emerging markets to close the reporting period near the low end of
their range for the past five years.
The impact of weaker commodity prices wasn't limited to the emerging markets.
Stocks in the gold-mining sector fell sharply as well, reflecting the effect
of falling gold prices on their profit outlook.
In the investment-grade bond market, U.S. Treasuries finished roughly flat.
While investors remained on edge about the possibility of a Fed interest rate
increase, bonds gained a degree of support from the backdrop of below-trend
growth and low inflation. Investment-grade corporate debt lagged, due largely
to a sharp increase in new-issue supply. High-yield bonds underperformed the
investment-grade market by a considerable margin, as the weakness in
commodity prices pressured the credit outlook for the many energy and mining
issuers within the asset class.
o HOW DID THE USAA CORNERSTONE CONSERVATIVE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2015, the Fund had a total return
of -2.53%. This compares to returns of -5.43% for the
Refer to page 9 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
MSCI All-Country World Index, -0.49% for the Barclays U.S. Universal Index*
and -1.32% for the Cornerstone Conservative Composite Index.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund employs a diversified, long-term approach that favors undervalued
market segments and avoids those that appear more richly priced. While this
strategy led to underperformance during the reporting period, we remain
confident in the Fund's overall positioning.
Consistent with the Fund's goal of seeking current income, the majority of
the portfolio is allocated to three funds that emphasize investment-grade
bonds: USAA Income Fund, USAA Intermediate-Term Bond Fund, and USAA
Short-Term Bond Fund. The Fund's fixed-income allocation provided a measure
of stability to the portfolio by cushioning the Fund from the stock-market
volatility associated with the "risk-off" environment. However, the relative
performance of the funds was pressured by their emphasis on corporate bonds
over U.S. Treasuries. It should be noted that the strong longer-term
performance of the funds held within in the fixed-income allocation of the
Fund's portfolio has been a positive factor in the Fund's results over time.
The Fund's allocation to high-yield bonds via USAA High Income Fund detracted
from its performance during the reporting period. Nevertheless, we believe
high-yield bonds continue to represent an essential component of a
diversified portfolio.
Within the Fund's equity portfolio, an overweight position in the developed
international markets hurt the Fund's relative performance at a time during
which U.S. equities delivered better returns.
*As of October 1, 2015, the Barclay U.S. Universal Index replaced the MSCI
All-Country World Index as it more closely represents the securities held by
the Fund.
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4 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
Nevertheless, we retain this positioning for the Fund on the belief that the
foreign markets offer both attractive relative valuations and the potential
for improving corporate earnings. In addition, we believe international
equities can benefit from accommodative monetary policies of the central
banks in Europe and Japan relative to the Fed's current monetary policy.
The Fund's allocation to the emerging markets also pressured results given
the substantial underperformance of this market segment. Although we
decreased the Fund's emerging markets positions during the reporting period
in order to manage risk, we maintained the Fund's allocation on the belief
that emerging-market stocks continue to offer superior long-term return
potential relative to developed markets.
The Fund's U.S. equity portfolio lost ground in the aggregate, but it
outpaced the other allocations within the Fund. We continue to invest the
Fund's domestic equity portfolio in large-cap stocks based on our belief that
they offer attractive valuations relative to their mid- and small-cap
counterparts. This aspect of our positioning for the Fund contributed to its
performance during the reporting period, illustrating the potential benefits
of our value-oriented approach.
The Fund's exposure to gold stocks detracted from performance. While the
prices of gold and the related equities fell during the reporting period, we
believe this asset class remains essential to diversification through its
ability to offset the potential long-term impact of inflation.
The market backdrop remains uncertain as we move toward 2016, with the Fed's
monetary policy, China's growth outlook, and geopolitical headlines all
representing factors that are affecting investor sentiment. In this
environment, our approach is to remain focused on identifying asset classes
that have the potential to offer value. The reason for this is simple:
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
valuation is one of the strongest indicators of longer-term returns. While a
value-driven approach may not always work for a quarter-to-quarter basis, we
measure success in years, not months. With this as background, we believe the
Fund will be better served by a continued emphasis on diversification and a
preference for market segments with attractive valuations.
Thank you for your investment in the Fund.
As interest rates rise, bond prices generally fall; given the historically
low interest rate environment, risks associated with rising interest rates
may be heightened. o The underlying funds may be invested in, among other
things: (1) exchange-traded funds; (2) futures, options, and other
derivatives; (3) non-investment grade securities; (4) precious metals and
minerals companies; (5) real estate investment trusts; (6) money market
instruments; and (7) foreign and emerging markets. These types of investments
and asset classes may be more volatile and prone to experience significant
loss than others. In addition, it is possible that a particular asset
allocation used by the Manager may not produce the intended result. The
assets of the Cornerstone Conservative Fund and Cornerstone Equity Fund will
be invested in other USAA funds and will indirectly bear expenses and reflect
the risks of the underlying funds in which it invests. o Non-investment grade
securities are considered speculative and are subject to significant credit
risk. They are sometimes referred to as "junk" bonds since they represent a
greater risk of default than more creditworthy investment-grade securities.
o Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Investments in foreign securities are
subject to additional and more diverse risks, including but not limited to
currency fluctuations, market illiquidity, and political and economic
instability. Foreign investing may result in more rapid and extreme changes
in value than investments made exclusively in the securities of U.S.
companies. There may be less publicly available information relating to
foreign companies than those in the U.S. Foreign securities may also be
subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are
generally less diverse and mature than more developed countries and may have
less stable political systems. o The USAA Precious Metals and Minerals Fund
is subject to additional risks, such as currency fluctuation, market
illiquidity, political instability and increased price volatility. It may be
more volatile than a fund that diversifies across many industries and
companies.
================================================================================
6 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE CONSERVATIVE FUND (THE FUND)
(Ticker Symbol: USCCX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $137.9 Million $145.6 Million
Net Asset Value Per Share $10.26 $10.68
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR SINCE INCEPTION 6/8/12
-2.53% -1.44% 3.64%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 6/8/12
-2.45% 3.08%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.73% AFTER REIMBURSEMENT 0.68%
(Includes acquired fund fees and expenses of 0.58%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees to limit the expenses of the
Fund so that the total annual operating expenses (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.10% of the Fund's
average net assets. This reimbursement arrangement may not be changed or
terminated during this time period without approval of the Fund's Board of
Trustees and may be changed or terminated by the Manager at any time after
October 1, 2016. If the total annual operating expense ratio of the Fund is
lower than 0.10%, the Fund will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI ALL-COUNTRY CORNERSTONE CONSERVATIVE USAA CORNERSTONE BARCLAYS U.S.
WORLD INDEX COMPOSITE INDEX CONSERVATIVE FUND UNIVERSAL INDEX*
05/31/12 $10,000.00 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,493.89 10,113.27 10,095.03 10,025.20
07/31/12 10,637.55 10,257.57 10,205.08 10,174.72
08/31/12 10,868.84 10,321.22 10,305.13 10,196.08
09/30/12 11,211.17 10,406.09 10,426.24 10,225.98
10/31/12 11,136.45 10,412.33 10,476.52 10,258.45
11/30/12 11,278.85 10,454.97 10,526.79 10,283.01
12/31/12 11,534.33 10,500.52 10,580.01 10,284.93
01/31/13 12,065.70 10,558.69 10,661.23 10,231.32
02/28/13 12,063.82 10,604.16 10,712.00 10,280.45
03/31/13 12,281.81 10,664.38 10,780.03 10,292.62
04/30/13 12,635.33 10,808.14 10,882.02 10,405.61
05/31/13 12,600.66 10,668.50 10,810.63 10,229.19
06/30/13 12,232.36 10,465.93 10,587.24 10,049.13
07/31/13 12,817.95 10,593.68 10,710.47 10,081.81
08/31/13 12,550.90 10,500.81 10,648.85 10,024.35
09/30/13 13,199.17 10,684.73 10,766.55 10,124.10
10/31/13 13,729.68 10,849.74 10,921.69 10,224.27
11/30/13 13,924.12 10,854.35 10,942.37 10,191.17
12/31/13 14,164.33 10,858.43 10,946.98 10,146.53
01/31/14 13,597.75 10,898.40 10,999.41 10,281.09
02/28/14 14,254.63 11,066.13 11,146.20 10,354.35
03/31/14 14,318.01 11,067.18 11,160.32 10,344.74
04/30/14 14,454.31 11,153.50 11,234.09 10,430.39
05/31/14 14,761.74 11,301.89 11,350.01 10,555.98
06/30/14 15,039.67 11,364.12 11,426.97 10,572.00
07/31/14 14,857.12 11,299.38 11,373.92 10,539.11
08/31/14 15,185.29 11,453.25 11,501.24 10,653.38
09/30/14 14,693.04 11,303.61 11,362.82 10,568.80
10/31/14 14,796.48 11,418.49 11,426.89 10,672.39
11/30/14 15,043.98 11,500.75 11,490.97 10,729.00
12/31/14 14,753.68 11,450.11 11,424.05 10,710.63
01/31/15 14,523.01 11,585.66 11,521.50 10,914.39
02/28/15 15,331.53 11,657.00 11,586.47 10,850.74
03/31/15 15,093.98 11,664.47 11,575.95 10,895.60
04/30/15 15,531.92 11,708.96 11,630.35 10,883.00
05/31/15 15,511.65 11,697.67 11,619.46 10,863.99
06/30/15 15,146.48 11,546.94 11,478.81 10,742.67
07/31/15 15,278.01 11,612.70 11,478.81 10,805.25
08/31/15 14,230.69 11,436.28 11,292.61 10,773.42
09/30/15 13,715.12 11,393.93 11,192.50 10,815.50
10/31/15 14,791.55 11,590.39 11,391.19 10,850.10
11/30/15 14,669.41 11,542.81 11,324.96 10,810.59
[END CHART]
Data from 5/31/12 through 11/30/15.**
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
*As of October 1, 2015, the Barclay U.S. Universal Index replaced the MSCI
All-Country World Index as it more closely represents the securities held by the
Fund.
**The performance of the MSCI All-Country World Index, Barclays U.S. Universal
Index and the Cornerstone Conservative Composite Index is calculated from the
end of the month, May 31, 2012, while the inception date for the Cornerstone
Conservative Fund is June 8, 2012. There may be a slight variation of the
performance numbers because of this difference.
================================================================================
8 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
The graph on page 8 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Conservative Fund to the benchmarks listed
below. The Manager has developed the Cornerstone Conservative Composite Index,
which is used to measure the Fund's performance. The custom benchmark was
created by the Manager to show how the Fund's performance compares with the
returns of an index or indexes with similar asset allocations.
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
The Cornerstone Conservative Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) (11%), the MSCI ACWI ex USA IMI (8%), the
Barclays U.S. Universal Index (78%), the Bloomberg Commodity Index Total
Return (0.5%), the MSCI U.S. Real Estate Investment Trust (REIT) Index
(0.5%), and the Barclays U.S. Treasury - Bills (1-3M) (2%).
o The unmanaged Barclays U.S. Universal Index is an index that represents the
union of the U.S. Aggregate Index, U.S. Corporate High-Yield, Investment
Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index, and the
non-ERISA eligible portion of the CMBS Index. The index covers USD
denominated, taxable bonds that are rated either investment-grade or below
investment-grade.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION - 11/30/15 o
INVESTMENT ALLOCATION
--------------------------------------------------------------------------------
USAA FUND:
Aggressive Growth Fund ................................................ 0.9%
Emerging Markets Fund ................................................. 1.6%
Growth Fund ........................................................... 1.5%
Income Stock Fund ..................................................... 2.1%
International Fund .................................................... 5.6%
Precious Metals and Minerals Fund ..................................... 0.5%
S&P 500 Index Fund .................................................... 2.9%
Small Cap Stock Fund .................................................. 2.0%
Value Fund ............................................................ 2.1%
Total Equity & Alternative ........................................ 19.2%
High Income Fund ...................................................... 13.4%
Income Fund ........................................................... 22.4%
Intermediate-Term Bond Fund ........................................... 36.0%
Short-Term Bond Fund .................................................. 8.6%
Total Fixed-Income ................................................ 80.4%
CASH
Money Market Instruments .............................................. 0.4%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
---------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
EQUITY & ALTERNATIVE FUNDS (19.2%)
30,282 USAA Aggressive Growth Fund $ 1,291
152,955 USAA Emerging Markets Fund 2,161
76,647 USAA Growth Fund 1,993
168,266 USAA Income Stock Fund 2,955
269,656 USAA International Fund 7,728
72,861 USAA Precious Metals and Minerals Fund 635
133,416 USAA S&P 500 Index Fund 3,980
160,952 USAA Small Cap Stock Fund 2,809
145,872 USAA Value Fund 2,928
--------
Total Equity & Alternative Funds (cost: $25,002) 26,480
--------
FIXED-INCOME FUNDS (80.4%)
2,433,513 USAA High Income Fund 18,519
2,412,312 USAA Income Fund 30,830
4,805,902 USAA Intermediate-Term Bond Fund 49,644
1,305,325 USAA Short-Term Bond Fund 11,852
--------
Total Fixed-Income Funds (cost: $115,642) 110,845
--------
MONEY MARKET INSTRUMENTS (0.4%)
MONEY MARKET FUNDS (0.4%)
571,534 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(a)
(cost: $572) 572
--------
TOTAL INVESTMENTS (COST: $141,216) $137,897
========
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
($ 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 & Alternative Funds $ 26,480 $- $- $ 26,480
Fixed-Income Funds 110,845 - - 110,845
Money Market Instruments:
Money Market Funds 572 - - 572
--------------------------------------------------------------------------------------------------------
Total $137,897 $- $- $137,897
--------------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 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.
================================================================================
12 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
The underlying funds in which the Fund invests are managed by USAA Asset
Management Company, an affiliate of the Fund. The Fund invests in the Reward
Shares of the USAA S&P 500 Index Fund and the Institutional Shares of the
other USAA mutual funds.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value (cost of $140,644) $137,325
Investments in other securities, at value (cost of $572) 572
Receivables:
Capital shares sold 302
USAA Asset Management Company (Note 5C) 6
Dividends from affiliated underlying funds 189
--------
Total assets 138,394
--------
LIABILITIES
Payables:
Securities purchased 189
Capital shares redeemed 240
Other accrued expenses and payables 31
--------
Total liabilities 460
--------
Net assets applicable to capital shares outstanding $137,934
========
NET ASSETS CONSIST OF:
Paid-in capital $141,319
Accumulated undistributed net investment income 1,000
Accumulated net realized loss on investments (1,066)
Net unrealized depreciation of investments (3,319)
--------
Net assets applicable to capital shares outstanding $137,934
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 13,449
========
Net asset value, redemption price, and offering price per share $ 10.26
========
See accompanying notes to financial statements.
================================================================================
14 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 2,245
Interest 1
-------
Total income 2,246
-------
EXPENSES
Custody and accounting fees 14
Postage 8
Shareholder reporting fees 6
Trustees' fees 13
Registration fees 13
Professional fees 33
Other 4
-------
Total expenses 91
Expenses reimbursed (21)
-------
Net expenses 70
-------
NET INVESTMENT INCOME 2,176
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (1,418)
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds (4,461)
-------
Net realized and unrealized loss (5,879)
-------
Decrease in net assets resulting from operations $(3,703)
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
---------------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,176 $ 3,830
Net realized loss on sales of affiliated
underlying funds (1,418) (258)
Net realized gain on capital gain distributions from
affiliated underlying funds - 647
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds (4,461) (1,219)
----------------------------
Increase (decrease) in net assets resulting from operations (3,703) 3,000
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,011) (3,657)
Net realized gains - (272)
----------------------------
Distributions to shareholders (2,011) (3,929)
----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 25,206 79,472
Reinvested dividends 1,997 3,821
Cost of shares redeemed (29,181) (45,751)
----------------------------
Increase (decrease) in net assets from capital
share transactions (1,978) 37,542
----------------------------
Net increase (decrease) in net assets (7,692) 36,613
NET ASSETS
Beginning of period 145,626 109,013
----------------------------
End of period $137,934 $145,626
============================
Accumulated undistributed net investment income:
End of period $ 1,000 $ 835
============================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,425 7,430
Shares issued for dividends reinvested 194 359
Shares redeemed (2,807) (4,276)
----------------------------
Increase (decrease) in shares outstanding (188) 3,513
============================
See accompanying notes to financial statements.
================================================================================
16 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Cornerstone Conservative Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek current income. The Fund also considers the
potential for capital appreciation.
The Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity & alternative and fixed-income mutual funds (underlying USAA Funds)
managed by USAA Asset Management Company (the Manager), an affiliate of the
Fund.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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 the Manager, an affiliate of
the Fund. 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. Investments in the underlying USAA Funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their
net asset value (NAV) at the end of each business day.
2. The underlying USAA Funds have specific valuation procedures. In the
event that price quotations or valuations are not readily available, are
not reflective of market value, or a significant event has been
recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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
a 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
================================================================================
18 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
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 and capital gain distributions from the underlying USAA
Funds are recorded on the ex-dividend date. 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. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
purposes, realized credits, if any, generated from cash balances in the
Fund's bank accounts may be used to directly reduce the Fund's expenses. For
the six-month period ended November 30, 2015, there were no custodian and
other bank credits.
F. 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.
G. 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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed
================================================================================
20 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
loan agreement above the $500 million, the assessed facility fee by CAPCO will
be increased to 10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of less than $500, which represents 0.2% of the total fees paid to CAPCO by
the USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, 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.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$40,673,000 and $40,414,000, respectively.
As of November 30, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $2,113,000 and $5,432,000, respectively, resulting in net unrealized
depreciation of $3,319,000.
(5) AGREEMENTS WITH MANAGER
A. ADVISORY AGREEMENT - The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
Manager does not receive any management fees from the Fund for these
services.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. The Manager does not
receive any fees from the Fund for these services. 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 billing of these
expenses to the Fund. These expenses are included in the professional fees
on the Fund's Statement of Operations and, for the six-month period ended
November 30, 2015, were $2,000 for the Fund.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Fund to 0.10% of its average net
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in
excess of that amount. This expense limitation arrangement may not be
changed or terminated through October 1, 2016, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2015, the Fund
incurred reimbursable expenses of $21,000, of which $6,000 was receivable
from the Manager.
D. TRANSFER AGENCY AGREEMENT - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. SAS does not receive any fees from the
Fund for these services.
================================================================================
22 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 1,000 shares, which represents less than
0.1% of the Fund.
(7) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the underlying USAA Funds for
the purpose of exercising management or control; however, investments by the
Fund may represent a significant portion of the underlying USAA Funds' net
assets. At November 30, 2015, the Fund owned the following percentages of
the total outstanding shares of each of the underlying USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Aggressive Growth 0.1
Emerging Markets 0.2
Growth 0.1
High Income 0.9
Income 0.5
Income Stock 0.1
Intermediate-Term Bond 1.5
International 0.2
Precious Metals and Minerals 0.1
S&P 500 Index 0.1
Short-Term Bond 0.3
Small Cap Stock 0.2
Value 0.2
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2015 (in thousands):
REALIZED
PURCHASE SALES DIVIDEND GAIN MARKET VALUE
AFFILIATED USAA FUND COST(A) PROCEEDS INCOME (LOSS)(B) 05/31/2015 11/30/2015
--------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ - $ 404 $ - $ 7 $ 1,666 $ 1,291
Emerging Markets - 347 - (98) 2,920 2,161
Growth 235 - - - 1,707 1,993
High Income 11,292 - 462 - 8,665 18,519
Income 971 15,976 651 (616) 47,017 30,830
Income Stock 341 - 33 - 2,710 2,955
Intermediate-Term Bond 19,438 1,316 891 (72) 33,238 49,644
International 2,609 - - - 5,528 7,728
Precious Metals and Minerals - 434 - (347) 1,418 635
S&P 500 Index 2,262 - 26 - 1,688 3,980
Short-Term Bond 1,304 21,937 182 (292) 32,763 11,852
Small Cap Stock 866 - - - 2,001 2,809
Value 1,355 - - - 1,626 2,928
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received, if any.
================================================================================
24 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, MAY 31, MAY 31,
------------------------------------------------------------------
2015 2015 2014 2013***
------------------------------------------------------------------
Net asset value at
beginning of period $ 10.68 $ 10.77 $ 10.60 $ 10.00
--------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .31 .34(a) .35(a)
Net realized and
unrealized gain (loss) (.43) (.06) .17(a) .46(a)
--------------------------------------------------------------
Total from investment
operations (.27) .25 .51(a) .81(a)
--------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.32) (.32) (.21)
Realized capital gains - (.02) (.02) (.00)(b)
--------------------------------------------------------------
Total distributions (.15) (.34) (.34) (.21)
--------------------------------------------------------------
Net asset value at end
of period $ 10.26 $ 10.68 $ 10.77 $ 10.60
==============================================================
Total return (%)* (2.53) 2.37 4.99 8.11
Net assets at end
of period (000) $137,934 $145,626 $109,013 $68,571
Ratios to average
net assets:**,(e)
Expenses (%)(d) .10(c) .10 .10 .10(c)
Expenses, excluding
reimbursements (%)(d) .13(c) .15 .20 .52(c)
Net investment income (%) 3.10(c) 3.03 3.27 3.27(c)
Portfolio turnover (%) 29 5 1 4
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$140,270,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Calculated excluding the Fund's pro-rata share of expenses of the underlying
USAA Funds.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
EXPENSE EXAMPLE
November 30, 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 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 Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA Funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Fund's annualized expense ratios used to calculate the expense estimates in the
table on the next page.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
================================================================================
26 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher. Acquired
fund fees and expenses are not included in the Fund's annualized expense ratio
used to calculate the expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
--------------------------------------------------------------
Actual $1,000.00 $ 974.70 $0.49
Hypothetical
(5% return before expenses) 1,000.00 1,024.50 0.51
*Expenses are equal to the Fund's annualized expense ratio of 0.10%, which is
net of any reimbursements and expenses paid indirectly and excludes expenses of
the acquired funds, multiplied by the average account value over the period,
multiplied by 183 days/366 days (to reflect the one-half-year period). The
Fund's actual ending account value is based on its actual total return of
(2.53)% for the six-month period of June 1, 2015, through November 30, 2015.
================================================================================
EXPENSE EXAMPLE | 27
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
San Antonio, TX 78288 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.
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=============================================================================
97450-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE EQUITY FUND]
============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE EQUITY FUND
NOVEMBER 30, 2015
============================================================
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PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
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JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
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to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 10
Financial Statements 11
Notes to Financial Statements 14
EXPENSE EXAMPLE 23
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)2016, USAA. All rights reserved.
200989-0116
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FUND OBJECTIVE
THE USAA CORNERSTONE EQUITY FUND (THE FUND) SEEKS CAPITAL APPRECIATION OVER THE
LONG TERM.
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TYPES OF INVESTMENTS
The Fund invests at least 80% of its assets in a selection of USAA mutual funds
(underlying USAA Funds) consisting of a long-term target asset allocation in
equity securities. This is often referred to as a fund-of-funds investment
strategy. The target asset class allocation can deviate from time to time from
these targets as market conditions warrant. This 80% policy may be changed upon
at least 60 days' written notice to shareholders.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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
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[PHOTO OF JOHN P. TOOHEY] [PHOTO OF WASIF A. LATIF]
JOHN P. TOOHEY, CFA WASIF A. LATIF
USAA Asset USAA Asset
Management Company Management Company
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o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging
time for the world financial markets as concerns about slow global growth,
China's currency devaluation, and the potential for an interest rate
increase by the Federal Reserve (the Fed) combined to weigh upon investor
sentiment.
U.S. equities generally finished the reporting period with a negative
return, but they generated returns above those of the international
markets. The U.S. economy appeared to be on track to deliver growth of
approximately 2% in the second half of 2015 amid strength in the housing
market, employment, and consumer spending. While low compared to historical
standards, this rate is nonetheless higher than the majority of the world's
developed economies - a positive for U.S. stocks' relative performance
during the reporting period. Within the domestic market, small-cap stocks
generally underperformed large-cap stocks as investors appeared averse to
risk.
Developed market international stocks finished with a loss and
underperformed U.S. equities which was likely due to mounting concerns about
slowing economic growth in both Europe and Japan. In addition, the weakness
in foreign currencies relative to the U.S. dollar translated to lower total
returns for U.S.-based investors. Emerging market stocks also generally
finished the reporting period with a loss. Falling commodity prices,
together with China's move toward a consumer-led economy from one driven
primarily by fixed-asset investment, likely led to slower
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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2 | USAA CORNERSTONE EQUITY FUND
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growth in many of the exporting economies within the asset class. In
addition, currency weakness compelled many central banks to raise interest
rates even as growth slowed. Together, these factors caused the emerging
markets to close the reporting period near the low end of their range for
the past five years.
The impact of weaker commodity prices was not limited to the emerging
markets. Stocks in the gold-mining sector fell sharply as well, reflecting
the effect of falling gold prices on their profit outlook.
o HOW DID THE USAA CORNERSTONE EQUITY FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2015, the Fund had a total
return of -5.44%. This compares to a return of -5.43% for the MSCI
All-Country World Index and -4.73% for the Cornerstone Equity Composite
Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary
management for the Fund's assets.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund employs a diversified, long-term approach that favors undervalued
market segments and avoids those that appear more richly priced. While this
strategy led to underperformance during the reporting period, we remain
confident in the Fund's overall positioning.
The Fund's overweight position in the developed international markets was
the primary factor affecting performance during a time in which U.S.
equities delivered superior returns. Nevertheless, we retain this
positioning for the Fund on the belief that the foreign markets offer both
attractive relative valuations and the potential for improving corporate
earnings. In addition, we believe international equities can benefit from
accommodative monetary policies of the central banks in Europe and Japan
relative to the Fed's current monetary policy.
The Fund's allocation to the emerging markets also pressured results given
the substantial underperformance of the market segment. Although we
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MANAGERS' COMMENTARY ON THE FUND | 3
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trimmed the Fund's positions during the course of the year in order to
manage risk, we maintained an allocation to emerging markets on the belief
that emerging market stocks continue to offer superior long-term return
potential relative to developed markets.
The Fund's U.S. equity portfolio lost ground in the aggregate, but it
outpaced the other allocations within the Fund. We continue to invest the
Fund's domestic equity portfolio in large-cap stocks based on our belief
that they offer attractive valuations relative to their mid- and small-cap
counterparts. This aspect of our positioning for the Fund contributed to
its performance during the reporting period, illustrating the potential
benefits of our value-oriented approach.
The Fund's exposure to gold stocks detracted from performance. While the
prices of gold and the related equities fell during the reporting period,
we believe this asset class remains essential to diversification through
its ability to offset the potential long-term impact of inflation.
The market backdrop remains uncertain as we move toward 2016, with the Fed's
monetary policy, China's growth outlook, and geopolitical headlines all
representing factors that are affecting investor sentiment. In this
environment, our approach is to remain focused on identifying asset classes
that have the potential to offer value. The reason for this is simple:
valuation is one of the strongest indicators of longer-term returns. While a
value-driven approach may not always work for a quarter-to-quarter basis, we
measure success in years, not months. With this as background, we believe
the Fund will be better served by a continued emphasis on diversification
and a preference for market segments with attractive valuations.
Thank you for your interest in the Fund.
The assets of the Cornerstone Equity Fund will be invested in other USAA
funds and will indirectly bear expenses and reflect the risks of the
underlying funds in which it invests. o The underlying funds may be
invested in, among other things: (1) exchange-traded funds; (2) futures,
options, and other derivatives; (3) non-investment grade securities; (4)
precious metals and minerals companies; (5) real estate investment trusts;
(6) money market instruments; and (7) foreign and emerging markets. o These
types of investments and asset classes may be more volatile than others. In
addition, it is possible that a particular asset allocation used by the
Manager may not produce the intended result. o 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 The USAA Precious Metals and
Minerals Fund is subject to additional risks, such as currency fluctuation,
market illiquidity, political instability and increased price volatility.
It may be more volatile than a fund that diversifies across many industries
and companies. o Diversification is a technique intended to help reduce
risk and does not guarantee a profit or prevent a loss.
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4 | USAA CORNERSTONE EQUITY FUND
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INVESTMENT OVERVIEW
USAA CORNERSTONE EQUITY FUND (THE FUND)
(Ticker Symbol: UCEQX)
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11/30/15 5/31/15
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Net Assets $94.8 Million $91.7 Million
Net Asset Value Per Share $12.87 $13.61
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
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5/31/15-11/30/15* 1 YEAR SINCE INCEPTION 6/8/12
-5.44% -2.19% 9.02%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
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1 YEAR SINCE INCEPTION 6/8/12
-2.27% 8.12%
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EXPENSE RATIOS AS OF 5/31/15**
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BEFORE REIMBURSEMENT 1.16% AFTER REIMBURSEMENT 1.02%
(Includes acquired fund fees and expenses of 0.92%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees to limit the expenses of the
Fund so that the total annual operating expenses (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.10% of the Fund's
average net assets. This reimbursement arrangement may not be changed or
terminated during this time period without approval of the Fund's Board of
Trustees and may be changed or terminated by the Manager at any time after
October 1, 2016. If the total annual operating expense ratio of the Fund is
lower than 0.10%, the Fund will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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INVESTMENT OVERVIEW | 5
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE EQUITY MSCI-ALL COUNTRY USAA CORNERSTONE
COMPOSITE INDEX WORLD INDEX EQUITY FUND
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,454.60 10,493.89 10,250.00
07/31/12 10,589.58 10,637.55 10,290.00
08/31/12 10,827.10 10,868.84 10,570.00
09/30/12 11,138.14 11,211.17 10,940.00
10/31/12 11,030.66 11,136.45 10,810.00
11/30/12 11,148.74 11,278.85 10,900.00
12/31/12 11,372.54 11,534.33 11,161.72
01/31/13 11,911.10 12,065.70 11,545.91
02/28/13 11,949.36 12,063.82 11,515.58
03/31/13 12,236.03 12,281.81 11,717.79
04/30/13 12,525.80 12,635.33 11,727.90
05/31/13 12,557.29 12,600.66 11,839.11
06/30/13 12,241.81 12,232.36 11,454.92
07/31/13 12,823.59 12,817.95 12,061.53
08/31/13 12,548.66 12,550.90 11,839.11
09/30/13 13,138.37 13,199.17 12,354.73
10/31/13 13,636.56 13,729.68 12,779.36
11/30/13 13,842.16 13,924.12 12,941.13
12/31/13 14,103.21 14,164.33 13,133.04
01/31/14 13,647.54 13,597.75 12,649.68
02/28/14 14,304.34 14,254.63 13,307.87
03/31/14 14,361.97 14,318.01 13,307.87
04/30/14 14,453.58 14,454.31 13,338.72
05/31/14 14,731.26 14,761.74 13,595.83
06/30/14 15,045.40 15,039.67 13,924.93
07/31/14 14,801.75 14,857.12 13,595.83
08/31/14 15,186.81 15,185.29 13,966.07
09/30/14 14,684.35 14,693.04 13,441.57
10/31/14 14,878.84 14,796.48 13,534.13
11/30/14 15,102.65 15,043.98 13,811.80
12/31/14 14,891.46 14,753.68 13,520.46
01/31/15 14,664.01 14,523.01 13,415.49
02/28/15 15,433.86 15,331.53 14,097.81
03/31/15 15,240.37 15,093.98 13,856.37
04/30/15 15,577.10 15,531.92 14,244.77
05/31/15 15,616.59 15,511.65 14,286.76
06/30/15 15,300.22 15,146.48 13,961.34
07/31/15 15,393.23 15,278.01 13,919.35
08/31/15 14,425.51 14,230.69 13,048.08
09/30/15 13,953.00 13,715.12 12,628.19
10/31/15 14,962.73 14,791.55 13,541.45
11/30/15 14,877.68 14,669.41 13,509.96
[END CHART]
Data from 5/31/12 through 11/30/15.*
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
*The performance of the Cornerstone Equity Composite Index and MSCI All-Country
World Index is calculated from the end of the month, May 31, 2012, while the
inception date of the Cornerstone Equity Fund is June 8, 2012. There may be a
slight variation of the performance numbers because of this difference.
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6 | USAA CORNERSTONE EQUITY FUND
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The graph on page 6 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Equity Fund to the benchmarks listed below.
The Manager has developed the Composite Index, which is used to measure the
Fund's performance. The custom benchmark was created by the Manager to show how
the Fund's performance compares with the returns of an index or indexes with
similar asset allocations.
o The Cornerstone Equity Composite Index is a combination of unmanaged indexes
representing the Fund's model allocation, and consists of the MSCI USA
Investable Market Index (IMI) (56%), the MSCI ACWI ex USA IMI (37%), the
Bloomberg Commodity Index Total Return (2.5%), the MSCI U.S. Real Estate
Investment Trust (REIT) Index (2.5%), and the Barclays U.S. Treasury - Bills
(1-3M) (2%).
o The unmanaged MSCI All-Country World Index is a free float-adjusted
market capitalization weighted index that is designed to measure the equity
market performance of developed and emerging markets.
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INVESTMENT OVERVIEW | 7
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o ASSET ALLOCATION - 11/30/15 o
INVESTMENT ALLOCATION
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USAA FUND:
Aggressive Growth ...................................................... 4.9%
Emerging Markets ....................................................... 8.0%
Growth ................................................................. 7.4%
Income Stock ........................................................... 11.1%
International .......................................................... 29.7%
Precious Metals and Minerals ........................................... 2.0%
S&P 500 Index .......................................................... 14.7%
Small Cap Stock ........................................................ 10.6%
Value .................................................................. 11.1%
Total Equity & Alternative ........................................... 99.5%
CASH:
Money Market Instruments ............................................... 0.4%
Percentages are of the net assets of the Fund and may not equal 100%.
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8 | USAA CORNERSTONE EQUITY FUND
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PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
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EQUITY & ALTERNATIVE FUNDS (99.5%)
109,104 USAA Aggressive Growth Fund $ 4,653
534,847 USAA Emerging Markets Fund 7,557
270,480 USAA Growth Fund 7,035
597,372 USAA Income Stock Fund 10,490
983,910 USAA International Fund 28,199
222,343 USAA Precious Metals and Minerals Fund 1,936
467,370 USAA S&P 500 Index Fund 13,942
572,818 USAA Small Cap Stock Fund 9,996
526,050 USAA Value Fund 10,558
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Total Equity & Alternative Funds (cost: $89,463) 94,366
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MONEY MARKET INSTRUMENTS (0.4%)
MONEY MARKET FUNDS (0.4%)
399,194 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(a)
(cost: $399) 399
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TOTAL INVESTMENTS (COST: $89,862) $94,765
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($ IN 000s) VALUATION HIERARCHY
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(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
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Equity & Alternative Funds $94,366 $- $- $94,366
Money Market Instruments:
Money Market Funds 399 - - 399
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Total $94,765 $- $- $94,765
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For the period of June 1, 2015, through November 30, 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.
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PORTFOLIO OF INVESTMENTS | 9
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NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
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o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
The underlying funds in which the Fund invests are managed by USAA Asset
Management Company, an affiliate of the Fund. The Fund invests in the Reward
Shares of the USAA S&P 500 Index Fund and the Institutional Shares of the
other USAA mutual funds.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
See accompanying notes to financial statements.
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10 | USAA CORNERSTONE EQUITY FUND
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STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
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ASSETS
Investments in affiliated underlying funds, at value (cost of $89,463) $94,366
Investments in other securities, at value (cost of $399) 399
Receivables:
Capital shares sold 178
USAA Asset Management Company (Note 5C) 27
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Total assets 94,970
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LIABILITIES
Payables:
Capital shares redeemed 113
Other accrued expenses and payables 39
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Total liabilities 152
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Net assets applicable to capital shares outstanding $94,818
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NET ASSETS CONSIST OF:
Paid-in capital $89,501
Accumulated undistributed net investment income 214
Accumulated net realized gain on investments 200
Net unrealized appreciation of investments 4,903
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Net assets applicable to capital shares outstanding $94,818
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Capital shares outstanding, unlimited number of shares
authorized, no par value 7,369
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Net asset value, redemption price, and offering price per share $ 12.87
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See accompanying notes to financial statements.
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FINANCIAL STATEMENTS | 11
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STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
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INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 206
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EXPENSES
Custody and accounting fees 21
Postage 8
Shareholder reporting fees 6
Trustees' fees 13
Registration fees 11
Professional fees 33
Other 3
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Total expenses 95
Expenses reimbursed (50)
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Net expenses 45
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NET INVESTMENT INCOME 161
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NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (1,379)
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds (3,845)
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Net realized and unrealized loss (5,224)
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Decrease in net assets resulting from operations $(5,063)
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See accompanying notes to financial statements.
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12 | USAA CORNERSTONE EQUITY FUND
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STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
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11/30/2015 5/31/2015
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FROM OPERATIONS
Net investment income $ 161 $ 1,361
Net realized loss on sales of affiliated underlying funds (1,379) (487)
Net realized gain on capital gain distributions from
affiliated underlying funds - 2,085
Change in net unrealized appreciation/(depreciation)
of affiliated underlying funds (3,845) 1,155
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Increase (decrease) in net assets resulting from operations (5,063) 4,114
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (1,371)
Net realized gains - (165)
-------------------------
Distributions to shareholders - (1,536)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 19,697 47,305
Reinvested dividends - 1,457
Cost of shares redeemed (11,542) (25,654)
-------------------------
Increase in net assets from capital share transactions 8,155 23,108
-------------------------
Net increase in net assets 3,092 25,686
NET ASSETS
Beginning of period 91,726 66,040
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End of period $ 94,818 $ 91,726
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Accumulated undistributed net investment income:
End of period $ 214 $ 53
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CHANGE IN SHARES OUTSTANDING
Shares sold 1,525 3,560
Shares issued for dividends reinvested - 112
Shares redeemed (896) (1,929)
-------------------------
Increase in shares outstanding 629 1,743
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See accompanying notes to financial statements.
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FINANCIAL STATEMENTS | 13
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NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Cornerstone Equity Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek capital appreciation over the long term.
The Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity & alternative mutual funds (underlying USAA Funds) managed by USAA
Asset Management Company (the Manager), an affiliate of the Fund.
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.
================================================================================
14 | USAA CORNERSTONE EQUITY FUND
================================================================================
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 the Manager, an affiliate of
the Fund. 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. Investments in the underlying USAA Funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their
net asset value (NAV) at the end of each business day.
2. The underlying USAA Funds have specific valuation procedures. In the
event that price quotations or valuations are not readily available, are
not reflective of market value, or a significant event has been
recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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
a 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
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 and capital gain distributions from the underlying USAA
Funds are recorded on the ex-dividend date. 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. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the
================================================================================
16 | USAA CORNERSTONE EQUITY FUND
================================================================================
Fund's bank accounts may be used to directly reduce the Fund's expenses. For
the six-month period ended November 30, 2015, there were no custodian and
other bank credits.
F. 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.
G. 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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of less than $500, which represents 0.1% 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 November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$19,173,000 and $10,162,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $6,552,000 and $1,649,000, respectively, resulting in net unrealized
appreciation of $4,903,000.
================================================================================
18 | USAA CORNERSTONE EQUITY FUND
================================================================================
(5) AGREEMENTS WITH MANAGER
A. ADVISORY AGREEMENT - The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
Manager does not receive any management fees from the Fund for these
services.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. The Manager does not
receive any fees from the Fund for these services. 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 billing of these
expenses to the Fund. These expenses are included in the professional fees
on the Fund's Statement of Operations and, for the six-month period ended
November 30, 2015, were $1,000 for the Fund.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Fund to 0.10% of its average net
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in
excess of that amount. This expense limitation arrangement may not be
changed or terminated through October 1, 2016, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2015, the Fund
incurred reimbursable expenses of $50,000, of which $27,000 was receivable
from the Manager.
D. TRANSFER AGENCY AGREEMENT - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. SAS does not receive any fees from the
Fund for these services.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 234,000 shares, which represents 3.2% of the
Fund.
(7) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the underlying USAA Funds for
the purpose of exercising management or control; however, investments by the
Fund may represent a significant portion of the underlying USAA Funds' net
assets. At November 30, 2015, the Fund owned the following percentages of
the total outstanding shares of each of the underlying USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Aggressive Growth 0.3
Emerging Markets 0.8
Growth 0.3
Income Stock 0.4
International 0.8
Precious Metals and Minerals 0.4
S&P 500 Index 0.3
Small Cap Stock 0.7
Value 0.8
================================================================================
20 | USAA CORNERSTONE EQUITY FUND
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2015 (in thousands):
REALIZED
PURCHASE SALES DIVIDEND GAIN MARKET VALUE
AFFILIATED USAA FUND COST(a) PROCEEDS INCOME (LOSS)(b) 05/31/2015 11/30/2015
------------------------------------------------------------------------------------------------------
Aggressive Growth $ 291 $2,642 $ - $ 54 $ 6,900 $ 4,653
Emerging Markets 1,423 2,898 - (778) 10,684 7,557
Growth 391 1,281 - (5) 7,760 7,035
Income Stock 1,637 - 114 - 9,161 10,490
International 2,864 1,714 - (122) 29,137 28,199
Precious Metals and Minerals 995 1,627 - (528) 3,500 1,936
S&P 500 Index 7,426 - 92 - 6,414 13,942
Small Cap Stock 2,416 - - - 7,851 9,996
Value 1,730 - - - 9,172 10,558
(a) Includes reinvestment of distributions from dividend income and
realized gains.
(b) Includes capital gain distributions received, if any.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, MAY 31, MAY 31,
---------------------------------------------------------
2015 2015 2014 2013***
--------------------------------------------------------
Net asset value at beginning of period $ 13.61 $ 13.22 $ 11.71 $ 10.00
----------------------------------------------------
Income (loss) from investment operations:
Net investment income .02 .24 .17 .12(a)
Net realized and unrealized gain (loss) (.76) .42 1.55 1.71(a)
----------------------------------------------------
Total from investment operations (.74) .66 1.72 1.83(a)
----------------------------------------------------
Less distributions from:
Net investment income - (.24) (.16) (.12)
Realized capital gains - (.03) (.05) (.00)(b)
----------------------------------------------------
Total distributions - (.27) (.21) (.12)
----------------------------------------------------
Net asset value at end of period $ 12.87 $ 13.61 $ 13.22 $ 11.71
====================================================
Total return (%)* (5.44) 5.08 14.84 18.39
Net assets at end of period (000) $94,818 $91,726 $66,040 $31,555
Ratios to average net assets:**,(e)
Expenses (%)(c) .10(d) .10 .10 .10(d)
Expenses, excluding reimbursements (%)(c) .21(d) .24 .33 1.13(d)
Net investment income (%) .35(d) 1.77 1.45 1.09(d)
Portfolio turnover (%) 11 8 2 5
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$91,585,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly.
The Fund's expenses paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Calculated excluding the Fund's pro-rata share of expenses of the underlying
USAA Funds.
================================================================================
22 | USAA CORNERSTONE EQUITY FUND
================================================================================
EXPENSE EXAMPLE
November 30, 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 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 Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA Funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Fund's annualized expense ratios used to calculate the expense estimates in the
table on the next page.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
================================================================================
Expense Example | 23
================================================================================
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher. Acquired
fund fees and expenses are not included in the Fund's annualized expense ratio
used to calculate the expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015-
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------
Actual $1,000.00 $ 945.63 $0.49
Hypothetical
(5% return before expenses) 1,000.00 1,024.50 0.51
*Expenses are equal to the Fund's annualized expense ratio of 0.10%, which is
net of any reimbursements and expenses paid indirectly, and excludes expenses
of the acquired funds, multiplied by the average account value over the period,
multiplied by 183 days/366 days (to reflect the one-half-year period). The
Fund's actual ending account value is based on its actual total return of
(5.44)% for the six-month period of June 1, 2015, through November 30, 2015.
================================================================================
24 | USAA CORNERSTONE EQUITY FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE ON USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
97453-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY AGGRESSIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 49
Financial Statements 54
Notes to Financial Statements 57
EXPENSE EXAMPLE 74
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)2016, USAA. All rights reserved.
200991-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE MODERATELY AGGRESSIVE FUND (THE FUND) SEEKS
CAPITAL APPRECIATION WITH A SECONDARY FOCUS ON CURRENT INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, money market instruments, and
other instruments. The Fund will have a target asset class allocation of
approximately 60% equity securities and 40% fixed-income securities. The actual
asset class allocation can deviate from time to time from these targets as
market conditions warrant. The implementation of the asset allocation may
involve the extensive use of equity and fixed-income exchange-traded funds
(ETFs). The Fund may invest in securities issued by domestic and foreign
companies. The Fund also may invest in fixed-income securities that are
investment grade and below investment grade.
The Fund also may use alternative investment strategies, such as investments in
real estate investment trusts and precious metals and minerals companies, and
other instruments, including futures and options, from time to time, in an
attempt to reduce its volatility over time and to enhance the Fund's return and
diversification.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company Quantitative Management Associates LLC
JOHN P. TOOHEY, CFA JACOB POZHARNY, Ph.D.
WASIF A. LATIF JOHN VAN BELLE, Ph.D.
ARNOLD J. ESPE, CFA
DAN DENBOW, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging
time for the world financial markets, as concerns about slow global growth,
China's currency devaluation, and the potential for an interest rate
increase by the Federal Reserve (the Fed) combined to weigh upon investor
sentiment.
U.S. equities generally finished the reporting period with a negative
return, but they generated returns above those of the international markets.
The U.S. economy appeared to be on track to deliver growth of approximately
2% in the second half of 2015 amid strength in the housing market,
employment, and consumer spending. While low compared to historical
standards, this rate is nonetheless higher than the majority of the world's
developed economies--a positive for U.S. stocks' relative performance during
the reporting period. Within the domestic market, small-cap stocks generally
underperformed large-cap stocks as investors appeared averse to risk.
Developed market international stocks finished with a loss and
underperformed U.S. equities which was likely due to mounting concerns about
slowing economic growth in both Europe and Japan. In addition, the weakness
in foreign currencies relative to the U.S. dollar translated to lower total
returns for U.S.-based investors. Emerging market stocks also generally
finished the reporting period with a loss. Falling commodity prices,
together with China's move toward a consumer-led economy from one driven
primarily by fixed-asset investment, likely led to slower growth
================================================================================
2 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
in many of the exporting economies within the asset class. In addition,
currency weakness compelled many central banks to raise interest rates even
as growth slowed. Together, these factors caused the emerging markets to
close the reporting period near the low end of their range for the past five
years.
The impact of weaker commodity prices was not limited to the emerging
markets. Stocks in the gold-mining sector fell sharply as well, reflecting
the effect of falling gold prices on their profit outlook.
In the investment-grade bond market, U.S. Treasuries finished relatively
flat. While investors remained on edge about the possibility of the Fed
increasing interest rates, bonds gained a degree of support from the
backdrop of below-trend growth and low inflation. Investment-grade corporate
debt lagged, due largely to a sharp increase in new-issue supply. High-yield
bonds underperformed the investment-grade market by a considerable margin,
as the weakness in commodity prices pressured the credit outlook for the
many energy and mining issuers within the asset class.
o HOW DID THE USAA CORNERSTONE MODERATELY AGGRESSIVE FUND (THE FUND) PERFORM
DURING THE REPORTING PERIOD?
For the reporting period ended November 30 2015, the Fund had a total return
of -5.26%. This compares to returns of -0.21% for the S&P 500 Index, -5.43%
for the MSCI All-Country World Index*, -3.02% for the Cornerstone Moderately
Aggressive Composite Index, and -4.64 for the Lipper Index**.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
*As of October 1, 2015, the MSCI All-Country World Index replaced the S&P
500 Index as it more closely represents the securities held by the Fund.
**The Lipper Index tracks the performance of the 30 largest funds within a
category consisting of funds that allocate their investments across various
asset classes, including both domestic and foreign stocks, bonds, and money
market instruments, with a focus on total return, and which have at least
25% of their portfolio invested in securities traded outside of the United
States.
SOURCE: LIPPER, A THOMSON REUTERS COMPANY.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund employs a diversified, long-term approach that favors undervalued
market segments and avoids those that appear more richly priced. While this
strategy led to underperformance during the reporting period, we remain
confident in the Fund's overall positioning.
The Fund's overweight position in the developed international markets was
the primary factor affecting relative performance during a time in which
U.S. equities delivered superior returns. Nevertheless, we retain this
positioning for the Fund on the belief that the foreign markets offer both
attractive relative valuations and the potential for improving corporate
earnings. In addition, we believe international equities can benefit from
accommodative monetary policies of the central banks in Europe and Japan
relative to the Fed's current monetary policy.
The Fund's allocation to the emerging markets also pressured results given
the substantial underperformance of this market segment. Although we trimmed
the Fund's emerging markets positions during the course of the reporting
period in order to manage risk, we maintained an allocation to emerging
markets for the Fund on the belief that emerging market stocks continue to
offer superior long-term return potential relative to developed markets.
The Fund's U.S. equity portfolio lost ground in the aggregate, but it
outpaced the other allocations within the Fund. We continue to invest the
Fund's domestic equity portfolio in large-cap stocks based on our belief
that they offer attractive valuations relative to their mid- and small-cap
counterparts. This aspect of our positioning for the Fund contributed to its
performance during the reporting period, illustrating the potential benefits
of our value-oriented approach.
The Fund's investment-grade bond portfolio also decreased in value, but it
provided both income and a measure of stability to the Fund's performance.
At a time in which investors seemed to avoid bond market segments with the
highest sensitivity to the growth outlook, the Fund's positions in
high-yield and lower-rated investment-grade corporate bonds detracted from
its performance. We would note, however, that the Fund's allocation to these
credit sectors has had a substantial positive impact on the bond portfolio's
longer-term results. We offset some of the shortfall in the
================================================================================
4 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
credit sectors through the Fund's allocation to longer maturity U.S.
Treasuries, which finished the reporting period with a gain. We added this
position earlier in the year as a "hedge" against market volatility, a move
that proved well-timed given the subsequent underperformance of the
credit-sensitive areas of the market.
The Fund's commodities exposure, which is achieved through investments in a
basket of exchange-traded funds (ETFs), natural resources companies and gold
stocks detracted from the Fund's performance. Although commodity prices
fell sharply during the reporting period, we believe this asset class
remains essential to diversification because its potential to offset the
long-term impact of inflation.
The market backdrop remains uncertain as we move toward 2016, with the Fed's
monetary policy, China's growth outlook, and geopolitical headlines all
representing factors that are affecting investor sentiment. In this
environment, our approach is to remain focused on identifying asset classes
that have the potential to offer value. The reason for this is simple:
valuation is one of the strongest indicators of longer-term returns. While a
value-driven approach may not always work for a quarter-to-quarter basis,
we measure success in years, not months. With this as background, we believe
the Fund will be better served by a continued emphasis on diversification
and a preference for market segments with attractive valuations.
Thank you for your investment in the Fund.
Asset Allocation funds may be invested in, among other things: (1)
exchange-traded funds; (2) futures, options, and other derivatives; (3)
non-investment grade securities; (4) precious metals and minerals companies;
(5) real estate investment trusts; (6) money market instruments; (7) foreign
and emerging markets. These types of investments and asset classes may be
more volatile and prone to experience significant loss than others. In
addition, its is possible that a particular asset allocation used by the
Manager may not produce the intended result. 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 Foreign
investing is subject to additional risks, such as currency fluctuations,
market illiquidity, and political instability. Emerging market countries are
less diverse and mature than other countries and tend to be politically less
stable. o Precious metals and minerals is a volatile asset class and is
subject to additional risks, such as currency fluctuation, market
illiquidity, political instability, and increased price volatility. It may
be more volatile than other asset classes that diversify across many
industries and companies. o Non-investment grade securities are considered
speculative and are subject to significant credit risk. They are sometimes
referred to as "junk" bonds since they represent a greater risk of default
than more creditworthy investment-grade securities. o Diversification is a
technique intended to help reduce risk and does not guarantee a profit or
prevent a loss. o Exchange Traded Funds (ETFs) are subject to risks similar
to those of stocks. Investment returns may fluctuate and are subject to
market volatility, so that an investor's shares, when redeemed or sold, may
be worth more or less than their original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATELY AGGRESSIVE FUND (THE FUND)
(Ticker Symbol: USCRX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $2.3 Billion $2.5 Billion
Net Asset Value Per Share $24.88 $26.26
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-5.26% -3.45% 4.89% 4.15%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-4.26% 3.67% 3.78%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.18%
(Includes acquired fund fees and expenses of 0.07%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense 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 October 1, 2015, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratios disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses. Effective, October 1, 2015, the investment
management fee was decreased from 0.75% to 0.70% of the Fund's average net
assets.
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.
================================================================================
6 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE MODERATELY USAA CORNERSTONE
AGGRESSIVE COMPOSITE MSCI ALL-COUNTRY MODERATELY
S&P 500 INDEX INDEX WORLD INDEX* AGGRESSIVE FUND LIPPER INDEX
11/30/05 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,003.43 10,161.05 10,245.94 10,157.12 10,264.42
01/31/06 10,268.35 10,462.03 10,750.31 10,427.82 10,680.61
02/28/06 10,296.21 10,462.25 10,734.54 10,404.28 10,672.67
03/31/06 10,424.38 10,570.52 10,960.29 10,537.67 10,821.46
04/30/06 10,564.35 10,735.70 11,325.08 10,729.91 11,049.20
05/31/06 10,260.29 10,494.03 10,878.63 10,396.44 10,775.79
06/30/06 10,274.20 10,501.35 10,873.94 10,412.13 10,692.67
07/31/06 10,337.58 10,584.97 10,948.16 10,498.44 10,702.85
08/31/06 10,583.54 10,800.31 11,232.00 10,733.83 10,930.92
09/30/06 10,856.28 10,916.27 11,362.90 10,824.07 11,060.51
10/31/06 11,210.04 11,199.06 11,789.06 11,106.53 11,309.58
11/30/06 11,423.21 11,445.97 12,122.41 11,389.00 11,579.77
12/31/06 11,583.46 11,541.18 12,392.88 11,560.25 11,703.06
01/31/07 11,758.64 11,643.93 12,516.16 11,703.24 11,809.85
02/28/07 11,528.65 11,668.89 12,450.27 11,659.91 11,752.54
03/31/07 11,657.60 11,788.11 12,700.11 11,789.90 11,846.65
04/30/07 12,173.97 12,103.53 13,262.48 12,097.54 12,135.29
05/31/07 12,598.79 12,296.87 13,658.01 12,353.18 12,383.12
06/30/07 12,389.48 12,208.51 13,617.89 12,236.19 12,360.54
07/31/07 12,005.35 12,076.26 13,409.94 12,023.88 12,302.04
08/31/07 12,185.31 12,141.24 13,372.83 12,028.21 12,259.01
09/30/07 12,641.02 12,531.27 14,090.72 12,500.50 12,692.76
10/31/07 12,842.10 12,822.66 14,640.43 12,847.13 12,985.35
11/30/07 12,305.22 12,534.73 13,993.13 12,331.52 12,616.91
12/31/07 12,219.85 12,475.60 13,838.23 12,257.27 12,491.13
01/31/08 11,486.88 12,011.84 12,704.80 11,656.08 12,050.36
02/29/08 11,113.72 11,986.10 12,740.67 11,566.65 12,010.06
03/31/08 11,065.73 11,911.17 12,553.80 11,382.81 11,946.64
04/30/08 11,604.67 12,294.63 13,254.07 11,750.48 12,324.90
05/31/08 11,754.98 12,403.41 13,461.31 12,008.84 12,451.44
06/30/08 10,763.99 11,803.85 12,355.95 11,323.19 11,783.69
07/31/08 10,673.51 11,646.15 12,035.09 11,074.77 11,546.37
08/31/08 10,827.90 11,612.59 11,775.69 10,925.71 11,443.69
09/30/08 9,863.05 10,731.41 10,303.95 9,862.45 10,375.65
10/31/08 8,206.57 9,300.89 8,262.22 8,198.01 8,739.80
11/30/08 7,617.71 8,978.20 7,719.42 7,730.97 8,254.70
12/31/08 7,698.77 9,300.78 7,999.19 8,032.76 8,447.70
01/31/09 7,049.87 8,803.37 7,315.75 7,503.75 7,976.75
02/28/09 6,299.21 8,251.42 6,599.45 6,933.65 7,406.22
03/31/09 6,850.99 8,702.20 7,143.05 7,313.72 7,830.64
04/30/09 7,506.70 9,369.00 7,986.26 7,981.40 8,417.67
05/31/09 7,926.57 9,895.82 8,781.99 8,839.12 9,074.94
06/30/09 7,942.29 9,906.23 8,732.75 8,931.57 9,124.87
07/31/09 8,543.03 10,479.93 9,501.48 9,465.72 9,718.41
08/31/09 8,851.47 10,770.51 9,841.30 9,763.61 10,045.22
09/30/09 9,181.76 11,120.76 10,292.79 10,277.21 10,388.77
10/31/09 9,011.19 11,016.00 10,133.73 10,292.62 10,235.64
11/30/09 9,551.71 11,365.12 10,550.51 10,616.19 10,586.12
12/31/09 9,736.21 11,488.51 10,768.99 10,816.56 10,730.54
01/31/10 9,385.96 11,275.85 10,303.59 10,673.68 10,522.46
02/28/10 9,676.71 11,431.52 10,434.84 10,837.73 10,675.44
03/31/10 10,260.65 11,875.90 11,106.15 11,292.83 11,151.77
04/30/10 10,422.64 12,012.60 11,124.84 11,398.67 11,278.40
05/31/10 9,590.39 11,387.17 10,060.40 10,805.98 10,612.56
06/30/10 9,088.35 11,195.39 9,759.91 10,589.01 10,436.49
07/31/10 9,725.10 11,773.63 10,554.05 11,107.62 10,923.14
08/31/10 9,286.07 11,560.75 10,185.10 10,932.99 10,718.14
09/30/10 10,114.80 12,234.51 11,159.47 11,626.22 11,293.32
10/31/10 10,499.66 12,536.21 11,562.78 11,922.56 11,670.79
11/30/10 10,501.01 12,414.52 11,305.51 11,827.31 11,526.65
12/31/10 11,202.81 12,920.08 12,133.39 12,291.62 12,009.97
01/31/11 11,468.33 13,060.46 12,323.80 12,373.17 12,042.82
02/28/11 11,861.23 13,319.73 12,682.66 12,715.66 12,332.19
03/31/11 11,865.94 13,342.01 12,670.00 12,835.26 12,409.65
04/30/11 12,217.36 13,712.12 13,188.36 13,215.80 12,814.53
05/31/11 12,079.06 13,621.85 12,904.87 13,074.46 12,644.99
06/30/11 11,877.71 13,455.55 12,701.53 12,873.31 12,427.98
07/31/11 11,636.18 13,403.98 12,494.73 12,791.77 12,378.87
08/31/11 11,004.09 12,906.33 11,582.00 12,117.66 11,812.16
09/30/11 10,230.51 12,193.19 10,488.51 11,367.44 10,999.94
10/31/11 11,348.63 13,023.28 11,612.29 11,965.44 11,619.28
11/30/11 11,323.55 12,825.77 11,264.68 11,916.51 11,532.61
12/31/11 11,439.38 12,882.02 11,241.92 11,820.84 11,446.15
01/31/12 11,952.05 13,380.12 11,895.60 12,269.03 11,925.97
02/29/12 12,468.88 13,763.59 12,494.11 12,582.75 12,312.07
03/31/12 12,879.22 13,839.37 12,577.18 12,616.37 12,396.40
04/30/12 12,798.38 13,822.85 12,433.27 12,577.15 12,305.08
05/31/12 12,029.18 13,171.72 11,318.53 12,033.73 11,659.24
06/30/12 12,524.81 13,548.92 11,877.54 12,330.65 11,984.65
07/31/12 12,698.77 13,730.92 12,040.14 12,453.90 12,126.79
08/31/12 12,984.78 13,926.72 12,301.93 12,661.19 12,342.49
09/30/12 13,320.33 14,185.48 12,689.39 12,941.30 12,584.24
10/31/12 13,074.38 14,117.86 12,604.81 12,974.91 12,535.56
11/30/12 13,150.23 14,219.42 12,766.00 13,047.74 12,652.92
12/31/12 13,270.09 14,391.75 13,055.16 13,242.40 12,851.70
01/31/13 13,957.41 14,778.12 13,656.59 13,598.91 13,223.30
02/28/13 14,146.88 14,829.82 13,654.46 13,587.41 13,207.41
03/31/13 14,677.44 15,050.07 13,904.12 13,765.66 13,409.77
04/30/13 14,960.22 15,330.12 14,301.33 14,001.41 13,661.31
05/31/13 15,310.17 15,249.15 14,262.09 13,897.91 13,586.22
06/30/13 15,104.57 14,908.26 13,845.23 13,535.66 13,220.35
07/31/13 15,873.15 15,358.25 14,508.03 13,926.66 13,663.10
08/31/13 15,413.44 15,120.58 14,205.77 13,708.16 13,465.33
09/30/13 15,896.80 15,612.09 14,939.51 14,047.41 13,895.58
10/31/13 16,627.54 16,031.17 15,539.97 14,455.67 14,273.26
11/30/13 17,134.25 16,154.60 15,760.05 14,536.17 14,395.34
12/31/13 17,568.02 16,310.25 16,031.94 14,679.34 14,566.01
01/31/14 16,960.62 16,066.82 15,390.65 14,461.47 14,311.55
02/28/14 17,736.46 16,579.81 16,134.14 14,938.42 14,817.91
03/31/14 17,885.55 16,611.85 16,205.88 14,985.52 14,774.27
04/30/14 18,017.76 16,727.41 16,360.15 15,109.18 14,828.48
05/31/14 18,440.71 16,996.83 16,708.12 15,321.15 15,112.53
06/30/14 18,821.65 17,225.03 17,022.69 15,597.90 15,320.31
07/31/14 18,562.09 17,032.32 16,816.07 15,444.80 15,115.69
08/31/14 19,304.66 17,368.22 17,187.51 15,686.22 15,361.33
09/30/14 19,033.94 16,959.67 16,630.36 15,315.26 14,999.09
10/31/14 19,498.85 17,155.77 16,747.44 15,391.81 15,161.98
11/30/14 20,023.26 17,344.06 17,027.56 15,550.79 15,311.80
12/31/14 19,972.82 17,178.45 16,698.99 15,370.28 15,098.46
01/31/15 19,373.25 17,141.41 16,437.91 15,346.14 15,127.94
02/28/15 20,486.66 17,650.46 17,353.03 15,756.50 15,607.49
03/31/15 20,162.68 17,539.16 17,084.15 15,587.53 15,473.47
04/30/15 20,356.10 17,769.65 17,579.84 15,798.74 15,661.58
05/31/15 20,617.87 17,780.03 17,556.90 15,847.02 15,679.82
06/30/15 20,218.75 17,480.12 17,143.58 15,527.18 15,373.49
07/31/15 20,642.35 17,580.16 17,292.46 15,575.46 15,407.22
08/31/15 19,396.92 16,879.03 16,107.04 14,857.33 14,708.26
09/30/15 18,916.97 16,561.70 15,523.50 14,513.36 14,387.04
10/31/15 20,512.70 17,313.60 16,741.86 15,128.89 15,037.38
11/30/15 20,573.70 17,612.57 16,603.61 15,014.24 14,952.29
[END CHART]
Data from 11/30/05 through 11/30/15.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes except
that the Lipper Index reflects the fees and expenses of the underlying funds
included in the index.
*As of October 1, 2015, the MSCI All-Country World Index replaced the S&P 500
Index as it more closely represents the securities held by the Fund.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderately Aggressive Fund to the benchmarks
listed below. The Manager has developed the Cornerstone Moderately Aggressive
Composite Index, which is used to measure the Fund's performance. The custom
benchmark was created by the Manager to show how the Fund's performance compares
with the returns of an index or indexes with similar asset allocations.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
o The Cornerstone Moderately Aggressive Composite Index is a combination of
unmanaged indexes representing the Fund's model allocation, and consists of
the MSCI USA Investable Market Index (IMI) (34%), the MSCI ACWI ex USA IMI
(23%), the Barclays U.S. Universal Index (38%), the Bloomberg Commodity
Index Total Return (1.5%), the MSCI U.S. Real Estate Investment Trust
(REIT) Index (1.5%), and the Barclays U.S. Treasury - Bills (1-3M) (2%).
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
o The Lipper Index tracks the performance of the 30 largest funds within a
category consisting of funds that allocate their investments across various
asset classes, including both domestic and foreign stocks, bonds, and money
market instruments, with a focus on total return, and which have at least
25% of their portfolio invested in securities traded outside of the United
States. SOURCE: LIPPER, A THOMSON REUTERS COMPANY.
================================================================================
8 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
o TOP 10 HOLDINGS* - 11/30/15 o
(% of Net Assets)
U.S. Treasury Bond 3.13%, 8/15/2044 ....................................... 3.6%
U.S. Treasury Bond 3.00%, 5/15/2045 ....................................... 2.5%
iShares Core MSCI EAFE ETF** .............................................. 2.4%
iShares Core MSCI Emerging Markets ETF** .................................. 2.3%
iShares Core S&P 500 ETF** ................................................ 1.9%
Vanguard S&P 500 ETF** .................................................... 1.6%
Vanguard Small-Cap Value ETF** ............................................ 1.6%
iShares 7-10 Year Treasury Bond ETF** ..................................... 1.5%
Vanguard FTSE Europe ETF** ................................................ 1.3%
Vanguard Mid-Cap ETF** .................................................... 1.2%
* Excludes futures and money market instruments.
** The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
You will find a complete list of securities that the Fund owns on pages 11-48.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION* - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
U.S. EQUITY SECURITIES** 37.4%
INTERNATIONAL EQUITY SECURITIES** 24.9%
CORPORATE OBLIGATIONS 12.2%
U.S. TREASURY SECURITIES 8.3%
COMMERCIAL MORTGAGE SECURITIES 6.6%
MONEY MARKET INSTRUMENTS 3.6%
EURODOLLAR AND YANKEE OBLIGATIONS 3.3%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.5%
GLOBAL REAL ESTATE EQUITY SECURITIES 1.2%
U.S. GOVERNMENT AGENCY ISSUES 0.3%
ASSET-BACKED SECURITIES 0.2%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
CONVERTIBLE SECURITIES*** 0.0%
[END CHART]
* Excludes futures.
** The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
*** Represents less than 0.1% of the Fund.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (37.4%)
COMMON STOCKS (26.8%)
CONSUMER DISCRETIONARY (4.1%)
-----------------------------
ADVERTISING (0.4%)
137,300 Omnicom Group, Inc. $ 10,149
------------
APPAREL RETAIL (0.4%)
4,320 Caleres, Inc. 122
5,490 Finish Line, Inc. "A" 91
118,600 TJX Companies, Inc. 8,373
------------
8,586
------------
AUTO PARTS & EQUIPMENT (0.7%)
142,600 BorgWarner, Inc. 6,088
8,570 Dana Holding Corp. 141
8,030 Gentex Corp. 134
2,050 Gentherm, Inc.* 104
118,100 Johnson Controls, Inc. 5,433
115,600 Magna International, Inc. 5,253
------------
17,153
------------
AUTOMOBILE MANUFACTURERS (0.2%)
343,400 Ford Motor Co. 4,921
3,150 Thor Industries, Inc. 182
------------
5,103
------------
AUTOMOTIVE RETAIL (0.0%)
4,370 CST Brands, Inc. 163
1,940 Lithia Motors, Inc. "A" 241
1,890 Murphy USA, Inc.* 112
------------
516
------------
BROADCASTING (0.4%)
172,000 CBS Corp. "B" 8,683
------------
FOOTWEAR (0.0%)
7,910 Wolverine World Wide, Inc. 144
------------
GENERAL MERCHANDISE STORES (0.4%)
138,500 Dollar General Corp. 9,059
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (0.1%)
12,700 Home Depot, Inc. $ 1,700
------------
HOMEBUILDING (0.1%)
7,100 M/I Homes, Inc.* 166
4,210 Meritage Homes Corp.* 157
140 NVR, Inc.* 236
18,870 TRI Pointe Group, Inc.* 263
------------
822
------------
HOTELS, RESORTS & CRUISE LINES (1.2%)
178,400 Carnival Corp. 9,014
3,941 Carnival plc(a) 206
50,000 Hilton Worldwide Holdings, Inc. 1,161
296,400 Norwegian Cruise Line Holdings Ltd.* 17,025
------------
27,406
------------
INTERNET RETAIL (0.1%)
22,100 Expedia, Inc. 2,721
------------
PUBLISHING (0.0%)
7,480 Gannett Co., Inc. 128
3,120 Meredith Corp. 145
------------
273
------------
SPECIALIZED CONSUMER SERVICES (0.1%)
73,000 H&R Block, Inc. 2,678
5,210 Sotheby's 148
------------
2,826
------------
SPECIALTY STORES (0.0%)
4,410 Dick's Sporting Goods, Inc. 172
3,280 Hibbett Sports, Inc.* 108
------------
280
------------
Total Consumer Discretionary 95,421
------------
CONSUMER STAPLES (1.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.0%)
2,910 Ingredion, Inc. 287
------------
DRUG RETAIL (0.6%)
70,980 CVS Health Corp. 6,678
87,100 Walgreens Boots Alliance, Inc. 7,319
------------
13,997
------------
FOOD RETAIL (0.3%)
2,080 Casey's General Stores, Inc. 242
================================================================================
12 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
135,400 Kroger Co. $ 5,099
------------
5,341
------------
HOUSEHOLD PRODUCTS (0.2%)
69,800 Procter & Gamble Co. 5,224
------------
PACKAGED FOODS & MEAT (0.0%)
8,860 Flowers Foods, Inc. 208
------------
PERSONAL PRODUCTS (0.0%)
1,910 Edgewell Personal Care Co. 154
------------
SOFT DRINKS (0.3%)
66,400 PepsiCo, Inc. 6,651
------------
Total Consumer Staples 31,862
------------
ENERGY (1.8%)
-------------
INTEGRATED OIL & GAS (0.9%)
60,730 Chevron Corp. 5,546
197,300 Occidental Petroleum Corp. 14,914
------------
20,460
------------
OIL & GAS DRILLING (0.0%)
10,590 Atwood Oceanics, Inc. 168
7,348 Transocean Ltd.(a) 106
------------
274
------------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
67,650 Halliburton Co. 2,696
11,670 Helix Energy Solutions Group, Inc.* 75
8,420 Hornbeck Offshore Services, Inc.* 103
50,200 Schlumberger Ltd. 3,873
------------
6,747
------------
OIL & GAS EXPLORATION & PRODUCTION (0.6%)
64,100 Anadarko Petroleum Corp. 3,840
78,040 California Resources Corp. 320
16,700 Cimarex Energy Co. 1,988
94,700 ConocoPhillips 5,119
31,600 EOG Resources, Inc. 2,636
74,900 Marathon Oil Corp. 1,311
------------
15,214
------------
OIL & GAS REFINING & MARKETING (0.0%)
5,780 Green Plains, Inc. 137
2,170 REX American Resources Corp.* 136
------------
273
------------
Total Energy 42,968
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
FINANCIALS (4.5%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.3%)
38,000 Ameriprise Financial, Inc. $ 4,292
40,900 Bank of New York Mellon Corp. 1,793
8,210 Eaton Vance Corp. 295
5,060 Waddell & Reed Financial, Inc. "A" 189
------------
6,569
------------
CONSUMER FINANCE (0.7%)
154,770 Capital One Financial Corp. 12,151
2,640 Encore Capital Group, Inc.* 87
111,954 Synchrony Financial* 3,564
------------
15,802
------------
DIVERSIFIED BANKS (2.3%)
1,357,600 Bank of America Corp. 23,663
253,817 Citigroup, Inc. 13,729
207,400 JPMorgan Chase & Co. 13,830
46,720 Wells Fargo & Co. 2,574
------------
53,796
------------
INVESTMENT BANKING & BROKERAGE (0.0%)
7,550 Raymond James Financial, Inc. 443
------------
LIFE & HEALTH INSURANCE (0.1%)
4,660 American Equity Investment Life Insurance Co. 125
53,600 MetLife, Inc. 2,738
------------
2,863
------------
MULTI-LINE INSURANCE (0.0%)
1,370 American Financial Group, Inc. 101
------------
PROPERTY & CASUALTY INSURANCE (0.0%)
2,630 AMERISAFE, Inc. 142
1,800 Hanover Insurance Group, Inc. 152
9,410 Old Republic International Corp. 178
5,160 Selective Insurance Group, Inc. 178
2,850 W.R. Berkley Corp. 159
------------
809
------------
REGIONAL BANKS (1.1%)
1,780 Bank of Hawaii Corp. 123
7,320 Cathay General Bancorp 251
1,750 Cullen/Frost Bankers, Inc. 122
9,740 F.N.B. Corp. 141
438,400 Fifth Third Bancorp 9,062
6,040 FirstMerit Corp. 122
7,680 Fulton Financial Corp. 111
================================================================================
14 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
928,000 KeyCorp $ 12,166
14,590 National Penn Bancshares, Inc. 182
16,900 PNC Financial Services Group, Inc. 1,614
2,210 Prosperity Bancshares, Inc. 123
8,790 TCF Financial Corp. 135
5,470 Webster Financial Corp. 220
12,050 Wilshire Bancorp, Inc. 149
------------
24,521
------------
REINSURANCE (0.0%)
290 Alleghany Corp.* 148
1,980 Endurance Specialty Holdings Ltd. 131
1,670 Reinsurance Group of America, Inc. 153
------------
432
------------
SPECIALIZED FINANCE (0.0%)
2,870 Atlas Air Worldwide Holdings, Inc.* 119
------------
THRIFTS & MORTGAGE FINANCE (0.0%)
10,730 Astoria Financial Corp. 173
20,740 New York Community Bancorp, Inc. 340
7,080 Washington Federal, Inc. 183
------------
696
------------
Total Financials 106,151
------------
HEALTH CARE (4.9%)
------------------
BIOTECHNOLOGY (1.8%)
334,940 AbbVie, Inc. 19,477
39,300 Amgen, Inc. 6,331
3,060 Enanta Pharmaceuticals, Inc.* 97
151,900 Gilead Sciences, Inc. 16,095
1,610 United Therapeutics Corp.* 246
------------
42,246
------------
HEALTH CARE DISTRIBUTORS (0.3%)
27,401 Cardinal Health, Inc. 2,380
17,800 McKesson Corp. 3,370
4,230 Owens & Minor, Inc. 163
------------
5,913
------------
HEALTH CARE EQUIPMENT (0.9%)
4,800 CONMED Corp. 204
3,360 Greatbatch, Inc.* 195
218,800 Hologic, Inc.* 8,829
5,380 Masimo Corp.* 223
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
143,800 Medtronic plc $ 10,834
2,340 Teleflex, Inc. 308
------------
20,593
------------
HEALTH CARE FACILITIES (0.0%)
3,690 Ensign Group, Inc. 176
------------
HEALTH CARE SERVICES (0.0%)
1,160 Chemed Corp. 179
3,450 MEDNAX, Inc.* 246
------------
425
------------
HEALTH CARE SUPPLIES (0.0%)
3,380 Anika Therapeutics, Inc.* 142
------------
LIFE SCIENCES TOOLS & SERVICES (0.0%)
1,480 Bio-Rad Laboratories, Inc. "A"* 207
2,820 Cambrex Corp.* 151
4,690 QIAGEN N.V.*(a) 124
------------
482
------------
MANAGED HEALTH CARE (0.1%)
28,000 UnitedHealth Group, Inc. 3,156
------------
PHARMACEUTICALS (1.8%)
21,800 Allergan plc* 6,843
1,060 DepoMed, Inc.* 21
72,190 Johnson & Johnson 7,308
2,250 Lannett Co., Inc.* 83
197,300 Merck & Co., Inc. 10,459
484,802 Pfizer, Inc. 15,887
4,680 Prestige Brands Holdings, Inc.* 238
------------
40,839
------------
Total Health Care 113,972
------------
INDUSTRIALS (2.9%)
------------------
AEROSPACE & DEFENSE (0.6%)
62,000 Honeywell International, Inc. 6,445
2,270 Moog, Inc. "A"* 150
16,100 Raytheon Co. 1,997
1,740 Teledyne Technologies, Inc.* 161
17,300 TransDigm Group, Inc.* 4,059
------------
12,812
------------
AGRICULTURAL & FARM MACHINERY (0.0%)
2,480 AGCO Corp. 125
------------
================================================================================
16 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
AIRLINES (0.4%)
97,900 Southwest Airlines Co. $ 4,492
94,700 United Continental Holdings, Inc.* 5,277
------------
9,769
------------
BUILDING PRODUCTS (0.0%)
2,310 Universal Forest Products, Inc. 178
------------
COMMERCIAL PRINTING (0.0%)
3,170 Deluxe Corp. 186
------------
CONSTRUCTION & ENGINEERING (0.0%)
3,140 EMCOR Group, Inc. 158
------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.0%)
4,080 Trinity Industries, Inc. 111
------------
DIVERSIFIED SUPPORT SERVICES (0.0%)
2,130 G & K Services, Inc. "A" 142
1,030 UniFirst Corp. 112
------------
254
------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
62,600 Eaton Corp. plc 3,641
2,550 EnerSys 150
------------
3,791
------------
ENVIRONMENTAL & FACILITIES SERVICES (0.0%)
4,150 ABM Industries, Inc. 123
4,220 Tetra Tech, Inc. 117
------------
240
------------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
2,230 AZZ, Inc. 133
------------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
4,150 Korn/Ferry International 153
3,370 ManpowerGroup, Inc. 304
3,550 On Assignment, Inc.* 166
------------
623
------------
INDUSTRIAL CONGLOMERATES (1.2%)
41,370 Carlisle Companies, Inc. 3,659
789,459 General Electric Co. 23,637
------------
27,296
------------
INDUSTRIAL MACHINERY (0.5%)
2,920 Barnes Group, Inc. 112
2,050 Crane Co. 107
1,590 Graco, Inc. 120
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
3,910 Mueller Industries, Inc. $ 123
2,220 Nordson Corp. 161
93,700 Stanley Black & Decker, Inc. 10,228
------------
10,851
------------
OFFICE SERVICES & SUPPLIES (0.0%)
3,330 Essendant, Inc. 121
------------
RAILROADS (0.0%)
2,410 Genesee & Wyoming, Inc. "A"* 167
------------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
2,410 Applied Industrial Technologies, Inc. 103
2,560 GATX Corp. 118
------------
221
------------
TRUCKING (0.0%)
7,400 Knight Transportation, Inc. 196
------------
Total Industrials 67,232
------------
INFORMATION TECHNOLOGY (5.1%)
-----------------------------
APPLICATION SOFTWARE (0.0%)
3,960 Ebix, Inc. 148
11,140 Mentor Graphics Corp. 209
9,200 Synopsys, Inc.* 461
------------
818
------------
COMMUNICATIONS EQUIPMENT (0.9%)
6,630 ARRIS Group, Inc.* 203
706,317 Cisco Systems, Inc. 19,247
4,320 Plantronics, Inc. 228
29,100 QUALCOMM, Inc. 1,420
------------
21,098
------------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
17,700 Alliance Data Systems Corp.* 5,077
4,920 Broadridge Financial Solutions, Inc. 271
7,960 Convergys Corp. 205
4,410 CSG Systems International, Inc. 158
1,530 DST Systems, Inc. 187
5,280 Global Payments, Inc. 374
65,000 MasterCard, Inc. "A" 6,365
4,760 Sykes Enterprises, Inc.* 151
17,100 Visa, Inc. "A" 1,351
------------
14,139
------------
ELECTRONIC COMPONENTS (0.0%)
1,330 Littelfuse, Inc. 144
------------
================================================================================
18 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
4,630 Keysight Technologies, Inc.* $ 143
------------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
9,380 Jabil Circuit, Inc. 240
3,140 Methode Electronics, Inc. 113
3,380 Plexus Corp.* 126
------------
479
------------
INTERNET SOFTWARE & SERVICES (1.0%)
24,060 Alphabet, Inc. "A"* 18,354
47,700 Facebook, Inc. "A"* 4,972
3,550 J2 Global, Inc. 286
------------
23,612
------------
SEMICONDUCTOR EQUIPMENT (0.1%)
121,100 Applied Materials, Inc. 2,273
2,380 Cabot Microelectronics Corp.* 100
3,010 MKS Instruments, Inc. 111
3,780 Tessera Technologies, Inc. 120
------------
2,604
------------
SEMICONDUCTORS (0.1%)
40,470 Intel Corp. 1,407
105,100 Micron Technology, Inc.* 1,675
------------
3,082
------------
SYSTEMS SOFTWARE (1.4%)
436,260 Microsoft Corp. 23,711
220,900 Oracle Corp. 8,608
------------
32,319
------------
TECHNOLOGY DISTRIBUTORS (0.1%)
3,750 Arrow Electronics, Inc.* 212
4,080 Avnet, Inc. 185
1,520 ePlus, Inc.* 134
6,100 Ingram Micro, Inc. "A" 189
1,660 SYNNEX Corp. 156
2,240 Tech Data Corp.* 152
------------
1,028
------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.9%)
91,840 Apple, Inc. 10,865
457,600 HP, Inc. 5,738
41,700 Seagate Technology plc 1,499
44,600 Western Digital Corp. 2,783
------------
20,885
------------
Total Information Technology 120,351
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
MATERIALS (0.9%)
----------------
COMMODITY CHEMICALS (0.1%)
22,000 LyondellBasell Industries N.V. "A" $ 2,108
------------
DIVERSIFIED CHEMICALS (0.4%)
718,200 Huntsman Corp. 8,992
------------
DIVERSIFIED METALS & MINING (0.2%)
1,540 Compass Minerals International, Inc. 129
626,000 Freeport-McMoRan, Inc. 5,121
------------
5,250
------------
METAL & GLASS CONTAINERS (0.0%)
1,870 AptarGroup, Inc. 139
------------
PAPER PACKAGING (0.2%)
80,970 Bemis Co., Inc. 3,816
2,720 Sonoco Products Co. 119
------------
3,935
------------
PAPER PRODUCTS (0.0%)
6,230 KapStone Paper & Packaging Corp. 151
------------
SPECIALTY CHEMICALS (0.0%)
4,430 Albemarle Corp. 237
2,200 Innospec, Inc. 129
2,400 Stepan Co. 125
3,540 Valspar Corp. 299
------------
790
------------
STEEL (0.0%)
2,980 Reliance Steel & Aluminum Co. 175
------------
Total Materials 21,540
------------
TELECOMMUNICATION SERVICES (0.5%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
231,155 Verizon Communications, Inc. 10,506
------------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.7%)
2,790 ALLETE, Inc. 142
70,500 American Electric Power Co., Inc. 3,949
153,000 Edison International 9,082
31,400 NextEra Energy, Inc. 3,136
6,710 OGE Energy Corp. 175
------------
16,484
------------
================================================================================
20 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
GAS UTILITIES (0.0%)
4,080 Laclede Group, Inc. $ 238
7,160 South Jersey Industries, Inc. 164
------------
402
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
14,600 Talen Energy Corp.* 114
------------
MULTI-UTILITIES (0.0%)
3,810 Avista Corp. 132
3,420 NorthWestern Corp. 186
------------
318
------------
Total Utilities 17,318
------------
Total Common Stocks (cost: $553,442) 627,321
------------
PREFERRED STOCKS (1.5%)
CONSUMER STAPLES (0.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
90,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 9,444
------------
ENERGY (0.6%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
8,600 Chesapeake Energy Corp., 5.75%, perpetual(b) 2,344
------------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
2,500 Kinder Morgan G.P., Inc., 4.13%, cumulative redeemable(b) 2,329
369,399 NuStar Logistics, LP, 7.63% 9,258
------------
11,587
------------
Total Energy 13,931
------------
FINANCIALS (0.5%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
381,253 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 9,460
------------
REINSURANCE (0.1%)
3,000 American Overseas Group Ltd., 7.50%, non-cumulative, perpetual,
acquired 1/23/2007 - 3/02/2007; cost $3,065*(c),(d) 750
------------
Total Financials 10,210
------------
Total Preferred Stocks (cost: $39,042) 33,585
------------
EXCHANGE-TRADED FUNDS (6.5%)
210,800 iShares Core S&P 500 ETF 44,241
7,230 iShares Core U.S. Aggregate Bond ETF 787
256,100 PowerShares DB Commodity Index Tracking Fund* 3,634
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
17,200 SPDR S&P 500 ETF Trust $ 3,589
220,300 Vanguard Mid-Cap ETF 27,319
191,520 Vanguard S&P 500 ETF 36,640
349,900 Vanguard Small-Cap Value ETF 36,610
------------
Total Exchange-Traded Funds (cost: $148,564) 152,820
------------
FIXED-INCOME EXCHANGE-TRADED FUNDS (2.6%)
189,470 iShares 20+ Year Treasury Bond ETF 23,011
331,000 iShares 7-10 Year Treasury Bond ETF 35,219
41,800 Vanguard Total Bond Market ETF 3,398
------------
Total Fixed-Income Exchange-Traded Funds (cost: $61,394) 61,628
------------
Total U.S. Equity Securities (cost: $802,442) 875,354
------------
INTERNATIONAL EQUITY SECURITIES (24.9%)
COMMON STOCKS (11.9%)
CONSUMER DISCRETIONARY (1.5%)
-----------------------------
ADVERTISING (0.0%)
4,600 Dentsu, Inc.(a) 259
------------
APPAREL RETAIL (0.0%)
23,396 Industria de Diseno Textil S.A.(a) 839
500 Shimamura Co. Ltd.(a) 61
------------
900
------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.1%)
4,572 Christian Dior S.A.(a) 836
13,677 Pandora A/S(a) 1,619
1,031 Swatch Group AG(a) 68
------------
2,523
------------
AUTO PARTS & EQUIPMENT (0.1%)
8,223 Continental AG(a) 1,987
2,000 Koito Manufacturing Co. Ltd.(a) 81
22,200 NHK Spring Co.(a) 229
16,100 Sumitomo Electric Industries Ltd.(a) 229
1,400 Toyoda Gosei Co. Ltd.(a) 33
------------
2,559
------------
AUTOMOBILE MANUFACTURERS (0.5%)
38,318 Daimler AG(a) 3,428
18,883 Fiat Chrysler Automobiles N.V.*(a) 269
48,400 Fuji Heavy Industries Ltd.(a) 2,004
45,500 Mazda Motor Corp.(a) 947
53,500 Nissan Motor Co. Ltd.(a) 572
================================================================================
22 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
115,720 Peugeot S.A.*(a) $ 2,064
7,800 Suzuki Motor Corp.(a) 240
53,900 Toyota Motor Corp.(a) 3,344
775 Volkswagen AG(a) 116
------------
12,984
------------
AUTOMOTIVE RETAIL (0.1%)
83,500 USS Co. Ltd.(a) 1,329
------------
BROADCASTING (0.1%)
80,775 ITV plc(a) 330
32,981 ProSiebenSat.1 Media AG(a) 1,731
847 RTL Group S.A.(a) 74
------------
2,135
------------
COMPUTER & ELECTRONICS RETAIL (0.0%)
400 Hikari Tsushin, Inc.(a) 29
------------
CONSUMER ELECTRONICS (0.1%)
84,100 Nikon Corp.(a) 1,130
46,800 Panasonic Corp.(a) 532
------------
1,662
------------
DEPARTMENT STORES (0.0%)
5,200 J. Front Retailing Co. Ltd.(a) 86
2,997 Next plc(a) 357
6,000 Takashimaya Co. Ltd.(a) 55
------------
498
------------
GENERAL MERCHANDISE STORES (0.0%)
11,679 Harvey Norman Holding Ltd.(a) 35
500 Ryohin Keikaku Co. Ltd.(a) 108
------------
143
------------
HOME IMPROVEMENT RETAIL (0.0%)
49,968 Kingfisher plc(a) 266
------------
HOMEBUILDING (0.2%)
173,509 Barratt Developments plc(a) 1,570
3,100 Iida Group Holdings Co. Ltd.(a) 60
6,645 Persimmon plc(a) 192
13,000 Sekisui House Ltd.(a) 220
539,012 Taylor Wimpey plc(a) 1,580
------------
3,622
------------
HOMEFURNISHING RETAIL (0.0%)
1,600 Nitori Holdings Co. Ltd.(a) 132
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES (0.1%)
52,416 Flight Centre Travel Group Ltd.(a) $ 1,367
10,757 TUIAG(a) 179
------------
1,546
------------
HOUSEHOLD APPLIANCES (0.0%)
7,643 Electrolux AB "B"(a) 224
800 Rinnai Corp.(a) 72
------------
296
------------
LEISURE PRODUCTS (0.1%)
55,800 BANDI NAMCO Holdings, Inc.(a) 1,244
1,000 Sankyo Co.(a) 40
1,700 Shimano, Inc.(a) 252
------------
1,536
------------
MOVIES & ENTERTAINMENT (0.0%)
2,400 Toho Co. Ltd.(a) 64
24,674 Vivendi S.A.(a) 519
------------
583
------------
PUBLISHING (0.1%)
47,164 Wolters Kluwer N.V.(a) 1,628
------------
TIRES & RUBBER (0.0%)
3,954 Compagnie Generale des Etablissements Michelin(a) 396
2,395 Nokian Renkaat Oyj(a) 94
------------
490
------------
Total Consumer Discretionary 35,120
------------
CONSUMER STAPLES (1.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
707,900 Wilmar International Ltd.(a) 1,433
------------
BREWERS (0.2%)
16,604 Anheuser-Busch InBev N.V.(a) 2,137
1,764 Carlsberg A/S "B"(a) 150
18,850 Heineken Holding N.V.(a) 1,482
12,528 Heineken N.V.(a) 1,113
20,437 SABMiller plc(a) 1,240
------------
6,122
------------
DISTILLERS & VINTNERS (0.0%)
5,387 Diageo plc(a) 154
13,422 Treasury Wine Estates Ltd.(a) 74
------------
228
------------
================================================================================
24 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.1%)
1,241 Casino Guichard-Perrachon S.A.(a) $ 71
39,568 ICA Gruppen AB(a) 1,392
41,149 J Sainsbury plc(a) 157
46,735 WM Morrison Supermarkets plc(a) 108
------------
1,728
------------
HOUSEHOLD PRODUCTS (0.2%)
17,807 Reckitt Benckiser Group plc(a) 1,671
75,176 Svenska Cellulosa AB "B"(a) 2,167
------------
3,838
------------
HYPERMARKETS & SUPER CENTERS (0.1%)
32,822 Metro AG(a) 1,094
70,607 Wesfarmers Ltd.(a) 1,949
------------
3,043
------------
PACKAGED FOODS & MEAT (0.2%)
2 Lindt & Spruengli AG(a) 144
54,648 Nestle S.A.(a) 4,050
5,000 NH Foods Ltd.(a) 97
17,169 Orkla ASA(a) 139
9,598 Tate & Lyle plc(a) 85
------------
4,515
------------
PERSONAL PRODUCTS (0.1%)
59,076 Unilever N.V.(a) 2,589
601 Unilever plc(a) 26
------------
2,615
------------
TOBACCO (0.3%)
39,199 British American Tobacco plc(a) 2,284
53,212 Imperial Tobacco Group plc(a) 2,875
52,700 Japan Tobacco, Inc.(a) 1,890
------------
7,049
------------
Total Consumer Staples 30,571
------------
ENERGY (1.0%)
-------------
INTEGRATED OIL & GAS (1.0%)
70,337 BG Group plc(a) 1,093
614,202 BP plc(a),(e) 3,564
41,529 ENI S.p.A.(a) 673
8,139 Galp Energia SGPS S.A.(a) 86
8,452 OMV AG(a) 241
14,775 Repsol S.A.(a) 192
79,990 Royal Dutch Shell plc "A"(a) 1,979
50,147 Royal Dutch Shell plc "B"(a),(e) 1,248
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
208,800 Royal Dutch Shell plc ADR "A" $ 10,390
22,773 Statoil ASA(a) 351
65,606 Total S.A.(a),(e) 3,254
------------
23,071
------------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
5,397 Petrofac Ltd.(a) 67
------------
OIL & GAS REFINING & MARKETING (0.0%)
5,919 Caltex Australia Ltd.(a) 147
1,502 Neste Oyj(a) 43
------------
190
------------
Total Energy 23,328
------------
FINANCIALS (2.6%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.0%)
4,500 SBI Holdings, Inc.(a) 51
------------
DIVERSIFIED BANKS (1.2%)
55,376 Australia and New Zealand Banking Group Ltd.(a) 1,084
70,039 Banco Santander S.A.(a),(e) 382
271,507 Bank Hapoalim B.M.(a) 1,404
18,262 BNP Paribas S.A.(a) 1,082
77,000 BOC Hong Kong Holdings Ltd.(a) 237
10,972 Commonwealth Bank of Australia(a),(e) 629
21,691 Credit Agricole S.A.(a) 261
10,572 Danske Bank A/S(a) 283
112,418 DnB NOR ASA(a) 1,479
7,600 Hang Seng Bank Ltd.(a) 138
577,431 HSBC Holdings plc(a),(e) 4,601
421,654 Intesa Sanpaolo(a) 1,442
19,719 Intesa Sanpaolo(a) 62
27,537 KBC Groep N.V.(a) 1,643
60,329 Lloyds Banking Group plc(a) 66
285,200 Mitsubishi UFJ Financial Group, Inc.(a) 1,833
1,350,500 Mizuho Financial Group, Inc.(a) 2,729
64,395 Nordea Bank AB(a) 713
61,712 Oversea-Chinese Banking Corp. Ltd.(a) 379
43,980 Societe Generale S.A.(a) 2,096
69,400 Sumitomo Mitsui Financial Group, Inc.(a) 2,651
392,000 Sumitomo Mitsui Trust Holdings, Inc.(a) 1,499
19,313 Swedbank AB "A"(a) 427
64,888 Westpac Banking Corp.(a) 1,505
------------
28,625
------------
================================================================================
26 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS (0.1%)
76,159 UBS Group AG(a) $ 1,459
------------
INVESTMENT BANKING & BROKERAGE (0.1%)
16,743 Macquarie Group Ltd.(a) 983
12,075 Mediobanca S.p.A.(a) 115
77,000 Nomura Real Estate Master Fund, Inc.(a) 457
------------
1,555
------------
LIFE & HEALTH INSURANCE (0.2%)
12,800 AIA Group Ltd.(a) 77
23,200 Dai-Ichi Life Insurance Co. Ltd.(a) 402
469,746 Legal & General Group plc(a) 1,919
58,409 Medibank Private Ltd.(a) 98
26,487 NN Group N.V.(a) 904
102,450 Old Mutual plc(a) 323
690 Swiss Life Holding AG(a) 174
------------
3,897
------------
MULTI-LINE INSURANCE (0.3%)
4,202 Ageas(a) 184
18,615 Allianz SE(a) 3,296
103,242 AXA S.A.(a) 2,789
6,864 Baloise Holdings AG(a) 833
------------
7,102
------------
MULTI-SECTOR HOLDINGS (0.1%)
1,715 Groupe Bruxelles Lambert S.A.(a) 141
3,554 Industrivarden AB "C"(a) 64
45,128 Investor AB "B"(a) 1,718
------------
1,923
------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
127,400 ORIX Corp.(a) 1,833
------------
PROPERTY & CASUALTY INSURANCE (0.2%)
28,850 Direct Line Insurance Group plc(a) 179
21,646 RSA Insurance Group plc(a) 143
112,400 XL Group plc 4,292
------------
4,614
------------
REGIONAL BANKS (0.1%)
104,074 Bank of Queensland Ltd.(a) 1,031
25,000 Bank of Yokohama Ltd.(a) 147
16,000 Chiba Bank Ltd.(a) 111
13,000 Joyo Bank Ltd.(a) 60
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
7,300 Kyushu Financial Group, Inc.* $ 56
308,000 Resona Holdings, Inc.(a) 1,505
------------
2,910
------------
REINSURANCE (0.2%)
16,073 Hannover Rueck SE(a) 1,881
9,320 Muenchener Rueckversicherungs-Gesellschaft AG(a) 1,878
3,382 SCOR SE(a) 132
19,463 Swiss Re AG(a) 1,852
------------
5,743
------------
Total Financials 59,712
------------
HEALTH CARE (1.6%)
------------------
BIOTECHNOLOGY (0.1%)
2,205 Actelion Ltd.(a) 309
9,626 CSL Ltd.(a) 695
3,164 Grifola S.A.(a) 150
------------
1,154
------------
HEALTH CARE DISTRIBUTORS (0.0%)
4,000 Alfresa Holdings Corp.(a) 79
5,800 Medipal Holdings Corp.(a) 102
------------
181
------------
HEALTH CARE EQUIPMENT (0.0%)
268 Sonova Holding AG(a) 34
------------
HEALTH CARE FACILITIES (0.0%)
2,936 Ramsay Health Care Ltd.(a) 142
7,980 Ryman Healthcare Ltd.(a) 41
------------
183
------------
HEALTH CARE SERVICES (0.1%)
8,248 Fresenius SE & Co. KGaA(a) 605
1,100 Miraca Holdings, Inc.(a) 49
72,128 Sonic Healthcare Ltd.(a) 1,063
------------
1,717
------------
LIFE SCIENCES TOOLS & SERVICES (0.0%)
1,104 Lonza Group AG(a) 174
------------
PHARMACEUTICALS (1.4%)
44,700 Astellas Pharma, Inc.(a) 630
5,857 AstraZeneca plc(a) 398
7,727 Bayer AG(a) 1,031
86,100 Daiichi Sankyo Co. Ltd.(a) 1,776
104,444 GlaxoSmithKline plc(a) 2,122
59,389 Novartis AG(a),(e) 5,067
================================================================================
28 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
39,000 Novartis AG ADR $ 3,324
26,510 Novo Nordisk A/S "B"(a) 1,457
60,300 Otsuka Holdings Co. Ltd.(a) 2,001
18,830 Roche Holding AG(a) 5,034
95,000 Roche Holdings Ltd. ADR 3,182
24,805 Sanofi(a) 2,204
31,881 Shire plc(a) 2,219
45,193 Teva Pharmaceutical Industries Ltd.(a) 2,839
------------
33,284
------------
Total Health Care 36,727
------------
INDUSTRIALS (1.4%)
------------------
AEROSPACE & DEFENSE (0.2%)
32,819 Airbus Group SE(a) 2,370
66,298 BAE Systems plc(a) 516
15,917 Meggitt plc(a) 93
23,301 Safran S.A.(a) 1,719
2,210 Thales S.A.(a) 164
------------
4,862
------------
AIR FREIGHT & LOGISTICS (0.1%)
166,078 Royal Mail plc ADR(a) 1,216
------------
AIRLINES (0.1%)
25,000 All Nippon Airways Co. Ltd.(a) 70
234,000 Cathay Pacific Airways(a) 416
53,289 easyJet plc(a) 1,326
16,802 International Consolidated Airlines Group S.A.*(a) 143
2,600 Japan Airlines Co. Ltd.(a) 89
10,831 Qantas Airways Ltd.(a) 28
13,357 Ryanair Holdings plc ADR 1,027
------------
3,099
------------
AIRPORT SERVICES (0.0%)
678 Aena S.A.*(a) 77
19,463 Auckland International Airport Ltd.(a) 68
900 Japan Airport Terminal Co.(a) 45
23,043 Sydney Airport(a) 110
------------
300
------------
BUILDING PRODUCTS (0.0%)
22,000 Asahi Glass Co. Ltd.(a) 129
5,000 Daikin Industries Ltd.(a) 352
3,000 Toto Ltd.(a) 104
------------
585
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING (0.2%)
4,161 ACS Actividades de Construccion y Servicios S.A.(a) $ 136
4,263 Bouygues S.A.(a) 160
52,166 CIMIC Group Ltd.(a) 947
9,297 Ferrovial S.A.(a) 220
91,000 Obayashi Corp.(a) 841
13,000 Shimizu Corp.(a) 109
71,038 Skanska AB "B"(a) 1,413
23,000 Taisei Corp.(a) 142
10,190 Vinci S.A.(a) 662
------------
4,630
------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.0%)
42,200 Yangzijiang Shipbuilding Holdings Ltd.(a) 33
------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
12,000 Fuji Electric Co. Ltd.(a) 55
1,927 Osram Licht AG(a) 82
4,129 Prysmian S.p.A.(a) 90
------------
227
------------
HEAVY ELECTRICAL EQUIPMENT (0.1%)
34,697 Vestas Wind Systems A/S(a) 2,260
------------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
13,946 Capita plc(a) 267
2,666 Randstad Holding N.V.(a) 167
------------
434
------------
INDUSTRIAL CONGLOMERATES (0.2%)
155,360 CK Hutchison Holdings Ltd.(a),(e) 2,028
98,500 Hopewell Holdings Ltd.(a) 348
12,518 Siemens AG(a) 1,297
------------
3,673
------------
INDUSTRIAL MACHINERY (0.2%)
6,256 Alfa Laval AB(a) 116
32,500 Amada Co. Ltd.(a) 320
4,500 JTEKT Corp.(a) 83
30,000 Kawasaki Heavy Industries Ltd.(a) 119
6,987 Kone Oyj "B"(a) 298
2,600 Makita Corp.(a) 147
2,336 Metso Oyj.(a) 58
7,000 Minebea Co. Ltd.(a) 77
64,000 Mitsubishi Heavy Industries Ltd.(a) 328
18,000 NGK Insulators Ltd.(a) 416
10,000 NSK Ltd.(a) 126
5,428 Schindler Holding AG(a) 889
================================================================================
30 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
938 Schindler Holding AG(a) $ 154
1,200 SMC Corp.(a) 318
12,000 Sumitomo Heavy Industries Ltd.(a) 57
------------
3,506
------------
MARINE (0.1%)
83 A.P. Moller-Maersk A/S "A"(a) 124
926 A.P. Moller-Maersk A/S "B"(a) 1,412
5,561 Kuehne & Nagel International AG(a) 751
114,000 Nippon Yusen Kabushiki Kaisha(a) 297
------------
2,584
------------
OFFICE SERVICES & SUPPLIES (0.0%)
611 Societe BIC S.A.(a) 100
------------
RAILROADS (0.1%)
3,200 Central Japan Railway Co.(a) 572
18,300 West Japan Railway Co.(a) 1,157
------------
1,729
------------
RESEARCH & CONSULTING SERVICES (0.0%)
3,393 Intertek Group plc(a) 144
116 SGS S.A.(a) 222
------------
366
------------
SECURITY & ALARM SERVICES (0.0%)
4,400 Secom Co. Ltd.(a) 302
------------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
31,992 Ashtead Group plc ADR(a) 526
147,700 ITOCHU Corp.(a) 1,804
36,200 Mitsui & Co. Ltd.(a) 445
23,900 Sumitomo Corp.(a) 254
------------
3,029
------------
Total Industrials 32,935
------------
INFORMATION TECHNOLOGY (0.8%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
2,662 Dassault Systemes S.A.(a) 212
14,140 SAP SE(a) 1,113
------------
1,325
------------
COMMUNICATIONS EQUIPMENT (0.0%)
68,497 Nokia Oyj(a) 494
------------
DATA PROCESSING & OUTSOURCED SERVICES (0.0%)
9,344 Amadeus IT Holding S.A. "A"(a) 375
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS (0.2%)
51,400 Alps Electric Co. Ltd.(a) $ 1,619
2,600 Ibiden Co. Ltd.(a) 41
6,800 Kyocera Corp.(a) 314
15,200 Murata Manufacturing Co. Ltd.(a) 2,362
------------
4,336
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
5,600 Citizen Holdings Co. Ltd.(a) 42
19,000 Hitachi Ltd.(a) 112
1,171 Ingenico Group(a) 147
37,100 Yokogawa Electric Corp.(a) 443
------------
744
------------
HOME ENTERTAINMENT SOFTWARE (0.0%)
26,600 KONAMI Corp.(a) 621
18,700 Nexon Co. Ltd.(a) 297
------------
918
------------
INTERNET SOFTWARE & SERVICES (0.0%)
14,600 Mixi, Inc.(a) 599
------------
IT CONSULTING & OTHER SERVICES (0.1%)
20,461 Cap Gemini S.A(a) 1,885
2,700 NTT Data Corp.(a) 132
------------
2,017
------------
SEMICONDUCTORS (0.3%)
62,639 NXP Semiconductors N.V.* 5,854
------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.1%)
53,700 FUJIFILM Holdings Corp.(a) 2,178
9,900 Konica Minolta, Inc.(a) 104
56,000 NEC Corp.(a) 188
------------
2,470
------------
Total Information Technology 19,132
------------
MATERIALS (0.7%)
----------------
ALUMINUM (0.0%)
27,348 Norsk Hydro ASA(a) 106
------------
COMMODITY CHEMICALS (0.1%)
248,000 Asahi Kasei Corp.(a) 1,698
6,000 Kaneka Corp.(a) 59
7,600 Kuraray Co. Ltd.(a) 97
17,000 Mitsui Chemicals, Inc.(a) 71
8,000 Toray Industries, Inc.(a) 73
------------
1,998
------------
================================================================================
32 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (0.0%)
8,536 LafargeHolcim Ltd.(a) $ 455
------------
DIVERSIFIED CHEMICALS (0.1%)
3,394 BASF SE(a) 281
35,522 Incitec Pivot Ltd.(a) 97
29,300 Mitsubishi Chemical Holdings Corp.(a) 192
70,000 Mitsubishi Gas Chemical Co., Inc.(a) 380
1,269 Solvay S.A.(a) 146
------------
1,096
------------
DIVERSIFIED METALS & MINING (0.1%)
49,647 Boliden AB(a) 911
24,000 Mitsubishi Materials Corp.(a) 85
7,020 Rio Tinto Ltd.(a) 234
27,004 Rio Tinto plc(a) 897
108,000 Sumitomo Metal Mining Co. Ltd.(a) 1,219
------------
3,346
------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
55,123 K&S AG(a) 1,570
36,617 Yara International ASA(a) 1,694
------------
3,264
------------
METAL & GLASS CONTAINERS (0.0%)
14,962 Rexam plc(a) 130
------------
PAPER PRODUCTS (0.1%)
75,594 Mondi plc(a) 1,758
17,000 Oji Holdings Corp.(a) 74
73,068 UPM-Kymmene Oyj(a) 1,392
------------
3,224
------------
SPECIALTY CHEMICALS (0.1%)
2,805 Croda International plc(a) 121
114,900 Daicel Corp.(a) 1,684
173 EMS-Chemie Holding AG(a) 70
------------
1,875
------------
STEEL (0.1%)
14,445 ArcelorMittal ADR(a) 71
35,742 Fortescue Metals Group Ltd.(a) 50
4,800 Hitachi Metals Ltd.(a) 62
10,800 JFE Holdings, Inc.(a) 171
66,000 Kobe Steel Ltd.(a) 77
16,100 Nippon Steel & Sumitomo Metal Corp.(a) 324
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
36,733 Voestalpine AG(a) $ 1,194
------------
1,949
------------
Total Materials 17,443
------------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
29,250 Bezeq The Israeli Telecommunication Corp. Ltd.(a) 63
177,614 BT Group plc(a) 1,328
67,200 Koninklijke (Royal) KPN N.V.(a) 255
63,600 Nippon Telegraph & Telephone Corp.(a) 2,364
42,235 Orange S.A.(a) 729
613,196 Spark New Zealand Ltd.(a) 1,347
124,947 Telecom Italia S.p.A.(a) 144
798,976 Telecom Italia S.p.A.*(a) 1,032
118,897 Telefonica S.A.(a) 1,462
------------
8,724
------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
101,600 KDDI Corp.(a) 2,526
2,300 NTT DOCOMO, Inc.(a) 44
620,937 Vodafone Group plc(a) 2,097
------------
4,667
------------
Total Telecommunication Services 13,391
------------
UTILITIES (0.4%)
----------------
ELECTRIC UTILITIES (0.2%)
29,000 Cheung Kong Holdings Ltd(a) 254
13,700 Chubu Electric Power Co., Inc.(a) 189
6,300 Chugoku Electric Power Co., Inc.(a) 81
5,509 EDF S.A.(a) 82
48,739 EDP-Energias de Portugal S.A.(a) 163
54,534 Endesa S.A.(a) 1,127
97,899 Fortum Oyj(a) 1,427
3,900 Hokuriku Electric Power Co.(a) 53
14,900 Kansai Electric Power Co., Inc.*(a),(e) 167
9,400 Kyushu Electric Power Co., Inc.*(a) 99
10,245 Red Electrica Corporacion S.A.(a) 878
4,000 Shikoku Electric Power Co.(a) 57
27,329 SSE plc(a) 590
9,500 Tohoku Electric Power Co., Inc.(a) 112
30,600 Tokyo Electric Power Co., Inc.*(a) 188
------------
5,467
------------
GAS UTILITIES (0.0%)
22,917 APA Group(a) 148
================================================================================
34 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
4,573 Enagas S.A.(a) $ 136
7,214 Gas Natural SDG S.A.(a) 156
------------
440
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
3,100 Electric Power Development Co. Ltd.(a) 99
------------
MULTI-UTILITIES (0.2%)
186,622 National Grid plc(a) 2,602
99,854 RWE AG(a) 1,149
------------
3,751
------------
WATER UTILITIES (0.0%)
4,995 Severn Trent plc(a) 169
------------
Total Utilities 9,926
------------
Total Common Stocks (cost: $260,062) 278,285
------------
PREFERRED STOCKS (0.0%)
CONSUMER DISCRETIONARY (0.0%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.0%)
1,180 Bayerische Motoren Werke AG(a) 98
3,511 Volkswagen AG(a) 488
------------
586
------------
Total Consumer Discretionary 586
------------
MATERIALS (0.0%)
----------------
COMMODITY CHEMICALS (0.0%)
1,447 Fuchs Petrolub SE(a) 69
------------
Total Preferred Stocks (cost: $1,004) 655
------------
EXCHANGE-TRADED FUNDS (13.0%)
319,748 EGShares Emerging Markets Consumer ETF 7,364
1,019,475 iShares Core MSCI EAFE ETF 56,927
1,316,686 iShares Core MSCI Emerging Markets ETF 54,471
400,100 iShares Currency Hedged MSCI EAFE ETF 10,707
362,410 iShares MSCI EAFE ETF 21,980
124,800 iShares MSCI EAFE Minimum Volatility ETF 8,137
1,038,430 iShares MSCI Japan ETF 12,866
174,762 iShares MSCI Turkey ETF 6,695
234,100 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 8,842
526,500 PowerShares FTSE RAFI Emerging Markets Portfolio 7,840
56,000 SPDR S&P China ETF 4,313
107,983 SPDR S&P Emerging Markets SmallCap ETF 4,201
10,370 Vanguard FTSE All-World ex-US ETF 465
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
644,900 Vanguard FTSE Developed Markets ETF $ 24,345
580,500 Vanguard FTSE Europe ETF 29,855
170,548 WisdomTree Emerging Markets High Dividend Fund 5,725
182,288 WisdomTree Emerging Markets SmallCap Dividend Fund 6,604
120,700 WisdomTree Europe Hedged Equity Fund 7,597
693,900 WisdomTree India Earnings Fund 13,774
213,300 WisdomTree Japan Hedged Equity Fund 11,734
------------
Total Exchange-Traded Funds (cost: $328,451) 304,442
------------
Total International Equity Securities (cost: $589,517) 583,382
------------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.5%)
GOLD (0.2%)
-----------
AFRICAN GOLD COMPANIES (0.0%)
33,000 AngloGold Ashanti Ltd. ADR* 211
64,000 Gold Fields Ltd. ADR 162
162,000 Harmony Gold Mining Co. Ltd. ADR* 99
------------
472
------------
AUSTRALIAN GOLD COMPANIES (0.0%)
66,000 Newcrest Mining Ltd.* 521
------------
EUROPEAN GOLD COMPANIES (0.0%)
6,700 Randgold Resources Ltd. ADR 406
------------
NORTH AMERICAN GOLD COMPANIES (0.2%)
10,200 Agnico-Eagle Mines Ltd. 270
43,395 Alamos Gold, Inc. "A" 130
37,000 Alamos Gold, Inc. "A" 113
19,083 AuRico Metals, Inc.* 9
16,268 AuRico Metals, Inc.* 7
165,000 B2Gold Corp.* 180
23,000 Barrick Gold Corp. 169
48,000 Centerra Gold, Inc. 261
240,000 Dundee Precious Metals, Inc.* 235
91,000 Eldorado Gold Corp. 279
21,000 Goldcorp, Inc. 248
196,721 Hycroft Mining Corp., acquired 6/05/2014 - 6/03/2015; cost $2,966*(c),(d) 148
150,000 Kinross Gold Corp.* 288
162,000 New Gold, Inc.* 358
13,000 Newmont Mining Corp. 239
91,400 Primero Mining Corp.* 206
8,800 Royal Gold, Inc. 316
================================================================================
36 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
67,884 SEMAFO, Inc.* $ 160
83,000 Yamana Gold, Inc. 174
------------
3,790
------------
SOUTH AMERICAN GOLD COMPANIES (0.0%)
44,000 Compania de Minas Buenaventura S.A. ADR 208
------------
Total Gold (cost: $16,857) 5,397
------------
SILVER (0.1%)
54,000 Pan American Silver Corp. 376
25,000 Silver Wheaton Corp. 328
77,000 Tahoe Resources, Inc. 677
------------
Total Silver (cost: $2,187) 1,381
------------
EXCHANGE-TRADED FUNDS (1.2%)
224,000 First Trust Global Tactical Commodity Strategy Fund* 4,659
297,334 iShares Silver Trust* 3,996
471,000 United States Commodity Index Fund* 19,057
------------
Total Exchange-Traded Funds (cost: $32,834) 27,712
------------
Total Precious Metals and Commodity-Related Securities (cost: $51,878) 34,490
------------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.2%)
COMMON STOCKS (0.5%)
DIVERSIFIED REAL ESTATE ACTIVITIES (0.1%)
13,100 Daiwa House Industry Co. Ltd.(a) 365
160,640 Henderson Land Development Co. Ltd.(a) 990
251,500 Kerry Properties Ltd.(a) 712
111,000 New World Development Co. Ltd.(a) 112
2,600 Nomura Real Estate Holdings, Inc.(a) 51
4,000 Sun Hung Kai Properties Ltd.(a) 50
128,000 Wheelock & Co. Ltd.(a) 553
------------
2,833
------------
REAL ESTATE DEVELOPMENT (0.0%)
66,000 Sino Land Co.(a) 97
------------
REAL ESTATE OPERATING COMPANIES (0.1%)
4,627 Deutsche Wohnen AG(a) 127
289,000 Hysan Development Co. Ltd.(a) 1,219
25,800 Swire Properties Ltd.(a) 75
------------
1,421
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
REAL ESTATE SERVICES (0.0%)
2,000 Jones Lang LaSalle, Inc. $ 332
------------
REITs - DIVERSIFIED (0.1%)
108,472 BGP Holdings plc, acquired 8/06/2009; cost: $0*(c),(d) -
21,395 British Land Co. plc(a) 269
429,724 GPT Group(a) 1,439
75 Nomura Real Estate Master Fund, Inc.* 90
5,570 PS Business Parks, Inc. 493
------------
2,291
------------
REITs - HEALTH CARE (0.0%)
14,370 Care Capital Properties, Inc. 455
------------
REITs - INDUSTRIAL (0.1%)
44,700 Ascendas REIT(a) 75
213,354 Segro plc(a) 1,418
------------
1,493
------------
REITs - OFFICE (0.0%)
46,000 CapitaLand Commercial Trust(a) 43
32,932 Dexus Property Group(a) 183
------------
226
------------
REITs - RETAIL (0.1%)
54,000 CapitaLand Mall Trust(a) 73
155,323 Hammerson plc(a) 1,428
340,500 Link REIT(a) 2,081
4,930 Taubman Centers, Inc. 355
------------
3,937
------------
REITs - SPECIALIZED (0.0%)
15,840 Corrections Corp. of America 408
8,680 Lamar Advertising Co. 507
------------
915
------------
Total Common Stocks (cost: $13,880) 14,000
------------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
60,000 Arbor Realty Trust, Inc., 7.38% (cost: $1,500) 1,486
------------
EXCHANGE-TRADED FUNDS (0.6%)
177,780 Vanguard REIT ETF (cost: $13,648) 14,114
------------
Total Global Real Estate Equity Securities (cost: $29,028) 29,600
------------
================================================================================
38 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
BONDS (31.0%)
CORPORATE OBLIGATIONS (12.2%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 1,393 J.C. Penney Corp., Inc.(f) 6.00% 5/22/2018 $ 1,384
----------
PUBLISHING (0.1%)
1,934 Cengage Learning Acquisitions, Inc.(f) 7.00 3/31/2020 1,908
----------
SPECIALTY STORES (0.1%)
2,000 Guitar Center, Inc.(b) 6.50 4/15/2019 1,830
1,000 Toys R Us Property Co. II, LLC 8.50 12/01/2017 942
----------
2,772
----------
Total Consumer Discretionary 6,064
----------
CONSUMER STAPLES (0.1%)
-----------------------
PACKAGED FOODS & MEAT (0.1%)
2,500 JM Smucker Co. 4.38 3/15/2045 2,449
----------
ENERGY (1.7%)
-------------
OIL & GAS DRILLING (0.0%)
3,683 Schahin II Finance Co. SPV Ltd.(b),(g) 5.88 9/25/2023 792
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
2,500 Newfield Exploration Co. 5.38 1/01/2026 2,294
----------
OIL & GAS STORAGE & TRANSPORTATION (1.6%)
12,000 DCP Midstream, LLC(b) 5.85 5/21/2043 9,540
1,300 Enbridge Energy Partners, LP 7.38 10/15/2045 1,331
8,680 Enbridge Energy Partners, LP 8.05 10/01/2077 7,748
13,030 Energy Transfer Partners, LP 3.35(h) 11/01/2066 9,056
7,980 Enterprise Products Operating, LLC 7.00 6/01/2067 7,122
1,900 Martin Midstream Partners, LP 7.25 2/15/2021 1,812
2,352 Southern Union Co. 3.35(h) 11/01/2066 1,423
----------
38,032
----------
Total Energy 41,118
----------
FINANCIALS (6.7%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,143
----------
DIVERSIFIED BANKS (0.2%)
5,000 JPMorgan Chase Capital XIII 1.28(h) 9/30/2034 4,181
----------
LIFE & HEALTH INSURANCE (1.2%)
9,342 Lincoln National Corp. 7.00(h) 5/17/2066 7,731
1,000 Lincoln National Corp. 6.05 4/20/2067 822
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 7,800 Prudential Financial, Inc. 5.63% 6/15/2043 $ 8,131
2,135 Prudential Financial, Inc. 5.20 3/15/2044 2,127
10,935 StanCorp Financial Group, Inc. 6.90 6/01/2067 9,377
----------
28,188
----------
MULTI-LINE INSURANCE (1.1%)
15,127 Genworth Holdings, Inc. 6.15 11/15/2066 5,824
12,255 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 10,570
10,510 Nationwide Mutual Insurance Co.(b) 2.63(h) 12/15/2024 10,096
----------
26,490
----------
MULTI-SECTOR HOLDINGS (0.3%)
5,325 BNSF Funding Trust I 6.61 12/15/2055 5,979
----------
PROPERTY & CASUALTY INSURANCE (2.1%)
10,800 Allstate Corp. 5.75 8/15/2053 11,201
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,510
11,050 HSB Group, Inc.(d) 1.23(h) 7/15/2027 8,287
14,215 Oil Insurance Ltd.(b) 3.31(h) -(i) 12,651
6,500 Travelers Companies, Inc. 6.25 3/15/2067 6,663
----------
49,312
----------
REAL ESTATE DEVELOPMENT (0.1%)
1,800 Forestar USA Real Estate Group, Inc.(b) 8.50 6/01/2022 1,811
----------
REGIONAL BANKS (0.9%)
1,000 Allfirst Preferred Capital Trust 1.82(h) 7/15/2029 863
2,000 Compass Bank 6.40 10/01/2017 2,125
2,200 Compass Bank 3.88 4/10/2025 2,049
8,000 Cullen/Frost Capital Trust II 1.87(h) 3/01/2034 7,105
4,000 First Maryland Capital Trust I 1.32(h) 1/15/2027 3,385
2,000 Huntington Capital Trust II "B" 0.96(h) 6/15/2028 1,682
5,039 Manufacturers & Traders Trust Co. 5.63 12/01/2021 5,014
----------
22,223
----------
REINSURANCE (0.2%)
4,000 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 4,232
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
2,000 Ocwen Financial Corp.(b) 6.63 5/15/2019 1,810
2,400 Walter Investment Management Corp. 7.88 12/15/2021 1,908
----------
3,718
----------
Total Financials 156,277
----------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
2,600 Valeant Pharmaceuticals International, Inc.(b) 6.38 10/15/2020 2,395
----------
================================================================================
40 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
INDUSTRIALS (0.3%)
------------------
AEROSPACE & DEFENSE (0.1%)
$ 1,250 Constellis Holdings, LLC & Constellis
Finance Corp.(b) 9.75% 5/15/2020 $ 1,042
----------
AIRLINES (0.0%)
738 America West Airlines, Inc. Pass-Through Trust (INS) 7.93 7/02/2020 792
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
800 Artesyn Embedded Technologies, Inc.(b) 9.75 10/15/2020 758
----------
MARINE (0.1%)
1,900 Navios Maritime Holdings, Inc.(b) 7.38 1/15/2022 1,432
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
3,137 ILFC E-Capital Trust I(b) 4.57(h) 12/21/2065 2,973
----------
Total Industrials 6,997
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SYSTEMS SOFTWARE (0.1%)
150 Ensemble S Merger Sub, Inc.(b) 9.00 9/30/2023 150
1,300 Informatica, LLC(b) 7.13 7/15/2023 1,251
----------
1,401
----------
Total Information Technology 1,401
----------
MATERIALS (0.2%)
----------------
DIVERSIFIED METALS & MINING (0.2%)
7,450 Freeport-McMoRan, Inc. 5.45 3/15/2043 4,712
----------
TELECOMMUNICATION SERVICES (0.5%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
1,250 CenturyLink, Inc. 7.65 3/15/2042 1,013
7,950 Frontier Communications Corp.(b) 11.00 9/15/2025 7,811
500 GCI, Inc. 6.88 4/15/2025 520
----------
9,344
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
4,500 Sprint Corp. 7.13 6/15/2024 3,465
----------
Total Telecommunication Services 12,809
----------
UTILITIES (2.2%)
----------------
ELECTRIC UTILITIES (0.8%)
6,085 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 4,762
7,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 5,617
500 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 491
7,400 PPL Capital Funding, Inc. 6.70 3/30/2067 6,107
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 4,041 Texas Competitive Electric Holdings Co., LLC(f) 4.68% 10/10/2017 $ 1,385
----------
18,362
----------
MULTI-UTILITIES (1.4%)
6,350 Dominion Resources, Inc. 7.50 6/30/2066 5,533
3,500 Dominion Resources, Inc. 2.63(h) 9/30/2066 2,746
5,291 Integrys Holding, Inc. 6.11 12/01/2066 4,274
12,464 Puget Sound Energy, Inc. 6.97 6/01/2067 10,439
13,000 WEC Energy Group, Inc. 6.25 5/15/2067 10,725
----------
33,717
----------
Total Utilities 52,079
----------
Total Corporate Obligations (cost: $297,616) 286,301
----------
CONVERTIBLE SECURITIES (0.0%)
MATERIALS (0.0%)
----------------
GOLD (0.0%)
681 Hycroft Mining Corp.(d),(j) (cost: $650) 15.00 10/22/2020 783
----------
EURODOLLAR AND YANKEE OBLIGATIONS (3.3%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
CABLE & SATELLITE (0.1%)
1,250 Neptune Finco Corp.(b) 10.88 10/15/2025 1,325
----------
ENERGY (0.4%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
9,650 TransCanada PipeLines Ltd. 6.35 5/15/2067 7,889
1,400 TransCanada Trust 5.63 5/20/2075 1,336
----------
9,225
----------
Total Energy 9,225
----------
FINANCIALS (1.2%)
-----------------
DIVERSIFIED BANKS (0.2%)
2,000 Barclays Bank plc(b) 7.70 -(i) 2,190
2,500 LBI hf, acquired 10/12/2007; cost
$2,500(b),(c),(d),(g) 7.43 -(i) -
2,850 Lloyds Bank plc 0.69(h) -(i) 1,742
----------
3,932
----------
LIFE & HEALTH INSURANCE (0.4%)
9,800 Great-West Life & Annuity Insurance Capital, LP(b) 7.15(h) 5/16/2046 9,886
----------
PROPERTY & CASUALTY INSURANCE (0.6%)
11,850 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 13,168
----------
================================================================================
42 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.0%)
$ 3,000 Glitnir Banki hf, acquired 9/11/2006 - 10/18/2006;
cost $3,051(b),(c),(d),(g) 7.45% -(i) $ -
----------
Total Financials 26,986
----------
GOVERNMENT (0.2%)
-----------------
FOREIGN GOVERNMENT (0.2%)
5,083 Italy Government International Bond 5.38 6/15/2033 5,843
----------
MATERIALS (0.7%)
----------------
DIVERSIFIED METALS & MINING (0.0%)
900 Vedanta Resources plc(b) 6.00 1/31/2019 689
----------
GOLD (0.7%)
10,400 Kinross Gold Corp. 5.95 3/15/2024 8,208
5,000 Newcrest Finance Proprietary Ltd.(b) 4.45 11/15/2021 4,657
4,200 St. Barbara Ltd.(b) 8.88 4/15/2018 4,032
----------
16,897
----------
Total Materials 17,586
----------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.7%)
7,400 Electricite De France S.A.(b) 5.25 -(i) 7,178
6,800 Enel S.p.A.(b) 8.75 9/24/2073 7,837
1,000 SPI Electricity Proprietary Ltd. (INS)(b) 7.25 12/01/2016 1,042
----------
16,057
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
700 AES Gener S.A.(b) 8.38 12/18/2073 720
----------
Total Utilities 16,777
----------
Total Eurodollar and Yankee Obligations (cost: $85,152) 77,742
----------
ASSET-BACKED SECURITIES (0.2%)
FINANCIALS (0.2%)
-----------------
ASSET-BACKED FINANCING (0.2%)
3,000 SLC Student Loan Trust 0.77(h) 7/15/2036 2,599
1,119 SLM Student Loan Trust 0.87(h) 10/25/2038 966
----------
3,565
----------
Total Financials 3,565
----------
Total Asset-Backed Securities (cost: $3,229) 3,565
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
$ 1,162 Wells Fargo Mortgage Backed Securities Trust 2.69%(h) 4/25/2035 $ 1,099
1,197 Sequoia Mortgage Trust 1.11(h) 9/20/2033 1,057
----------
Total Financials 2,156
----------
Total Collateralized Mortgage Obligations (cost: $2,234) 2,156
----------
COMMERCIAL MORTGAGE SECURITIES (6.6%)
FINANCIALS (6.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (6.6%)
2,444 Banc of America Commercial Mortgage, Inc.(b) 5.43 12/10/2042 2,476
10,000 Banc of America Commercial Mortgage, Inc. 6.04 7/10/2044 10,125
8,500 Banc of America Commercial Mortgage, Inc. 6.03 5/10/2045 8,568
2,000 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 2,032
6,000 Banc of America Commercial Mortgage, Inc. 5.59 9/10/2047 5,992
3,500 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 3,579
4,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.21 2/11/2041 3,996
3,000 Bear Stearns Commercial Mortgage Securities, Inc.(b) 5.66 9/11/2041 2,953
2,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.60 10/12/2041 2,004
8,000 Citigroup Commercial Mortgage Trust 5.99 3/15/2049 8,102
1,000 Citigroup Commercial Mortgage Trust 6.35 12/10/2049 910
10,000 Commercial Mortgage Loan Trust 6.02 7/10/2038 9,715
6,000 Commercial Mortgage Loan Trust 6.23 12/10/2049 5,971
4,000 Commercial Mortgage Trust 5.38 12/10/2046 3,981
2,000 Commercial Mortgage Trust(b) 5.54 12/11/2049 2,068
16,400 Credit Suisse Commercial Mortgage Pass-Through Trust 0.39 2/15/2040 14,904
2,000 GE Capital Commercial Mortgage Corp. 5.60 11/10/2045 1,993
9,355 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 9,664
1,796 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 1,823
1,000 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 1,029
4,000 GS Mortgage Securities Trust 5.76 4/10/2038 4,005
8,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.57 4/15/2043 8,051
2,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.75 12/15/2044 1,996
2,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.75 12/15/2044 1,996
3,675 J.P. Morgan Chase Commercial Mortgage Securities Corp. 6.10 4/15/2045 3,418
5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.37 5/15/2047 5,106
================================================================================
44 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 2,000 LB-UBS Commercial Mortgage Trust 5.28% 2/15/2041 $ 2,000
1,137 Merrill Lynch Mortgage Trust 5.67 7/12/2038 1,137
1,000 Merrill Lynch Mortgage Trust 5.70 7/12/2038 999
11,500 Merrill Lynch Mortgage Trust 5.86 5/12/2039 11,547
583 Merrill Lynch Mortgage Trust 5.01 10/12/2041 584
1,000 Merrill Lynch Mortgage Trust 5.64 1/12/2044 999
3,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 3,102
3,000 ML-CFC Commercial Mortgage Trust 6.07 8/12/2049 3,039
1,000 Morgan Stanley Capital I Trust 5.69 3/12/2044 996
3,400 Wachovia Bank Commercial Mortgage Trust 5.90 5/15/2043 3,431
----------
Total Financials 154,291
----------
Total Commercial Mortgage Securities (cost: $145,109) 154,291
----------
U.S. GOVERNMENT AGENCY ISSUES (0.3%)(k)
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.3%)
8,000 Freddie Mac (+) 3.51 4/25/2030 8,301
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (0.0%)
1 Government National Mortgage Assn. I 6.50 5/15/2023 1
10 Government National Mortgage Assn. I 6.50 4/15/2024 12
1 Government National Mortgage Assn. I 7.50 3/15/2017 1
5 Government National Mortgage Assn. I 7.50 3/15/2017 5
1 Government National Mortgage Assn. I 8.00 11/15/2016 1
1 Government National Mortgage Assn. I 8.50 1/15/2017 1
----------
21
----------
Total U.S. Government Agency Issues (cost: $8,175) 8,322
----------
U.S. TREASURY SECURITIES (8.3%)
BONDS (7.8%)
41,520 2.83%, 8/15/2044 (STRIPS Principal)(l) 16,915
81,500 3.13%, 8/15/2044 83,573
16,500 3.00%, 11/15/2044 16,495
59,000 3.00%, 5/15/2045 58,958
16,700 3.12%, 5/15/2045 (STRIPS Principal)(l) 6,589
----------
182,530
----------
NOTES (0.5%)
11,000 2.38%, 8/15/2024 11,174
----------
Total U.S. Treasury Securities (cost: $192,770) 193,704
----------
Total Bonds (cost: $734,935) 726,864
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.6%)
COMMERCIAL PAPER (0.7%)
ENERGY (0.2%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
$ 5,000 Encana Corp.(b),(m) 0.52% 12/03/2015 $ 5,000
----------
INDUSTRIALS (0.3%)
------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
4,651 Eaton Corp.(b),(m) 0.40 12/08/2015 4,650
----------
INDUSTRIAL MACHINERY (0.1%)
2,640 Pentair Finance S.A.(b),(m) 0.84 12/01/2015 2,640
----------
Total Industrials 7,290
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
5,340 South Carolina Fuel Co.(b),(m) 0.35 12/02/2015 5,340
----------
Total Commercial Paper 17,630
----------
------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (2.9%)
66,999,634 State Street Institutional Liquid Reserves
Fund Premier Class, 0.15%(n) 67,000
----------
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (0.0%)
$ 400 0.01%, 3/03/2016(o),(p) 400
----------
Total Money Market Instruments (cost: $85,030) 85,030
----------
TOTAL INVESTMENTS (COST: $2,292,830) $2,334,720
==========
------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS EXPIRATION CONTRACT (DEPRECIATION)
LONG/(SHORT) SECURITY DATE VALUE (000) (000)
------------------------------------------------------------------------------------------------------------
FUTURES (0.2%)
52 Mini MSCI EAFE 12/18/2015 $4,534 $ 86
====== ==========
================================================================================
46 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 626,885 $ 436 $ - $ 627,321
Preferred Stocks - 32,835 750 33,585
Exchange-Traded Funds 152,820 - - 152,820
Fixed-Income Exchange-
Traded Funds 61,628 - - 61,628
International Equity Securities:
Common Stocks 28,125 250,160 - 278,285
Preferred Stocks - 655 - 655
Exchange-Traded Funds 304,442 - - 304,442
Precious Metals and
Commodity-Related Securities:
Gold 5,249 - 148 5,397
Silver 1,381 - - 1,381
Exchange-Traded Funds 27,712 - - 27,712
Global Real Estate Equity
Securities:
Common Stocks 2,640 11,360 - 14,000
Preferred Stocks - 1,486 - 1,486
Exchange-Traded Funds 14,114 - - 14,114
Bonds:
Corporate Obligations - 278,014 8,287 286,301
Convertible Securities - - 783 783
Eurodollar and Yankee Obligations - 77,742 - 77,742
Asset-Backed Securities - 3,565 - 3,565
Collateralized Mortgage Obligations - 2,156 - 2,156
Commercial Mortgage Securities - 154,291 - 154,291
U.S. Government Agency Issues - 8,322 - 8,322
U.S. Treasury Securities 170,200 23,504 - 193,704
Money Market Instruments:
Commercial Paper - 17,630 - 17,630
Money Market Funds 67,000 - - 67,000
U.S. Treasury Bills 400 - - 400
Futures(1) 86 - - 86
------------------------------------------------------------------------------------------------------------
Total $1,462,682 $862,156 $9,968 $2,334,806
------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
------------------------------------------------------------------------------------------------------------
COMMON PREFERRED CORPORATE CONVERTIBLE
STOCKS STOCKS OBLIGATIONS SECURITIES
------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2015 $ - $750 $7,666 $ -
Purchases 7,511 - - 650
Sales - - (580) -
Transfers into Level 3 - - - -
Transfers out of Level 3 - - - -
Net realized gain (loss) on investments - - 2 -
Change in net unrealized appreciation/
(depreciation) of investments (7,363) - 1,199 133
------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2015 $ 148 $750 $8,287 $783
------------------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 2015, preferred stocks with
a value of $4,016,000 were transferred from Level 1 to Level 2. Due to an
assessment of events at the end of the reporting period, these securities had
adjustments to their foreign market closing prices to reflect changes in value
that occurred after the close of foreign markets and prior to the close of the
U.S. securities markets. 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.
================================================================================
48 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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 28.8% of net assets at November 30,
2015.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 49
================================================================================
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities but such maturities can be difficult to predict because of the
effect of prepayments.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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
STRIPS Separate trading of registered interest and principal of securities
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
================================================================================
50 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
(INS) Principal and interest payments are insured by AMBAC Assurance Corp.
Although bond insurance reduces the risk of loss due to default by
an issuer, such bonds remain subject to the risk that value may
fluctuate for other reasons, and there is no assurance that the
insurance company will meet its obligations.
o SPECIFIC NOTES
(a) Securities with a value of $262,611,000, which represented 11.2% of the
Fund's net assets, were classified as Level 2 at November 30, 2015, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at November 30, 2015, was $898,000, which represented less than 0.1% of
the Fund's net assets.
(d) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $9,968,000, which represented 0.4% of
the Fund's net assets.
(e) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2015.
(f) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The stated interest rate represents the weighted average
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 51
================================================================================
interest rate of all contracts within the senior loan facility and
includes commitment fees on unfunded loan commitments. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at November 30, 2015. The weighted average life of the
loan is likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by Board, unless otherwise
noted as illiquid.
(g) At November 30, 2015, the issuer was in default with respect to
interest and/or principal payments.
(h) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2015.
(i) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(j) Pay-in-kind (PIK) - security in which the issuer has the option to make
interest or dividend payments in cash or in additional securities. The
security issued with the interest or dividend payment option usually
has the same terms, including maturity date, as the PIK securities.
(k) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008,
================================================================================
52 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency (FHFA)
to act as conservator and oversee their daily operations. In addition,
the U.S. Treasury entered into purchase agreements with Fannie Mae and
Freddie Mac to provide them with capital in exchange for senior
preferred stock. While these arrangements are intended to ensure that
Fannie Mae and Freddie Mac can continue to meet their obligations, it
is possible that actions by the U.S. Treasury, FHFA, or others could
adversely impact the value of the Fund's investments in securities
issued by Fannie Mae and Freddie Mac.
(l) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(m) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(2) commercial paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer
who makes a market in this security, and as such has been deemed liquid
by the Manager under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(n) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
(o) Securities offered at a discount to face value rather than at a stated
coupon rate. Rates represent the discount rates at purchase date.
(p) Securities with a value of $400,000 are segregated as collateral for
initial margin requirements on open futures contracts.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 53
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,292,830) $2,334,720
Cash 54
Cash denominated in foreign currencies (identified cost of $517) 505
Receivables:
Capital shares sold 948
Dividends and interest 9,756
Securities sold 16,826
----------
Total assets 2,362,809
----------
LIABILITIES
Payables:
Securities purchased 16,599
Capital shares redeemed 1,467
Variation margin on futures contracts 3
Accrued management fees 1,350
Accrued transfer agent's fees 68
Other accrued expenses and payables 242
----------
Total liabilities 19,729
----------
Net assets applicable to capital shares outstanding $2,343,080
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,237,674
Accumulated undistributed net investment income 44,179
Accumulated net realized gain on investments and futures transactions 19,318
Net unrealized appreciation of investments, options, and futures contracts 41,976
Net unrealized depreciation of foreign currency translations (67)
----------
Net assets applicable to capital shares outstanding $2,343,080
==========
Capital shares outstanding, unlimited number of shares authorized, no par value 94,174
==========
Net asset value, redemption price, and offering price per share $ 24.88
==========
See accompanying notes to financial statements.
================================================================================
54 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $252) $ 18,675
Interest 22,290
---------
Total income 40,965
---------
EXPENSES
Management fees 8,720
Administration and servicing fees 1,799
Transfer agent's fees 2,552
Custody and accounting fees 250
Postage 145
Shareholder reporting fees 69
Trustees' fees 13
Registration fees 27
Professional fees 81
Other 19
---------
Total expenses 13,675
---------
NET INVESTMENT INCOME 27,290
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, OPTIONS, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions 41,254
Affiliated transactions (Note 7) (15)
Foreign currency transactions (34)
Options 92
Futures transactions (362)
Change in net unrealized appreciation/(depreciation) of:
Investments (201,383)
Foreign currency translations 16
Options 608
Futures contracts (77)
---------
Net realized and unrealized loss (159,901)
---------
Decrease in net assets resulting from operations $(132,611)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 55
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
------------------------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 27,290 $ 53,562
Net realized gain on investments 41,239 90,838
Net realized gain on long-term capital gain
distributions from other investment companies - 334
Net realized loss on foreign currency transactions (34) (1,030)
Net realized gain (loss) on options 92 (5,399)
Net realized gain (loss) on futures transactions (362) 1,403
Change in net unrealized appreciation/(depreciation) of:
Investments (201,383) (57,834)
Foreign currency translations 16 (77)
Options 608 4,519
Futures contracts (77) (903)
-----------------------------
Increase (decrease) in net assets resulting from operations (132,611) 85,413
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (60,460)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 105,372 294,582
Reinvested dividends - 59,823
Cost of shares redeemed (156,229) (344,297)
-----------------------------
Increase (decrease) in net assets from capital share transactions (50,857) 10,108
-----------------------------
Net increase (decrease) in net assets (183,468) 35,061
NET ASSETS
Beginning of period 2,526,548 2,491,487
-----------------------------
End of period $2,343,080 $2,526,548
=============================
Accumulated undistributed net investment income:
End of period $ 44,179 $ 16,889
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,177 11,302
Shares issued for dividends reinvested - 2,334
Shares redeemed (6,195) (13,207)
-----------------------------
Increase (decrease) in shares outstanding (2,018) 429
=============================
See accompanying notes to financial statements.
================================================================================
56 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Cornerstone Moderately Aggressive
Fund (the Fund), which is classified as diversified under the 1940 Act. The
Fund's investment objective is to achieve capital appreciation with a secondary
focus on current income.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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 over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
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 need to be reflected in the value of the Fund's
foreign securities. However, the Manager and the Fund's subadviser(s)
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 Committee will consider
such available information that it deems relevant and will determine a
fair value for the affected foreign securities in
================================================================================
58 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
accordance with valuation procedures. In addition, information from an
external vendor or other sources may be used to adjust the foreign
market closing prices of foreign equity securities to reflect what the
Committee 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, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
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 value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which 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.
7. Futures are valued at the last sale price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the last sale price on the prior trading date if
it is within the spread between the closing bid and asked prices closest
to the last reported sale price.
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
available bid and asked prices in all participating options exchanges
determined to most closely reflect market value of the options at the
time of computation of the Fund's NAV.
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service.
10. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
================================================================================
60 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
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 indexes. Level 2 securities
include certain equity securities, which are valued based on methods
discussed in Note 1A2, certain bonds, which are valued based on methods
discussed in Note 1A5, and commercial paper, which is valued at amortized
cost.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
some securities falling in the Level 3 category are primarily supported by
discounted prior tender offer or quoted prices obtained from broker-dealers
participating in the market for these securities. However, these securities
are included in the Level 3 category due to limited market transparency and
or a lack of corroboration to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, options on futures contracts, and forward
currency contracts, under circumstances in which such instruments are
expected by the portfolio manager to aid in achieving the Fund's investment
objective. The Fund also may use derivatives in circumstances
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
where the portfolio manager believes they offer an economical means of
gaining exposure to a particular asset class or securities market or to keep
cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the market. With exchange-listed futures contracts
and options, counterparty credit risk to the Fund is limited to the
exchange's clearinghouse which, as counterparty to all exchange-traded
futures contracts and options, guarantees the transactions against default
from the actual counterparty to the trade. The Fund's derivative agreements
held at November 30, 2015, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
================================================================================
62 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified price
during a specified period. The purchaser of the option pays a premium to the
writer of the option.
Premiums paid for purchased options are included in the Fund's Statement of
Assets and Liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's Statement
of Assets and Liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss on
the security sold is determined from the exercise price, the original cost
of the security, and the premium received. If a written put option on a
security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on indexes
or ETFs that represent the Fund's exposure against a highly correlated stock
portfolio. The combination of the diversified stock portfolio with index or
ETF options is designed to provide the Fund with consistent returns over a
wide range of equity market environments. This strategy may not fully
protect the Fund against declines in the portfolio's value, and the Fund
could experience a loss. Options on ETFs are similar to options on
individual securities in that the holder of the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
ETF call (or put) has the right to receive (or sell) shares of the
underlying ETF at the strike price on or before exercise date. Options on
securities indexes are different from options on individual securities in
that the holder of the index option has the right to receive an amount of
cash equal to the difference between the exercise price and the settlement
value of the underlying index as defined by the exchange. If an index option
is exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2015*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------
Equity contracts Net unrealized $86** $-
appreciation of
investments,
options, and
futures contracts
--------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2015, see the
Portfolio of Investments, which also is indicative of activity for the
period ended November 30, 2015.
** Includes cumulative appreciation (depreciation) of futures as reported
on the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2015
(IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED APPRECIATION
ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------------------------------
Equity contracts Net realized gain $(270) $531
(loss) on options and
futures transactions /
Change in net unrealized
appreciation/(depreciation)
of options and futures
contracts
------------------------------------------------------------------------------------------------------
================================================================================
64 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Discounts and premiums are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities. Foreign
income and capital gains on some foreign securities may be subject to
foreign taxes, which are accrued as applicable, as a reduction to such
income and realized gains. These foreign taxes have been provided for in
accordance with the understanding of the applicable countries' tax rules and
rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2015, there were no custodian and other bank credits.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
================================================================================
66 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $6,000, which represents 3.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2015.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had pre-enactment capital loss carryforwards of
$14,716,000, and no post-enactment capital loss carryforwards, for federal
income tax purposes. If not offset by subsequent capital gains, the
pre-enactment capital loss carryforwards will expire in 2018. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used or expire.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$821,658,000 and $845,959,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $175,681,000 and $133,791,000, respectively, resulting in net
unrealized appreciation of $41,890,000.
================================================================================
68 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
For the six-month period ended November 30, 2015, transactions in written call
and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000'S)
-----------------------
Outstanding at May 31, 2015 600 $1,154
Options written - -
Options terminated in closing purchase transactions (300) (720)
Options expired (300) (434)
-----------------------
Outstanding at November 30, 2015 - $-
=======================
* Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund and for
directly managing the day-to-day investment of a portion of the Fund's
assets, subject to the authority of and supervision by the Board. The
Manager is also authorized to select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the 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 recommends to the Board as to whether
each subadviser's agreement should be renewed, terminated, or modified. The
Manager is also responsible for allocating assets to the subadviser(s). The
allocation for each subadviser can range from 0% to 100% of the Fund's
assets, and the Manager can 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 0.70% of the Fund's average net
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
assets. Prior to October 1, 2015, the base investment management fee was
0.75% of the Fund's average net assets.
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to that of the Lipper Index. The
Lipper Index tracks the total return performance of the 30 largest funds
within a category consisting of funds that allocate their investments across
various asset classes, including both domestic and foreign stocks, bonds,
and money market instruments with a focus on total return, and which have at
least 25% of their portfolio invested in securities traded outside of the
United States. 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 Fund
and its relevant index, rounded to the nearest basis point. Average net
assets are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in
the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Index over that period, even if the Fund had overall
negative returns during the performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $8,720,000, which
included a (0.01%) performance adjustment of $(81,000).
================================================================================
70 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Quantitative Management Associates, LLC (QMA),
under which QMA directs the investment and reinvestment of a portion of the
Fund's assets (as allocated from time to time by the Manager).
The Manager (not the Fund) pays QMA a subadvisory fee in the annual amount
of 0.25% of the portion of the Fund's average net assets that QMA manages.
For the six-month period ended November 30, 2015, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to QMA, of
$351,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2015, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $1,799,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2015, the Fund reimbursed the
Manager $30,000 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 based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of these
fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. For the six-month period
ended November 30, 2015, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $2,552,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
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.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2015, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN/(LOSS) TO
SELLER PURCHASER PURCHASER SELLER
--------------------------------------------------------------------------------
USAA Cornerstone Moderately USAA Short-Term
Aggressive Bond $20,356,000 $(15,000)
================================================================================
72 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.27 $ 26.02 $ 24.17 $ 21.48 $ 24.05 $ 20.43
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .29 .56 .62 .61 .65 .57
Net realized and
unrealized gain (loss) (1.68) .33 1.83 2.69 (2.58) 3.67(a)
---------------------------------------------------------------------------------
Total from investment
operations (1.39) .89 2.45 3.30 (1.93) 4.24
---------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.64) (.60) (.61) (.64) (.62)
---------------------------------------------------------------------------------
Net asset value at
end of period $ 24.88 $ 26.27 $ 26.02 $ 24.17 $ 21.48 $ 24.05
=================================================================================
Total return (%)* (5.29) 3.47 10.24 15.49 (7.96) 20.93(a)
Net assets at end of
period (000) $2,343,080 $2,526,548 $2,491,487 $2,294,760 $2,030,805 $2,294,249
Ratios to average
net assets:**
Expenses (%)(b) 1.14(d) 1.16 1.18(c) 1.22 1.27 1.25(c)
Expenses, excluding
reimbursements (%)(b) 1.14(d) 1.16 1.18 1.22 1.27 1.27
Net investment income (%) 2.27(d) 2.14 2.46 2.54 2.87 2.51
Portfolio turnover (%) 35 62 57 81 77(e) 117
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$2,397,172,000.
(a) During the year ended May 31, 2011, the Manager reimbursed the Fund $10,000
for a loss incurred from the disposal of an investment in error. The effect
of this reimbursement of the Fund's net realized loss and total return was
less than $0.01/0.01% per share.
(b) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to October 1, 2013, the Manager voluntarily agreed to limit the annual
expenses of the Fund to 1.28% of the Fund's average net assets. Prior to
October 1, 2010, the voluntary expense limit was 1.19%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Trading activity due to changes in subadviser(s) and asset allocation
strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
74 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------
Actual $1,000.00 $ 947.10** $5.55**
Hypothetical
(5% return before expenses) 1,000.00 1,019.30** 5.76**
*Expenses are equal to the Fund's annualized expense ratio of 1.14%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/366 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (5.29)% for the six-month period of
June 1, 2015, through November 30, 2015.
**The Fund's annualized expense ratio of 1.14% above reflects a change effective
October 1, 2015. The Manager's management fee changed from 0.75% to 0.70% of
the Fund's average net assets. The effect of the management fee change on the
Fund's total return was 0.01%. Had the expense limitation ratio of 0.70% been
in effect for the entire six-month period of June 1, 2015, through
November 30, 2015, the Funds' expense ratio would have been 1.09% and the
values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
----------------------------------------------------------
Actual $1,000.00 $ 947.50 $5.31
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.50
================================================================================
EXPENSE EXAMPLE | 75
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27800-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY CONSERVATIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 28
Financial Statements 32
Notes to Financial Statements 35
EXPENSE EXAMPLE 49
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)2016, USAA. All rights reserved.
200994-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (THE FUND) SEEKS CURRENT
INCOME WITH A SECONDARY FOCUS ON CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, and money market instruments. The
Fund will have a target asset class allocation of approximately 40% equity
securities and 60% fixed-income securities. The actual asset class allocation
can deviate from time to time from these targets as market conditions warrant.
The implementation of the asset allocation may involve the extensive use of
equity and fixed-income exchange-traded funds (ETFs). The Fund may invest in
securities issued by domestic or foreign companies. The Fund also may invest in
fixed-income securities that are investment grade and below investment grade.
The Fund also may use alternative investment strategies, such as investments in
real estate investment trusts and precious metals and minerals companies, and
other instruments, including futures and options, from time to time in an
attempt to reduce its volatility over time and to enhance the Fund's return and
diversification.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
JOHN P. TOOHEY, CFA ARNOLD J. ESPE, CFA
WASIF A. LATIF DAN DENBOW, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging
time for the world financial markets, as concerns about slow global
growth, China's currency devaluation, and the potential for an interest
rate increase by the Federal Reserve (the Fed) combined to weigh upon
investor sentiment.
U.S. equities finished the reporting period with a negative return, but they
generated returns above those of the international markets. The U.S. economy
appeared to be on track to deliver growth of approximately 2% in the second
half of 2015 amid strength in the housing market, employment, and consumer
spending. While low compared to historical standards, this rate is
nonetheless higher than to the majority of the world's developed economies -
a positive for U.S. stocks' relative performance during the reporting period.
Within the domestic market, small-cap stocks generally underperformed
large-cap stocks as investors appear averse to risk.
Developed market international stocks finished with a loss and
underperformed U.S. equities which was likely due to mounting concerns
about slowing economic growth in both Europe and Japan. In addition, the
weakness in foreign currencies relative to the U.S. dollar translated to
lower total returns for U.S.-based investors. Emerging market stocks also
generally finished the reporting period with a loss. Falling commodity
prices, together with China's move toward a consumer-led economy from one
driven primarily by fixed-asset investment, likely led to slower growth in
the many exporting economies within the asset class. In addition, currency
weakness compelled many central banks to raise
================================================================================
2 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
interest rates even as growth slowed. Together, these factors caused the
emerging markets to close the reporting period near the low end of their
range for the past five years.
The impact of weaker commodity prices was not limited to the emerging
markets. Stocks in the gold-mining sector fell sharply as well, reflecting
the effect of falling gold prices on their profit outlook.
In the investment-grade bond market, U.S. Treasuries finished relatively
flat. While investors remained on edge about the possibility of the Fed
increasing interest rates, bonds gained a degree of support from the backdrop
of below-trend growth and low inflation. Investment-grade corporate debt
lagged, due largely to an increase in new-issue supply. High-yield bonds
underperformed the investment-grade market by a considerable margin, as the
weakness in commodity prices pressured the credit outlook for the many energy
and mining issuers within the asset class.
o HOW DID THE USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (THE FUND) PERFORM
DURING THE REPORTING PERIOD?
For the reporting period ended November 30, 2015, the Fund had a total return
of -4.39%. This compares to returns of -5.43% for the MSCI All-Country World
Index, -0.49% for the Barclays U.S. Universal Index* and -2.11% for the
Cornerstone Moderately Conservative Composite Index.
USAA Asset Management Company (the Manager) is the Fund's investment adviser.
The investment adviser provides day-to-day discretionary management for the
Fund's assets.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund employs a diversified, long-term approach that favors undervalued
market segments and avoids those that appear more richly
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*As of October 1, 2015, the Barclays U.S. Universal replaced the MSCI
All-Country World Index as it more closely represents the securities held by
the Fund.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
priced. While this strategy led to underperformance during the reporting
period, we remain confident in the Fund's overall positioning.
The Fund's overweight position in the developed international markets was the
primary factor affecting relative performance during a time in which U.S.
equities delivered superior returns. Nevertheless, we retain this positioning
for the Fund on the belief that the foreign markets offer both attractive
relative valuations and the potential for improving corporate earnings. In
addition, we believe international equities can benefit from accommodative
monetary policies of the central banks in Europe and Japan relative to the
Fed's current monetary policy.
The Fund's allocation to the emerging markets also pressured results given
the substantial underperformance of this market segment. Although we
decreased the Fund's emerging markets positions during the course of the
reporting period in order to manage risk, we maintained an allocation to
emerging markets for the Fund on the belief that emerging-market stocks
continue to offer superior long-term return potential relative to developed
markets.
The Fund's U.S. equity portfolio lost ground in the aggregate, but it
outpaced the other allocations within the Fund. We continue to invest the
Fund's domestic equity portfolio in large-cap stocks based on our belief that
they offer attractive valuations relative to their mid- and small-cap
counterparts. This aspect of our positioning for the Fund contributed to its
performance during the reporting period, illustrating the potential benefits
of our value-oriented approach.
The Fund's investment-grade bond portfolio also decreased in value, but it
provided both income and a measure of stability to the Fund's performance.
At a time in which investors seemed to avoid bond market segments with the
highest sensitivity to the growth outlook, the Fund's positions in high-yield
and lower-rated investment-grade corporate bonds detracted from its
performance. We would note, however, that the Fund's allocation to these
credit sectors has had a substantial positive impact on the bond portfolio's
longer-term results. We offset some of the shortfall in the credit sectors
through the Fund's allocation to longer maturity U.S. Treasuries, which
finished the reporting period with a gain. We added this position earlier in
the year as a "hedge" against market volatility, a move that proved
well-timed given the subsequent underperformance of the credit-sensitive
areas of the market.
================================================================================
4 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
The Fund's commodities exposure, which is achieved through investments in a
basket of exchange-traded funds (ETFs), natural resources companies and gold
stocks detracted from the Fund's performance. Although commodity prices fell
during the reporting period, we believe this asset class remains essential to
diversification because of its potential to offset the potential long-term
impact of inflation.
The market backdrop remains uncertain as we move toward 2016, with the Fed's
monetary policy, China's growth outlook, and geopolitical headlines all
representing factors that are affecting investor sentiment. In this
environment, our approach is to remain focused on identifying asset classes
that have the potential to offer value. The reason for this is simple:
valuation is one of the strongest indicators of longer-term returns. While a
value-driven approach may not always work for a quarter-to-quarter basis, we
measure success in years, not months. With this as background, we believe the
Fund will be better served by a continued emphasis on diversification and a
preference for market segments with attractive valuations.
Thank you for your investment in the Fund.
Asset Allocation funds may be invested in, among other things:
(1) exchange-traded funds; (2) futures, options, and other derivatives;
(3) non-investment grade securities; (4) precious metals and minerals
companies; (5) real estate investment trusts; (6) money market instruments;
(7) foreign and emerging markets. These types of investments and asset
classes may be more volatile and prone to experience significant loss than
others. In addition, its is possible that a particular asset allocation used
by the Manager may not produce the intended result. 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 Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging market
countries are less diverse and mature than other countries and tend to be
politically less stable. o Precious metals and minerals is a volatile asset
class and is subject to additional risks, such as currency fluctuation,
market illiquidity, political instability, and increased price volatility.
It may be more volatile than other asset classes that diversify across many
industries and companies. o Non-investment grade securities are considered
speculative and are subject to significant credit risk. They are sometimes
referred to as "junk" bonds since they represent a greater risk of default
than more creditworthy investment-grade securities. o Diversification is a
technique intended to help reduce risk and does not guarantee a profit or
prevent a loss. o Exchange Traded Funds (ETFs) are subject to risks similar
to those of stocks. Investment returns may fluctuate and are subject to
market volatility, so that an investor's shares, when redeemed or sold, may
be worth more or less than their original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (THE FUND)
(Ticker Symbol: UCMCX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $198.8 Million $204.5 Million
Net Asset Value Per Share $10.80 $11.42
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15 - 11/30/15* 1 YEAR SINCE INCEPTION 6/8/12
-4.39% -3.00% 5.25%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 6/8/12
-4.02% 4.59%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15 **
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.13% AFTER REIMBURSEMENT 0.98%
(Includes acquired fund fees and expenses of 0.08%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees to limit the expenses of the
Fund so that the total annual operating expenses (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.90% of the Fund's
average net assets. This reimbursement arrangement may not be changed or
terminated during this time period without approval of the Fund's Board of
Trustees and may be changed or terminated by the Manager at any time after
October 1, 2016. If the total annual operating expense ratio of the Fund is
lower than 0.90%, the Fund will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
================================================================================
6 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE MODERATELY USAA CORNERSTONE
MSCI ALL-COUNTRY CONSERVATIVE MODERATELY BARCLAYS U.S.
WORLD INDEX COMPOSITE INDEX CONSERVATIVE FUND UNIVERSAL INDEX*
05/31/12 $10,000.00 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,493.89 10,200.03 10,170.27 10,025.20
07/31/12 10,637.55 10,341.82 10,310.69 10,174.72
08/31/12 10,868.84 10,449.23 10,461.13 10,196.08
09/30/12 11,211.17 10,589.56 10,622.61 10,225.98
10/31/12 11,136.45 10,567.13 10,693.23 10,258.45
11/30/12 11,278.85 10,627.87 10,753.76 10,283.01
12/31/12 11,534.33 10,715.94 10,886.65 10,284.93
01/31/13 12,065.70 10,890.90 11,069.61 10,231.32
02/28/13 12,063.82 10,935.85 11,089.94 10,280.45
03/31/13 12,281.81 11,051.03 11,199.73 10,292.62
04/30/13 12,635.33 11,228.00 11,363.08 10,405.61
05/31/13 12,600.66 11,129.80 11,291.61 10,229.19
06/30/13 12,232.36 10,902.56 11,033.78 10,049.13
07/31/13 12,817.95 11,134.97 11,238.87 10,081.81
08/31/13 12,550.90 11,000.41 11,105.56 10,024.35
09/30/13 13,199.17 11,274.70 11,286.61 10,124.10
10/31/13 13,729.68 11,514.19 11,555.09 10,224.27
11/30/13 13,924.12 11,563.91 11,617.05 10,191.17
12/31/13 14,164.33 11,623.95 11,700.25 10,146.53
01/31/14 13,597.75 11,559.83 11,595.03 10,281.09
02/28/14 14,254.63 11,834.59 11,868.59 10,354.35
03/31/14 14,318.01 11,847.80 11,919.18 10,344.74
04/30/14 14,454.31 11,935.29 12,024.94 10,430.39
05/31/14 14,761.74 12,112.38 12,183.58 10,555.98
06/30/14 15,039.67 12,228.69 12,326.68 10,572.00
07/31/14 14,857.12 12,125.69 12,230.79 10,539.11
08/31/14 15,185.29 12,331.36 12,379.95 10,653.38
09/30/14 14,693.04 12,108.61 12,157.78 10,568.80
10/31/14 14,796.48 12,243.23 12,221.99 10,672.39
11/30/14 15,043.98 12,357.12 12,318.31 10,729.00
12/31/14 14,753.68 12,274.19 12,228.23 10,710.63
01/31/15 14,523.01 12,332.64 12,293.57 10,914.39
02/28/15 15,331.53 12,555.60 12,467.79 10,850.74
03/31/15 15,093.98 12,521.51 12,398.94 10,895.60
04/30/15 15,531.92 12,625.45 12,486.49 10,883.00
05/31/15 15,511.65 12,626.20 12,497.43 10,863.99
06/30/15 15,146.48 12,440.18 12,267.97 10,742.67
07/31/15 15,278.01 12,513.54 12,301.01 10,805.25
08/31/15 14,230.69 12,171.11 11,893.54 10,773.42
09/30/15 13,715.12 12,036.08 11,705.97 10,815.50
10/31/15 14,791.55 12,414.24 12,048.96 10,850.10
11/30/15 14,669.41 12,359.73 11,949.38 10,810.59
[END CHART]
Data from 5/31/12 through 11/30/15.**
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
*As of October 1, 2015, the Barclays U.S. Universal Index replaced the MSCI
All-Country World Index as it more closely represents the securities held by the
Fund.
**The performance of the MSCI All-Country World Index, Barclays U.S. Universal
Index and the Cornerstone Moderately Conservative Composite Index is calculated
from the end of the month, May 31, 2012, while the inception date of the
Cornerstone Moderately Conservative Fund is June 8, 2012. There may be a slight
variation of the performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderately Conservative Fund to the
benchmarks listed below. The Manager has developed the Cornerstone Moderately
Conservative Composite Index, which is used to measure the Fund's performance.
The custom benchmark was created by the Manager to show how the Fund's
performance compares with the returns of an index or indexes with similar asset
allocations.
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
o The Cornerstone Moderately Conservative Composite Index is a combination of
unmanaged indexes representing the Fund's model allocation, and consists of
the MSCI USA Investable Market Index (IMI) (23%), the MSCI ACWI ex USA IMI
(15%), the Barclays U.S. Universal Index (58%), the Bloomberg Commodity Index
Total Return (1%), the MSCI U.S. Real Estate Investment Trust (REIT) Index
(1%), and the Barclays U.S. Treasury - Bills (1-3M) (2%).
o The Barclays U.S. Universal Index is an index that represents the union of
the U.S. Aggregate Index, U.S. Corporate High-Yield, Investment Grade 144A
Index, Eurodollar Index, U.S. Emerging Markets Index, and the non-ERISA
eligible portion of the CMBS Index. The index covers USD denominated, taxable
bonds that are rated either investment-grade or below investment-grade.
================================================================================
8 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
TOP 10 HOLDINGS* - 11/30/15
(% of Net Assets)
U.S. Treasury Bond, 3.13%, 8/15/2044 ................................ 5.2%
iShares Core MSCI EAFE ETF** ........................................ 5.2%
iShares Core S&P 500 ETF** .......................................... 2.8%
iShares 7-10 Year Treasury Bond ETF** ............................... 2.4%
iShares MSCI EAFE ETF** ............................................. 2.1%
Vanguard Small-Cap Value ETF** ...................................... 1.6%
U.S. Treasury Bond, 3.15%,
8/15/2044 (STRIPS Principal) ...................................... 1.6%
iShares Core MSCI Emerging Markets ETF** ............................ 1.5%
U.S. Treasury Bond, 3.00%, 5/15/2045 ................................ 1.5%
U.S. Treasury Bond, 3.00%, 11/15/2044 ............................... 1.5%
*Excludes money market instruments.
**The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
You will find a complete list of securities that the Fund owns on pages 11-27.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
U.S. EQUITY SECURITIES* 30.4%
INTERNATIONAL EQUITY SECURITIES* 17.2%
CORPORATE OBLIGATIONS 16.9%
CONVERTIBLE SECURITIES 0.3%
COMMERCIAL MORTGAGE SECURITIES 7.1%
U.S. GOVERNMENT AGENCY ISSUES 0.5%
U.S. TREASURY SECURITIES 15.5%
EURODOLLAR AND YANKEE OBLIGATIONS 6.0%
MONEY MARKET INSTRUMENTS 4.5%
GLOBAL REAL ESTATE EQUITY SECURITIES 1.0%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.5%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
================================================================================
10 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (30.4%)
COMMON STOCKS (15.2%)
CONSUMER DISCRETIONARY (2.3%)
-----------------------------
ADVERTISING (0.3%)
6,900 Omnicom Group, Inc. $ 510
----------
APPAREL RETAIL (0.2%)
5,900 TJX Companies, Inc. 417
----------
AUTO PARTS & EQUIPMENT (0.4%)
7,200 BorgWarner, Inc. 308
6,000 Johnson Controls, Inc. 276
5,900 Magna International, Inc. 268
----------
852
----------
AUTOMOBILE MANUFACTURERS (0.1%)
17,300 Ford Motor Co. 248
----------
BROADCASTING (0.2%)
8,700 CBS Corp. "B" 439
----------
GENERAL MERCHANDISE STORES (0.2%)
6,900 Dollar General Corp. 451
----------
HOME IMPROVEMENT RETAIL (0.0%)
700 Home Depot, Inc. 94
----------
HOTELS, RESORTS & CRUISE LINES (0.7%)
8,900 Carnival Corp. 450
3,000 Hilton Worldwide Holdings, Inc. 69
14,900 Norwegian Cruise Line Holdings Ltd.* 856
----------
1,375
----------
INTERNET RETAIL (0.1%)
1,100 Expedia, Inc. 135
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
3,700 H&R Block, Inc. 136
----------
Total Consumer Discretionary 4,657
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (0.8%)
-----------------------
DRUG RETAIL (0.4%)
3,550 CVS Health Corp. $ 334
4,400 Walgreens Boots Alliance, Inc. 370
----------
704
----------
FOOD RETAIL (0.1%)
6,800 Kroger Co. 256
----------
HOUSEHOLD PRODUCTS (0.1%)
3,600 Procter & Gamble Co. 269
----------
SOFT DRINKS (0.2%)
3,300 PepsiCo, Inc. 331
----------
Total Consumer Staples 1,560
----------
ENERGY (1.1%)
-------------
INTEGRATED OIL & GAS (0.5%)
3,050 Chevron Corp. 278
10,010 Occidental Petroleum Corp. 757
----------
1,035
----------
OIL & GAS EQUIPMENT & SERVICES (0.2%)
3,450 Halliburton Co. 137
2,600 Schlumberger Ltd. 201
----------
338
----------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
3,300 Anadarko Petroleum Corp. 198
3,524 California Resources Corp. 14
900 Cimarex Energy Co. 107
4,700 ConocoPhillips 254
1,500 EOG Resources, Inc. 125
3,800 Marathon Oil Corp. 67
----------
765
----------
Total Energy 2,138
----------
FINANCIALS (2.5%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
1,900 Ameriprise Financial, Inc. 215
2,100 Bank of New York Mellon Corp. 92
----------
307
----------
CONSUMER FINANCE (0.4%)
7,720 Capital One Financial Corp. 606
5,577 Synchrony Financial* 177
----------
783
----------
================================================================================
12 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (1.3%)
67,700 Bank of America Corp. $ 1,180
12,710 Citigroup, Inc. 688
10,530 JPMorgan Chase & Co. 702
2,450 Wells Fargo & Co. 135
----------
2,705
----------
LIFE & HEALTH INSURANCE (0.1%)
2,800 MetLife, Inc. 143
----------
REGIONAL BANKS (0.6%)
22,000 Fifth Third Bancorp 455
46,800 KeyCorp 614
800 PNC Financial Services Group, Inc. 76
----------
1,145
----------
Total Financials 5,083
----------
HEALTH CARE (2.8%)
------------------
BIOTECHNOLOGY (1.0%)
16,700 AbbVie, Inc. 971
1,900 Amgen, Inc. 306
7,550 Gilead Sciences, Inc. 800
----------
2,077
----------
HEALTH CARE DISTRIBUTORS (0.2%)
1,390 Cardinal Health, Inc. 121
900 McKesson Corp. 170
----------
291
----------
HEALTH CARE EQUIPMENT (0.5%)
11,100 Hologic, Inc.* 448
7,200 Medtronic plc 542
----------
990
----------
MANAGED HEALTH CARE (0.1%)
1,300 UnitedHealth Group, Inc. 147
----------
PHARMACEUTICALS (1.0%)
1,100 Allergan plc* 345
3,600 Johnson & Johnson 364
9,800 Merck & Co., Inc. 520
24,553 Pfizer, Inc. 805
----------
2,034
----------
Total Health Care 5,539
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INDUSTRIALS (1.6%)
------------------
AEROSPACE & DEFENSE (0.3%)
3,100 Honeywell International, Inc. $ 322
900 Raytheon Co. 112
800 TransDigm Group, Inc.* 188
----------
622
----------
AIRLINES (0.2%)
5,000 Southwest Airlines Co. 229
4,700 United Continental Holdings, Inc.* 262
----------
491
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
3,250 Eaton Corp. plc 189
----------
INDUSTRIAL CONGLOMERATES (0.7%)
2,000 Carlisle Companies, Inc. 177
39,943 General Electric Co. 1,196
----------
1,373
----------
INDUSTRIAL MACHINERY (0.3%)
4,700 Stanley Black & Decker, Inc. 513
----------
Total Industrials 3,188
----------
INFORMATION TECHNOLOGY (2.9%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.5%)
34,563 Cisco Systems, Inc. 942
1,500 QUALCOMM, Inc. 73
----------
1,015
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
800 Alliance Data Systems Corp.* 230
3,200 MasterCard, Inc. "A" 313
900 Visa, Inc. "A" 71
----------
614
----------
INTERNET SOFTWARE & SERVICES (0.6%)
1,130 Alphabet, Inc. "A"* 862
2,500 Facebook, Inc. "A"* 261
----------
1,123
----------
SEMICONDUCTOR EQUIPMENT (0.1%)
6,100 Applied Materials, Inc. 115
----------
SEMICONDUCTORS (0.1%)
2,100 Intel Corp. 73
5,400 Micron Technology, Inc.* 86
----------
159
----------
================================================================================
14 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (0.8%)
22,000 Microsoft Corp. $ 1,196
11,000 Oracle Corp. 428
----------
1,624
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.5%)
4,670 Apple, Inc. 552
23,100 HP, Inc. 290
2,100 Seagate Technology plc 75
2,300 Western Digital Corp. 144
----------
1,061
----------
Total Information Technology 5,711
----------
MATERIALS (0.5%)
----------------
COMMODITY CHEMICALS (0.1%)
1,200 LyondellBasell Industries N.V. "A" 115
----------
DIVERSIFIED CHEMICALS (0.2%)
36,200 Huntsman Corp. 453
----------
DIVERSIFIED METALS & MINING (0.1%)
29,400 Freeport-McMoRan, Inc. 240
----------
PAPER PACKAGING (0.1%)
3,900 Bemis Co., Inc. 184
----------
Total Materials 992
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
11,651 Verizon Communications, Inc. 529
----------
UTILITIES (0.4%)
----------------
ELECTRIC UTILITIES (0.4%)
3,500 American Electric Power Co., Inc. 196
7,700 Edison International 457
1,500 NextEra Energy, Inc. 150
----------
803
----------
Total Utilities 803
----------
Total Common Stocks (cost: $27,402) 30,200
----------
PREFERRED STOCKS (2.5%)
CONSUMER STAPLES (1.0%)
-----------------------
AGRICULTURAL PRODUCTS (1.0%)
32,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 924
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
10,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(a) $ 1,049
----------
1,973
----------
Total Consumer Staples 1,973
----------
ENERGY (0.6%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
1,120 Chesapeake Energy Corp., 5.75%, perpetual(a) 305
----------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
300 Kinder Morgan G.P., Inc., 4.13%, cumulative redeemable(a) 280
23,078 NuStar Logistics, LP, 7.63% 578
----------
858
----------
Total Energy 1,163
----------
FINANCIALS (0.9%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
27,414 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 680
----------
REGIONAL BANKS (0.5%)
1,035 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 1,072
----------
Total Financials 1,752
----------
Total Preferred Stocks (cost: $5,346) 4,888
----------
EXCHANGE-TRADED FUNDS (7.7%)
26,400 iShares Core S&P 500 ETF 5,541
35,900 PowerShares DB Commodity Index Tracking Fund* 509
32,300 United States Commodity Index Fund* 1,307
17,300 Vanguard Mid-Cap ETF 2,145
12,630 Vanguard S&P 500 ETF 2,416
29,900 Vanguard Small-Cap Value ETF 3,129
3,410 Vanguard Total Stock Market ETF 365
----------
Total Exchange-Traded Funds (cost: $15,491) 15,412
----------
FIXED-INCOME EXCHANGE-TRADED FUNDS (5.0%)
18,520 iShares 20+ Year Treasury Bond ETF 2,249
45,500 iShares 7-10 Year Treasury Bond ETF 4,841
8,390 iShares Core U.S. Aggregate Bond ETF 913
9,100 iShares iBoxx High Yield Corporate Bond ETF 756
15,300 Vanguard Total Bond Market ETF 1,244
----------
Total Fixed-Income Exchange-Traded Funds (cost: $9,992) 10,003
----------
Total U.S. Equity Securities (cost: $58,231) 60,503
----------
================================================================================
16 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY SECURITIES (17.2%)
COMMON STOCKS (0.7%)
ENERGY (0.3%)
-------------
INTEGRATED OIL & GAS (0.3%)
10,500 Royal Dutch Shell plc ADR "A" $ 523
----------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
5,600 XL Group plc 214
----------
HEALTH CARE (0.2%)
------------------
PHARMACEUTICALS (0.2%)
2,000 Novartis AG ADR 170
4,500 Roche Holdings Ltd. ADR 151
----------
321
----------
Total Health Care 321
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
3,061 NXP Semiconductors N.V.* 286
----------
Total Common Stocks (cost: $1,271) 1,344
----------
EXCHANGE-TRADED FUNDS (16.5%)
8,349 EGShares Emerging Markets Consumer ETF 192
11,700 First Trust Global Tactical Commodity Strategy Fund* 243
185,265 iShares Core MSCI EAFE ETF 10,345
72,838 iShares Core MSCI Emerging Markets ETF 3,013
35,000 iShares Currency Hedged MSCI EAFE ETF 937
70,422 iShares MSCI EAFE ETF 4,271
16,400 iShares MSCI EAFE Minimum Volatility ETF 1,069
88,240 iShares MSCI Japan ETF 1,093
8,489 iShares MSCI Turkey ETF 325
7,200 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 272
39,500 PowerShares FTSE RAFI Emerging Markets Portfolio 588
36,400 Schwab Fundamental International Large Co. Index ETF 915
3,500 SPDR S&P China ETF 270
7,496 SPDR S&P Emerging Markets SmallCap ETF 292
5,310 Vanguard FTSE All-World ex-US ETF 238
73,000 Vanguard FTSE Developed Markets ETF 2,756
53,600 Vanguard FTSE Europe ETF 2,757
9,621 WisdomTree Emerging Markets High Dividend Fund(b) 323
5,259 WisdomTree Emerging Markets SmallCap Dividend Fund 190
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
13,000 WisdomTree Europe Hedged Equity Fund $ 818
29,552 WisdomTree India Earnings Fund 587
24,300 WisdomTree Japan Hedged Equity Fund 1,337
----------
Total Exchange-Traded Funds (cost: $33,988) 32,831
----------
Total International Equity Securities (cost: $35,259) 34,175
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (0.3%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
24,262 Hycroft Mining Corp., acquired 9/22/2014 - 6/09/2015; cost $850*(c),(d) 18
----------
EXCHANGE-TRADED FUNDS (0.3%)
42,600 Market Vectors Gold Miners ETF (cost: $1,085) 586
----------
Total Precious Metals and Commodity-Related Securities (cost: $1,935) 604
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.0%)
PREFERRED STOCKS (0.3%)
REITs - MORTGAGE (0.1%)
8,000 Arbor Realty Trust, Inc., 7.38% 198
----------
REITs - Office (0.2%)
12,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 308
----------
Total Preferred Stocks 506
----------
EXCHANGE-TRADED FUNDS (0.7%)
16,860 Vanguard REIT ETF (cost: $1,284) 1,339
----------
Total Global Real Estate Equity Securities (cost: $1,778) 1,845
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
BONDS (46.8%)
CORPORATE OBLIGATIONS (16.9%)
CONSUMER DISCRETIONARY (0.9%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 149 J.C. Penney Corp., Inc.(e) 6.00% 5/22/2018 148
----------
PUBLISHING (0.1%)
145 Cengage Learning Acquisitions, Inc.(e) 7.00 3/31/2020 143
----------
================================================================================
18 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.7%)
$ 200 Guitar Center, Inc.(a) 6.50% 4/15/2019 $ 183
1,100 Staples, Inc.(e),(f) 3.50 4/07/2021 1,088
150 Toys R Us Property Co. II, LLC 8.50 12/01/2017 142
----------
1,413
----------
Total Consumer Discretionary 1,704
----------
CONSUMER STAPLES (0.2%)
-----------------------
PACKAGED FOODS & MEAT (0.2%)
500 J.M. Smucker Co. 4.38 3/15/2045 490
----------
ENERGY (2.5%)
-------------
OIL & GAS DRILLING (0.1%)
912 Schahin II Finance Co. SPV Ltd.(a),(g) 5.88 9/25/2023 196
----------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
800 Newfield Exploration Co. 5.38 1/01/2026 734
----------
OIL & GAS STORAGE & TRANSPORTATION (2.0%)
1,225 DCP Midstream, LLC(a) 5.85 5/21/2043 974
650 Enbridge Energy Partners, LP 7.38 10/15/2045 666
500 Enbridge Energy Partners, LP 8.05 10/01/2077 446
950 Energy Transfer Partners, LP 3.35(h) 11/01/2066 660
1,000 Enterprise Products Operating, LLC 7.00 6/01/2067 892
200 Martin Midstream Partners, LP 7.25 2/15/2021 191
200 Southern Union Co. 3.35(h) 11/01/2066 121
----------
3,950
----------
Total Energy 4,880
----------
FINANCIALS (8.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
900 Prospect Capital Corp. 5.00 7/15/2019 913
----------
LIFE & HEALTH INSURANCE (2.0%)
1,100 Lincoln National Corp. 7.00(h) 5/17/2066 910
800 MetLife, Inc. 6.40 12/15/2066 883
1,000 Prudential Financial, Inc. 5.63 6/15/2043 1,042
1,350 StanCorp Financial Group, Inc. 6.90 6/01/2067 1,158
----------
3,993
----------
MULTI-LINE INSURANCE (1.4%)
950 Genworth Holdings, Inc. 6.15 11/15/2066 366
1,500 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 1,294
1,100 Nationwide Mutual Insurance Co.(a) 2.63(h) 12/15/2024 1,056
----------
2,716
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.6%)
$ 1,000 GE Capital Trust I 6.38% 11/15/2067 $ 1,067
150 General Electric Capital Corp. 6.38 11/15/2067 160
----------
1,227
----------
PROPERTY & CASUALTY INSURANCE (2.5%)
1,000 Allstate Corp. 5.75 8/15/2053 1,037
1,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 1,051
750 HSB Group, Inc.(d) 1.23(h) 7/15/2027 563
600 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 695
1,450 Oil Insurance Ltd.(a) 3.31(h) -(i) 1,290
300 Progressive Corp. 6.70 6/15/2067 302
----------
4,938
----------
REAL ESTATE DEVELOPMENT (0.1%)
200 Forestar USA Real Estate Group, Inc.(a) 8.50 6/01/2022 201
----------
REGIONAL BANKS (1.2%)
400 Compass Bank 6.40 10/01/2017 425
100 Compass Bank 3.88 4/10/2025 93
1,000 Cullen/Frost Capital Trust II 1.87(h) 3/01/2034 888
100 First Maryland Capital Trust I 1.32(h) 1/15/2027 85
1,000 SunTrust Capital I 1.03(h) 5/15/2027 832
----------
2,323
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
200 Ocwen Financial Corp.(a) 7.13 5/15/2019 181
200 Walter Investment Management Corp. 7.88 12/15/2021 159
----------
340
----------
Total Financials 16,651
----------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
200 Valeant Pharmaceuticals International, Inc.(a) 6.38 10/15/2020 184
----------
INDUSTRIALS (0.8%)
------------------
AEROSPACE & DEFENSE (0.6%)
1,150 Constellis Holdings, LLC & Constellis Finance Corp.(a) 9.75 5/15/2020 959
150 Moog, Inc.(a) 5.25 12/01/2022 153
----------
1,112
----------
AIRLINES (0.1%)
224 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 235
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
100 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 95
----------
================================================================================
20 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MARINE (0.1%)
$ 200 Navios Maritime Holdings, Inc.(a) 7.38% 1/15/2022 $ 151
----------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
75 ILFC E-Capital Trust I(a) 4.57(h) 12/21/2065 71
----------
Total Industrials 1,664
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SYSTEMS SOFTWARE (0.1%)
150 Ensemble S Merger Sub, Inc.(a) 9.00 9/30/2023 150
150 Informatica, LLC(a) 7.13 7/15/2023 144
----------
Total Systems Software 294
----------
Total Information Technology 294
----------
MATERIALS (0.4%)
----------------
DIVERSIFIED METALS & MINING (0.4%)
1,100 Freeport-McMoRan, Inc. 5.45 3/15/2043 696
----------
Total Materials 696
----------
TELECOMMUNICATION SERVICES (0.8%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
150 CenturyLink, Inc. 7.65 3/15/2042 121
1,050 Frontier Communications Corp.(a) 11.00 9/15/2025 1,032
100 GCI, Inc. 6.88 4/15/2025 104
----------
Total Integrated Telecommunication Services 1,257
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
550 Sprint Corp. 7.13 6/15/2024 424
----------
Total Telecommunication Services 1,681
----------
UTILITIES (2.7%)
----------------
ELECTRIC UTILITIES (0.8%)
600 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 470
324 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 260
300 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 295
550 PPL Capital Funding, Inc. 6.70 3/30/2067 454
251 Texas Competitive Electric Holdings Co., LLC(e) 4.68 10/10/2017 86
----------
1,565
----------
MULTI-UTILITIES (1.9%)
390 Dominion Resources, Inc. 7.50 6/30/2066 340
600 Dominion Resources, Inc. 2.63(h) 9/30/2066 471
1,100 Integrys Holding, Inc. 6.11 12/01/2066 888
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,200 Puget Sound Energy, Inc. 6.97% 6/01/2067 $ 1,005
1,250 WEC Energy Group, Inc. 6.25 5/15/2067 1,031
----------
3,735
----------
Total Utilities 5,300
----------
Total Corporate Obligations (cost: $37,088) 33,544
----------
CONVERTIBLE SECURITIES (0.3%)
MATERIALS (0.3%)
----------------
GOLD (0.3%)
454 Hycroft Mining Corp.(d),(j) 15.00 10/22/2020 522
----------
Total Convertible Securities (cost: $433) 522
----------
EURODOLLAR AND YANKEE OBLIGATIONS (6.0%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
CABLE & SATELLITE (0.1%)
150 Neptune Finco Corp.(a) 10.88 10/15/2025 159
----------
ENERGY (0.7%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.7%)
1,700 TransCanada PipeLines Ltd. 6.35 5/15/2067 1,390
----------
FINANCIALS (1.8%)
-----------------
DIVERSIFIED BANKS (0.3%)
50 Barclays Bank plc(a) 7.70 -(i) 55
800 Lloyds Bank plc 0.69(h) -(i) 489
----------
544
----------
LIFE & HEALTH INSURANCE (0.5%)
1,000 Great-West Life & Annuity Insurance Capital, LP(a) 7.15 5/16/2046 1,009
----------
MULTI-LINE INSURANCE (0.3%)
600 ZFS Finance USA Trust V(a) 6.50 5/09/2067 616
----------
PROPERTY & CASUALTY INSURANCE (0.5%)
850 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 944
----------
REINSURANCE (0.2%)
500 Swiss Re Capital I, LP(a) 6.85 -(i) 508
----------
Total Financials 3,621
----------
GOVERNMENT (0.6%)
-----------------
FOREIGN GOVERNMENT (0.6%)
1,000 Italy Government International Bond 5.38 6/15/2033 1,149
----------
================================================================================
22 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (2.1%)
----------------
COMMODITY CHEMICALS (0.4%)
$ 800 Braskem Finance Ltd. 6.45% 2/03/2024 $ 741
----------
DIVERSIFIED METALS & MINING (0.1%)
200 Vedanta Resources plc(a) 6.00 1/31/2019 153
----------
GOLD (1.6%)
1,200 Kinross Gold Corp. 5.95 3/15/2024 947
1,100 Newcrest Finance Proprietary Ltd.(a) 4.45 11/15/2021 1,025
1,400 St. Barbara Ltd.(a) 8.88 4/15/2018 1,344
----------
3,316
----------
Total Materials 4,210
----------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.7%)
700 Electricite De France S.A.(a) 5.25 -(i) 679
700 Enel S.p.A.(a) 8.75 9/24/2073 807
----------
1,486
----------
Total Utilities 1,486
----------
Total Eurodollar and Yankee Obligations (cost: $12,468) 12,015
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.5%)
FINANCIALS (0.5%)
-----------------
ASSET-BACKED FINANCING (0.5%)
86 Sequoia Mortgage Trust 1.11(h) 9/20/2033 75
958 Structured Asset Mortgage Investments, Inc. 0.70(h) 7/19/2035 880
78 Wells Fargo Mortgage Backed Securities Trust 2.69(h) 4/25/2035 74
----------
1,029
----------
Total Financials 1,029
----------
Total Collateralized Mortgage Obligations (cost: $1,034) 1,029
----------
COMMERCIAL MORTGAGE SECURITIES (7.1%)
FINANCIALS (7.1%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (7.1%)
400 Banc of America Commercial Mortgage, Inc. 6.04 7/10/2044 405
100 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 102
800 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 818
1,200 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 1,181
50 Bear Stearns Commercial Mortgage Securities, Inc. 5.60 10/12/2041 50
450 Citigroup Commercial Mortgage Trust 5.99 3/15/2049 456
50 Citigroup Commercial Mortgage Trust 6.35 12/10/2049 46
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,150 Commercial Mortgage Trust 5.38% 12/10/2046 $ 1,145
850 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.39 2/15/2040 772
1,100 GE Capital Commercial Mortgage Corp. 5.60 11/10/2045 1,096
850 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 878
205 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 208
1,075 GS Mortgage Securities Trust 5.76 4/10/2038 1,076
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.10 4/15/2045 930
1,200 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 1,225
50 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 50
800 Merrill Lynch Mortgage Trust 6.03 6/12/2050 827
700 Morgan Stanley Capital I Trust 5.39 11/14/2042 699
1,000 Morgan Stanley Capital I Trust 5.69 3/12/2044 1,001
100 Morgan Stanley Capital I Trust 5.69 3/12/2044 100
1,000 Wachovia Bank Commercial Mortgage Trust 5.90 5/15/2043 1,009
----------
14,074
----------
Total Financials 14,074
----------
Total Commercial Mortgage Securities (cost: $14,101) 14,074
----------
U.S. GOVERNMENT AGENCY ISSUES (0.5%)(k)
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.5%)
1,000 Freddie Mac(+) 3.51 4/25/2030 1,038
----------
Total U.S. Government Agency Issues (cost: $1,019) 1,038
----------
U.S. TREASURY SECURITIES (15.5%)
BONDS (10.3%)
10,100 3.13%, 8/15/2044 10,357
7,600 3.15%, 8/15/2044 (STRIPS Principal)(l) 3,096
2,935 3.00%, 11/15/2044 2,934
300 2.50%, 2/15/2045 270
3,000 3.00%, 5/15/2045 2,998
2,300 3.12%, 5/15/2045 (STRIPS Principal)(l) 908
----------
20,563
----------
NOTES (5.2%)
1,906 1.75%, 5/15/2022 1,883
1,315 1.63%, 11/15/2022 1,283
618 2.00%, 2/15/2023 617
500 1.75%, 5/15/2023 489
2,000 2.75%, 11/15/2023 2,100
1,500 2.50%, 5/15/2024 1,541
================================================================================
24 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,500 2.38%, 8/15/2024 $ 1,524
800 2.25%, 11/15/2024 804
--------
10,241
--------
Total U.S. Treasury Securities (cost: $30,419) 30,804
--------
Total Bonds (cost: $96,563) 93,026
--------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.5%)
MONEY MARKET FUNDS (4.5%)
8,981,552 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(b),(m)
(cost: $8,982) 8,982
--------
TOTAL INVESTMENTS (COST: $202,747) $199,135
========
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 30,200 $ - $ - $ 30,200
Preferred Stocks - 4,888 - 4,888
Exchange-Traded Funds 15,412 - - 15,412
Fixed-Income
Exchange-Traded Funds 10,003 - - 10,003
International Equity Securities:
Common Stocks 1,344 - - 1,344
Exchange-Traded Funds 32,831 - - 32,831
Precious Metals and
Commodity-Related Securities:
Gold - - 18 18
Exchange-Traded Funds 586 - - 586
Global Real Estate Equity Securities:
Preferred Stocks - 506 - 506
Exchange-Traded Funds 1,339 - - 1,339
Bonds:
Corporate Obligations - 32,981 563 33,544
Convertible Securities - - 522 522
Eurodollar and Yankee Obligations - 12,015 - 12,015
Collateralized Mortgage Obligations - 1,029 - 1,029
Commercial Mortgage Securities - 14,074 - 14,074
U.S. Government Agency Issues - 1,038 - 1,038
U.S. Treasury Securities 26,800 4,004 - 30,804
Money Market Instruments:
Money Market Funds 8,982 - - 8,982
-----------------------------------------------------------------------------------------------------------
Total $127,497 $70,535 $1,103 $199,135
-----------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic classifications.
================================================================================
26 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
---------------------------------------------------------------------------------------------------
COMMON CORPORATE CONVERTIBLE
STOCKS OBLIGATIONS SECURITIES
---------------------------------------------------------------------------------------------------
Balance as of May 31, 2015 $ - $519 $ -
Purchases 850 - 433
Sales - (38) -
Transfers into Level 3 - - -
Transfers out of Level 3 - - -
Net realized gain (loss) on investments - - -
Change in net unrealized appreciation/(depreciation)
of investments (832) 82 89
---------------------------------------------------------------------------------------------------
Balance as of November 30, 2015 $ 18 $563 $522
---------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 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.
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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 23.5% of net assets at November 30,
2015.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no
================================================================================
28 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities but such maturities can be difficult to predict because of the
effect of prepayments.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be substantially
shorter than the stated final maturity as a result of scheduled principal
payments and unscheduled principal prepayments. Stated interest rates on
commercial mortgage-backed securities may change slightly over time as
underlying mortgages pay down.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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
STRIPS Separate trading of registered interest and principal of securities
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) At November 30, 2015, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2015, was $18,000, which represented less than 0.1% of the
Fund's net assets.
(d) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $1,103,000, which represented 0.6% of
the Fund's net assets.
(e) Senior loan (loan) - is not registered under the Securities Act of 1933.
The loan contains certain restrictions on resale and cannot be sold
publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the senior loan facility and
includes commitment fees on unfunded loan commitments. The interest rate
is adjusted periodically, and the rate disclosed represents the current
rate at November 30, 2015. The weighted average life of the loan is
likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(f) At November 30, 2015, the aggregate market value of securities purchased
on a delayed-delivery basis was $1,088,000.
(g) At November 30, 2015, the issuer was in default with respect to interest
and/or principal payments.
(h) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2015.
================================================================================
30 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
(i) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(j) Pay-in-kind (PIK) - security in which the issuer will have or has the
option to make all or a portion of the interest or dividend payments in
additional securities.
(k) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by the
full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the credit
of the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship
and appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred stock.
While these arrangements are intended to ensure that Fannie Mae and
Freddie Mac can continue to meet their obligations, it is possible that
actions by the U.S. Treasury, FHFA, or others could adversely impact the
value of the Fund's investments in securities issued by Fannie Mae and
Freddie Mac.
(l) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(m) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $202,747) $199,135
Cash 3
Cash denominated in foreign currencies (identified cost of $7) 7
Receivables:
Capital shares sold 247
USAA Asset Management Company (Note 5C) 53
Dividends and interest 916
Securities sold 1,436
--------
Total assets 201,797
--------
LIABILITIES
Payables:
Securities purchased 2,326
Capital shares redeemed 494
Accrued management fees 82
Accrued transfer agent's fees 12
Other accrued expenses and payables 51
--------
Total liabilities 2,965
--------
Net assets applicable to capital shares outstanding $198,832
========
NET ASSETS CONSIST OF:
Paid-in capital $200,023
Accumulated undistributed net investment income 713
Accumulated net realized gain on investments and options 1,708
Net unrealized depreciation of investments (3,612)
--------
Net assets applicable to capital shares outstanding $198,832
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 18,409
========
Net asset value, redemption price, and offering price per share $ 10.80
========
See accompanying notes to financial statements.
================================================================================
32 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3) $ 1,293
Interest 2,245
--------
Total income 3,538
--------
EXPENSES
Management fees 500
Administration and servicing fees 150
Transfer agent's fees 238
Custody and accounting fees 78
Postage 11
Shareholder reporting fees 11
Trustees' fees 13
Registration fees 13
Professional fees 36
Other 5
--------
Total expenses 1,055
Expenses reimbursed (154)
--------
Net expenses 901
--------
NET INVESTMENT INCOME 2,637
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND OPTIONS
Net realized gain (loss) on:
Unaffiliated transactions 1,352
Affiliated transactions (Note 7) (9)
Options 5
Change in net unrealized appreciation/(depreciation) of:
Investments (13,132)
Options 28
--------
Net realized and unrealized loss (11,756)
--------
Decrease in net assets resulting from operations $ (9,119)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,637 $ 4,486
Net realized gain on investments 1,343 1,958
Net realized gain on long-term capital gain distributions from
other investment companies - 50
Net realized loss on foreign currency transactions - (1)
Net realized gain (loss) on options 5 (240)
Change in net unrealized appreciation/(depreciation) of:
Investments (13,132) (1,560)
Options 28 194
-----------------------------
Increase (decrease) in net assets resulting from operations (9,119) 4,887
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,172) (4,334)
Net realized gains - (1,824)
-----------------------------
Distributions to shareholders (2,172) (6,158)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 27,945 80,876
Reinvested dividends 1,946 5,311
Cost of shares redeemed (24,303) (48,123)
-----------------------------
Increase in net assets from capital share transactions 5,588 38,064
-----------------------------
Net increase (decrease) in net assets (5,703) 36,793
NET ASSETS
Beginning of period 204,535 167,742
-----------------------------
End of period $198,832 $204,535
=============================
Accumulated undistributed net investment income:
End of period $ 713 $ 248
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,542 7,082
Shares issued for dividends reinvested 179 467
Shares redeemed (2,215) (4,210)
-----------------------------
Increase in shares outstanding 506 3,339
=============================
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Cornerstone Moderately Conservative
Fund (the Fund), which is classified as diversified under the 1940 Act. The
Fund's investment objective is to seek current income with a secondary focus on
capital appreciation.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
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 need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities. If
the Manager determines that a particular event would materially affect
the value of the Fund's foreign securities, then the Committee will
consider such available information that it deems relevant and will
determine a fair value for the affected foreign securities in accordance
with valuation procedures. In addition, information from an external
vendor or other sources may be used to adjust the foreign market closing
prices of foreign equity securities to reflect what the Committee
believes to be the fair value of the
================================================================================
36 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
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 value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which 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.
7. Futures are valued at the last sale price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the last sale price on the prior trading date if
it is within the spread between the closing bid and asked prices closest
to the last reported sale price.
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid and
asked prices in all participating options exchanges determined to most
closely reflect market value of the options at the time of computation
of the Fund's NAV.
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
10. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
include preferred stocks, which are valued based on methods discussed in
Note 1A2, and certain bonds, which are valued based on methods discussed in
Note 1A5.
================================================================================
38 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
some securities falling in the Level 3 category are primarily supported by
quoted prices obtained from broker-dealers participating in the market for
these securities. However, these securities are included in the Level 3
category due to limited market transparency and/or a lack of corroboration
to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the trade. The
Fund's derivative agreements held at November 30, 2015, did not include
master netting provisions.
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified price
during a specified period. The purchaser of the option pays a premium to the
writer of the option.
Premiums paid for purchased options are included in the Fund's Statement of
Assets and Liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's Statement
of Assets and Liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss on
the security sold is determined from the exercise price, the original cost
of the security, and the premium received. If a written put option on a
security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on indexes
or ETFs that represent the Fund's exposure against a highly correlated stock
portfolio. The combination of the diversified stock portfolio with index or
ETF options is designed to provide the Fund with consistent returns over a
wide range of equity market environments. This strategy may not fully
protect the Fund against declines in the
================================================================================
40 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
portfolio's value, and the Fund could experience a loss. Options on ETFs are
similar to options on individual securities in that the holder of the ETF
call (or put) has the right to receive (or sell) shares of the underlying
ETF at the strike price on or before exercise date. Options on securities
indexes are different from options on individual securities in that the
holder of the index option has the right to receive an amount of cash equal
to the difference between the exercise price and the settlement value of the
underlying index as defined by the exchange. If an index option is
exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2015 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
--------------------------------------------------------------------------------------------
Equity contracts Net realized gain(loss) $5 $28
on Options/Change in
net unrealized appreciation/
(depreciation) of Options
--------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Discounts and premiums are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities. Foreign
income and capital gains on some foreign securities may be subject to
foreign taxes, which are accrued as applicable,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
as a reduction to such income and realized gains. These foreign taxes have
been provided for in accordance with the understanding of the applicable
countries' tax rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior
================================================================================
42 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
to settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
As of November 30, 2015, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $1,095,000.
H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2015, there were no custodian and other bank credits.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of less than $500, which represents 0.3% of the total fees paid to CAPCO by
the USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of
================================================================================
44 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
limitations on the Fund's tax return filings generally remain open for the three
preceding fiscal reporting year ends and remain subject to examination by the
Internal Revenue Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$56,403,000 and $45,805,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $7,364,000 and $10,976,000, respectively, resulting in net unrealized
depreciation of $3,612,000.
For the six-month period ended November 30, 2015, transactions in written call
and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000'S)
------------------------------
Outstanding at May 31, 2015 28 $ 54
Options written - -
Options terminated in closing purchase transactions (14) (34)
Options expired (14) (20)
------------------------------
Outstanding at November 30, 2015 - $ -
------------------------------
* Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for
directly managing the day-to-day investment of a portion of the Fund's
assets, subject to the authority of and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
supervision by the Board. The Manager is authorized to select (with approval
of the Board and without shareholder approval) one or more subadvisers to
manage the actual day-to-day investment of a portion of the Fund's assets.
For the six-month period ended November 30, 2015, the Fund had no
subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.50% of the Fund's average net assets. For the
six-month period ended November 30, 2015, the Fund incurred total management
fees, paid or payable to the Manager, of $500,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2015, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $150,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2015, the Fund reimbursed the
Manager $2,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Fund to 0.90% of its average net
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in
excess of that amount. This expense limitation arrangement may not be
changed or terminated through October 1, 2016, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2015, the Fund
incurred reimbursable expenses of $154,000, of which $53,000 was receivable
from the Manager.
================================================================================
46 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund based on an annual charge of $23 per shareholder
account plus out of pocket expenses. SAS pays a portion of these fees to
certain intermediaries for the administration and servicing of accounts that
are held with such intermediaries. For the six-month period ended November
30, 2015, the Fund incurred transfer agent's fees, paid or payable to SAS,
of $238,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 1,756,000 shares, which represents 9.5% of
the Fund.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2015, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Fund at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN/(LOSS)
SELLER PURCHASER PURCHASER TO SELLER
----------------------------------------------------------------------------------
USAA Cornerstone
Moderately
Conservative USAA Short-Term Bond $11,675,000 $ (9,000)
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
----------------------------------------------------------
2015 2015 2014 2013***
----------------------------------------------------------
Net asset value at beginning of period $ 11.42 $ 11.52 $ 11.05 $ 10.00
-------------------------------------------------------
Income (loss) from investment operations:
Net investment income .14 .26 .25 .28(a)
Net realized and unrealized gain (loss) (.64) .03 .61 .99(a)
-------------------------------------------------------
Total from investment operations (.50) .29 .86 1.27(a)
-------------------------------------------------------
Less distributions from:
Net investment income (.12) (.27) (.26) (.22)
Realized capital gains - (.12) (.13) -
-------------------------------------------------------
Total distributions (.12) (.39) (.39) (.22)
-------------------------------------------------------
Net asset value at end of period $ 10.80 $ 11.42 $ 11.52 $ 11.05
=======================================================
Total return (%)* (4.39) 2.58 8.00 12.81
Net assets at end of period (000) $198,832 $204,535 $167,742 $99,683
Ratios to average net assets:**
Expenses (%)(b) .90(c) .90 .90 .90(c)
Expenses, excluding reimbursements (%)(b) 1.05(c) 1.05 1.08 1.25(c)
Net investment income (%) 2.64(c) 2.43 2.40 2.56(c)
Portfolio turnover (%) 24 37 36 59
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$200,064,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
48 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
EXPENSE EXAMPLE | 49
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-------------------------------------------------------------
ACTUAL $1,000.00 $ 956.10 $4.40
Hypothetical
(5% return before expenses) 1,000.00 1,020.50 4.55
*Expenses are equal to the Fund's annualized expense ratio of 0.90%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/366 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (4.39)% for the six-month period of June 1,
2015, through November 30, 2015.
================================================================================
50 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
San Antonio, TX 78288 U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
97451-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATE FUND
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 35
Financial Statements 40
Notes to Financial Statements 43
EXPENSE EXAMPLE 58
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)2016, USAA. All rights reserved.
200992-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE MODERATE FUND (THE FUND) SEEKS HIGH TOTAL RETURN.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, money market instruments and other
instruments. The Fund will have a target asset class allocation of approximately
50% equity securities and 50% fixed-income securities. The actual asset class
allocation can deviate from time to time from these targets as market conditions
warrant. The implementation of the asset allocation may involve the extensive
use of equity and fixed-income exchange-traded funds (ETFs). The Fund may invest
in securities issued by domestic or foreign companies. The Fund also may invest
in fixed-income securities that are investment grade and below investment grade.
The Fund also may use alternative investment strategies, such as investments in
real estate investment trusts and precious metals and minerals companies, and
other instruments, including futures and options, from time to time, in an
attempt to reduce the Fund's volatility over time and enhance the Fund's return
and diversification.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
JOHN P. TOOHEY, CFA ARNOLD J. ESPE, CFA
WASIF A. LATIF DAN DENBOW, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging
time for the world financial markets, as concerns about slow global growth,
China's currency devaluation, and the potential for an interest rate
increase by the Federal Reserve (the Fed) combined to weigh upon investor
sentiment.
U.S. equities generally finished the reporting period with a negative
return, but they generated returns above those of the international markets.
The U.S. economy appeared to be on track to deliver growth of approximately
2% in the second half of 2015 amid strength in the housing market,
employment, and consumer spending. While low compared to historical
standards, this rate is nonetheless higher than the majority of the world's
developed economies--a positive for U.S. stocks' relative performance
during the reporting period. Within the domestic market, small-cap stocks
generally underperformed large-cap stocks as investors appeared averse to
risk.
Developed market international stocks finished with a loss and
underperformed U.S. equities which was likely due to mounting concerns about
slowing economic growth in both Europe and Japan. In addition, the weakness
in foreign currencies relative to the U.S. dollar translated to lower total
returns for U.S.-based investors. Emerging market stocks also generally
finished the reporting period with a loss. Falling commodity prices,
together with China's move toward a consumer-led economy from one driven
primarily by fixed-asset investment, likely led to slower
================================================================================
2 | USAA CORNERSTONE MODERATE FUND
================================================================================
growth in many of the exporting economies within the asset class. In
addition, currency weakness compelled many central banks to raise interest
rates even as growth slowed. Together, these factors caused the emerging
markets to close the reporting period near the low end of their range for
the past five years.
The impact of weaker commodity prices was not limited to the emerging
markets. Stocks in the gold-mining sector fell sharply as well, reflecting
the effect of falling gold prices on their profit outlook.
In the investment-grade bond market, U.S. Treasuries finished relatively
flat. While investors remained on edge about the possibility of the Fed
increasing interest rates, bonds gained a degree of support from the
backdrop of below-trend growth and low inflation. Investment-grade corporate
debt lagged, due largely to a sharp increase in new-issue supply. High-yield
bonds underperformed the investment-grade market by a considerable margin,
as the weakness in commodity prices pressured the credit outlook for the
many energy and mining issuers within the asset class.
o HOW DID THE USAA CORNERSTONE MODERATE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2015, the Fund had a total
return of -4.74%. This compares to returns of -1.05% for the Russell 3000(R)
Index, -5.43% for the MSCI All-Country World Index*, -2.52% for the
Cornerstone Moderate Composite Index, and -1.89% for the Lipper Balanced
Funds Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*As of October 1, 2015, the MSCI All-Country World Index replaced the
Russell 3000 Index as it more closely represents the securities held by the
Fund.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
O PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund employs a diversified, long-term approach that favors
undervalued market segments and avoids those that appear more richly priced.
While this strategy led to underperformance during the reporting period, we
remain confident in the Fund's overall positioning.
The Fund's overweight position in the developed international markets
was the primary factor affecting relative performance during a time in which
U.S. equities delivered superior returns. Nevertheless, we retain this
positioning for the Fund on the belief that the foreign markets offer both
attractive relative valuations and the potential for improving corporate
earnings. In addition, we believe international equities can benefit from
accommodative monetary policies of the central banks in Europe and Japan
relative to the Fed's current monetary policy.
The Fund's allocation to the emerging markets also pressured results given
the substantial underperformance of this market segment. Although we trimmed
the Fund's position during the course of the reporting period in order to
manage risk, we maintained an allocation to emerging markets for the Fund on
the belief that emerging market stocks continue to offer superior long-term
return potential relative to developed markets.
The Fund's U.S. equity portfolio lost ground in the aggregate, but it
outpaced the other allocations within the Fund. We continue to invest the
Fund's domestic equity portfolio in large-cap stocks based on our belief
that they offer attractive valuations relative to their mid- and small-cap
counterparts. This aspect of our positioning for the Fund contributed to its
performance during the reporting period, illustrating the potential benefits
of our value-oriented approach.
The Fund's investment-grade bond portfolio also decreased in value, but
it provided both income and a measure of stability to the Fund's
performance. At a time in which investors seemed to avoid bond market
segments with the highest sensitivity to the growth outlook, the Fund's
positions in high-yield and lower-rated investment-grade corporate bonds
detracted from performance. We would note, however, that the Fund's
allocation to these credit sectors has had a substantial positive impact on
the bond portfolio's longer-term results. We offset some of the shortfall in
the credit sectors through the Fund's allocation to longer maturity U.S.
Treasuries, which finished the reporting period with a gain. We added this
position earlier in the year as a "hedge" against
================================================================================
4 | USAA CORNERSTONE MODERATE FUND
================================================================================
market volatility, a move that proved well-timed given the subsequent
underperformance of the credit-sensitive areas of the market.
The Fund's commodities exposure, which is achieved through investments
in a basket of exchange-traded funds (ETFs), natural resources companies and
gold stocks detracted from the Fund's performance. Although commodity
prices fell sharply during the reporting period, we believe this asset class
remains essential to diversification because of its potential to offset the
long-term impact of inflation.
The market backdrop remains uncertain as we move toward 2016, with the
Fed's monetary policy, China's growth outlook, and geopolitical headlines
all representing factors that are affecting investor sentiment. In this
environment, our approach is to remain focused on identifying asset classes
that have the potential to offer value. The reason for this is simple:
valuation is one of the strongest indicators of longer-term returns. While a
value-driven approach may not always work for a quarter-to-quarter basis, we
measure success in years, not months, since that's how our shareholders
typically think as well. With this as background, we believe the Fund will
be better served by a continued emphasis on diversification and a preference
for market segments with attractive valuations.
Thank you for your investment in the Fund.
Asset Allocation funds may be invested in, among other things: (1)
exchange-traded funds; (2) futures, options, and other derivatives; (3)
non-investment grade securities; (4) precious metals and minerals
companies; (5) real estate investment trusts; (6) money market instruments;
(7) foreign and emerging markets. These types of investments and asset
classes may be more volatile and prone to experience significant loss than
others. In addition, its is possible that a particular asset allocation
used by the Manager may not produce the intended result. 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 Foreign investing is subject to additional risks, such as
currency fluctuations, market illiquidity, and political instability.
Emerging market countries are less diverse and mature than other countries
and tend to be politically less stable. o Precious metals and minerals is a
volatile asset class and is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than other asset classes that diversify
across many industries and companies. o The USAA Precious Metals and
Minerals Fund is subject to additional risks, such as currency fluctuation,
market illiquidity, political instability and increased price volatility.
It may be more volatile than a fund that diversifies across many industries
and companies. o Non-investment grade securities are considered speculative
and are subject to significant credit risk. They are sometimes referred to
as "junk" bonds since they represent a greater risk of default than more
creditworthy investment-grade securities. o Diversification is a technique
intended to help reduce risk and does not guarantee a profit or prevent a
loss. o Exchange Traded Funds (ETFs) are subject to risks similar to those
of stocks. Investment returns may fluctuate and are subject to market
volatility, so that an investor's shares, when redeemed or sold, may be
worth more or less than their original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATE FUND (THE FUND)
(Ticker Symbol: USBSX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $1.1 Billion $1.2 Billion
Net Asset Value Per Share $14.50 $15.43
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-4.74% -3.13% 5.23% 3.82%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-4.02% 4.08% 3.55%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.23% AFTER REIMBURSEMENT 1.09%
(Includes acquired fund fees and expenses of 0.09%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Fund (exclusive of commission recapture, expense
offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 1.00% of the Fund's average net
assets. This reimbursement arrangement may not be changed or terminated during
this time period without approval of the Fund's Board of Trustees and may be
changed or terminated by the Manager at any time after October 1, 2016. If the
total annual operating expense ratio is lower than 1.00%, the Fund will operate
at the lower expense ratio. These expense ratios may differ from the expense
ratios disclosed in the Financial Highlights, which excludes acquired fund fees
and expenses. Effective October 1, 2015, the base investment management fee was
reduced from 0.75% to 0.70% of the Fund's average net assets.
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.
================================================================================
6 | USAA CORNERSTONE MODERATE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE LIPPER
MODERATE BALANCED MSCI USAA CORNERSTONE
RUSSELL 3000 COMPOSITE FUNDS ALL-COUNTRY MODERATE
INDEX INDEX INDEX WORLD INDEX* FUND
11/30/05 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,008.98 10,149.86 10,087.59 10,245.94 10,054.99
01/31/06 10,343.39 10,402.56 10,328.39 10,750.31 10,228.01
02/28/06 10,361.78 10,412.69 10,315.47 10,734.54 10,201.39
03/31/06 10,540.89 10,487.78 10,415.91 10,960.29 10,235.17
04/30/06 10,655.24 10,622.58 10,529.48 11,325.08 10,295.42
05/31/06 10,314.10 10,421.94 10,320.71 10,878.63 10,020.96
06/30/06 10,332.35 10,431.32 10,314.53 10,873.94 10,038.96
07/31/06 10,322.68 10,523.17 10,362.68 10,948.16 10,012.01
08/31/06 10,575.20 10,731.74 10,561.98 11,232.00 10,146.76
09/30/06 10,811.93 10,847.90 10,714.23 11,362.90 10,357.61
10/31/06 11,201.13 11,095.15 10,963.84 11,789.06 10,560.83
11/30/06 11,444.84 11,321.19 11,175.03 12,122.41 10,723.41
12/31/06 11,581.91 11,395.68 11,257.68 12,392.88 10,795.96
01/31/07 11,802.36 11,480.74 11,379.09 12,516.16 10,962.83
02/28/07 11,608.75 11,530.68 11,335.66 12,450.27 10,912.04
03/31/07 11,729.58 11,631.71 11,432.92 12,700.11 10,978.22
04/30/07 12,198.14 11,905.46 11,761.74 13,262.48 11,255.42
05/31/07 12,642.66 12,056.07 12,014.46 13,658.01 11,452.37
06/30/07 12,405.89 11,978.91 11,902.21 13,617.89 11,338.57
07/31/07 11,982.81 11,880.90 11,699.32 13,409.94 11,081.88
08/31/07 12,154.82 11,960.18 11,793.89 13,372.83 11,184.56
09/30/07 12,597.95 12,297.78 12,127.09 14,090.72 11,452.41
10/31/07 12,829.05 12,554.52 12,340.34 14,640.43 11,651.52
11/30/07 12,251.50 12,352.97 12,051.03 13,993.13 11,290.18
12/31/07 12,177.36 12,312.44 11,992.50 13,838.23 11,195.90
01/31/08 11,439.27 11,957.46 11,596.04 12,704.80 10,852.13
02/29/08 11,083.97 11,932.75 11,445.16 12,740.67 10,649.00
03/31/08 11,018.30 11,876.50 11,357.70 12,553.80 10,519.25
04/30/08 11,569.31 12,198.43 11,734.24 13,254.07 10,802.28
05/31/08 11,806.33 12,278.83 11,863.86 13,461.31 11,014.56
06/30/08 10,832.06 11,775.90 11,236.64 12,355.95 10,396.48
07/31/08 10,745.67 11,646.04 11,094.33 12,035.09 10,214.23
08/31/08 10,912.56 11,640.67 11,136.52 11,775.69 10,245.93
09/30/08 9,886.52 10,870.02 10,295.14 10,303.95 9,366.53
10/31/08 8,133.05 9,605.82 8,975.68 8,262.22 7,953.16
11/30/08 7,491.03 9,375.24 8,566.78 7,719.42 7,426.15
12/31/08 7,634.34 9,714.23 8,853.44 7,999.19 7,561.79
01/31/09 6,993.66 9,275.08 8,443.61 7,315.75 7,125.53
02/28/09 6,261.04 8,786.01 7,897.46 6,599.45 6,535.77
03/31/09 6,809.47 9,211.94 8,336.70 7,143.05 6,872.04
04/30/09 7,526.05 9,814.09 8,910.94 7,986.26 7,469.25
05/31/09 7,927.62 10,291.73 9,357.99 8,781.99 8,238.27
06/30/09 7,954.63 10,317.05 9,380.34 8,732.75 8,447.80
07/31/09 8,573.79 10,848.29 9,943.95 9,501.48 8,919.89
08/31/09 8,880.14 11,120.15 10,210.06 9,841.30 9,259.45
09/30/09 9,252.18 11,447.65 10,536.53 10,292.79 9,756.30
10/31/09 9,014.22 11,368.45 10,413.34 10,133.73 9,781.40
11/30/09 9,526.44 11,695.63 10,800.99 10,550.51 10,074.26
12/31/09 9,797.92 11,778.54 10,920.94 10,768.99 10,286.44
01/31/10 9,444.73 11,628.97 10,734.17 10,303.59 10,227.28
02/28/10 9,764.92 11,772.10 10,925.09 10,434.84 10,413.23
03/31/10 10,380.37 12,158.78 11,340.59 11,106.15 10,808.80
04/30/10 10,604.39 12,297.65 11,479.78 11,124.84 10,996.18
05/31/10 9,766.67 11,774.67 10,892.79 10,060.40 10,442.54
06/30/10 9,205.21 11,638.16 10,630.86 9,759.91 10,177.96
07/31/10 9,844.25 12,163.86 11,146.59 10,554.05 10,642.55
08/31/10 9,380.85 12,005.59 10,906.86 10,185.10 10,444.67
09/30/10 10,266.57 12,598.82 11,525.11 11,159.47 11,040.84
10/31/10 10,667.75 12,869.00 11,817.67 11,562.78 11,326.60
11/30/10 10,729.34 12,755.58 11,754.60 11,305.51 11,274.65
12/31/10 11,456.67 13,171.32 12,220.56 12,133.39 11,676.14
01/31/11 11,706.90 13,297.12 12,391.98 12,323.80 11,868.27
02/28/11 12,133.13 13,527.15 12,668.85 12,682.66 12,182.66
03/31/11 12,187.86 13,550.77 12,696.66 12,670.00 12,280.16
04/30/11 12,550.62 13,892.52 13,034.77 13,188.36 12,622.74
05/31/11 12,407.42 13,847.82 12,948.71 12,904.87 12,552.46
06/30/11 12,184.60 13,703.25 12,790.78 12,701.53 12,392.60
07/31/11 11,905.57 13,692.25 12,692.95 12,494.73 12,215.56
08/31/11 11,191.29 13,292.06 12,214.67 11,582.00 11,578.23
09/30/11 10,322.90 12,692.22 11,559.98 10,488.51 10,934.62
10/31/11 11,510.99 13,426.70 12,364.39 11,612.29 11,576.26
11/30/11 11,479.88 13,256.59 12,273.02 11,264.68 11,504.97
12/31/11 11,574.23 13,333.33 12,310.96 11,241.92 11,529.81
01/31/12 12,158.30 13,787.81 12,772.54 11,895.60 11,890.12
02/29/12 12,672.63 14,127.33 13,138.59 12,494.11 12,214.40
03/31/12 13,063.54 14,186.70 13,280.60 12,577.18 12,326.14
04/30/12 12,977.87 14,198.10 13,268.25 12,433.27 12,298.97
05/31/12 12,175.59 13,660.25 12,695.05 11,318.53 11,837.08
06/30/12 12,652.45 13,992.76 13,017.65 11,877.54 12,089.41
07/31/12 12,777.77 14,182.68 13,174.35 12,040.14 12,217.34
08/31/12 13,096.68 14,360.74 13,381.46 12,301.93 12,409.24
09/30/12 13,440.60 14,593.81 13,614.79 12,689.39 12,625.86
10/31/12 13,208.77 14,545.04 13,546.45 12,604.81 12,671.84
11/30/12 13,311.05 14,642.07 13,642.13 12,766.00 12,736.21
12/31/12 13,474.18 14,794.35 13,781.23 13,055.16 12,897.00
01/31/13 14,213.52 15,116.48 14,173.65 13,656.59 13,203.19
02/28/13 14,401.88 15,177.91 14,245.48 13,654.46 13,212.47
03/31/13 14,966.24 15,373.52 14,524.96 13,904.12 13,383.24
04/30/13 15,211.22 15,640.42 14,728.97 14,301.33 13,597.74
05/31/13 15,570.06 15,537.70 14,780.77 14,262.09 13,523.13
06/30/13 15,368.11 15,208.49 14,541.11 13,845.23 13,185.42
07/31/13 16,210.41 15,604.52 15,026.44 14,508.03 13,523.03
08/31/13 15,757.88 15,390.40 14,763.78 14,205.77 13,354.22
09/30/13 16,343.70 15,836.41 15,207.58 14,939.51 13,637.06
10/31/13 17,037.95 16,220.37 15,616.93 15,539.97 14,005.89
11/30/13 17,532.40 16,324.50 15,838.21 15,760.05 14,091.00
12/31/13 17,994.96 16,448.76 16,040.31 16,031.94 14,215.33
01/31/14 17,426.43 16,277.05 15,798.54 15,390.65 14,043.83
02/28/14 18,253.07 16,731.68 16,296.95 16,134.14 14,434.46
03/31/14 18,349.95 16,758.70 16,331.99 16,205.88 14,494.86
04/30/14 18,372.22 16,877.51 16,395.88 16,360.15 14,619.40
05/31/14 18,773.12 17,142.71 16,667.51 16,708.12 14,811.00
06/30/14 19,243.99 17,343.18 16,903.45 17,022.69 15,027.58
07/31/14 18,864.36 17,174.61 16,701.65 16,816.07 14,892.37
08/31/14 19,655.80 17,494.31 17,107.88 17,187.51 15,095.18
09/30/14 19,246.08 17,135.57 16,806.98 16,630.36 14,792.41
10/31/14 19,775.61 17,329.34 17,040.74 16,747.44 14,879.76
11/30/14 20,254.85 17,510.12 17,278.84 17,027.56 15,015.65
12/31/14 20,254.62 17,372.00 17,196.07 16,698.99 14,857.50
01/31/15 19,690.90 17,391.62 17,077.63 16,437.91 14,877.20
02/28/15 20,831.02 17,814.81 17,604.67 17,353.03 15,212.18
03/31/15 20,619.26 17,736.67 17,502.25 17,084.15 15,101.74
04/30/15 20,712.52 17,928.35 17,625.32 17,579.84 15,240.29
05/31/15 20,999.01 17,938.75 17,701.15 17,556.90 15,269.98
06/30/15 20,647.68 17,656.76 17,429.78 17,143.58 14,976.55
07/31/15 20,993.03 17,764.42 17,587.80 17,292.46 15,046.30
08/31/15 19,725.69 17,166.81 16,910.71 16,107.04 14,438.47
09/30/15 19,150.88 16,909.29 16,629.59 15,523.50 14,144.60
10/31/15 20,663.52 17,564.28 17,369.74 16,741.86 14,656.21
11/30/15 20,778.07 17,486.44 17,367.31 16,603.61 14,545.87
[END CHART]
Data from 11/30/05 through 11/30/15.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes except
that the Lipper Balanced Funds Index reflects the fees and expenses of the
underlying funds included in the index.
*As of October 1, 2015, the MSCI All-Country World Index replaced the Russell
3000 Index as it more closely represents the securities held by the Fund.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderate Fund to the benchmarks listed below.
The Manager has developed the Cornerstone Moderate Composite Index, which is
used to measure the Fund's performance. The custom benchmark was created by the
Manager to show how the Fund's performance compares with the returns of an index
or indexes with similar asset allocations.
o The unmanaged Russell 3000 Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market.
o The unmanaged Lipper Balanced Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Balanced Funds
category.
o The Cornerstone Moderate Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) (29%), the MSCI ACWI ex USA IMI (19%), the
Barclays U.S. Universal Index (48%), the Bloomberg Commodity Index Total
Return (1%), the MSCI U.S. Real Estate Investment Trust (REIT) Index (1%),
and the Barclays U.S. Treasury - Bills (1-3M) (2%).
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
================================================================================
8 | USAA CORNERSTONE MODERATE FUND
================================================================================
o TOP 10 EQUITY HOLDINGS* - 11/30/15 o
(% of Net Assets)
iShares Core MSCI EAFE ETF** ............................................ 5.1%
U.S. Treasury Bond, 3.13%, 8/15/2044 .................................... 4.7%
iShares MSCI EAFE ETF** ................................................. 4.6%
U.S. Treasury Bond, 3.00%, 5/15/2045 .................................... 3.8%
iShares Core S&P 500 ETF** .............................................. 2.2%
iShares Core MSCI Emerging Markets ETF** ................................ 2.1%
Vanguard FTSE Europe ETF** .............................................. 1.6%
Vanguard FTSE Developed Markets ETF** ................................... 1.5%
Vanguard Small-Cap Value ETF** .......................................... 1.3%
Vanguard S&P 500 ETF** .................................................. 1.2%
*Excludes money market instruments.
**The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to invest
in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
You will find a complete list of securities that the Fund owns on pages 11-34.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
U.S. EQUITY SECURITIES* 31.3%
INTERNATIONAL EQUITY SECURITIES* 21.7%
CORPORATE OBLIGATIONS 16.4%
U.S. TREASURY SECURITIES 10.9%
COMMERCIAL MORTGAGE SECURITIES 7.1%
EURODOLLAR AND YANKEE OBLIGATIONS 5.0%
MONEY MARKET INSTRUMENTS 4.0%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES* 0.9%
U.S. GOVERNMENT AGENCY ISSUES 0.5%
GLOBAL REAL ESTATE EQUITY SECURITIES 1.0%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.3%
ASSET-BACKED SECURITIES 0.2%
CONVERTIBLE SECURITIES** 0.0%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
**Represents less than 0.1% of the Fund.
================================================================================
10 | USAA CORNERSTONE MODERATE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (31.3%)
COMMON STOCKS (22.4%)
CONSUMER DISCRETIONARY (3.4%)
-----------------------------
ADVERTISING (0.4%)
50,700 Omnicom Group, Inc. $ 3,748
----------
APPAREL RETAIL (0.3%)
3,490 Caleres, Inc. 98
4,440 Finish Line, Inc. "A" 74
43,800 TJX Companies, Inc. 3,092
----------
3,264
----------
AUTO PARTS & EQUIPMENT (0.6%)
52,700 BorgWarner, Inc. 2,250
6,920 Dana Holding Corp. 114
6,480 Gentex Corp. 108
1,660 Gentherm, Inc.* 84
43,700 Johnson Controls, Inc. 2,010
42,800 Magna International, Inc. 1,945
----------
6,511
----------
AUTOMOBILE MANUFACTURERS (0.2%)
127,000 Ford Motor Co. 1,820
2,540 Thor Industries, Inc. 147
----------
1,967
----------
AUTOMOTIVE RETAIL (0.0%)
3,530 CST Brands, Inc. 131
1,560 Lithia Motors, Inc. "A" 194
1,530 Murphy USA, Inc.* 91
----------
416
----------
BROADCASTING (0.3%)
63,600 CBS Corp. "B" 3,211
----------
FOOTWEAR (0.0%)
6,390 Wolverine World Wide, Inc. 116
----------
GENERAL MERCHANDISE STORES (0.3%)
51,200 Dollar General Corp. 3,349
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (0.1%)
4,700 Home Depot, Inc. $ 629
----------
HOMEBUILDING (0.1%)
5,730 M/I Homes, Inc.* 134
3,400 Meritage Homes Corp.* 127
110 NVR, Inc.* 185
15,240 TRI Pointe Group, Inc.* 212
----------
658
----------
HOTELS, RESORTS & CRUISE LINES (0.9%)
65,900 Carnival Corp. 3,330
20,000 Hilton Worldwide Holdings, Inc. 464
109,600 Norwegian Cruise Line Holdings Ltd.* 6,296
----------
10,090
----------
INTERNET RETAIL (0.1%)
8,100 Expedia, Inc. 997
----------
PUBLISHING (0.0%)
6,040 Gannett Co., Inc. 103
2,520 Meredith Corp. 118
----------
221
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
27,000 H&R Block, Inc. 991
4,200 Sotheby's 119
----------
1,110
----------
SPECIALTY STORES (0.0%)
3,560 Dick's Sporting Goods, Inc. 139
2,650 Hibbett Sports, Inc.* 87
----------
226
----------
Total Consumer Discretionary 36,513
----------
CONSUMER STAPLES (1.1%)
-----------------------
AGRICULTURAL PRODUCTS (0.0%)
2,350 Ingredion, Inc. 232
----------
DRUG RETAIL (0.5%)
26,230 CVS Health Corp. 2,468
32,200 Walgreens Boots Alliance, Inc. 2,706
----------
5,174
----------
FOOD RETAIL (0.2%)
1,680 Casey's General Stores, Inc. 195
50,000 Kroger Co. 1,883
----------
2,078
----------
================================================================================
12 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.2%)
25,800 Procter & Gamble Co. $ 1,931
----------
PACKAGED FOODS & MEAT (0.0%)
7,150 Flowers Foods, Inc. 168
----------
PERSONAL PRODUCTS (0.0%)
1,540 Edgewell Personal Care Co. 124
----------
SOFT DRINKS (0.2%)
24,500 PepsiCo, Inc. 2,454
----------
Total Consumer Staples 12,161
----------
ENERGY (1.5%)
-------------
INTEGRATED OIL & GAS (0.7%)
22,430 Chevron Corp. 2,048
73,170 Occidental Petroleum Corp. 5,531
----------
7,579
----------
OIL & GAS DRILLING (0.0%)
8,550 Atwood Oceanics, Inc. 136
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
25,040 Halliburton Co. 998
9,420 Helix Energy Solutions Group, Inc.* 61
6,800 Hornbeck Offshore Services, Inc.* 83
18,600 Schlumberger Ltd. 1,435
----------
2,577
----------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
23,700 Anadarko Petroleum Corp. 1,419
28,068 California Resources Corp. 115
6,200 Cimarex Energy Co. 738
35,000 ConocoPhillips 1,892
11,600 EOG Resources, Inc. 968
27,700 Marathon Oil Corp. 485
----------
5,617
----------
OIL & GAS REFINING & MARKETING (0.0%)
4,670 Green Plains, Inc. 111
1,750 REX American Resources Corp.* 110
----------
221
----------
Total Energy 16,130
----------
FINANCIALS (3.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
13,500 Ameriprise Financial, Inc. 1,525
15,100 Bank of New York Mellon Corp. 662
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
6,630 Eaton Vance Corp. $ 238
4,090 Waddell & Reed Financial, Inc. "A" 153
----------
2,578
----------
CONSUMER FINANCE (0.6%)
57,200 Capital One Financial Corp. 4,491
2,130 Encore Capital Group, Inc.* 70
41,382 Synchrony Financial* 1,317
----------
5,878
----------
DIVERSIFIED BANKS (1.8%)
501,100 Bank of America Corp. 8,734
93,933 Citigroup, Inc. 5,081
76,700 JPMorgan Chase & Co. 5,114
17,340 Wells Fargo & Co. 956
----------
19,885
----------
INVESTMENT BANKING & BROKERAGE (0.0%)
6,100 Raymond James Financial, Inc. 358
----------
LIFE & HEALTH INSURANCE (0.1%)
3,760 American Equity Investment Life Insurance Co. 101
19,900 MetLife, Inc. 1,017
----------
1,118
----------
MULTI-LINE INSURANCE (0.0%)
1,110 American Financial Group, Inc. 82
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
2,130 AMERISAFE, Inc. 115
1,450 Hanover Insurance Group, Inc. 122
7,600 Old Republic International Corp. 144
4,170 Selective Insurance Group, Inc. 144
2,300 W.R. Berkley Corp. 128
----------
653
----------
REGIONAL BANKS (0.9%)
1,440 Bank of Hawaii Corp. 100
5,910 Cathay General Bancorp 203
1,420 Cullen/Frost Bankers, Inc. 99
7,870 F.N.B. Corp. 114
162,100 Fifth Third Bancorp 3,350
4,880 FirstMerit Corp. 99
6,200 Fulton Financial Corp. 90
343,100 KeyCorp 4,498
11,790 National Penn Bancshares, Inc. 147
6,200 PNC Financial Services Group, Inc. 592
================================================================================
14 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
1,780 Prosperity Bancshares, Inc. $ 99
7,100 TCF Financial Corp. 109
4,420 Webster Financial Corp. 178
9,730 Wilshire Bancorp, Inc. 120
----------
9,798
----------
REINSURANCE (0.0%)
230 Alleghany Corp.* 117
1,600 Endurance Specialty Holdings Ltd. 106
1,350 Reinsurance Group of America, Inc. 124
----------
347
----------
SPECIALIZED FINANCE (0.0%)
2,320 Atlas Air Worldwide Holdings, Inc.* 96
----------
THRIFTS & MORTGAGE FINANCE (0.1%)
8,670 Astoria Financial Corp. 140
16,750 New York Community Bancorp, Inc. 274
5,720 Washington Federal, Inc. 148
----------
562
----------
Total Financials 41,355
----------
HEALTH CARE (4.0%)
------------------
BIOTECHNOLOGY (1.5%)
123,750 AbbVie, Inc. 7,196
14,500 Amgen, Inc. 2,336
2,470 Enanta Pharmaceuticals, Inc.* 78
56,100 Gilead Sciences, Inc. 5,944
1,300 United Therapeutics Corp.* 199
----------
15,753
----------
HEALTH CARE DISTRIBUTORS (0.2%)
10,200 Cardinal Health, Inc. 886
6,500 McKesson Corp. 1,231
3,420 Owens & Minor, Inc. 131
----------
2,248
----------
HEALTH CARE EQUIPMENT (0.8%)
3,880 CONMED Corp. 165
2,710 Greatbatch, Inc.* 157
80,900 Hologic, Inc.* 3,264
4,340 Masimo Corp.* 180
53,200 Medtronic plc 4,008
1,890 Teleflex, Inc. 249
----------
8,023
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.0%)
2,980 Ensign Group, Inc. $ 142
----------
HEALTH CARE SERVICES (0.0%)
930 Chemed Corp. 144
2,780 MEDNAX, Inc.* 198
----------
342
----------
HEALTH CARE SUPPLIES (0.0%)
2,730 Anika Therapeutics, Inc.* 115
----------
LIFE SCIENCES TOOLS & SERVICES (0.0%)
1,200 Bio-Rad Laboratories, Inc. "A"* 168
2,280 Cambrex Corp.* 122
----------
290
----------
MANAGED HEALTH CARE (0.1%)
10,000 UnitedHealth Group, Inc. 1,127
----------
PHARMACEUTICALS (1.4%)
8,000 Allergan plc* 2,511
860 DepoMed, Inc.* 17
26,640 Johnson & Johnson 2,697
1,820 Lannett Co., Inc.* 67
72,900 Merck & Co., Inc. 3,864
179,634 Pfizer, Inc. 5,887
3,780 Prestige Brands Holdings, Inc.* 192
----------
15,235
----------
Total Health Care 43,275
----------
INDUSTRIALS (2.5%)
------------------
AEROSPACE & DEFENSE (0.5%)
22,900 Honeywell International, Inc. 2,381
1,830 Moog, Inc. "A"* 121
6,000 Raytheon Co. 744
1,410 Teledyne Technologies, Inc.* 130
6,300 TransDigm Group, Inc.* 1,478
----------
4,854
----------
AGRICULTURAL & FARM MACHINERY (0.0%)
2,000 AGCO Corp. 101
----------
AIRLINES (0.3%)
36,200 Southwest Airlines Co. 1,661
35,000 United Continental Holdings, Inc.* 1,950
----------
3,611
----------
================================================================================
16 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
BUILDING PRODUCTS (0.0%)
1,860 Universal Forest Products, Inc. $ 144
----------
COMMERCIAL PRINTING (0.0%)
2,560 Deluxe Corp. 150
----------
CONSTRUCTION & ENGINEERING (0.0%)
2,530 EMCOR Group, Inc. 127
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.0%)
3,290 Trinity Industries, Inc. 89
----------
DIVERSIFIED SUPPORT SERVICES (0.0%)
1,720 G & K Services, Inc. "A" 115
830 UniFirst Corp. 90
----------
205
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
23,200 Eaton Corp. plc 1,349
2,060 EnerSys 122
----------
1,471
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.0%)
3,360 ABM Industries, Inc. 99
3,410 Tetra Tech, Inc. 95
----------
194
----------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
1,800 AZZ, Inc. 107
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.1%)
3,350 Korn/Ferry International 123
2,720 ManpowerGroup, Inc. 246
2,870 On Assignment, Inc.* 134
----------
503
----------
INDUSTRIAL CONGLOMERATES (1.0%)
16,250 Carlisle Companies, Inc. 1,437
291,917 General Electric Co. 8,740
----------
10,177
----------
INDUSTRIAL MACHINERY (0.4%)
2,360 Barnes Group, Inc. 91
1,650 Crane Co. 86
1,280 Graco, Inc. 97
3,160 Mueller Industries, Inc. 99
1,790 Nordson Corp. 130
34,600 Stanley Black & Decker, Inc. 3,777
----------
4,280
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
OFFICE SERVICES & SUPPLIES (0.0%)
2,690 Essendant, Inc. $ 97
----------
RAILROADS (0.0%)
1,950 Genesee & Wyoming, Inc. "A"* 135
----------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
1,940 Applied Industrial Technologies, Inc. 83
2,070 GATX Corp. 96
----------
179
----------
TRUCKING (0.0%)
5,980 Knight Transportation, Inc. 159
----------
Total Industrials 26,583
----------
INFORMATION TECHNOLOGY (4.3%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
3,200 Ebix, Inc. 120
9,000 Mentor Graphics Corp. 169
7,430 Synopsys, Inc.* 372
----------
661
----------
COMMUNICATIONS EQUIPMENT (0.7%)
5,350 ARRIS Group, Inc.* 163
259,456 Cisco Systems, Inc. 7,070
3,490 Plantronics, Inc. 185
10,800 QUALCOMM, Inc. 527
----------
7,945
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
6,500 Alliance Data Systems Corp.* 1,864
3,980 Broadridge Financial Solutions, Inc. 219
6,430 Convergys Corp. 166
3,560 CSG Systems International, Inc. 127
1,240 DST Systems, Inc. 152
4,260 Global Payments, Inc. 302
24,000 MasterCard, Inc. "A" 2,350
3,840 Sykes Enterprises, Inc.* 122
6,300 Visa, Inc. "A" 498
----------
5,800
----------
ELECTRONIC COMPONENTS (0.0%)
1,080 Littelfuse, Inc. 117
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
3,740 Keysight Technologies, Inc.* 115
----------
================================================================================
18 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
7,570 Jabil Circuit, Inc. $ 194
2,540 Methode Electronics, Inc. 92
2,730 Plexus Corp.* 101
----------
387
----------
INTERNET SOFTWARE & SERVICES (0.8%)
8,860 Alphabet, Inc. "A"* 6,759
17,700 Facebook, Inc. "A"* 1,845
2,870 J2 Global, Inc. 231
----------
8,835
----------
SEMICONDUCTOR EQUIPMENT (0.1%)
44,800 Applied Materials, Inc. 841
1,930 Cabot Microelectronics Corp.* 81
2,430 MKS Instruments, Inc. 90
3,050 Tessera Technologies, Inc. 97
----------
1,109
----------
SEMICONDUCTORS (0.1%)
14,990 Intel Corp. 521
38,900 Micron Technology, Inc.* 620
----------
1,141
----------
SYSTEMS SOFTWARE (1.1%)
161,280 Microsoft Corp. 8,765
81,600 Oracle Corp. 3,180
----------
11,945
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
3,030 Arrow Electronics, Inc.* 171
3,290 Avnet, Inc. 149
1,230 ePlus, Inc.* 109
4,930 Ingram Micro, Inc. "A" 153
1,340 SYNNEX Corp. 126
1,810 Tech Data Corp.* 122
----------
830
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.7%)
34,030 Apple, Inc. 4,026
169,200 HP, Inc. 2,122
15,400 Seagate Technology plc 553
16,500 Western Digital Corp. 1,030
----------
7,731
----------
Total Information Technology 46,616
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
MATERIALS (0.8%)
----------------
COMMODITY CHEMICALS (0.1%)
8,200 LyondellBasell Industries N.V. "A" $ 786
----------
DIVERSIFIED CHEMICALS (0.3%)
265,500 Huntsman Corp. 3,324
----------
DIVERSIFIED METALS & MINING (0.2%)
1,240 Compass Minerals International, Inc. 104
215,500 Freeport-McMoRan, Inc. 1,763
----------
1,867
----------
METAL & GLASS CONTAINERS (0.0%)
1,510 AptarGroup, Inc. 113
----------
PAPER PACKAGING (0.1%)
31,640 Bemis Co., Inc. 1,491
2,200 Sonoco Products Co. 96
----------
1,587
----------
PAPER PRODUCTS (0.0%)
5,030 KapStone Paper & Packaging Corp. 122
----------
SPECIALTY CHEMICALS (0.1%)
3,570 Albemarle Corp. 191
1,780 Innospec, Inc. 104
1,940 Stepan Co. 101
2,860 Valspar Corp. 242
----------
638
----------
STEEL (0.0%)
2,400 Reliance Steel & Aluminum Co. 141
----------
Total Materials 8,578
----------
TELECOMMUNICATION SERVICES (0.4%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
85,389 Verizon Communications, Inc. 3,881
----------
UTILITIES (0.6%)
----------------
ELECTRIC UTILITIES (0.6%)
2,260 ALLETE, Inc. 115
26,000 American Electric Power Co., Inc. 1,456
56,800 Edison International 3,372
11,500 NextEra Energy, Inc. 1,148
5,420 OGE Energy Corp. 142
----------
6,233
----------
================================================================================
20 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
GAS UTILITIES (0.0%)
3,300 Laclede Group, Inc. $ 192
5,780 South Jersey Industries, Inc. 133
----------
325
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
11,800 Talen Energy Corp.* 92
----------
MULTI-UTILITIES (0.0%)
3,080 Avista Corp. 107
2,760 NorthWestern Corp. 150
----------
257
----------
Total Utilities 6,907
----------
Total Common Stocks (cost: $213,412) 241,999
----------
PREFERRED STOCKS (2.1%)
CONSUMER STAPLES (1.0%)
-----------------------
AGRICULTURAL PRODUCTS (1.0%)
161,682 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 4,668
58,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, 6,086
perpetual(b) ----------
10,754
----------
Total Consumer Staples 10,754
----------
ENERGY (0.7%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
4,900 Chesapeake Energy Corp., 5.75%, perpetual(b) 1,335
----------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
2,050 Kinder Morgan G.P., Inc., 4.13%, cumulative redeemable(b) 1,910
156,338 NuStar Logistics, LP, 7.63% 3,918
----------
5,828
----------
Total Energy 7,163
----------
FINANCIALS (0.4%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
167,198 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 4,149
----------
REINSURANCE (0.0%)
1,500 American Overseas Group Ltd., 7.50%, non-cumulative, perpetual,
acquired 1/23/2007 - 3/09/2007; cost $1,533*(c),(d) 375
----------
Total Financials 4,524
----------
Total Preferred Stocks (cost: $24,679) 22,441
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (5.1%)
114,900 iShares Core S&P 500 ETF $ 24,114
18,610 iShares Core U.S. Aggregate Bond ETF 2,025
114,500 PowerShares DB Commodity Index Tracking Fund* 1,625
69,530 Vanguard S&P 500 ETF 13,302
136,600 Vanguard Small-Cap Value ETF 14,292
----------
Total Exchange-Traded Funds (cost: $54,516) 55,358
----------
FIXED-INCOME EXCHANGE-TRADED FUNDS (1.7%)
74,380 iShares 20+ Year Treasury Bond ETF 9,033
67,900 iShares 7-10 Year Treasury Bond ETF 7,225
25,400 Vanguard Total Bond Market ETF 2,065
----------
Total Fixed-Income Exchange-Traded Funds (cost: $18,247) 18,323
----------
Total U.S. Equity Securities (cost: $310,854) 338,121
----------
INTERNATIONAL EQUITY SECURITIES (21.7%)
COMMON STOCKS (0.9%)
ENERGY (0.4%)
-------------
INTEGRATED OIL & GAS (0.4%)
77,200 Royal Dutch Shell plc ADR "A" 3,842
----------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
41,500 XL Group plc 1,584
----------
HEALTH CARE (0.2%)
------------------
PHARMACEUTICALS (0.2%)
14,500 Novartis AG ADR 1,236
35,000 Roche Holdings Ltd. ADR 1,172
----------
2,408
----------
Total Health Care 2,408
----------
INFORMATION TECHNOLOGY (0.2%)
-----------------------------
SEMICONDUCTORS (0.2%)
23,128 NXP Semiconductors N.V.* 2,162
----------
Total Common Stocks (cost: $9,499) 9,996
----------
EXCHANGE-TRADED FUNDS (20.8%)
82,387 EGShares Emerging Markets Consumer ETF 1,897
992,460 iShares Core MSCI EAFE ETF 55,419
537,500 iShares Core MSCI Emerging Markets ETF 22,236
================================================================================
22 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
202,100 iShares Currency Hedged MSCI EAFE ETF $ 5,408
821,897 iShares MSCI EAFE ETF 49,848
90,600 iShares MSCI EAFE Minimum Volatility ETF 5,907
437,890 iShares MSCI Japan ETF 5,425
57,438 iShares MSCI Turkey ETF 2,200
172,000 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 6,496
268,000 PowerShares FTSE RAFI Emerging Markets Portfolio 3,991
26,600 SPDR S&P China ETF 2,049
34,497 SPDR S&P Emerging Markets SmallCap ETF 1,342
17,960 Vanguard FTSE All-World ex-US ETF 806
434,000 Vanguard FTSE Developed Markets ETF 16,384
342,800 Vanguard FTSE Europe ETF 17,630
11,240 Vanguard Total Stock Market ETF 1,204
55,946 WisdomTree Emerging Markets High Dividend Fund 1,878
59,797 WisdomTree Emerging Markets SmallCap Dividend Fund 2,166
90,400 WisdomTree Europe Hedged Equity Fund 5,690
223,351 WisdomTree India Earnings Fund 4,434
209,700 WisdomTree Japan Hedged Equity Fund 11,536
----------
Total Exchange-Traded Funds (cost: $229,774) 223,946
----------
Total International Equity Securities (cost: $239,273) 233,942
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (0.9%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
110,164 Hycroft Mining Corp., acquired 9/22/2014 - 06/09/2015;
cost $3,919*(c),(d) 83
----------
EXCHANGE-TRADED FUNDS (0.9%)
65,300 First Trust Global Tactical Commodity Strategy Fund* 1,358
69,416 iShares Silver Trust* 933
81,400 Market Vectors Gold Miners ETF 1,120
141,800 United States Commodity Index Fund* 5,737
----------
Total Exchange-Traded Funds (cost: $11,125) 9,148
----------
Total Precious Metals and Commodity-Related Securities (cost: $15,044) 9,231
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.0%)
COMMON STOCKS (0.2%)
REAL ESTATE SERVICES (0.0%)
1,610 Jones Lang LaSalle, Inc. 267
----------
REITs - DIVERSIFIED (0.1%)
4,500 PS Business Parks, Inc. 398
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
REITs - HEALTH CARE (0.0%)
11,610 Care Capital Properties, Inc. $ 368
----------
REITs - RETAIL (0.0%)
3,980 Taubman Centers, Inc. 286
----------
REITs - SPECIALIZED (0.1%)
12,800 Corrections Corp. of America 330
7,020 Lamar Advertising Co. 410
----------
Total REITs - Specialized 740
----------
Total Common Stocks (cost: $2,130) 2,059
----------
PREFERRED STOCKS (0.2%)
REITs - MORTGAGE (0.1%)
24,000 Arbor Realty Trust, Inc., 7.38% 594
----------
REITs - OFFICE (0.1%)
58,254 Equity Commonwealth, Series E, 7.25%, cumulative redeemable,
perpetual 1,496
----------
Total Preferred Stocks (cost: $1,907) 2,090
----------
EXCHANGE-TRADED FUNDS (0.6%)
79,430 Vanguard REIT ETF (cost: $6,069) 6,306
----------
Total Global Real Estate Equity Securities (cost: $10,106) 10,455
----------
---------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
---------------------------------------------------------------------------------------------------
BONDS (40.4%)
CORPORATE OBLIGATIONS (16.4%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 597 J.C. Penney Corp., Inc.(e) 6.00% 5/22/2018 593
----------
PUBLISHING (0.1%)
725 Cengage Learning Acquisitions, Inc.(e) 7.00 3/31/2020 715
----------
SPECIALTY STORES (0.1%)
1,000 Guitar Center, Inc.(b) 6.50 4/15/2019 915
700 Toys R Us Property Co. II, LLC 8.50 12/01/2017 660
----------
1,575
----------
Total Consumer Discretionary 2,883
----------
================================================================================
24 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
CONSUMER STAPLES (0.1%)
-----------------------
PACKAGED FOODS & MEAT (0.1%)
$ 1,500 JM Smucker Co. 4.38% 3/15/2045 $ 1,469
----------
ENERGY (2.2%)
-------------
OIL & GAS DRILLING (0.0%)
1,407 Schahin II Finance Co. SPV Ltd.(b),(f) 5.88 9/25/2023 303
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
1,000 Newfield Exploration Co. 5.38 1/01/2026 917
----------
OIL & GAS STORAGE & TRANSPORTATION (2.1%)
5,700 DCP Midstream, LLC(b) 5.85 5/21/2043 4,531
2,950 Enbridge Energy Partners, LP 7.38 10/15/2045 3,022
3,059 Enbridge Energy Partners, LP 8.05 10/01/2077 2,731
7,300 Energy Transfer Partners, LP 3.35(g) 11/01/2066 5,073
4,000 Enterprise Products Operating, LLC 7.00 6/01/2067 3,570
800 Martin Midstream Partners, LP 7.25 2/15/2021 763
1,000 Southern Union Co. 3.35(g) 11/01/2066 605
2,500 TEPPCO Partners, LP 7.00 6/01/2067 2,194
----------
22,489
----------
Total Energy 23,709
----------
FINANCIALS (9.5%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
6,000 Prospect Capital Corp. 5.00 7/15/2019 6,086
----------
DIVERSIFIED BANKS (0.2%)
2,100 JPMorgan Chase Capital XIII 1.28(g) 9/30/2034 1,756
----------
LIFE & HEALTH INSURANCE (1.5%)
5,500 Lincoln National Corp. 7.00(g) 5/17/2066 4,551
2,000 Lincoln National Corp. 6.05 4/20/2067 1,645
4,000 Prudential Financial, Inc. 5.63 6/15/2043 4,170
1,000 Prudential Financial, Inc. 5.20 3/15/2044 996
6,150 StanCorp Financial Group, Inc. 6.90 6/01/2067 5,274
----------
16,636
----------
MULTI-LINE INSURANCE (1.4%)
7,000 Genworth Holdings, Inc. 6.15 11/15/2066 2,695
8,300 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 7,159
5,670 Nationwide Mutual Insurance Co.(b) 2.63(g) 12/15/2024 5,447
----------
15,301
----------
MULTI-SECTOR HOLDINGS (0.3%)
3,000 BNSF Funding Trust I 6.61 12/15/2055 3,368
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
$ 3,000 GE Capital Trust I 6.38% 11/15/2067 $ 3,201
----------
PROPERTY & CASUALTY INSURANCE (2.9%)
5,000 Allstate Corp. 5.75 8/15/2053 5,185
5,800 AmTrust Financial Services, Inc. 6.13 8/15/2023 6,096
4,875 HSB Group, Inc.(d) 1.23(g) 7/15/2027 3,656
4,530 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 5,247
9,600 Oil Insurance Ltd.(b) 3.31(g) -(h) 8,544
2,500 Travelers Companies, Inc. 6.25 3/15/2067 2,563
----------
31,291
----------
REAL ESTATE DEVELOPMENT (0.1%)
800 Forestar USA Real Estate Group, Inc.(b) 8.50 6/01/2022 805
----------
REGIONAL BANKS (1.9%)
1,000 Allfirst Preferred Capital Trust 1.82(g) 7/15/2029 862
600 Compass Bank 6.40 10/01/2017 637
2,000 Compass Bank 3.88 4/10/2025 1,863
4,000 Cullen/Frost Capital Trust II 1.87(g) 3/01/2034 3,553
2,850 First Maryland Capital Trust I 1.32(g) 1/15/2027 2,412
2,500 First Tennessee Bank, N.A. 5.65 4/01/2016 2,536
2,000 Huntington Capital Trust II "B" 0.96(g) 6/15/2028 1,682
2,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 1,990
6,000 SunTrust Capital I 1.03(g) 5/15/2027 4,995
----------
20,530
----------
REINSURANCE (0.1%)
1,500 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 1,587
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
1,000 Ocwen Financial Corp.(b) 6.63 5/15/2019 905
1,200 Walter Investment Management Corp. 7.88 12/15/2021 954
----------
1,859
----------
Total Financials 102,420
----------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
1,000 Valeant Pharmaceuticals International, Inc.(b) 6.38 10/15/2020 921
----------
INDUSTRIALS (0.5%)
------------------
AEROSPACE & DEFENSE (0.0%)
500 Constellis Holdings, LLC & Constellis
Finance Corp.(b) 9.75 5/15/2020 417
----------
AIRLINES (0.1%)
590 America West Airlines, Inc. Pass-Through
Trust (INS) 7.93 7/02/2020 634
----------
================================================================================
26 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
$ 500 Artesyn Embedded Technologies, Inc.(b) 9.75% 10/15/2020 $ 474
----------
MARINE (0.1%)
800 Navios Maritime Holdings, Inc.(b) 7.38 1/15/2022 603
----------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
1,000 ILFC E-Capital Trust I(b) 4.57(g) 12/21/2065 947
2,000 ILFC E-Capital Trust II(b) 6.25(g) 12/21/2065 1,890
----------
2,837
----------
Total Industrials 4,965
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SYSTEMS SOFTWARE (0.1%)
600 Ensemble S Merger Sub, Inc.(b) 9.00 9/30/2023 598
600 Informatica, LLC(b) 7.13 7/15/2023 577
----------
1,175
----------
Total Information Technology 1,175
----------
MATERIALS (0.3%)
----------------
DIVERSIFIED METALS & MINING (0.3%)
5,250 Freeport-McMoRan, Inc. 5.45 3/15/2043 3,321
----------
TELECOMMUNICATION SERVICES (0.7%)
--------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
500 CenturyLink, Inc. 7.65 3/15/2042 405
5,000 Frontier Communications Corp.(b) 11.00 9/15/2025 4,913
300 GCI, Inc. 6.88 4/15/2025 312
----------
5,630
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
2,100 Sprint Corp. 7.13 6/15/2024 1,617
----------
Total Telecommunication Services 7,247
----------
UTILITIES (2.6%)
----------------
ELECTRIC UTILITIES (0.8%)
2,800 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 2,191
1,750 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 1,404
2,150 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 2,113
3,312 PPL Capital Funding, Inc. 6.70 3/30/2067 2,733
1,869 Texas Competitive Electric Holdings Co.,
LLC(e) 4.68 10/10/2017 641
----------
9,082
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
MULTI-UTILITIES (1.8%)
$ 2,500 Dominion Resources, Inc. 7.50% 6/30/2066 $ 2,179
2,900 Dominion Resources, Inc. 2.63(g) 9/30/2066 2,275
3,342 Integrys Holding, Inc. 6.11 12/01/2066 2,699
7,000 Puget Sound Energy, Inc. 6.97 6/01/2067 5,863
7,000 WEC Energy Group, Inc. 6.25 5/15/2067 5,775
----------
18,791
----------
Total Utilities 27,873
----------
Total Corporate Obligations (cost: $181,759) 175,983
----------
CONVERTIBLE SECURITIES (0.0%)
MATERIALS (0.0%)
----------------
GOLD (0.0%)
238 Hycroft Mining Corp.(d),(j) 15.00 10/22/2020 274
----------
Total Convertible Securities (cost: $228) 274
----------
EURODOLLAR AND YANKEE OBLIGATIONS (5.0%)
CONSUMER DISCRETIONARY (0.0%)
-----------------------------
CABLE & SATELLITE (0.0%)
500 Neptune Finco Corp.(b) 10.88 10/15/2025 530
----------
ENERGY (0.5%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
5,544 TransCanada PipeLines Ltd. 6.35 5/15/2067 4,532
600 TransCanada Trust 5.63 5/20/2075 573
----------
5,105
----------
Total Energy 5,105
----------
FINANCIALS (1.9%)
-----------------
DIVERSIFIED BANKS (0.4%)
900 Barclays Bank plc(b) 7.70 -(h) 986
1,000 LBI hf, acquired 10/12/2007;
cost $1,000(b),(c),(d),(f) 7.43 -(h) -
5,800 Lloyds Bank plc 0.69(g) -(h) 3,545
----------
4,531
----------
LIFE & HEALTH INSURANCE (0.5%)
4,750 Great-West Life & Annuity Insurance
Capital, LP(b) 7.15(g) 5/16/2046 4,791
----------
PROPERTY & CASUALTY INSURANCE (0.6%)
6,130 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 6,812
----------
REGIONAL BANKS (0.0%)
2,000 Glitnir Banki hf, acquired
9/11/2006 - 10/18/2006;
cost $2,034(b),(c),(d),(f) 7.45 -(h) -
----------
================================================================================
28 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
REINSURANCE (0.4%)
$ 4,000 Swiss Re Capital I, LP(b) 6.85%(g) -(h) $ 4,063
----------
Total Financials 20,197
----------
GOVERNMENT (0.3%)
-----------------
FOREIGN GOVERNMENT (0.3%)
2,620 Italy Government International Bond 5.38 6/15/2033 3,011
----------
MATERIALS (1.3%)
----------------
COMMODITY CHEMICALS (0.2%)
3,000 Braskem Finance Ltd. 6.45 2/03/2024 2,778
----------
DIVERSIFIED METALS & MINING (0.1%)
800 Vedanta Resources plc(b) 6.00 1/31/2019 612
----------
GOLD (1.0%)
5,600 Kinross Gold Corp. 5.95 3/15/2024 4,420
4,285 Newcrest Finance Proprietary Ltd.(b) 4.45 11/15/2021 3,991
2,200 St. Barbara Ltd.(b) 8.88 4/15/2018 2,112
----------
10,523
----------
Total Materials 13,913
----------
UTILITIES (1.0%)
----------------
ELECTRIC UTILITIES (1.0%)
4,500 Electricite De France S.A.(b) 5.25 -(h) 4,365
5,700 Enel S.p.A.(b) 8.75 9/24/2073 6,569
----------
10,934
----------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS (0.0%)
300 AES Gener S.A.(b) 8.38 12/18/2073 309
----------
Total Utilities 11,243
----------
Total Eurodollar and Yankee Obligations
(cost: $57,981) 53,999
----------
ASSET-BACKED SECURITIES (0.2%)
FINANCIALS (0.2%)
-----------------
ASSET-BACKED FINANCING (0.2%)
2,000 SLC Student Loan Trust 0.77(g) 7/15/2036 1,733
559 SLM Student Loan Trust 0.87(g) 10/25/2038 483
----------
2,216
----------
Total Financials 2,216
----------
Total Asset-Backed Securities (cost: $1,966) 2,216
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
FINANCIALS (0.3%)
-----------------
$ 428 Sequoia Mortgage Trust 1.11%(g) 9/20/2033 $ 378
2,778 Structured Asset Mortgage Investments, Inc. 0.70(g) 7/19/2035 2,551
458 Wells Fargo Mortgage Backed Securities Trust 2.69(g) 4/25/2035 433
----------
Total Financials 3,362
----------
Total Collateralized Mortgage Obligations
(cost: $3,386) 3,362
----------
COMMERCIAL MORTGAGE SECURITIES (7.1%)
FINANCIALS (7.1%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (7.1%)
1,000 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 999
3,238 Banc of America Commercial Mortgage, Inc. 6.04 7/10/2044 3,279
3,000 Banc of America Commercial Mortgage, Inc. 6.03 5/10/2045 3,024
1,000 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 1,016
4,000 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 4,090
2,000 BCRR Trust(b) 5.86 7/17/2040 2,096
2,000 Bear Stearns Commercial Mortgage
Securities, Inc. 5.21 2/11/2041 1,998
4,034 Bear Stearns Commercial Mortgage
Securities, Inc.(b) 5.66 9/11/2041 3,971
900 Bear Stearns Commercial Mortgage
Securities, Inc. 5.60 10/12/2041 902
299 Bear Stearns Commercial Mortgage
Securities, Inc. 4.99 9/11/2042 299
900 Citigroup Commercial Mortgage Trust 5.99 3/15/2049 911
400 Citigroup Commercial Mortgage Trust 6.35 12/10/2049 364
3,000 Commercial Mortgage Loan Trust 6.23 12/10/2049 2,986
3,000 Commercial Mortgage Trust 5.38 12/10/2046 2,986
1,000 Commercial Mortgage Trust(b) 5.54 12/11/2049 1,034
7,400 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.39 2/15/2040 6,725
3,600 GE Capital Commercial Mortgage Corp. 5.60 11/10/2045 3,587
1,900 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 1,963
1,026 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 1,042
500 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 514
644 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 632
2,850 GS Mortgage Securities Trust 5.76 4/10/2038 2,854
3,210 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.57 4/15/2043 3,231
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.75 12/15/2044 998
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.75 12/15/2044 998
4,500 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.10 4/15/2045 4,185
================================================================================
30 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 3,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37% 5/15/2047 $ 3,063
900 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 900
455 Merrill Lynch Mortgage Trust 5.67 7/12/2038 455
400 Merrill Lynch Mortgage Trust 5.70 7/12/2038 399
4,000 Merrill Lynch Mortgage Trust 5.86 5/12/2039 4,016
208 Merrill Lynch Mortgage Trust 5.01 10/12/2041 208
1,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 1,034
1,500 ML-CFC Commercial Mortgage Trust 6.07 8/12/2049 1,520
460 ML-CFC Commercial Mortgage Trust 5.86 9/12/2049 486
4,150 Morgan Stanley Capital I Trust 5.39 11/14/2042 4,145
800 Morgan Stanley Capital I Trust 5.69 3/12/2044 797
3,150 Wachovia Bank Commercial Mortgage Trust 5.90 5/15/2043 3,179
----------
76,886
----------
Total Financials 76,886
----------
Total Commercial Mortgage
Securities (cost: $74,125) 76,886
----------
U.S. GOVERNMENT AGENCY ISSUES (0.5%)(I)
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.5%)
5,000 Freddie Mac(+) 3.51 4/25/2030 5,188
----------
Total U.S. Government Agency Issues
(cost: $5,098) 5,188
----------
U.S. TREASURY SECURITIES (10.9%)
BONDS (10.3%)
18,250 2.67%, 8/15/2044 (STRIPS Principal)(k) 7,435
8,000 3.00%, 11/15/2044 7,998
40,700 3.00%, 5/15/2045 40,671
10,800 3.12%, 5/15/2045 (STRIPS Principal)(k) 4,261
49,500 3.13%, 8/15/2044 50,759
----------
111,124
----------
NOTES (0.6%)
2,000 2.25%, 11/15/2024 2,010
4,500 2.38%, 8/15/2024 4,571
----------
6,581
----------
Total U.S. Treasury Securities (cost: $117,039) 117,705
----------
Total Bonds (cost: $441,582) 435,613
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.0%)
COMMERCIAL PAPER (1.4%)
ENERGY (0.3%)
-------------
OIL & GAS DRILLING (0.3%)
$ 3,156 Nabors Industries, Inc.(b),(l) 0.43% 12/03/2015 $ 3,156
----------
INFORMATION TECHNOLOGY (0.7%)
-----------------------------
ELECTRONIC COMPONENTS (0.7%)
7,768 Amphenol Corp.(b),(l) 0.40 12/02/2015 7,768
----------
UTILITIES (0.4%)
----------------
MULTI-UTILITIES (0.4%)
3,684 Delmarva Power & Lighting Co. 0.32 12/01/2015 3,684
----------
Total Commercial Paper 14,608
----------
---------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
---------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (2.6%)
28,037,776 State Street Institutional Liquid Reserves Fund Premier
Class, 0.15%(a) 28,038
----------
Total Money Market Instruments (cost: $42,646) 42,646
----------
TOTAL INVESTMENTS (COST: $1,059,505) $1,070,008
==========
================================================================================
32 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $241,999 $ - $ - $ 241,999
Preferred Stocks - 22,066 375 22,441
Exchange-Traded Funds 55,358 - - 55,358
Fixed-Income Exchange-
Traded Funds 18,323 - - 18,323
International Equity Securities:
Common Stocks 9,996 - - 9,996
Exchange-Traded Funds 223,946 - - 223,946
Precious Metals and Commodity-
Related Securities:
Gold - - 83 83
Exchange-Traded Funds 9,148 - - 9,148
Global Real Estate Equity Securities:
Common Stocks 2,059 - - 2,059
Preferred Stocks - 2,090 - 2,090
Exchange-Traded Funds 6,306 - - 6,306
Bonds:
Corporate Obligations - 172,327 3,656 175,983
Convertible Securities - - 274 274
Eurodollar and Yankee Obligations - 53,999 - 53,999
Asset-Backed Securities - 2,216 - 2,216
Collateralized Mortgage Obligations - 3,362 - 3,362
Commercial Mortgage Securities - 76,886 - 76,886
U.S. Government Agency Issues - 5,188 - 5,188
U.S. Treasury Securities 106,009 11,696 - 117,705
Money Market Instruments:
Commercial Paper - 14,608 - 14,608
Money Market Funds 28,038 - - 28,038
------------------------------------------------------------------------------------------------------------------
Total $701,182 $364,438 $4,388 $1,070,008
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
------------------------------------------------------------------------------------------------------------------
COMMON PREFERRED CONVERTIBLE CORPORATE
STOCKS STOCKS SECURITIES OBLIGATIONS
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2015 $ - $375 $ - $3,318
Purchases 3,919 - 228 -
Sales - - - (202)
Transfers into Level 3 - - - -
Transfers out of Level 3 - - - -
Net realized gain (loss) on investments - - - -
Change in net unrealized appreciation/
(depreciation) of investments (3,836) - 46 540
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2015 $ 83 $375 $274 $3,656
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 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.
================================================================================
34 | USAA CORNERSTONE MODERATE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 26.7% of net assets at November 30,
2015.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities but such maturities can be difficult to predict because of the
effect of prepayments.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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
STRIPS Separate trading of registered interest and principal of
securities
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-
quality bank, insurance company or other corporation, or a collateral trust.
The enhancements do not guarantee the market values of the securities.
================================================================================
36 | USAA CORNERSTONE MODERATE FUND
================================================================================
(INS) Principal and interest payments are insured by AMBAC Assurance Corp.
Although bond insurance reduces the risk of loss due to default by
an issuer, such bonds remain subject to the risk that value may
fluctuate for other reasons, and there is no assurance that the
insurance company will meet its obligations.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
(b) Restricted security that is not registered under the Securities
Act of 1933. A resale of this security in the United States may occur in
an exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at November 30, 2015, was $458,000, which represented less than 0.1% of
the Fund's net assets.
(d) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $4,388,000, which represented 0.4% of
the Fund's net assets.
(e) Senior loan (loan) - is not registered under the Securities Act of 1933.
The loan contains certain restrictions on resale and cannot be sold
publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the senior loan facility and
includes commitment fees on unfunded loan commitments. The interest rate
is adjusted periodically, and the rate disclosed represents the current
rate at November 30, 2015. The weighted average life of the loan is
likely to be shorter than the stated final maturity date due to
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(f) At November 30, 2015, the issuer was in default with respect to interest
and/or principal payments.
(g) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2015.
(h) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(i) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by the
full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the credit
of the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship
and appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred stock.
While these arrangements are intended to ensure that Fannie Mae and
Freddie Mac can continue to meet their obligations, it is possible that
actions by the U.S. Treasury, FHFA, or others could adversely impact the
value of the Fund's investments in securities issued by Fannie Mae and
Freddie Mac.
================================================================================
38 | USAA CORNERSTONE MODERATE FUND
================================================================================
(j) Pay-in-kind (PIK) - security in which the issuer will have or has the
option to make all or a portion of the interest or dividend payments
in additional securities.
(k) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(l) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(2) commercial paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer who
makes a market in this security, and as such has been deemed liquid by
the Manager under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,059,505) $1,070,008
Cash 21
Cash denominated in foreign currencies (identified cost of $37) 34
Receivables:
Capital shares sold 767
USAA Asset Management Company (Note 5C) 123
Dividends and interest 4,655
Securities sold 9,946
----------
Total assets 1,085,554
----------
LIABILITIES
Payables:
Securities purchased 6,225
Capital shares redeemed 606
Accrued management fees 587
Accrued transfer agent's fees 42
Other accrued expenses and payables 149
----------
Total liabilities 7,609
----------
Net assets applicable to capital shares outstanding $1,077,945
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,040,062
Accumulated undistributed net investment income 3,732
Accumulated net realized gain on investments and options 23,651
Net unrealized appreciation of investments 10,503
Net unrealized depreciation of foreign currency translations (3)
----------
Net assets applicable to capital shares outstanding $1,077,945
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 74,330
==========
Net asset value, redemption price, and offering price per share $ 14.50
==========
See accompanying notes to financial statements.
================================================================================
40 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $20) $ 8,348
Interest 12,992
--------
Total income 21,340
--------
EXPENSES
Management fees 3,830
Administration and servicing fees 825
Transfer agent's fees 1,435
Custody and accounting fees 123
Postage 70
Shareholder reporting fees 36
Trustees' fees 13
Registration fees 22
Professional fees 59
Other 10
--------
Total expenses 6,423
--------
Expenses reimbursed (923)
--------
Net expenses 5,500
--------
NET INVESTMENT INCOME 15,840
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY, AND OPTIONS
Net realized gain (loss) on:
Unaffiliated transactions 17,913
Affiliated transactions (Note 7) (1)
Foreign currency transactions (1)
Options 35
Change in net unrealized appreciation/(depreciation) of:
Investments (88,624)
Foreign currency translations (2)
Options 233
--------
Net realized and unrealized loss (70,447)
--------
Decrease in net assets resulting from operations $(54,607)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
-----------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
-----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 15,840 $ 27,485
Net realized gain on investments 17,912 29,138
Net realized gain on long-term capital gain
distributions from other investment companies - 298
Net realized loss on foreign currency transactions (1) (582)
Net realized gain (loss) on options 35 (2,041)
Change in net unrealized appreciation/(depreciation) of:
Investments (88,624) (21,730)
Foreign currency translations (2) (1)
Options 233 1,734
--------------------------------
Increase (decrease) in net assets resulting
from operations (54,607) 34,301
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,752) (27,634)
Net realized gains - (8,345)
--------------------------------
Distributions to shareholders (14,752) (35,979)
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 73,538 200,636
Reinvested dividends 14,657 35,714
Cost of shares redeemed (91,689) (177,657)
--------------------------------
Increase (decrease) in net assets from capital
share transactions (3,494) 58,693
--------------------------------
Net increase (decrease) in net assets (72,853) 57,015
NET ASSETS
Beginning of period 1,150,798 1,093,783
--------------------------------
End of period $1,077,945 $1,150,798
================================
Accumulated undistributed net investment income:
End of period $ 3,732 $ 2,644
================================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,975 13,061
Shares issued for dividends reinvested 1,005 2,332
Shares redeemed (6,209) (11,567)
--------------------------------
Increase (decrease) in shares outstanding (229) 3,826
================================
See accompanying notes to financial statements.
================================================================================
42 | USAA CORNERSTONE MODERATE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Cornerstone Moderate Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek a high total return.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 over-the-counter markets, are valued at the last sales
price or official closing price on the exchange or primary market on
which they trade. Equity securities traded primarily on foreign
securities exchanges or markets are valued at the last quoted sales
price, or the most recently determined official closing price calculated
according to local market convention, available at the time the Fund is
valued. If no last sale or official closing price is reported or
available, the average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
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 need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities. If
the Manager determines that a particular event would materially affect
the value of the Fund's foreign securities, then the Committee will
consider such available information that it deems relevant and will
determine a fair value for the affected foreign securities in accordance
with valuation procedures. In addition, information from an external
vendor or other sources may be used to
================================================================================
44 | USAA CORNERSTONE MODERATE FUND
================================================================================
adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee 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, commingled, or
other funds, other than ETFs, are valued at their NAV at the end of
each business day.
4. Futures are valued at the last sale price at the close of market
on the principal exchange on which they are traded or, in the absence of
any transactions that day, the last sale price on the prior trading date
if it is within the spread between the closing bid and asked prices
closest to the last reported sale price.
5. Options are valued by a pricing service at the National Best
Bid/Offer (NBBO) composite price, which is derived from the best
available bid and asked prices in all participating options exchanges
determined to most closely reflect market value of the options at the
time of computation of the Fund's NAV.
6. Short-term debt securities with original or remaining maturities
of 60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
7. Debt securities with maturities greater than 60 days are valued
each business day by a pricing service (the Service) approved by the
Board. The Service uses an evaluated mean between quoted bid and asked
prices or the last sales price to value a security when, in the
Service's judgment, these prices are readily available and are
representative of the security's market value. For many securities, such
prices are not readily available. The Service generally prices those
securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions.
8. Repurchase agreements are valued at cost.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
9. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
include certain preferred stocks, which are valued based on methods
discussed in Note 1A2, certain bonds, which are valued based on
================================================================================
46 | USAA CORNERSTONE MODERATE FUND
================================================================================
methods discussed in Note 1A7, and commercial paper, which is valued at
amortized cost.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not
necessarily an indication of the risks associated with investing in those
securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
some securities falling in the Level 3 category are primarily supported by
discounted prior tender offer, or quoted prices obtained from broker-dealers
participating in the market for these securities. However, these securities
are included in the Level 3 category due to limited market transparency
and/or a lack of corroboration to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the trade. The
Fund's derivative agreements held at November 30, 2015, did not include
master netting provisions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified price
during a specified period. The purchaser of the option pays a premium to the
writer of the option.
Premiums paid for purchased options are included in the Fund's Statement
of Assets and Liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's
Statement of Assets and Liabilities as a liability. If a written option
expires unexercised, the premium received is recognized as a realized gain.
If a written call option on a security is exercised, the realized gain or
loss on the security sold is determined from the exercise price, the
original cost of the security, and the premium received. If a written put
option on a security is exercised, the cost of the security acquired is the
exercise price paid less the premium received. The Fund, as a writer of an
option, bears the market risk of an unfavorable change in the price of the
security underlying the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on indexes
or ETFs that represent the Fund's exposure against a highly correlated stock
portfolio. The combination of the diversified stock
================================================================================
48 | USAA CORNERSTONE MODERATE FUND
================================================================================
portfolio with index or ETF options is designed to provide the Fund with
consistent returns over a wide range of equity market environments. This
strategy may not fully protect the Fund against declines in the portfolio's
value, and the Fund could experience a loss. Options on ETFs are similar to
options on individual securities in that the holder of the ETF call (or put)
has the right to receive (or sell) shares of the underlying ETF at the
strike price on or before exercise date. Options on securities indexes are
different from options on individual securities in that the holder of the
index option has the right to receive an amount of cash equal to the
difference between the exercise price and the settlement value of the
underlying index as defined by the exchange. If an index option is
exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR
THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2015 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on $35 $233
Options / Change in net
unrealized appreciation/
(depreciation) of Options
-----------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums are amortized
over the life of the respective securities, using the effective yield method
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
for long-term securities and the straight-line method for short-term
securities. Foreign income and capital gains on some foreign securities may
be subject to foreign taxes, which are accrued as applicable, as a reduction
to such income and realized gains. These foreign taxes have been provided
for in accordance with the understanding of the applicable countries' tax
rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from
sales of foreign currency, currency gains/losses realized between the trade
and settlement dates on security transactions, and from the difference
between amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
received. At the end of the Fund's fiscal year, these net realized foreign
currency 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.
================================================================================
50 | USAA CORNERSTONE MODERATE FUND
================================================================================
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can
take place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's
custodian and other banks utilized by the Fund for cash management purposes,
realized credits, if any, generated from cash balances in the Fund's bank
accounts may be used to directly reduce the Fund's expenses. For the
six-month period ended November 30, 2015, there were no custodian and other
bank credits.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
(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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $3,000, which represents 1.6% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, 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.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
================================================================================
52 | USAA CORNERSTONE MODERATE FUND
================================================================================
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$318,490,000 and $342,715,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $65,553,000 and $55,050,000, respectively, resulting in net
unrealized appreciation of $10,503,000.
For the six-month period ended November 30, 2015, transactions in written call
and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000'S)
--------------------------------------------------------------------------------
Outstanding at May 31, 2015 230 $ 442
Options written - -
Options terminated in closing
purchase transactions (115) (276)
Options expired (115) (166)
-------------------------------
Outstanding at November 30, 2015 - $ -
===============================
* Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the actual day-to-day investment
of a portion of the Fund's assets. For the six-month period ended November
30, 2015, the Fund had no subadviser(s).
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 0.70% of the Fund's average net assets.
Prior to October 1, 2015, the base investment management fee was 0.75% of
the Fund's average net assets.
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to that of the Lipper Balanced Funds
Index. The Lipper Balanced Funds Index tracks the total return performance
of the 30 largest funds in the Lipper Balanced Funds category. The
performance period for the Fund consists of the 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
Fund and its relevant index, rounded to the nearest basis point. Average
net assets are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days
================================================================================
54 | USAA CORNERSTONE MODERATE FUND
================================================================================
in the month and the denominator of which is 365 (366 in leap years).
The resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Balanced Funds Index over that period, even if the
Fund had overall negative returns during the performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $3,830,000, which
included a (0.04)% performance adjustment of $(204,000).
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2015, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $825,000.
In addition to the services provided under its Administration and
Servicing Agreement with the Fund, the Manager also provides certain
compliance and legal services for the benefit of the Fund. The Board has
approved the reimbursement of a portion of these expenses incurred by the
Manager. For the six-month period ended November 30, 2015, the Fund
reimbursed the Manager $14,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's Statement
of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to
limit the total annual operating expenses of the Fund to 1.00% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the Fund for all expenses
in excess of that amount. This expense limitation arrangement may not be
changed or terminated through October 1, 2016, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2015, the Fund
incurred reimbursable expenses of $923,000, of which $123,000 was receivable
from the Manager.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out of pocket expenses. SAS pays a portion of these
fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. For the six-month period
ended November 30, 2015, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $1,435,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
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.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2015, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN/(LOSS) TO
SELLER PURCHASER PURCHASER SELLER
-------------------------------------------------------------------------------------------
USAA Cornerstone USAA Short-Term
Moderate Bond $1,187,000 $(1,000)
================================================================================
56 | USAA CORNERSTONE MODERATE FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
----------------------------------------------------------------------------
Net asset value at
beginning of period $ 15.43 $ 15.46 $ 14.49 $ 13.07 $ 14.29 $ 12.26
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .37 .38 .40 .40 .38
Net realized and
unrealized gain (loss) (.94) .10 .98 1.42 (1.22) 2.05
----------------------------------------------------------------------------
Total from investment
operations (.73) .47 1.36 1.82 (.82) 2.43
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.38) (.39) (.40) (.40) (.40)
Realized capital gains - (.12) - - - -
----------------------------------------------------------------------------
Total distributions (.20) (.50) (.39) (.40) (.40) (.40)
----------------------------------------------------------------------------
Net asset value at
end of period $ 14.50 $ 15.43 $ 15.46 $ 14.49 $ 13.07 $ 14.29
============================================================================
Total return (%)* (4.74) 3.10 9.60 14.17 (5.70) 20.21
Net assets at end
of period (000) $1,077,945 $1,150,798 $1,093,783 $944,828 $766,037 $785,016
Ratios to average
net assets:**
Expenses (%)(a) 1.00(b) 1.00 1.00 1.00 1.00 1.00
Expenses, excluding
reimbursements (%)(a) 1.17(b) 1.19 1.22 1.30 1.38 1.36
Net investment
income (%) 2.88(b) 2.46 2.60 2.87 3.03 2.92
Portfolio turnover (%) 30 44 46 66(c) 119(c) 145
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$1,099,040,000.
(a) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly.
The Fund's expenses paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects decreased trading activity due to asset allocation changes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do
================================================================================
58 | USAA CORNERSTONE MODERATE FUND
================================================================================
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
------------------------------------------------------------------
Actual $1,000.00 $ 952.60 $4.88
Hypothetical
(5% return before expenses) 1,000.00 1,020.00 5.05
*Expenses are equal to the Fund's annualized expense ratio of 1.00%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/366 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (4.74)% for the six-month period of
June 1, 2015, through November 30, 2015.
================================================================================
EXPENSE EXAMPLE | 59
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210)531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27804-0116 (C)2016, USAA. All rights reserved.
[Logo OF USAA]
USAA(R)
[GRAPHIC OF USAA EMERGING MARKETS FUND]
==============================================================
SEMIANNUAL REPORT
USAA EMERGING MARKETS FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many
investors by devaluing its currency, which added to investors' existing
concerns about the health of the global economy. The result was a broad
sell-off in riskier asset classes and a flight to the perceived safety of U.S.
Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears
to be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence
in global economic growth and central bank monetary policy created uncertainty
in the world's commodities markets. But softening global demand and, in the
case of energy, an increase in supply were also key factors. In addition,
commodities are generally priced in U.S. dollars and the appreciation of the
U.S. dollar during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure
you are staying on track toward your financial goals. Investors also may want
to consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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
Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may
also be subject to foreign taxes. Investments made in emerging market countries
may be particularly volatile. Economies of emerging market countries are
generally less diverse and mature than more developed countries and may have
less stable political systems. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers, and affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 27
Financial Statements 29
Notes to Financial Statements 32
EXPENSE EXAMPLE 50
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)2016, USAA. All rights reserved.
201009-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA EMERGING MARKETS FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
emerging market companies. The "equity securities" in which the Fund
principally invests are common stocks, preferred stocks, securities convertible
into common stocks, and securities that carry the right to buy common stocks.
This 80% policy may be changed upon at least 60 days' written notice to
shareholders.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
Lazard Asset Management Brandes Investment Partners, L.P.
JAI JACOB DOUGLAS EDMAN, CFA
JAMES M. DONALD, CFA CHRIS GARRETT, CFA
KEVIN O'HARE, CFA LOUIS LAU, CFA
STEPHEN MARRA, CFA GREG RIPPEL, CFA
GERARDO ZAMORANO, CFA
Victory Capital Management Inc.
MARGARET LINDSAY
TIFFANY KUO, CFA
JOSHUA LINDLAND, CFA
--------------------------------------------------------------------------------
o PLEASE CHARACTERIZE THE PERFORMANCE OF EMERGING MARKETS DURING THE REPORTING
PERIOD.
The reporting period ended November 30, 2015, held challenges for emerging
market assets, with the MSCI Emerging Markets Index registering a decline of
-17.67%. A significant portion of that decline occurred during August 2015,
when three main themes emerged and unsettled investors. First, the Chinese
authorities changed the regime by which China's currency is quoted in an
effort to make it more open to market forces. In retrospect, this was
directed by the Chinese central bank to facilitate the renminbi's acceptance
into the International Monetary Fund's basket of reserve currencies, but at
the time China's move was interpreted as a step to devalue its currency in
the face of unsustainable intervention and slowing exports. In addition, a
further decline in energy and commodity prices raised investor concerns.
Lastly, worries over global economic growth and in particular how slowing
growth might manifest itself in U.S. corporate earnings, caused all major
markets to sell off dramatically in late August 2015. The prelude to the
global market drawdown was the expected correction of onshore Chinese stocks
from their unsustainably high valuation levels following an
================================================================================
2 | USAA EMERGING MARKETS FUND
================================================================================
intense margin-fueled retail bull market for Chinese stocks. To the extent
that the global market correction in August 2015 was overdone, markets
gradually became more confident about China's growth, and in October 2015
saw a reversal of some of the negative price action from earlier in the
reporting period.
o HOW DID THE USAA EMERGING MARKETS FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the semiannual reporting period ended November 30, 2015,
the Fund Shares, Institutional Shares, and Adviser Shares had a total return
of -14.03%, -13.95%, and -14.15%, respectively. This compares to returns of
-15.66% for the Lipper Emerging Markets Fund Index and -17.67% for the MSCI
Emerging Markets Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, the Manager employs dedicated resources
to support the research, selection, and monitoring of the Fund's
subadvisers. Brandes Investment Partners L.P. (Brandes), Lazard Asset
Management (Lazard), and Victory Capital Management Inc. (Victory Capital)
are subadvisers to the Fund. The subadvisers each provide day-to-day
discretionary management for a portion of the Fund's assets.
o HOW DID BRANDES' PORTION OF THE FUND PERFORM?
The Brandes portion of the Fund outperformed the benchmark during the
reporting period. Holdings in the financials and telecommunication services
sectors contributed to performance, as did positions in Russia and Greece.
Notable contributors included the telecommunication services
You will find a complete list of securities that the Fund owns on pages
14-26.
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
firm 02 Czech Republic A.S., the food product company Marfrig Global Foods
S.A., and the electric utility provider Reliance Infrastructure Ltd. GDR.
Allocations to the materials sector and a large underweight position in the
information technology sector detracted from returns, as did positions in
Brazil and the United Kingdom. At the company level, major detractors
included the oil company Petroleo Brasileiro S.A. ADR, the clothing
manufacturer Bosideng International Holdings Ltd., and the Panamanian
airline Copa Holdings S.A. "A". During the reporting period, Brandes exited
its positions in two pharmaceutical companies as they reached Brandes'
estimates of their full value. New positions included a Brazilian food &
staples retailer, a Turkish Real Estate Investment Trust (REIT), and a Czech
telecommunication services firm.
o HOW DID LAZARD'S PORTION OF THE FUND PERFORM?
The Lazard portion of the Fund outperformed the benchmark during the
reporting period. On a sector basis, stock selection in the information
technology, financials, consumer staples, health care, industrials, and
telecommunication services sectors added to relative performance, as did an
overweight to information technology. Conversely, stock selection in the
materials and energy sectors detracted from relative return. On a country
basis, stock selection in China, Russia, Poland, and Taiwan contributed, as
did overweights to China and Russia. Conversely, stock selection in South
Korea and Brazil detracted from performance, as did an underweight in South
Korea and non-benchmark exposure to Argentina.
o HOW DID VICTORY CAPITAL'S PORTION OF THE FUND PERFORM?
Victory Capital's portion of the Fund outperformed the benchmark during the
reporting period. Holdings in health technology, consumer services, and
producer manufacturing were among the top contributors, while positions in
electronic technology, technology services, and
================================================================================
4 | USAA EMERGING MARKETS FUND
================================================================================
communications were detractors. On a country basis, stock selection was
strong in Taiwan, Thailand, and India, while performance within South Korea,
the Philippines, and Indonesia lagged. At the stock level, top contributors
included Hota Industrial Manufacturing Co. Ltd., a Taiwanese automotive
components manufacturer; Chularat Hospital PCL NVDR, a Thai private hospital
operator; and Marksans Pharma Ltd., an Indian pharmaceutical ingredient
manufacturer. Sansung Life & Science Co. Ltd.*, a South Korean packing
materials manufacturer; Kaveri Seed Co. Ltd.*, an Indian seed technology
company; and DCB Bank Limited*, a banking services provider in India, were
among the individual detractors.
Thank you for your investment in the Fund.
*Sansung Life & Science Co. Ltd., Kaveri Seed Co. Ltd., and DCB Bank Limited
were sold out of the Fund prior to November 30, 2015.
Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market
illiquidity, and political and economic instability. Foreign investing may
result in more rapid and extreme changes in value than investments made
exclusively in the securities of U.S. companies. There may be less publicly
available information relating to foreign companies than those in the U.S.
Foreign securities may also be subject to foreign taxes. Investments made in
emerging market countries may be particularly volatile. Economies of
emerging market countries are generally less diverse and mature than more
developed countries and may have less stable political systems.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA EMERGING MARKETS FUND SHARES (FUND SHARES)
(Ticker Symbol: USEMX)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $445.6 Million $500.5 Million
Net Asset Value Per Share $14.15 $16.46
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-14.03% -17.88% -5.54% 2.47%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-14.12% -7.37% 1.57%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.50%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense 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 October 1, 2015, 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.
================================================================================
6 | USAA EMERGING MARKETS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EMERGING USAA EMERGING
MSCI EMERGING MARKETS FUNDS MARKETS FUND
MARKETS INDEX INDEX SHARES
11/30/05 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,591.07 10,564.23 10,593.20
01/31/06 11,774.00 11,780.17 11,554.39
02/28/06 11,760.07 11,711.23 11,561.11
03/31/06 11,863.67 11,870.14 11,796.37
04/30/06 12,708.44 12,711.00 12,582.79
05/31/06 11,376.99 11,313.44 11,305.69
06/30/06 11,349.18 11,257.40 11,238.48
07/31/06 11,511.63 11,499.37 11,305.69
08/31/06 11,804.95 11,812.54 11,540.95
09/30/06 11,903.24 11,900.44 11,742.59
10/31/06 12,468.44 12,521.97 12,273.60
11/30/06 13,395.28 13,344.79 13,147.40
12/31/06 13,998.42 13,952.12 13,703.47
01/31/07 13,847.69 13,885.28 13,628.74
02/28/07 13,765.49 13,755.01 13,458.89
03/31/07 14,313.67 14,279.35 13,927.67
04/30/07 14,976.37 14,955.82 14,477.99
05/31/07 15,718.12 15,760.67 15,401.97
06/30/07 16,454.92 16,309.55 15,965.87
07/31/07 17,323.13 16,900.81 16,624.89
08/31/07 16,954.99 16,534.46 16,339.54
09/30/07 18,827.37 18,138.47 17,705.13
10/31/07 20,927.01 20,073.84 19,471.57
11/30/07 19,443.59 18,840.39 18,180.71
12/31/07 19,511.77 19,010.18 18,308.81
01/31/08 17,076.80 16,910.71 16,671.56
02/29/08 18,337.29 17,648.80 17,351.88
03/31/08 17,366.90 16,826.56 16,656.60
04/30/08 18,776.30 18,099.33 17,979.86
05/31/08 19,124.63 18,432.72 18,293.86
06/30/08 17,217.19 16,536.43 16,529.51
07/31/08 16,567.75 15,958.29 16,073.47
08/31/08 15,244.40 14,745.79 14,869.83
09/30/08 12,576.59 12,327.72 12,455.07
10/31/08 9,134.66 8,747.69 8,948.81
11/30/08 8,447.03 7,999.12 8,156.35
12/31/08 9,105.84 8,600.41 8,852.71
01/31/09 8,517.77 7,858.17 8,123.28
02/28/09 8,037.29 7,415.58 7,725.40
03/31/09 9,192.32 8,371.46 8,686.93
04/30/09 10,721.99 9,754.70 10,112.65
05/31/09 12,554.04 11,521.83 11,944.53
06/30/09 12,384.92 11,385.59 11,737.30
07/31/09 13,777.56 12,702.57 13,080.13
08/31/09 13,728.26 12,753.94 13,121.58
09/30/09 14,974.37 13,892.74 14,373.22
10/31/09 14,992.90 13,724.00 14,215.73
11/30/09 15,636.89 14,476.23 14,953.46
12/31/09 16,254.45 14,985.93 15,476.33
01/31/10 15,347.90 14,147.75 14,634.14
02/28/10 15,401.89 14,267.41 14,734.20
03/31/10 16,645.35 15,448.12 15,909.94
04/30/10 16,847.02 15,558.35 15,968.31
05/31/10 15,206.77 14,091.04 14,333.95
06/30/10 15,252.27 14,096.60 14,300.60
07/31/10 16,522.39 15,411.79 15,651.44
08/31/10 16,201.52 15,111.96 15,259.53
09/30/10 18,001.96 16,824.48 16,935.58
10/31/10 18,524.67 17,345.31 17,335.83
11/30/10 18,035.65 16,905.87 16,960.59
12/31/10 19,322.67 18,004.56 18,140.92
01/31/11 18,798.45 17,422.99 17,553.56
02/28/11 18,623.14 17,260.79 17,335.40
03/31/11 19,718.08 18,155.10 18,208.05
04/30/11 20,329.71 18,807.47 18,669.54
05/31/11 19,796.47 18,312.43 18,098.97
06/30/11 19,491.96 18,074.49 17,780.11
07/31/11 19,405.39 18,041.18 17,570.34
08/31/11 17,671.23 16,559.26 15,900.57
09/30/11 15,094.86 13,984.97 13,282.64
10/31/11 17,094.27 15,700.03 14,927.24
11/30/11 15,955.02 15,185.21 14,423.79
12/31/11 15,762.73 14,696.33 13,825.39
01/31/12 17,550.61 16,237.21 15,481.29
02/29/12 18,601.92 17,204.22 16,287.33
03/31/12 17,982.64 16,835.35 15,551.38
04/30/12 17,766.07 16,628.96 15,271.01
05/31/12 15,773.70 14,828.45 13,536.27
06/30/12 16,382.49 15,515.44 14,105.76
07/31/12 16,702.08 15,664.13 14,219.65
08/31/12 16,646.46 15,774.50 14,202.13
09/30/12 17,650.94 16,603.99 15,069.50
10/31/12 17,543.76 16,557.61 14,762.86
11/30/12 17,766.51 16,741.85 14,727.81
12/31/12 18,635.21 17,651.15 15,569.00
01/31/13 18,892.14 17,906.53 15,842.76
02/28/13 18,654.79 17,738.14 15,904.58
03/31/13 18,333.48 17,551.16 15,586.67
04/30/13 18,471.66 17,801.46 15,666.14
05/31/13 17,997.76 17,343.88 15,401.22
06/30/13 16,852.06 16,237.73 14,288.51
07/31/13 17,028.12 16,495.57 14,491.63
08/31/13 16,735.64 15,962.12 14,103.06
09/30/13 17,823.95 17,113.74 15,153.95
10/31/13 18,689.90 17,858.98 15,816.27
11/30/13 18,416.61 17,561.78 15,666.14
12/31/13 18,150.35 17,423.40 15,509.46
01/31/14 16,971.75 16,251.99 14,337.60
02/28/14 17,533.94 16,847.84 14,745.97
03/31/14 18,072.17 17,348.12 15,296.40
04/30/14 18,132.53 17,460.72 15,296.40
05/31/14 18,765.47 18,102.12 16,104.27
06/30/14 19,264.04 18,561.49 16,530.41
07/31/14 19,636.55 18,681.14 16,521.53
08/31/14 20,079.05 19,197.46 16,956.54
09/30/14 18,590.77 17,899.92 15,571.61
10/31/14 18,809.95 18,072.64 15,837.94
11/30/14 18,611.02 17,900.06 15,536.10
12/31/14 17,753.29 16,960.16 14,408.16
01/31/15 17,859.72 17,026.63 14,254.88
02/28/15 18,412.72 17,511.70 14,489.31
03/31/15 18,150.88 17,138.63 14,191.77
04/30/15 19,546.92 18,200.72 15,228.65
05/31/15 18,764.14 17,656.85 14,840.95
06/30/15 18,276.84 17,252.15 14,570.45
07/31/15 17,009.90 16,283.85 13,713.90
08/31/15 15,471.40 14,805.18 12,460.62
09/30/15 15,005.99 14,369.45 12,072.92
10/31/15 16,076.39 15,314.74 12,983.57
11/30/15 15,449.29 14,892.54 12,758.16
[END CHART]
Data from 11/30/05 through 11/30/15.
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Emerging Markets Fund Shares to the following benchmarks:
o The unmanaged MSCI Emerging Markets Index is a free-float-adjusted market
capitalization index that is designed to measure equity market performance in
the global emerging markets.
o The unmanaged Lipper Emerging Markets Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Emerging Markets 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, except
that the Lipper Emerging Markets Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA EMERGING MARKETS FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIEMX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $487.7 Million $637.0 Million
Net Asset Value Per Share $14.13 $16.42
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-13.95% -17.65% -5.17% -2.62%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-13.91% -7.11% -2.99%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.27%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense 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 October 1, 2015, and
is calculated as a percentage of average net assets. The expense ratio may
differ from the expense ratio disclosed in the Financial Highlights, which
exclude 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 EMERGING MARKETS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA EMERGING
LIPPER EMERGING MSCI EMERGING MARKETS FUND
MARKETS FUNDS INDEX MARKETS INDEX INSTITUTIONAL SHARES
07/31/08 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,240.21 9,201.25 9,355.60
09/30/08 7,724.97 7,591.00 7,836.31
10/31/08 5,481.60 5,513.52 5,630.29
11/30/08 5,012.52 5,098.48 5,131.70
12/31/08 5,389.31 5,496.12 5,573.05
01/31/09 4,924.20 5,141.18 5,117.78
02/28/09 4,646.85 4,851.16 4,871.84
03/31/09 5,245.84 5,548.32 5,484.09
04/30/09 6,112.62 6,471.60 6,384.15
05/31/09 7,219.97 7,577.39 7,545.85
06/30/09 7,134.60 7,475.31 7,415.03
07/31/09 7,959.86 8,315.89 8,273.23
08/31/09 7,992.05 8,286.13 8,299.39
09/30/09 8,705.66 9,038.26 9,094.79
10/31/09 8,599.92 9,049.45 9,000.60
11/30/09 9,071.29 9,438.15 9,471.56
12/31/09 9,390.69 9,810.89 9,807.63
01/31/10 8,865.46 9,263.72 9,273.63
02/28/10 8,940.44 9,296.30 9,342.36
03/31/10 9,680.31 10,046.84 10,093.13
04/30/10 9,749.39 10,168.56 10,130.14
05/31/10 8,829.92 9,178.53 9,104.44
06/30/10 8,833.41 9,205.99 9,083.29
07/31/10 9,657.55 9,972.62 9,945.09
08/31/10 9,469.67 9,778.95 9,701.89
09/30/10 10,542.79 10,865.66 10,769.89
10/31/10 10,869.16 11,181.16 11,028.96
11/30/10 10,593.79 10,885.99 10,732.88
12/31/10 11,282.27 11,662.81 11,541.35
01/31/11 10,917.84 11,346.41 11,178.18
02/28/11 10,816.20 11,240.59 11,044.66
03/31/11 11,376.60 11,901.48 11,600.10
04/30/11 11,785.40 12,270.65 11,899.18
05/31/11 11,475.19 11,948.79 11,536.01
06/30/11 11,326.09 11,765.00 11,338.40
07/31/11 11,305.21 11,712.74 11,204.89
08/31/11 10,376.59 10,666.04 10,142.08
09/30/11 8,763.46 9,110.99 8,475.76
10/31/11 9,838.17 10,317.79 9,527.89
11/30/11 9,515.57 9,630.16 9,207.45
12/31/11 9,209.22 9,514.10 8,829.95
01/31/12 10,174.79 10,593.23 9,888.20
02/29/12 10,780.75 11,227.78 10,408.93
03/31/12 10,549.60 10,853.99 9,938.60
04/30/12 10,420.27 10,723.28 9,759.42
05/31/12 9,292.01 9,520.72 8,656.38
06/30/12 9,722.50 9,888.18 9,025.93
07/31/12 9,815.67 10,081.07 9,098.72
08/31/12 9,884.83 10,047.50 9,087.52
09/30/12 10,404.62 10,653.78 9,641.84
10/31/12 10,375.56 10,589.09 9,451.47
11/30/12 10,491.01 10,723.54 9,429.07
12/31/12 11,060.81 11,247.87 9,973.87
01/31/13 11,220.84 11,402.95 10,149.75
02/28/13 11,115.32 11,259.70 10,195.14
03/31/13 10,998.15 11,065.76 9,990.89
04/30/13 11,155.00 11,149.16 10,047.63
05/31/13 10,868.26 10,863.12 9,877.42
06/30/13 10,175.11 10,171.60 9,162.57
07/31/13 10,336.69 10,277.87 9,293.06
08/31/13 10,002.41 10,101.33 9,049.10
09/30/13 10,724.05 10,758.21 9,724.23
10/31/13 11,191.04 11,280.89 10,149.74
11/30/13 11,004.81 11,115.93 10,058.97
12/31/13 10,918.10 10,955.22 9,958.64
01/31/14 10,184.05 10,243.84 9,209.31
02/28/14 10,557.43 10,583.17 9,478.16
03/31/14 10,870.92 10,908.04 9,832.80
04/30/14 10,941.48 10,944.47 9,832.80
05/31/14 11,343.41 11,326.50 10,353.33
06/30/14 11,631.26 11,627.42 10,627.89
07/31/14 11,706.24 11,852.27 10,622.17
08/31/14 12,029.78 12,119.35 10,902.45
09/30/14 11,216.70 11,221.05 10,010.12
10/31/14 11,324.93 11,353.34 10,187.44
11/30/14 11,216.79 11,233.28 9,992.96
12/31/14 10,627.81 10,715.57 9,271.63
01/31/15 10,669.47 10,779.80 9,178.45
02/28/15 10,973.43 11,113.59 9,329.87
03/31/15 10,739.64 10,955.54 9,131.86
04/30/15 11,405.19 11,798.17 9,807.43
05/31/15 11,064.38 11,325.70 9,562.83
06/30/15 10,810.79 11,031.57 9,388.11
07/31/15 10,204.01 10,266.87 8,834.84
08/31/15 9,277.43 9,338.26 8,031.14
09/30/15 9,004.39 9,057.34 7,786.54
10/31/15 9,596.73 9,703.42 8,368.93
11/30/15 9,332.17 9,324.91 8,229.16
[END CHART]
Data from 7/31/08 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Institutional Shares to the Fund's benchmarks listed
above (see page 7 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Emerging Markets Funds Index reflects the fees and expenses of
the underlying funds included in the index.
*The performance of the Lipper Emerging Markets Funds Index and the MSCI
Emerging Markets 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.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA EMERGING MARKETS FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAEMX)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $3.9 Million $4.6 Million
Net Asset Value Per Share $14.08 $16.40
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-14.15% -18.06% -5.86% -4.52%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-14.34% -7.68% -5.00%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.95% AFTER REIMBURSEMENT 1.75%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
usaa.com.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Adviser Shares (exclusive of commission recapture,
expense offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 1.75% of the Adviser Shares' average
net assets. This reimbursement arrangement may not be changed or terminated
during this time period without approval of the Fund's Board of Trustees and
may be changed or terminated by the Manager at any time after October 1, 2016.
If the total annual operating expense ratio of the Adviser Shares is lower than
1.75%, the Adviser Shares will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
================================================================================
10 | USAA EMERGING MARKETS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EMERGING USAA EMERGING
MARKETS FUNDS MSCI EMERGING MARKETS FUND
INDEX MARKETS INDEX ADVISER SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,805.45 9,805.80 9,516.13
09/30/10 10,916.63 10,895.49 10,556.71
10/31/10 11,254.57 11,211.86 10,801.25
11/30/10 10,969.44 10,915.89 10,567.12
12/31/10 11,682.33 11,694.84 11,294.94
01/31/11 11,304.98 11,377.56 10,923.50
02/28/11 11,199.74 11,271.46 10,787.48
03/31/11 11,780.01 11,934.16 11,326.33
04/30/11 12,203.30 12,304.34 11,608.83
05/31/11 11,882.09 11,981.60 11,247.85
06/30/11 11,727.70 11,797.30 11,049.05
07/31/11 11,706.09 11,744.91 10,913.03
08/31/11 10,744.54 10,695.32 9,871.95
09/30/11 9,074.20 9,136.00 8,244.94
10/31/11 10,187.02 10,346.12 9,265.09
11/30/11 9,852.98 9,656.61 8,945.97
12/31/11 9,535.77 9,540.22 8,571.56
01/31/12 10,535.58 10,622.32 9,594.06
02/29/12 11,163.03 11,258.61 10,094.43
03/31/12 10,923.68 10,883.80 9,632.13
04/30/12 10,789.77 10,752.73 9,458.09
05/31/12 9,621.49 9,546.86 8,381.21
06/30/12 10,067.25 9,915.33 8,729.29
07/31/12 10,163.73 10,108.76 8,799.99
08/31/12 10,235.34 10,075.09 8,783.68
09/30/12 10,773.56 10,683.04 9,316.68
10/31/12 10,743.46 10,618.17 9,120.88
11/30/12 10,863.01 10,752.99 9,093.70
12/31/12 11,453.02 11,278.76 9,616.54
01/31/13 11,618.72 11,434.27 9,775.18
02/28/13 11,509.46 11,290.62 9,813.47
03/31/13 11,388.13 11,096.15 9,611.07
04/30/13 11,550.55 11,179.77 9,660.30
05/31/13 11,253.64 10,892.95 9,490.72
06/30/13 10,535.91 10,199.53 8,801.49
07/31/13 10,703.22 10,306.09 8,921.83
08/31/13 10,357.08 10,129.07 8,681.14
09/30/13 11,104.31 10,787.76 9,326.62
10/31/13 11,587.87 11,311.86 9,725.94
11/30/13 11,395.03 11,146.46 9,632.95
12/31/13 11,305.24 10,985.30 9,535.75
01/31/14 10,545.16 10,271.97 8,812.77
02/28/14 10,931.79 10,612.23 9,064.72
03/31/14 11,256.39 10,937.99 9,404.30
04/30/14 11,329.46 10,974.52 9,404.30
05/31/14 11,745.63 11,357.60 9,902.72
06/30/14 12,043.70 11,659.35 10,160.15
07/31/14 12,121.33 11,884.81 10,154.67
08/31/14 12,456.34 12,152.63 10,417.58
09/30/14 11,614.44 11,251.87 9,557.66
10/31/14 11,726.50 11,384.52 9,721.98
11/30/14 11,614.52 11,264.12 9,535.75
12/31/14 11,004.67 10,744.99 8,840.59
01/31/15 11,047.80 10,809.41 8,746.25
02/28/15 11,362.54 11,144.10 8,890.54
03/31/15 11,120.46 10,985.63 8,701.85
04/30/15 11,809.61 11,830.57 9,340.06
05/31/15 11,456.72 11,356.80 9,101.43
06/30/15 11,194.13 11,061.87 8,929.39
07/31/15 10,565.84 10,295.07 8,402.17
08/31/15 9,606.40 9,363.90 7,630.77
09/30/15 9,323.68 9,082.22 7,397.68
10/31/15 9,937.03 9,730.07 7,952.65
11/30/15 9,663.09 9,350.52 7,813.91
[END CHART]
Data from 7/31/10 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Adviser Shares to the Fund's benchmarks listed above
(see page 7 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Emerging Markets Funds Index reflects the fees and expenses of
the underlying funds included in the index.
*The performance of the Lipper Emerging Markets Funds Index and the MSCI
Emerging Markets Index is calculated from the end of the month, July 31, 2010,
while the inception date of the Adviser Shares is August 1, 2010. There may be
a slight variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o TOP 10 INDUSTRIES - 11/30/15 o
(% of Net Assets)
Diversified Banks ........................................................ 18.9%
Internet Software & Services ............................................. 7.0%
Semiconductors ........................................................... 4.6%
Wireless Telecommunication Services ...................................... 3.8%
Integrated Oil & Gas ..................................................... 3.7%
Pharmaceuticals .......................................................... 3.6%
Technology Hardware, Storage, & Peripherals .............................. 3.2%
Construction & Engineering ............................................... 2.4%
Auto Parts & Equipment ................................................... 2.2%
Integrated Telecommunication Services .................................... 2.1%
o TOP 10 EQUITY HOLDINGS - 11/30/15 o
(% of Net Assets)
Baidu, Inc. ADR .......................................................... 3.0%
Samsung Electronics Co. Ltd. ............................................. 2.7%
Sberbank of Russia ....................................................... 2.3%
NetEase, Inc. ADR ........................................................ 2.0%
Taiwan Semiconductor Manufacturing
Co. Ltd. ADR ........................................................... 1.9%
Axis Bank Ltd. GDR ....................................................... 1.9%
China Construction Bank Corp. "H" ........................................ 1.6%
Aurobindo Pharma Ltd. .................................................... 1.6%
Hyundai Mobis Co. Ltd. ................................................... 1.5%
China State Construction International
Holdings Ltd. .......................................................... 1.4%
You will find a complete list of securities that the Fund owns on pages 14-26.
================================================================================
12 | USAA EMERGING MARKETS FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/15 o
[PIE CHART OF COUNTRY ALLOCATION]
CHINA 19.8%
SOUTH KOREA 12.9%
INDIA 10.8%
RUSSIA 9.1%
TAIWAN 7.8%
BRAZIL 6.5%
TURKEY 4.9%
INDONESIA 4.7%
HONG KONG 3.5%
MEXICO 3.4%
OTHER* 16.9%
[END CHART]
*Includes countries that represent less than 3% of portfolio and money market
instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.5%)
COMMON STOCKS (95.9%)
CONSUMER DISCRETIONARY (14.1%)
------------------------------
ADVERTISING (0.2%)
734,690 ITE Group plc(a) $ 1,690
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.9%)
26,624,000 Bosideng International Holdings Ltd.(a) 2,366
275,794 Makalot Industrial Co. Ltd.(a) 1,879
5,079,200 MC Group PCL NVDR(a) 1,728
53,104,500 Pan Brothers Tbk PT(a) 1,918
----------
7,891
----------
AUTO PARTS & EQUIPMENT (2.2%)
721,936 Hota Industrial Manufacturing Co. Ltd.(a) 2,788
62,837 Hyundai Mobis Co. Ltd.(a) 13,591
508,271 Mahindra CIE Automotive Ltd.*(a) 1,928
2,310,000 Nexteer Automotive Group Ltd.(a) 2,549
----------
20,856
----------
AUTOMOBILE MANUFACTURERS (0.9%)
2,436,000 Dongfeng Motor Group Co. Ltd. "H"(a) 3,361
72,060 KIA Motors Corp.(a) 3,256
279,459 Turk Otomobil Fabrikasi A.S.(a) 1,844
----------
8,461
----------
CABLE & SATELLITE (0.2%)
113,141 KT Skylife Co. Ltd.(a) 1,811
----------
CASINOS & GAMING (1.0%)
1,702,700 Genting Malaysia Berhad(a) 1,752
1,447,000 Melco International Development Ltd.(a) 1,962
2,866,000 NagaCorp Ltd.(a) 1,863
3,189,200 Wynn Macau Ltd.(a) 3,979
----------
9,556
----------
DEPARTMENT STORES (0.7%)
2,339,500 Lifestyle International Holdings Ltd.,
acquired 6/9/2014 - 8/22/2014; cost $4,551(a),(b) 3,570
================================================================================
14 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
355,200 Lojas Renner S.A. $ 1,607
172,398 Poya Co. Ltd.(a) 1,724
----------
6,901
----------
EDUCATION SERVICES (1.5%)
1,632,400 Estacio Participacoes S.A. 5,658
281,100 New Oriental Education & Technology Group, Inc. ADR 8,157
----------
13,815
----------
FOOTWEAR (0.1%)
332,000 Yue Yuen Industrial Holdings Ltd.(a) 1,196
----------
HOME FURNISHINGS (0.2%)
9,641 Hanssem Co. Ltd.(a) 1,966
----------
HOME IMPROVEMENT RETAIL (0.3%)
42,127,700 ACE Hardware Indonesia(a) 2,325
----------
HOMEBUILDING (0.0%)
207,159 Desarrolladora Homex S.A. de C.V.* 79
6,312,677 URBI, Desarrollos Urbanos, S.A. de C.V.,
acquired 12/18/2012 - 3/25/2013; cost $2,879*(b),(c) 95
371,300 Viver Incorporadora e Construtora S.A.* 3
----------
177
----------
HOUSEHOLD APPLIANCES (1.0%)
2,327,500 Techtronic Industries Co.(a) 9,501
----------
INTERNET RETAIL (0.8%)
453,860 Vipshop Holdings Ltd. ADR* 7,502
----------
MOTORCYCLE MANUFACTURERS (0.7%)
173,637 Bajaj Auto Ltd.(a) 6,457
----------
MOVIES & ENTERTAINMENT (0.5%)
23,461 CJ CGV Co. Ltd.(a) 2,334
2,413,667 Major Cineplex Group PCL NVDR(a) 2,087
----------
4,421
----------
RESTAURANTS (0.3%)
303,570 Arcos Dorados Holdings, Inc. "A" 1,196
12,622 Shinsegae Food Co. Ltd.(a) 1,773
----------
2,969
----------
SPECIALIZED CONSUMER SERVICES (0.2%)
115,089 Seoul Auction Co. Ltd.(a) 2,023
----------
SPECIALTY STORES (1.4%)
1,443,600 Chow Tai Fook Jewellery Group Ltd.(a) 1,132
94,116 Hotel Shilla Co. Ltd.(a) 7,341
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
199,010 JUMBO S.A.(a) $ 2,028
1,009,000 Luk Fook Holdings International Ltd.(a) 2,288
----------
12,789
----------
TEXTILES (1.0%)
144,000 Eclat Textile Co. Ltd.(a) 1,937
442,000 Nan Liu Enterprise Co. Ltd.(a) 2,472
443,000 Shenzhou International Group(a) 2,345
2,168,000 Texwinca Holdings Ltd.(a) 2,212
1,796,500 Weiqiao Textile Co. Ltd. "H"(a) 737
----------
9,703
----------
Total Consumer Discretionary 132,010
----------
CONSUMER STAPLES (7.2%)
-----------------------
BREWERS (0.6%)
1,199,200 Ambev S.A. ADR 5,720
----------
DRUG RETAIL (0.2%)
296,800 Clicks Group Ltd.(a) 1,991
----------
FOOD RETAIL (1.9%)
346,577 Eurocash S.A.(a) 4,451
30,015 X5 Retail Group N.V. GDR* 678
566,532 X5 Retail Group N.V. GDR*(a) 12,805
----------
17,934
----------
HOUSEHOLD PRODUCTS (0.9%)
406,587 Eveready Industries India Ltd.(a) 1,738
2,909,400 Kimberly-Clark de Mexico S.A. de C.V. "A" 6,876
----------
8,614
----------
HYPERMARKETS & SUPER CENTERS (0.6%)
184,525 Cia Brasileira de Distribuicao 2,337
11,058 E Mart Co. Ltd.(a) 2,047
1,182,300 Robinsons Retail Holdings, Inc.(a) 1,811
----------
6,195
----------
PACKAGED FOODS & MEAT (1.6%)
149,207 Adecoagro S.A.* 1,679
921,796 Agthia Group PJSC(a) 1,931
680,902 CCL Products India Ltd.(a) 2,190
2,022,636 Marfrig Global Foods S.A.* 3,074
3,269,300 Thai Union Frozen Products PCL NVDR(a) 1,684
88,950 Tiger Brands Ltd.(a) 2,047
328,280 Ulker Biskuvi Sanayi A.S.(a) 2,119
----------
14,724
----------
================================================================================
16 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS (0.6%)
12,290 Cosmax, Inc.(a) $ 1,929
2,082,500 Karex Berhad(a) 1,922
303,600 Natura Cosmeticos S.A. 1,662
----------
5,513
----------
TOBACCO (0.8%)
77,506 KT&G Corp.(a) 7,163
----------
Total Consumer Staples 67,854
----------
ENERGY (6.1%)
-------------
COAL & CONSUMABLE FUELS (0.6%)
3,308,000 China Shenhua Energy Co. Ltd. "H"(a) 5,158
----------
INTEGRATED OIL & GAS (2.8%)
754,850 Gazprom PAO ADR 3,110
1,180,014 Gazprom PAO ADR(a) 4,857
248,570 LUKOIL PJSC ADR 9,515
465,925 YPF S.A. ADR 8,527
----------
26,009
----------
OIL & GAS EXPLORATION & PRODUCTION (1.7%)
6,609,000 CNOOC Ltd.(a) 7,338
4,715 NovaTek OAO GDR 441
89,006 NovaTek OAO GDR(a) 8,312
----------
16,091
----------
OIL & GAS REFINING & MARKETING (1.0%)
4,872,000 NewOcean Energy Holdings Ltd.(a) 2,086
13,575 Reliance Industries Ltd. GDR 388
256,176 Reliance Industries Ltd. GDR(a),(d) 7,300
----------
9,774
----------
Total Energy 57,032
----------
FINANCIALS (23.5%)
------------------
CONSUMER FINANCE (0.7%)
1,203,500 Gentera SAB de C.V. 2,365
45,944 Kruk S.A.(a) 2,126
758,500 Krungthai Card PCL NVDR(a) 2,084
----------
6,575
----------
DIVERSIFIED BANKS (18.9%)
30,735,000 Agricultural Bank of China Ltd. "H"(a) 11,752
527,320 Akbank T.A.S.(a) 1,254
500,717 Axis Bank Ltd. GDR(a) 17,633
91,596 Banco Bradesco S.A. 569
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,420,095 Banco do Brasil S.A. $ 5,979
298,940 Banco Santander Brasil S.A. ADR 1,130
226,076 Bancolombia S.A. ADR 6,407
21,331,000 China Construction Bank Corp. "H"(a) 14,629
1,042,111 Commercial International Bank GDR(a) 4,876
48,600 Credicorp Ltd. 5,133
74,770 Erste Group Bank AG*(a) 2,293
255,570 Grupo Aval Acciones Y Valores ADR 1,781
1,599,100 Grupo Financiero Banorte S.A. "O" 8,575
122,560 Hana Financial Group, Inc.(a) 2,695
1,327,640 ICICI Bank Ltd. ADR 11,033
4,007,800 Jasmine Broadband Internet Infrastructure Fund(c) 1,107
61,520 KB Financial Group, Inc.(a) 1,873
342,083 OTP Bank plc(a) 7,054
11,119,495 Bank Mandiri (Persero) Tbk PT(a) 6,818
15,315,200 Bank Rakyat Indonesia (Persero) Tbk PT(a) 11,896
14,152,754 Sberbank of Russia*(c) 21,951
437,450 Sberbank of Russia ADR 2,935
323,891 Shinhan Financial Group Co. Ltd.(a) 11,639
673,502 Standard Bank Group Ltd.(a) 6,046
118,442 Standard Chartered plc(a) 994
633,520 Turkiye Garanti Bankasi A.S.(a) 1,591
3,466,013 Turkiye Is Bankasi "C"(a) 5,626
1,537,800 Turkiye Vakiflar Bankasi T.A.O. "D"(a) 2,100
----------
177,369
----------
INVESTMENT BANKING & BROKERAGE (0.2%)
651,730 IIFL Holdings Ltd.*(a) 2,060
----------
LIFE & HEALTH INSURANCE (1.9%)
1,065,325 Hanwha Life Insurance Co. Ltd.(a) 7,017
1,924,000 Ping An Insurance (Group) Co. of China Ltd. "H"(a) 10,497
----------
17,514
----------
MULTI-SECTOR HOLDINGS (0.4%)
4,036,000 First Pacific Co. Ltd.(a) 2,509
216,110 Haci Omer Sabanci Holdings A.S.(a) 605
----------
3,114
----------
REITs - INDUSTRIAL (0.5%)
2,325,132 Macquarie Mexico Real Estate Management S.A de C.V. 3,077
919,566 Pla Administradora Industria 1,611
----------
4,688
----------
REITs - RESIDENTIAL (0.7%)
6,880,806 Emlak Konut Gayrimenkul Yatirim Ortakligi A.S.(a) 6,565
----------
================================================================================
18 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.2%)
592,090 Dewan Housing Finance Corp. Ltd.(a) $ 1,985
----------
Total Financials 219,870
----------
HEALTH CARE (5.6%)
------------------
BIOTECHNOLOGY (0.2%)
4,758 Medy-Tox, Inc.(a) 1,926
----------
HEALTH CARE EQUIPMENT (0.7%)
128,261 Huvitz Co. Ltd.(a) 1,558
569,000 Intai Technology Corp.(a) 2,262
41,034 Osstem Implant Co. Ltd.*(a) 2,384
----------
6,204
----------
HEALTH CARE FACILITIES (0.7%)
33,773,800 Chularat Hospital PCL NVDR(a) 2,334
1,992,600 KPJ Healthcare Berhad(a) 1,991
154,715 NMC Health plc(a) 2,085
----------
6,410
----------
HEALTH CARE SERVICES (0.2%)
388,601 Integrated Diagnostics Holdings plc*(a) 1,886
----------
HEALTH CARE SUPPLIES (0.2%)
64,171 INTEROJO Co. Ltd.(a) 2,163
----------
PHARMACEUTICALS (3.6%)
76,929 Ajanta Pharma Ltd.(a) 1,527
1,204,021 Aurobindo Pharma Ltd.(a) 14,571
1,673,000 China Animal Healthcare Ltd.,
acquired 12/8/2014 - 1/26/2015; cost $1,227*(b),(c) 700
3,715,000 China Medical System Holdings Ltd.(a) 5,162
1,353,240 Marksans Pharma Ltd.(a) 2,049
314,220 Natco Pharma Ltd.(a) 2,482
769,167 Square Pharmaceuticals Ltd.(a) 2,474
575,189 Suven Life Sciences Ltd.(a) 2,281
121,600 Torrent Pharmaceuticals Ltd.(a) 2,616
----------
33,862
----------
Total Health Care 52,451
----------
INDUSTRIALS (8.8%)
------------------
AEROSPACE & DEFENSE (1.4%)
78,481 AeroSpace Technology of Korea, Inc.*(a) 1,895
1,204,412 Aselsan Elektronik Sanayi Ve Ticaret A.S.(a) 6,867
133,100 Embraer S.A. ADR 4,165
----------
12,927
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
AIRLINES (0.3%)
57,650 Copa Holdings S.A. "A" $ 2,978
----------
BUILDING PRODUCTS (0.2%)
144,618 Kajaria Ceramics Ltd.(a) 2,053
----------
CONSTRUCTION & ENGINEERING (2.4%)
823,001 Ashoka Buildcon Ltd.(a) 2,312
8,675,000 China State Construction International Holdings Ltd.(a) 13,048
6,398,900 Pembangunan Perumahan Persero Tbk PT(a) 1,673
403,716 Simplex Infrastructures Ltd.(a) 2,000
1,840,000 Sinopec Engineering Group Co. Ltd "H"(a) 1,417
6,497,700 Sunway Construction Group Berhad*(a) 2,086
----------
22,536
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.5%)
68,916 China Yuchai International Ltd. 817
3,624,000 United Tractors Tbk PT(a) 4,255
----------
5,072
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
168,620 APR Energy plc*(a) 442
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.8%)
168,000 Voltronic Power Technology Corp.(a) 2,497
708,932 Zhuzhou CSR Times Electric Co. Ltd. "H"(a) 4,720
----------
7,217
----------
HIGHWAYS & RAILTRACKS (0.0%)
33,200 CCR SA 110
----------
INDUSTRIAL CONGLOMERATES (1.0%)
627,800 Cahya Mata Sarawak Berhad(a) 746
423,880 Koc Holding A.S. ADR 8,605
----------
9,351
----------
MARINE PORTS & SERVICES (0.7%)
1,613,487 Adani Ports and Special Economic Zone(a) 6,479
----------
RAILROADS (0.3%)
366,710 Globaltrans Investment plc GDR* 1,775
92,200 PKP Cargo S.A.(a) 1,470
----------
3,245
----------
RESEARCH & CONSULTING SERVICES (0.2%)
276,177 Sporton International, Inc.(a) 1,613
----------
================================================================================
20 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
64,536 COSON Co. Ltd.*(a) $ 1,471
556,100 Mills Estruturas e Servicos de Engenharia S.A.* 488
----------
1,959
----------
TRUCKING (0.7%)
950,780 Localiza Rent a Car S.A. 6,529
----------
Total Industrials 82,511
----------
INFORMATION TECHNOLOGY (19.4%)
------------------------------
COMMUNICATIONS EQUIPMENT (0.2%)
832,141 Wistron NeWeb Corp.(a) 2,291
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.3%)
871,454 Cielo S.A. ADR 7,808
7,697,600 GHL Systems Berhad*(a) 1,881
3,200,500 My E.G. Services Berhad(a) 2,559
----------
12,248
----------
ELECTRONIC COMPONENTS (1.0%)
94,000 Largan Precision Co. Ltd.(a) 7,214
12,130,000 Tongda Group Holdings Ltd.(a) 2,200
----------
9,414
----------
ELECTRONIC MANUFACTURING SERVICES (1.6%)
1,350,000 AAC Technologies Holdings, Inc.(a) 9,448
1,064,379 Hon Hai Precision Industry Co. Ltd. GDR "S"(a) 5,771
----------
15,219
----------
INTERNET SOFTWARE & SERVICES (7.0%)
126,852 Baidu, Inc. ADR* 27,650
114,825 NetEase, Inc. ADR 19,137
513,700 Tencent Holdings Ltd.(a) 10,226
504,430 Yandex N.V. "A"* 8,388
----------
65,401
----------
IT CONSULTING & OTHER SERVICES (0.5%)
348,820 HCL Technologies Ltd.(a) 4,552
----------
SEMICONDUCTORS (4.6%)
5,886,000 Advanced Semiconductor Engineering, Inc.(a) 6,305
1,112,000 Chipbond Technology Corp.(a) 1,585
156,000 MediaTek, Inc.(a) 1,242
70,293 Silicon Works Co. Ltd.(a) 2,043
292,350 SK Hynix, Inc.(a) 7,979
1,479,000 Taiwan Semiconductor Manufacturing Co. Ltd.(a) 6,350
781,300 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 17,783
----------
43,287
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (3.2%)
480,000 Catcher Technology Co. Ltd.(a) $ 4,633
22,620 Samsung Electronics Co. Ltd.(a) 25,042
----------
29,675
----------
Total Information Technology 182,087
----------
MATERIALS (3.8%)
----------------
ALUMINUM (0.2%)
9,313,600 Midas Holdings Ltd.(c) 2,010
----------
COMMODITY CHEMICALS (0.1%)
650,310 Synthos S.A.(a) 584
----------
CONSTRUCTION MATERIALS (1.2%)
355,854 Akcansa Cimento A.S.(a) 1,733
2,866,000 Anhui Conch Cement Co. Ltd. "H"(a) 7,797
344,238 Cemex S.A.B. de C.V. ADR 2,169
----------
11,699
----------
DIVERSIFIED METALS & MINING (1.0%)
673,280 Freeport-McMoRan, Inc. 5,507
1,696,100 Grupo Mexico S.A.B. de C.V. "B" 3,703
----------
9,210
----------
INDUSTRIAL GASES (0.1%)
3,290,300 Yingde Gases Group Co.(a) 1,384
----------
SPECIALTY CHEMICALS (0.4%)
240,169 Aarti Industries Ltd.(a) 1,774
8,560,500 D&L Industries, Inc.(a) 1,705
----------
3,479
----------
STEEL (0.8%)
18,774 POSCO(a) 2,747
200,420 Ternium S.A. ADR 2,852
320,000 Yeong Guan Energy Technology Group Co. Ltd.(a) 1,737
----------
7,336
----------
Total Materials 35,702
----------
TELECOMMUNICATION SERVICES (6.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.4%)
5,152,000 Citic Telecom International(a) 1,967
5,469,700 Link Net Tbk PT*(a) 1,403
----------
3,370
----------
INTEGRATED TELECOMMUNICATION SERVICES (2.0%)
235,530 02 Czech Republic A.S.(a) 2,372
235,530 Ceska Telekomunikacni Infrastruktura A.S.*(a) 1,573
================================================================================
22 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
550,220 Magyar Telekom Telecommunications plc*(a) $ 752
252,400 Telekomunikasi Indonesia (Persero) Tbk PT ADR 10,730
13,142,870 XL Axiata Tbk PT*(a) 3,286
----------
18,713
----------
WIRELESS TELECOMMUNICATION SERVICES (3.8%)
212,215 America Movil S.A.B. de C.V. ADR "L" 3,436
126,600 China Mobile Ltd.(a) 1,456
169,270 China Mobile Ltd. ADR 9,728
12,190 MegaFon OAO GDR(a) 184
267,857 MegaFon OAO GDR(c) 4,058
631,000 Mobile TeleSystems ADR 4,448
410,480 Mobile TeleSystems OJSC(c) 1,349
99,580 Philippine Long Distance Telephone Co. ADR 4,359
72,610 TIM Participacoes S.A. ADR 725
661,000 Turkcell Iletisim Hizmetleri A.S. ADR 6,293
----------
36,036
----------
Total Telecommunication Services 58,119
----------
UTILITIES (1.2%)
----------------
ELECTRIC UTILITIES (0.7%)
494,350 Centrais Eletricas Brasileiras S.A. Eletrobras ADR* 697
46,400 Companhia Paranaense de Energia 230
184,400 Companhia Paranaense de Energia ADR 1,359
195,470 Reliance Infrastructure Ltd. GDR 3,977
----------
6,263
----------
GAS UTILITIES (0.1%)
257,518 Aygaz A.S.(a) 946
----------
WATER UTILITIES (0.4%)
816,000 Cia Saneamento Basico de Sao Paulo 3,990
----------
Total Utilities 11,199
----------
Total Common Stocks (cost: $954,598) 898,835
----------
PREFERRED STOCKS (1.6%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.4%)
38,050 Hyundai Motor Co. Ltd.(a) 3,638
----------
Total Consumer Discretionary 3,638
----------
ENERGY (0.9%)
-------------
INTEGRATED OIL & GAS (0.9%)
1,338,280 Petroleo Brasileiro S.A. ADR* 5,179
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
5,367,000 Surgutneftegas*(c) $ 3,440
----------
8,619
----------
Total Energy 8,619
----------
FINANCIALS (0.0%)
-----------------
DIVERSIFIED BANKS (0.0%)
69,552 Banco Bradesco S.A. 380
----------
Total Financials 380
----------
MATERIALS (0.2%)
----------------
STEEL (0.2%)
521,315 Vale S.A. ADR 1,397
----------
Total Materials 1,397
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
113,660 Telefonica Brasil S.A. ADR 1,066
----------
Total Telecommunication Services 1,066
----------
Total Preferred Stocks (cost: $32,644) 15,100
----------
RIGHTS (0.0%)
FINANCIALS (0.0%)
-----------------
DIVERSIFIED BANKS (0.0%)
33,841 Standard Chartered plc* 46
----------
Total Financials 46
----------
Total Rights (cost: $0) 46
----------
Total Equity Securities (cost: $987,242) 913,981
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
$(000)(f)
--------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES (0.0%)
CONSUMER DISCRETIONARY (0.0%)
-----------------------------
HOMEBUILDING (0.0%)
BRL 1,548 Viver Incorporadora e Construtora S.A., 16.14% due 8/6/2016,
acquired 9/30/2013; cost $698(b),(c) 48
----------
Total Consumer Discretionary 48
----------
Total Convertible Securities (cost: $698) 48
----------
================================================================================
24 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.8%)
MONEY MARKET FUNDS (2.8%)
25,665,494 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(e) $ 25,665
----------
Total Money Market Instruments (cost: $25,665) 25,665
----------
TOTAL INVESTMENTS (COST: $1,013,605) $ 939,694
==========
--------------------------------------------------------------------------------------------------------
($ 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 $289,240 $608,800 $795 $898,835
Preferred Stocks 8,022 7,078 - 15,100
Rights 46 - - 46
Bonds:
Convertible Securities - 48 - 48
Money Market Instruments:
Money Market Funds 25,665 - - 25,665
--------------------------------------------------------------------------------------------------------
Total $322,973 $615,926 $795 $939,694
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level
3) were used in determining value:
--------------------------------------------------------------------------------------------------------
COMMON STOCKS
--------------------------------------------------------------------------------------------------------
Balance as of May 31, 2015 $1,056
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (261)
--------------------------------------------------------------------------------------------------------
Balance as of November 30, 2015 $ 795
--------------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 2015, common stocks with a
value of $59,000 were transferred from Level 2 to Level 1 due to the
availability of quoted prices once the security began actively trading. 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.
================================================================================
26 | USAA EMERGING MARKETS FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
BRL Brazilian Real
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
NVDR Non-voting depositary receipts are receipts issued by Thai NVDR
Company Limited.
REIT Real estate investment trust
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
o SPECIFIC NOTES
(a) Securities with a value of $581,963,000, which represented 62.1% of
the Fund's net assets, were classifed as Level 2 at November 30,
2015, due to the prices being adjusted to take into account
significant market movements following the close of local trading.
(b) Security deemed illiquid by the USAA Asset Management Company (the
Manager), under liquidity guidelines approved by the USAA Mutual
Funds Trust's Board of Trustees (the Board). The aggregate market
value of these securities at November 30, 2015, was $4,413,000, which
represented 0.5% of the Fund's net assets.
(c) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $34,758,000, which represented 3.7%
of the Fund's net assets.
(d) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in
an exempt transaction to a qualified institutional buyer as defined
by Rule 144A, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
(f) In U.S. dollars unless otherwise noted.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
28 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,013,605) $ 939,694
Cash 39
Cash denominated in foreign currencies (identified cost of $473) 471
Receivables:
Capital shares sold 1,280
Dividends and interest 471
Securities sold 1,428
-----------
Total assets 943,383
-----------
LIABILITIES
Payables:
Securities purchased 3,464
Capital shares redeemed 284
Unrealized depreciation on foreign currency contracts held, at value 1
Accrued management fees 783
Accrued transfer agent's fees 56
Other accrued expenses and payables 1,572
-----------
Total liabilities 6,160
-----------
Net assets applicable to capital shares outstanding $ 937,223
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 1,178,868
Accumulated undistributed net investment income 6,428
Accumulated net realized loss on investments (172,800)
Net unrealized depreciation of investments (73,911)
Net unrealized depreciation of foreign currency translations (1,362)
-----------
Net assets applicable to capital shares outstanding $ 937,223
===========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $445,588/31,489 shares outstanding) $ 14.15
===========
Institutional Shares (net assets of $487,722/34,519
shares outstanding) $ 14.13
===========
Adviser Shares (net assets of $3,913/278 shares outstanding) $ 14.08
===========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,638) $ 13,171
Interest (net of foreign taxes withheld of $1) 22
-----------
Total income 13,193
-----------
EXPENSES
Management fees 4,791
Administration and servicing fees:
Fund Shares 344
Institutional Shares 266
Adviser Shares 3
Transfer agent's fees:
Fund Shares 665
Institutional Shares 266
Distribution and service fees (Note 6F):
Adviser Shares 5
Custody and accounting fees:
Fund Shares 219
Institutional Shares 244
Adviser Shares 2
Postage:
Fund Shares 29
Institutional Shares 20
Shareholder reporting fees:
Fund Shares 15
Institutional Shares 6
Trustees' fees 13
Registration fees:
Fund Shares 16
Institutional Shares 26
Adviser Shares 11
Professional fees 81
Other 11
-----------
Total expenses 7,033
Expenses reimbursed:
Adviser Shares (6)
-----------
Net expenses 7,027
-----------
NET INVESTMENT INCOME 6,166
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized loss on:
Investments (net of foreign taxes withheld of $46) (33,977)
Foreign currency transactions (719)
Change in net unrealized appreciation/(depreciation) of:
Investments (128,035)
Foreign currency translations (245)
-----------
Net realized and unrealized loss (162,976)
-----------
Decrease in net assets resulting from operations $ (156,810)
===========
See accompanying notes to financial statements.
================================================================================
30 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 6,166 $ 9,858
Net realized loss on investments (33,977) (47,525)
Net realized loss on foreign currency transactions (719) (1,074)
Change in net unrealized appreciation/(depreciation) of:
Investments (128,035) (54,167)
Foreign currency translations (245) (894)
--------------------------
Decrease in net assets resulting from operations (156,810) (93,802)
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (6,680)
Institutional Shares - (11,035)
Adviser Shares - (56)
--------------------------
Distributions to shareholders - (17,771)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 15,936 41,864
Institutional Shares (63,978) (27,153)
Adviser Shares (2) 36
--------------------------
Total net increase (decrease) in net assets from
capital share transactions (48,044) 14,747
--------------------------
Net decrease in net assets (204,854) (96,826)
NET ASSETS
Beginning of period 1,142,077 1,238,903
--------------------------
End of period $ 937,223 $1,142,077
==========================
Accumulated undistributed net investment income:
End of period $ 6,428 $ 262
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Emerging Markets Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek capital appreciation.
The Fund consists of three classes of shares: Emerging Markets Fund Shares (Fund
Shares), Emerging Markets Fund Institutional Shares (Institutional Shares), and
Emerging Markets Fund Adviser Shares (Adviser 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, distribution and service (12b-1) 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 all 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
================================================================================
32 | USAA EMERGING MARKETS FUND
================================================================================
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). The Adviser Shares
permit investors to purchase shares through financial intermediaries, including
banks, broker-dealers, insurance companies, investment advisers, plan sponsors,
and financial professionals that provide various administrative and distribution
services.
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), an affiliate of the Fund. 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), exchange-
traded notes (ETNs), and equity-linked structured notes, except as
otherwise noted, traded primarily on a domestic securities exchange
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
or the 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. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sales price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average of the bid
and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
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 need to 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 Committee will
consider such available information that it deems relevant and will
determine a fair value for the affected foreign securities in accordance
with valuation procedures. In addition, information from an external
vendor or other sources may be used to adjust the foreign market closing
prices of foreign equity securities to reflect what the Committee
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.
================================================================================
34 | USAA EMERGING MARKETS FUND
================================================================================
3. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their NAV at the end of each business day.
4. 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 value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which 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.
5. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
6. Repurchase agreements are valued at cost.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
duration of any restrictions on disposition of the securities,
evaluation of credit quality, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
include certain preferred stocks and common stocks, which are valued based
on methods discussed in Note 1A2. Additionally, convertible securities,
certain preferred stocks, and certain common stocks are valued using market
inputs and other observable factors deemed by the Manager to appropriately
reflect fair value.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The fair value
methods included using inputs such as the value being derived based on the
analysis of the restructuring plan and last quoted price adjusted by
movements in an index that is representative of the local market. However,
these securities are included in the Level 3 category
================================================================================
36 | USAA EMERGING MARKETS FUND
================================================================================
due to limited market transparency, and/or a lack of corroboration to
support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
C. 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. Foreign income and capital gains on some foreign securities may
be subject to foreign taxes, which are accrued as applicable, as a reduction
to such income and realized gains. These foreign taxes have been provided
for in accordance with the understanding of the applicable countries' tax
rules and rates.
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
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 ended November 30, 2015, brokerage
commission recapture credits reduced the expenses of the Fund Shares,
Institutional Shares, and Adviser Shares each by less than $500. For the
six-month period ended November 30, 2015 there were no custodian and other
bank credits.
G. REDEMPTION FEES - Adviser Shares held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed
or exchanged shares. All redemption fees paid will be accounted for by the
Fund as an addition to paid in capital. For the six-month period ended
November 30, 2015, the Adviser Shares did not charge any redemption fees.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal
================================================================================
38 | USAA EMERGING MARKETS FUND
================================================================================
course of business, the Trust enters into contracts that contain a variety
of representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate
of the Manager. The purpose of the agreement is to meet 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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $2,000, which represents 1.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016,
in accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had net capital loss carryforwards of $126,461,000,
for federal income tax purposes. It is unlikely that the Board will authorize a
distribution of capital gains realized in the future until the capital loss
carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
----------------------------------------------
TAX CHARACTER
----------------------------------------------
(NO EXPIRATION) BALANCE
--------------- ------------
Short-Term $ 27,326,000
Long-Term 99,135,000
------------
Total $126,461,000
------------
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$230,244,000 and $263,163,000, respectively.
As of November 30, 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.
===============================================================================
40 | USAA EMERGING MARKETS FUND
===============================================================================
Gross unrealized appreciation and depreciation of investments as of November
30, 2015, were $117,421,000 and $191,332,000, respectively, resulting in net
unrealized depreciation of $73,911,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 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
NOVEMBER 30, 2015 MAY 31, 2015
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 3,958 $ 58,116 8,404 $ 140,293
Shares issued from
reinvested dividends - - 432 6,609
Shares redeemed (2,872) (42,180) (6,162) (105,038)
---------------------------------------------------
Net increase from capital
share transactions 1,086 $ 15,936 2,674 $ 41,864
===================================================
INSTITUTIONAL SHARES:
Shares sold 2,852 $ 41,697 6,603 $ 112,532
Shares issued from
reinvested dividends - - 704 10,722
Shares redeemed (7,134) (105,675) (8,893) (150,407)
---------------------------------------------------
Net decrease from capital
share transactions (4,282) $ (63,978) (1,586) $ (27,153)
===================================================
ADVISER SHARES:
Shares sold -** $ -** 3 $ 46
Shares issued from
reinvested dividends - - -** 1
Shares redeemed -** (2) (1)* (11)*
---------------------------------------------------
Net increase (decrease) from
capital share transactions -** $ (2) 2 $ 36
===================================================
*Net of redemption fees.
**Represents less than 500 shares or $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(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. 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 1.00% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class's performance over the performance
period to that of the Lipper Emerging Markets Funds Index. The Lipper
Emerging Markets Funds Index tracks the total return performance of the 30
largest funds in the Lipper Emerging Markets 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 Fund
and its relevant index, rounded to the nearest basis point. Average net
assets are calculated over a rolling 36-month period.
================================================================================
42 | USAA EMERGING MARKETS 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 Emerging Markets Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $4,791,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and Adviser Shares of $(82,000), $(102,000), and $(1,000), respectively. For
the Fund Shares, Institutional Shares, and Adviser Shares, the performance
adjustments were (0.04)%, (0.04)%, and (0.05)%, respectively.
B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into Investment
Subadvisory Agreements with Brandes Investment Partners, L.P. (Brandes),
Lazard Asset Management (Lazard), and Victory Capital Management Inc.
(Victory Capital), under which Brandes, Lazard, and Victory Capital each
direct the investment and reinvestment of a portion of the Fund's assets (as
allocated from time to time by the Manager).
The Manager (not the Fund) pays Brandes a subadvisory fee in the annual
amount of 0.75% for assets up to $300 million; 0.70% for assets over $300
million up to $600 million; and 0.60% for assets over $600 million on the
portion of the Fund's average net assets that Brandes manages. For the
six-month period ended November 30, 2015, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Brandes, of $543,000
The Manager (not the Fund) pays Lazard a subadvisory fee in the annual
amount of 0.75% for assets up to $200 million; 0.70% for assets
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
over $200 million up to $400 million; 0.65% for assets over $400 million
up to $600 million; and 0.60% for assets over $600 million on the portion
of the Fund's average net assets that Lazard manages. For the six-month
period ended November 30, 2015, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Lazard, of $2,308,000.
The Manager (not the Fund) pays Victory Capital a subadvisory fee in
the annual amount of 0.85% for assets up to $50 million; 0.75% for
assets over $50 million up to $150 million; and 0.70% for assets over
$150 million on the portion of the Fund's average net assets that Victory
Capital manages. For the six-month period ended November 30, 2015,
the Manager incurred subadvisory fees with respect to the Fund, paid or
payable to Victory Capital, of $699,000.
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 Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2015, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $344,000, $266,000, and $3,000, respectively.
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 November 30, 2015, the Fund reimbursed the
Manager $12,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Adviser Shares to 1.75% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the Adviser Shares for all
expenses in excess of that amount. This expense limitation
================================================================================
44 | USAA EMERGING MARKETS FUND
================================================================================
arrangement may not be changed or terminated through October 1, 2016,
without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. For the six-month period ended November
30, 2015, the Adviser Shares incurred reimbursable expenses of $6,000, of
which less than $500 was receivable from the Manager.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund Shares and Adviser Shares based on an
annual charge of $23 per shareholder account plus out-of-pocket expenses.
SAS pays a portion of these fees to certain intermediaries for the
administration and servicing of accounts that are held with such
intermediaries. 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 November 30, 2015, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $665,000, $266,000, and less than $500, respectively.
F. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for investment
by their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are
offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November
30, 2015, the Adviser Shares incurred distribution and service (12b-1) fees
of $5,000.
G. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 20 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 November 30, 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 0.2
USAA Cornerstone Equity 0.8
USAA Target Retirement Income 0.3
USAA Target Retirement 2020 1.1
USAA Target Retirement 2030 3.0
USAA Target Retirement 2040 4.1
USAA Target Retirement 2050 2.3
USAA Target Retirement 2060 0.2
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution. At
November 30, 2015, USAA and its affiliates owned 271,000 Adviser Shares which
represents 97.6% of the Adviser Shares and 0.4% of the Fund.
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.
================================================================================
46 | USAA EMERGING MARKETS FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.46 $ 18.14 $ 17.44 $ 15.45 $ 21.57 $ 17.20
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .08 .14 .17(b) .15 .13
Net realized and
unrealized gain (loss) (2.38) (1.52) .65 1.96(b) (5.57) 4.37
------------------------------------------------------------------------------------
Total from investment
operations (2.31) (1.44) .79 2.13(b) (5.42) 4.50
------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.24) (.09) (.14) (.14) (.13)
Realized capital gains - - - - (.56) -
------------------------------------------------------------------------------------
Total distributions - (.24) (.09) (.14) (.70) (.13)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 14.15 $ 16.46 $ 18.14 $ 17.44 $ 15.45 $ 21.57
====================================================================================
Total return (%)* (14.03) (7.84) 4.56 13.78 (25.21) 26.19
Net assets at end of
period (000) $ 445,588 $500,510 $503,052 $476,735 $670,698 $821,004
Ratios to average
net assets:**
Expenses (%)(a) 1.55(d) 1.50 1.50 1.58 1.58 1.59
Net investment income (%) 1.06(d) .71 .83 1.00 1.06 .68
Portfolio turnover (%) 24 46 48 148(c) 72 66
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$458,077,000.
(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) Calculated using average shares.
(c) Reflects increased trading activity due to changes in subadvisers and asset
allocation strategies.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.42 $ 18.10 $ 17.41 $ 15.45 $ 21.60 $ 17.22
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .13 .18 .20(a) .20 .22
Net realized and
unrealized gain (loss) (2.38) (1.53) .65 1.99(a) (5.58) 4.37
------------------------------------------------------------------------------------
Total from investment
operations (2.29) (1.40) .83 2.19(a) (5.38) 4.59
------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.28) (.14) (.23) (.21) (.21)
Realized capital gains - - - - (.56) -
------------------------------------------------------------------------------------
Total distributions - (.28) (.14) (.23) (.77) (.21)
------------------------------------------------------------------------------------
Net asset value at end of
period $ 14.13 $ 16.42 $ 18.10 $ 17.41 $ 15.45 $ 21.60
====================================================================================
Total return (%)* (13.95) (7.64) 4.82 14.18 (25.01) 26.71
Net assets at end of
period (000) $ 487,722 $637,007 $730,863 $540,580 $202,173 $185,493
Ratios to average
net assets:**
Expenses (%)(b) 1.30(e) 1.27 1.29 1.30 1.27 1.20(c)
Expenses, excluding
reimbursements (%)(b) 1.30(e) 1.27 1.29 1.30 1.27 1.22
Net investment income (%) 1.40(e) .93 1.03 1.19 1.40 1.13
Portfolio turnover (%) 24 46 48 148(d) 72 66
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$531,118,000.
(a) Calculated using average shares.
(b) 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%.
(c) Prior to October 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 1.13% of the Institutional
Shares' average net assets.
(d) Reflects increased trading activity due to changes in subadvisers and asset
allocation strategies.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
48 | USAA EMERGING MARKETS FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
-----------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011***
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.40 $ 18.08 $ 17.35 $ 15.40 $ 21.50 $ 19.22
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .05 .09 .11 .10 .03(a)
Net realized and
unrealized gain (loss) (2.38) (1.53) .66 1.94 (5.57) 2.36(a)
-----------------------------------------------------------------------------------
Total from investment
operations (2.32) (1.48) .75 2.05 (5.47) 2.39(a)
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.20) (.02) (.10) (.07) (.11)
Realized capital gains - - - - (.56) -
-----------------------------------------------------------------------------------
Total distributions - (.20) (.02) (.10) (.63) (.11)
-----------------------------------------------------------------------------------
Redemption fees added to
beneficial interests - .00(f) - - - -
-----------------------------------------------------------------------------------
Net asset value at end of
period $ 14.08 $ 16.40 $ 18.08 $ 17.35 $ 15.40 $ 21.50
===================================================================================
Total return (%)* (14.15) (8.09) 4.34 13.31 (25.53) 12.48
Net assets at end of
period (000) $ 3,913 $ 4,560 $ 4,988 $ 4,784 $ 4,237 $ 5,919
Ratios to average
net assets:**
Expenses (%)(b) 1.75(c) 1.79(e) 1.77 2.00 2.00 2.00(c)
Expenses, excluding
reimbursements (%)(b) 2.03(c) 1.95 1.77 2.04 2.16 2.26(c)
Net investment income (%) .88(c) .41 .57 .55 .63 .16(c)
Portfolio turnover (%) 24 46 48 148(d) 72 66
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$4,082,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects increased trading activity due to changes in subadvisers and asset
allocation strategies.
(e) Prior to October 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 2.00% of their annual average net
assets.
(f) Represents less than $0.01 per share.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
EXPENSE EXAMPLE
November 30, 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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs"
(in dollars), of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of June 1, 2015, through
November 30, 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
================================================================================
50 | USAA EMERGING MARKETS FUND
================================================================================
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do 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 JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 859.70 $7.21
Hypothetical
(5% return before expenses) 1,000.00 1,017.25 7.82
INSTITUTIONAL SHARES
Actual 1,000.00 860.50 6.05
Hypothetical
(5% return before expenses) 1,000.00 1,018.50 6.56
ADVISER SHARES
Actual 1,000.00 858.50 8.13
Hypothetical
(5% return before expenses) 1,000.00 1,016.25 8.82
*Expenses are equal to the annualized expense ratio of 1.55% for Fund Shares,
1.30% for Institutional Shares, and 1.75% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/366 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of (14.03)% for Fund Shares, (13.95)% for Institutional
Shares, and (14.15)% for Adviser Shares for the six-month period of June 1,
2015, through November 30, 2015.
================================================================================
EXPENSE EXAMPLE | 51
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210)
531-8722; (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) or (210) 531-8722;
(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 PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE ON USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
25559-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GOVERNMENT SECURITIES FUND]
============================================================
SEMIANNUAL REPORT
USAA GOVERNMENT SECURITIES FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2015
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 15
Notes to Portfolio of Investments 21
Financial Statements 23
Notes to Financial Statements 26
EXPENSE EXAMPLE 41
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)2016, USAA. All rights reserved.
200986-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PROVIDES INVESTORS A HIGH LEVEL
OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in government securities,
including U.S. Treasury bills, notes, and bonds; Treasury Inflation Protected
Securities (TIPS); mortgage-backed securities (MBS) backed by the Government
National Mortgage Association (Ginnie Mae), the Federal National Mortgage
Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation
(Freddie Mac); U.S. government agency collateralized mortgage obligations;
securities issued by U.S. government agencies and instrumentalities; and
repurchase agreements collateralized by such investments. The securities issued
by U.S. government agencies and instrumentalities are supported by the credit of
the issuing agency, instrumentality or corporation (which are neither issued nor
guaranteed by the U.S. Treasury), including but not limited to Fannie Mae,
Freddie Mac, the Agricultural Mortgage Corporation (Farmer Mac), Federal Farm
Credit Bank, Federal Home Loan Bank, Private Export Funding Corp (Pefco), and
the Small Business Administration. This 80% policy may be changed upon at least
60 days' written notice to shareholders. The Fund has a target average maturity
of 5-10 years.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF DONNA J. BAGGERLY] [PHOTO OF R. NEAL GRAVES]
DONNA J. BAGGERLY, CFA R. NEAL GRAVES, CFA, CPA
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The U.S. economy strengthened during the reporting period ended November 30,
2015, with gains in both employment and wage growth. Improvement in the
housing market, along with an increase in consumer spending, also
contributed to the improving market outlook. As a result, many market
participants believed the Federal Reserve (the Fed) would raise the federal
funds target interest rate, which had been anchored between 0% and 0.25%
since December 2008. Reflecting this widespread belief, shorter-term
interest rates increased considerably during the reporting period.
Longer-term interest rates, which generally are driven by inflation
expectations, remained relatively flat. In September 2015, Fed policymakers
delayed action as global market volatility increased amid worries about
global economic conditions. For the reporting period overall, the yield on a
10-year U.S. Treasury edged up from 2.12% on May 29, 2015 to 2.21% on
November 30, 2015. As interest rates increase, bond prices (which move in
the opposite direction of interest rates) declined.
Residential mortgage interest rates, which generally are tied to the
10-year U.S. Treasury yield, remained relatively unchanged during the
reporting period. The interest rate on a 15-year mortgage began the
reporting period at 3.08% and ended it at 3.18%. The interest rate on a
30-year mortgage started the period at 3.87% and finished it at 3.95%.
Because mortgage interest rates remained stable, homeowners continued to
find it less advantageous to refinance their mortgages, increasing extension
risk.
================================================================================
2 | USAA GOVERNMENT SECURITIES FUND
================================================================================
Extension risk is the risk that mortgage prepayments will decelerate,
causing the average life of a mortgage to lengthen--or extend--and become
more sensitive to upward interest rate movement. However, prepayments
increased among Ginnie Mae mortgages, many of which are insured by the
Federal Housing Administration (FHA). In early 2015, the FHA cut mortgage
insurance premiums and some homeowners refinanced during the reporting
period in order to obtain the lower fee. Consequently, Ginnie Mae
mortgage-backed securities (MBS) underperformed Freddie Mac and Fannie Mae
MBS.
o HOW DID THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2015, the Fund
Shares and Adviser Shares had a total return of -0.17% and -0.28%,
respectively. This compares to a total return of 0.30% for the Barclays U.S.
Aggregate Government Intermediate & Mortgage-Backed Securities Index and
0.06% for the Lipper Intermediate U.S. Government Funds Index. The
Institutional Shares commenced operations on August 7, 2015, and from that
time through November 30, 2015, had a total return of 0.49%.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary
management for the Fund's assets.
o HOW DID YOU MANAGE THE FUND DURING THE REPORTING PERIOD?
The Fund benefited from its investments in longer-duration securities, as
longer-term interest rates increased less than shorter-term interest rates
during the reporting period. In particular, the Fund's holdings of longer-
duration commercial mortgage-backed securities (CMBS), collateralized
mortgage obligations, and U.S. Treasury securities enhanced the Fund's
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
results. At the same time, the Fund was hampered by investments in
shorter-duration securities, many of which had previously been purchased to
help reduce the portfolio's exposure to prepayment risk and extension risk.
Also during the reporting period, Fund performance was strengthened by
holdings of longer-term municipal securities, which benefited as spreads
(or yield differentials versus comparable duration U.S. Treasuries)
tightened. Investments in Ginnie Mae MBS dampened returns, though this was
offset somewhat by the income generated by holdings of Ginnie Mae mortgages
with higher coupon interest rates, which had been purchased by the Fund
many years ago. During the reporting period, we continued to diversify the
Fund, adding to its holdings of U.S. Treasuries and CMBS while reducing its
position in Ginnie Mae MBS.
Thank you for your investment in the Fund.
While the value of the USAA Government Securities Fund Shares,
Institutional Shares, and Adviser Shares are not guaranteed by the U.S.
government, the Fund endeavors to maintain low-to-moderate fluctuation of
share price.
Shares of the USAA Government Securities Fund are not individually backed
by the full faith and credit of the U.S. government. o Mortgage-backed
securities have prepayment, extension, credit, and interest rate risks.
Generally, when interest rates decline, prepayments accelerate beyond the
initial pricing assumptions and may cause the average life of the
securities to shorten. Also the market value may decline when interest
rates rise because prepayments decrease beyond the initial pricing
assumptions and may cause the average life of the securities to extend.
o As interest rates rise, existing bond prices generally fall; given the
historically low interest rate environment, risks associated with rising
interest rates may be heightened.
You will find a complete list of securities that the Fund owns on
pages 15-20.
================================================================================
4 | USAA GOVERNMENT SECURITIES FUND
================================================================================
INVESTMENT OVERVIEW
USAA GOVERNMENT SECURITIES FUND SHARES (FUND SHARES) (Ticker Symbol: USGNX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $426.2 Million $435.4 Million
Net Asset Value Per Share $9.91 $10.04
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-0.17% 1.07% 2.20% 4.10%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.94% 2.23% 3.96%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/15 EXPENSE RATIO AS OF 5/31/15***
--------------------------------------------------------------------------------
2.24% 0.51%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***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 October 1, 2015, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
NOVEMBER 30, 2015
-----------------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
-----------------------------------------------------------------------------------------
10 YEARS 4.10% = 3.70% + 0.40%
5 YEARS 2.20% = 2.87% + -0.67%
1 YEAR 1.07% = 2.37% + -1.30%
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.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE 10-YEAR PERIOD
ENDED NOVEMBER 30, 2015
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN SHARE
RETURN RETURN PRICE
11/30/2006 5.55% 5.02% 0.53%
11/30/2007 6.10% 4.95% 1.15%
11/30/2008 5.64% 4.71% 0.93%
11/30/2009 8.31% 4.32% 3.99%
11/30/2010 4.69% 3.80% 0.89%
11/30/2011 4.99% 3.62% 1.37%
11/30/2012 2.49% 2.97% -0.48%
11/30/2013 -1.20% 2.67% -3.87%
11/30/2014 3.77% 2.76% 1.01%
11/30/2015 1.07% 2.37% -1.30%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER
TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD.
HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN
SHARE PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
Dividend return is the net investment income dividends received over the period,
assuming reinvestment of all dividends. Share price change is the change in net
asset value over the period adjusted for realized capital gain distributions.
The 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.
================================================================================
6 | USAA GOVERNMENT SECURITIES FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA GOVERNMENT LIPPER INTERMEDIATE
SECURITIES FUND U.S. GOVERNMENT FUNDS
SHARES INDEX AVERAGE
11/30/06 4.81% 3.96%
11/30/07 4.66% 4.12%
11/30/08 4.53% 3.88%
11/30/09 4.01% 3.26%
11/30/10 3.68% 2.58%
11/30/11 3.48% 2.17%
11/30/12 2.96% 1.82%
11/30/13 2.78% 1.52%
11/30/14 2.69% 1.71%
11/30/15 2.40% 1.37%
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 11/30/06 through 11/30/15.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. AGGREGATE
LIPPER INTERMEDIATE GOVERNMENT INTERMEDIATE USAA GOVERNMENT
U.S. GOVERNMENT & MORTGAGE-BACKED SECURITIES FUND
FUNDS INDEX SECURITIES INDEX SHARES
11/30/05 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,077.55 10,080.82 10,118.17
01/31/06 10,082.33 10,098.43 10,147.20
02/28/06 10,101.35 10,124.33 10,157.41
03/31/06 10,029.28 10,063.72 10,106.55
04/30/06 10,017.96 10,068.38 10,060.88
05/31/06 10,016.26 10,059.06 10,039.29
06/30/06 10,032.25 10,078.23 10,038.00
07/31/06 10,144.59 10,204.63 10,172.75
08/31/06 10,271.93 10,337.25 10,310.75
09/30/06 10,349.40 10,410.82 10,384.90
10/31/06 10,404.67 10,474.02 10,456.55
11/30/06 10,506.94 10,577.63 10,552.20
12/31/06 10,450.93 10,543.44 10,540.39
01/31/07 10,446.46 10,547.58 10,534.35
02/28/07 10,590.69 10,678.65 10,664.86
03/31/07 10,606.11 10,706.63 10,674.34
04/30/07 10,655.76 10,756.88 10,726.04
05/31/07 10,562.89 10,695.23 10,666.74
06/30/07 10,539.54 10,676.06 10,609.36
07/31/07 10,659.87 10,773.45 10,685.24
08/31/07 10,799.90 10,910.74 10,812.13
09/30/07 10,877.80 10,990.71 10,874.11
10/31/07 10,957.86 11,083.01 10,975.02
11/30/07 11,226.71 11,306.96 11,195.49
12/31/07 11,219.36 11,340.62 11,203.58
01/31/08 11,484.19 11,573.59 11,397.48
02/29/08 11,542.17 11,625.96 11,455.93
03/31/08 11,565.84 11,693.85 11,496.89
04/30/08 11,493.58 11,636.87 11,481.79
05/31/08 11,365.78 11,557.78 11,408.87
06/30/08 11,397.12 11,572.01 11,415.34
07/31/08 11,381.17 11,587.38 11,411.40
08/31/08 11,482.00 11,709.41 11,516.10
09/30/08 11,473.92 11,784.95 11,590.64
10/31/08 11,354.15 11,713.94 11,444.98
11/30/08 11,795.71 12,149.98 11,823.93
12/31/08 12,132.28 12,383.06 12,014.64
01/31/09 11,997.34 12,330.72 12,021.28
02/28/09 12,133.65 12,362.16 12,101.17
03/31/09 12,218.47 12,535.50 12,278.72
04/30/09 12,117.14 12,515.36 12,296.37
05/31/09 12,210.47 12,510.41 12,325.24
06/30/09 12,112.04 12,503.78 12,329.76
07/31/09 12,168.82 12,584.67 12,447.77
08/31/09 12,468.69 12,666.86 12,534.55
09/30/09 12,534.37 12,754.74 12,599.33
10/31/09 12,638.56 12,817.73 12,676.89
11/30/09 12,752.96 12,978.63 12,806.87
12/31/09 12,526.26 12,770.30 12,672.19
01/31/10 12,730.79 12,938.42 12,807.08
02/28/10 12,754.27 12,976.54 12,832.40
03/31/10 12,759.73 12,941.33 12,845.37
04/30/10 12,907.53 13,026.24 12,927.79
05/31/10 13,040.18 13,176.41 13,082.87
06/30/10 13,253.55 13,337.46 13,201.45
07/31/10 13,369.58 13,444.20 13,322.26
08/31/10 13,573.95 13,529.82 13,324.10
09/30/10 13,599.57 13,523.75 13,287.94
10/31/10 13,641.06 13,613.12 13,419.49
11/30/10 13,553.41 13,559.63 13,407.41
12/31/10 13,344.09 13,428.65 13,359.06
01/31/11 13,350.32 13,452.02 13,370.53
02/28/11 13,351.87 13,452.19 13,412.47
03/31/11 13,359.25 13,467.35 13,427.21
04/30/11 13,513.34 13,607.47 13,575.77
05/31/11 13,700.35 13,759.03 13,722.06
06/30/11 13,665.34 13,760.56 13,736.43
07/31/11 13,877.54 13,914.00 13,842.77
08/31/11 14,156.06 14,113.33 14,002.97
09/30/11 14,288.60 14,143.36 14,003.53
10/31/11 14,237.54 14,130.48 14,025.03
11/30/11 14,276.14 14,166.98 14,075.94
12/31/11 14,404.78 14,253.65 14,155.12
01/31/12 14,504.13 14,319.62 14,174.83
02/29/12 14,453.49 14,293.75 14,170.10
03/31/12 14,368.31 14,263.12 14,190.99
04/30/12 14,544.65 14,375.14 14,266.39
05/31/12 14,709.18 14,447.71 14,304.44
06/30/12 14,687.59 14,445.41 14,313.80
07/31/12 14,829.25 14,544.90 14,416.52
08/31/12 14,844.57 14,556.11 14,427.36
09/30/12 14,847.49 14,568.81 14,457.46
10/31/12 14,830.48 14,545.15 14,421.78
11/30/12 14,878.62 14,562.90 14,429.28
12/31/12 14,834.09 14,557.64 14,430.86
01/31/13 14,745.69 14,494.37 14,377.87
02/28/13 14,816.47 14,549.18 14,424.44
03/31/13 14,822.79 14,566.13 14,428.99
04/30/13 14,919.77 14,636.16 14,475.50
05/31/13 14,683.64 14,454.18 14,253.29
06/30/13 14,475.98 14,327.88 14,130.05
07/31/13 14,469.04 14,331.31 14,077.90
08/31/13 14,391.12 14,277.64 14,054.04
09/30/13 14,521.79 14,425.57 14,186.89
10/31/13 14,594.98 14,499.49 14,262.97
11/30/13 14,562.11 14,455.35 14,254.48
12/31/13 14,446.89 14,365.28 14,187.12
01/31/14 14,637.35 14,531.95 14,363.16
02/28/14 14,677.46 14,571.22 14,425.59
03/31/14 14,635.49 14,518.81 14,372.00
04/30/14 14,719.27 14,608.69 14,462.31
05/31/14 14,831.53 14,741.61 14,567.56
06/30/14 14,832.94 14,749.27 14,585.15
07/31/14 14,798.40 14,689.15 14,529.45
08/31/14 14,898.57 14,800.99 14,648.39
09/30/14 14,849.61 14,762.78 14,622.18
10/31/14 14,946.22 14,884.37 14,713.73
11/30/14 15,037.95 14,969.67 14,788.92
12/31/14 15,036.30 14,959.24 14,775.49
01/31/15 15,319.05 15,146.43 14,924.13
02/28/15 15,163.34 15,064.32 14,896.02
03/31/15 15,244.16 15,133.01 14,971.77
04/30/15 15,216.03 15,128.41 14,957.44
05/31/15 15,188.31 15,131.02 14,972.45
06/30/15 15,077.88 15,046.52 14,898.47
07/31/15 15,174.93 15,122.57 14,927.31
08/31/15 15,167.58 15,132.92 14,926.14
09/30/15 15,274.97 15,234.66 15,013.93
10/31/15 15,241.94 15,212.88 14,981.55
11/30/15 15,197.65 15,176.25 14,947.53
[END CHART]
Data from 11/30/05 through 11/30/15.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Shares to the following benchmarks:
o The unmanaged Lipper Intermediate U.S. Government Funds Index is considered
representative of intermediate U.S. government funds.
o The unmanaged Barclays U.S. Aggregate Government Intermediate &
Mortgage-Backed Securities Index consists of intermediate U.S. Treasury and
Agency unsecured notes and securities backed by pools of mortgages issued
by U.S. Government Agencies, GNMA, Fannie Mae, or Freddie Mac.
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, except
that the Lipper Intermediate U.S. Government Funds Index reflects the fees and
expenses of the underlying funds included in the index.
================================================================================
8 | USAA GOVERNMENT SECURITIES FUND
================================================================================
USAA GOVERNMENT SECURITIES FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)*
(Ticker Symbol: UIGSX)
--------------------------------------------------------------------------------
11/30/15
--------------------------------------------------------------------------------
Net Assets (in Millions) $103.2 Million
Net Asset Value Per Share $9.92
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 11/30/15
--------------------------------------------------------------------------------
SINCE INCEPTION 8/07/15**
0.49%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/15
--------------------------------------------------------------------------------
SINCE INCEPTION 8/07/15**
0.19%
--------------------------------------------------------------------------------
30-DAY SEC YIELD*** AS OF 11/30/15
--------------------------------------------------------------------------------
UNSUBSIDIZED 2.07% SUBSIDIZED 2.31%
--------------------------------------------------------------------------------
EXPENSE RATIOS****
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.69% AFTER REIMBURSEMENT 0.45%
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.
*The Institutional Shares commenced operations on August 7, 2015.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***Calculated as prescribed by the Securities and Exchange Commission.
****The expense ratios are reported in the Fund's prospectus dated October 1,
2015, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through October 1, 2016, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the Institutional Shares (exclusive of
commission recapture, expense offset arrangements, acquired fund fees and
expenses, and extraordinary expenses) do not exceed an annual rate of 0.45% of
the Institutional Shares' average net assets. This reimbursement arrangement may
not be changed or terminated during this time period without approval of the
Fund's Board of Trustees and may be changed or terminated by the Manager at any
time after October 1, 2016. If the total annual operating expense ratio of the
Institutional Shares is lower than 0.45%, the Institutional Shares will operate
at the lower expense ratio. These estimated expense ratios may differ from the
expense ratios disclosed in the Financial Highlights, which excludes acquired
fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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).
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA GOVERNMENT BARCLAYS U.S. AGGREGATE
SECURITIES FUND GOVERNMENT LIPPER INTERMEDIATE
INSTITUTIONAL INTERMEDIATE & MORTGAGE- U.S. GOVERNMENT
SHARES BACKED SECURITIES INDEX FUNDS INDEX
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 10,023.74 10,006.84 9,995.16
09/30/15 10,083.47 10,074.12 10,065.92
10/31/15 10,060.97 10,059.71 10,044.16
11/30/15 10,048.84 10,035.49 10,014.97
[END CHART]
Data from 7/31/15 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Institutional Shares to the Fund's benchmarks
listed above (see page 8 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Intermediate U.S. Government Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the Lipper Intermediate U.S. Government Funds Index and
Barclays U.S. Aggregate Government Intermediate & Mortgage-Backed Securities
Index is calculated from the end of the month, July 31, 2015, while the
inception date of the Institutional Shares is August 7, 2015. There may be a
slight variation of performance numbers because of this difference.
================================================================================
10 | USAA GOVERNMENT SECURITIES FUND
================================================================================
USAA GOVERNMENT SECURITIES FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAGNX)
---------------------------------------------------------------------------------------------------
11/30/15 5/31/15
---------------------------------------------------------------------------------------------------
Net Assets (in Millions) $5.1 Million $5.1 Million
Net Asset Value Per Share $9.91 $10.04
---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
---------------------------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-0.28% 0.94% 1.80% 1.79%
---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
---------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
0.70% 1.83% 1.70%
---------------------------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/15
---------------------------------------------------------------------------------------------------
UNSUBSIDIZED 1.71% SUBSIDIZED 2.01%
---------------------------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15***
---------------------------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.05% AFTER REIMBURSEMENT 0.75%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Adviser Shares (exclusive of commission recapture,
expense offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 0.75% of the Adviser Shares' average
net assets. This reimbursement arrangement may not be changed or terminated
during this time period without approval of the Fund's Board of Trustees and may
be changed or terminated by the Manager at any time after October 1, 2016. If
the total annual operating expense ratio of the Adviser Shares is lower than
0.75%, the Adviser Shares will operate at the lower expense ratio. These expense
ratios may differ from the expense ratios disclosed in the Financial Highlights,
which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON* o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON*]
LIPPER
USAA GOVERNMENT INTERMEDIATE
SECURITIES U.S. GOVERNMENT
FUND ADVISER SHARES FUNDS INDEX AVERAGE
11/30/11 3.00% 2.17%
11/30/12 2.49% 1.82%
11/30/13 2.30% 1.52%
11/30/14 2.38% 1.71%
11/30/15 2.16% 1.37%
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 11/30/11 through 11/30/15.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
*Adviser Shares commenced operations on August 1, 2010.
================================================================================
12 | USAA GOVERNMENT SECURITIES FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. AGGREGATE
GOVERNMENT
LIPPER INTERMEDIATE INTERMEDIATE & USAA GOVERNMENT
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES FUND
FUNDS INDEX SECURITIES INDEX ADVISER SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,152.86 10,063.69 10,006.39
09/30/10 10,172.02 10,059.17 9,975.26
10/31/10 10,203.06 10,125.65 10,060.12
11/30/10 10,137.50 10,085.86 10,056.88
12/31/10 9,980.93 9,988.44 10,006.51
01/31/11 9,985.59 10,005.82 10,011.35
02/28/11 9,986.75 10,005.94 10,049.04
03/31/11 9,992.27 10,017.22 10,056.04
04/30/11 10,107.52 10,121.45 10,153.21
05/31/11 10,247.41 10,234.18 10,258.35
06/30/11 10,221.22 10,235.32 10,274.98
07/31/11 10,379.94 10,349.44 10,350.32
08/31/11 10,588.26 10,497.72 10,465.83
09/30/11 10,687.40 10,520.05 10,451.75
10/31/11 10,649.21 10,510.47 10,473.71
11/30/11 10,678.07 10,537.62 10,507.48
12/31/11 10,774.29 10,602.09 10,561.89
01/31/12 10,848.61 10,651.16 10,562.30
02/29/12 10,810.73 10,631.91 10,564.77
03/31/12 10,747.02 10,609.13 10,575.77
04/30/12 10,878.91 10,692.45 10,627.78
05/31/12 11,001.98 10,746.43 10,652.08
06/30/12 10,985.83 10,744.72 10,644.34
07/31/12 11,091.78 10,818.72 10,716.39
08/31/12 11,103.25 10,827.06 10,729.75
09/30/12 11,105.42 10,836.50 10,748.14
10/31/12 11,092.71 10,818.90 10,706.73
11/30/12 11,128.71 10,832.11 10,707.96
12/31/12 11,095.41 10,828.19 10,715.26
01/31/13 11,029.28 10,781.13 10,671.59
02/28/13 11,082.23 10,821.91 10,702.24
03/31/13 11,086.95 10,834.51 10,690.88
04/30/13 11,159.49 10,886.60 10,721.07
05/31/13 10,982.88 10,751.25 10,551.70
06/30/13 10,827.55 10,657.30 10,466.68
07/31/13 10,822.36 10,659.85 10,423.85
08/31/13 10,764.08 10,619.93 10,402.02
09/30/13 10,861.81 10,729.96 10,496.66
10/31/13 10,916.56 10,784.94 10,549.12
11/30/13 10,891.98 10,752.11 10,539.03
12/31/13 10,805.79 10,685.12 10,474.85
01/31/14 10,948.25 10,809.09 10,611.95
02/28/14 10,978.25 10,838.30 10,656.61
03/31/14 10,946.86 10,799.32 10,605.06
04/30/14 11,009.52 10,866.17 10,670.78
05/31/14 11,093.49 10,965.04 10,745.36
06/30/14 11,094.55 10,970.74 10,754.16
07/31/14 11,068.71 10,926.02 10,720.20
08/31/14 11,143.63 11,009.21 10,793.59
09/30/14 11,107.01 10,980.78 10,781.59
10/31/14 11,179.27 11,071.22 10,847.04
11/30/14 11,247.89 11,134.67 10,889.61
12/31/14 11,246.66 11,126.91 10,877.63
01/31/15 11,458.14 11,266.15 10,985.06
02/28/15 11,341.68 11,205.08 10,973.02
03/31/15 11,402.13 11,256.17 11,026.18
04/30/15 11,381.09 11,252.74 11,013.06
05/31/15 11,360.36 11,254.69 11,021.89
06/30/15 11,277.76 11,191.84 10,954.43
07/31/15 11,350.35 11,248.40 10,973.69
08/31/15 11,344.85 11,256.10 10,981.89
09/30/15 11,425.17 11,331.77 11,044.49
10/31/15 11,400.47 11,315.57 11,018.51
11/30/15 11,367.34 11,288.33 10,991.43
[END CHART]
Data from 7/31/10 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Adviser Shares to the Fund's benchmarks listed
above (see page 8 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Intermediate U.S. Government Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the Lipper Intermediate U.S. Government Funds Index and
Barclays U.S. Aggregate Government Intermediate & Mortgage-Backed Securities
Index is calculated from the end of the month, July 31, 2010, while the
inception date of the Adviser Shares is August 1, 2010. There may be a slight
variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
30-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 39.6%
COLLATERIZED MORTGAGE OBLIGATIONS 6.5%
COMMERCIAL MORTGAGE-BACKED SECURITIES 26.4%
U.S. TREASURY SECURITIES-NOTES 15.0%
MONEY MARKET INSTRUMENTS 1.3%
MUNICIPAL BONDS 4.2%
ASSET-BACKED SECURITIES 2.4%
15-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 4.4%
[END CHART]
*Combined in the Portfolio of Investments under Mortgage-Backed Pass-Through
Securities, Single-Family.
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 15-20.
================================================================================
14 | USAA GOVERNMENT SECURITIES FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (2.4%)
ASSET-BACKED FINANCING (2.4%)
$ 3,550 Navient Student Loan Trust 0.73%(a) 6/25/2031 $ 3,391
5,227 Nelnet Student Loan Trust 0.58(a) 6/25/2041 4,743
5,000 SLM Student Loan Trust 0.87(a) 6/26/2028 4,814
----------
12,948
----------
Total Asset-Backed Securities (cost: $13,037) 12,948
----------
U.S. GOVERNMENT AGENCY ISSUES (76.9%)(b)
MORTGAGE-BACKED PASS-THROUGH SECURITIES, SINGLE-FAMILY (44.0%)
5 Fannie Mae(+) 6.50 10/01/2016 5
46 Fannie Mae(+) 6.50 12/01/2016 46
26 Fannie Mae(+) 6.00 2/01/2017 27
3,041 Fannie Mae(+) 3.50 5/01/2021 3,198
4,653 Fannie Mae(+) 3.00 2/01/2027 4,836
7,767 Fannie Mae(+) 3.00 2/01/2027 8,073
1,399 Fannie Mae(+) 5.00 12/01/2035 1,544
579 Fannie Mae(+) 5.50 11/01/2037 648
820 Fannie Mae(+) 6.00 5/01/2038 929
3,502 Fannie Mae(+) 4.00 8/01/2039 3,718
5,669 Fannie Mae(+) 3.50 1/01/2042 5,886
9,217 Fannie Mae(+) 3.50 5/01/2042 9,570
225 Freddie Mac(+) 5.00 1/01/2021 238
1,127 Freddie Mac(+) 5.50 12/01/2035 1,273
2,942 Freddie Mac(+) 4.00 9/01/2040 3,125
8,878 Freddie Mac(+) 3.50 5/01/2042 9,217
7,016 Freddie Mac(+) 3.00 6/01/2042 7,056
136 Government National Mortgage Assn. I 6.00 12/15/2016 138
412 Government National Mortgage Assn. I 5.50 12/15/2018 428
15 Government National Mortgage Assn. I 8.50 6/15/2021 16
18 Government National Mortgage Assn. I 9.00 7/15/2021 18
7 Government National Mortgage Assn. I 8.50 7/15/2022 7
603 Government National Mortgage Assn. I 6.00 8/15/2022 647
51 Government National Mortgage Assn. I 8.00 6/15/2023 56
1,207 Government National Mortgage Assn. I 4.50 5/15/2024 1,288
1,245 Government National Mortgage Assn. I 4.50 9/15/2024 1,335
1,451 Government National Mortgage Assn. I 4.50 9/15/2024 1,523
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 927 Government National Mortgage Assn. I 4.50% 10/15/2024 $ 993
1,136 Government National Mortgage Assn. I 4.50 10/15/2024 1,218
58 Government National Mortgage Assn. I 7.00 4/15/2027 59
231 Government National Mortgage Assn. I 7.00 5/15/2027 272
132 Government National Mortgage Assn. I 8.00 5/15/2027 144
117 Government National Mortgage Assn. I 7.50 2/15/2028 138
502 Government National Mortgage Assn. I 6.00 4/15/2028 581
137 Government National Mortgage Assn. I 6.50 5/15/2028 157
83 Government National Mortgage Assn. I 6.50 5/15/2028 96
10 Government National Mortgage Assn. I 6.75 5/15/2028 12
50 Government National Mortgage Assn. I 7.00 6/15/2028 51
125 Government National Mortgage Assn. I 6.50 7/15/2028 143
16 Government National Mortgage Assn. I 7.00 7/15/2028 17
61 Government National Mortgage Assn. I 7.00 8/15/2028 67
45 Government National Mortgage Assn. I 7.00 8/15/2028 51
55 Government National Mortgage Assn. I 6.50 9/15/2028 63
95 Government National Mortgage Assn. I 7.00 9/15/2028 105
115 Government National Mortgage Assn. I 6.00 11/15/2028 131
215 Government National Mortgage Assn. I 6.50 11/15/2028 247
16 Government National Mortgage Assn. I 6.50 1/15/2029 19
34 Government National Mortgage Assn. I 6.50 1/15/2029 39
193 Government National Mortgage Assn. I 6.00 2/15/2029 220
27 Government National Mortgage Assn. I 7.50 3/15/2029 33
49 Government National Mortgage Assn. I 7.50 4/15/2029 54
426 Government National Mortgage Assn. I 7.00 5/15/2029 484
484 Government National Mortgage Assn. I 7.00 6/15/2029 551
264 Government National Mortgage Assn. I 6.00 7/15/2029 306
22 Government National Mortgage Assn. I 7.50 10/15/2029 23
123 Government National Mortgage Assn. I 7.50 10/15/2029 143
84 Government National Mortgage Assn. I 8.00 7/15/2030 89
26 Government National Mortgage Assn. I 8.00 9/15/2030 30
23 Government National Mortgage Assn. I 7.50 12/15/2030 27
31 Government National Mortgage Assn. I 7.50 1/15/2031 36
353 Government National Mortgage Assn. I 6.50 3/15/2031 405
45 Government National Mortgage Assn. I 7.00 8/15/2031 46
109 Government National Mortgage Assn. I 7.00 9/15/2031 129
410 Government National Mortgage Assn. I 6.50 10/15/2031 470
122 Government National Mortgage Assn. I 7.00 10/15/2031 139
38 Government National Mortgage Assn. I 7.50 11/15/2031 43
280 Government National Mortgage Assn. I 6.50 1/15/2032 321
384 Government National Mortgage Assn. I 6.00 5/15/2032 442
48 Government National Mortgage Assn. I 7.00 6/15/2032 53
216 Government National Mortgage Assn. I 7.00 7/15/2032 251
================================================================================
16 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 499 Government National Mortgage Assn. I 6.50% 8/15/2032 $ 598
1,369 Government National Mortgage Assn. I 6.50 9/15/2032 1,588
1,271 Government National Mortgage Assn. I 6.00 1/15/2033 1,471
477 Government National Mortgage Assn. I 6.00 2/15/2033 555
410 Government National Mortgage Assn. I 6.00 7/15/2033 476
411 Government National Mortgage Assn. I 6.00 9/15/2033 478
3,924 Government National Mortgage Assn. I 5.50 10/15/2033 4,480
1,628 Government National Mortgage Assn. I 5.50 12/15/2033 1,828
833 Government National Mortgage Assn. I 5.50 7/15/2034 947
1,982 Government National Mortgage Assn. I 5.50 10/15/2035 2,231
521 Government National Mortgage Assn. I 6.00 3/15/2037 605
407 Government National Mortgage Assn. I 6.00 9/15/2037 471
1,276 Government National Mortgage Assn. I 5.50 3/15/2038 1,430
2,121 Government National Mortgage Assn. I 5.50 4/15/2038 2,408
819 Government National Mortgage Assn. I 6.00 5/15/2038 925
883 Government National Mortgage Assn. I 6.00 5/15/2038 1,020
583 Government National Mortgage Assn. I 6.00 9/15/2038 663
847 Government National Mortgage Assn. I 6.00 10/15/2038 965
1,032 Government National Mortgage Assn. I 6.00 12/15/2038 1,175
733 Government National Mortgage Assn. I 5.00 2/15/2039 805
4,967 Government National Mortgage Assn. I 5.50 6/15/2039 5,569
7,048 Government National Mortgage Assn. I 4.50 9/15/2039 7,686
4,711 Government National Mortgage Assn. I 4.50 11/15/2039 5,156
6,637 Government National Mortgage Assn. I 4.50 12/15/2039 7,260
20,616 Government National Mortgage Assn. I 4.50 2/15/2040 22,547
4,420 Government National Mortgage Assn. I 4.50 3/15/2040 4,788
4,611 Government National Mortgage Assn. I 4.50 6/15/2040 4,986
2,393 Government National Mortgage Assn. I 4.00 7/15/2040 2,545
4,951 Government National Mortgage Assn. I 4.50 7/15/2040 5,345
2,464 Government National Mortgage Assn. I 4.00 8/15/2040 2,623
5,698 Government National Mortgage Assn. I 4.00 9/15/2040 6,060
5,037 Government National Mortgage Assn. I 4.50 1/15/2041 5,454
17 Government National Mortgage Assn. II 8.00 12/20/2022 18
2,919 Government National Mortgage Assn. II 4.50 4/20/2024 3,124
373 Government National Mortgage Assn. II 8.00 8/20/2030 459
388 Government National Mortgage Assn. II 7.00 9/20/2030 471
246 Government National Mortgage Assn. II 6.00 3/20/2031 285
74 Government National Mortgage Assn. II 7.50 4/20/2031 91
130 Government National Mortgage Assn. II 6.50 5/20/2031 154
100 Government National Mortgage Assn. II 6.50 7/20/2031 119
266 Government National Mortgage Assn. II 6.50 8/20/2031 312
411 Government National Mortgage Assn. II 6.50 4/20/2032 482
384 Government National Mortgage Assn. II 6.50 6/20/2032 445
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 613 Government National Mortgage Assn. II 6.00% 8/20/2032 $ 702
533 Government National Mortgage Assn. II 6.00 9/20/2032 608
519 Government National Mortgage Assn. II 5.50 4/20/2033 585
1,860 Government National Mortgage Assn. II 5.00 5/20/2033 2,062
2,341 Government National Mortgage Assn. II 5.00 7/20/2033 2,599
537 Government National Mortgage Assn. II 6.00 10/20/2033 604
471 Government National Mortgage Assn. II 6.00 12/20/2033 521
1,743 Government National Mortgage Assn. II 6.00 2/20/2034 1,995
1,745 Government National Mortgage Assn. II 5.50 3/20/2034 1,967
1,718 Government National Mortgage Assn. II 6.00 3/20/2034 1,992
1,376 Government National Mortgage Assn. II 5.00 6/20/2034 1,525
1,195 Government National Mortgage Assn. II 6.50 8/20/2034 1,403
1,071 Government National Mortgage Assn. II 6.00 9/20/2034 1,220
3,021 Government National Mortgage Assn. II 6.00 10/20/2034 3,459
359 Government National Mortgage Assn. II 6.00 11/20/2034 401
6,326 Government National Mortgage Assn. II 5.50 2/20/2035 7,114
5,463 Government National Mortgage Assn. II 5.50 4/20/2035 6,152
2,681 Government National Mortgage Assn. II 5.50 7/20/2035 3,016
3,495 Government National Mortgage Assn. II 5.00 9/20/2035 3,875
1,124 Government National Mortgage Assn. II 6.00 5/20/2036 1,266
1,339 Government National Mortgage Assn. II 5.50 1/20/2037 1,501
1,064 Government National Mortgage Assn. II 5.00 2/20/2037 1,160
4,298 Government National Mortgage Assn. II 4.00 11/20/2040 4,606
----------
235,174
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (6.5%)
7,458 Fannie Mae(+) 1.50 7/25/2027 7,173
3,188 Fannie Mae(+) 1.38 9/25/2027 3,083
3,024 Fannie Mae(+) 1.50 9/25/2027 2,925
2,955 Fannie Mae(+) 1.50 9/25/2027 2,842
3,121 Fannie Mae(+) 1.50 10/25/2027 2,997
667 Fannie Mae(+) 5.00 11/25/2032 679
2,566 Fannie Mae(+) 0.52(a) 4/25/2035 2,572
2,866 Fannie Mae(+) 0.52(a) 8/25/2037 2,877
4,536 Freddie Mac(+) 2.00 9/15/2026 4,569
1,842 Freddie Mac(+) 0.50(a) 3/15/2036 1,842
3,316 Freddie Mac(+) 0.75(a) 10/15/2041 3,359
----------
34,918
----------
COMMERCIAL MORTGAGE-BACKED SECURITIES (26.4%)
8,622 Fannie Mae(+) 2.01 7/01/2019 8,713
2,074 Fannie Mae(+) 2.05 7/01/2019 2,099
3,000 Fannie Mae(+) 1.65 9/25/2019 3,010
7,867 Fannie Mae(+) 1.50 1/01/2020 7,757
================================================================================
18 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,327 Fannie Mae(+) 1.58% 1/01/2020 $ 10,215
10,000 Fannie Mae(+) 2.63 9/01/2021 10,186
22,170 Fannie Mae(+) 2.42 11/01/2022 22,212
8,265 Fannie Mae(+) 2.50 4/01/2023 8,311
2,151 Fannie Mae(+) 2.54 5/01/2023 2,146
2,356 Fannie Mae(+) 2.71 6/25/2025 2,350
8,500 Freddie Mac(+) 2.22 12/25/2018 8,622
4,422 Freddie Mac(+) 1.69 4/25/2022 4,425
4,000 Freddie Mac(+) 2.72 6/25/2022 4,086
3,000 Freddie Mac(+) 2.36 7/25/2022 3,005
10,000 Freddie Mac(+) 2.31 8/25/2022 9,982
5,000 Freddie Mac(+) 2.51 11/25/2022 5,029
5,000 Freddie Mac(+) 2.64 1/25/2023 5,069
3,000 Freddie Mac(+) 3.32 2/25/2023 3,171
3,000 Freddie Mac(+) 3.39 3/25/2024 3,176
3,000 Freddie Mac(+) 3.02 1/25/2025 3,064
10,000 Freddie Mac(+) 3.28 6/25/2025 10,369
4,000 Freddie Mac(+) 3.01 7/25/2025 4,071
----------
141,068
----------
Total U.S. Government Agency Issues (cost: $395,669) 411,160
----------
U.S. TREASURY SECURITIES (15.0%)
NOTES (15.0%)
8,000 0.50%, 6/30/2016 8,002
3,000 0.75%, 1/15/2017 3,000
7,500 0.88%, 1/31/2017 7,510
10,000 1.88%, 8/31/2017 10,172
13,000 0.63%, 9/30/2017 12,936
5,000 0.75%, 10/31/2017 4,983
7,000 0.88%, 1/31/2018 6,979
10,000 1.00%, 9/15/2018 9,948
3,000 2.00%, 2/15/2022 3,019
5,000 2.25%, 11/15/2024 5,024
4,000 2.00%, 2/15/2025 3,929
4,500 2.13%, 5/15/2025 4,462
----------
79,964
----------
Total U.S. Treasury Securities (cost: $80,227) 79,964
----------
MUNICIPAL BONDS (4.2%)
AIRPORT/PORT (1.0%)
5,000 Port Auth. of New York & New Jersey 2.53 10/15/2020 5,057
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
GENERAL OBLIGATION (3.2%)
$ 5,000 State of California 1.75% 11/01/2017 $ 5,067
5,000 State of Connecticut 2.92 8/01/2023 5,050
3,000 State of Texas 2.83 10/01/2025 2,967
4,000 State of Texas 3.01 10/01/2026 3,986
--------
17,070
--------
Total Municipal Bonds (cost: $22,017) 22,127
--------
MONEY MARKET INSTRUMENTS (1.3%)
REPURCHASE AGREEMENTS (1.3%)
7,186 Credit Agricole Corp. Inv. Bank, 0.11%, acquired
11/30/2015 and due on 12/01/2015 at $7,186
(collateralized by $3,810 of Fannie Mae(+),(b),
2.43% - 2.62%, due 7/1/2033-10/1/2037; $255,685 of Freddie
Mac(+),(b), 1.60%-6.31%, due 4/1/2023-11/1/2042;
combined market value $7,330) (cost: $7,186) 7,186
--------
TOTAL INVESTMENTS (COST: $518,136) $533,385
========
-------------------------------------------------------------------------------------------------------------
($ 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
-------------------------------------------------------------------------------------------------------------
Asset-Backed Securities $ - $ 12,948 $- $ 12,948
U.S. Government Agency Issues - 411,160 - 411,160
U.S. Treasury Securities 79,964 - - 79,964
Municipal Bonds - 22,127 - 22,127
Money Market Instruments:
Repurchase Agreements - 7,186 - 7,186
-------------------------------------------------------------------------------------------------------------
Total $79,964 $453,421 $- $533,385
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2015, through November 30, 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.
================================================================================
20 | USAA GOVERNMENT SECURITIES FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
o CATEGORIES AND DEFINITIONS
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
issued in multiple classes (tranches), with specific adjustable or fixed
interest rates, varying maturities, and must be fully retired no later than
its final distribution date. The cash flow from the underlying mortgages is
used to pay off each tranche separately. CMOs are designed to provide
investors with more predictable maturities than regular mortgage securities
but such maturities can be difficult to predict because of the effect of
prepayments.
o SPECIFIC NOTES
(a) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2015.
(b) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by the
full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the credit
of the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship
and appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred stock.
While these arrangements are intended to ensure that Fannie Mae and
Freddie Mac can continue to meet their obligations, it is possible that
actions by the U.S. Treasury, FHFA, or others could adversely impact the
value of the Fund's investments in securities issued by Fannie Mae and
Freddie Mac.
See accompanying notes to financial statements.
================================================================================
22 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $518,136) $533,385
Receivables:
Capital shares sold 128
USAA Asset Management Company (Note 6C) 4
Interest 1,444
--------
Total assets 534,961
--------
LIABILITIES
Payables:
Capital shares redeemed 267
Dividends on capital shares 95
Accrued management fees 71
Accrued transfer agent's fees 11
Other accrued expenses and payables 77
--------
Total liabilities 521
--------
Net assets applicable to capital shares outstanding $534,440
========
NET ASSETS CONSIST OF:
Paid-in capital $520,755
Undistributed net investment income 5
Accumulated net realized loss on investments (1,569)
Net unrealized appreciation of investments 15,249
--------
Net assets applicable to capital shares outstanding $534,440
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $426,161/42,986 shares outstanding) $ 9.91
========
Institutional Shares (net assets of $103,226/10,411 shares outstanding) $ 9.92
========
Adviser Shares (net assets of $5,053/510 shares outstanding) $ 9.91
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 6,575
-------
EXPENSES
Management fees 396
Administration and servicing fees:
Fund Shares 322
Institutional Shares* 20
Adviser Shares 4
Transfer agent's fees:
Fund Shares 277
Institutional Shares* 20
Distribution and service fees (Note 6E):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 57
Institutional Shares* 5
Adviser Shares 1
Postage:
Fund Shares 17
Shareholder reporting fees:
Fund Shares 15
Trustees' fees 13
Registration fees:
Fund Shares 23
Institutional Shares* 12
Adviser Shares 12
Professional fees 46
Other 7
-------
Total expenses 1,253
Expenses reimbursed:
Institutional Shares* (2)
Adviser Shares (9)
-------
Net expenses 1,242
-------
NET INVESTMENT INCOME 5,333
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (26)
Change in net unrealized appreciation/(depreciation) (6,123)
-------
Net realized and unrealized loss (6,149)
-------
Decrease in net assets resulting from operations $ (816)
=======
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
24 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------
11/30/2015 5/31/2015
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,333 $ 11,248
Net realized gain (loss) on investments (26) 16
Change in net unrealized appreciation/(depreciation)
of investments (6,123) 1,177
-------------------------------------
Increase (decrease) in net assets resulting from operations (816) 12,441
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (4,888) (11,252)
Institutional Shares* (450) -
Adviser Shares (52) (115)
-------------------------------------
Distributions to shareholders (5,390) (11,367)
-------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (3,733) (17,328)
Institutional Shares* 103,840 -
Adviser Shares 2 (59)
-------------------------------------
Total net increase (decrease) in net assets from capital
share transactions 100,109 (17,387)
-------------------------------------
Net increase (decrease) in net assets 93,903 (16,313)
NET ASSETS
Beginning of period 440,537 456,850
-------------------------------------
End of period $534,440 $440,537
=====================================
Undistributed net investment income:
End of period $ 5 $ 62
=====================================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Government Securities Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide investors a high level of current income
consistent with preservation of principal.
The Fund consists of three classes of shares: Government Securities Fund Shares
(Fund Shares), Government Securities Fund Adviser Shares (Adviser Shares), and
effective August 7, 2015, a new share class designated Government Securities
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, distribution and service (12b-1) 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 all 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,
================================================================================
26 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services.
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), an affiliate of the Fund. 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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
prices or the last sales price to value a security when, in the
Service's judgment, these prices are readily available and are
representative of the security's market value. For many securities, such
prices are not readily available. The Service generally prices those
securities based on methods which 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.
2. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
3. Repurchase agreements are valued at cost.
4. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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 net asset value (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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
================================================================================
28 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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 indexes. Level 2 securities
include asset-backed securities, U.S. government agency issues, and
municipal bonds valued based on methods discussed in Note 1A1, and
repurchase agreements valued at cost, which approximates fair value.
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. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
E. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers pursuant to the terms of a
Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
ensure their value is equal to or in excess of the purchase price plus
accrued interest and are held by the Fund, either through its regular
custodian or through a special "tri-party" custodian that maintains
separate accounts for both the Fund and its counterparty, until maturity of
the repurchase agreement. Master Repurchase Agreements typically contain
netting provisions, which provide for the net settlement of all
transactions and collateral with the Fund through a single payment in the
event of default or termination. Repurchase agreements are subject to
credit risk, and the Fund's Manager monitors the creditworthiness of
sellers with which the Fund may enter into repurchase agreements.
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2015,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended November 30, 2015, there were no custodian and other bank
credits.
H. REDEMPTION FEES - Adviser Shares held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed
or exchanged shares. All redemption fees paid will be accounted for by
================================================================================
30 | USAA GOVERNMENT SECURITIES FUND
================================================================================
the Fund as an addition to paid in capital. For the six-month period ended
November 30, 2015, the Adviser Shares did not charge any redemption fees.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $1,000, which represents 0.6% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. 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.
As of May 31, 2015, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$140,671,000 and $40,245,000 respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $17,621,000 and $2,372,000, respectively, resulting in net unrealized
appreciation of $15,249,000.
================================================================================
32 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 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
NOVEMBER 30, 2015 MAY 31, 2015
-------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
FUND SHARES:
Shares sold 3,137 $ 31,247 5,553 $ 55,640
Shares issued from reinvested dividends 443 4,405 1,008 10,107
Shares redeemed (3,957) (39,385) (8,293) (83,075)
-------------------------------------------------------
Net decrease from capital
share transactions (377) $ (3,733) (1,732) $(17,328)
=======================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 10,369 $103,425 - $ -
Shares issued from reinvested dividends 42 415 - -
Shares redeemed - - - -
-------------------------------------------------------
Net increase from capital
share transactions 10,411 $103,840 - $ -
=======================================================
ADVISER SHARES:
Shares sold -* $ 1 13 $ 128
Shares issued from reinvested dividends -* 2 -* 5
Shares redeemed (-)* (1) (19)** (192)**
-------------------------------------------------------
Net increase (decrease) from
capital share transactions -* $ 2 (6) $ (59)
=======================================================
*Represents less than 500 shares.
**Net of redemption fees.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(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 the Fund's assets, subject
to the authority of and supervision by the Board. The Manager is authorized
to select (with approval of the Board and without shareholder approval) one
or more subadvisers to manage the actual day-to-day investment of a portion
of the Fund's assets. For the year ended May 31, 2015, the Fund had no
subadviser(s).
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 0.125% of its average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance over the performance
period to that of the Lipper Intermediate U.S. Government Funds Index. The
Lipper Intermediate U.S. Government Funds Index tracks the total return
performance of the 10 largest funds in the Lipper Intermediate U.S.
Government Funds category. For the Fund Shares and Adviser Shares, the
performance period consists of the current month plus the previous 35
months. The performance period for the Institutional Shares commenced on
August 7, 2015, and includes the performance of the Fund Shares for periods
prior to August 7, 2015. 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)
------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 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 are calculated over a rolling
36-month period.
================================================================================
34 | USAA GOVERNMENT SECURITIES 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 Intermediate U.S. Government Funds Index over that
period, even if the class had overall negative returns during the
performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $396,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $99,000, and less than $500, respectively. For the Fund Shares,
and Institutional Shares, the performance adjustments were 0.05% and less
than 0.01%, respectively. The Adviser Shares had no performance adjustment
during the six-month period ended November 30, 2015.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2015, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $322,000, $20,000, and $4,000, respectively.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Manager. For the six-month period ended November 30, 2015, the Fund
reimbursed the Manager $6,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Institutional Shares and Adviser
Shares to 0.45% and 0.75%, respectively, of its average net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and to reimburse the Institutional Shares and Adviser Shares
for all expenses in excess of that amount. This expense limitation
arrangement may not be changed or terminated through October 1, 2016,
without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. For the six-month period ended
November 30, 2015, the Fund incurred reimbursable expenses from the Manager
for the Institutional Shares and Adviser Shares of $2,000 and $9,000,
respectively, of which $4,000 was receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund Shares and Adviser Shares based on an
annual charge of $25.50 per shareholder account plus out-of-pocket
expenses. SAS pays a portion of these fees to certain intermediaries for
administration and servicing of accounts that are 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 November 30, 2015, the Fund Shares,
Institutional Shares and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $277,000, $20,000, and less than $500,
respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
================================================================================
36 | USAA GOVERNMENT SECURITIES FUND
================================================================================
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for
investment by their customers. The fee is accrued daily and paid monthly at
an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser
Shares are offered and sold without imposition of an initial sales charge
or a contingent deferred sales charge. For the six-month period ended
November 30, 2015, the Adviser Shares incurred distribution and service
(12b-1) fees of $6,000.
F. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no commissions or fees for this
service.
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA funds and
is one of 20 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 November 30, 2015, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
USAA Target Retirement Income 8.3
USAA Target Retirement 2020 7.6
USAA Target Retirement 2030 2.4
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 503,000 Institutional Shares and 487,000
Adviser Shares, which represents 4.8% of the Institutional Shares, 95.5% of the
Adviser Shares, and 1.8% of the Fund.
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 | 37
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.04 $ 10.02 $ 10.08 $ 10.40 $ 10.30 $ 10.19
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .25 .28 .29 .33 .38
Net realized and
unrealized gain (loss) (.13) .03 (.06) (.32) .10 .11
------------------------------------------------------------------------------
Total from investment
operations (.02) .28 .22 (.03) .43 .49
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.26) (.28) (.29) (.33) (.38)
------------------------------------------------------------------------------
Net asset value at
end of period $ 9.91 $ 10.04 $ 10.02 $ 10.08 $ 10.40 $ 10.30
==============================================================================
Total return (%)* (.17) 2.78 2.20 (.36) 4.24 4.89
Net assets at end
of period (000) $426,161 $435,421 $451,688 $553,495 $641,730 $604,893
Ratios to average
net assets:**
Expenses (%)(a) .53(b) .51 .47 .41 .41 .42
Net investment income (%) 2.25(b) 2.52 2.78 2.77 3.19 3.71
Portfolio turnover (%) 9 15 0 24 20 19
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$429,607,000.
(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 as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+)Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
NOVEMBER 30,
---------------
2015***
---------------
Net asset value at beginning of period $ 9.96
--------
Income (loss) from investment operations:
Net investment income .07
Net realized and unrealized loss (.04)
--------
Total from investment operations .03
--------
Less distributions from:
Net investment income (.07)
--------
Net asset value at end of period $ 9.92
========
Total return (%)* .49
Net assets at end of period (000) $103,226
Ratios to average net assets:**
Expenses (%)(a) .44
Expenses, excluding reimbursements (%)(a) .46
Net investment income (%)(a) 2.21
Portfolio turnover (%) 9
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$66,555,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
---------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011***
---------------------------------------------------------------------------------
Net asset value at
beginning of period $10.04 $10.01 $10.07 $10.40 $10.29 $10.30
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .22 .24 .24 .28 .27
Net realized and
unrealized gain (loss) (.13) .04 (.06) (.33) .11 (.01)
----------------------------------------------------------------------------
Total from investment
operations (.03) .26 .18 (.09) .39 .26
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.23) (.24) (.24) (.28) (.27)
Redemption fees added
to beneficial interests - .00(a) - - - -
----------------------------------------------------------------------------
Net asset value at
end of period $ 9.91 $10.04 $10.01 $10.07 $10.40 $10.29
============================================================================
Total return (%)* (.28) 2.58 1.83 (.94) 3.84 2.58
Net assets at end
of period (000) $5,053 $5,116 $5,162 $5,150 $5,099 $5,047
Ratios to average
net assets:**
Expenses (%)(c) .75(b) .80(d) .84 .90 .90 .90(b)
Expenses, excluding
reimbursements (%)(c) 1.09(b) 1.05 .84 1.06 1.15 1.39(b)
Net investment income (%) 2.03(b) 2.22 2.41 2.28 2.71 3.21(b)
Portfolio turnover (%) 9 15 0 24 20 19
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$5,074,000.
*** Adviser Shares commenced operations on August 1, 2010.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+)Represents less than 0.01% of average net assets.
(d) Prior to October 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 0.90% of their annual average net
assets.
================================================================================
40 | USAA GOVERNMENT SECURITIES FUND
================================================================================
EXPENSE EXAMPLE
November 30, 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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2015, through
November 30, 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
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do 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 JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 998.30 $2.65
Hypothetical
(5% return before expenses) 1,000.00 1,022.35 2.68
INSTITUTIONAL SHARES*
Actual 1,000.00 1,004.90 1.35
Hypothetical
(5% return before expenses) 1,000.00 1,013.95 1.36
ADVISER SHARES
Actual 1,000.00 997.20 3.74
Hypothetical
(5% return before expenses) 1,000.00 1,021.25 3.79
* Institutional Shares commenced operations on August 7, 2015.
**Expenses are equal to the annualized expense ratio of 0.53% for Fund
Shares, 0.44% for Institutional Shares, and 0.75% for Adviser Shares, which
are net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/366 days for
Fund Shares and Adviser Shares (to reflect the one-half-year period) or 112
days/366 days for Institutional Shares (to reflect the current period
beginning with the Institutional Shares' inception date). The Fund's actual
ending account values are based on its actual total returns of (0.17)% for
Fund Shares, 0.49% for Institutional Shares, and (0.28)% for Adviser Shares
for the six-month period of June 1, 2015, through November 30, 2015 for the
Fund Shares and Adviser Shares, and August 7, 2015, through November 30,
2015, for the Institutional Shares.
================================================================================
42 | USAA GOVERNMENT SECURITIES FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at usaa.com; and (iii) on the SEC's website at http://www.sec.gov. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23414-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may
also be subject to foreign taxes. Investments made in emerging market countries
may be particularly volatile. Economies of emerging market countries are
generally less diverse and mature than more developed countries and may have
less stable political systems. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers, and affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 10
Notes to Portfolio of Investments 35
Financial Statements 38
Notes to Financial Statements 41
EXPENSE EXAMPLE 52
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2016, USAA. All rights reserved.
200983-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GROWTH AND TAX STRATEGY FUND (THE FUND) IS AN ASSET ALLOCATION FUND
THAT SEEKS A CONSERVATIVE BALANCE FOR THE INVESTOR BETWEEN INCOME, THE MAJORITY
OF WHICH IS EXEMPT FROM FEDERAL INCOME TAX, AND THE POTENTIAL FOR LONG-TERM
GROWTH OF CAPITAL TO PRESERVE PURCHASING POWER.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
Using preset target ranges, the Fund's strategy is to invest a majority of its
assets in tax-exempt bonds and money market instruments and the remainder in
blue chip stocks. The Fund is managed with the goal of minimizing the impact of
federal income tax to shareholders.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company Northern Trust Investments, Inc.
JOHN C. BONNELL, CFA CHRISTOPHER A. FRONK, CFA
DALE R. HOFFMAN* JACOB C. WEAVER, CFA
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o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Longer-term municipal bonds generated positive returns during the reporting
period ended November 30, 2015, as investors sought higher-yielding
securities and continued to invest in municipal securities for their tax
advantage. Although longer-term interest rates increased, they remained low
by historical standards, encouraging state and local governments to issue
debt. Supply increased, though many of the new issues were in the form of
refinancing bonds (issued to replace higher-yielding bonds with debt issued
at lower interest rates). The new supply was met with strong demand.
Municipal bonds also performed well compared to many other asset classes,
which experienced significant volatility during the reporting period. The
market turbulence was driven by worries about global growth, fueled by
China's economic slowdown, and shifting expectations about a potential
short-term interest rate hike by the Federal Reserve (the Fed).
U.S. stocks ended the reporting period relatively unchanged. When the
reporting period began in June 2015, stock prices decreased in response to
a resurgence of the Greek debt crisis and conflicting signals from the Fed
about the direction of its monetary policy. Stocks rebounded in July 2015
as investors favored U.S. equities amid growing concern about global
economic conditions and a decline in China's A-share market. (The A-share
market is composed of China-based stocks denominated in the Chinese
renminbi.) In mid-August 2015, U.S. stocks fell as China's economy slowed
and commodities prices dropped, raising new worries about the health of the
global economy. The downturn persisted into
*Effective December 4, 2015 Dale R. Hoffman will be co-managing the Fund.
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2 | USAA GROWTH AND TAX STRATEGY FUND
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September 2015 as commodities prices fell further and the Fed said it would
delay an interest rate hike in response to global growth concerns. In
October 2015, market momentum reversed and U.S. stocks generally increased
through the end of the reporting period as the Fed and other global central
banks maintained their monetary stimulus. Overall, during the reporting
period, five of the 10 sectors in the S&P 500(R) Index retreated. Energy
posted a loss, followed by smaller declines in the materials and health care
sectors. The consumer discretionary sector generated a solid positive
return, with the information technology and consumer staples sectors also
advancing.
o HOW DID THE USAA GROWTH AND TAX STRATEGY FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund had a total return of 1.20% for the reporting period ended
November 30, 2015. This compares to a total return of -0.21% for the S&P
500(R) Index (the Index), 2.37% for the Barclays Municipal Bond Index, and
0.40% for the Composite Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, the Manager employs dedicated resources
to support the research, selection, and monitoring of the Fund's subadviser.
Northern Trust Investments, Inc. (NTI) 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 THE MUNICIPAL BOND PORTION OF THE FUND PERFORM?
The municipal bond portion of the Fund benefited from our focus on income
generation through which we seek to maximize tax-free income without taking
undue risk. The long-term income distribution provided by the municipal
bond portion of the Fund, not its price appreciation, contributes the
majority of its total return. To identify attractive
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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opportunities, we worked with our in-house team of analysts, who provide
independent research on every security we consider for purchase. We select
investments on a bond-by-bond basis, using fundamental analysis that
emphasizes an issuer's ability and willingness to repay its debt. We strive
to use research both to find value and to avoid potential hidden risks. The
municipal bond portion of the Fund remains well diversified and we avoid
municipal bonds subject to the federal alternative minimum tax for
individuals.
o HOW DID THE EQUITY PORTION OF THE FUND PERFORM?
During the reporting period, the equity portion of the Fund recorded a
negative return close to the -0.21% return of the Index. Because the equity
portion of the Fund's sector exposures are similar to those of the Index,
the relative strength or weakness of certain sectors did not have an
outsized impact on returns during the reporting period.
In response to the significant market volatility, we sought to reduce
"active risk" (the risk that the equity portion of the Fund will not
perform in line with the Index because of our efforts to achieve tax
efficiency). We accomplished this task by selling select stock positions,
and realizing a modest loss for the reporting period. As we reduced risk,
we also rebalanced the equity portion of the Fund, selling stocks across a
range of sectors and industries with a focus on those that would create the
smallest capital gains. Thus, we were able to successfully minimize the
negative tax impact of realized capital gains on performance during the
reporting period.
The equity portion of the Fund continued to receive dividend income from
its stock holdings. Due to the solid dividend growth of index-listed
companies, the Fund maintained a dividend yield similar to prior periods
during the reporting period.
Thank you for your investment in the Fund.
As interest rates rise, existing bond prices generally fall; given the
historically low interest rate environment, risks associated with rising
interest rates may be heightened. o Diversification is a technique intended
to help reduce risk and does not guarantee a profit or prevent a loss.
o Some income may have been subject to state or local taxes but not the
federal alternative minimum tax.
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4 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
INVESTMENT OVERVIEW
USAA GROWTH AND TAX STRATEGY FUND (THE FUND)
(Ticker Symbol: USBLX)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11/30/15 5/31/15
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Net Assets $284.0 Million $283.2 Million
Net Asset Value Per Share $17.43 $17.48
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
1.20% 2.69% 9.42% 5.57%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
2.20% 8.98% 5.47%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/15 EXPENSE RATIO AS OF 5/31/15***
--------------------------------------------------------------------------------
1.86% 0.84%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***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 October 1, 2015, 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.
================================================================================
INVESTMENT OVERVIEW | 5
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA GROWTH AND TAX BARCLAYS MUNICIPAL
S&P 500 INDEX COMPOSITE INDEX STRATEGY FUND BOND INDEX
11/30/05 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,003.43 10,061.97 10,078.87 10,086.00
01/31/06 10,268.35 10,213.86 10,184.15 10,113.21
02/28/06 10,296.21 10,232.37 10,247.32 10,181.11
03/31/06 10,424.38 10,292.86 10,244.94 10,110.90
04/30/06 10,564.35 10,340.50 10,301.46 10,107.42
05/31/06 10,260.29 10,213.63 10,174.28 10,152.45
06/30/06 10,274.20 10,196.90 10,153.79 10,114.23
07/31/06 10,337.58 10,243.06 10,246.29 10,234.53
08/31/06 10,583.54 10,445.24 10,424.17 10,386.40
09/30/06 10,856.28 10,590.22 10,592.76 10,458.64
10/31/06 11,210.04 10,798.08 10,786.14 10,524.22
11/30/06 11,423.21 10,947.59 10,922.22 10,611.95
12/31/06 11,583.46 10,981.83 10,971.60 10,574.46
01/31/07 11,758.64 11,057.99 11,041.09 10,547.38
02/28/07 11,528.65 11,031.79 10,994.76 10,686.37
03/31/07 11,657.60 11,071.61 11,035.73 10,660.02
04/30/07 12,173.97 11,315.14 11,292.20 10,691.58
05/31/07 12,598.79 11,479.50 11,463.17 10,644.24
06/30/07 12,389.48 11,378.78 11,333.39 10,589.08
07/31/07 12,005.35 11,249.87 11,184.78 10,671.17
08/31/07 12,185.31 11,258.37 11,208.24 10,625.13
09/30/07 12,641.02 11,539.62 11,504.05 10,782.35
10/31/07 12,842.10 11,679.01 11,606.42 10,830.42
11/30/07 12,305.22 11,461.44 11,338.70 10,899.47
12/31/07 12,219.85 11,424.43 11,249.56 10,929.73
01/31/08 11,486.88 11,165.80 10,948.09 11,067.55
02/29/08 11,113.72 10,733.26 10,448.29 10,560.85
03/31/08 11,065.73 10,810.43 10,603.10 10,862.70
04/30/08 11,604.67 11,145.16 10,930.70 10,989.81
05/31/08 11,754.98 11,287.67 11,026.59 11,056.26
06/30/08 10,763.99 10,782.24 10,508.14 10,931.47
07/31/08 10,673.51 10,701.71 10,427.62 10,973.02
08/31/08 10,827.90 10,819.68 10,580.61 11,101.43
09/30/08 9,863.05 10,037.52 9,797.53 10,580.83
10/31/08 8,206.57 9,048.18 8,807.22 10,472.83
11/30/08 7,617.71 8,644.31 8,450.06 10,506.13
12/31/08 7,698.77 8,703.35 8,403.05 10,659.29
01/31/09 7,049.87 8,582.40 8,296.37 11,049.46
02/28/09 6,299.21 8,218.10 8,000.95 11,107.51
03/31/09 6,850.99 8,544.46 8,281.96 11,109.54
04/30/09 7,506.70 9,095.25 8,754.04 11,331.47
05/31/09 7,926.57 9,467.08 9,110.16 11,451.34
06/30/09 7,942.29 9,411.90 9,087.04 11,344.07
07/31/09 8,543.03 9,841.53 9,479.59 11,533.86
08/31/09 8,851.47 10,136.88 9,730.15 11,731.04
09/30/09 9,181.76 10,571.91 10,224.53 12,152.04
10/31/09 9,011.19 10,324.84 9,980.49 11,896.95
11/30/09 9,551.71 10,609.28 10,275.02 11,995.25
12/31/09 9,736.21 10,781.14 10,424.56 12,035.79
01/31/10 9,385.96 10,624.71 10,271.76 12,098.48
02/28/10 9,676.71 10,824.72 10,475.49 12,215.74
03/31/10 10,260.65 11,124.98 10,765.71 12,186.50
04/30/10 10,422.64 11,271.99 10,902.42 12,334.60
05/31/10 9,590.39 10,844.77 10,492.29 12,427.11
06/30/10 9,088.35 10,560.81 10,226.03 12,434.49
07/31/10 9,725.10 10,977.51 10,613.37 12,589.54
08/31/10 9,286.07 10,871.05 10,535.90 12,877.79
09/30/10 10,114.80 11,351.50 10,959.89 12,857.66
10/31/10 10,499.66 11,545.46 11,124.63 12,822.05
11/30/10 10,501.01 11,369.59 10,959.89 12,565.66
12/31/10 11,202.81 11,590.66 11,167.45 12,322.15
01/31/11 11,468.33 11,639.63 11,202.38 12,231.38
02/28/11 11,861.23 11,906.70 11,490.51 12,426.10
03/31/11 11,865.94 11,882.35 11,465.25 12,384.69
04/30/11 12,217.36 12,162.61 11,737.60 12,606.48
05/31/11 12,079.06 12,226.98 11,807.89 12,821.90
06/30/11 11,877.71 12,166.14 11,744.27 12,866.64
07/31/11 11,636.18 12,113.67 11,708.90 12,997.95
08/31/11 11,004.09 11,868.60 11,487.81 13,220.32
09/30/11 10,230.51 11,523.33 11,266.16 13,356.98
10/31/11 11,348.63 12,099.09 11,782.71 13,307.32
11/30/11 11,323.55 12,111.30 11,800.52 13,385.93
12/31/11 11,439.38 12,270.92 11,991.83 13,640.59
01/31/12 11,952.05 12,752.73 12,449.26 13,956.05
02/29/12 12,468.88 13,025.06 12,718.34 13,969.80
03/31/12 12,879.22 13,160.11 12,872.66 13,879.03
04/30/12 12,798.38 13,199.21 12,917.77 14,039.15
05/31/12 12,029.18 12,861.98 12,647.14 14,155.69
06/30/12 12,524.81 13,104.47 12,873.53 14,140.49
07/31/12 12,698.77 13,313.29 13,064.18 14,364.59
08/31/12 12,984.78 13,479.84 13,218.52 14,380.95
09/30/12 13,320.33 13,674.16 13,397.61 14,467.82
10/31/12 13,074.38 13,624.00 13,324.60 14,508.64
11/30/12 13,150.23 13,822.51 13,479.75 14,747.66
12/31/12 13,270.09 13,803.36 13,434.13 14,565.39
01/31/13 13,957.41 14,217.71 13,802.19 14,626.05
02/28/13 14,146.88 14,321.81 13,921.81 14,670.35
03/31/13 14,677.44 14,536.84 14,149.24 14,607.09
04/30/13 14,960.22 14,761.53 14,352.83 14,767.21
05/31/13 15,310.17 14,840.04 14,426.86 14,586.82
06/30/13 15,104.57 14,466.57 14,092.57 14,173.78
07/31/13 15,873.15 14,719.34 14,399.74 14,049.86
08/31/13 15,413.44 14,397.66 14,073.95 13,849.35
09/30/13 15,896.80 14,812.86 14,456.82 14,147.44
10/31/13 16,627.54 15,159.52 14,822.22 14,259.20
11/30/13 17,134.25 15,350.03 15,028.34 14,229.81
12/31/13 17,568.02 15,515.75 15,201.96 14,193.47
01/31/14 16,960.62 15,440.15 15,117.08 14,469.99
02/28/14 17,736.46 15,900.34 15,522.59 14,639.66
03/31/14 17,885.55 15,998.72 15,612.56 14,664.27
04/30/14 18,017.76 16,119.80 15,764.42 14,840.46
05/31/14 18,440.71 16,438.20 16,001.69 15,031.56
06/30/14 18,821.65 16,592.97 16,166.77 15,044.59
07/31/14 18,562.09 16,470.61 16,071.28 15,071.08
08/31/14 19,304.66 16,866.49 16,395.95 15,253.64
09/30/14 19,033.94 16,780.41 16,308.35 15,269.13
10/31/14 19,498.85 16,994.98 16,529.25 15,373.80
11/30/14 20,023.26 17,229.66 16,740.55 15,400.44
12/31/14 19,972.82 17,256.63 16,795.71 15,478.04
01/31/15 19,373.25 17,148.62 16,737.73 15,752.38
02/28/15 20,486.66 17,546.83 17,037.31 15,589.94
03/31/15 20,162.68 17,442.21 16,948.98 15,634.97
04/30/15 20,356.10 17,468.95 16,939.26 15,552.88
05/31/15 20,617.87 17,536.47 16,987.86 15,509.89
06/30/15 20,218.75 17,343.20 16,802.33 15,495.84
07/31/15 20,642.35 17,554.26 17,037.46 15,608.04
08/31/15 19,396.92 17,045.66 16,606.38 15,638.73
09/30/15 18,916.97 16,866.75 16,471.18 15,751.94
10/31/15 20,512.70 17,574.71 17,102.41 15,814.63
11/30/15 20,573.70 17,628.14 17,191.17 15,877.46
[END CHART]
Data from 11/30/05 through 11/30/15.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Composite Index reflects the fees and expenses of the underlying funds
included in the Composite Index.
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6 | USAA GROWTH AND TAX STRATEGY FUND
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The graph on page 6 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Growth and Tax Strategy Fund to the benchmarks listed
below. The Manager has developed the Composite Index, which is used to measure
the Fund's performance. The custom benchmark was created by the Manager to show
how the Fund's performance compares with the return of an index or indexes with
similar asset allocations.
o The unmanaged S&P 500(R) Index represents the weighted average performance
of a group of 500 widely held, publicly traded stocks.
o The Composite Index is comprised of 51% of the Lipper General Municipal
Debt Funds Index and 49% of the Lipper Large-Cap Core Funds Index. The
unmanaged Lipper General Municipal Debt Funds Index tracks the total return
performance of the 30 largest funds within this category. This category
includes funds that invest at least 65% of their assets in municipal debt
issues in the top four credit categories. The unmanaged Lipper Large-Cap
Core Funds Index tracks the total return performance of the 30 largest
funds within this category. This category includes funds that, by portfolio
practice, invest at least 75% of their equity assets in companies with
market capitalizations (on a three-year weighted basis) of greater than
300% of the dollar-weighted median market capitalization of the middle
1,000 securities of the S&P 1500(R) Index. Large-cap core funds have more
latitude in the companies in which they invest. These funds have an
above-average price-to-earnings ratio, price-to-book ratio, and three-year
sales growth figure, compared to the S&P 500(R) Index.
o The unmanaged Barclays Municipal Bond Index is a benchmark of total return
performance for the long-term, investment-grade, tax-exempt bond market.
================================================================================
INVESTMENT OVERVIEW | 7
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o TOP 10 INDUSTRIES - 11/30/15 o
(% of Net Assets)
Pharmaceuticals .......................................................... 2.5%
Diversified Banks ........................................................ 2.3%
Technology Hardware, Storage, & Peripherals .............................. 2.0%
Internet Software & Services ............................................. 1.8%
Biotechnology ............................................................ 1.6%
Systems Software ......................................................... 1.5%
Integrated Oil & Gas ..................................................... 1.4%
Aerospace & Defense ...................................................... 1.2%
Industrial Conglomerates ................................................. 1.1%
Data Processing & Outsourced Services .................................... 1.1%
o TOP 5 TAX-EXEMPT BONDS - 11/30/15 o
(% of Net Assets)
Lewisville ............................................................... 2.2%
Oneida County IDA ........................................................ 1.2%
Rockport ................................................................. 1.1%
Orlando .................................................................. 1.1%
Monterey Peninsula USD ................................................... 0.8%
o TOP 5 BLUE CHIP STOCKS - 11/30/15 o
(% of Net Assets)
Apple, Inc. .............................................................. 1.6%
Microsoft Corp. .......................................................... 1.1%
Exxon Mobil Corp. ........................................................ 0.8%
General Electric Co. ..................................................... 0.7%
Johnson & Johnson ........................................................ 0.7%
You will find a complete list of securities that the Fund owns on pages 10-34.
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8 | USAA GROWTH AND TAX STRATEGY FUND
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o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
TAX-EXEMPT BONDS 53.0%
BLUE CHIP STOCKS 44.3%
TAX-EXEMPT MONEY MARKET INSTRUMENTS 1.4%
EXCHANGE-TRADED FUNDS* 0.5%
[END CHART]
* The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 9
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PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (54.4%)
TAX-EXEMPT BONDS (53.0%)
ARIZONA (0.4%)
$ 1,000 Student and Academic Service, LLC (INS) 5.00% 6/01/2044 $ 1,129
-----------
CALIFORNIA (4.6%)
1,200 Jurupa Public Financing Auth. 5.00 9/01/2042 1,320
2,000 Monterey Peninsula USD (INS) 5.50 8/01/2034 2,393
1,000 State 5.00 2/01/2043 1,134
1,000 State 5.00 8/01/2045 1,149
1,000 Statewide Communities Development Auth. (INS) 5.00 11/15/2049 1,117
1,000 Sutter Butte Flood Control Agency (INS) 5.00 10/01/2040 1,129
1,500 Twin Rivers USD (INS) 5.00 8/01/2040 1,679
1,000 Val Verde USD (INS) 5.00 8/01/2044 1,133
4,435 West Contra Costa USD (INS) 5.05(a) 8/01/2034 2,081
-----------
13,135
-----------
COLORADO (1.7%)
1,000 Health Facilities Auth. 5.00 12/01/2042 1,061
1,000 Health Facilities Auth. 5.00 6/01/2045 1,072
2,000 Regional Transportation District 5.38 6/01/2031 2,284
500 Univ. of Colorado Hospital Auth. (PRE) 5.00 11/15/2037 511
-----------
4,928
-----------
CONNECTICUT (0.1%)
4,023 Mashantucket (Western) Pequot Tribe, acquired
7/01/2013-9/30/2015; cost $2,507(b),(c) 6.95(d) 7/01/2031 265
-----------
DISTRICT OF COLUMBIA (0.4%)
1,100 District of Columbia 5.00 7/01/2042 1,174
-----------
FLORIDA (5.5%)
1,875 Escambia County Housing Finance Auth. (INS) 5.75 6/01/2031 2,113
1,000 Halifax Hospital Medical Center 5.00 6/01/2046 1,074
1,000 Jacksonville 5.00 10/01/2029 1,147
2,000 Lee County IDA 5.00 11/01/2025 2,289
645 Lee County IDA 5.50 10/01/2047 683
1,300 Miami-Dade County 5.00 10/01/2034 1,477
3,000 Orlando (INS) 5.13 11/01/2027 3,124
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10 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,000 Southeast Overtown/Park West Community
Redevelopment Agency(e) 5.00% 3/01/2030 $ 1,097
1,505 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2037 1,667
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2045 1,089
-----------
15,760
-----------
GEORGIA (0.4%)
1,000 Fayette County School District (INS)(PRE) 4.95 3/01/2025 1,012
-----------
GUAM (0.7%)
750 International Airport Auth. (INS) 5.50 10/01/2033 853
1,000 Waterworks Auth. 5.50 7/01/2043 1,129
-----------
1,982
-----------
ILLINOIS (3.6%)
1,000 Chicago 5.00 1/01/2044 1,069
1,000 Chicago 5.00 11/01/2044 1,066
1,000 Chicago-O'Hare International Airport (INS) 5.25 1/01/2033 1,137
1,000 Finance Auth. 3.90 3/01/2030 1,031
2,000 Finance Auth. 6.00 10/01/2032 2,392
1,000 Finance Auth. 5.00 8/15/2044 1,079
1,000 Finance Auth. 5.00 5/15/2045 1,083
1,235 Springfield Metro Sanitary District 5.75 1/01/2053 1,432
-----------
10,289
-----------
INDIANA (3.3%)
500 Ball State Univ. 5.00 7/01/2030 564
1,250 Finance Auth. 5.38 11/01/2032 1,374
1,000 Finance Auth. 5.00 2/01/2040 1,084
1,000 Finance Auth. 5.00 10/01/2044 1,058
550 Health and Educational Facility Financing Auth. 5.25 2/15/2036 553
1,500 Richmond Hospital Auth. 5.00 1/01/2039 1,669
3,000 Rockport (INS) 4.63 6/01/2025 3,125
-----------
9,427
-----------
KANSAS (0.9%)
1,000 Coffeyville (INS)(e) 5.00 6/01/2042 1,048
1,250 Wyandotte County/Kansas City 5.00 9/01/2044 1,391
-----------
2,439
-----------
KENTUCKY (0.4%)
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,089
-----------
LOUISIANA (2.3%)
985 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 6.55 9/01/2025 1,092
2,000 Parish of St. John the Baptist 5.13 6/01/2037 2,059
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,000 Public Facilities Auth. (INS) 5.25% 6/01/2051 $ 1,088
1,000 Shreveport (INS) 5.00 12/01/2039 1,105
1,000 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,114
-----------
6,458
-----------
MASSACHUSETTS (1.9%)
1,000 Dev. Finance Agency 5.00 4/15/2040 1,065
1,000 Dev. Finance Agency 5.25 11/15/2041 1,131
1,000 Dev. Finance Agency 5.75 7/15/2043 1,098
1,000 Dev. Finance Agency 5.00 7/01/2044 1,081
1,000 Dev. Finance Agency 5.50 7/01/2044 1,070
-----------
5,445
-----------
MICHIGAN (0.8%)
1,000 Wayne County Airport Auth. 5.00 12/01/2044 1,096
1,000 Wyandotte (INS) 5.00 10/01/2044 1,058
-----------
2,154
-----------
MINNESOTA (0.4%)
1,000 Saint Paul Housing and Redevelopment Auth. 5.00 11/15/2044 1,092
-----------
MISSOURI (0.5%)
1,270 Health and Educational Facilities Auth. 5.00 8/01/2045 1,326
-----------
NEBRASKA (0.4%)
1,000 Douglas County Hospital Auth. 5.00 11/01/2048 1,100
-----------
NEW JERSEY (2.0%)
1,000 EDA 5.00 6/15/2029 1,052
2,000 EDA (PRE) 5.00 9/01/2033 2,217
1,250 South Jersey Transportation Auth. 5.00 11/01/2039 1,328
1,000 Transportation Trust Fund Auth. 5.00 6/15/2044 1,020
-----------
5,617
-----------
NEW MEXICO (0.7%)
1,000 Farmington 4.88 4/01/2033 1,015
1,000 Farmington 5.90 6/01/2040 1,102
-----------
2,117
-----------
NEW YORK (4.7%)
1,000 Dormitory Auth. (PRE) 5.50 5/01/2037 1,152
1,205 Dormitory Auth. (INS) 5.50 7/01/2040 1,604
630 Liberty Dev. Corp. 5.25 10/01/2035 753
1,500 Liberty Dev. Corp. 5.50 10/01/2037 1,848
1,000 MTA 5.00 11/15/2042 1,119
1,000 New York City 5.25 8/15/2023 1,108
================================================================================
12 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,000 New York City Trust for Cultural Resources 5.00% 12/01/2039 $ 2,237
8,455 Oneida County IDA (INS) 4.65(a) 7/01/2035 3,527
-----------
13,348
-----------
OHIO (0.3%)
750 Southeastern Port Auth. Hospital Facilities 5.00 12/01/2043 763
-----------
OKLAHOMA (0.5%)
1,315 Comanche County Hospital Auth. 5.00 7/01/2032 1,388
-----------
PENNSYLVANIA (2.6%)
1,125 Butler County Hospital Auth. 5.00 7/01/2039 1,228
1,000 Chester County IDA 5.00 10/01/2044 1,046
1,625 Indiana County Hospital Auth. 6.00 6/01/2039 1,822
1,000 Lancaster County Hospital Auth. 5.00 11/01/2035 1,118
1,000 Montgomery County IDA 5.25 1/15/2045 1,073
1,000 Turnpike Commission 5.25 12/01/2044 1,119
-----------
7,406
-----------
PUERTO RICO (0.3%)
1,000 Commonwealth (INS) 5.00 7/01/2035 969
-----------
RHODE ISLAND (0.0%)
50 Housing and Mortgage Finance Corp. 6.85 10/01/2024 50
-----------
SOUTH CAROLINA (0.8%)
2,000 Piedmont Municipal Power Agency (INS) 5.75 1/01/2034 2,363
-----------
TENNESSEE (0.3%)
2,000 Knox County Health, Educational and Housing
Facilities Board 5.01(a) 1/01/2035 779
-----------
TEXAS (10.2%)
1,000 Central Texas Regional Mobility Auth. 5.00 1/01/2045 1,087
1,000 Clifton Higher Education Finance Corp. (NBGA) 5.00 8/15/2039 1,129
2,000 Duncanville ISD (NBGA) 4.63 2/15/2029 2,015
2,000 El Paso (INS) 4.75 8/15/2033 2,095
1,000 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2038 1,068
1,000 Houston 5.00 9/01/2039 1,109
1,000 Houston 5.00 9/01/2040 1,108
1,000 Karnes County Hospital District 5.00 2/01/2044 1,050
5,675 Lewisville (INS) 5.80 9/01/2025 6,154
1,500 Manor ISD (NBGA)(PRE) 5.00 8/01/2037 1,547
1,000 Matagorda County 4.00 6/01/2030 1,027
1,600 New Hope Cultural Education Facilities
Finance Corp. 5.00 4/01/2047 1,653
1,000 New Hope Cultural Education Facilities
Finance Corp. 5.00 7/01/2047 1,031
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,500 North Texas Tollway Auth. 5.00% 1/01/2031 $ 1,696
1,000 North Texas Tollway Auth. 5.00 1/01/2045 1,122
1,000 San Leanna Education Facilities Corp. 4.75 6/01/2032 1,022
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2036 1,035
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2045 1,030
1,000 Transportation Commission 5.00 8/15/2042 1,090
-----------
29,068
-----------
VIRGINIA (0.4%)
1,000 Alexandria IDA 5.00 10/01/2050 1,081
-----------
WASHINGTON (0.5%)
1,500 Economic Dev. Finance Auth. (INS) 5.00 6/01/2038 1,500
-----------
WEST VIRGINIA (0.5%)
1,500 Pleasants County 5.25 10/15/2037 1,565
-----------
WISCONSIN (0.4%)
1,000 Health and Educational Facilities Auth. 5.25 4/15/2035 1,109
-----------
WYOMING (0.5%)
1,250 Laramie County 5.00 5/01/2037 1,375
-----------
Total Tax-Exempt Bonds (cost: $144,748) 150,702
-----------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (1.4%)
VARIABLE-RATE DEMAND NOTES (1.2%)
GEORGIA (0.5%)
1,500 Burke County Dev. Auth. 0.22 7/01/2049 1,500
-----------
TEXAS (0.7%)
1,900 Port of Port Arthur Navigation District 0.18 12/01/2039 1,900
-----------
Total Variable-Rate Demand Notes (cost: $3,400) 3,400
-----------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.2%)
509,215 State Street Institutional Tax Free Money Market Fund
Premier Class, 0.00%(f) (cost: $509) 509
-----------
Total Tax-Exempt Money Market Instruments (cost: $3,909) 3,909
-----------
Total Tax-Exempt Securities (cost: $148,657) 154,611
-----------
================================================================================
14 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (44.8%)
BLUE CHIP STOCKS (44.3%)
CONSUMER DISCRETIONARY (5.9%)
-----------------------------
ADVERTISING (0.1%)
2,760 Interpublic Group of Companies, Inc. $ 64
1,760 Omnicom Group, Inc. 130
-----------
194
-----------
APPAREL RETAIL (0.3%)
1,580 Gap, Inc. 43
1,668 L Brands, Inc. 159
2,808 Ross Stores, Inc. 146
5,085 TJX Companies, Inc. 359
762 Urban Outfitters, Inc.* 17
-----------
724
-----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.2%)
1,740 Coach, Inc. 55
257 Fossil Group, Inc.* 10
2,721 Hanesbrands, Inc. 84
1,332 Michael Kors Holdings Ltd.* 57
550 PVH Corp. 50
420 Ralph Lauren Corp. 52
1,132 Under Armour, Inc. "A"* 98
2,308 VF Corp. 149
-----------
555
-----------
AUTO PARTS & EQUIPMENT (0.2%)
1,438 BorgWarner, Inc. 62
1,970 Delphi Automotive plc 173
4,461 Johnson Controls, Inc. 205
-----------
440
-----------
AUTOMOBILE MANUFACTURERS (0.3%)
26,785 Ford Motor Co. 384
8,866 General Motors Co. 321
-----------
705
-----------
AUTOMOTIVE RETAIL (0.2%)
504 Advance Auto Parts, Inc. 82
610 AutoNation, Inc.* 39
230 AutoZone, Inc.* 180
1,390 CarMax, Inc.* 80
689 O'Reilly Automotive, Inc.* 182
-----------
563
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
BROADCASTING (0.1%)
3,847 CBS Corp. "B" $ 194
759 Discovery Communications, Inc. "A"* 24
2,101 Discovery Communications, Inc. "C"* 62
630 Scripps Networks Interactive "A" 36
1,870 Tegna, Inc. 53
-----------
369
-----------
CABLE & SATELLITE (0.5%)
1,489 Cablevision Systems Corp. "A" 45
15,342 Comcast Corp. "A" 934
2,534 Comcast Corp. Special "A" 155
1,948 Time Warner Cable, Inc. 360
-----------
1,494
-----------
CASINOS & GAMING (0.0%)
463 Wynn Resorts Ltd. 29
-----------
COMPUTER & ELECTRONICS RETAIL (0.0%)
1,976 Best Buy Co., Inc. 63
713 GameStop Corp. "A" 25
-----------
88
-----------
CONSUMER ELECTRONICS (0.0%)
700 Garmin Ltd. 27
497 Harman International Industries, Inc. 51
-----------
78
-----------
DEPARTMENT STORES (0.1%)
1,355 Kohl's Corp. 64
2,484 Macy's, Inc. 97
1,287 Nordstrom, Inc. 72
-----------
233
-----------
DISTRIBUTORS (0.0%)
1,110 Genuine Parts Co. 101
-----------
FOOTWEAR (0.2%)
4,749 NIKE, Inc. "B" 628
-----------
GENERAL MERCHANDISE STORES (0.2%)
2,060 Dollar General Corp. 135
1,568 Dollar Tree, Inc.* 118
4,323 Target Corp. 313
-----------
566
-----------
================================================================================
16 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOME FURNISHINGS (0.1%)
859 Leggett & Platt, Inc. $ 40
421 Mohawk Industries, Inc.* 80
-----------
120
-----------
HOME IMPROVEMENT RETAIL (0.6%)
9,142 Home Depot, Inc. 1,224
6,603 Lowe's Companies, Inc. 506
-----------
1,730
-----------
HOMEBUILDING (0.1%)
2,218 D.R. Horton, Inc. 71
1,089 Lennar Corp. "A" 56
2,360 PulteGroup, Inc. 46
-----------
173
-----------
HOMEFURNISHING RETAIL (0.0%)
1,357 Bed Bath & Beyond, Inc.* 74
-----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
3,058 Carnival Corp. 154
1,591 Marriott International, Inc. "A" 113
1,105 Royal Caribbean Cruises Ltd. 102
982 Starwood Hotels & Resorts Worldwide, Inc. 71
1,010 Wyndham Worldwide Corp. 77
-----------
517
-----------
HOUSEHOLD APPLIANCES (0.0%)
520 Whirlpool Corp. 85
-----------
HOUSEWARES & SPECIALTIES (0.0%)
2,180 Newell Rubbermaid, Inc. 97
-----------
INTERNET RETAIL (1.0%)
2,585 Amazon.com, Inc.* 1,718
769 Expedia, Inc. 95
2,870 Netflix, Inc.* 354
360 Priceline Group, Inc.* 450
756 TripAdvisor, Inc.* 62
-----------
2,679
-----------
LEISURE PRODUCTS (0.1%)
1,004 Hasbro, Inc. 73
2,013 Mattel, Inc. 50
-----------
123
-----------
MOTORCYCLE MANUFACTURERS (0.0%)
1,600 Harley-Davidson, Inc. 78
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (0.7%)
5,579 Time Warner, Inc. $ 391
10,093 Twenty-First Century Fox, Inc. "A" 298
2,766 Twenty-First Century Fox, Inc. "B" 83
2,735 Viacom, Inc. "B" 136
10,358 Walt Disney Co. 1,175
-----------
2,083
-----------
PUBLISHING (0.0%)
2,721 News Corp. "A" 39
-----------
RESTAURANTS (0.6%)
196 Chipotle Mexican Grill, Inc.* 114
842 Darden Restaurants, Inc. 47
6,204 McDonald's Corp. 708
10,260 Starbucks Corp. 630
2,820 Yum! Brands, Inc. 204
-----------
1,703
-----------
SPECIALIZED CONSUMER SERVICES (0.0%)
1,670 H&R Block, Inc. 61
-----------
SPECIALTY STORES (0.1%)
548 Signet Jewelers Ltd. 72
4,347 Staples, Inc. 53
720 Tiffany & Co. 57
837 Tractor Supply Co. 75
-----------
257
-----------
TIRES & RUBBER (0.0%)
1,619 Goodyear Tire & Rubber Co. 56
-----------
Total Consumer Discretionary 16,642
-----------
CONSUMER STAPLES (4.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
4,306 Archer-Daniels-Midland Co. 157
-----------
BREWERS (0.0%)
1,068 Molson Coors Brewing Co. "B" 98
-----------
DISTILLERS & VINTNERS (0.1%)
1,051 Brown-Forman Corp. "B" 108
1,031 Constellation Brands, Inc. "A" 144
-----------
252
-----------
DRUG RETAIL (0.4%)
7,252 CVS Health Corp. 683
6,049 Walgreens Boots Alliance, Inc. 508
-----------
1,191
-----------
================================================================================
18 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
FOOD DISTRIBUTORS (0.1%)
4,020 Sysco Corp. $ 165
-----------
FOOD RETAIL (0.1%)
6,668 Kroger Co. 251
2,143 Whole Foods Market, Inc. 63
-----------
314
-----------
HOUSEHOLD PRODUCTS (0.7%)
690 Clorox Co. 86
5,970 Colgate-Palmolive Co. 392
2,360 Kimberly-Clark Corp. 281
18,767 Procter & Gamble Co. 1,405
-----------
2,164
-----------
HYPERMARKETS & SUPER CENTERS (0.4%)
2,908 Costco Wholesale Corp. 470
10,372 Wal-Mart Stores, Inc. 610
-----------
1,080
-----------
PACKAGED FOODS & MEAT (0.7%)
1,381 Campbell Soup Co. 72
2,660 ConAgra Foods, Inc. 109
4,550 General Mills, Inc. 263
910 Hershey Co. 78
915 Hormel Foods Corp. 69
828 J.M. Smucker Co. 100
1,521 Kellogg Co. 105
799 Keurig Green Mountain, Inc. 42
3,990 Kraft Heinz Co. 294
1,040 McCormick & Co., Inc. 89
1,371 Mead Johnson Nutrition Co. 110
11,195 Mondelez International, Inc. "A" 489
1,740 Tyson Foods, Inc. "A" 87
-----------
1,907
-----------
PERSONAL PRODUCTS (0.0%)
1,480 Estee Lauder Companies, Inc. "A" 125
-----------
SOFT DRINKS (0.9%)
27,263 Coca-Cola Co. 1,162
1,630 Coca-Cola Enterprises, Inc. 82
1,290 Dr. Pepper Snapple Group, Inc. 116
992 Monster Beverage Corp.* 153
10,284 PepsiCo, Inc. 1,030
-----------
2,543
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TOBACCO (0.7%)
13,663 Altria Group, Inc. $ 787
10,731 Philip Morris International, Inc. 938
5,928 Reynolds American, Inc. 274
-----------
1,999
-----------
Total Consumer Staples 11,995
-----------
ENERGY (3.1%)
-------------
COAL & CONSUMABLE FUELS (0.0%)
1,526 CONSOL Energy, Inc. 12
-----------
INTEGRATED OIL & GAS (1.4%)
12,338 Chevron Corp. 1,127
28,140 Exxon Mobil Corp. 2,298
5,229 Occidental Petroleum Corp. 395
-----------
3,820
-----------
OIL & GAS DRILLING (0.0%)
138 Diamond Offshore Drilling, Inc. 3
1,820 Ensco plc "A" 31
731 Helmerich & Payne, Inc. 43
2,533 Transocean Ltd. 36
-----------
113
-----------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
2,935 Baker Hughes, Inc. 159
1,400 Cameron International Corp.* 95
1,408 FMC Technologies, Inc.* 48
5,746 Halliburton Co. 229
2,735 National Oilwell Varco, Inc. 102
8,655 Schlumberger Ltd. 668
-----------
1,301
-----------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
3,408 Anadarko Petroleum Corp. 204
2,928 Apache Corp. 144
2,805 Cabot Oil & Gas Corp. 53
4,021 Chesapeake Energy Corp. 21
595 Cimarex Energy Co. 71
9,508 ConocoPhillips 514
2,537 Devon Energy Corp. 117
3,723 EOG Resources, Inc. 311
1,031 EQT Corp. 59
1,830 Hess Corp. 108
4,581 Marathon Oil Corp. 80
================================================================================
20 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,141 Murphy Oil Corp. $ 33
1,091 Newfield Exploration Co.* 42
2,625 Noble Energy, Inc. 96
943 Pioneer Natural Resources Co. 136
1,125 Range Resources Corp. 32
2,609 Southwestern Energy Co.* 23
-----------
2,044
-----------
OIL & GAS REFINING & MARKETING (0.3%)
3,790 Marathon Petroleum Corp. 221
3,649 Phillips 66 334
970 Tesoro Corp. 112
3,494 Valero Energy Corp. 251
-----------
918
-----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
2,170 Columbia Pipeline Group 42
12,816 Kinder Morgan, Inc. 302
1,414 ONEOK, Inc. 42
4,554 Spectra Energy Corp. 119
4,568 Williams Companies, Inc. 167
-----------
672
-----------
Total Energy 8,880
-----------
FINANCIALS (7.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
330 Affiliated Managers Group, Inc.* 59
1,419 Ameriprise Financial, Inc. 160
7,561 Bank of New York Mellon Corp. 331
986 BlackRock, Inc. 359
2,500 Franklin Resources, Inc. 105
3,240 Invesco Ltd. 109
750 Legg Mason, Inc. 33
1,489 Northern Trust Corp.(g) 112
2,798 State Street Corp. 203
1,970 T. Rowe Price Group, Inc. 150
-----------
1,621
-----------
CONSUMER FINANCE (0.4%)
5,600 American Express Co. 401
3,761 Capital One Financial Corp. 295
3,494 Discover Financial Services 198
2,650 Navient Corp. 32
2,295 Synchrony Financial* 73
-----------
999
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (2.3%)
73,589 Bank of America Corp. $ 1,283
20,592 Citigroup, Inc. 1,114
1,300 Comerica, Inc. 60
25,304 JPMorgan Chase & Co. 1,687
12,089 U.S. Bancorp 531
32,252 Wells Fargo & Co. 1,777
-----------
6,452
-----------
INSURANCE BROKERS (0.1%)
1,888 Aon plc 179
3,656 Marsh & McLennan Companies, Inc. 202
-----------
381
-----------
INVESTMENT BANKING & BROKERAGE (0.4%)
7,830 Charles Schwab Corp. 264
2,079 E*Trade Financial Corp.* 63
2,750 Goldman Sachs Group, Inc. 523
10,464 Morgan Stanley 359
-----------
1,209
-----------
LIFE & HEALTH INSURANCE (0.4%)
2,770 AFLAC, Inc. 181
1,769 Lincoln National Corp. 97
7,763 MetLife, Inc. 396
1,820 Principal Financial Group, Inc. 94
3,081 Prudential Financial, Inc. 267
1,113 Torchmark Corp. 67
1,250 Unum Group 46
-----------
1,148
-----------
MULTI-LINE INSURANCE (0.3%)
9,300 American International Group, Inc. 591
684 Assurant, Inc. 59
3,680 Genworth Financial, Inc. "A"* 19
2,900 Hartford Financial Services Group, Inc. 132
2,091 Loews Corp. 79
-----------
880
-----------
MULTI-SECTOR HOLDINGS (0.6%)
12,638 Berkshire Hathaway, Inc. "B"* 1,694
2,025 Leucadia National Corp. 36
-----------
1,730
-----------
PROPERTY & CASUALTY INSURANCE (0.4%)
1,722 ACE Ltd. 198
3,040 Allstate Corp. 191
================================================================================
22 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,560 Chubb Corp. $ 204
970 Cincinnati Financial Corp. 59
2,257 Progressive Corp. 70
2,350 Travelers Companies, Inc. 269
2,680 XL Group plc 102
-----------
1,093
-----------
REAL ESTATE SERVICES (0.0%)
1,990 CBRE Group, Inc. "A"* 75
-----------
REGIONAL BANKS (0.4%)
4,893 BB&T Corp. 189
5,810 Fifth Third Bancorp 120
5,200 Huntington Bancshares, Inc. 61
6,620 KeyCorp 87
744 M&T Bank Corp. 93
1,000 People's United Financial, Inc. 17
3,534 PNC Financial Services Group, Inc. 337
9,790 Regions Financial Corp. 99
3,560 SunTrust Banks, Inc. 155
1,440 Zions Bancorp 43
-----------
1,201
-----------
REITs - HEALTH CARE (0.1%)
3,128 HCP, Inc. 111
2,229 Ventas, Inc. 119
2,372 Welltower, Inc. 150
-----------
380
-----------
REITs - HOTEL & RESORT (0.0%)
5,142 Host Hotels & Resorts, Inc. 85
-----------
REITs - INDUSTRIAL (0.1%)
3,421 ProLogis, Inc. 146
-----------
REITs - OFFICE (0.1%)
1,050 Boston Properties, Inc. 131
660 SL Green Realty Corp. 78
1,238 Vornado Realty Trust 120
-----------
329
-----------
REITs - RESIDENTIAL (0.2%)
998 Apartment Investment & Management Co. "A" 38
897 AvalonBay Communities, Inc. 163
2,457 Equity Residential 196
507 Essex Property Trust, Inc. 117
-----------
514
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REITs - RETAIL (0.2%)
4,318 General Growth Properties, Inc. $ 110
2,670 Kimco Realty Corp. 70
894 Macerich Co. 70
1,531 Realty Income Corp. 76
2,004 Simon Property Group, Inc. 373
-----------
699
-----------
REITs - SPECIALIZED (0.4%)
2,859 American Tower Corp. 284
2,213 Crown Castle International Corp. 190
394 Equinix, Inc. 117
280 Four Corners Property Trust* 6
1,246 Iron Mountain, Inc. 35
1,185 Plum Creek Timber Co., Inc. 60
985 Public Storage 236
3,563 Weyerhaeuser Co. 115
-----------
1,043
-----------
SPECIALIZED FINANCE (0.3%)
2,153 CME Group, Inc. 210
760 Intercontinental Exchange, Inc. 198
1,907 McGraw Hill Financial, Inc. 184
1,370 Moody's Corp. 141
840 NASDAQ OMX Group, Inc. 49
-----------
782
-----------
Total Financials 20,767
-----------
HEALTH CARE (6.4%)
------------------
BIOTECHNOLOGY (1.6%)
11,391 AbbVie, Inc. 663
1,557 Alexion Pharmaceuticals, Inc.* 278
5,207 Amgen, Inc. 839
3,673 Baxalta, Inc. 126
1,628 Biogen, Inc.* 467
5,555 Celgene Corp.* 608
10,325 Gilead Sciences, Inc. 1,094
500 Regeneron Pharmaceuticals, Inc.* 272
1,886 Vertex Pharmaceuticals, Inc.* 244
-----------
4,591
-----------
HEALTH CARE DISTRIBUTORS (0.3%)
1,410 AmerisourceBergen Corp. 139
2,310 Cardinal Health, Inc. 201
568 Henry Schein, Inc.* 89
================================================================================
24 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,580 McKesson Corp. $ 299
720 Patterson Companies, Inc. 33
-----------
761
-----------
HEALTH CARE EQUIPMENT (0.9%)
10,242 Abbott Laboratories 460
3,673 Baxter International, Inc. 138
1,623 Becton, Dickinson & Co. 244
9,031 Boston Scientific Corp.* 165
470 C.R. Bard, Inc. 88
732 Edwards Lifesciences Corp.* 119
230 Intuitive Surgical, Inc.* 120
8,119 Medtronic plc 612
1,909 St. Jude Medical, Inc. 120
2,030 Stryker Corp. 196
810 Varian Medical Systems, Inc.* 65
1,130 Zimmer Biomet Holdings, Inc. 114
-----------
2,441
-----------
HEALTH CARE FACILITIES (0.1%)
1,999 HCA Holdings, Inc.* 136
817 Tenet Healthcare Corp.* 27
617 Universal Health Services, Inc. "B" 75
-----------
238
-----------
HEALTH CARE SERVICES (0.2%)
1,140 DaVita HealthCare Partners, Inc.* 83
4,934 Express Scripts Holdings Co.* 422
522 Laboratory Corp. of America Holdings* 63
979 Quest Diagnostics, Inc. 67
-----------
635
-----------
HEALTH CARE SUPPLIES (0.0%)
1,150 DENTSPLY International, Inc. 70
-----------
HEALTH CARE TECHNOLOGY (0.0%)
2,070 Cerner Corp.* 123
-----------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
2,065 Agilent Technologies, Inc. 86
680 PerkinElmer, Inc. 36
2,685 Thermo Fisher Scientific, Inc. 372
690 Waters Corp.* 92
-----------
586
-----------
MANAGED HEALTH CARE (0.6%)
2,388 Aetna, Inc. 245
1,811 Anthem, Inc. 236
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,755 Cigna Corp. $ 237
1,000 Humana, Inc. 169
6,668 UnitedHealth Group, Inc. 752
-----------
1,639
-----------
PHARMACEUTICALS (2.5%)
2,709 Allergan plc* 850
11,282 Bristol-Myers Squibb Co. 756
6,636 Eli Lilly and Co. 544
1,204 Endo International plc* 74
19,971 Johnson & Johnson 2,022
790 Mallinckrodt plc* 54
19,690 Merck & Co., Inc. 1,044
2,774 Mylan N.V.* 142
1,050 Perrigo Co. plc 157
42,519 Pfizer, Inc. 1,393
3,398 Zoetis, Inc. 159
-----------
7,195
-----------
Total Health Care 18,279
-----------
INDUSTRIALS (4.5%)
------------------
AEROSPACE & DEFENSE (1.2%)
4,568 Boeing Co. 664
2,181 General Dynamics Corp. 320
5,313 Honeywell International, Inc. 552
447 L-3 Communications Holdings, Inc. 55
1,795 Lockheed Martin Corp. 393
1,346 Northrop Grumman Corp. 251
1,010 Precision Castparts Corp. 234
2,085 Raytheon Co. 259
1,090 Rockwell Collins, Inc. 101
2,070 Textron, Inc. 88
5,491 United Technologies Corp. 527
-----------
3,444
-----------
AGRICULTURAL & FARM MACHINERY (0.1%)
2,480 Deere & Co. 197
-----------
AIR FREIGHT & LOGISTICS (0.3%)
940 C.H. Robinson Worldwide, Inc. 63
1,143 Expeditors International of Washington, Inc. 55
1,784 FedEx Corp. 283
4,471 United Parcel Service, Inc. "B" 461
-----------
862
-----------
================================================================================
26 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
AIRLINES (0.3%)
4,875 American Airlines Group, Inc. $ 201
5,571 Delta Air Lines, Inc. 259
4,260 Southwest Airlines Co. 195
2,599 United Continental Holdings, Inc.* 145
-----------
800
-----------
BUILDING PRODUCTS (0.0%)
613 Allegion plc 41
2,230 Masco Corp. 67
-----------
108
-----------
CONSTRUCTION & ENGINEERING (0.0%)
1,020 Fluor Corp. 50
640 Jacobs Engineering Group, Inc.* 28
1,370 Quanta Services, Inc.* 30
-----------
108
-----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
4,104 Caterpillar, Inc. 298
1,024 Cummins, Inc. 103
2,754 PACCAR, Inc. 143
-----------
544
-----------
DIVERSIFIED SUPPORT SERVICES (0.0%)
670 Cintas Corp. 62
-----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
1,637 AMETEK, Inc. 93
3,221 Eaton Corp. plc 187
4,369 Emerson Electric Co. 219
980 Rockwell Automation, Inc. 104
-----------
603
-----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
2,211 Republic Services, Inc. 97
480 Stericycle, Inc.* 58
2,413 Waste Management, Inc. 130
-----------
285
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
766 Robert Half International, Inc. 39
-----------
INDUSTRIAL CONGLOMERATES (1.1%)
4,300 3M Co. 673
4,157 Danaher Corp. 401
67,642 General Electric Co. 2,025
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
690 Roper Industries, Inc. $ 134
-----------
3,233
-----------
INDUSTRIAL MACHINERY (0.3%)
1,306 Dover Corp. 86
1,268 Flowserve Corp. 59
2,480 Illinois Tool Works, Inc. 233
1,614 Ingersoll-Rand plc 95
940 Parker-Hannifin Corp. 98
1,151 Pentair plc 65
451 Snap-On, Inc. 78
983 Stanley Black & Decker, Inc. 107
1,040 Xylem, Inc. 39
-----------
860
-----------
OFFICE SERVICES & SUPPLIES (0.0%)
1,260 Pitney Bowes, Inc. 27
-----------
RAILROADS (0.4%)
7,340 CSX Corp. 209
685 Kansas City Southern 62
2,323 Norfolk Southern Corp. 221
6,102 Union Pacific Corp. 512
-----------
1,004
-----------
RESEARCH & CONSULTING SERVICES (0.1%)
230 Dun & Bradstreet Corp. 25
720 Equifax, Inc. 80
2,884 Nielsen Holdings plc 135
-----------
240
-----------
SECURITY & ALARM SERVICES (0.1%)
1,054 ADT Corp. 37
2,400 Tyco International plc 85
-----------
122
-----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
1,860 Fastenal Co. 75
643 United Rentals, Inc.* 51
480 W.W. Grainger, Inc. 96
-----------
222
-----------
TRUCKING (0.0%)
707 JB Hunt Transport Services, Inc. 55
360 Ryder System, Inc. 24
-----------
79
-----------
Total Industrials 12,839
-----------
================================================================================
28 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (9.3%)
-----------------------------
APPLICATION SOFTWARE (0.3%)
3,230 Adobe Systems, Inc.* $ 295
1,521 Autodesk, Inc.* 97
1,224 Citrix Systems, Inc.* 94
1,878 Intuit, Inc. 188
4,106 salesforce.com, Inc.* 327
-----------
1,001
-----------
COMMUNICATIONS EQUIPMENT (0.6%)
35,002 Cisco Systems, Inc. 954
561 F5 Networks, Inc.* 58
790 Harris Corp. 65
2,447 Juniper Networks, Inc. 74
1,756 Motorola Solutions, Inc. 126
10,225 QUALCOMM, Inc. 499
-----------
1,776
-----------
DATA PROCESSING & OUTSOURCED SERVICES (1.1%)
381 Alliance Data Systems Corp.* 109
3,233 Automatic Data Processing, Inc. 279
900 Computer Sciences Corp. 28
1,935 Fidelity National Information Services, Inc. 123
1,700 Fiserv, Inc.* 164
6,614 MasterCard, Inc. "A" 648
2,218 Paychex, Inc. 120
7,474 PayPal Holdings, Inc.* 264
967 Total System Services, Inc. 54
13,429 Visa, Inc. "A" 1,061
4,051 Western Union Co. 76
6,735 Xerox Corp. 71
-----------
2,997
-----------
ELECTRONIC COMPONENTS (0.1%)
2,540 Amphenol Corp. "A" 140
8,581 Corning, Inc. 161
-----------
301
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
730 FLIR Systems, Inc. 22
-----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
2,743 TE Connectivity Ltd. 184
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE (0.1%)
3,513 Activision Blizzard, Inc. $ 132
2,111 Electronic Arts, Inc.* 143
-----------
275
-----------
INTERNET SOFTWARE & SERVICES (1.8%)
1,250 Akamai Technologies, Inc.* 72
1,982 Alphabet, Inc. "A"* 1,512
2,035 Alphabet, Inc. "C"* 1,511
7,474 eBay, Inc.* 221
15,552 Facebook, Inc. "A"* 1,621
690 VeriSign, Inc.* 62
6,039 Yahoo! Inc.* 204
-----------
5,203
-----------
IT CONSULTING & OTHER SERVICES (0.6%)
4,263 Accenture plc "A" 457
4,220 Cognizant Technology Solutions Corp. "A"* 273
900 CSRA, Inc.* 28
6,239 International Business Machines Corp. 870
1,005 Teradata Corp.* 30
-----------
1,658
-----------
SEMICONDUCTOR EQUIPMENT (0.1%)
7,048 Applied Materials, Inc. 132
1,029 KLA-Tencor Corp. 69
1,046 Lam Research Corp. 82
-----------
283
-----------
SEMICONDUCTORS (1.0%)
2,050 Altera Corp. 108
2,280 Analog Devices, Inc. 141
1,821 Avago Technologies Ltd. 238
3,700 Broadcom Corp. "A" 202
511 First Solar, Inc.* 29
32,856 Intel Corp. 1,142
1,461 Linear Technology Corp. 67
1,370 Microchip Technology, Inc. 66
7,311 Micron Technology, Inc.* 116
3,504 NVIDIA Corp. 111
1,030 Qorvo, Inc.* 60
1,295 Skyworks Solutions, Inc. 107
7,255 Texas Instruments, Inc. 422
1,774 Xilinx, Inc. 88
-----------
2,897
-----------
================================================================================
30 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (1.5%)
2,000 CA, Inc. $ 56
55,389 Microsoft Corp. 3,010
22,216 Oracle Corp. 866
1,425 Red Hat, Inc.* 116
4,631 Symantec Corp. 91
-----------
4,139
-----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.0%)
39,245 Apple, Inc. 4,643
13,494 EMC Corp. 342
13,355 Hewlett Packard Enterprise Co. 198
13,355 HP, Inc. 168
2,010 NetApp, Inc. 62
1,560 SanDisk Corp. 115
2,228 Seagate Technology plc 80
1,473 Western Digital Corp. 92
-----------
5,700
-----------
Total Information Technology 26,436
-----------
MATERIALS (1.3%)
----------------
ALUMINUM (0.0%)
7,816 Alcoa, Inc. 73
-----------
COMMODITY CHEMICALS (0.1%)
2,687 LyondellBasell Industries N.V. "A" 257
-----------
CONSTRUCTION MATERIALS (0.1%)
419 Martin Marietta Materials, Inc. 66
896 Vulcan Materials Co. 92
-----------
158
-----------
DIVERSIFIED CHEMICALS (0.3%)
7,387 Dow Chemical Co. 385
6,132 E.I. du Pont de Nemours & Co. 413
940 Eastman Chemical Co. 68
-----------
866
-----------
DIVERSIFIED METALS & MINING (0.0%)
7,058 Freeport-McMoRan, Inc. 58
-----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
2,035 CF Industries Holdings, Inc. 94
905 FMC Corp. 39
3,141 Monsanto Co. 299
1,956 Mosaic Co. 62
-----------
494
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GOLD (0.0%)
3,179 Newmont Mining Corp. $ 59
-----------
INDUSTRIAL GASES (0.2%)
1,242 Air Products & Chemicals, Inc. 170
526 Airgas, Inc. 72
2,028 Praxair, Inc. 229
-----------
471
-----------
METAL & GLASS CONTAINERS (0.0%)
1,366 Ball Corp. 95
950 Owens-Illinois, Inc.* 18
-----------
113
-----------
PAPER PACKAGING (0.1%)
660 Avery Dennison Corp. 43
1,361 Sealed Air Corp. 62
1,929 WestRock Co. 98
-----------
203
-----------
PAPER PRODUCTS (0.1%)
3,370 International Paper Co. 141
-----------
SPECIALTY CHEMICALS (0.2%)
1,730 Ecolab, Inc. 206
570 International Flavors & Fragrances, Inc. 68
1,854 PPG Industries, Inc. 196
520 Sherwin-Williams Co. 144
-----------
614
-----------
STEEL (0.0%)
1,881 Nucor Corp. 78
-----------
Total Materials 3,585
-----------
TELECOMMUNICATION SERVICES (1.0%)
---------------------------------
ALTERNATIVE CARRIERS (0.0%)
1,946 Level 3 Communications, Inc.* 99
-----------
INTEGRATED TELECOMMUNICATION SERVICES (1.0%)
42,331 AT&T, Inc. 1,425
4,402 CenturyLink, Inc. 118
7,613 Frontier Communications Corp. 38
27,495 Verizon Communications, Inc. 1,250
-----------
2,831
-----------
Total Telecommunication Services 2,930
-----------
================================================================================
32 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (0.7%)
3,324 American Electric Power Co., Inc. $ 186
4,432 Duke Energy Corp. 300
2,134 Edison International 127
990 Entergy Corp. 66
2,230 Eversource Energy 114
5,836 Exelon Corp. 159
2,859 FirstEnergy Corp. 90
3,140 NextEra Energy, Inc. 313
1,750 Pepco Holdings, Inc. 45
850 Pinnacle West Capital Corp. 54
4,547 PPL Corp. 155
7,069 Southern Co. 315
3,434 Xcel Energy, Inc. 122
-----------
2,046
-----------
GAS UTILITIES (0.0%)
813 AGL Resources, Inc. 51
-----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
4,388 AES Corp. 44
2,292 NRG Energy, Inc. 28
-----------
72
-----------
MULTI-UTILITIES (0.5%)
1,840 Ameren Corp. 81
2,918 CenterPoint Energy, Inc. 49
1,590 CMS Energy Corp. 56
1,808 Consolidated Edison, Inc. 112
3,847 Dominion Resources, Inc. 259
1,190 DTE Energy Co. 96
2,170 NiSource, Inc. 42
3,233 PG&E Corp. 171
3,435 Public Service Enterprise Group, Inc. 134
899 SCANA Corp. 53
1,561 Sempra Energy 155
1,670 TECO Energy, Inc. 44
2,417 WEC Energy Group, Inc. 119
-----------
1,371
-----------
Total Utilities 3,540
-----------
Total Blue Chip Stocks (cost: $61,412) 125,893
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
RIGHTS (0.0%)
CONSUMER STAPLES (0.0%)
-----------------------
FOOD RETAIL (0.0%)
1,460 Safeway Casa Ley CVR*(h) $ -
1,460 Safeway PDC, LLC CVR*(h) -
-----------
Total Consumer Staples -
-----------
Total Rights (cost: $1) -
-----------
EXCHANGE-TRADED FUNDS (0.5%)
6,200 SPDR S&P 500 ETF Trust (cost $1,292) 1,294
-----------
Total Equity Securities (cost: $62,705) 127,187
-----------
TOTAL INVESTMENTS (COST: $211,362) $ 281,798
===========
--------------------------------------------------------------------------------------------------------
($ 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
--------------------------------------------------------------------------------------------------------
Tax-Exempt Bonds $ - $150,702 $- $150,702
Tax-Exempt Money Market Instruments:
Variable-Rate Demand Notes - 3,400 - 3,400
Money Market Funds 509 - - 509
Blue Chip Stocks 125,893 - - 125,893
Exchange-Traded Funds 1,294 - - 1,294
--------------------------------------------------------------------------------------------------------
Total $127,696 $154,102 $- $281,798
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2015, through November 30, 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.
================================================================================
34 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
ISD Independent School District
MTA Metropolitan Transportation Authority
PRE Prerefunded to a date prior to maturity
REIT Real estate investment trust
USD Unified School District
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured Guaranty
Corp., Assured Guaranty Municipal Corp., Build America Mutual
Assurance Corp., Financial Guaranty Insurance Co., or National Public
Finance Guarantee Corp. Although bond insurance reduces the risk of
loss due to default by an issuer, such bonds remain subject to the
risk that value may fluctuate for other reasons, and there is no
assurance that the insurance company will meet its obligations.
(NBGA) Principal and interest payments are guaranteed by a nonbank guarantee
agreement from Texas Permanent School Fund.
o SPECIFIC NOTES
(a) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(b) Security deemed illiquid by USAA Asset Management Company (the
Manager), under liquidity guidelines approved by the USAA
================================================================================
36 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
Mutual Funds Trust's Board of Trustees (the Board). The aggregate
market value of these securities at November 30, 2015, was $265,000,
which represented 0.1% of the Fund's net assets.
(c) Pay-in-kind (PIK) - security in which the issuer will have or has the
option to make all or a portion of the interest or dividend payments
in additional securities.
(d) Up to 6.05% of the 6.95% coupon may be PIK.
(e) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in
an exempt transaction to a qualified institutional buyer as defined
by Rule 144A, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(f) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
(g) Northern Trust Corp. is the parent of Northern Trust Investments,
Inc., which is the subadviser of the Fund.
(h) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was zero.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $211,362) $281,798
Cash 66
Receivables:
Capital shares sold 263
Dividends and interest 2,297
--------
Total assets 284,424
--------
LIABILITIES
Payables:
Capital shares redeemed 215
Accrued management fees 115
Accrued transfer agent's fees 8
Other accrued expenses and payables 56
--------
Total liabilities 394
--------
Net assets applicable to capital shares outstanding $284,030
========
NET ASSETS CONSIST OF:
Paid-in capital $226,989
Accumulated undistributed net investment income 1,389
Accumulated net realized loss on investments (14,784)
Net unrealized appreciation of investments 70,436
--------
Net assets applicable to capital shares outstanding $284,030
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 16,298
========
Net asset value, redemption price, and offering price per share $ 17.43
========
See accompanying notes to financial statements.
================================================================================
38 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 1,366
Interest 3,456
--------
Total income 4,822
--------
EXPENSES
Management fees 671
Administration and servicing fees 208
Transfer agent's fees 114
Custody and accounting fees 65
Postage 6
Shareholder reporting fees 10
Trustees' fees 13
Registration fees 17
Professional fees 47
Other 5
--------
Total expenses 1,156
--------
NET INVESTMENT INCOME 3,666
--------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain 173
Change in net unrealized appreciation/(depreciation) (614)
--------
Net realized and unrealized loss (441)
--------
Increase in net assets resulting from operations $ 3,225
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,666 $ 6,588
Net realized gain on investments 173 538
Change in net unrealized appreciation/(depreciation)
of investments (614) 7,330
------------------------
Increase in net assets resulting from operations 3,225 14,456
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,027) (5,817)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 25,030 83,146
Reinvested dividends 3,800 5,459
Cost of shares redeemed (27,179) (35,508)
------------------------
Increase in net assets from capital share transactions 1,651 53,097
------------------------
Net increase in net assets 849 61,736
NET ASSETS
Beginning of period 283,181 221,445
------------------------
End of period $ 284,030 $ 283,181
------------------------
Accumulated undistributed net investment income:
End of period $ 1,389 $ 1,750
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,453 4,803
Shares issued for dividends reinvested 224 317
Shares redeemed (1,579) (2,052)
------------------------
Increase in shares outstanding 98 3,068
========================
See accompanying notes to financial statements.
================================================================================
40 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Growth and Tax Strategy Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek a conservative balance for the investor between
income, the majority of which is exempt from federal income tax, and the
potential for long-term growth of capital to preserve purchasing power.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
meetings to review prior actions taken by the Committee and USAA Asset
Management Company (the Manager), an affiliate of the Fund. 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 over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities exchanges
or markets are valued at the last quoted sales price, or the most
recently determined official closing price calculated according to local
market convention, available at the time the Fund is valued. If no last
sale or official closing price is reported or available, the average of
the bid and asked prices generally is used.
2. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end of
each business day.
3. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
4. 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 value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities
================================================================================
42 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
5. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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, other pricing services, 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,
evaluation of credit quality, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
market-corroborated inputs such as market indexes. Level 2 securities
include tax-exempt bonds valued based on methods discussed in Note 1A4 and
variable-rate demand notes, which are valued at amortized cost.
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 are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities. Foreign
income and capital gains on some foreign securities may be subject to
foreign taxes, which are accrued as applicable, as a reduction to such
income and realized gains. These foreign taxes have been provided for in
accordance with the understanding of the applicable countries' tax rules and
rates.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than
================================================================================
44 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
the amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis may increase the volatility of the
Fund's NAV to the extent that the Fund makes such purchases while remaining
substantially fully invested.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 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).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $1,000, which represents 0.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, 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 May 31, 2015, the Fund had both pre-enactment capital loss carryforwards and
post-enactment capital loss carryforwards for federal income tax purposes as
shown in the table. It is unlikely that the Board will authorize a distribution
================================================================================
46 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
of capital gains realized in the future until the capital loss carryforwards
have been used or expire.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------------------------
EXPIRES SHORT-TERM LONG-TERM
------------- ----------- ---------
2017 $ 2,735,000 $ -
2018 11,532,000 -
No Expiration 339,000 284,000
----------- ---------
Total $14,606,000 $ 284,000
=========== =========
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$19,336,000 and $17,992,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $73,970,000 and $3,534,000, respectively, resulting in net unrealized
appreciation of $70,436,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
affairs of the Fund, and for directly managing the day-to-day investment of a
portion of the Fund's assets, subject to the authority of and supervision by
the Board. The Manager is authorized to select (with approval of the Board
and without shareholder approval) one or more subadvisers to manage the
actual day-to-day investment of a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether each
subadviser's agreement should be renewed, terminated, or modified. The
Manager also is responsible for allocating assets to the subadviser(s). The
allocation for each subadviser 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.
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to a composite index comprised of 51%
of the Lipper General Municipal Bond Funds Index, which tracks the total
return performance of the 30 largest funds within the Lipper General
Municipal Bond Funds category, and 49% of the Lipper Large-Cap Core Funds
Index, which tracks the total return performance of the 30 largest funds
within the Lipper Large-Cap Core Funds category. The performance period for
the Fund consists of the current month plus the previous 35 months. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1) Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest basis point. Average net
assets are calculated over a rolling 36-month period.
================================================================================
48 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in the
month and the denominator of which is 365 (366 in leap years). The resulting
amount is then added to (in the case of overperformance) or subtracted from
(in the case of underperformance) the base fee.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the composite index over that period, even if the Fund had
overall negative returns during the performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $671,000, which included
a (0.02)% performance adjustment of $(23,000).
B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into an Investment
Subadvisory Agreement with Northern Trust Investments, Inc. (NTI), under
which NTI directs the investment and reinvestment of the portion of the
Fund's assets invested in blue chip stocks (as allocated from time to time by
the Manager). The Manager (not the Fund) pays NTI a subadvisory fee equal to
the greater of a minimum annual fee of $100,000 or a fee at an annual amount
of 0.25% on the first $40 million of assets and 0.10% on assets over $40
million of the portion of the Fund's average net assets that NTI manages.
For the six-month period ended November 30, 2015, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to NTI, of
$93,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2015, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $208,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
approved the reimbursement of a portion of these expenses incurred by the
Manager. For the six-month period ended November 30, 2015, the Fund
reimbursed the Manager $3,000 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 based on an annual charge of $23 per shareholder account
plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. Prior to June 1, 2015, the annual charge was $25.50
per shareholder account plus out-of-pocket expenses. For the six-month period
ended November 30, 2015, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $114,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
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.
================================================================================
50 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.48 $ 16.86 $ 15.59 $ 14.02 $ 13.44 $ 12.28
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .44 .41 .37 .36 .35
Net realized and
unrealized gain (loss) (.03) .59 1.26 1.57 .57 1.16
-----------------------------------------------------------------------------------
Total from investment
operations .20 1.03 1.67 1.94 .93 1.51
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.41) (.40) (.37) (.35) (.35)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 17.43 $ 17.48 $ 16.86 $ 15.59 $ 14.02 $ 13.44
===================================================================================
Total return (%)* 1.20 6.16 10.92 14.07 7.11 12.54
Net assets at
end of period (000) $284,030 $283,181 $221,445 $188,461 $162,718 $154,493
Ratios to average
net assets:**
Expenses (%)(a) .83(b) .85 .92 .96 .98 .93
Net investment
income (%) 2.64(b) 2.63 2.60 2.51 2.65 2.73
Portfolio turnover (%) 7 9 5 5 8 19
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$277,647,000.
(a) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly.
The Fund's expenses paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+)Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
================================================================================
52 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------------
Actual $1,000.00 $1,012.00 $4.17
Hypothetical
(5% return before expenses) 1,000.00 1,020.85 4.19
*Expenses are equal to the Fund's annualized expense ratio of 0.83%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/366 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of 1.20% for the six-month period of June 1, 2015, through November 30,
2015.
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27801-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERNATIONAL FUND]
==============================================================
SEMIANNUAL REPORT
USAA INTERNATIONAL FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 37
Financial Statements 39
Notes to Financial Statements 43
EXPENSE EXAMPLE 62
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)2016, USAA. All rights reserved.
200995-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA INTERNATIONAL FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
foreign (including emerging markets) companies. The "equity securities" in which
the Fund principally invests are common stocks, depositary receipts, preferred
stocks, securities convertible into common stocks, and securities that carry the
right to buy common stocks, including rights and warrants.
The Fund will normally invest its assets in investments that are tied
economically to a number of countries throughout the world. However, the Fund
may invest a large percentage of its assets in securities of issuers in a single
country, a small number of countries, or a particular geographic region. The
Fund may invest in companies of any size, including mid- and small-cap
companies. Investments are selected primarily based on fundamental analysis of
individual issuers and their potential in light of their financial condition,
and market, economic, political, and regulatory conditions. Factors considered
may include analysis of an issuer's earnings, cash flows, competitive position,
and management ability. Quantitative models that systematically evaluate an
issuer's valuation, price and earnings momentum, earnings quality, and other
factors also may be considered.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
MFS Investment Management Lazard Asset Management*
MARCUS L. SMITH PAUL MOGHTADER, CFA
DANIEL LING TARA IVANENKO, CFA
CIPRIAN MARIN
CRAIG SCHOLL, CFA
Wellington Management Company LLP*
JAMES H. SHAKIN, CFA SUSANNE WILLUMSEN
ANDREW M. CORRY, CFA
--------------------------------------------------------------------------------
o PLEASE REVIEW MARKET CONDITIONS DURING THE REPORTING PERIOD.
The reporting period ended November 30, 2015, was dominated by speculation
over both Federal Reserve the (the Fed) policy and China's growth outlook,
against a continued backdrop of elevated geopolitical uncertainty. The Fed
had appeared on the verge of an interest rate increase for several quarters,
but was given pause by a deterioration in economic conditions globally that
has been reflected in unprecedented actions by central banks in Europe and
Japan to jump start their economies. Concerns continued to mount over the
ability of China to maintain acceptable growth levels as it transitions to a
more balanced economic model. In August 2015, the Chinese government devalued
its currency, the renminbi, leading to fears of a potential global currency
war. Oil and other commodities continued their decline over the reporting
period, putting further pressure on the financial stability of a number of
emerging markets. On the geopolitical front, Syria was added to Ukraine as a
focal point for tensions between Russia and the U.S.-led NATO alliance.
As the reporting period drew to a close, markets began to prepare for the
Fed's initial interest rate hike on the back of a strengthening U.S.
*Effective August 26, 2015 Wellington Management Company LLP and Lazard Asset
Management became subadvisers to the Fund.
================================================================================
2 | USAA INTERNATIONAL FUND
================================================================================
employment picture. While U.S. stocks in aggregate managed to finish the
reporting period around where they started, the same was not true with
respect to overseas markets, which closed notably lower.
o HOW DID THE USAA INTERNATIONAL FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2015, the Fund
Shares, Institutional Shares, and Adviser Shares had a total returns of
-7.06%, -7.01%, and -7.18%, respectively. This compares to returns of -7.72%
for the Lipper International Funds Index and -7.42% for the MSCI EAFE Index
(the Index).
USAA Asset Management Company (the Manager) is the Fund's investment adviser.
As the investment adviser, the Manager employs dedicated resources to support
the research, selection, and monitoring of the Fund's subadvisers. MFS
Investment Management (MFS), Wellington Management Company, LLP (Wellington
Management), and Lazard Asset Management (Lazard) are subadvisers to the
Fund. The subadvisers each provide day-to-day discretionary management for a
portion of the Fund's assets.
o WHAT WERE THE PRINCIPAL FACTORS IN THE PERFORMANCE OF MFS RELATIVE TO THE
INDEX?
Stock selection in the basic materials sector was a leading contributor to
relative performance. In particular, for its portion of the Fund, MFS avoided
two U.K.-based companies within the sector, mining giant BHP Billiton plc and
commodities giant Glencore plc, which benefited performance as weak commodity
pricing placed downward pressure on results for both companies. Strong stock
selection within the
Refer to page 9 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
You will find a complete list of securities that the Fund owns on pages
16-36.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
technology and leisure sectors also aided relative results. Within
technology, Japanese medical equipment company HOYA Corp. added to relative
performance, as did a pair of U.K.-based companies within leisure,
advertising and marketing firm WPP plc and entertainment company Sky plc.
Stocks in other sectors that aided relative performance included overweight
positions in medical products and equipment manufacturer Terumo Corp.
(Japan), catering company Compass Group plc (United Kingdom), household
products manufacturer Reckitt Benckiser Group plc (United Kingdom), human
resources and employment services provider Randstad Holding N.V.
(Netherlands), and skin and beauty care products maker Beiersdorf AG
(Germany).
Conversely, stock selection in the health care sector detracted from relative
performance, most notably, a position in Canada-based pharmaceutical company
Valeant Pharmaceuticals International, Inc., a company not included in the
Index. Stock selection in the financial services sector was another area of
relative weakness, in particular overweight positions in Standard Chartered
plc (United Kingdom), DBS Group Holdings Ltd. (Singapore), and ING Groep
N.V. (Netherlands). Elsewhere, overweight positions in industrial
conglomerate Rolls-Royce Holdings plc (United Kingdom), electrical
distribution equipment manufacturer Schneider Electric SE (France), oil and
gas exploration company INPEX Corp. (Japan), and commercial explosives and
blasting system distributor Orica Ltd. (Australia) dampened relative
performance. The Fund's position in fast food restaurant company Yum! Brands,
Inc., a company not included in the Index and not owning beverages company
Anheuser-Busch InBev S.A./N.V. (Belgium) also held back relative returns of
the MFS portion of the Fund. Finally, while all of MFS' investment decisions
are driven by individual company fundamentals, the Fund's currency exposures
during the reporting period detracted from relative performance.
With the global recovery remaining far from normal, the environment of low
inflation and interest rates may persist for some time. Through exposure to
high-quality companies, MFS believes its portion of the Fund remains well
positioned to outperform the market over the long-term.
================================================================================
4 | USAA INTERNATIONAL FUND
================================================================================
O WHAT WERE THE PRINCIPAL FACTORS IN WELLINGTON MANAGEMENT'S PERFORMANCE
RELATIVE TO THE INDEX?
The Wellington Management portion of the Fund outperformed the Index between
August 26, 2015, the date Wellington Management became a subadviser to the
Fund, and November 30, 2015. Outperformance during the abbreviated reporting
period was largely a result of positive security selection, driven by strong
selection in the consumer discretionary, health care, consumer staples, and
energy sectors. Partially offsetting these positive contributions to
relative performance was weak selection within the industrials, information
technology, utilities, and financials sectors. From a regional perspective,
investments in Japan added the most value on a relative basis, while weak
selection in Europe and an allocation to emerging markets detracted the most
from relative results. Sector allocation, a fallout of Wellington's stock
selection process, also contributed to relative outperformance during the
period, driven primarily by an overweight to the strong performing
information technology sector and underweight allocations to the financials
and health care sectors. Partially offsetting these positive allocation
results was an underweight allocation to the strong performing consumer
staples sector and an overweight allocation to the materials sector, which
lagged during the period.
Top individual contributors to relative performance during the abbreviated
period included positions in Pioneer Corp., a Japanese manufacturer of audio
and video equipment, and SCREEN Holdings Co. Ltd., a Japanese semiconductor
manufacturer, as well as not owning benchmark-constituent Novartis AG, a
pharmaceutical developer and manufacturer based in Switzerland. Top
individual detractors from relative performance included Anglo American plc,
a U.K.-based operator of global and diversified mining businesses; Standard
Chartered plc, a U.K.-based retail and commercial bank; and Anglo American
Platinum Ltd., a South Africa-based exploration & production company focused
on platinum group metals.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
At the end of the period, the Wellington Management portion of the Fund
maintained overweight allocations to the information technology, materials
and energy sectors. The portfolio was most underweight the consumer staples,
health care, and financials sectors. On a regional basis, Wellington
Management maintained a large overweight to Japan, at the expense of
underweight allocations to Europe and Asia ex-Japan.
o WHAT WERE THE PRINCIPAL FACTORS IN LAZARD'S PERFORMANCE RELATIVE TO THE
INDEX?
For the period between August 26, 2015, the date Lazard became a subadviser
to the Fund, and November 30, 2015, stock selection and minor favorable
sector differences versus the benchmark aided performance in the Lazard
portion of the Fund. The Lazard portion of the Fund was favorably positioned
with overweights in health care and consumer staples, while underweights in
energy and financials also helped. Stock selection provided a contribution in
information technology and financials, but lagged in utilities and
industrials. Regionally, stock selection was favorable in Europe and the
United Kingdom, but lagged in Japan.
Individual stocks playing a positive role in the performance of the Lazard
portion of the Fund for the brief period under review included Blackmores
Ltd., an Australian generic-pharmaceuticals company that has been a leader in
product innovation and has benefitted from a significant recall by its major
competitor. Furukawa Electric Co., Ltd., the electric-products manufacturer,
rallied in November after receiving a large contract for power-transmission
in South America. The growth in demand for renewable energy systems has
benefited the company, which makes the power transmission lines. Genmab A/S,
a Danish biotech concern, received an accelerated approval from the U.S. FDA
for its myeloma drug, sending the stock up sharply. Stocks that hurt the
return of the Lazard portion of the Fund included Astaldi S.p.A., the Italian
engineering concern, which suffered a credit downgrade on its increased debt
load and apparent inability to sell stakes in several major infrastructure
projects. Nisshinbo Holdings, Inc., the Japan textile
================================================================================
6 | USAA INTERNATIONAL FUND
================================================================================
manufacturer, gave back most of their recent gains after they revised their
2016 earnings forecast down nearly 25% on the weak global outlook. Shares of
San-In Godo Bank Ltd., a regional Japanese bank, fell as the company's
revenue failed to meet expectations.
Lazard continues to believe that a carefully constructed portfolio of small
capitalization companies has the potential to outperform their larger peers.
The ability to manage with a more flexible business strategy, to innovate
with a potentially material financial impact and to operate within more niche
markets are all advantages for smaller companies. Small cap stocks also
benefit from greater mispricings and the lack of extensive institutional
coverage, creating an attractive set of investment opportunities which can
potentially be exploited by a systematic bottom-up process.
Thank you for your investment in the Fund.
Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market
illiquidity, and political and economic instability. Foreign investing may
result in more rapid and extreme changes in value than investments made
exclusively in the securities of U.S. companies. There may be less publicly
available information relating to foreign companies than those in the U.S.
Foreign securities may also be subject to foreign taxes. Investments made in
emerging market countries may be particularly volatile. Economies of emerging
market countries are generally less diverse and mature than more developed
countries and may have less stable political systems.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 7
================================================================================
INVESTMENT OVERVIEW
USAA INTERNATIONAL FUND SHARES (FUND SHARES)
(Ticker Symbol: USIFX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $1.9 Billion $2.0 Billion
Net Asset Value Per Share $28.72 $30.90
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-7.06% -1.99% 6.35% 5.59%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.56% 4.40% 4.94%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.12%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense 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 October 1, 2015, 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.
================================================================================
8 | USAA INTERNATIONAL FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERNATIONAL LIPPER INTERNATIONAL
FUND SHARES FUNDS INDEX MSCI EAFE INDEX
11/30/05 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,459.15 10,499.83 10,465.34
01/31/06 11,180.63 11,192.30 11,107.90
02/28/06 11,158.22 11,140.86 11,083.33
03/31/06 11,485.35 11,536.22 11,448.61
04/30/06 12,005.17 12,084.55 11,995.39
05/31/06 11,579.46 11,532.28 11,529.56
06/30/06 11,655.64 11,476.47 11,528.80
07/31/06 11,906.58 11,578.58 11,642.92
08/31/06 12,318.86 11,896.04 11,963.04
09/30/06 12,341.26 11,956.76 11,981.53
10/31/06 12,592.21 12,390.68 12,447.54
11/30/06 12,955.19 12,810.37 12,819.53
12/31/06 13,319.73 13,218.58 13,221.97
01/31/07 13,605.85 13,339.33 13,311.43
02/28/07 13,541.72 13,320.54 13,418.84
03/31/07 13,783.45 13,708.78 13,760.89
04/30/07 14,257.04 14,266.87 14,372.04
05/31/07 14,479.03 14,688.93 14,624.20
06/30/07 14,493.83 14,735.52 14,642.07
07/31/07 14,148.51 14,537.32 14,426.42
08/31/07 14,217.57 14,393.01 14,200.98
09/30/07 14,760.23 15,253.60 14,960.74
10/31/07 15,184.49 16,007.75 15,548.55
11/30/07 14,784.89 15,344.50 15,037.26
12/31/07 14,496.01 15,101.63 14,698.81
01/31/08 13,450.01 13,823.21 13,340.96
02/29/08 13,603.22 13,845.77 13,532.09
03/31/08 13,740.57 13,678.65 13,389.71
04/30/08 14,358.66 14,460.65 14,116.48
05/31/08 14,665.06 14,677.20 14,253.94
06/30/08 13,423.60 13,418.09 13,088.14
07/31/08 13,048.52 12,951.66 12,668.07
08/31/08 12,610.05 12,430.44 12,154.72
09/30/08 11,310.48 10,792.90 10,397.27
10/31/08 9,339.99 8,520.35 8,299.28
11/30/08 8,626.82 7,966.20 7,850.69
12/31/08 9,385.85 8,513.61 8,322.69
01/31/09 8,328.91 7,647.15 7,505.96
02/28/09 7,574.74 6,945.45 6,735.90
03/31/09 8,158.25 7,461.21 7,162.80
04/30/09 8,868.39 8,384.91 8,079.93
05/31/09 9,925.33 9,521.40 9,035.83
06/30/09 9,771.19 9,374.19 8,984.44
07/31/09 10,850.15 10,317.90 9,804.73
08/31/09 11,213.47 10,691.16 10,337.70
09/30/09 11,813.50 11,230.14 10,733.51
10/31/09 11,615.33 10,921.69 10,599.39
11/30/09 12,110.77 11,320.46 10,811.61
12/31/09 12,430.09 11,518.55 10,967.32
01/31/10 11,790.22 10,962.18 10,484.13
02/28/10 11,790.22 11,020.23 10,412.26
03/31/10 12,524.67 11,735.64 11,062.22
04/30/10 12,318.80 11,601.50 10,862.06
05/31/10 10,961.18 10,399.73 9,633.39
06/30/10 10,961.18 10,264.29 9,516.40
07/31/10 11,979.40 11,198.42 10,418.82
08/31/10 11,534.27 10,821.78 10,095.33
09/30/10 12,724.98 11,903.97 11,084.54
10/31/10 13,253.57 12,339.34 11,485.01
11/30/10 12,663.78 11,887.71 10,932.06
12/31/10 13,656.98 12,789.36 11,817.29
01/31/11 13,797.37 12,976.03 12,096.15
02/28/11 14,156.76 13,341.59 12,494.98
03/31/11 14,072.53 13,210.26 12,214.95
04/30/11 15,128.25 13,908.63 12,945.08
05/31/11 14,763.24 13,503.86 12,562.62
06/30/11 14,577.93 13,267.04 12,405.32
07/31/11 14,358.92 13,024.37 12,208.05
08/31/11 13,067.35 11,874.09 11,105.79
09/30/11 11,618.54 10,484.63 10,047.54
10/31/11 12,943.81 11,551.34 11,016.34
11/30/11 12,595.65 11,222.86 10,481.91
12/31/11 12,317.57 10,937.12 10,382.54
01/31/12 13,075.31 11,666.13 10,936.40
02/29/12 13,793.17 12,316.67 11,563.90
03/31/12 14,038.16 12,310.81 11,510.17
04/30/12 13,821.66 12,101.54 11,284.88
05/31/12 12,300.48 10,850.76 9,989.23
06/30/12 13,058.22 11,464.90 10,689.59
07/31/12 13,126.59 11,578.63 10,810.82
08/31/12 13,451.33 11,912.23 11,101.15
09/30/12 13,867.24 12,277.03 11,429.54
10/31/12 14,009.67 12,362.26 11,524.66
11/30/12 14,380.00 12,631.17 11,803.15
12/31/12 15,035.61 13,092.19 12,180.48
01/31/13 15,537.57 13,628.67 12,822.98
02/28/13 15,451.03 13,461.47 12,701.35
03/31/13 15,497.18 13,596.63 12,805.63
04/30/13 15,826.05 14,097.39 13,472.88
05/31/13 15,739.51 13,961.83 13,147.55
06/30/13 15,254.86 13,520.76 12,680.43
07/31/13 16,126.07 14,266.09 13,349.57
08/31/13 15,774.12 14,011.16 13,172.98
09/30/13 16,818.42 14,967.07 14,146.83
10/31/13 17,233.84 15,443.34 14,622.50
11/30/13 17,481.93 15,592.96 14,734.48
12/31/13 17,745.77 15,871.06 14,954.95
01/31/14 16,733.72 15,174.06 14,352.78
02/28/14 17,681.79 16,008.60 15,150.68
03/31/14 17,536.38 15,938.45 15,054.12
04/30/14 17,862.09 16,103.26 15,271.74
05/31/14 18,176.18 16,373.27 15,519.76
06/30/14 18,228.53 16,532.58 15,669.40
07/31/14 17,693.42 16,118.52 15,361.45
08/31/14 17,827.20 16,219.80 15,338.31
09/30/14 17,373.52 15,625.53 14,748.70
10/31/14 17,164.13 15,535.50 14,534.55
11/30/14 17,577.09 15,736.89 14,732.25
12/31/14 16,843.11 15,199.02 14,221.91
01/31/15 17,035.06 15,281.56 14,291.43
02/28/15 18,042.77 16,135.31 15,145.78
03/31/15 17,850.82 15,969.43 14,915.70
04/30/15 18,576.61 16,546.72 15,524.69
05/31/15 18,534.62 16,579.50 15,445.23
06/30/15 17,982.78 16,149.35 15,007.61
07/31/15 18,318.69 16,254.76 15,319.21
08/31/15 16,969.08 15,132.09 14,192.29
09/30/15 16,369.25 14,460.15 13,471.67
10/31/15 17,364.96 15,432.05 14,524.74
11/30/15 17,226.99 15,299.71 14,298.78
[END CHART]
Data from 11/30/05 through 11/30/15.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA International Fund Shares to the following benchmarks:
o The unmanaged Lipper International Funds Index tracks the total return
performance of the 30 largest funds within the Lipper International Funds
category.
o The unmanaged MSCI EAFE Index reflects the movements of stock markets in
Europe, Australasia, and the Far East by representing a broad selection of
domestically listed companies within each market.
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, except
the Lipper International Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA INTERNATIONAL FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIIFX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $1.5 Billion $1.7 Billion
Net Asset Value Per Share $28.66 $30.82
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-7.01% -1.87% 6.53% 4.33%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
0.70% 4.59% 4.04%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
0.99%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense 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 October 1, 2015, 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).
================================================================================
10 | USAA INTERNATIONAL FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERNATIONAL LIPPER INTERNATIONAL
FUND INSTITUTIONAL SHARES FUNDS INDEX MSCI EAFE INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,823.05 9,597.57 9,594.76
09/30/08 8,810.70 8,333.22 8,207.46
10/31/08 7,275.72 6,578.58 6,551.33
11/30/08 6,720.16 6,150.72 6,197.23
12/31/08 7,311.08 6,573.37 6,569.82
01/31/09 6,494.44 5,904.38 5,925.10
02/28/09 5,909.89 5,362.59 5,317.23
03/31/09 6,369.79 5,760.81 5,654.21
04/30/09 6,924.25 6,474.00 6,378.18
05/31/09 7,753.78 7,351.49 7,132.76
06/30/09 7,633.44 7,237.83 7,092.19
07/31/09 8,480.16 7,966.47 7,739.72
08/31/09 8,763.84 8,254.66 8,160.43
09/30/09 9,240.93 8,670.81 8,472.88
10/31/09 9,086.19 8,432.65 8,367.01
11/30/09 9,477.32 8,740.54 8,534.53
12/31/09 9,730.40 8,893.49 8,657.45
01/31/10 9,229.06 8,463.92 8,276.03
02/28/10 9,233.42 8,508.74 8,219.29
03/31/10 9,813.23 9,061.11 8,732.36
04/30/10 9,651.93 8,957.53 8,574.36
05/31/10 8,592.57 8,029.65 7,604.46
06/30/10 8,596.93 7,925.08 7,512.11
07/31/10 9,399.08 8,646.32 8,224.47
08/31/10 9,050.32 8,355.51 7,969.11
09/30/10 9,987.61 9,191.07 8,749.98
10/31/10 10,406.13 9,527.22 9,066.10
11/30/10 9,948.38 9,178.53 8,629.62
12/31/10 10,725.11 9,874.69 9,328.41
01/31/11 10,839.87 10,018.81 9,548.53
02/28/11 11,126.75 10,301.06 9,863.36
03/31/11 11,060.55 10,199.66 9,642.31
04/30/11 11,890.31 10,738.87 10,218.67
05/31/11 11,612.25 10,426.35 9,916.76
06/30/11 11,466.60 10,243.50 9,792.59
07/31/11 11,298.89 10,056.14 9,636.86
08/31/11 10,283.75 9,168.00 8,766.75
09/30/11 9,145.04 8,095.20 7,931.39
10/31/11 10,191.06 8,918.81 8,696.14
11/30/11 9,913.01 8,665.19 8,274.27
12/31/11 9,699.46 8,444.57 8,195.83
01/31/12 10,296.70 9,007.43 8,633.04
02/29/12 10,866.99 9,509.72 9,128.38
03/31/12 11,055.59 9,505.19 9,085.97
04/30/12 10,889.44 9,343.62 8,908.12
05/31/12 9,694.97 8,377.89 7,885.35
06/30/12 10,292.21 8,852.07 8,438.21
07/31/12 10,350.58 8,939.88 8,533.91
08/31/12 10,606.54 9,197.45 8,763.09
09/30/12 10,934.35 9,479.11 9,022.31
10/31/12 11,046.61 9,544.92 9,097.40
11/30/12 11,342.98 9,752.54 9,317.24
12/31/12 11,860.98 10,108.50 9,615.10
01/31/13 12,262.74 10,522.72 10,122.28
02/28/13 12,194.26 10,393.62 10,026.26
03/31/13 12,235.35 10,497.98 10,108.58
04/30/13 12,495.58 10,884.62 10,635.30
05/31/13 12,427.10 10,779.95 10,378.49
06/30/13 12,043.60 10,439.40 10,009.75
07/31/13 12,737.55 11,014.87 10,537.96
08/31/13 12,463.62 10,818.04 10,398.57
09/30/13 13,285.40 11,556.10 11,167.31
10/31/13 13,618.67 11,923.83 11,542.80
11/30/13 13,810.42 12,039.35 11,631.19
12/31/13 14,025.60 12,254.07 11,805.23
01/31/14 13,223.34 11,715.92 11,329.88
02/28/14 13,979.49 12,360.27 11,959.74
03/31/14 13,864.22 12,306.10 11,883.51
04/30/14 14,122.42 12,433.36 12,055.30
05/31/14 14,371.39 12,641.83 12,251.08
06/30/14 14,412.89 12,764.83 12,369.21
07/31/14 13,993.32 12,445.13 12,126.12
08/31/14 14,099.37 12,523.34 12,107.85
09/30/14 13,744.35 12,064.50 11,642.42
10/31/14 13,582.97 11,994.99 11,473.37
11/30/14 13,905.72 12,150.48 11,629.43
12/31/14 13,327.16 11,735.19 11,226.57
01/31/15 13,484.28 11,798.92 11,281.45
02/28/15 14,279.44 12,458.10 11,955.87
03/31/15 14,131.84 12,330.02 11,774.25
04/30/15 14,707.96 12,775.75 12,254.98
05/31/15 14,674.64 12,801.06 12,192.25
06/30/15 14,241.35 12,468.94 11,846.80
07/31/15 14,507.99 12,550.33 12,092.78
08/31/15 13,441.43 11,683.51 11,203.20
09/30/15 12,965.29 11,164.70 10,634.35
10/31/15 13,755.68 11,915.11 11,465.63
11/30/15 13,646.18 11,812.93 11,287.26
[END CHART]
Data from 7/31/08 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA International Fund Institutional Shares to the Fund's benchmarks listed
above (see page 9 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
the Lipper International Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
*The performance of the Lipper International Funds Index and the MSCI EAFE 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
USAA INTERNATIONAL FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAIFX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $6.9 Million $7.5 Million
Net Asset Value Per Share $28.56 $30.77
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-7.18% -2.25% 5.99% 6.11%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
0.29% 4.06% 5.68%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.51% AFTER REIMBURSEMENT 1.35%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated October 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2016, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Adviser Shares (exclusive of commission recapture,
expense offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 1.35% of the Adviser Shares' average
net assets. This reimbursement arrangement may not be changed or terminated
during this time period without approval of the Fund's Board of Trustees and may
be changed or terminated by the Manager at any time after October 1, 2016. If
the total annual operating expense ratio of the Adviser Shares is lower than
1.35%, the Adviser Shares will operate at the lower expense ratio. These expense
ratios may differ from the expense ratios disclosed in the Financial Highlights,
which excludes acquired fund fees and expenses. Prior to October 1, 2015, the
expense limitation was 1.40% of the Adviser Shares' net assets.
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.
================================================================================
12 | USAA INTERNATIONAL FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERNATIONAL FUND LIPPER INTERNATIONAL
MSCI EAFE INDEX ADVISER SHARES FUNDS INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,689.52 9,345.96 9,663.67
09/30/10 10,638.96 10,311.23 10,630.04
10/31/10 11,023.33 10,735.23 11,018.82
11/30/10 10,492.61 10,257.10 10,615.53
12/31/10 11,342.26 11,055.63 11,420.69
01/31/11 11,609.90 11,164.83 11,587.38
02/28/11 11,992.70 11,456.00 11,913.82
03/31/11 11,723.92 11,383.21 11,796.54
04/30/11 12,424.71 12,229.44 12,420.17
05/31/11 12,057.62 11,933.72 12,058.72
06/30/11 11,906.65 11,783.58 11,847.24
07/31/11 11,717.31 11,597.04 11,630.55
08/31/11 10,659.35 10,555.17 10,603.36
09/30/11 9,643.65 9,381.37 9,362.60
10/31/11 10,573.50 10,445.98 10,315.16
11/30/11 10,060.55 10,159.35 10,021.82
12/31/11 9,965.17 9,936.22 9,766.67
01/31/12 10,496.77 10,543.43 10,417.66
02/29/12 11,099.05 11,123.04 10,998.58
03/31/12 11,047.48 11,311.65 10,993.34
04/30/12 10,831.24 11,136.85 10,806.48
05/31/12 9,587.68 9,908.62 9,689.55
06/30/12 10,259.88 10,515.83 10,237.97
07/31/12 10,376.24 10,571.03 10,339.53
08/31/12 10,654.90 10,824.04 10,637.43
09/30/12 10,970.09 11,155.25 10,963.18
10/31/12 11,061.38 11,265.65 11,039.29
11/30/12 11,328.69 11,560.05 11,279.42
12/31/12 11,690.85 12,085.40 11,691.11
01/31/13 12,307.51 12,485.46 12,170.17
02/28/13 12,190.77 12,411.03 12,020.87
03/31/13 12,293.00 12,448.24 12,141.56
04/30/13 12,931.29 12,708.74 12,588.74
05/31/13 12,619.03 12,634.32 12,467.68
06/30/13 12,170.70 12,238.91 12,073.82
07/31/13 12,812.94 12,936.68 12,739.38
08/31/13 12,643.45 12,652.92 12,511.73
09/30/13 13,578.15 13,485.60 13,365.34
10/31/13 14,034.70 13,815.88 13,790.65
11/30/13 14,142.18 14,001.95 13,924.25
12/31/13 14,353.79 14,210.96 14,172.60
01/31/14 13,775.82 13,397.84 13,550.18
02/28/14 14,541.65 14,154.88 14,295.41
03/31/14 14,448.96 14,038.05 14,232.77
04/30/14 14,657.84 14,299.75 14,379.95
05/31/14 14,895.89 14,547.42 14,621.06
06/30/14 15,039.52 14,584.81 14,763.32
07/31/14 14,743.95 14,150.21 14,393.57
08/31/14 14,721.27 14,253.02 14,484.01
09/30/14 14,155.83 13,883.84 13,953.34
10/31/14 13,950.29 13,715.61 13,872.95
11/30/14 14,140.04 14,038.05 14,052.78
12/31/14 13,650.21 13,452.91 13,572.47
01/31/15 13,716.94 13,601.85 13,646.18
02/28/15 14,536.95 14,404.22 14,408.56
03/31/15 14,316.11 14,250.47 14,260.44
04/30/15 14,900.63 14,827.03 14,775.94
05/31/15 14,824.35 14,783.77 14,805.21
06/30/15 14,404.33 14,341.76 14,421.10
07/31/15 14,703.41 14,606.01 14,515.23
08/31/15 13,621.78 13,524.98 13,512.70
09/30/15 12,930.13 13,044.52 12,912.67
10/31/15 13,940.87 13,832.47 13,780.56
11/30/15 13,723.99 13,721.95 13,662.39
[END CHART]
Data from 7/31/10 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA International Fund Adviser Shares to the Fund's benchmarks listed above
(see page 9 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
the Lipper International Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
*The performance of the MSCI EAFE Index and the Lipper International Funds Index
is calculated from the end of the month, July 31, 2010, while the inception date
of the Adviser Shares is August 1, 2010. There may be a slight variation of
performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 11/30/15 o
(% of Net Assets)
Pharmaceuticals ...................................................... 8.4%
Diversified Banks .................................................... 7.6%
Packaged Foods & Meat ................................................ 4.6%
Restaurants .......................................................... 3.5%
Auto Parts & Equipment ............................................... 3.0%
Distillers & Vintners ................................................ 2.8%
Industrial Gases ..................................................... 2.7%
Life & Health Insurance .............................................. 2.7%
Electrical Components & Equipment .................................... 2.4%
Apparel, Accessories & Luxury Goods .................................. 2.3%
o TOP 10 EQUITY HOLDINGS - 11/30/15 o
(% of Net Assets)
Bayer AG ............................................................. 2.5%
Nestle S.A. .......................................................... 2.4%
Roche Holding AG ..................................................... 2.2%
Compass Group plc .................................................... 2.1%
WPP plc .............................................................. 2.1%
UBS Group AG ......................................................... 1.9%
Hoya Corp. ........................................................... 1.8%
DANONE S.A. .......................................................... 1.6%
Taiwan Semiconductor Manufacturing Co., Ltd. ADR ..................... 1.6%
Reckitt Benckiser Group plc .......................................... 1.6%
You will find a complete list of securities that the Fund owns on pages 16-36.
================================================================================
14 | USAA INTERNATIONAL FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/15 o
[PIE CHART OF COUNTRY ALLOCATION]
United Kingdom 18.7%
France 12.2%
Switzerland 9.9%
Germany 9.6%
Netherlands 4.6%
Canada 3.4%
Other* 20.5%
Japan 20.7%
[END CHART]
* Includes countries that represent less than 3% of portfolio and money market
instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
EQUITY SECURITIES (98.5%)
COMMON STOCKS (98.4%)
CONSUMER DISCRETIONARY (18.5%)
------------------------------
ADVERTISING (2.3%)
265,882 APN Outdoor Group Ltd.(a) $ 1,036
46,700 Gendai Agency, Inc.(a) 236
58,844 Stroeer SE(a) 3,489
3,061,875 WPP plc(a) 70,786
----------
75,547
----------
APPAREL RETAIL (1.2%)
39,600 Adastria Co., Ltd.(a) 2,338
790,597 Hennes & Mauritz AB "B"(a) 29,304
166,700 Honeys Co., Ltd.(a) 1,404
245,500 Nishimatsuya Chain Co., Ltd.(a) 2,237
62,600 Pal Co., Ltd.(a) 1,558
21,600 Shimamura Co., Ltd.(a) 2,636
----------
39,477
----------
APPAREL, ACCESSORIES & LUXURY GOODS (2.3%)
89,226,800 Global Brands Group Holding Ltd.*(a) 17,266
458,000 Gunze Ltd.(a) 1,382
13,399 Hermes International(a) 4,715
21,806,800 Li & Fung Ltd.(a) 14,904
228,391 LVMH Moet Hennessy Louis Vuitton SE(a) 38,268
----------
76,535
----------
AUTO PARTS & EQUIPMENT (3.0%)
192,000 Aisan Industry Co., Ltd.(a) 2,079
60,868 Brembo S.p.A.(a) 2,791
218,129 Delphi Automotive plc 19,169
1,068,400 Denso Corp.(a) 51,024
116,100 Exedy Corp.(a) 2,797
30,473 Faurecia(a) 1,143
60,400 G-Tekt Corp.(a) 872
59,300 Imasen Electric Industrial Co., Ltd.(a) 645
133,600 Kasai Kogyo Co., Ltd.(a) 2,022
202,000 Keihin Corp.(a) 3,313
================================================================================
16 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
15,559 Montupet S.A.(a) $ 1,174
185,000 Nissin Kogyo Co., Ltd.(a) 2,873
237,800 Sumitomo Riko Co., Ltd.(a) 2,046
147,700 Takata Corp.*(a) 1,059
110,500 Tokai Rika Co., Ltd.(a) 2,555
156,800 Toyoda Gosei Co., Ltd.(a) 3,733
----------
99,295
----------
AUTOMOBILE MANUFACTURERS (1.7%)
1,559,400 Honda Motor Co., Ltd.(a) 50,957
75,981 Peugeot S.A.*(a) 1,355
30,037 Renault S.A.(a) 3,026
----------
55,338
----------
BROADCASTING (0.7%)
112,576 Mediaset Espana Comunicacion S.A.(a) 1,290
133,846 M6 Metropole Television S.A.(a) 2,485
348,521 ProSiebenSat.1 Media AG(a) 18,298
85,114 RAI Way S.p.A.(a),(b) 460
----------
22,533
----------
CABLE & SATELLITE (1.4%)
516,176 NOS SGPS S.A.(a) 3,980
2,551,207 Sky plc(a) 42,497
----------
46,477
----------
CASINOS & GAMING (0.4%)
49,108 Betfair Group plc(a) 2,708
49,315 Betsson AB(a) 834
43,824 Evolution Gaming Group AB*(a),(b) 1,460
274,269 Star Entertainment Group Ltd.(a) 958
67,733 Unibet Group plc(a) 6,288
----------
12,248
----------
CATALOG RETAIL (0.1%)
992,882 Home Retail Group plc(a) 1,537
----------
COMPUTER & ELECTRONICS RETAIL (0.1%)
532,500 EDION Corp.(a) 4,247
----------
CONSUMER ELECTRONICS (0.4%)
160,300 Foster Electric Co., Ltd.(a) 3,805
115,060 Funai Electric Co., Ltd.(a) 910
278,600 Nikon Corp.(a) 3,742
1,220,600 Pioneer Corp.*(a) 3,784
----------
12,241
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
DEPARTMENT STORES (0.0%)
4,572,000 New World Department Store China Ltd.(a) $ 731
----------
EDUCATION SERVICES (0.0%)
53,400 Benesse Holdings Inc.(a) 1,355
----------
FOOTWEAR (0.0%)
7,176,000 Daphne International Holdings Ltd.*(a) 1,340
----------
HOME FURNISHINGS (0.0%)
1,310,800 Man Wah Holdings Ltd.(a) 1,522
----------
HOME IMPROVEMENT RETAIL (0.1%)
346,300 DCM Holdings Co., Ltd.(a) 2,377
----------
HOMEBUILDING (0.5%)
241,322 Bellway plc(a) 9,508
312,209 Crest Nicholson Holdings plc(a) 2,523
274,100 Haseko Corp.(a) 3,067
20,400 Pressance Corp.(a) 705
----------
15,803
----------
HOMEFURNISHING RETAIL (0.2%)
945,486 Howden Joinery Group plc(a) 7,400
----------
INTERNET RETAIL (0.0%)
653,084 Qliro Group AB*(a) 852
----------
LEISURE FACILITIES (0.0%)
202,000 Tokyo Dome Corp.(a) 954
----------
MOVIES & ENTERTAINMENT (0.2%)
104,100 Avex Group Holdings, Inc.(a) 1,245
561,850 Cineworld Group plc(a) 4,616
13,043 Kinepolis Group N.V.(a) 527
----------
6,388
----------
PUBLISHING (0.0%)
38,700 Proto Corp.(a) 527
----------
RESTAURANTS (3.5%)
4,210,974 Compass Group plc(a) 73,188
107,888 Domino's Pizza Group plc(a) 1,707
61,800 Kura Corp.(a) 2,100
556,266 Yum! Brands, Inc. 40,335
----------
117,330
----------
SPECIALIZED CONSUMER SERVICES (0.0%)
39,025 Dignity plc(a) 1,459
----------
================================================================================
18 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
SPECIALTY STORES (0.4%)
19,137 Grandvision N.V.(a) $ 520
148,444 JD Sports Fashion plc(a) 2,169
287,621 WH Smith plc(a) 7,516
131,500 Xebio Holdings Co., Ltd.(a) 2,508
----------
12,713
----------
Total Consumer Discretionary 616,226
----------
CONSUMER STAPLES (13.8%)
------------------------
AGRICULTURAL PRODUCTS (0.0%)
113,800 Chubu Shiryo Co., Ltd.(a) 1,016
----------
BREWERS (0.8%)
153,059 Carlsberg A/S "B"(a) 12,992
158,386 Heineken N.V.(a) 14,072
----------
27,064
----------
DISTILLERS & VINTNERS (2.8%)
1,525,688 Diageo plc(a) 43,797
434,487 Pernod Ricard S.A.(a) 49,405
----------
93,202
----------
DRUG RETAIL (0.1%)
124,600 Cawachi Ltd.(a) 2,470
----------
FOOD DISTRIBUTORS (0.1%)
54,953 MARR S.p.A.(a) 1,125
959,000 Yamatane Corp.(a) 1,559
----------
2,684
----------
FOOD RETAIL (0.8%)
248,308 Greggs plc(a) 4,649
1,216,840 J Sainsbury plc(a) 4,651
36,708 Kesko Oyj "B"(a) 1,218
298,919 Loblaw Companies Ltd. 15,091
64,600 Ministop Co., Ltd.(a) 1,199
----------
26,808
----------
HOUSEHOLD PRODUCTS (1.6%)
558,726 Reckitt Benckiser Group plc(a) 52,425
----------
HYPERMARKETS & SUPER CENTERS (0.1%)
84,921 Metro AG(a) 2,831
----------
PACKAGED FOODS & MEAT (4.6%)
105,035 Austevoll Seafood ASA(a) 649
69,952 Bakkafrost P/F(a) 1,903
27,193 Corbion N.V.(a) 648
769,950 DANONE S.A.(a) 53,888
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
2,285 Emmi AG(a) $ 940
26,000 Fujicco Co., Ltd.(a) 466
68,672 La Doria S.p.A.(a) 962
148,000 Marudai Food Co., Ltd.(a) 556
366,000 Mitsui Sugar Co., Ltd.(a) 1,627
1,074,740 Nestle S.A.(a) 79,640
226,700 Nippon Suisan Kaisha Ltd.(a) 780
405,000 Nisshin Oillio Group Ltd.(a) 1,570
53,459 Salmar ASA(a) 896
24,477 Schouw & Co.(a) 1,419
332,864 Suedzucker AG(a) 6,288
53,600 Warabeya Nichiyo Co., Ltd.(a) 1,034
141,192 Wessanen N.V.(a) 1,379
----------
154,645
----------
PERSONAL PRODUCTS (1.9%)
480,146 Beiersdorf AG(a) 44,702
57,583 Blackmores Ltd.(a) 7,669
59,221 L'Oreal S.A.(a) 10,477
135,686 Oriflame Holding AG*(a) 2,302
----------
65,150
----------
SOFT DRINKS (0.0%)
76,898 Fevertree Drinks plc(a) 667
----------
TOBACCO (1.0%)
901,700 Japan Tobacco, Inc.(a) 32,343
----------
Total Consumer Staples 461,305
----------
ENERGY (3.7%)
-------------
COAL & CONSUMABLE FUELS (0.0%)
5,844,300 Harum Energy Tbk PT*(a) 292
1,284,500 Indo Tambangraya Megah Tbk PT(a) 635
----------
927
----------
INTEGRATED OIL & GAS (2.3%)
1,036,883 BG Group plc(a) 16,108
1,749,603 BP plc(a) 10,152
362,728 ENI S.p.A.(a) 5,880
785,715 Gazprom PAO ADR 3,237
94,334 Lukoil PJSC ADR 3,611
390,705 Petroleo Brasileiro S.A. ADR* 1,864
123,120 Royal Dutch Shell plc "B"(a) 3,063
83,030 Statoil ASA(a) 1,280
721,713 Suncor Energy, Inc. 19,942
197,681 Total S.A.(a) 9,807
----------
74,944
----------
================================================================================
20 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
165,237 John Wood Group plc(a) $ 1,390
----------
OIL & GAS EXPLORATION & PRODUCTION (1.1%)
137,900 Encana Corp. 1,148
2,898,500 INPEX Corp.(a) 28,887
249,300 Japan Petroleum Exploration Co., Ltd.(a) 6,944
170,200 Painted Pony Petroleum Ltd.* 574
21,400 Petro Rio S.A.* 11
----------
37,564
----------
OIL & GAS REFINING & MARKETING (0.0%)
527,072 Saras S.p.A*(a) 1,054
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
143,001 BW LPG Ltd.(a),(b) 1,232
613,766 d'Amico International Shipping S.A.*(a) 457
122,899 Euronav N.V.(a) 1,569
173,900 Ship Finance International Ltd. 3,012
----------
6,270
----------
Total Energy 122,149
----------
FINANCIALS (16.7%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.0%)
110,951 Anima Holding S.p.A.(a),(b) 1,018
14,888 Banca Generali S.p.A.(a) 453
596,484 Julius Baer Group Ltd.*(a) 28,483
80,342 Magellan Financial Group Ltd.(a) 1,511
427,000 Uranium Participation Corp.* 1,736
----------
33,201
----------
CONSUMER FINANCE (0.3%)
186,647 Provident Financial plc(a) 10,041
----------
DIVERSIFIED BANKS (7.1%)
204,822 Alpha Bank S.A.*(c) 508
261,931 Banca Popolare dell'Emilia Romagna SC(a) 2,011
644,510 Banco Popular Espanol(a) 2,264
7,033,676 Barclays plc(a) 23,643
105,663 BNP Paribas S.A.(a) 6,257
213,600 Dah Sing Financial Holdings Ltd.(a) 1,106
2,673,600 DBS Group Holdings Ltd.(a) 31,220
6,287,939 HSBC Holdings plc(a) 50,106
3,415,047 ING Groep N.V.(a) 46,839
1,312,296 Itau Unibanco Holding S.A. ADR 9,291
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
84,205 KB Financial Group, Inc.(a) $ 2,564
253,344 KBC Groep N.V.(a) 15,111
1,022,000 Mitsubishi UFJ Financial Group, Inc.(a) 6,569
2,915,100 Mizuho Financial Group, Inc.(a) 5,890
112,948 OTP Bank plc(a) 2,329
44,224 Shinhan Financial Group Co., Ltd.(a) 1,589
106,823 Societe Generale S.A.(a) 5,091
1,671,446 Standard Chartered plc(a) 14,027
156,800 Sumitomo Mitsui Financial Group, Inc.(a) 5,989
536,874 UniCredit S.p.A.(a) 3,147
----------
235,551
----------
DIVERSIFIED CAPITAL MARKETS (1.9%)
3,256,068 UBS Group AG(a) 62,380
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.3%)
178,323 Grand City Properties S.A.(a) 3,674
81,100 Heiwa Real Estate Co., Ltd.(a) 997
136,100 Leopalace21 Corp.*(a) 797
7,772 Mobimo Holding AG(a) 1,655
82,701 Patrizia Immobilien AG*(a) 2,057
58,900 Raysum Co., Ltd.(a) 492
50,800 Shinoken Group Co., Ltd.(a) 730
----------
10,402
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
120,500 Aizawa Securities Co., Ltd.(a) 733
15,063 Flow Traders N.V.(a),(b) 679
60,600 IwaiCosmo Holdings, Inc.(a) 724
195,000 Toyo Securities Co., Ltd.(a) 627
----------
2,763
----------
LIFE & HEALTH INSURANCE (2.7%)
8,576,800 AIA Group Ltd.(a) 51,345
235,000 Dai-Ichi Life Insurance Co., Ltd.(a) 4,071
185,585 Delta Lloyd N.V.(a) 1,335
972,109 Prudential plc(a) 22,540
831,704 Storebrand ASA*(a) 3,062
429,700 T&D Holdings, Inc.(a) 6,028
137,119 TONGYANO Life Insurance Co., Ltd.(a) 1,531
----------
89,912
----------
MULTI-LINE INSURANCE (0.2%)
128,981 Ageas(a) 5,640
----------
================================================================================
22 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (0.3%)
370,590 Admiral Group plc(a) $ 9,048
83,920 Alm. Brand A/S(a) 541
----------
9,589
----------
REAL ESTATE DEVELOPMENT (0.3%)
31,799 ADLER Real Estate AG*(a) 473
53,193 Nexity S.A.(a) 2,269
176,876 St. Modwen Properties plc(a) 1,152
320,400 Tosei Corp.(a) 1,973
779,600 Wing Tai Holdings Ltd.(a) 937
2,456,200 Yanlord Land Group Ltd.(a) 1,828
----------
8,632
----------
REAL ESTATE OPERATING COMPANIES (0.1%)
80,219 Dios Fastigheter AB(a) 591
106,419 Entra ASA(a),(b) 891
319,971 Sponda OYJ(a) 1,297
92,172 Wihlborgs Fastigheter AB(a) 1,817
----------
4,596
----------
REAL ESTATE SERVICES (0.1%)
235,771 Savills plc(a) 3,189
----------
REGIONAL BANKS (0.6%)
11,500 Bank of Iwate Ltd.(a) 500
425,000 Bank of Nagoya, Ltd.(a) 1,562
120,000 Eighteenth Bank Ltd.(a) 364
1,000,200 FIDEA Holdings Co., Ltd.(a) 2,308
162,000 Miyazaki Bank Ltd.(a) 536
285,000 Ogaki Kyoritsu Bank Ltd.(a) 1,175
297,000 Oita Bank Ltd.(a) 1,217
490,000 San-In Godo Bank Ltd.(a) 3,965
370,000 Shiga Bank Ltd.(a) 1,862
1,303 St. Galler Kantonalbank "A"(a) 448
398,000 Tochigi Bank Ltd.(a) 2,411
257,500 Tomony Holdings, Inc.(a) 973
1,219,000 Towa Bank Ltd.(a) 1,150
365,000 Yamanashi Chuo Bank Ltd.(a) 1,902
----------
20,373
----------
REITs - DIVERSIFIED (0.4%)
3,044,287 Hibernia REIT plc(a) 4,475
4,989,300 Mapletree Greater China Commercial Trust(a) 3,250
291,911 Merlin Properties Socimi S.A.(a) 3,628
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
279,151 NSI N.V.(a) $ 1,126
----------
12,479
----------
REITs - OFFICE (0.1%)
95,205 Alstria Office REIT AG(a) 1,257
6,432,000 Champion REIT(a) 3,281
578,100 Frasers Commercial Trust(a) 527
----------
5,065
----------
REITs - RESIDENTIAL (0.0%)
795,200 Ascott Residence Trust(a) 668
----------
REITs - RETAIL (0.1%)
72,495 Eurocommercial Properties N.V.(a) 3,070
1,105,311 Immobiliare Grande Distribuzione SIIQ S.p.A.(a) 1,151
114,108 NewRiver Retail Ltd.(a) 600
----------
4,821
----------
REITs - SPECIALIZED (0.0%)
277,038 Safestore Holdings plc(a) 1,504
----------
SPECIALIZED FINANCE (1.0%)
20,653 Banca IFIS S.p.A.(a) 547
161,005 Bolsas Y Mercados Espanoles, SHMSF, S.A.(a) 5,637
167,317 Coface S.A.*(a) 1,636
1,184,967 Element Financial Corp.* 15,173
118,364 Euronext N.V.(a),(b) 5,884
13,500 Fuyo General Lease Co., Ltd.(a) 652
227,600 Japan Securities Finance Co.(a) 1,196
883,808 OzForex Group Ltd.(a) 2,195
----------
32,920
----------
THRIFTS & MORTGAGE FINANCE (0.1%)
67,921 Deutsche Pfandbriefbank AG*(a) 785
252,017 OneSavings Bank plc(a) 1,460
----------
2,245
----------
Total Financials 555,971
----------
HEALTH CARE (12.7%)
-------------------
BIOTECHNOLOGY (0.2%)
6,202 DBV Technologies S.A.*(a) 431
38,608 Genmab A/S*(a) 4,963
11,992 Grifols, S.A.(a) 568
306,388 Sinovac Biotech Ltd.* 1,636
40,620 Sirtex Medical Ltd.(a) 1,187
----------
8,785
----------
================================================================================
24 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS (0.1%)
555,660 Australian Pharmaceutical Industries Ltd.(a) $ 825
85,600 Medipal Holdings Corp.(a) 1,501
14,000 Suzuken Co., Ltd.(a) 547
----------
2,873
----------
HEALTH CARE EQUIPMENT (1.5%)
87,424 Sonova Holding AG(a) 11,015
1,202,800 Terumo Corp.(a) 38,439
----------
49,454
----------
HEALTH CARE FACILITIES (0.1%)
112,928 CVS Group plc(a) 1,287
21,053 Orpea(a) 1,656
----------
2,943
----------
HEALTH CARE SUPPLIES (2.1%)
224,573 Advanced Medical Solutions Group plc(a) 578
220,457 Ansell Ltd.(a) 3,469
16,275 Guerbet(a) 1,049
1,428,000 Hoya Corp.(a) 57,949
608,500 Nipro Corp.(a) 6,686
----------
69,731
----------
HEALTH CARE TECHNOLOGY (0.1%)
824,060 AGFA-Gevaert N.V.*(a) 4,100
----------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
53,158 Clinigen Group plc(a) 537
87,200 CMIC Holdings Co., Ltd.(a) 1,179
23,767 Lonza Group AG(a) 3,750
----------
5,466
----------
PHARMACEUTICALS (8.4%)
165,501 Almirall, S.A.(a) 3,037
141,070 AstraZeneca plc(a) 9,575
623,528 Bayer AG(a) 83,204
142,800 Daiichi Sankyo Co., Ltd.(a) 2,946
76,000 Eisai Co., Ltd.(a) 4,942
2,774 Galenica AG(a) 4,049
135,524 H. Lundbeck A/S*(a) 4,116
480,155 Indivior plc(a) 1,412
52,735 Ipsen S.A.(a) 3,385
50,500 Kaken Pharmaceutical Co., Ltd.(a) 3,565
121,047 Meda AB "A"(a) 1,456
223,712 Merck KGaA(a) 22,895
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
507,046 Novartis AG(a) $ 43,258
30,933 Orion Oyj "B"(a) 1,031
31,041 Recordati S.p.A.(a) 770
273,932 Roche Holding AG(a) 73,235
134,700 Takeda Pharmaceutical Co., Ltd.(a) 6,553
128,845 Valeant Pharmaceuticals International, Inc.* 11,591
252,257 Vectura Group plc*(a) 651
----------
281,671
----------
Total Health Care 425,023
----------
INDUSTRIALS (12.8%)
-------------------
AEROSPACE & DEFENSE (1.1%)
37,746 Elbit Systems Ltd.(a) 3,334
106,276 MTU Aero Engines AG(a) 10,550
2,060,933 Rolls-Royce Holdings plc*(a) 18,825
48,133 Saab AB "B"(a) 1,491
51,541 Thales S.A.(a) 3,833
----------
38,033
----------
AIR FREIGHT & LOGISTICS (0.1%)
1,081,061 PostNL N.V.*(a) 3,610
----------
AIRLINES (0.5%)
2,803,958 Air New Zealand Ltd.(a) 5,025
172,578 Dart Group plc(a) 1,356
441,858 Deutsche Lufthansa AG*(a) 6,332
1,459,455 Qantas Airways Ltd.(a) 3,828
461,833 SAS AB*(a) 1,048
----------
17,589
----------
BUILDING PRODUCTS (0.2%)
148,728 Compagnie de Saint-Gobain(a) 6,566
59,500 Sankyo Tateyama, Inc.(a) 835
----------
7,401
----------
COMMERCIAL PRINTING (0.1%)
67,000 Nissha Printing Co., Ltd.(a) 1,404
----------
CONSTRUCTION & ENGINEERING (0.6%)
295,957 Astaldi S.p.A.(a) 1,776
78,023 Kier Group plc(a) 1,591
178,000 Kumagai Gumi Co., Ltd.(a) 499
131,300 Meisei Industrial Co., Ltd.(a) 573
170,000 Nippon Road Co., Ltd.(a) 845
218,500 Peab AB(a) 1,667
3,663 Per Aarsleff A/S "B"(a) 1,275
================================================================================
26 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
10,349 Porr AG(a) $ 282
797,336 Raubex Group Ltd.(a) 939
451,717 Salini Impregilo S.p.A.(a) 1,955
123,100 Seikitokyu Kogyo Co., Ltd.(a) 634
1,329,000 Toa Corp.(a) 3,535
886,000 Toyo Engineering Corp.*(a) 2,487
----------
18,058
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
23,393 KION Group AG(a) 1,157
34,400 Takeuchi Manufacturing Co., Ltd.(a) 738
2,617,700 Yangzijiang Shipbuilding Holdings Ltd.(a) 2,034
----------
3,929
----------
DIVERSIFIED SUPPORT SERVICES (0.2%)
175,952 Downer Group Ltd.(a) 458
171,979 Intrum Justitia AB(a) 5,874
----------
6,332
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.4%)
50,700 Chiyoda Integre Co., Ltd.(a) 1,226
2,631,000 Furukawa Electric Co., Ltd.(a) 5,714
350,000 Iwasaki Electric Co., Ltd.(a) 774
401,521 Legrand S.A.(a) 23,603
682,990 Schneider Electric SE(a) 43,236
95,000 Togami Electric Manufacturing Co., Ltd.(a) 447
199,100 Ushio, Inc.(a) 2,927
38,810 Zumtobel Group AG(a) 846
----------
78,773
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
31,600 Aeon Delight Co., Ltd.(a) 980
701,814 Mitie Group plc(a) 3,371
----------
4,351
----------
HIGHWAYS & RAILTRACKS (0.0%)
87,502 Autostrada Torino-Milano S.p.A.(a) 1,135
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (1.3%)
47,924 Adecco S.A.(a) 3,273
84,700 en-japan, Inc.(a) 2,806
1,179,969 Hays plc(a) 2,616
528,195 Randstad Holding N.V.(a) 32,999
143,379 USG People N.V.(a) 2,203
----------
43,897
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (1.2%)
643,904 CIR S.p.A.*(a) $ 707
291,500 Hopewell Holdings Ltd.(a) 1,032
106,224 Koninklijke Philips N.V.(a) 2,902
347,000 Nisshinbo Holdings, Inc.(a) 4,083
138,224 Rheinmetall AG(a) 8,771
1,386,965 Smiths Group plc(a) 21,578
----------
39,073
----------
INDUSTRIAL MACHINERY (1.6%)
65,620 Biesse S.p.A.(a) 1,035
98,599 Cargotec Oyj "B"(a) 3,618
137,700 FANUC Corp.(a) 24,547
125,200 Hisaka Works Ltd.(a) 1,023
718,000 Japan Steel Works Ltd.(a) 2,756
407,000 Kitagawa Iron Works Co., Ltd.(a) 934
16,625 Koenig & Bauer AG*(a) 566
25,669 KUKA AG(a) 2,263
469,000 Makino Milling Machine Co., Ltd.(a) 3,837
210,000 Nippon Thompson Co., Ltd.(a) 956
292,000 NTN Corp.(a) 1,375
1,561 Rational AG(a) 654
732,000 Ryobi Ltd.(a) 2,709
123,700 Sintokogio Ltd.(a) 1,072
463,000 Sumitomo Heavy Industries Ltd.(a) 2,199
542,000 Toshiba Machine Co., Ltd.(a) 1,896
----------
51,440
----------
MARINE (0.7%)
108,029 Dampskibsselskabet Norden A/S*(a) 2,027
51,715 DFDS A/S(a) 1,995
637,794 Irish Continental Group plc(a) 3,595
1,883,000 Kawasaki Kisen Kaish Ltd.(a) 3,864
70,118 Kuehne & Nagel International AG(a) 9,475
7,008,000 Pacific Basin Shipping Ltd.(a) 1,814
----------
22,770
----------
MARINE PORTS & SERVICES (0.0%)
77,237 Hamburger Hafen und Logistik AG(a) 1,129
----------
OFFICE SERVICES & SUPPLIES (0.2%)
284,900 KOKUYO Co., Ltd.(a) 3,284
120,736 Regus plc(a) 632
87,200 Relia, Inc.(a) 809
----------
4,725
----------
================================================================================
28 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
RAILROADS (1.4%)
796,184 Canadian National Railway Co. $ 47,572
----------
RESEARCH & CONSULTING SERVICES (0.4%)
558,183 Bureau Veritas S.A.(a) 11,491
162,157 SAI Global, Ltd.(a) 497
109,348 WS Atkins plc(a) 2,595
----------
14,583
----------
SECURITY & ALARM SERVICES (0.1%)
6,763 Dorma & Kaba Holdings AG "B"(a) 4,343
----------
TRADING COMPANIES & DISTRIBUTORS (0.5%)
155,100 Fly Leasing Ltd. ADR 2,134
81,400 Inabata & Co., Ltd.(a) 873
68,400 Kanamoto Co., Ltd.(a) 1,583
2,398,000 Kanematsu Corp.(a) 4,017
128,800 Kuroda Electric Co., Ltd.(a) 2,463
152,486 Rexel S.A.(a) 2,087
664,995 SIG plc(a) 1,395
1,205,200 Sojitz Corp.(a) 2,647
76,100 Wakita & Co., Ltd.(a) 654
----------
17,853
----------
Total Industrials 428,000
----------
INFORMATION TECHNOLOGY (9.5%)
-----------------------------
APPLICATION SOFTWARE (2.0%)
194,350 Dassault Systemes S.A.(a) 15,458
61,811 Micro Focus International plc(a) 1,194
575,329 SAP SE(a) 45,311
1,217,100 Silverlake Axis Ltd.(a) 605
50,724 SimCorp A/S(a) 2,732
----------
65,300
----------
COMMUNICATIONS EQUIPMENT (0.1%)
106,638 ADVA Optical Networking SE*(a) 1,330
85,500 VTech Holdings Ltd.(a) 957
----------
2,287
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.9%)
641,304 Amadeus IT Holding S.A. "A"(a) 25,705
595,928 Paysafe Group plc*(a) 3,223
----------
28,928
----------
ELECTRONIC COMPONENTS (1.1%)
102,800 Dai-Ichi Seiko Co., Ltd.(a) 1,440
375,600 Hosiden Corp.(a) 2,126
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
4,470,500 Kingboard Laminates Holdings Ltd.(a) $ 1,898
504,600 Kyocera Corp.(a) 23,337
99,200 Mitsumi Electric Co., Ltd.(a) 540
353,100 Nichicon Corp.(a) 2,940
509,000 Nippon Chemi-Con Corp.(a) 1,085
167,800 Sumida Corp.(a) 1,102
77,800 Tabuchi Electric Co., Ltd.(a) 539
96,200 Taiyo Yuden Co., Ltd.(a) 1,572
163,000 Tamura Corp.(a) 520
----------
37,099
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
25,788 Datalogic S.p.A.(a) 479
21,693 Fingerprint Cards AB "B"*(a) 1,535
223,338 Halma plc(a) 2,901
104,383 Kudelski S.A.(a) 1,283
68,780 Mycronic AB(a) 539
156,600 Orbotech Ltd.* 3,199
1,249,267 Sensys Gatso Group AB*(a) 547
----------
10,483
----------
ELECTRONIC MANUFACTURING SERVICES (0.4%)
5,625,549 Hon Hai Precision Industry Co., Ltd.(a) 14,449
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
22,600 Nintendo Co., Ltd.(a) 3,474
----------
INTERNET SOFTWARE & SERVICES (0.8%)
140,212 Alibaba Group Holding Ltd. ADR* 11,789
698,875 Auto Trader Group plc*(a),(b) 4,268
11,600 Criteo S.A. ADR* 473
186,400 DeNA Co., Ltd.(a) 2,938
425,500 Gree, Inc.(a) 2,076
895,611 Moneysupermarket.com Ltd. Group plc(a) 4,395
19,942 NetEnt AB(a) 1,185
70,332 Opera Software ASA(a) 438
----------
27,562
----------
IT CONSULTING & OTHER SERVICES (0.7%)
73,547 Alten S.A.(a) 4,025
19,025 Devoteam S.A.(a) 648
1,115,000 Fujitsu Ltd.(a) 5,638
54,897 GFI Informatique(a) 483
142,800 ITOCHU Techno - Solutions Corp.(a) 2,952
370,100 Net One Systems Co., Ltd.(a) 2,194
61,430 Sopra Steria Group(a) 7,007
----------
22,947
----------
================================================================================
30 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (0.3%)
62,800 Ferrotec Corp.(a) $ 603
98,500 Mimasu Semiconductor Industry Co., Ltd.(a) 933
500,000 SCREEN Holdings Co., Ltd.(a) 3,762
182,400 Shinkawa Ltd.*(a) 886
52,200 Sumco Corp.(a) 554
140,700 Tokyo Seimitsu Co., Ltd.(a) 3,161
----------
9,899
----------
SEMICONDUCTORS (1.9%)
188,291 Kontron AG*(a) 585
9,317 Melexis N.V.(a) 469
209,108 Micronas Semiconductor Holding AG(a) 953
92,300 Miraial Co., Ltd.(a) 886
49,200 ROHM Co., Ltd.(a) 2,650
527,200 Shinko Electric Industries Co., Ltd.(a) 3,633
2,340,703 Taiwan Semiconductor Manufacturing Co., Ltd. ADR 53,275
142,604 Tower Semiconductor Ltd.*(a) 2,256
----------
64,707
----------
SYSTEMS SOFTWARE (0.6%)
22,500 Alpha Systems, Inc.(a) 343
118,700 AVG Technologies N.V.* 2,503
175,873 Check Point Software Technologies Ltd.* 15,352
56,100 Fuji Soft, Inc.(a) 1,252
----------
19,450
----------
TECHNOLOGY DISTRIBUTORS (0.0%)
42,400 UKC Holdings Corp.(a) 917
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%)
159,700 Canon, Inc.(a) 4,827
711,400 Compal Electronics, Inc.(c) 1,972
46,400 Japan Digital Laboratory Co., Ltd(a) 599
107,900 Melco Holdings, Inc.(a) 1,880
----------
9,278
----------
Total Information Technology 316,780
----------
MATERIALS (8.3%)
----------------
COMMODITY CHEMICALS (0.4%)
374,000 Kureha Corp.(a) 1,467
612,000 Mitsui Chemicals, Inc.(a) 2,555
888,116 Orica Ltd.(a) 10,125
----------
14,147
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (0.3%)
206,798 Buzzi Unicem S.p.A(a) $ 3,705
89,517 LafargeHolcim Ltd.(a) 4,774
37,157 Vicat S.A.(a) 2,276
----------
10,755
----------
DIVERSIFIED CHEMICALS (0.5%)
1,297,000 Ishihara Sangyo Kaisha Ltd.*(a) 1,161
120,000 Mitsubishi Gas Chemical Co., Inc.(a) 651
6,717,000 Showa Denko K.K.(a) 8,849
16,350 Tessenderlo Chemie N.V.*(a) 484
2,215,000 UBE Industries, Ltd.(a) 4,720
----------
15,865
----------
DIVERSIFIED METALS & MINING (0.7%)
311,679 Anglo American plc(a) 1,918
14,504,000 CST Mining Group Ltd.*(a) 185
1,481,500 Ivanhoe Mines Ltd. "A"* 732
147,500 Northern Dynasty Minerals Ltd.* 44
482,007 OZ Minerals Ltd.(a) 1,408
402,000 Pacific Metals Co., Ltd.*(a) 1,056
561,358 Rio Tinto plc(a) 18,652
----------
23,995
----------
GOLD (0.4%)
194,900 Barrick Gold Corp. 1,434
418,600 Centerra Gold, Inc. 2,276
483,400 Eldorado Gold Corp. 1,479
2,258,256 Evolution Mining Ltd.(a) 1,844
58,644,000 G-Resources Group Ltd.(a) 1,188
1,052,567 Kinross Gold Corp.* 2,021
654,286 Northern Star Resources Ltd. Common Stock(a) 1,155
4,897,822 Resolute Mining Ltd.*(a) 942
1,295,297 Saracen Mineral Holdings Ltd.* 459
1,538,092 St. Barbara Ltd.* 1,129
----------
13,927
----------
INDUSTRIAL GASES (2.7%)
401,200 Air Liquide S.A.(a) 48,889
238,443 Linde AG(a) 41,624
----------
90,513
----------
METAL & GLASS CONTAINERS (0.0%)
324,543 Pact Group Holdings Ltd.(a) 1,112
----------
================================================================================
32 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
PAPER PACKAGING (0.1%)
3,124,000 AMVIG Holdings Ltd.(a) $ 1,416
43,429 Smurfit Kappa Group plc(a) 1,186
----------
2,602
----------
PAPER PRODUCTS (0.2%)
749,472 Altrii SGPS, S.A.(a) 4,118
115,300 Nippon Paper Industries Co., Ltd.(a) 1,858
72,078 Portucel S.A.(a) 287
59,638 SEMAPA - Sociedade de Investimento e Gestao SGPS S.A.(a) 836
----------
7,099
----------
PRECIOUS METALS & MINERALS (0.1%)
92,127 Anglo American Platinum Ltd.*(a) 1,272
3,117,549 Aquarius Platinum Ltd.*(a) 517
680,573 Impala Platinum Holdings Ltd.*(a) 1,490
825,274 Lonmin plc*(a) 15
----------
3,294
----------
SPECIALTY CHEMICALS (2.1%)
539,323 Akzo Nobel N.V.(a) 38,324
57,700 Fujimi, Inc.(a) 742
112,600 Hitachi Chemical Co., Ltd.(a) 1,877
255,900 JSR Corp.(a) 4,032
34,500 Nitto Denko Corp.(a) 2,328
171,672 Scapa Group plc(a) 527
253,000 Shin-Etsu Chemical Co., Ltd.(a) 14,324
640,000 Sumitomo Bakelite Co., Ltd.(a) 2,685
175,271 Synthomer plc(a) 849
1,136,000 Tokuyama Corp.*(a) 2,434
----------
68,122
----------
STEEL (0.8%)
147,000 Aichi Steel Corp.(a) 654
77,031 Bekaert S.A. N.V.(a) 2,178
128,700 Chubu Steel Plate Co., Ltd.(a) 553
336,857 Evraz plc*(a) 423
1,435,000 Godo Steel Ltd.(a) 2,790
130,200 Kyoei Steel Ltd.(a) 2,289
96,300 Maruichi Steel Tube Ltd.(a) 2,670
135,100 Neturen Co., Ltd.(a) 1,049
156,844 Salzgitter AG(a) 3,858
130,000 Sanyo Special Steel Co., Ltd.(a) 609
347,500 Tokyo Steel Manufacturing Co., Ltd.(a) 2,145
553,000 Topy Industries Ltd.(a) 1,323
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
103,400 Yamato Kogyo Co.(a) $ 2,665
73,200 Yodogawa Steel Works Ltd.(a) 1,494
----------
24,700
----------
TOTAL MATERIALS 276,131
----------
TELECOMMUNICATION SERVICES (1.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.9%)
288,709 Hellenic Telecommunications Organization S.A.(a) 2,793
173,598 KT Corp.*(a) 4,487
79,864 M2 Group Ltd.(a) 644
1,615,841 Magyar Telekom Telecommunications plc*(a) 2,207
270,882 Orange S.A.(a) 4,678
3,719,050 Singapore Telecommunications Ltd.(a) 10,082
362,256 Telefonica S.A.(a) 4,453
----------
29,344
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
85,301 Freenet AG(a) 2,872
132,270 Mobistar S.A.*(a) 2,943
1,330,500 SmarTone Telecommunications Holdings Ltd.(a) 1,989
----------
7,804
----------
Total Telecommunication Services 37,148
----------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (0.1%)
76,780 Elia System Operator S.A./N.V.(a) 3,441
39,300 Okinawa Electric Power Co., Inc.(a) 912
----------
4,353
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
6,382,000 CGN Meiya Power Holdings Co., Ltd.*(a) 1,328
----------
MULTI-UTILITIES (1.1%)
49,796 ACEA S.p.A.(a) 738
215,432 E.ON SE(a) 2,046
1,829,956 Engie(a) 31,840
677,837 Iren S.p.A.(a) 1,060
108,726 RWE AG(a) 1,251
----------
36,935
----------
Total Utilities 42,616
----------
Total Common Stocks (cost: $2,755,363) 3,281,349
----------
================================================================================
34 | USAA INTERNATIONAL FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
PREFERRED STOCKS (0.1%)
MATERIALS (0.1%)
----------------
COMMODITY CHEMICALS (0.1%)
101,277 Buzzi Unicem S.p.A.(a) $ 1,134
----------
Total Materials 1,134
----------
Total Preferred Stocks (cost: $1,052) 1,134
----------
RIGHTS (0.0%)
FINANCIALS (0.0%)
-----------------
DIVERSIFIED BANKS (0.0%)
120,381 Standard Chartered plc* 165
----------
Total Financials 165
----------
INDUSTRIALS (0.0%)
------------------
AEROSPACE & DEFENSE (0.0%)
191,048,489 Rolls-Royce Holdings plc*(c) 288
----------
Total Industrials 288
----------
MATERIALS (0.0%)
----------------
PRECIOUS METALS & MINERALS (0.0%)
37,962,604 Lonmin plc 19
----------
Total Materials 19
----------
Total Rights (cost: $811) 472
----------
Total Equity Securities (cost: $2,757,226) 3,282,955
----------
-----------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.1%)
COMMERCIAL PAPER (0.5%)
FINANCIALS (0.5%)
-----------------
DIVERSIFIED BANKS (0.5%)
$ 7,738 Barclays U.S. Funding, LLC(b),(d),(g) 0.12% 12/01/2015 7,738
9,773 HSBC USA, Inc.(b),(d) 0.05 12/01/2015 9,773
----------
17,511
----------
Total Financials 17,511
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-----------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.6%)
20,017,686 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(e) $ 20,017
----------
Total Money Market Instruments (cost: $37,528) 37,528
----------
TOTAL INVESTMENTS (COST: $2,794,754) $3,320,483
==========
-----------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS EXPIRATION CONTRACT (DEPRECIATION)
LONG/(SHORT) DATE VALUE (000) (000)
-----------------------------------------------------------------------------------------------------------------
FUTURES (0.1%)(f)
30 Mini MSCI EAFE 12/18/2015 $2,616 $ (1)
====== ==========
-----------------------------------------------------------------------------------------------------------------
($ 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 $293,294 $2,988,055 $- $3,281,349
Preferred Stocks - 1,134 - 1,134
Rights 184 288 - 472
Money Market Instruments:
Commercial Paper - 17,511 - 17,511
Money Market Funds 20,017 - - 20,017
-----------------------------------------------------------------------------------------------------------------
Total $313,495 $3,006,988 $- $3,320,483
LIABILITIES
-----------------------------------------------------------------------------------------------------------------
Futures(1) $ (1) $ - $- $ (1)
-----------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2015, through November 30, 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.
================================================================================
36 | USAA INTERNATIONAL FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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) Securities with a value of $2,986,711,000, which represented 89.6% of
the Fund's net assets, were classified as Level 2 at November 30, 2015,
due to the prices being adjusted to take into account significant market
movements following the close of local trading.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(c) Security was fair valued at November 30, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $2,768,000, which represented 0.1% of
the Fund's net assets.
(d) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (Section 4(2) Commercial Paper). Unless this
commercial paper is subsequently registered, a resale of this commercial
paper in the United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(2) commercial
paper is normally resold to other investors through or with the
assistance of the issuer or an investment dealer who makes a market in
this security, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
(f) Cash with a value of $117,000 is segregated as collateral for initial
margin requirements on open futures contracts.
(g) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2015.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
38 | USAA INTERNATIONAL FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,794,754) $3,320,483
Cash 117
Cash denominated in foreign currencies (identified cost of $4,318) 4,261
Receivables:
Capital shares sold 5,085
USAA Asset Management Company (Note 6D) 7
Dividends and interest 9,116
Securities sold 1,511
----------
Total assets 3,340,580
----------
LIABILITIES
Payables:
Securities purchased 2,996
Capital shares redeemed 1,204
Unrealized depreciation on foreign currency contracts held, at value 11
Variation margin on futures contracts 1
Accrued management fees 2,049
Accrued transfer agent's fees 133
Other accrued expenses and payables 239
----------
Total liabilities 6,633
----------
Net assets applicable to capital shares outstanding $3,333,947
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,643,974
Accumulated undistributed net investment income 42,931
Accumulated net realized gain on investments and futures transactions 121,951
Net unrealized appreciation of investments and futures contracts 525,728
Net unrealized depreciation of foreign currency translations (637)
----------
Net assets applicable to capital shares outstanding $3,333,947
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,863,698/64,892 shares outstanding) $ 28.72
==========
Institutional Shares (net assets of $1,463,309/51,057
shares outstanding) $ 28.66
==========
Adviser Shares (net assets of $6,940/243 shares outstanding) $ 28.56
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2,495) $ 31,371
Interest 12
--------
Total income 31,383
--------
EXPENSES
Management fees 12,951
Administration and servicing fees:
Fund Shares 1,411
Institutional Shares 783
Adviser Shares 5
Transfer agent's fees:
Fund Shares 1,520
Institutional Shares 783
Distribution and service fees (Note 6F):
Adviser Shares 9
Custody and accounting fees:
Fund Shares 274
Institutional Shares 226
Adviser Shares 1
Postage:
Fund Shares 68
Institutional Shares 28
Shareholder reporting fees:
Fund Shares 30
Institutional Shares 3
Trustees' fees 13
Registration fees:
Fund Shares 29
Institutional Shares 26
Adviser Shares 12
Professional fees 120
Other 25
--------
Total expenses 18,317
Expenses reimbursed:
Adviser Shares (5)
--------
Net expenses 18,312
--------
NET INVESTMENT INCOME 13,071
--------
================================================================================
40 | USAA INTERNATIONAL FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments (net of foreign taxes withheld of $7) 28,739
Foreign currency transactions (1,280)
Futures transactions 37
Change in net unrealized appreciation/(depreciation) of:
Investments (303,382)
Foreign currency translations (253)
Futures contracts (1)
---------
Net realized and unrealized loss (276,140)
---------
Decrease in net assets resulting from operations $(263,069)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
-----------------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
-----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income 13,071 $ 51,679
Net realized gain on investments 28,739 172,611
Net realized loss on foreign currency transactions (1,280) (674)
Net realized gain on futures transactions 37 -
Change in net unrealized appreciation/depreciation of:
Investments (303,382) (150,239)
Foreign currency translations (253) (280)
Futures contracts (1) -
------------------------------
Increase (decrease) in net assets resulting from operations (263,069) 73,097
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (30,715)
Institutional Shares - (29,991)
Adviser Shares - (99)
------------------------------
Total distributions of net investment income - (60,805)
------------------------------
Net realized gains:
Fund Shares - (23,717)
Institutional Shares - (21,727)
Adviser Shares - (95)
------------------------------
Total distributions of net realized gains - (45,539)
------------------------------
Distributions to shareholders - (106,344)
------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 43,343 136,320
Institutional Shares (148,333) 34,050
Adviser Shares (4) (128)
------------------------------
Total net increase (decrease) in net assets from capital
share transactions (104,994) 170,242
------------------------------
Capital contribution from USAA Transfer
Agency Company - 15
------------------------------
Net increase (decrease) in net assets (368,063) 137,010
NET ASSETS
Beginning of year 3,702,010 3,565,000
------------------------------
End of year $3,333,947 $3,702,010
==============================
Accumulated undistributed net investment income:
End of year $ 42,931 $ 29,860
==============================
See accompanying notes to financial statements.
================================================================================
42 | USAA INTERNATIONAL FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 International Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek capital appreciation.
The Fund consists of three classes of shares: International Fund Shares (Fund
Shares), International Fund Institutional Shares (Institutional Shares), and
International Fund Adviser Shares (Adviser 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, distribution and service (12b-1) 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 all 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 bank
trusts, as well as other persons or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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). The Adviser Shares permit investors to purchase shares through
financial intermediaries, including banks, broker-dealers, insurance companies,
investment advisers, plan sponsors, and financial professionals that provide
various administrative and distribution services.
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), an affiliate of the Fund. 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 over-the-counter markets, are valued at the last sales price or
================================================================================
44 | USAA INTERNATIONAL FUND
================================================================================
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
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 need to be reflected in the value of the Fund's
foreign securities. However, the Manager and the Fund's subadviser 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 Committee will consider such available
information that it deems relevant and will determine a fair value for
the affected foreign securities in accordance with valuation procedures.
In addition, information from an external vendor or other sources may be
used to adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee 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, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. Futures are valued at the last sale price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the last sale price on the prior trading date if
it is within the spread between the closing bid and asked prices closest
to the last reported sale price.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
================================================================================
46 | USAA INTERNATIONAL FUND
================================================================================
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 indexes. Level 2 securities
include preferred stocks and certain common stocks, which are valued based
on methods discussed in Note 1A2, and commercial paper, which is valued at
amortized cost. Additionally, certain rights and certain common stocks are
valued using market inputs and other observable factors deemed by the
Manager to appropriately reflect fair value.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the trade. The
Fund's derivative agreements held at November 30, 2015, did not include
master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2015*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
-------------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $- $1**
appreciation of
investments and
futures contracts
-------------------------------------------------------------------------------------------------------
*For open derivative instruments as of November 30, 2015, see the Portfolio
of Investments, which also is indicative of activity for the period ended
November 30, 2015.
**Includes cumulative appreciation (depreciation) of futures as reported on
the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
================================================================================
48 | USAA INTERNATIONAL FUND
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2015 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) $37 $(1)
on futures transactions /
Change in net unrealized
appreciation/(depreciation)
of futures contracts
-------------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Discounts and premiums on short-term securities are
amortized on a straight-line basis over the life of the respective
securities. Foreign income and capital gains on some foreign securities may
be subject to foreign taxes, which are accrued as applicable, as a reduction
to such income and realized gains. These foreign taxes have been provided
for in accordance with the understanding of the applicable countries' tax
rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Separately, net realized foreign currency gains/losses may arise from
sales of foreign currency, currency gains/losses realized between the
trade and settlement dates on security transactions, and from the
difference between amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts received. At the end of the Fund's fiscal
year, these net realized foreign currency gains/losses are reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income on the Statement of Assets and Liabilities as such
amounts are treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from changes in
the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended November 30, 2015, brokerage
commission recapture credits reduced the expenses of the Fund Shares,
Institutional Shares, and Adviser Shares each by less than $500. For the
six-month period ended November 30, 2015, there were no custodian and other
bank credits.
================================================================================
50 | USAA INTERNATIONAL FUND
================================================================================
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. REDEMPTION FEES - Adviser Shares held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed
or exchanged shares. All redemption fees paid will be accounted for by the
Fund as an addition to paid in capital. For the six-month period ended
November 30, 2015, the Adviser Shares did not charge any redemption fees.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $9,000, which represents 4.8% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$1,420,054,000 and $1,523,337,000, respectively.
As of November 30, 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.
================================================================================
52 | USAA INTERNATIONAL FUND
================================================================================
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $730,457,000 and $204,728,000, respectively, resulting in net
unrealized appreciation of $525,729,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 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
NOVEMBER 30, 2015 MAY 31, 2015
----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
FUND SHARES:
Shares sold 5,752 $ 167,780 11,645 $ 347,623
Shares issued from
reinvested dividends -* -* 1,861 53,586
Shares redeemed (4,260) (124,437) (8,871) (264,889)
------------------------------------------------------
Net increase from capital
share transactions 1,492 $ 43,343 4,635 $ 136,320
======================================================
INSTITUTIONAL SHARES:
Shares sold 3,209 $ 92,960 7,935 $ 237,154
Shares issued from
reinvested dividends - - 1,802 51,699
Shares redeemed (8,477) (241,293) (8,620) (254,803)
------------------------------------------------------
Net increase (decrease) from
capital share transactions (5,268) $(148,333) 1,117 $ 34,050
======================================================
ADVISER SHARES:
Shares sold -* $ 13 1 $ 34
Shares issued from
reinvested dividends - - -* 1
Shares redeemed* -* (17) (5) (163)
------------------------------------------------------
Net decrease from
capital share transactions -* $ (4) (4) $ (128)
======================================================
*Represents less than 500 shares or $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(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. 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 0.75% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance over the performance
period to that of the Lipper International Funds Index. The Lipper
International Funds Index tracks the total return performance of the 30
largest funds in the Lipper International 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.
================================================================================
54 | USAA INTERNATIONAL 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 International Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $12,951,000, which
included no performance adjustments for the Fund Shares and Institutional
Shares, and a performance adjustment of less than $(500) and less than
(0.01)% for the Adviser Shares.
B. SUBADVISORY ARRANGEMENT(s) - Effective August 26, 2015, the Manager has
entered into Investment Subadvisory Agreements with Wellington Management
Company LLP (Wellington Management) and Lazard Asset Management (Lazard).
Prior to the addition of these subadvisers, MFS Investment Management (MFS)
was the only subadviser of the Fund. The Manager entered into an Investment
Subadvisory Agreement with Lazard, MFS, and Wellington Management under
which Lazard, MFS, and Wellington Management each direct the investment and
reinvestment of a portion of the Fund's assets (as allocated from time to
time by the Manager).
The Manager (not the Fund) pays Lazard a subadvisory fee in the annual
amount of 0.50% for assets up to $100 million, 0.45% for assets over $100
million up to $250 million, 0.40% for assets over $250 million up to $600
million, and 0.375% for assets over $600 million on the portion of the
Fund's average net assets that Lazard manages. For the period of August 26,
2015, through November 30, 2015, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to Lazard, of $595,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
The Manager (not the Fund) pays MFS a subadvisory fee based on the aggregate
average net assets in the USAA International Fund and the USAA World Growth
Fund combined, in an annual amount of 0.33% on the first $2 billion of
assets, 0.30% of assets over $2 billion and up to $3 billion, and 0.25% on
assets over $3 billion. For the six-month period ended November 30, 2015,
the Manager incurred subadvisory fees with respect to the Fund, paid or
payable to MFS, of $4,252,000.
The Manager (not the Fund) pays Wellington Management a subadvisory fee in
the annual amount of 0.45% on the first $700 million and 0.425% on assets
over $700 million of the portion of the Fund's average net assets that
Wellington Management manages. For the period of August 26, 2015, through
November 30, 2015, the Manager incurred subadvisory fees with respect to the
Fund, paid or payable to Wellington Management, of $593,000.
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 Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2015, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,411,000, $783,000, and $5,000, respectively.
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 November 30, 2015, the Fund reimbursed the
Manager $43,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Adviser Shares to 1.35% of its
average net assets, excluding extraordinary expenses and before
================================================================================
56 | USAA INTERNATIONAL FUND
================================================================================
reductions of any expenses paid indirectly, and to reimburse the Adviser
Shares for all expenses in excess of that amount. Prior to October 1, 2015,
the expense limitation was 1.40% of the Adviser Shares' net assets. This
expense limitation arrangement may not be changed or terminated through
October 1, 2016, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. For the six-month
period ended November 30, 2015, the Adviser Shares incurred reimbursable
expenses of $5,000, of which $7,000 was receivable from the Manager.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares and Adviser Shares based on an annual charge of
$23 per shareholder account plus out-of-pocket expenses. SAS pays a
portion of these fees to certain intermediaries for the administration and
servicing of accounts that are held with such intermediaries. 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 November 30, 2015, the Fund Shares, Institutional Shares, and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of
$1,520,000, $783,000, and less than $500, respectively.
F. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant
to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under
the plan, the Adviser Shares pay fees to USAA Investment Management Company,
the distributor, for distribution and shareholder services. USAA Investment
Management Company pays all or a portion of such fees to intermediaries that
make the Adviser Shares available for investment by their customers. The fee
is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser
Shares' average net assets. Adviser Shares are offered and sold without
imposition of an initial sales charge or a contingent deferred sales charge.
For the six-month period ended November 30, 2015, the Adviser Shares
incurred distribution and service (12b-1) fees of $9,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
G. 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 20 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 November 30, 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 0.2
USAA Cornerstone Equity 0.8
USAA Target Retirement Income 0.7
USAA Target Retirement 2020 2.0
USAA Target Retirement 2030 4.9
USAA Target Retirement 2040 6.1
USAA Target Retirement 2050 3.4
USAA Target Retirement 2060 0.2
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 240,000 shares which represent 98.7% of the
Adviser Shares and 0.2% of the Fund.
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.
================================================================================
58 | USAA INTERNATIONAL FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 30.90 $ 31.25 $ 27.29 $ 21.59 $ 26.30 $ 19.71
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .38 .34(a) .32(a) .35 .29
Net realized and
unrealized gain (loss) (2.27) .16 3.86(a) 5.71(a) (4.76) 6.52
-------------------------------------------------------------------------------
Total from investment
operations (2.18) .54 4.20(a) 6.03(a) (4.41) 6.81
Less distributions from:
Net investment income - (.50) (.24) (.33) (.30) (.22)
Realized capital gains - (.39) - - - -
-------------------------------------------------------------------------------
Total distributions - (.89) (.24) (.33) (.30) (.22)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 28.72 $ 30.90 $ 31.25 $ 27.29 $ 21.59 $ 26.30
===============================================================================
Total return (%)* (7.06) 1.97 15.44 28.01 (16.71) 34.67
Net assets at
end of period (000) $1,863,698 $1,958,773 $1,836,335 $1,509,000 $1,587,445 $1,840,770
Ratios to average
net assets:**
Expenses (%)(b) 1.11(c) 1.12 1.16 1.21 1.21 1.21
Net investment
income (%) .71(c) 1.42 1.16 1.27 1.56 1.37
Portfolio turnover (%) 42 17 14 20 17 25
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$1,878,619,000.
(a) Calculated using average shares.
(b) 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 as follows:
(.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 30.82 $ 31.17 $ 27.23 $ 21.59 $ 26.32 $ 19.72
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .46 .38 .42(a) .45 .45
Net realized and
unrealized gain (loss) (2.29) .12 3.85 5.65(a) (4.82) 6.45
-------------------------------------------------------------------------------
Total from investment
operations (2.16) .58 4.23 6.07(a) (4.37) 6.90
-------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.54) (.29) (.43) (.36) (.30)
Realized capital gains - (.39) - - - -
-------------------------------------------------------------------------------
Total distributions - (.93) (.29) (.43) (.36) (.30)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 28.66 $ 30.82 $ 31.17 $ 27.23 $ 21.59 $ 26.32
===============================================================================
Total return (%)* (7.01) 2.11 15.60 28.23 (16.54) 35.13
Net assets at
end of period (000) $1,463,309 $1,735,756 $1,720,967 $1,235,652 $443,089 $385,203
Ratios to average
net assets:**
Expenses (%)(b) 1.00(d) .99 1.01 1.02 .99 .90(c)
Expenses, excluding
reimbursements (%)(b) 1.00(d) .99 1.01 1.02 .99 .91
Net investment
income (%) .82(d) 1.53 1.33 1.65 1.94 1.91
Portfolio turnover (%) 42 17 14 20 17 25
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$1,563,014,000.
(a) Calculated using average shares.
(b) 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 as follows:
(.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to October 1, 2010, the Manager voluntarily agreed to limit the annual
expenses of the Institutional Shares to 0.87% of the Institutional Shares'
average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
60 | USAA INTERNATIONAL FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
----------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011***
----------------------------------------------------------------------------
Net asset value at
beginning of period $30.77 $31.13 $27.17 $21.54 $26.24 $22.17
-----------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .32 .25 .23 .28 .23
Net realized and
unrealized gain (loss) (2.27) .12 3.84 5.69 (4.75) 4.05
-----------------------------------------------------------------------
Total from investment
operations (2.21) .44 4.09 5.92 (4.47) 4.28
-----------------------------------------------------------------------
Less distributions from:
Net investment income - (.41) (.13) (.29) (.23) (.21)
Realized capital gains - (.39) - - - -
-----------------------------------------------------------------------
Total distributions - (.80) (.13) (.29) (.23) (.21)
-----------------------------------------------------------------------
Net asset value at
end of period $28.56 $30.77 $31.13 $27.17 $21.54 $26.24
=======================================================================
Total return (%)* (7.18) 1.62 15.10 27.56 (17.00) 19.38
Net assets at
end of period (000) $6,940 $7,481 $7,698 $6,641 $5,223 $6,361
Ratios to average
net assets:**
Expenses (%)(c) 1.39(b),(d) 1.44(a) 1.46 1.55 1.55 1.55(b)
Expenses, excluding
reimbursements (%)(c) 1.54(b) 1.51 1.46 1.68 1.76 1.90(b)
Net investment income (%) .44(b) 1.07 .85 .97 1.20 1.23(b)
Portfolio turnover (%) 42 17 14 20 17 25
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$7,079,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Prior to October 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 1.55% of their annual average net
assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
(.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Prior to October 1, 2015, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 1.40% of their annual average net
assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
EXPENSE EXAMPLE
November 30, 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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2015, through
November 30, 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
================================================================================
62 | USAA INTERNATIONAL FUND
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do 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 JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 929.40 $5.35
Hypothetical
(5% return before expenses) 1,000.00 1,019.45 5.60
INSTITUTIONAL SHARES
Actual 1,000.00 929.90 4.82
Hypothetical
(5% return before expenses) 1,000.00 1,020.00 5.05
ADVISER SHARES
Actual 1,000.00 928.20** 6.72**
Hypothetical
(5% return before expenses) 1,000.00 1,018.10** 7.03**
* Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares,
1.00% for Institutional Shares, and 1.39% for Adviser Shares, which are net
of any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/366 days (to reflect
the one-half-year period). The Fund's actual ending account values are based
on its actual total returns of (7.06)% for Fund Shares, (7.01)% for
Institutional Shares, and (7.18)% for Adviser Shares for the six-month period
of June 1, 2015, through November 30, 2015.
** The Fund's annualized expense ratio of 1.39% for Adviser Shares above
reflects a change, effective October 1, 2015, of the Manager's voluntary
expense limitation for the Adviser Shares from 1.40% to
================================================================================
EXPENSE EXAMPLE | 63
================================================================================
1.35% of the Adviser Shares' annual net assets. Had the expense limitation of
1.35% been in effect for the entire six-month period of June 1, 2015, through
November 30, 2015, the values in the prior table would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
---------------------------------------------------------------
ADVISER SHARES
Actual 1,000.00 928.20 6.53
Hypothetical
(5% return before expenses) 1,000.00 1,018.30 6.83
================================================================================
64 | USAA INTERNATIONAL FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
San Antonio, TX 78288 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%
=============================================================================
23410-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MANAGED ALLOCATION FUND]
==============================================================
SEMIANNUAL REPORT
USAA MANAGED ALLOCATION FUND
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 8
Notes to Portfolio of Investments 11
Financial Statements 13
Notes to Financial Statements 16
EXPENSE EXAMPLE 25
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)2016, USAA. All rights reserved.
201011-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA MANAGED ALLOCATION FUND (THE FUND) SEEKS TO MAXIMIZE TOTAL RETURN,
CONSISTING PRIMARILY OF CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in U.S. and/or foreign (to include emerging markets)
equity securities and fixed-income securities through investments in shares of
other investment companies, including exchange-traded funds (ETFs) and real
estate securities, including real estate investment trusts (REITs). Consistent
with its investment strategy, the Fund may at times invest directly in U.S.
and/or foreign equity securities and fixed-income securities, as well as
derivatives, including futures contracts, and hedge funds.*
*The Fund is not offered for sale directly to the general public and currently
is available for investment through a USAA discretionary managed account
program. The Fund may be offered to other persons and legal entities that USAA
Asset Management Company may approve from time to time. There are no minimum
initial or subsequent purchase payment amounts for investments in the Fund.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
JOHN P. TOOHEY, CFA R. MATTHEW FREUND, CFA
WASIF A. LATIF ARNOLD J. ESPE, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended November 30, 2015, proved to be a challenging time
for the world financial markets as concerns about slow global growth,
China's currency devaluation, and the potential for an interest rate
increase by the Federal Reserve (the Fed) combined to weigh upon investor
sentiment.
U.S. equities generally finished the reporting period with a negative return,
but they generated returns above those of the international markets. The U.S.
economy appeared to be on track to deliver growth of approximately 2% in the
second half of 2015 amid strength in the housing market, employment, and
consumer spending. While low compared to historical standards, this rate is
nonetheless higher than the majority of the world's developed economies--a
positive for U.S. stocks' relative performance during the reporting period.
Within the domestic market, small-cap stocks generally underperformed
large-cap stocks as investors appeared averse to risk.
Developed market international stocks finished with a loss and underperformed
U.S. equities which was likely due to mounting concerns about slowing
economic growth in both Europe and Japan. In addition, the weakness in
foreign currencies relative to the U.S. dollar translated to lower total
returns for U.S.-based investors.
In the investment-grade bond market, U.S. Treasuries finished relatively
flat. While investors remained on edge about the possibility of the Fed
================================================================================
2 | USAA MANAGED ALLOCATION FUND
================================================================================
increasing interest rates, bonds gained a degree of support from the backdrop
of below-trend growth and low inflation. Investment-grade corporate debt
lagged, due largely to a sharp increase in new-issue supply. High-yield bonds
underperformed the investment-grade market by a considerable margin, as the
weakness in commodity prices pressured the credit outlook for the many energy
and mining issuers within the asset class.
o HOW DID THE USAA MANAGED ALLOCATION FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2015, the Fund had a total return
of -4.34%. This compares to returns of -0.21% for the S&P 500(R) Index and
-0.12% for the Barclays U.S. Aggregate Bond Index.
USAA Asset Management Company (the Manager) is the Fund's investment adviser.
The investment adviser provides day-to-day discretionary management for the
Fund's assets.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
This Fund is designed to provide flexibility in implementing tactical asset
allocation shifts within the USAA Managed Portfolios (UMP). By using the Fund
in this manner, we are able to make allocation changes more quickly and with
less disruption to the UMP. The Fund primarily uses exchange-traded funds
(ETFs) to implement the portfolio managers' target asset allocations since
ETFs are highly liquid vehicles that allow us to apply our tactical asset
allocation decisions quickly and efficiently.
During the reporting period, the Fund's domestic equity allocation finished
with an aggregate return that was slightly in the negative. Our large-cap
allocation, which makes up the bulk of our position in domestic equities,
finished just below the break-even mark. Our investments in mid- and
small-cap stocks closed with losses, but these make up a much smaller
weighting within the portfolio.
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
The Fund also holds an allocation to developed-market international equities
that is roughly equivalent to its weighting in the United States. Consistent
with the broader market environment, this portion of the Fund--which is
invested in two broad-based ETFs and one ETF that is focused on Europe--lost
ground and lagged the U.S. market. The Fund holds no exposure to the emerging
markets, which enabled it to sidestep the meaningful underperformance of this
asset class.
The portion of the Fund invested in bonds also closed the reporting period
with a negative return, but it increased portfolio income and provided an
element of stability when stock market volatility increased in autumn. The
Fund benefited from its position in an ETF linked to intermediate-term U.S.
Treasuries. However, this was offset by its allocation to investment-grade
corporate and high-yield bonds, both of which lost ground during the
reporting period.
The market backdrop remains uncertain as we move toward 2016, with Fed
policy, China's growth outlook, and geopolitical headlines all representing
factors that are affecting investor sentiment. Our approach to this set of
circumstances is to maintain our steady, long-term investment strategy and
emphasis on diversification. We believe this balanced approach--while always
important--is even more essential in an environment likely to be
characterized by elevated headline risk and the potential for above-average
market volatility.
Thank you for your investment in the Fund.
Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging market
countries are less diverse and mature than other countries and tend to be
politically less stable. o 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 Exchange-traded Funds (ETFs)
are subject to risks similar to those of stocks. Investment returns may
fluctuate and are subject to market volatility, so that an investor's shares,
when redeemed or sold, may be worth more or less than their original cost.
o Non-investment grade securities are considered speculative and are subject
to significant credit risk. They are sometimes referred to as "junk" bonds
since they represent a greater risk of default than more creditworthy
investment-grade securities. o Diversification is a technique intended to
help reduce risk and does not guarantee a profit or prevent a loss.
================================================================================
4 | USAA MANAGED ALLOCATION FUND
================================================================================
INVESTMENT OVERVIEW
USAA MANAGED ALLOCATION FUND (THE FUND)
(Ticker Symbol: UMAFX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $1.4 Billion $1.4 Billion
Net Asset Value Per Share $11.47 $11.99
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEAR SINCE INCEPTION 2/01/10
-4.34% -1.87% 4.78% 5.85%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 2/01/10
-2.31% 3.92% 5.39%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
0.97%
(includes acquired fund fees and expenses of 0.23%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense 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 October 1, 2015, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA MANAGED BARCLAYS U.S. AGGREGATE
S&P 500 INDEX ALLOCATION FUND BOND INDEX
01/31/10 $10,000.00 $10,000.00 $10,000.00
02/28/10 10,309.77 10,200.00 10,037.34
03/31/10 10,931.91 10,420.00 10,025.00
04/30/10 11,104.50 10,490.00 10,129.36
05/31/10 10,217.80 10,140.00 10,214.60
06/30/10 9,682.92 9,980.00 10,374.78
07/31/10 10,361.33 10,600.00 10,485.46
08/31/10 9,893.58 10,230.00 10,620.38
09/30/10 10,776.53 11,100.00 10,631.70
10/31/10 11,186.57 11,250.00 10,669.56
11/30/10 11,188.00 11,030.00 10,608.23
12/31/10 11,935.71 11,257.84 10,493.84
01/31/11 12,218.61 11,226.51 10,506.05
02/28/11 12,637.20 11,372.71 10,532.33
03/31/11 12,642.23 11,508.48 10,538.15
04/30/11 13,016.63 11,780.00 10,671.92
05/31/11 12,869.29 11,832.22 10,811.19
06/30/11 12,654.77 11,759.12 10,779.54
07/31/11 12,397.44 11,915.76 10,950.59
08/31/11 11,723.99 12,030.64 11,110.58
09/30/11 10,899.81 11,592.02 11,191.40
10/31/11 12,091.08 12,239.51 11,203.42
11/30/11 12,064.36 11,988.87 11,193.70
12/31/11 12,187.77 12,051.67 11,316.73
01/31/12 12,733.97 12,534.63 11,416.10
02/29/12 13,284.61 12,770.50 11,413.48
03/31/12 13,721.79 12,579.56 11,350.94
04/30/12 13,635.66 12,646.95 11,476.78
05/31/12 12,816.15 11,984.28 11,580.63
06/30/12 13,344.20 12,377.39 11,585.17
07/31/12 13,529.54 12,523.40 11,744.96
08/31/12 13,834.27 12,703.11 11,752.64
09/30/12 14,191.77 12,927.74 11,768.82
10/31/12 13,929.72 12,916.51 11,791.96
11/30/12 14,010.53 12,961.44 11,810.57
12/31/12 14,138.23 13,242.58 11,793.75
01/31/13 14,870.52 13,383.21 11,711.27
02/28/13 15,072.39 13,277.74 11,769.97
03/31/13 15,637.65 13,359.77 11,779.37
04/30/13 15,938.94 13,523.84 11,898.56
05/31/13 16,311.78 13,266.02 11,686.26
06/30/13 16,092.73 12,832.41 11,505.49
07/31/13 16,911.60 13,160.55 11,521.22
08/31/13 16,421.81 12,855.85 11,462.33
09/30/13 16,936.79 13,230.86 11,570.84
10/31/13 17,715.34 13,594.16 11,664.39
11/30/13 18,255.19 13,676.19 11,620.72
12/31/13 18,717.34 13,780.15 11,555.05
01/31/14 18,070.21 13,422.84 11,725.78
02/28/14 18,896.81 13,875.43 11,788.13
03/31/14 19,055.65 13,994.53 11,768.05
04/30/14 19,196.51 14,089.81 11,867.35
05/31/14 19,647.13 14,280.38 12,002.47
06/30/14 20,052.99 14,447.12 12,008.67
07/31/14 19,776.45 14,197.01 11,978.55
08/31/14 20,567.60 14,482.85 12,110.79
09/30/14 20,279.17 14,006.44 12,028.56
10/31/14 20,774.49 14,137.45 12,146.79
11/30/14 21,333.22 14,197.00 12,232.96
12/31/14 21,279.48 13,967.67 12,244.43
01/31/15 20,640.69 13,967.67 12,501.17
02/28/15 21,826.94 14,465.65 12,383.64
03/31/15 21,481.76 14,319.90 12,441.12
04/30/15 21,687.83 14,538.52 12,396.49
05/31/15 21,966.72 14,562.82 12,366.63
06/30/15 21,541.49 14,247.02 12,231.77
07/31/15 21,992.81 14,380.63 12,316.82
08/31/15 20,665.90 13,688.32 12,299.10
09/30/15 20,154.55 13,360.38 12,382.29
10/31/15 21,854.67 13,991.96 12,384.41
11/30/15 21,919.67 13,931.23 12,351.67
[END CHART]
Data from 1/31/10 through 11/30/2015.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Managed Allocation Fund to the following benchmarks:
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
o The Barclays U.S. Aggregate Bond Index covers the U.S. investment-grade
fixed-rate bond market, including government and credit securities, agency
mortgage pass-through securities, asset-backed securities, and commercial
mortgage-backed securities that have remaining maturities of more than one
year.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
*The performance of the S&P 500 Index and the Barclay U.S. Aggregate Bond Index
is calculated from the end of the month, January 31, 2010, while the inception
date of the Fund is February 1, 2010. There may be a slight variation of
performance numbers because of this difference.
================================================================================
6 | USAA MANAGED ALLOCATION FUND
================================================================================
o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
DOMESTIC EXCHANGE-TRADED FUNDS* 33.6%
FIXED-INCOME EXCHANGE-TRADED FUNDS* 30.5%
INTERNATIONAL EXCHANGE-TRADED FUNDS* 32.5%
MONEY MARKET INSTRUMENTS 3.5%
[END CHART]
*The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 8-10.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
-----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.6%)
EXCHANGE-TRADED FUNDS (96.6%)
DOMESTIC EXCHANGE-TRADED FUNDS (33.6%)
352,600 iShares Core S&P Mid-Cap ETF $ 51,536
260,000 iShares Core S&P Small-Cap ETF 30,186
243,600 iShares Russell 2000 ETF 29,010
1,677,300 SPDR S&P 500 ETF Trust 350,036
----------
Total Domestic Exchange-Traded Funds 460,768
----------
FIXED-INCOME EXCHANGE-TRADED FUNDS (30.5%)
1,629,400 iShares 7-10 Year Treasury Bond ETF 173,368
525,000 iShares iBoxx High Yield Corporate Bond ETF 43,601
980,200 iShares iBoxx Investment Grade Corporate Bond ETF 113,615
2,456,700 SPDR Barclays High Yield Bond ETF 86,869
----------
Total Fixed-Income Exchange-Traded Funds 417,453
----------
INTERNATIONAL EXCHANGE-TRADED FUNDS (32.5%)
1,448,200 iShares Core MSCI EAFE ETF 80,868
3,169,100 iShares MSCI EAFE ETF 192,206
3,360,900 Vanguard FTSE Europe ETF 172,851
----------
Total International Exchange-Traded Funds 445,925
----------
Total Equity Exchange-Traded Funds (cost: $1,302,073) 1,324,146
----------
================================================================================
8 | USAA MANAGED ALLOCATION FUND
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.5%)
COMMERCIAL PAPER (2.3%)
FINANCIALS (2.3%)
-----------------
ASSET-BACKED FINANCING (2.3%)
$ 6,000 Gotham Funding Corp.(a),(b) 0.18% 12/03/2015 $ 6,000
12,549 Hannover Funding Co., LLC(a),(b) 0.28 12/08/2015 12,549
10,000 Manhattan Asset Funding Co., LLC 0.19 12/18/2015 9,999
2,612 Sheffield Receivable Corp.(a),(b) 0.19 12/04/2015 2,612
----------
31,160
----------
Total Financials 31,160
----------
Total Commercial Paper 31,160
----------
-----------------------------------------------------------------------------------------------
NUMBER OF
SHARES
-----------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (1.2%)
16,374,387 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(c) 16,374
----------
Total Money Market Instruments (cost: $47,534) 47,534
----------
TOTAL INVESTMENTS (COST: $1,349,607) $1,371,680
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
($ 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:
Exchange-Traded Funds:
Domestic Exchange-
Traded Funds $ 460,768 $ - $- $ 460,768
Fixed-Income Exchange-
Traded Funds 417,453 - - 417,453
International Exchange-
Traded Funds 445,925 - - 445,925
Money Market Instruments:
Commercial Paper - 31,160 - 31,160
Money Market Funds 16,374 - - 16,374
------------------------------------------------------------------------------------------------------------------
Total $1,340,520 $31,160 $- $1,371,680
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2015, through November 30, 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.
================================================================================
10 | USAA MANAGED ALLOCATION FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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 32.5% of net assets at November 30,
2015.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management Company
(the Manager) under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (Section 4(2) Commercial Paper).
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
Unless this commercial paper is subsequently registered, a resale of this
commercial paper in the United States must be effected in a transaction
exempt from registration under the Securities Act of 1933. Section 4(2)
commercial paper is normally resold to other investors through or with
the assistance of the issuer or an investment dealer who makes a market
in this security, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(c) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
See accompanying notes to financial statements.
================================================================================
12 | USAA MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,349,607) $1,371,680
Receivables:
Capital shares sold 602
Interest 2
----------
Total assets 1,372,284
----------
LIABILITIES
Payables:
Capital shares redeemed 577
Accrued management fees 673
Other accrued expenses and payables 118
----------
Total liabilities 1,368
----------
Net assets applicable to capital shares outstanding $1,370,916
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,318,284
Accumulated undistributed net investment income 19,079
Accumulated net realized gain on investments 11,480
Net unrealized appreciation of investments 22,073
----------
Net assets applicable to capital shares outstanding $1,370,916
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 119,521
==========
Net asset value, redemption price, and offering price per share $ 11.47
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 20,329
Interest 35
--------
Total income 20,364
--------
EXPENSES
Management fees 4,099
Administration and servicing fees 342
Transfer agent's fees 342
Custody and accounting fees 69
Postage 40
Shareholder reporting fees 12
Trustees' fees 13
Registration fees 55
Professional fees 62
Other 8
--------
Total expenses 5,042
--------
NET INVESTMENT INCOME 15,322
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (5,964)
Change in net unrealized appreciation/(depreciation) of:
Investments (70,754)
--------
Net realized and unrealized loss (76,718)
--------
Decrease in net assets resulting from operations $(61,396)
========
See accompanying notes to financial statements.
================================================================================
14 | USAA MANAGED ALLOCATION FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended May 31,
2015
--------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 15,322 $ 26,480
Net realized gain (loss) on investments (5,964) 27,675
Change in net unrealized appreciation/(depreciation)
of investments (70,754) (25,987)
--------------------------
Increase (decrease) in net assets resulting
from operations (61,396) 28,168
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (25,373)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 129,360 338,275
Reinvested dividends - 25,202
Cost of shares redeemed (95,662) (186,850)
--------------------------
Increase in net assets from capital share transactions 33,698 176,627
--------------------------
Net increase (decrease) in net assets (27,698) 179,422
NET ASSETS
Beginning of period 1,398,614 1,219,192
--------------------------
End of period $1,370,916 $1,398,614
--------------------------
Accumulated undistributed net investment income:
End of period $ 19,079 $ 3,757
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 11,183 28,496
Shares issued for dividends reinvested - 2,174
Shares redeemed (8,294) (15,761)
--------------------------
Increase in shares outstanding 2,889 14,909
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Managed Allocation Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek to maximize total return, consisting primarily of capital
appreciation. The Fund is not offered for sale directly to the general public
and currently is available for investment through a USAA discretionary managed
account program or other persons or legal entities that the Fund may approve
from time to time.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
================================================================================
16 | USAA MANAGED ALLOCATION FUND
================================================================================
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), an affiliate of the Fund. 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 over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities exchanges
or markets are valued at the last quoted sales price, or the most
recently determined official closing price calculated according to local
market convention, available at the time the Fund is valued. If no last
sale or official closing price is reported or available, the average of
the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the calculation of the Fund's net asset
value (NAV) may not take place at the same time the prices of certain
foreign securities held by the Fund are determined. In many 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 need to be reflected in the value of the Fund's foreign securities.
However, the Manager will monitor for events that would materially affect
the value of the Fund's foreign securities. If the Manager determines
that a particular event would materially affect the value of the Fund's
foreign securities, then the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
Committee will consider such available information that it deems relevant
and will determine a fair value for the affected foreign securities in
accordance with valuation procedures. In addition, information from an
external vendor or other sources may be used to adjust the foreign market
closing prices of foreign equity securities to reflect what the Committee
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, commingled, or other funds,
other than ETFs, are valued at their NAV at the end of each business day.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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, other pricing services, or widely used quotation systems.
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and
================================================================================
18 | USAA MANAGED ALLOCATION FUND
================================================================================
duration of any restrictions on disposition of the securities, evaluation
of credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
include commercial paper, which is valued at amortized cost.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
E. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2015, there were no custodian and other bank credits.
F. 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.
G. 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).
================================================================================
20 | USAA MANAGED ALLOCATION FUND
================================================================================
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $3,000, which represents 1.9% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 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 the Fund's 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$93,957,000 and $56,422,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $59,252,000 and $37,179,000, respectively, resulting in net
unrealized appreciation of $22,073,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for
directly managing the day-to-day investment of the Fund's assets, subject to
the authority of and supervision by the Board. The Manager is authorized to
select (with approval of the Board and without shareholder approval) one or
more subadvisers to manage the actual day-to-day investment of a portion of
the Fund's assets. For the six-month period ended November 30, 2015, the
Fund had no subadviser(s).
The Fund's management fee is accrued daily and paid monthly at an annualized
rate of 0.60% of the Fund's average net assets. For the six-month period
ended November 30, 2015, the Fund incurred total management fees, paid or
payable to the Manager, of $4,099,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.05% of the Fund's average net assets for the fiscal year. For the
six-month period ended November 30, 2015, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $342,000.
================================================================================
22 | USAA MANAGED ALLOCATION FUND
================================================================================
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 November 30, 2015, the Fund reimbursed the
Manager $17,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. 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. The Fund's transfer agent's fees are accrued daily and
paid monthly at an annualized rate of 0.05% of the Fund's average net assets
for the fiscal year. For the six-month period ended November 30, 2015, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $342,000.
D. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
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 | 23
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
--------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.99 $ 11.99 $ 11.32 $ 10.67 $ 11.33 $ 10.14
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .23 .20 .18 .32(a) .30(a)
Net realized and
unrealized gain(loss) (.65) .00(b) .66 .95 (.18)(a) 1.36(a)
--------------------------------------------------------------------------------
Total from investment
operations (.52) .23 .86 1.13 .14(a) 1.66(a)
--------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.23) (.18) (.23) (.32) (.22)
Realized capital gains - - (.01) (.25) (.48) (.25)
--------------------------------------------------------------------------------
Total distributions - (.23) (.19) (.48) (.80) (.47)
--------------------------------------------------------------------------------
Net asset value at end
of period $ 11.47 $ 11.99 $ 11.99 $ 11.32 $ 10.67 $ 11.33
================================================================================
Total return (%)* (4.34) 1.98 7.65 10.70 1.29 16.69
Net assets at
end of period (000) $1,370,916 $1,398,614 $1,219,192 $714,894 $519,850 $474,503
Ratios to average
net assets:**
Expenses (%)(c) .74(d) .74 .73 .74 .74 .75
Net investment
income (%) 2.24(d) 2.04 1.80 1.68 2.87 2.80
Portfolio turnover (%) 4 35 65 65(e) 125(e) 249
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$1,365,791,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects decreased trading activity due to asset allocation strategies.
================================================================================
24 | USAA MANAGED ALLOCATION FUND
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account
================================================================================
EXPENSE EXAMPLE | 25
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
--------------------------------------------------------------
Actual $1,000.00 $ 956.60 $3.62
Hypothetical
(5% return before expenses) 1,000.00 1,021.30 3.74
*Expenses are equal to the Fund's annualized expense ratio of 0.74%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/366 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of (4.34)% for the six-month period of June 1, 2015, through
November 30, 2015.
================================================================================
26 | USAA MANAGED ALLOCATION FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
93924-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA PRECIOUS METALS AND MINERALS FUND]
==============================================================
SEMIANNUAL REPORT
USAA PRECIOUS METALS AND MINERALS FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many
investors by devaluing its currency, which added to investors' existing
concerns about the health of the global economy. The result was a broad
sell-off in riskier asset classes and a flight to the perceived safety of U.S.
Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears
to be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence
in global economic growth and central bank monetary policy created uncertainty
in the world's commodities markets. But softening global demand and, in the
case of energy, an increase in supply were also key factors. In addition,
commodities are generally priced in U.S. dollars and the appreciation of the
U.S. dollar during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure
you are staying on track toward your financial goals. Investors also may want
to consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may
also be subject to foreign taxes. Investments made in emerging market countries
may be particularly volatile. Economies of emerging market countries are
generally less diverse and mature than more developed countries and may have
less stable political systems. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers, and affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
-------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 17
Financial Statements 19
Notes to Financial Statements 22
EXPENSE EXAMPLE 39
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)2016, USAA. All rights reserved.
200996-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA PRECIOUS METALS AND MINERALS FUND (THE FUND) SEEKS LONG-TERM CAPITAL
APPRECIATION AND TO PROTECT THE PURCHASING POWER OF YOUR CAPITAL AGAINST
INFLATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
domestic and foreign companies (including those located in emerging markets)
principally engaged in the exploration, mining, or processing of gold and other
precious metals and minerals, such as platinum, silver, and diamonds. This 80%
policy may be changed upon at least 60 days' written notice to shareholders.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGER'S COMMENTARY ON THE FUND
DAN DENBOW, CFA [PHOTO OF DAN DENBOW]
USAA Asset Management Company
--------------------------------------------------------------------------------
o PLEASE REVIEW THE PERFORMANCE OF GOLD AND GOLD STOCKS OVER THE REPORTING
PERIOD.
The price of gold declined over the reporting period ended November 30,
2015, against a continued poor backdrop for commodities overall. Gold opened
the reporting period at $1,191 an ounce and topped out early in the
reporting period, reaching a high of $1,202 an ounce on June 18, 2015. The
summer saw a disturbance in prices for gold and other commodities on
concerns over weakening China growth, highlighted by a devaluation of the
Chinese currency, the renminbi, in August 2015 that raised fears of a
potential global currency war. In late September and early October 2015,
gold experienced something of a rally as the Federal Reserve (the Fed)
signaled that it was in no hurry to begin an interest rate increase cycle
given the deterioration in economic conditions globally. Higher U.S.
interest rates would tend to support further strengthening in the U.S.
dollar, which is generally a bearish development for gold. However, the
relief for gold was short-lived, as U.S. employment numbers continued to
improve and the market began to anticipate the Fed's December 2015 meeting.
Gold hit a low of $1,057 an ounce on November 27, 2015 and closed the
reporting period at $1,064 an ounce, for a decline of 10.6%. Silver and
platinum prices declined 15.9% and 25.3%, respectively.
As is typically the case, declines for gold mining stocks were much steeper
than for the metal, as reflected in the drop of nearly 30% in the NYSE
================================================================================
2 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
Arca Gold Miners Index. Junior producers, which are normally more vulnerable
to lower gold prices and tighter financing conditions, actually modestly
outperformed their senior counterparts, as some junior miners showed good
progress on new development projects.
o HOW DID THE USAA PRECIOUS METALS AND MINERALS FUND (THE FUND) PERFORM DURING
THE REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2015, the Fund
Shares, Institutional Shares, and Adviser Shares had a total return of
-29.28%, -29.24%, and -29.33%, respectively. This compares to a total return
of -0.21% for the S&P 500(R) Index, -29.82% for the NYSE Arca Gold Miners
(GDM) Index, and -26.38% for the Lipper Precious Metals Equity Funds Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o PLEASE DISCUSS THE PRINCIPAL FACTORS IN THE FUND'S PERFORMANCE FOR THE
REPORTING PERIOD.
At the end of November 2015, the Fund held approximately 82% of assets in
gold stocks, and the Fund's absolute performance reflects the overall
negative returns for the sector. In terms of specific company weightings
that helped performance on a relative basis, shares of Australian miner St.
Barbara Ltd. outperformed expectations. The company has delivered a
performance turnaround at its mining operations, and the weakening of the
Australian dollar has meant that the price of gold in local currency terms
has actually been rising. Australia-based OceanaGold Corp. (Oceana) also
outperformed for the reporting period. Oceana shares
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
benefited during the reporting period as a recent mine acquisition in New
Zealand began to add to the company's results. In addition, Oceana is in the
process of developing a mine in South Carolina that promises to impact
results favorably in coming years.
On the downside, selection within the royalty segment detracted from
performance on a relative basis. Royalty-based companies provide financing
to miners in exchange for a percentage of future production. The Fund has a
significant allocation to this segment as we prefer the risk/reward profile
overall. In particular, the Fund's exposure to Silver Wheaton Corp., whose
shares were negatively impacted by a tax dispute with the Canada Revenue
Agency and to Royal Gold, Inc., which has seen its results suffer from
copper exposure as that metal has hit multi-year lows detracted from the
Fund's performance during the reporting period. The Fund did not hold shares
in the more diversified Franco-Nevada Corp., which held up better over the
reporting period. Outside of the royalty segment, Alamos Gold, Inc. "A" was
a leading detractor, as the company has been challenged to integrate a large
acquisition. We are maintaining the position as we find the stock attractive
at current levels and believe the merger will over time have a favorable
impact on results. Finally, Dundee Precious Metals, Inc. continued to see
its shares suffer from operational issues, most notably the failure to meet
expectations for expanded production from its Namibian smelter. We believe
the company's long-term cash flow outlook is attractive and will eventually
be rewarded by investors.
The Fund will typically have modest exposure to silver and platinum stocks.
We added to the Fund's silver exposure in past quarters as weaker share
prices improved relative valuations for silver miners. At the end of the
reporting period, the Fund's weighting to silver was approximately 15%. We
had previously reduced the Fund's exposure to platinum mining stocks, as the
challenging labor environment in South Africa led to concerns about
production costs for platinum. In addition, platinum demand is driven in
significant part by automobile production levels, which have slowed notably
in China. The recent scandal involving Volkswagen has further impacted the
demand outlook for platinum, as
================================================================================
4 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
the metal is used extensively in diesel engines. At the end of the reporting
period the Fund held just 1% in platinum miners.
Looking ahead, we would not be surprised to see sentiment with respect to
gold sector improve once the uncertainty around the Fed's interest rate
increase cycle is removed. In addition, there are multiple areas of
heightened geopolitical concern with the potential to increase the
attraction of gold as a "safe haven" investment. Gold miners have made
significant strides in controlling costs and in aggregate are
well-positioned to benefit from any strengthening in gold prices. As always,
the primary purpose of maintaining exposure to gold should be to help
diversify investor portfolios.
Thank you for your continued confidence and investment in the Fund.
The USAA Precious Metals and Minerals Fund may be subject to stock market
risk and is non-diversified which means that it may invest a greater
percentage of its assets in a single issuer. Individual stocks will
fluctuate in response to the activities of individual companies, general
market, and economic conditions domestically and abroad. When redeemed or
sold, may be worth more or less than the original cost. o The USAA Precious
Metals and Minerals Fund is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than a fund that diversifies across many
industries and companies.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA PRECIOUS METALS AND MINERALS FUND SHARES (FUND SHARES)
(Ticker Symbol: USAGX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $412.1 Million $573.5 Million
Net Asset Value Per Share $8.67 $12.26
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-29.28% -26.21% -24.56% -1.84%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-26.53% -25.29% -3.11%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.25%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense 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 October 1, 2015, 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.
================================================================================
6 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS METALS LIPPER PRECIOUS NYSE ARCA
AND MINERALS METALS EQUITY GOLD MINERS
S&P 500 INDEX FUND SHARES FUNDS INDEX (GDM) INDEX
11/30/05 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,003.43 11,385.30 11,095.02 11,274.12
01/31/06 10,268.35 13,229.10 13,180.86 13,572.99
02/28/06 10,296.21 12,600.16 12,315.76 12,249.39
03/31/06 10,424.38 14,030.04 13,534.61 13,344.06
04/30/06 10,564.35 15,777.08 15,170.26 15,024.44
05/31/06 10,260.29 14,390.20 13,860.38 13,354.17
06/30/06 10,274.20 14,535.34 13,777.76 13,361.93
07/31/06 10,337.58 14,567.59 13,784.20 13,377.90
08/31/06 10,583.54 15,304.04 14,249.40 14,014.42
09/30/06 10,856.28 13,841.90 12,961.83 12,335.49
10/31/06 11,210.04 14,917.00 13,929.08 13,137.55
11/30/06 11,423.21 16,653.29 15,298.96 14,499.54
12/31/06 11,583.46 16,303.10 14,970.69 13,860.36
01/31/07 11,758.64 16,438.08 14,876.52 13,750.79
02/28/07 11,528.65 16,772.59 15,168.07 13,907.29
03/31/07 11,657.60 16,825.41 15,314.47 13,729.79
04/30/07 12,173.97 16,831.28 15,596.55 13,805.22
05/31/07 12,598.79 16,936.91 15,675.89 13,649.79
06/30/07 12,389.48 16,661.09 15,463.74 13,205.78
07/31/07 12,005.35 16,948.65 15,857.35 13,962.84
08/31/07 12,185.31 16,314.84 14,950.52 13,091.69
09/30/07 12,641.02 19,736.26 18,104.80 15,737.42
10/31/07 12,842.10 22,518.00 20,362.59 17,616.06
11/30/07 12,305.22 20,164.67 18,377.77 16,160.02
12/31/07 12,219.85 20,815.40 18,637.31 16,296.06
01/31/08 11,486.88 22,652.43 19,919.64 17,803.07
02/29/08 11,113.72 24,623.88 21,625.00 18,849.80
03/31/08 11,065.73 22,588.42 19,684.50 16,997.52
04/30/08 11,604.67 21,141.84 18,585.66 15,492.63
05/31/08 11,754.98 22,735.64 19,839.99 16,411.27
06/30/08 10,763.99 23,574.15 20,189.91 17,211.97
07/31/08 10,673.51 20,994.63 17,771.79 15,482.34
08/31/08 10,827.90 18,600.73 15,712.43 13,374.11
09/30/08 9,863.05 16,418.05 13,774.11 12,011.96
10/31/08 8,206.57 9,729.22 8,533.81 7,422.31
11/30/08 7,617.71 12,014.30 10,040.66 9,473.32
12/31/08 7,698.77 15,699.88 12,563.45 11,999.46
01/31/09 7,049.87 15,537.49 12,591.72 12,141.64
02/28/09 6,299.21 15,633.45 12,555.67 11,847.81
03/31/09 6,850.99 17,737.10 14,079.99 13,186.10
04/30/09 7,506.70 16,511.81 13,268.59 11,741.95
05/31/09 7,926.57 21,767.25 17,235.87 15,783.71
06/30/09 7,942.29 18,910.71 15,301.16 13,498.23
07/31/09 8,543.03 20,327.91 16,358.38 14,207.80
08/31/09 8,851.47 20,475.53 16,504.35 14,108.69
09/30/09 9,181.76 23,081.11 18,553.79 16,167.29
10/31/09 9,011.19 22,283.94 17,950.87 15,171.63
11/30/09 9,551.71 26,565.05 21,274.51 18,237.83
12/31/09 9,736.21 25,498.01 20,089.40 16,555.44
01/31/10 9,385.96 22,955.71 18,185.05 14,606.37
02/28/10 9,676.71 24,560.59 19,455.17 15,769.71
03/31/10 10,260.65 25,243.03 20,262.11 15,915.80
04/30/10 10,422.64 28,407.79 22,448.37 18,185.55
05/31/10 9,590.39 27,650.35 21,690.27 17,871.27
06/30/10 9,088.35 28,265.30 22,234.33 18,706.32
07/31/10 9,725.10 27,402.87 21,768.61 17,385.45
08/31/10 9,286.07 30,177.65 23,812.65 19,289.98
09/30/10 10,114.80 32,412.48 25,719.13 20,186.80
10/31/10 10,499.66 32,742.45 26,714.23 20,627.06
11/30/10 10,501.01 33,987.35 27,709.88 21,456.35
12/31/10 11,202.81 35,678.08 29,152.51 22,308.49
01/31/11 11,468.33 31,127.85 25,907.86 19,587.74
02/28/11 11,861.23 33,706.59 28,311.91 21,739.13
03/31/11 11,865.94 34,047.65 28,596.49 21,870.06
04/30/11 12,217.36 36,027.45 29,854.84 22,626.66
05/31/11 12,079.06 33,731.55 28,102.43 21,138.41
06/30/11 11,877.71 32,467.13 26,643.41 19,888.33
07/31/11 11,636.18 33,997.74 27,956.09 20,723.66
08/31/11 11,004.09 36,759.48 29,653.55 22,871.43
09/30/11 10,230.51 31,693.51 24,933.36 20,098.96
10/31/11 11,348.63 33,423.76 26,979.34 21,445.75
11/30/11 11,323.55 33,481.99 27,101.00 22,019.27
12/31/11 11,439.38 28,714.93 23,526.27 18,856.65
01/31/12 11,952.05 31,990.01 26,308.13 20,689.51
02/29/12 12,468.88 31,145.72 25,857.77 20,297.20
03/31/12 12,879.22 28,046.92 23,095.82 18,175.53
04/30/12 12,798.38 26,692.36 21,938.27 17,011.08
05/31/12 12,029.18 23,936.84 19,679.87 16,074.38
06/30/12 12,524.81 24,345.06 19,997.89 16,460.23
07/31/12 12,698.77 23,500.78 19,632.84 15,761.35
08/31/12 12,984.78 25,931.58 21,555.35 17,643.58
09/30/12 13,320.33 29,484.99 24,297.08 19,762.84
10/31/12 13,074.38 28,807.71 23,743.89 19,478.97
11/30/12 13,150.23 26,005.80 21,746.94 17,532.26
12/31/12 13,270.09 25,309.01 21,197.72 17,260.33
01/31/13 13,957.41 23,082.80 19,643.26 15,494.26
02/28/13 14,146.88 20,450.96 17,583.59 13,952.16
03/31/13 14,677.44 20,649.06 17,555.90 14,138.60
04/30/13 14,960.22 16,790.92 14,593.46 11,330.53
05/31/13 15,310.17 15,743.84 14,012.37 11,034.73
06/30/13 15,104.57 13,112.01 11,615.43 9,152.76
07/31/13 15,873.15 14,772.24 12,912.04 10,086.59
08/31/13 15,413.44 16,007.97 13,882.00 10,519.62
09/30/13 15,896.80 14,536.41 12,744.61 9,396.12
10/31/13 16,627.54 14,574.14 12,753.42 9,419.84
11/30/13 17,134.25 12,838.45 11,363.15 8,330.91
12/31/13 17,568.02 12,321.34 11,056.22 8,007.97
01/31/14 16,960.62 13,540.25 12,069.79 8,872.32
02/28/14 17,736.46 15,354.44 13,466.55 9,801.58
03/31/14 17,885.55 14,078.84 12,413.95 8,956.93
04/30/14 18,017.76 14,475.69 12,743.64 9,165.56
05/31/14 18,440.71 13,341.82 12,031.69 8,523.04
06/30/14 18,821.65 16,006.41 14,111.22 10,034.14
07/31/14 18,562.09 15,581.21 13,801.24 9,864.76
08/31/14 19,304.66 16,119.80 14,037.09 10,152.96
09/30/14 19,033.94 12,992.21 11,497.28 8,145.26
10/31/14 19,498.85 10,705.59 9,614.15 6,650.11
11/30/14 20,023.26 11,253.62 10,076.28 7,044.10
12/31/14 19,972.82 11,302.15 10,128.74 7,071.08
01/31/15 19,373.25 12,978.31 11,393.45 8,510.41
02/28/15 20,486.66 12,413.20 11,049.97 8,154.66
03/31/15 20,162.68 10,842.40 9,732.24 7,031.28
04/30/15 20,356.10 11,972.61 10,616.99 7,753.51
05/31/15 20,617.87 11,742.74 10,479.47 7,531.93
06/30/15 20,218.75 10,823.24 9,710.93 6,827.73
07/31/15 20,642.35 8,495.77 7,940.41 5,299.91
08/31/15 19,396.92 8,783.11 8,140.79 5,410.60
09/30/15 18,916.97 8,476.61 7,857.12 5,288.18
10/31/15 20,512.70 9,147.08 8,417.09 5,776.40
11/30/15 20,573.70 8,304.20 7,714.92 5,286.27
[END CHART]
Data from 11/30/05 through 11/30/15.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Precious Metals Equity Funds Index reflects the fees and
expenses of the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Precious Metals and Minerals Fund Shares to the
following benchmarks:
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
o The unmanaged Lipper Precious Metals Equity Funds Index tracks the total
return performance of the 10 largest funds within the Lipper Precious Metals
Equity Funds category.
o The NYSE Arca Gold Miners (GDM) Index is a modified market capitalization
weighted index comprised of publicly traded companies involved primarily in
the mining for gold and silver.
================================================================================
8 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
USAA PRECIOUS METALS AND MINERALS FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIPMX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $103.9 Million $161.6 Million
Net Asset Value Per Share $8.71 $12.31
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-29.24% -26.02% -24.39% -11.24%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-26.29% -25.11% -11.10%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
0.99%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense 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 October 1, 2015, and
is calculated as a percentage of average net assets. The 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).
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS
LIPPER PRECIOUS METALS AND MINERALS NYSE ARCA
METALS EQUITY FUND INSTITUTIONAL GOLD MINERS
S&P 500 INDEX FUNDS INDEX SHARES (GDM) INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00 $10,000.00
08/31/08 10,144.65 8,841.22 9,184.58 8,638.30
09/30/08 9,240.68 7,750.54 8,106.83 7,758.49
10/31/08 7,688.73 4,801.88 4,804.05 4,794.05
11/30/08 7,137.03 5,649.77 5,932.36 6,118.79
12/31/08 7,212.97 7,069.32 7,755.85 7,750.42
01/31/09 6,605.01 7,085.23 7,675.67 7,842.25
02/28/09 5,901.73 7,064.94 7,726.70 7,652.47
03/31/09 6,418.69 7,922.66 8,769.07 8,516.86
04/30/09 7,033.02 7,466.10 8,167.70 7,584.09
05/31/09 7,426.40 9,698.44 10,766.35 10,194.65
06/30/09 7,441.13 8,609.80 9,359.51 8,718.47
07/31/09 8,003.95 9,204.69 10,062.93 9,176.78
08/31/09 8,292.93 9,286.83 10,135.82 9,112.76
09/30/09 8,602.38 10,440.02 11,429.68 10,442.41
10/31/09 8,442.58 10,100.77 11,036.06 9,799.31
11/30/09 8,948.99 11,970.94 13,160.90 11,779.76
12/31/09 9,121.85 11,304.09 12,631.28 10,693.11
01/31/10 8,793.70 10,232.54 11,376.32 9,434.21
02/28/10 9,066.10 10,947.22 12,174.60 10,185.61
03/31/10 9,613.20 11,401.28 12,516.19 10,279.97
04/30/10 9,764.97 12,631.46 14,090.45 11,746.00
05/31/10 8,985.23 12,204.89 13,719.16 11,543.00
06/30/10 8,514.87 12,511.02 14,027.34 12,082.36
07/31/10 9,111.44 12,248.97 13,604.06 11,229.21
08/31/10 8,700.12 13,399.13 14,981.55 12,459.34
09/30/10 9,476.55 14,471.88 16,095.42 13,038.60
10/31/10 9,837.13 15,031.81 16,262.50 13,322.96
11/30/10 9,838.39 15,592.06 16,886.27 13,858.59
12/31/10 10,495.91 16,403.81 17,730.34 14,408.99
01/31/11 10,744.67 14,578.08 15,469.18 12,651.67
02/28/11 11,112.78 15,930.81 16,756.56 14,041.24
03/31/11 11,117.20 16,090.94 16,929.86 14,125.81
04/30/11 11,446.44 16,799.01 17,916.02 14,614.49
05/31/11 11,316.87 15,812.95 16,781.31 13,653.24
06/30/11 11,128.23 14,991.97 16,154.13 12,845.81
07/31/11 10,901.94 15,730.60 16,921.60 13,385.35
08/31/11 10,309.72 16,685.74 18,299.76 14,772.59
09/30/11 9,584.96 14,029.74 15,778.64 12,981.86
10/31/11 10,632.53 15,180.99 16,641.02 13,851.75
11/30/11 10,609.03 15,249.45 16,674.03 14,222.19
12/31/11 10,717.55 13,237.99 14,299.71 12,179.45
01/31/12 11,197.87 14,803.31 15,932.64 13,363.30
02/29/12 11,682.08 14,549.90 15,517.49 13,109.90
03/31/12 12,066.53 12,995.78 13,976.81 11,739.52
04/30/12 11,990.79 12,344.44 13,303.34 10,987.41
05/31/12 11,270.14 11,073.66 11,933.34 10,382.40
06/30/12 11,734.49 11,252.61 12,136.30 10,631.62
07/31/12 11,897.47 11,047.20 11,721.15 10,180.21
08/31/12 12,165.44 12,128.97 12,934.32 11,395.94
09/30/12 12,479.81 13,671.71 14,710.25 12,764.76
10/31/12 12,249.38 13,360.44 14,373.51 12,581.41
11/30/12 12,320.44 12,236.78 12,975.83 11,324.04
12/31/12 12,432.74 11,927.74 12,634.00 11,148.40
01/31/13 13,076.69 11,053.06 11,517.86 10,007.70
02/28/13 13,254.21 9,894.10 10,209.44 9,011.66
03/31/13 13,751.28 9,878.52 10,307.92 9,132.08
04/30/13 14,016.22 8,211.59 8,385.15 7,318.36
05/31/13 14,344.09 7,884.62 7,864.60 7,127.30
06/30/13 14,151.46 6,535.88 6,551.49 5,911.74
07/31/13 14,871.55 7,265.47 7,376.87 6,514.90
08/31/13 14,440.85 7,811.26 7,995.91 6,794.59
09/30/13 14,893.70 7,171.26 7,264.32 6,068.93
10/31/13 15,578.33 7,176.22 7,283.08 6,084.25
11/30/13 16,053.07 6,393.92 6,420.17 5,380.91
12/31/13 16,459.47 6,221.22 6,162.72 5,172.32
01/31/14 15,890.40 6,791.55 6,775.22 5,730.60
02/28/14 16,617.28 7,577.49 7,679.84 6,330.81
03/31/14 16,756.96 6,985.20 7,043.78 5,785.26
04/30/14 16,880.83 7,170.72 7,241.67 5,920.01
05/31/14 17,277.09 6,770.11 6,676.28 5,505.01
06/30/14 17,633.99 7,940.24 8,019.07 6,481.02
07/31/14 17,390.80 7,765.82 7,802.34 6,371.62
08/31/14 18,086.53 7,898.53 8,070.90 6,557.77
09/30/14 17,832.89 6,469.40 6,506.66 5,261.00
10/31/14 18,268.46 5,409.78 5,366.47 4,295.29
11/30/14 18,759.78 5,669.82 5,639.74 4,549.76
12/31/14 18,712.53 5,699.33 5,666.79 4,567.19
01/31/15 18,150.79 6,410.98 6,505.08 5,496.85
02/28/15 19,193.94 6,217.70 6,227.25 5,267.07
03/31/15 18,890.40 5,476.23 5,441.66 4,541.48
04/30/15 19,071.62 5,974.07 6,006.90 5,007.97
05/31/15 19,316.86 5,896.69 5,896.72 4,864.85
06/30/15 18,942.93 5,464.24 5,432.08 4,410.01
07/31/15 19,339.80 4,467.99 4,268.06 3,423.20
08/31/15 18,172.96 4,580.74 4,411.76 3,494.69
09/30/15 17,723.30 4,421.12 4,258.48 3,415.62
10/31/15 19,218.33 4,736.21 4,598.58 3,730.96
11/30/15 19,275.48 4,341.11 4,172.26 3,414.38
[END CHART]
Data from 7/31/08 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Precious Metals and Minerals Fund Institutional Shares to the Fund's
benchmarks listed above (see page 8 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Precious Metals Equity Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the S&P 500 Index, the Lipper Precious Metals Equity Funds
Index, and the NYSE Arca Gold Miners (GDM) 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.
================================================================================
10 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
USAA PRECIOUS METALS AND MINERALS FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UPMMX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $9.6 Million $12.4 Million
Net Asset Value Per Share $8.60 $12.17
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-29.33% -26.27% -24.73% -20.21%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-26.62% -25.45% -19.93%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/15**
--------------------------------------------------------------------------------
1.39%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
return is cumulative.
**The expense 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 October 1, 2015, and
is calculated as a percentage of average net assets. The 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS
LIPPER PRECIOUS NYSE ARCA GOLD METALS AND
METALS EQUITY MINERS (GDM) MINERALS FUND
S&P 500 INDEX FUNDS INDEX INDEX ADVISER SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,548.56 10,938.98 11,095.47 11,030.98
09/30/10 10,400.72 11,814.77 11,611.32 11,845.35
10/31/10 10,796.45 12,271.90 11,864.55 11,963.26
11/30/10 10,797.84 12,729.28 12,341.55 12,415.68
12/31/10 11,519.47 13,391.99 12,831.70 13,028.39
01/31/11 11,792.50 11,901.47 11,266.75 11,366.03
02/28/11 12,196.50 13,005.84 12,504.21 12,302.06
03/31/11 12,201.36 13,136.57 12,579.52 12,423.62
04/30/11 12,562.70 13,714.63 13,014.71 13,143.87
05/31/11 12,420.50 12,909.61 12,158.68 12,302.06
06/30/11 12,213.46 12,239.37 11,439.64 11,837.08
07/31/11 11,965.10 12,842.39 11,920.11 12,393.23
08/31/11 11,315.13 13,622.16 13,155.50 13,396.11
09/30/11 10,519.69 11,453.82 11,560.79 11,548.37
10/31/11 11,669.42 12,393.69 12,335.46 12,177.45
11/30/11 11,643.64 12,449.58 12,665.35 12,192.65
12/31/11 11,762.74 10,807.43 10,846.22 10,451.18
01/31/12 12,289.89 12,085.35 11,900.47 11,640.66
02/29/12 12,821.33 11,878.47 11,674.82 11,332.27
03/31/12 13,243.27 10,609.69 10,454.45 10,200.40
04/30/12 13,160.15 10,077.94 9,784.66 9,705.63
05/31/12 12,369.21 9,040.48 9,245.88 8,702.54
06/30/12 12,878.85 9,186.57 9,467.82 8,848.26
07/31/12 13,057.72 9,018.88 9,065.83 8,539.87
08/31/12 13,351.82 9,902.03 10,148.47 9,420.97
09/30/12 13,696.85 11,161.52 11,367.46 10,708.73
10/31/12 13,443.95 10,907.40 11,204.18 10,461.34
11/30/12 13,521.94 9,990.04 10,084.44 9,441.30
12/31/12 13,645.19 9,737.75 9,928.03 9,190.19
01/31/13 14,351.94 9,023.66 8,912.20 8,376.96
02/28/13 14,546.77 8,077.50 8,025.19 7,422.45
03/31/13 15,092.32 8,064.78 8,132.43 7,487.92
04/30/13 15,383.10 6,703.90 6,517.25 6,092.33
05/31/13 15,742.94 6,436.96 6,347.10 5,709.84
06/30/13 15,531.53 5,335.87 5,264.61 4,755.33
07/31/13 16,321.84 5,931.50 5,801.74 5,354.91
08/31/13 15,849.13 6,377.08 6,050.82 5,799.43
09/30/13 16,346.15 5,854.58 5,404.59 5,265.32
10/31/13 17,097.55 5,858.63 5,418.23 5,279.10
11/30/13 17,618.58 5,219.97 4,791.88 4,651.95
12/31/13 18,064.61 5,078.97 4,606.13 4,462.52
01/31/14 17,440.04 5,544.59 5,103.30 4,903.60
02/28/14 18,237.82 6,186.23 5,637.80 5,561.78
03/31/14 18,391.12 5,702.69 5,151.97 5,100.02
04/30/14 18,527.07 5,854.14 5,271.97 5,241.31
05/31/14 18,961.97 5,527.08 4,902.40 4,827.79
06/30/14 19,353.68 6,482.37 5,771.57 5,796.11
07/31/14 19,086.78 6,339.98 5,674.15 5,641.04
08/31/14 19,850.34 6,448.32 5,839.92 5,834.01
09/30/14 19,571.97 5,281.59 4,685.10 4,700.29
10/31/14 20,050.02 4,416.52 3,825.10 3,873.26
11/30/14 20,589.26 4,628.81 4,051.72 4,069.68
12/31/14 20,537.39 4,652.91 4,067.24 4,089.17
01/31/15 19,920.87 5,233.89 4,895.14 4,692.77
02/28/15 21,065.76 5,076.10 4,690.51 4,490.41
03/31/15 20,732.61 4,470.77 4,044.35 3,921.69
04/30/15 20,931.50 4,877.20 4,459.77 4,329.91
05/31/15 21,200.67 4,814.03 4,332.32 4,246.17
06/30/15 20,790.26 4,460.98 3,927.26 3,911.23
07/31/15 21,225.85 3,647.65 3,048.48 3,073.85
08/31/15 19,945.21 3,739.69 3,112.14 3,175.04
09/30/15 19,451.70 3,609.38 3,041.73 3,063.39
10/31/15 21,092.53 3,866.62 3,322.55 3,304.13
11/30/15 21,155.25 3,544.06 3,040.63 3,000.58
[END CHART]
Data from 7/31/10 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Precious Metals and Minerals Fund Adviser Shares to the Fund's
benchmarks listed above (see page 8 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Precious Metals Equity Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the S&P 500 Index, the Lipper Precious Metals Equity Funds
Index, and the NYSE Arca Gold Miners (GDM) Index is calculated from the end of
the month, July 31, 2010, while the inception date of the Adviser Shares is
August 1, 2010. There may be a slight variation of performance numbers because
of this difference.
================================================================================
12 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
o TOP 10 EQUITY HOLDINGS - 11/30/15 o
(% of Net Assets)
Randgold Resources Ltd. ADR ............................................... 5.9%
Silver Wheaton Corp. ...................................................... 5.0%
Goldcorp, Inc. ............................................................ 4.5%
Agnico-Eagle Mines Ltd. ................................................... 4.4%
Eldorado Gold Corp. ....................................................... 4.2%
Newcrest Mining Ltd. ...................................................... 4.1%
Newmont Mining Corp. ...................................................... 4.0%
Tahoe Resources, Inc. ..................................................... 4.0%
Centerra Gold, Inc. ....................................................... 3.8%
Royal Gold, Inc. .......................................................... 3.5%
o ASSET ALLOCATION - 11/30/15 o
[PIE CHART OF ASSET ALLOCATION]
GOLD 81.6%
SILVER 14.6%
MONEY MARKET INSTRUMENTS 2.9%
PLATINUM GROUP METALS 1.0%
[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 14-16.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
COMMON STOCKS (97.2%)
GOLD (81.6%)
AFRICAN GOLD COMPANIES (4.6%)
1,591,900 AngloGold Ashanti Ltd. ADR* $ 10,188
4,700,000 Gold Fields Ltd. ADR 11,891
18,400,000 Great Basin Gold Ltd.*(a) -
6,500,000 Great Basin Gold Ltd., acquired 03/30/2012; cost $4,455*(a),(b),(c) -
3,569,600 Harmony Gold Mining Co. Ltd. ADR* 2,175
----------
24,254
----------
AUSTRALIAN GOLD COMPANIES (11.9%)
3,044,572 AuRico Metals, Inc.* 1,345
7,063,636 Kingsgate Consolidated Ltd.* 3,116
2,700,000 Newcrest Mining Ltd.* 21,303
9,624,551 OceanaGold Corp. 18,594
21,450,000 Perseus Mining Ltd.* 5,060
6,464,364 Saracen Mineral Holdings Ltd.* 2,291
14,746,000 St. Barbara Ltd.* 10,824
----------
62,533
----------
EUROPEAN GOLD COMPANIES (8.0%)
11,800,000 Centamin plc 11,266
510,000 Randgold Resources Ltd. ADR 30,906
----------
42,172
----------
NORTH AMERICAN GOLD COMPANIES (53.5%)
868,300 Agnico-Eagle Mines Ltd. 22,966
8,161,500 Alacer Gold Corp.* 15,706
2,750,000 Alamos Gold, Inc. "A" 8,250
3,369,400 Alamos Gold, Inc. "A" 10,244
240,000 Axmin, Inc., acquired 12/06/2006-06/03/2008; cost $1,806*(b) 1
6,543,289 B2Gold Corp.* 7,154
1,408,600 Barrick Gold Corp. 10,339
3,667,700 Centerra Gold, Inc. 19,939
2,488,200 Continental Gold, Inc.* 2,720
242,800 Detour Gold Corp.* 2,529
5,344,600 Dundee Precious Metals, Inc.* 5,243
================================================================================
14 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
7,220,000 Eldorado Gold Corp. $ 22,093
800,000 Freeport-McMoRan, Inc. 6,544
2,000,000 Goldcorp, Inc. 23,620
2,270,100 Guyana Goldfields, Inc.* 5,015
2,900,000 IAMGOLD Corp.* 4,408
5,402,700 Kinross Gold Corp.* 10,373
1,985,000 Kirkland Lake Gold, Inc.* 7,045
1,333,200 Klondex Mines Ltd.* 2,586
7,777,000 Mandalay Resources Corp. 4,251
1,872,100 Nautilus Minerals, Inc., acquired 02/02/2007-03/11/2009; cost $3,817*(b),(c) 421
6,377,800 New Gold, Inc.* 14,095
1,157,700 Newmont Mining Corp. 21,313
375,000 Northern Star Mining Corp., acquired 05/05/2006; cost $373*(a),(b) -
350,000 Pretium Resources, Inc.* 1,886
2,473,300 Primero Mining Corp.* 5,575
520,000 Royal Gold, Inc. 18,694
6,656,900 SEMAFO, Inc.* 15,702
5,200,300 Torex Gold Resources, Inc.* 4,595
3,666,100 Yamana Gold, Inc. 7,699
----------
281,006
----------
SOUTH AMERICAN GOLD COMPANIES (3.6%)
2,832,600 Asanko Gold, Inc.* 4,263
3,125,500 Compania de Minas Buenaventura S.A. ADR 14,815
----------
19,078
----------
Total Gold (cost: $1,168,391) 429,043
----------
PLATINUM GROUP METALS (1.0%)
1,200,000 Impala Platinum Holdings Ltd.*(d) 2,628
12,000,000 Platinum Group Metals Ltd.* 2,605
----------
Total Platinum Group Metals (cost: $19,446) 5,233
----------
SILVER (14.6%)
1,066,457 Fresnillo plc(d) 11,484
518,400 MAG Silver Corp.* 3,603
2,026,000 Pan American Silver Corp. 14,101
2,000,000 Silver Wheaton Corp. 26,240
2,407,900 Tahoe Resources, Inc. 21,186
----------
Total Silver (cost: $143,259) 76,614
----------
Total Common Stocks (cost: $1,331,096) 510,890
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.9%)
COMMERCIAL PAPER (1.0%)
$5,263 Hannover Funding Co., LLC(e),(f) 0.27% 12/01/2015 $ 5,263
--------
Total Commercial Paper 5,263
--------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (1.9%)
10,071,172 State Street Institutional Liquid Reserves Fund Premier Class, 0.15%(g) 10,071
--------
Total Money Market Instruments (cost: $15,334) 15,334
--------
TOTAL INVESTMENTS (COST: $1,346,430) $526,224
========
--------------------------------------------------------------------------------------------------------
($ 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 $496,778 $14,112 $- $510,890
Money Market Instruments:
Commercial Paper - 5,263 - 5,263
Money Market Funds 10,071 - - 10,071
--------------------------------------------------------------------------------------------------------
Total $506,849 $19,375 $- $526,224
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2015, through November 30, 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.
================================================================================
16 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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 81.3% of net assets at November 30,
2015.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
o SPECIFIC NOTES
(a) Security was fair valued at November 30, 2015, by USAA Asset Management
Company (the Manager) in accordance with valuation procedures approved
by USAA Mutual Funds Trust's Board of Trustees (the Board). The total
value of all such securities was zero.
(b) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2015, was $422,000, which represented 0.1% of the Fund's
net assets.
(c) Restricted security that is not registered under the Securities Act of
1933.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
(d) Securities with a value of $14,112,000, which represented 2.7% of the
Fund's net assets, were classified as Level 2 at November 30, 2015, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
(e) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
(f) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (Section 4(2) Commercial Paper). Unless this commercial
paper is subsequently registered, a resale of this commercial paper in
the United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(2) commercial
paper is normally resold to other investors through or with the
assistance of the issuer or an investment dealer who makes a market in
this security, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(g) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
18 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,346,430) $ 526,224
Cash denominated in foreign currencies (identified cost of $333) 333
Receivables:
Capital shares sold 350
Dividends and interest 348
----------
Total assets 527,255
----------
LIABILITIES
Payables:
Securities purchased 687
Capital shares redeemed 425
Accrued management fees 296
Accrued transfer agent's fees 75
Other accrued expenses and payables 201
----------
Total liabilities 1,684
----------
Net assets applicable to capital shares outstanding $ 525,571
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,627,057
Accumulated undistributed net investment loss (29,271)
Accumulated net realized loss on investments (252,001)
Net unrealized depreciation of investments (820,206)
Net unrealized depreciation of foreign currency translations (8)
----------
Net assets applicable to capital shares outstanding $ 525,571
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $412,085/47,555 shares outstanding) $ 8.67
==========
Institutional Shares (net assets of $103,931/11,929 shares outstanding) $ 8.71
==========
Adviser Shares (net assets of $9,555/1,111 shares outstanding) $ 8.60
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $297) $ 4,117
Interest 13
---------
Total income 4,130
---------
EXPENSES
Management fees 2,023
Administration and servicing fees:
Fund Shares 346
Institutional Shares 63
Adviser Shares 7
Transfer agent's fees:
Fund Shares 1,059
Institutional Shares 62
Adviser Shares 3
Distribution and service fees (Note 6D):
Adviser Shares 12
Custody and accounting fees:
Fund Shares 53
Institutional Shares 14
Adviser Shares 1
Postage:
Fund Shares 60
Institutional Shares 36
Adviser Shares 2
Shareholder reporting fees:
Fund Shares 24
Institutional Shares 5
Adviser Shares 1
Trustees' fees 13
Registration fees:
Fund Shares 17
Institutional Shares 13
Adviser Shares 10
Professional fees 54
Other 9
---------
Total expenses 3,887
---------
NET INVESTMENT INCOME 243
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized loss on:
Investments (72,061)
Foreign currency transactions (155)
Change in net unrealized appreciation/(depreciation) of:
Investments (149,694)
Foreign currency translations (5)
---------
Net realized and unrealized loss (221,915)
---------
Decrease in net assets resulting from operations $(221,672)
=========
See accompanying notes to financial statements.
================================================================================
20 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ 243 $ (3,527)
Net realized gain (loss) on investments (72,061) 6,271
Net realized loss on foreign currency transactions (155) (270)
Change in net unrealized appreciation/(depreciation) of:
Investments (149,694) (102,777)
Foreign currency translations (5) (54)
-------------------------
Decrease in net assets resulting from operations (221,672) (100,357)
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (8,022)
Institutional Shares - (2,503)
Adviser Shares - (182)
-------------------------
Distributions to shareholders - (10,707)
-------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 8,177 (46,767)
Institutional Shares (9,174) (3,819)
Adviser Shares 836 (930)
-------------------------
Total net decrease in net assets from capital share
transactions (161) (51,516)
-------------------------
Capital contribution from USAA Transfer Agency Company - 2
-------------------------
Net decrease in net assets (221,833) (162,578)
NET ASSETS
Beginning of period 747,404 909,982
-------------------------
End of period $ 525,571 $ 747,404
=========================
Accumulated undistributed net investment loss:
End of period $ (29,271) $ (29,514)
=========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Precious Metals and Minerals
Fund (the Fund), which is classified as nondiversified under the 1940 Act. The
Fund's investment objective is to seek long-term capital appreciation and to
protect the purchasing power of shareholders' capital against inflation.
The Fund concentrates its investments in equity securities of domestic and
foreign companies engaged in the exploration, mining, or processing of gold and
other precious metals and minerals, such as platinum, silver, and diamonds. As
such, the Fund may be exposed to more risk than portfolios with a broader
industry diversification. As a nondiversified fund, the Fund may invest a
greater percentage of its assets in a single issuer. Because a relatively high
percentage of the Fund's total assets may be invested in the securities of a
single issuer or a limited number of issuers, the securities of the Fund may be
more sensitive to changes in the market value of a single issuer, a limited
number of issuers, or large companies generally. Such a focused investment
strategy may increase the volatility of the Fund's investment results because
this Fund may be more susceptible to risk associated with a single economic,
political, or regulatory event than a diversified fund.
The Fund consists of three classes of shares: Precious Metals and Minerals Fund
Shares (Fund Shares), Precious Metals and Minerals Fund Institutional
================================================================================
22 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
Shares (Institutional Shares), and Precious Metals and Minerals Fund Adviser
Shares (Adviser 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, distribution
and service (12b-1) 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 all
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 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). The Adviser Shares permit investors to purchase
shares through financial intermediaries, including banks, broker-dealers,
insurance companies, investment advisers, plan sponsors, and financial
professionals that provide various administrative and distribution services.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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), an affiliate of the Fund. 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 over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities exchanges
or markets are valued at the last quoted sales price, or the most
recently determined official closing price calculated according to local
market convention, available at the time the Fund is valued. If no last
sale or official closing price is reported or available, the average of
the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the calculation of the Fund's net asset
value (NAV) may not take place at the same time the prices of certain
foreign securities held by the Fund are determined. In many 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 need to be reflected in the value of
================================================================================
24 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
the Fund's foreign securities. However, the Manager will monitor for
events that would materially affect the value of the Fund's foreign
securities and, if necessary, the Committee will consider such available
information that it deems relevant and will determine a fair value for
the affected foreign securities in accordance with valuations
procedures. In addition, information from an external vendor or other
sources may be used to adjust the foreign market closing prices of
foreign equity securities to reflect what the Committee 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, commingled, or other funds,
other than ETFs, are valued at their NAV at the end of each business day.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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, other pricing services, or widely used quotation
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
include certain common stocks, which are valued based on methods discussed
in Note 1A2, and commercial paper, which is valued at amortized cost.
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.
================================================================================
26 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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. Foreign income and capital gains on some foreign securities may
be subject to foreign taxes, which are accrued as applicable, as a reduction
to such income and realized gains. These foreign taxes have been provided
for in accordance with the understanding of the applicable countries' tax
rules and rates.
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
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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 - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2015, there were no custodian and other bank credits.
G. REDEMPTION FEES - Adviser Shares held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed
or exchanged shares. All redemption fees paid will be accounted for by the
Fund as an addition to paid in capital. For the six-month period ended
November 30, 2015, the Adviser Shares charged redemption fees of $1,000.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
================================================================================
28 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $2,000, which represents 0.9% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016,
in accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
At May 31, 2015, the Fund had net capital loss carryforwards of $179,138,000,
for federal income tax purposes as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------------------
TAX CHARACTER
--------------------------------------------------
(NO EXPIRATION) BALANCE
-------------- ------------
Short-Term $ 21,142,000
Long-Term 157,996,000
------------
Total $179,138,000
============
For the six-month period ended November 30, 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 the Fund's tax positions to determine
if adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$44,702,000 and $29,166,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November
30, 2015, were $2,266,000 and $822,472,000, respectively, resulting in net
unrealized depreciation of $820,206,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 2015, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
30 | USAA PRECIOUS METALS AND MINERALS 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
NOVEMBER 30, 2015 MAY 31, 2015
----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 5,014 $ 48,274 9,440 $ 125,986
Shares issued from
reinvested dividends -* -* 663 7,824
Shares redeemed (4,109) (40,097) (13,781) (180,577)
---------------------------------------------------
Net increase (decrease) from
capital share transactions 905 $ 8,177 (3,678) $ (46,767)
===================================================
INSTITUTIONAL SHARES:
Shares sold 2,164 $ 20,905 4,212 $ 58,205
Shares issued from
reinvested dividends - - 208 2,464
Shares redeemed (3,332) (30,079) (4,288) (64,488)
---------------------------------------------------
Net increase (decrease) from
capital share transactions (1,168) $ (9,174) 132 $ (3,819)
===================================================
ADVISER SHARES:
Shares sold 238 $ 2,183 545 $ 7,629
Shares issued from
reinvested dividends - - 14 163
Shares redeemed** (140) (1,347) (668) (8,722)
---------------------------------------------------
Net increase (decrease) from
capital share transactions 98 $ 836 (109) $ (930)
===================================================
*Represents less than 500 shares or $500.
**Net of redemption fees.
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
affairs of the Fund, and for directly managing the day-to-day investment of
the Fund's assets, subject to the authority of and supervision by the Board.
The Manager is authorized to select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the actual
day-to-day investment of a portion of the Fund's assets. For the six-month
period ended November 30, 2015, the Fund had no subadviser(s).
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.75% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance over the performance
period to that of the Lipper Precious Metals Equity Funds Index. The Lipper
Precious Metals Equity Funds Index tracks the total return performance of
the 10 largest funds in the Lipper Precious Metals Equity 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 are calculated over a rolling
36-month period.
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
================================================================================
32 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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 Precious Metals Equity Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $2,023,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and Adviser Shares of $(165,000), $(46,000), and $(3,000), respectively. For
the Fund Shares, Institutional Shares, and Adviser Shares, the performance
adjustments were (0.07)%, (0.07)%, and (0.06)%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2015, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $346,000, $63,000, and $7,000, respectively.
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 November 30, 2015, the Fund reimbursed the
Manager $7,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
C. 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 Shares and Adviser Shares based on an
annual charge of $23 per shareholder account plus out-of-pocket expenses.
SAS pays a portion of these fees to certain intermediaries for the
administration and servicing of accounts that are held with such
intermediaries. 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 November 30, 2015, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $1,059,000, $62,000, and $3,000, respectively.
D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for investment
by their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are
offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November
30, 2015, the Adviser Shares incurred distribution and service (12b-1) fees
of $12,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 20 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 PRECIOUS METALS AND MINERALS FUND
================================================================================
November 30, 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 0.1
USAA Cornerstone Equity 0.4
USAA Target Retirement Income 0.2
USAA Target Retirement 2020 0.3
USAA Target Retirement 2030 0.7
USAA Target Retirement 2040 0.5
USAA Target Retirement 2050 0.2
USAA Target Retirement 2060 0.0*
*Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution. At
November 30, 2015, USAA and its affiliates owned 130,000 shares which represent
11.7% of the Adviser Shares and 0.2% of the Fund.
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
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.29 $ 14.12 $ 16.69 $ 25.80 $ 40.55 $ 36.87
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment loss(a) (.00)(b) (.06) (.02) (.00)(b) (.07) (.23)
Net realized and
unrealized gain (loss)(a) (3.62) (1.61) (2.53) (8.67) (10.76) 8.52(c)
------------------------------------------------------------------------------------
Total from investment
operations(a) (3.62) (1.67) (2.55) (8.67) (10.83) 8.29
------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.16) (.02) - (.08) (.67)
Realized capital gains - - - (.44) (3.84) (3.94)
------------------------------------------------------------------------------------
Total distributions - (.16) (.02) (.44) (3.92) (4.61)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.67 $ 12.29 $ 14.12 $ 16.69 $ 25.80 $ 40.55
=====================================================================================
Total return (%)* (29.45) (11.77) (15.26) (34.23) (29.04) 21.99(c)
Net assets at end
of period (000) $412,085 $573,456 $710,487 $841,841 $1,577,939 $2,246,060
Ratios to average
net assets:**
Expenses (%)(d) 1.38(e) 1.25 1.24 1.18 1.17 1.15
Net investment loss (%) (.00)(e),(f) (.46) (.13) (.01) (.21) (.56)
Portfolio turnover (%) 5 8 10 15 20 24
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$460,797,000.
(a) Calculated using average shares. For the six-month period ended November
30, 2015, average shares were 47,132,000.
(b) Represents less than $0.01 per share.
(c) During the year ended May 31, 2011, the Manager reimbursed the Fund Shares
$12,000 for a loss incurred from the disposal of an investment in error. The
effect of this reimbursement on the Fund Shares' net realized loss and total
return was less than $0.01/0.01% per share.
(d) 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 as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) Represents less than 0.01%.
================================================================================
36 | USAA PRECIOUS METALS AND MINERALS 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
NOVEMBER 30, YEAR ENDED MAY 31,
-----------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.34 $ 14.17 $ 16.77 $ 25.87 $ 40.67 $ 36.95
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss)(a) .02 (.03) .02 .06 .02 (.11)
Net realized and
unrealized gain (loss)(a) (3.65) (1.60) (2.56) (8.72) (10.81) 8.53(b)
-----------------------------------------------------------------------------------
Total from investment
operations(a) (3.63) (1.63) (2.54) (8.66) (10.79) 8.42
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.20) (.06) - (.17) (.76)
Realized capital gains - - - (.44) (3.84) (3.94)
-----------------------------------------------------------------------------------
Total distributions - (.20) (.06) (.44) (4.01) (4.70)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 8.71 $ 12.34 $ 14.17 $ 16.77 $ 25.87 $ 40.67
===================================================================================
Total return (%)* (29.42) (11.46) (15.11) (34.10) (28.89) 22.32(b)
Net assets at end
of period (000) $103,931 $161,591 $183,768 $317,818 $145,782 $64,034
Ratios to average
net assets:**
Expenses (%)(c) 1.01(e) .99 1.00 .99 .97 .89(d)
Expenses, excluding
reimbursements (%)(c) 1.01(e) .99 1.00 .99 .97 .89(d)
Net investment
income (loss) (%) .41(e) (.20) .11 .27 .05 (.28)
Portfolio turnover (%) 5 8 10 15 20 24
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$124,608,000.
(a) Calculated using average shares. For the six-month period ended November
30, 2015, average shares were 12,704,000.
(b) During the year ended May 31, 2011, the Manager reimbursed the Institutional
Shares less than $500 for a loss incurred from the disposal of an investment
in error. The effect of this reimbursement on the Institutional Shares' net
realized loss and total return was less than $0.01/0.01% per share.
(c) 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 as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Prior to October 1, 2010, the Manager voluntarily agreed to limit the annual
expenses of the Institutional Shares to 0.90% of the Institutional Shares'
average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
-----------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011***
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.20 $ 14.01 $ 16.57 $ 25.68 $ 40.48 $ 36.47
Income (loss) from
investment operations:
Net investment loss(a) (.00)(c) (.08) (.05) (.06) (.13) (.27)
Net realized and
unrealized gain (loss)(a) (3.60) (1.58) (2.51) (8.61) (10.78) 8.85(b)
-----------------------------------------------------------------------------------
Total from investment
operations(a) (3.60) (1.66) (2.56) (8.67) (10.91) 8.58
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.15) (.00)(c) - (.06) (.63)
Realized capital gains - - - (.44) (3.84) (3.94)
-----------------------------------------------------------------------------------
Total distributions - (.15) (.00)(c) (.44) (3.90) (4.57)
-----------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(c) .00(c) (.00)(c) (.00)(c) .01 (.00)(c)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 8.60 $ 12.20 $ 14.01 $ 16.57 $ 25.68 $ 40.48
===================================================================================
Total return (%)* (29.51) (11.83) (15.45) (34.39) (29.26) 23.02(b)
Net assets at end
of period (000) $ 9,555 $12,357 $ 15,727 $ 11,052 $ 11,904 $ 6,384
Ratios to average
net assets:**
Expenses (%)(d) 1.47(e) 1.39(f) 1.40 1.45 1.45 1.45(e)
Expenses, excluding
reimbursements (%)(d) 1.47(e) 1.39 1.40 1.49 1.55 1.90(e)
Net investment loss (%) (.07)(e) (.60) (.31) (.23) (.39) (.78)(e)
Portfolio turnover (%) 5 8 10 15 20 24
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$9,788,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Calculated using average shares. For the six-month period ended November
30, 2015, average shares were 1,016,000.
(b) During the year ended May 31, 2011, the Manager reimbursed the Adviser
Shares less than $500 for a loss incurred from the disposal of an investment
in error. The effect of this reimbursement on the Adviser Shares' net
realized loss and total return was less than $0.01/0.01% per share.
(c) Represents less than $0.01 per share.
(d) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) Prior to October 1, 2014, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 1.45% of the Adviser Shares' average net
assets.
================================================================================
38 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
EXPENSE EXAMPLE
November 30, 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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs"
(in dollars), of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of June 1, 2015, through
November 30, 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
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do 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 JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 705.50 $5.88
Hypothetical
(5% return before expenses) 1,000.00 1,018.10 6.96
INSTITUTIONAL SHARES
Actual 1,000.00 705.80 4.31
Hypothetical
(5% return before expenses) 1,000.00 1,019.95 5.10
ADVISER SHARES
Actual 1,000.00 704.90 6.27
Hypothetical
(5% return before expenses) 1,000.00 1,017.65 7.41
*Expenses are equal to the annualized expense ratio of 1.38% for Fund Shares,
1.01% for Institutional Shares, and 1.47% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/366 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of (29.45)% for Fund Shares, (29.42)% for Institutional
Shares, and (29.51)% for Adviser Shares for the six-month period of June 1,
2015, through November 30, 2015.
================================================================================
40 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210)
531-8722; (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) or (210) 531-8722;
(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 PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23408-0116 (C)2016, USAA. All rights reserved.
LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TREASURY MONEY MARKET TRUST]
============================================================
SEMIANNUAL REPORT
USAA TREASURY MONEY MARKET TRUST(R)
NOVEMBER 30, 2015
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Investments provided by USAA Investment Management Company
and USAA Financial Advisors Inc., both registered broker dealers, and
affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY 2
INVESTMENT OVERVIEW 4
FINANCIAL INFORMATION
Portfolio of Investments 8
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 13
EXPENSE EXAMPLE 21
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)2016, USAA. All rights reserved.
201010-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TREASURY MONEY MARKET TRUST (THE FUND) PROVIDES INVESTORS MAXIMUM
CURRENT INCOME WHILE MAINTAINING THE HIGHEST DEGREE OF SAFETY AND LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in U.S. government
securities with maturities of 397 days or less, which include U.S. Treasury
bills, notes, and bonds; repurchase agreements collateralized by such
obligations; and other obligations of the U.S. Treasury. The 80% policy may be
changed upon at least 60 days' written notice to shareholders.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGER'S COMMENTARY ON THE FUND
TONY ERA [PHOTO OF TONY ERA]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The U.S. economy appeared to strengthen during the reporting period ended
November 2015, with gains in both employment and wage growth. Advancement in
the housing market, along with an increase in consumer spending, also
contributed to the improving market outlook. As a result, many market
participants believed the Federal Reserve (the Fed) would raise the federal
funds target interest rate, which had been anchored between 0% and 0.25%
since December 2008. Reflecting this widespread belief, shorter-term
interest rates rose considerably during the reporting period. Longer-term
interest rates, which are generally driven by inflation expectations, rose
slightly. However, in September 2015, Fed policymakers delayed action as
global market volatility increased amid worries about global economic
conditions.
Yields on money market mutual funds remained at or near 0% throughout the
reporting period, as the Fed held the target federal funds interest rate
near zero. Investors continued to rely on money market funds, in spite of
exceptionally low absolute yields, because of the safety and liquidity they
provided.
================================================================================
2 | USAA TREASURY MONEY MARKET TRUST
================================================================================
o HOW DID THE USAA TREASURY MONEY MARKET TRUST (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2015, the seven-day yield on the
Fund remained less than 0.01%. The total return for the same period was less
than 0.01%, compared to an average of less than 0.01% for all money market
funds ranked by iMoneyNet, Inc.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o HOW DID YOU MANAGE THE FUND DURING THE REPORTING PERIOD?
During the reporting period, we maintained our investment approach - that
is, we continued to invest in maturities of 397 days or less that are backed
by the full faith and credit of the U.S. government. Consistent with our
strategy, we continued to invest primarily in eligible short-term repurchase
agreements with approved counterparties. In our opinion, extending the
portfolio's duration during the reporting period would have provided limited
relative value if market interest rates exhibited higher volatility.
Thank you for your investment in the Fund.
Refer to page 5 for the iMoneyNet, Inc. definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
INVESTMENT OVERVIEW
USAA TREASURY MONEY MARKET TRUST (THE FUND)
(Ticker Symbol: UATXX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $184.5 Million $119.7 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average Portfolio
Maturity(+) 4 Days 3 Days
(+)Obtained by multiplying the dollar value of each investment by the number of
days left to its maturity, adding those figures together, and dividing them
by the total dollar value of the Fund's portfolio.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15** 1 YEAR 5 YEARS 10 YEARS
0.00%* 0.00%* 0.00%* 1.05%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.00%* 0.00%* 1.02%
--------------------------------------------------------------------------------
7-DAY YIELD AS OF 11/30/15 EXPENSE RATIO AS OF 5/31/15***
--------------------------------------------------------------------------------
UNSUBSIDIZED -0.36% 0.52%
SUBSIDIZED 0.00%*
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.
*Represents less than 0.01%.
**Total returns for periods of less than one year are not annualized. This
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 October 1, 2015, and is
calculated as a percentage of average net assets. The expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses. You could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1 per
share, it cannot guarantee it will do so. An investment in the Fund is not a
deposit in USAA Federal Savings Bank, or any other bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The Fund's sponsor has no legal obligation to provide financial support
to the Fund, and you should not expect that the sponsor will provide financial
support to the Fund at any time.
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 or
reinvested net investment income. Yields and returns fluctuate. The seven-day
yield quotation more closely reflects current earnings of the Fund than the
total return quotation.
================================================================================
4 | USAA TREASURY MONEY MARKET TRUST
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA TREASURY iMoneyNet
MONEY MARKET TRUST* AVERAGE*
11/25/2014 0.000 0.000
12/30/2014 0.000 0.000
1/27/2015 0.000 0.005
2/24/2015 0.000 0.000
3/31/2015 0.000 0.000
4/28/2015 0.000 0.000
5/26/2015 0.000 0.000
6/30/2015 0.000 0.005
7/28/2015 0.000 0.005
8/25/2015 0.000 0.000
9/29/2015 0.000 0.005
10/27/2015 0.000 0.000
11/24/2015 0.000 0.000
[END CHART]
Data represents the last Tuesday of each month. Ending date 11/24/15.
The graph tracks the Fund's seven-day yield against the iMoneyNet, Inc. average
for all retail money market funds that hold U.S. Treasuries and repos backed by
the U.S. Treasury and all retail money funds that hold 100% in U.S. Treasuries.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
*Represents less than 0.01%.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA TREASURY
MONEY MARKET TRUST
11/30/05 $10,000.00
12/31/05 10,032.77
01/31/06 10,062.75
02/28/06 10,093.56
03/31/06 10,130.48
04/30/06 10,163.13
05/31/06 10,200.54
06/30/06 10,240.33
07/31/06 10,278.51
08/31/06 10,319.85
09/30/06 10,361.50
10/31/06 10,402.05
11/30/06 10,442.75
12/31/06 10,487.44
01/31/07 10,527.07
02/28/07 10,565.44
03/31/07 10,609.70
04/30/07 10,650.03
05/31/07 10,692.96
06/30/07 10,735.30
07/31/07 10,777.22
08/31/07 10,820.39
09/30/07 10,855.01
10/31/07 10,893.60
11/30/07 10,928.88
12/31/07 10,956.17
01/31/08 10,981.90
02/29/08 11,001.69
03/31/08 11,016.63
04/30/08 11,032.29
05/31/08 11,047.96
06/30/08 11,061.40
07/31/08 11,075.52
08/31/08 11,090.46
09/30/08 11,099.89
10/31/08 11,101.56
11/30/08 11,102.63
12/31/08 11,102.75
01/31/09 11,102.75
02/28/09 11,102.76
03/31/09 11,102.76
04/30/09 11,102.77
05/31/09 11,102.77
06/30/09 11,102.78
07/31/09 11,102.78
08/31/09 11,102.79
09/30/09 11,102.79
10/31/09 11,102.80
11/30/09 11,102.81
12/31/09 11,102.81
01/31/10 11,102.82
02/28/10 11,102.82
03/31/10 11,102.83
04/30/10 11,102.84
05/31/10 11,102.84
06/30/10 11,102.85
07/31/10 11,102.86
08/31/10 11,102.86
09/30/10 11,102.87
10/31/10 11,102.88
11/30/10 11,102.88
12/31/10 11,102.89
01/31/11 11,102.90
02/28/11 11,102.90
03/31/11 11,102.91
04/30/11 11,102.92
05/31/11 11,102.92
06/30/11 11,102.93
07/31/11 11,102.94
08/31/11 11,102.94
09/30/11 11,102.95
10/31/11 11,102.96
11/30/11 11,102.97
12/31/11 11,102.97
01/31/12 11,102.98
02/29/12 11,102.99
03/31/12 11,103.00
04/30/12 11,103.00
05/31/12 11,103.01
06/30/12 11,103.02
07/31/12 11,103.03
08/31/12 11,103.03
09/30/12 11,103.04
10/31/12 11,103.05
11/30/12 11,103.06
12/31/12 11,103.06
01/31/13 11,103.07
02/28/13 11,103.08
03/31/13 11,103.09
04/30/13 11,103.09
05/31/13 11,103.10
06/30/13 11,103.11
07/31/13 11,103.12
08/31/13 11,103.13
09/30/13 11,103.13
10/31/13 11,103.14
11/30/13 11,103.15
12/31/13 11,103.16
01/31/14 11,103.17
02/28/14 11,103.17
03/31/14 11,103.18
04/30/14 11,103.19
05/31/14 11,103.20
06/30/14 11,103.21
07/31/14 11,103.22
08/31/14 11,103.23
09/30/14 11,103.24
10/31/14 11,103.25
11/30/14 11,103.26
12/31/14 11,103.27
01/31/15 11,103.28
02/28/15 11,103.28
03/31/15 11,103.29
04/30/15 11,103.30
05/31/15 11,103.31
06/30/15 11,103.32
07/31/15 11,103.33
08/31/15 11,103.34
09/30/15 11,103.35
10/31/15 11,103.36
11/30/15 11,103.36
[END CHART]
Data from 11/30/05 through 11/30/15.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA Treasury Money Market Trust.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
distributions or the redemption of shares. Income may be subject to federal,
state, or local taxes, or to the federal alternative minimum tax. For seven-day
yield information, please refer to the Fund's Investment Overview page.
================================================================================
6 | USAA TREASURY MONEY MARKET TRUST
================================================================================
o PORTFOLIO MIX - 11/30/15 o
[PIE CHART OF PORTFOLIO MIX]
REPURCHASE AGREEMENTS 94.3%
U.S. TREASURY BILLS 5.4%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (5.4%)(a)
$10,000 0.05%, 1/28/2016 (cost: $10,000) $ 10,000
--------
REPURCHASE AGREEMENTS (94.3%)
40,000 Bank of America, N.A., 0.11%, acquired 11/30/2015 and due on
12/01/2015 at $40,000 (collateralized by $38,967 of U.S. Treasury, 0.13%(b),
due 4/15/2017; market value $40,800) 40,000
64,000 Credit Agricole Corp. Inv. Bank, 0.10%, acquired
11/30/2015 and due on 12/01/2015 at $64,000 (collateralized by
$64,697 of U.S. Treasury, 0.13%(b), due 4/15/2020; market value $65,280) 64,000
25,000 Credit Agricole Corp. Inv. Bank, 0.11%, acquired 11/30/2015 and due on
12/01/2015 at $25,000 (collateralized by $23,904 of U.S. Treasury, 0.13%(b),
due 1/15/2023; $1,566 of U.S. Treasury, 2.75%(c), due 2/15/2019; combined
market value $25,500) 25,000
45,000 HSBC Bank USA, Inc., 0.08%, acquired 11/30/2015 and due on 12/01/2015 at
$45,000 (collateralized by $41,843 of U.S. Treasury, 1.88%-4.38%(c), due
10/31/2022-11/15/2039; combined market value $45,902) 45,000
--------
Total Repurchase Agreements (cost: $174,000) 174,000
--------
TOTAL INVESTMENTS (COST: $184,000) $184,000
========
---------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills $- $ 10,000 $- $ 10,000
Repurchase Agreements $- $174,000 $- $174,000
---------------------------------------------------------------------------------------------------------------
Total $- $184,000 $- $184,000
---------------------------------------------------------------------------------------------------------------
================================================================================
8 | USAA TREASURY MONEY MARKET TRUST
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
Note 1A to the financial statements.
The cost of securities at November 30, 2015, for federal income tax
purposes, was approximately the same as that reported in 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.
o SPECIFIC NOTES
(a) Securities offered at a discount to face value rather than at a stated
coupon rate. Rates represent the discount rates at purchase date.
(b) U.S. Treasury inflation-indexed notes - designed to provide a real rate
of return after being adjusted over time to reflect the impact of
inflation. Their principal value periodically adjusts to the rate of
inflation. They trade at the prevailing real, or after-inflation,
interest rates. The U.S. Treasury guarantees repayment of these
securities of at least their face value in the event of sustained
deflation or a drop in prices.
(c) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $ 10,000
Investments in repurchase agreements (cost approximates market value) 174,000
Cash 748
Receivables:
Capital shares sold 405
USAA Asset Management Company (Note 4C) 7
--------
Total assets 185,160
--------
LIABILITIES
Payables:
Capital shares redeemed 571
Accrued management fees 19
Other accrued expenses and payables 39
--------
Total liabilities 629
--------
Net assets applicable to capital shares outstanding $184,531
========
NET ASSETS CONSIST OF:
Paid-in capital $184,533
Undistributed net investment loss (2)
--------
Net assets applicable to capital shares outstanding $184,531
========
Capital shares outstanding, unlimited number of shares authorized, no par value 184,533
========
Net asset value, redemption price, and offering price per share $ 1.00
========
See accompanying notes to financial statements.
================================================================================
10 | USAA TREASURY MONEY MARKET TRUST
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 58
-----
EXPENSES
Management fees 92
Administration and servicing fees 74
Transfer agent's fees 70
Custody and accounting fees 37
Postage 4
Shareholder reporting fees 11
Trustees' fees 13
Registration fees 21
Professional fees 49
Other 4
-----
Total expenses 375
Expenses reimbursed (315)
-----
Net expenses 60
-----
NET INVESTMENT LOSS $ (2)
=====
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ (2) $ 1
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (1)
-----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 95,462 43,838
Reinvested dividends - 1
Cost of shares redeemed (30,583) (52,601)
-----------------------
Increase (decrease) in net assets from capital
share transactions 64,879 (8,762)
-----------------------
Net increase (decrease) in net assets 64,877 (8,762)
NET ASSETS
Beginning of period 119,654 128,416
-----------------------
End of period $184,531 $119,654
=======================
Undistributed net investment loss:
End of period $ (2) $ -
=======================
CHANGE IN SHARES OUTSTANDING
Shares sold 95,462 43,838
Shares issued for dividends reinvested - 1
Shares redeemed (30,583) (52,601)
-----------------------
Increase (decrease) in shares outstanding 64,879 (8,762)
=======================
See accompanying notes to financial statements.
================================================================================
12 | USAA TREASURY MONEY MARKET TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 Treasury Money Market Trust (the
Fund), which is classified as diversified under the 1940 Act. The Fund provides
investors maximum current income while maintaining the highest degree of safety
and liquidity.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
Asset Management Company (the Manager), an affiliate of the Fund. 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. All securities held in the Fund are short-term debt securities which are
valued pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its purchase price, and thereafter, assumes a constant
amortization to maturity of any premiums or discounts.
2. Repurchase agreements are valued at cost.
3. Securities for which amortized cost valuations are considered unreliable
or whose values have been materially affected by a significant event are
valued in good faith at fair value, using methods determined by the
Committee, under procedures to stabilize net assets and valuation
procedures approved by the Board.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
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.
================================================================================
14 | USAA TREASURY MONEY MARKET TRUST
================================================================================
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
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.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities using the
straight-line method.
E. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers pursuant to the terms of a
Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to ensure their value is
equal to or in excess of the purchase price plus accrued interest and are
held by the Fund, either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for both the Fund and
its counterparty, until maturity of the repurchase agreement. Master
Repurchase Agreements typically contain netting provisions, which provide
for the net settlement of all transactions and collateral with the Fund
through a single payment in the event of default or termination. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2015,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended November 30, 2015, there were no custodian and other bank
credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
================================================================================
16 | USAA TREASURY MONEY MARKET TRUST
================================================================================
(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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of less than $500, which represents 0.2% of the total fees paid to CAPCO by
the USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. 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.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
For the six-month period ended November 30, 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 the Fund's 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) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for
directly managing the day-to-day investment of the Fund's assets, subject to
the authority of and supervision by the Board.
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.125% of the Fund's average net assets. For the
six-month period ended November 30, 2015, the Fund incurred management fees,
paid or payable to the Manager, of $92,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
November 30, 2015, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $74,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2015, the Fund reimbursed the
Manager $2,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees
================================================================================
18 | USAA TREASURY MONEY MARKET TRUST
================================================================================
to limit the Fund's expenses and attempt to prevent a negative yield. The
Manager can modify or terminate this arrangement at any time without prior
notice to shareholders. For the six-month period ended November 30, 2015,
the Fund incurred reimbursable expenses of $315,000, of which $7,000 was
receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund based on an annual charge of $25.50 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to
certain intermediaries for the administration and servicing of accounts that
are held with such intermediaries. For the six-month period ended November
30, 2015, the Fund incurred transfer agent's fees, paid or payable to SAS,
of $70,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(5) TRANSACTIONS WITH AFFILIATES
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 | 19
================================================================================
(6) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss)(a) (.00) .00 .00 .00 .00 .00
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00)
------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================
Total return (%)*(b),(e) .00 .00 .00 .00 .00 .00
Net assets at end
of period (000) $184,531 $119,654 $128,416 $141,474 $150,266 $159,194
Ratios to average
net assets:**
Expenses (%)(b),(c) .08(d) .06 .04 .15 .08 .16
Expenses, excluding
reimbursements (%)(c) .51(d) .52 .48 .49 .48 .48
Net investment
income (loss) (%)(e) (.00)(d) .00 .00 .00 .00 .00
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$147,672,000.
(a) Represents less than $0.01 per share.
(b) Effective December 1, 2008, the Manager has voluntarily agreed, on a
temporary basis, to reimburse management, administrative, or other fees to
limit the Fund's expenses and attempt to prevent a negative yield.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Represents less than 0.01%.
================================================================================
20 | USAA TREASURY MONEY MARKET TRUST
================================================================================
EXPENSE EXAMPLE
November 30, 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 June 1, 2015, through
November 30, 2015.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
EXPENSE EXAMPLE | 21
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
-----------------------------------------------------------
Actual $1,000.00 $1,000.00 $0.40
Hypothetical
(5% return before expenses) 1,000.00 1,024.60 0.40
*Expenses are equal to the Fund's annualized expense ratio of 0.08%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/366 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of less than 0.01% for the six-month period of June 1, 2015, through
November 30, 2015.
================================================================================
22 | USAA TREASURY MONEY MARKET TRUST
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23416-0116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA WORLD GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA WORLD GROWTH FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2015
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A NEW YEAR IS A GREAT TIME TO REEVALUATE YOUR
INVESTMENT PLAN TO HELP ENSURE YOU ARE STAYING [PHOTO OF BROOKS ENGLEHARDT]
ON TRACK TOWARD YOUR FINANCIAL GOALS."
--------------------------------------------------------------------------------
JANUARY 2016
The financial markets were volatile during the reporting period ended November
30, 2015, but U.S. stocks, the broad U.S. fixed-income market, and longer-term
U.S. Treasury securities had experienced minimal change when the reporting
period came to an end. Emerging markets stocks, in contrast, generally suffered
losses, while stocks in non-U.S. developed markets also declined, though to a
lesser extent.
When the reporting period began in June 2015, Greece was once again in the
headlines, as the country's debt problems reemerged and investors speculated
about the future of the European Union. During July 2015, market turbulence
increased. Worries about China's slow economic growth triggered a steep decline
in the Chinese equity market, with many other emerging stock markets falling in
a similar fashion. In response, the Chinese authorities surprised many investors
by devaluing its currency, which added to investors' existing concerns about the
health of the global economy. The result was a broad sell-off in riskier asset
classes and a flight to the perceived safety of U.S. Treasury securities.
Meanwhile, a divergence in global economic growth was reflected in the monetary
policies being pursued by the world's central banks. Persistent economic
weakness outside the United States led many central banks to cut interest rates
and boost quantitative easing, resulting in low--and even negative--global
interest rates. At the same time, the U.S. economy continued to grow, albeit
slowly, and the Federal Reserve (the Fed) strongly signaled that it would begin
to raise interest rates for the first time in seven years. As a result,
shorter-term U.S. Treasury yields rose during the reporting period, while
longer-term U.S. Treasury yields edged up slightly. On December 16, 2015, the
Fed raised the target range for the federal funds rate from 0.25% to 0.50%. At
USAA Investments, we believe it is less important when the first interest rate
increase occurs than how quickly the Fed affects interest rates. We have long
believed Fed policymakers are unlikely to raise interest rates rapidly because
they will not want to jeopardize the U.S. economy. In addition, there appears to
be no pressing reason, such as a higher rate of inflation, for them
================================================================================
================================================================================
to do so. Therefore, the modest interest rate increase in December 2015 is
consistent with our outlook.
Also of note during the reporting period was the steady decline in commodities
prices. What caused the drop in oil, natural gas, coal, and industrial metals
prices? In our opinion, there was no single reason. Certainly, the divergence in
global economic growth and central bank monetary policy created uncertainty in
the world's commodities markets. But softening global demand and, in the case of
energy, an increase in supply were also key factors. In addition, commodities
are generally priced in U.S. dollars and the appreciation of the U.S. dollar
during the reporting period dampened prices.
A new year is a great time to reevaluate your investment plan to help ensure you
are staying on track toward your financial goals. Investors also may want to
consider making a 2016 IRA contribution. The sooner investors invest their
money, the sooner it can start working for them. For assistance, please feel
free to give our financial advisors a call.
Looking ahead, we expect to see continued volatility--at least in the near
term--in the financial markets. It's been several years since we've seen this
kind of market turbulence, so the events of the reporting period are a helpful
reminder that volatility is to be expected from time to time and is normal
market behavior. Long-term investors should strive to make decisions based on
their long-term objectives, time horizon, and risk tolerance, rather than in
response to market turmoil.
On behalf of all of us at USAA Investments, we wish you a happy, healthy, and
prosperous year in 2016. Thank you for your continued investment in our family
of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
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 Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may
also be subject to foreign taxes. Investments made in emerging market countries
may be particularly volatile. Economies of emerging market countries are
generally less diverse and mature than more developed countries and may have
less stable political systems. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers, and affiliates.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 20
Financial Statements 22
Notes to Financial Statements 26
EXPENSE EXAMPLE 42
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)2016, USAA. All rights reserved.
200998-0116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA WORLD GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund's principal investment strategy is to invest its assets primarily in
equity securities of both foreign (including emerging markets) and domestic
issuers. The "equity securities" in which the Fund principally invests are
common stocks, depositary receipts, preferred stocks, securities convertible
into common stocks, and securities that carry the right to buy common stocks,
including rights and warrants.
While the Fund may invest in companies of any size, it generally focuses on
companies with large market capitalizations. The Fund may invest a large
percentage of its assets in securities of issuers in a single country, a small
number of countries, or a particular geographic region. Investments are selected
primarily based on fundamental analysis of individual issuers and their
potential in light of their financial condition, market, economic, political,
and regulatory conditions. Factors considered may include analysis of an
issuer's earnings, cash flows, competitive position, and management ability.
Quantitative models that systematically evaluate an issuer's valuation, price
and earnings momentum, earnings quality, and other factors also may be
considered.
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. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF DAVID R. MANNHEIM] [PHOTO OF ROGER MORLEY]
DAVID R. MANNHEIM ROGER MORLEY
MFS MFS
Investment Management Investment Management
--------------------------------------------------------------------------------
o PLEASE REVIEW MARKET CONDITIONS OVER DURING THE REPORTING PERIOD.
The reporting period ended November 30, 2015, was dominated by speculation
over both Federal Reserve (the Fed) policy and China's growth outlook,
against a continued backdrop of elevated geopolitical uncertainty. The Fed
has appeared on the verge of an interest rate increase for several quarters,
but was given pause by a deterioration in economic conditions globally that
has been reflected in unprecedented actions by central banks in Europe and
Japan to jump start their economies. Concerns continued to mount over the
ability of China to maintain acceptable growth levels as it transitions to a
more balanced economic model. In August 2015, the Chinese government
devalued its currency, the renminbi, leading to fears of a potential global
currency war. Oil and other commodities continued their decline over the
reporting period, putting further pressure on the financial stability of a
number of emerging markets. On the geopolitical front, Syria was added to
Ukraine as a focal point for tensions between Russia and the U.S.-led NATO
alliance.
As the reporting period drew to a close, markets began to prepare for the
Fed's initial interest rate hike on the back of a strengthening U.S.
employment picture. While U.S. stocks in aggregate managed to finish the
reporting period around where they started, the same was not true with
respect to overseas markets, which closed notably lower.
================================================================================
2 | USAA WORLD GROWTH FUND
================================================================================
o HOW DID THE USAA WORLD GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2015, the Fund
Shares and Adviser Shares had a total return of -3.56% and -3.68%,
respectively. This compares to returns of -4.52% for the Lipper Global Funds
Index and -3.97% for the MSCI World Index (Index). The Institutional Shares
commenced operation on August 7, 2015 and from that time through November
30, 2015, had a total return of -3.99%.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, the Manager employs dedicated resources
to support the research, selection, and monitoring of the Fund's
subadvisers. MFS Investment Management (MFS) is the subadviser to the Fund.
The subadviser provides day-to-day discretionary management for the Fund's
assets.
o WHAT FACTORS DROVE THE FUND'S PERFORMANCE RELATIVE TO THE INDEX?
During the reporting period, strong stock selection in the basic materials
sector contributed to relative performance primarily due to the Fund's lack
of exposure to poor-performing metals and mining stocks. However, none of
the Fund's holdings within this sector were among the largest individual
contributors during the reporting period. An overweight position in the
consumer staples sector also contributed to relative performance. Within
the consumer staples sector, overweight positions in household products
manufacturer Reckitt Benckiser Group plc (United Kingdom), brewer Heineken
N.V. (Netherlands), pulp and paper manufacturer and consumer goods company
Svenska Cellulosa AB "B" (Sweden), food manufacturer Kellogg Co. and global
spirits company Diageo plc (United Kingdom) helped relative returns. Strong
stock selection in the health care sector also
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
You will find a complete list of securities that the Fund owns on
pages 13-19.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
added to relative performance, particularly an overweight position in
health sciences instruments maker Thermo Fisher Scientific, Inc.
Elsewhere, the Fund's overweight positions in management consulting firm
Accenture plc "A", global payments technology firm Visa, Inc. "A",
automotive replacement parts distributor AutoZone, Inc. and media company
Walt Disney Co. helped relative results.
Conversely, weak stock selection in the consumer discretionary sector
detracted from relative performance, in particular a lack of holdings in
internet retailer Amazon.com, Inc. The Fund's underweight position in the
technology sector further detracted from relative returns. Within the
technology sector, the Fund's lack of holdings in the company Alphabet Inc.
(formerly known as Google), software giant Microsoft Corporation and social
networking service provider Facebook, Inc. weighed on relative results, as
all three stocks significantly outpaced the market during the reporting
period. Stock selection in the industrial goods and services sector also
hindered relative performance. Here, overweight positions in building
systems and aerospace products and services provider United Technologies
Corp. and electrical distribution equipment manufacturer Schneider Electric
SE (France) negatively impacted relative returns. In other areas of the
market, overweight positions in media company Time Warner Cable, Inc.,
banking group Standard Chartered plc (United Kingdom), apparel retailer
Urban Outfitters, Inc. and investment management firm Franklin Resources,
Inc. also hindered relative returns. Finally, while all of MFS' investment
decisions are driven by individual company fundamentals, the Fund's
currency exposures during the reporting period detracted from relative
performance.
MFS has maintained a focus on company fundamentals and valuations rather
than macroeconomic forecasts, taking advantage of relative valuation shifts
in the market. Through a focus on reasonably valued companies with
sustainable, above-average growth prospects, MFS believes that the Fund
remains well positioned to outperform the market through a wide range of
economic, market and currency environments.
Thank you for your investment in the Fund.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
================================================================================
4 | USAA WORLD GROWTH FUND
================================================================================
INVESTMENT OVERVIEW
USAA WORLD GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USAWX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $1.2 Billion $1.2 Billion
Net Asset Value Per Share $27.67 $28.69
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEARS 10 YEARS
-3.56% -0.31% 11.16% 7.93%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-1.62% 9.00% 7.32%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.17%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense 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 October 1, 2015, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA WORLD GROWTH MSCI WORLD LIPPER GLOBAL
FUND SHARES INDEX FUNDS INDEX
11/30/05 $10,000.00 $10,000.00 $10,000.00
12/31/05 10,273.87 10,221.55 10,310.96
01/31/06 10,740.60 10,677.97 10,840.88
02/28/06 10,769.41 10,662.08 10,765.06
03/31/06 11,005.66 10,896.52 11,040.58
04/30/06 11,357.15 11,227.35 11,342.48
05/31/06 11,126.67 10,843.84 10,922.81
06/30/06 11,201.57 10,840.66 10,899.00
07/31/06 11,374.44 10,908.31 10,900.79
08/31/06 11,691.35 11,191.46 11,187.28
09/30/06 11,887.27 11,324.90 11,340.47
10/31/06 12,204.18 11,740.56 11,703.18
11/30/06 12,503.81 12,028.06 12,037.84
12/31/06 12,735.26 12,272.61 12,300.61
01/31/07 12,990.47 12,417.49 12,490.26
02/28/07 12,843.73 12,352.87 12,364.30
03/31/07 12,984.09 12,579.00 12,613.08
04/30/07 13,532.81 13,133.75 13,095.41
05/31/07 13,762.50 13,501.75 13,499.85
06/30/07 13,698.70 13,397.61 13,480.22
07/31/07 13,411.58 13,100.90 13,207.51
08/31/07 13,488.15 13,090.96 13,185.28
09/30/07 14,030.48 13,713.51 13,722.86
10/31/07 14,362.26 14,134.12 14,190.59
11/30/07 14,107.04 13,556.38 13,566.05
12/31/07 13,921.66 13,381.48 13,441.54
01/31/08 12,962.02 12,358.88 12,493.58
02/29/08 12,982.58 12,287.35 12,382.09
03/31/08 13,181.36 12,169.57 12,304.70
04/30/08 13,585.78 12,809.18 12,843.40
05/31/08 13,805.13 13,004.50 13,020.98
06/30/08 12,639.85 11,967.30 11,944.17
07/31/08 12,461.63 11,674.88 11,665.75
08/31/08 12,310.83 11,510.89 11,537.48
09/30/08 11,234.66 10,141.81 10,317.70
10/31/08 9,418.20 8,218.91 8,463.73
11/30/08 8,760.16 7,686.91 7,896.43
12/31/08 9,188.51 7,933.54 8,229.55
01/31/09 8,273.95 7,238.51 7,613.17
02/28/09 7,473.70 6,497.58 6,964.73
03/31/09 8,088.18 6,987.56 7,426.95
04/30/09 8,866.99 7,771.42 8,126.95
05/31/09 9,610.07 8,475.56 8,861.13
06/30/09 9,638.65 8,437.32 8,843.62
07/31/09 10,581.79 9,151.93 9,582.09
08/31/09 10,910.47 9,529.50 9,963.01
09/30/09 11,432.05 9,909.33 10,326.71
10/31/09 11,217.70 9,733.03 10,114.13
11/30/09 11,782.16 10,130.75 10,507.67
12/31/09 12,070.41 10,312.67 10,785.83
01/31/10 11,560.59 9,886.43 10,376.49
02/28/10 11,711.38 10,025.80 10,521.09
03/31/10 12,431.58 10,646.70 11,135.41
04/30/10 12,402.79 10,648.20 11,178.41
05/31/10 11,143.07 9,632.31 10,142.11
06/30/10 10,876.74 9,298.11 9,838.98
07/31/10 11,790.93 10,051.94 10,618.28
08/31/10 11,265.45 9,676.65 10,211.04
09/30/10 12,402.79 10,578.95 11,211.43
10/31/10 12,935.47 10,973.29 11,660.12
11/30/10 12,633.14 10,736.38 11,424.67
12/31/10 13,541.24 11,525.78 12,229.94
01/31/11 13,635.37 11,786.17 12,403.22
02/28/11 14,062.61 12,198.83 12,800.24
03/31/11 14,004.68 12,078.53 12,826.19
04/30/11 14,895.36 12,591.66 13,306.28
05/31/11 14,779.50 12,330.44 13,019.77
06/30/11 14,583.98 12,135.38 12,772.39
07/31/11 14,265.37 11,915.34 12,483.66
08/31/11 13,193.65 11,075.81 11,480.37
09/30/11 11,955.39 10,119.19 10,301.26
10/31/11 13,345.72 11,165.89 11,374.43
11/30/11 13,142.96 10,893.27 11,170.81
12/31/11 12,952.32 10,887.21 11,011.99
01/31/12 13,668.65 11,433.57 11,714.59
02/29/12 14,392.28 11,992.08 12,295.89
03/31/12 14,808.92 12,146.26 12,375.98
04/30/12 14,691.97 12,008.33 12,158.03
05/31/12 13,456.67 10,971.72 11,072.06
06/30/12 14,026.81 11,530.79 11,564.93
07/31/12 14,246.09 11,679.02 11,726.05
08/31/12 14,699.28 11,975.11 11,931.39
09/30/12 15,064.75 12,304.10 12,237.25
10/31/12 15,086.68 12,220.96 12,227.23
11/30/12 15,547.17 12,377.45 12,365.22
12/31/12 15,984.38 12,610.22 12,764.00
01/31/13 16,892.08 13,252.58 13,397.12
02/28/13 17,039.67 13,274.46 13,369.11
03/31/13 17,401.27 13,586.38 13,673.47
04/30/13 17,652.18 14,013.21 14,062.61
05/31/13 17,888.33 14,018.50 14,153.36
06/30/13 17,460.31 13,673.08 13,841.60
07/31/13 18,463.95 14,392.91 14,541.15
08/31/13 17,925.23 14,086.56 14,236.75
09/30/13 18,906.73 14,791.07 14,950.84
10/31/13 19,497.10 15,370.04 15,473.21
11/30/13 19,902.98 15,643.19 15,762.03
12/31/13 20,418.20 15,974.19 16,047.16
01/31/14 19,436.19 15,382.54 15,504.49
02/28/14 20,607.05 16,152.60 16,261.92
03/31/14 20,531.51 16,175.98 16,327.23
04/30/14 20,659.92 16,341.73 16,406.06
05/31/14 21,150.93 16,663.25 16,737.28
06/30/14 21,354.88 16,961.34 17,027.70
07/31/14 20,735.46 16,690.44 16,663.87
08/31/14 21,098.05 17,058.21 17,045.04
09/30/14 20,531.51 16,595.45 16,524.62
10/31/14 20,780.79 16,702.81 16,635.34
11/30/14 21,505.96 17,037.54 16,959.08
12/31/14 21,176.54 16,762.81 16,666.62
01/31/15 20,843.36 16,459.07 16,456.01
02/28/15 22,021.12 17,423.39 17,364.24
03/31/15 21,819.66 17,150.65 17,176.18
04/30/15 22,098.61 17,552.88 17,528.61
05/31/15 22,230.33 17,613.35 17,627.76
06/30/15 21,765.42 17,203.79 17,264.02
07/31/15 22,269.07 17,512.60 17,444.51
08/31/15 20,657.39 16,353.71 16,311.67
09/30/15 20,084.01 15,750.52 15,707.71
10/31/15 21,618.20 16,998.65 16,831.12
11/30/15 21,439.99 16,914.07 16,830.36
[END CHART]
Data from 11/30/05 through 11/30/15.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund Shares to the following benchmarks:
o The unmanaged MSCI World Index reflects the movements of world stock markets
by representing a broad selection of domestically listed companies within
each market.
o The unmanaged Lipper Global Funds Index tracks the total return performance
of the 30 largest funds within the Lipper Global 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, except
that the Lipper Global Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
6 | USAA WORLD GROWTH FUND
================================================================================
USAA WORLD GROWTH FUND INSTITUTIONAL SHARES* (INSTITUTIONAL SHARES)
(Ticker Symbol: UIWGX)
--------------------------------------------------------------------------------
11/30/15
--------------------------------------------------------------------------------
Net Assets $4.8 Million
Net Asset Value Per Share $27.68
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 11/30/15
--------------------------------------------------------------------------------
SINCE INCEPTION 8/07/15**
-3.99%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/15
--------------------------------------------------------------------------------
SINCE INCEPTION 8/07/15**
-6.71%
--------------------------------------------------------------------------------
EXPENSE RATIOS***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.31% AFTER REIMBURSEMENT 1.10%
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.
*The Institutional Shares commenced operations on August 7, 2015.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***The expense ratios are reported in the Fund's prospectus dated October 1,
2015, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through October 1, 2016, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the Institutional Shares (exclusive of
commission recapture, expense offset arrangements, acquired fund fees and
expenses, and extraordinary expenses) do not exceed an annual rate of 1.10% of
the Institutional Shares' average net assets. If the total annual operating
expense ratio of the Institutional Shares is lower than 1.10%, the Institutional
Shares will operate at that lower expense ratio. This reimbursement arrangement
may not be changed or terminated during this time period without approval of the
Fund's Board of Trustees and may be changed or terminated by the Manager at any
time after October 1, 2016. These estimated expense ratios may differ from the
expense ratios disclosed in the Financial Highlights, which excludes acquired
fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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).
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI WORLD LIPPER GLOBAL USAA WORLD GROWTH FUND
INDEX FUNDS INDEX INSTITUTIONAL SHARES
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 9,338.25 9,350.60 9,247.31
09/30/15 8,993.82 9,004.38 8,994.10
10/31/15 9,706.53 9,648.38 9,677.42
11/30/15 9,658.23 9,647.94 9,601.11
[END CHART]
Data from 7/31/15 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund Institutional Shares to the Fund's benchmarks listed
above (see page 6 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Global Funds Index reflects the fees and expenses of the
underlying funds included in the index.
*The performance of the MSCI World Index and the Lipper Global Funds Index is
calculated from the end of the month, July 31, 2015, while the Institutional
Shares' inception date is August 7, 2015. There may be a slight variation of
performance numbers because of this difference.
================================================================================
8 | USAA WORLD GROWTH FUND
================================================================================
USAA WORLD GROWTH FUND ADVISER SHARES
(ADVISER SHARES) (Ticker Symbol: USWGX)
--------------------------------------------------------------------------------
11/30/15 5/31/15
--------------------------------------------------------------------------------
Net Assets $17.3 Million $26.8 Million
Net Asset Value Per Share $27.50 $28.55
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/15
--------------------------------------------------------------------------------
5/31/15-11/30/15* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-3.68% -0.54% 10.86% 11.06%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-1.87% 8.72% 10.29%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/15**
--------------------------------------------------------------------------------
1.38%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense 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 October 1, 2015, 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.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA WORLD GROWTH FUND MSCI WORLD LIPPER GLOBAL
ADVISER SHARES INDEX FUNDS INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,321.02 9,626.65 9,616.47
09/30/10 10,256.10 10,524.29 10,558.61
10/31/10 10,696.84 10,916.59 10,981.18
11/30/10 10,446.69 10,680.91 10,759.44
12/31/10 11,190.54 11,466.23 11,517.82
01/31/11 11,262.39 11,725.27 11,681.02
02/28/11 11,615.65 12,135.80 12,054.91
03/31/11 11,567.75 12,016.12 12,079.35
04/30/11 12,298.22 12,526.60 12,531.49
05/31/11 12,196.43 12,266.73 12,261.66
06/30/11 12,028.78 12,072.67 12,028.69
07/31/11 11,765.33 11,853.77 11,756.77
08/31/11 10,879.19 11,018.59 10,811.90
09/30/11 9,855.34 10,066.91 9,701.45
10/31/11 10,998.94 11,108.19 10,712.13
11/30/11 10,831.29 10,836.98 10,520.36
12/31/11 10,668.98 10,830.96 10,370.79
01/31/12 11,259.70 11,374.49 11,032.48
02/29/12 11,850.41 11,930.12 11,579.93
03/31/12 12,187.96 12,083.50 11,655.36
04/30/12 12,091.52 11,946.28 11,450.10
05/31/12 11,072.84 10,915.03 10,427.37
06/30/12 11,543.00 11,471.21 10,891.53
07/31/12 11,717.80 11,618.68 11,043.27
08/31/12 12,085.49 11,913.23 11,236.65
09/30/12 12,386.87 12,240.53 11,524.70
10/31/12 12,398.93 12,157.81 11,515.27
11/30/12 12,772.64 12,313.49 11,645.22
12/31/12 13,126.95 12,545.06 12,020.78
01/31/13 13,867.35 13,184.10 12,617.04
02/28/13 13,982.66 13,205.87 12,590.67
03/31/13 14,273.97 13,516.17 12,877.30
04/30/13 14,480.31 13,940.80 13,243.78
05/31/13 14,668.44 13,946.07 13,329.25
06/30/13 14,316.45 13,602.43 13,035.64
07/31/13 15,135.74 14,318.54 13,694.46
08/31/13 14,686.65 14,013.77 13,407.78
09/30/13 15,487.74 14,714.64 14,080.30
10/31/13 15,973.25 15,290.62 14,572.24
11/30/13 16,307.03 15,562.36 14,844.25
12/31/13 16,718.76 15,891.65 15,112.78
01/31/14 15,917.90 15,303.05 14,601.71
02/28/14 16,873.97 16,069.14 15,315.03
03/31/14 16,811.89 16,092.39 15,376.53
04/30/14 16,917.43 16,257.29 15,450.78
05/31/14 17,320.97 16,577.15 15,762.71
06/30/14 17,482.38 16,873.70 16,036.22
07/31/14 16,973.30 16,604.19 15,693.57
08/31/14 17,258.88 16,970.07 16,052.54
09/30/14 16,799.47 16,509.70 15,562.43
10/31/14 16,998.13 16,616.50 15,666.70
11/30/14 17,587.93 16,949.51 15,971.60
12/31/14 17,320.51 16,676.19 15,696.17
01/31/15 17,040.64 16,374.03 15,497.82
02/28/15 18,001.12 17,333.36 16,353.16
03/31/15 17,829.38 17,062.03 16,176.06
04/30/15 18,058.37 17,462.18 16,507.96
05/31/15 18,160.15 17,522.33 16,601.34
06/30/15 17,778.49 17,114.90 16,258.78
07/31/15 18,185.58 17,422.11 16,428.76
08/31/15 16,862.53 16,269.21 15,361.88
09/30/15 16,391.83 15,669.13 14,793.08
10/31/15 17,638.55 16,910.82 15,851.08
11/30/15 17,492.26 16,826.67 15,850.37
[END CHART]
Data from 7/31/10 through 11/30/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund Adviser Shares to the Fund's benchmarks listed above (see
page 6 for benchmark definitions).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Global Funds Index reflects the fees and expenses of the
underlying funds included in the index.
*The performance of the MSCI World Index and Lipper Global Funds Index is
calculated from the end of the month of July 31, 2010, while the inception date
of the Adviser Shares is August 1, 2010. There may be a slight variation of
performance numbers because of this difference.
================================================================================
10 | USAA WORLD GROWTH FUND
================================================================================
o TOP 10 INDUSTRIES - 11/30/15 o
(% of Net Assets)
Health Care Equipment .................................................... 6.7%
Packaged Foods & Meat .................................................... 5.9%
Asset Management & Custody Banks ......................................... 5.7%
Household Products ....................................................... 5.3%
Movies & Entertainment ................................................... 5.3%
Aerospace & Defense ...................................................... 4.7%
Pharmaceuticals .......................................................... 4.7%
Life Sciences Tools & Services ........................................... 3.7%
Distillers & Vintners .................................................... 3.5%
Apparel, Accessories & Luxury Goods ...................................... 3.4%
o TOP 10 EQUITY HOLDINGS - 11/30/15 o
(% of Net Assets)
Thermo Fisher Scientific, Inc. ........................................... 2.7%
Walt Disney Co. .......................................................... 2.7%
Nestle S.A. .............................................................. 2.6%
Accenture plc "A" ........................................................ 2.5%
Honeywell International, Inc. ............................................ 2.5%
Reckitt Benckiser Group plc .............................................. 2.4%
Time Warner, Inc. ........................................................ 2.4%
Visa, Inc. "A" ........................................................... 2.3%
State Street Corp. ....................................................... 2.2%
Bayer AG ................................................................. 2.2%
You will find a complete list of securities that the Fund owns on pages 13-19.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o COUNTRY ALLOCATION - 11/30/15 o
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 54.6%
UNITED KINGDOM 10.5%
SWITZERLAND 8.3%
FRANCE 7.7%
GERMANY 6.3%
OTHER* 12.2%
[END CHART]
* Includes countries that represent less than 3% of portfolio, and money market
instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
12 | USAA WORLD GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------
COMMON STOCKS (99.2%)
CONSUMER DISCRETIONARY (18.7%)
------------------------------
ADVERTISING (2.5%)
153,492 Omnicom Group, Inc. $ 11,346
788,543 WPP plc(a) 18,230
----------
29,576
----------
APPAREL RETAIL (0.5%)
267,858 Urban Outfitters, Inc.* 6,000
----------
APPAREL, ACCESSORIES & LUXURY GOODS (3.4%)
358,321 Burberry Group plc(a) 6,715
147,757 Compagnie Financiere Richemont S.A.(a) 11,033
6,031 Hermes International(a) 2,122
123,639 LVMH Moet Hennessy Louis Vuitton SE(a) 20,716
----------
40,586
----------
AUTO PARTS & EQUIPMENT (0.8%)
107,258 Delphi Automotive plc 9,426
----------
AUTOMOTIVE RETAIL (0.9%)
12,888 AutoZone, Inc.* 10,101
----------
CABLE & SATELLITE (2.1%)
706,688 Sky plc(a) 11,772
70,608 Time Warner Cable, Inc. 13,046
----------
24,818
----------
CASINOS & GAMING (0.6%)
601,600 Sands China Ltd.(a) 2,022
635,669 William Hill plc(a) 3,424
24,478 Wynn Resorts Ltd. 1,536
----------
6,982
----------
MOTORCYCLE MANUFACTURERS (0.2%)
35,384 Harley-Davidson, Inc. 1,731
----------
MOVIES & ENTERTAINMENT (5.3%)
407,092 Time Warner, Inc. 28,488
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------
51,687 Viacom, Inc. "B" $ 2,574
274,944 Walt Disney Co. 31,198
----------
62,260
----------
RESTAURANTS (1.8%)
842,926 Compass Group plc(a) 14,650
34,160 McDonald's Corp. 3,900
40,820 Whitbread plc(a) 2,796
----------
21,346
----------
SPECIALTY STORES (0.6%)
290,375 Sally Beauty Holdings, Inc.* 7,509
----------
Total Consumer Discretionary 220,335
----------
CONSUMER STAPLES (17.4%)
------------------------
BREWERS (2.4%)
1,065,629 Ambev S.A. 5,134
115,691 Carlsberg A/S "B"(a) 9,820
153,203 Heineken N.V.(a) 13,612
----------
28,566
----------
DISTILLERS & VINTNERS (3.5%)
843,927 Diageo plc(a) 24,226
151,976 Pernod Ricard S.A.(a) 17,281
----------
41,507
----------
FOOD RETAIL (0.3%)
35,400 Lawson, Inc.(a) 2,691
----------
HOUSEHOLD PRODUCTS (5.3%)
228,411 Colgate-Palmolive Co. 15,002
304,326 Reckitt Benckiser Group plc(a) 28,555
653,576 Svenska Cellulosa AB "B"(a) 18,839
----------
62,396
----------
PACKAGED FOODS & MEAT (5.9%)
296,561 DANONE S.A.(a) 20,756
266,432 Kellogg Co. 18,322
415,020 Nestle S.A.(a) 30,754
----------
69,832
----------
Total Consumer Staples 204,992
----------
ENERGY (1.6%)
-------------
OIL & GAS EQUIPMENT & SERVICES (1.3%)
114,441 National Oilwell Varco, Inc. 4,273
143,119 Schlumberger Ltd. 11,042
----------
15,315
----------
================================================================================
14 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
399,500 INPEX Corp.(a) $ 3,981
----------
Total Energy 19,296
----------
FINANCIALS (12.8%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (5.7%)
494,554 Bank of New York Mellon Corp. 21,681
298,338 Franklin Resources, Inc. 12,506
151,496 Julius Baer Group Ltd.*(a) 7,234
356,344 State Street Corp. 25,864
----------
67,285
----------
CONSUMER FINANCE (1.4%)
233,394 American Express Co. 16,720
----------
DIVERSIFIED BANKS (2.1%)
17,705 Credicorp Ltd. 1,870
173,287 Erste Group Bank AG*(a) 5,313
782,913 Grupo Financiero Banorte S.A. "O" 4,198
458,103 Itau Unibanco Holding S.A. ADR 3,243
540,300 Kasikornbank PCL(a) 2,559
10,597 Komercni Banka A/S(a) 2,152
575,530 Standard Chartered plc(a) 4,830
----------
24,165
----------
DIVERSIFIED CAPITAL MARKETS (1.5%)
908,218 UBS Group AG(a) 17,400
----------
INVESTMENT BANKING & BROKERAGE (1.2%)
75,654 Goldman Sachs Group, Inc. 14,376
----------
REINSURANCE (0.4%)
50,084 Swiss Re AG(a) 4,765
----------
SPECIALIZED FINANCE (0.5%)
74,651 Deutsche Boerse AG(a) 6,403
----------
Total Financials 151,114
----------
HEALTH CARE (17.2%)
-------------------
HEALTH CARE EQUIPMENT (6.7%)
268,358 Medtronic plc 20,218
51,123 Sonova Holding AG(a) 6,441
274,922 St. Jude Medical, Inc. 17,348
181,755 Stryker Corp. 17,532
165,482 Zimmer Biomet Holdings, Inc. 16,715
----------
78,254
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------
HEALTH CARE SUPPLIES (2.1%)
45,719 Cooper Companies, Inc. $ 6,686
144,953 DENTSPLY International, Inc. 8,793
238,000 Hoya Corp.(a) 9,658
----------
25,137
----------
LIFE SCIENCES TOOLS & SERVICES (3.7%)
228,924 Thermo Fisher Scientific, Inc. 31,683
92,446 Waters Corp.* 12,279
----------
43,962
----------
PHARMACEUTICALS (4.7%)
189,580 Bayer AG(a) 25,298
78,532 Johnson & Johnson 7,951
103,105 Merck KGaA(a) 10,552
41,611 Roche Holding AG(a) 11,124
----------
54,925
----------
Total Health Care 202,278
----------
INDUSTRIALS (14.8%)
-------------------
AEROSPACE & DEFENSE (4.7%)
284,489 Honeywell International, Inc. 29,573
85,358 MTU Aero Engines AG(a) 8,473
176,666 United Technologies Corp. 16,969
----------
55,015
----------
AIR FREIGHT & LOGISTICS (1.6%)
178,673 United Parcel Service, Inc. "B" 18,405
----------
AIRPORT SERVICES (0.4%)
37,839 Aena S.A.*(a) 4,289
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.2%)
183,548 Legrand S.A.(a) 10,790
24,956 Rockwell Automation, Inc. 2,656
205,206 Schneider Electric SE(a) 12,990
----------
26,436
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.8%)
144,177 Adecco S.A.*(a) 9,846
----------
INDUSTRIAL CONGLOMERATES (1.7%)
124,521 3M Co. 19,498
----------
RAILROADS (2.2%)
341,950 Canadian National Railway Co. 20,431
69,703 Union Pacific Corp. 5,852
----------
26,283
----------
================================================================================
16 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (1.2%)
88,594 Brenntag AG(a) $ 4,840
66,914 NOW, Inc.* 1,230
40,996 W.W. Grainger, Inc. 8,221
----------
14,291
----------
Total Industrials 174,063
----------
INFORMATION TECHNOLOGY (10.8%)
------------------------------
COMMUNICATIONS EQUIPMENT (0.7%)
289,558 Cisco Systems, Inc. 7,891
----------
DATA PROCESSING & OUTSOURCED SERVICES (2.8%)
157,746 PayPal Holdings, Inc.* 5,562
345,779 Visa, Inc. "A" 27,320
----------
32,882
----------
ELECTRONIC COMPONENTS (0.7%)
152,195 Amphenol Corp. "A" 8,378
----------
INTERNET SOFTWARE & SERVICES (0.5%)
194,305 eBay, Inc.* 5,750
----------
IT CONSULTING & OTHER SERVICES (2.5%)
280,623 Accenture plc "A" 30,088
----------
SEMICONDUCTORS (0.7%)
174,507 Microchip Technology, Inc. 8,425
----------
SYSTEMS SOFTWARE (2.3%)
69,747 Check Point Software Technologies Ltd.* 6,088
526,701 Oracle Corp. 20,526
----------
26,614
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.6%)
6,250 Samsung Electronics Co. Ltd.(a) 6,919
----------
Total Information Technology 126,947
----------
MATERIALS (5.9%)
----------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.8%)
104,429 Monsanto Co. 9,938
----------
INDUSTRIAL GASES (3.0%)
46,266 Air Liquide S.A.(a) 5,638
109,964 Linde AG(a) 19,196
95,050 Praxair, Inc. 10,721
----------
35,555
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS (2.1%)
204,910 Akzo Nobel N.V.(a) $ 14,561
79,844 International Flavors & Fragrances, Inc. 9,582
----------
24,143
----------
Total Materials 69,636
----------
Total Common Stocks (cost: $803,348) 1,168,661
----------
RIGHTS (0.0%)
FINANCIALS (0.0%)
-----------------
DIVERSIFIED BANKS (0.0%)
164,437 Standard Chartered plc* 225
----------
Total Financials 225
----------
Total Rights (cost: $0) 225
----------
--------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.4%)
COMMERCIAL PAPER (0.4%)
FINANCIALS (0.4%)
-----------------
DIVERSIFIED BANKS (0.4%)
$ 2,232 Barclays U.S. Funding, LLC(b),(c) 0.12% 12/01/2015 2,232
2,828 HSBC USA, Inc.(b),(c) 0.05 12/01/2015 2,828
----------
5,060
----------
Total Financials 5,060
----------
Total Commercial Paper (cost: $5,060) 5,060
----------
--------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.0%)
219,442 State Street Institutional Liquid Reserves Fund
Premier Class, 0.15%(d) 220
----------
Total Money Market Funds 220
----------
Total Money Market Instruments (cost: $5,280) 5,280
----------
TOTAL INVESTMENTS (COST: $808,628) $1,174,166
==========
================================================================================
18 | USAA WORLD GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $693,395 $475,266 $- $1,168,661
Rights 225 - - 225
Money Market Instruments:
Commercial Paper - 5,060 - 5,060
Money Market Funds 220 - - 220
---------------------------------------------------------------------------------------------------------------
Total $693,840 $480,326 $- $1,174,166
---------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2015, through November 30, 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.
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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 44.6% of net assets at
November 30, 2015.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
o SPECIFIC NOTES
(a) Securities with a value of $475,266,000, which represented 40.3% of
the Fund's net assets, were classified as Level 2 at November 30, 2015,
due to the prices being adjusted to take into account significant
market movements following the close of local trading.
================================================================================
20 | USAA WORLD GROWTH FUND
================================================================================
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(c) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(2) commercial paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer
who makes a market in this security, and as such has been deemed
liquid by the Manager under liquidity guidelines approved by the Board,
unless otherwise noted as illiquid.
(d) Rate represents the money market fund annualized seven-day yield at
November 30, 2015.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $808,628) $1,174,166
Cash denominated in foreign currencies (identified cost of $387) 366
Receivables:
Capital shares sold 912
Dividends and interest 2,101
Securities sold 8,271
Unrealized appreciation on foreign currency contracts held, at value 1
----------
Total assets 1,185,817
----------
LIABILITIES
Payables:
Securities purchased 5,524
Capital shares redeemed 694
Accrued management fees 727
Accrued transfer agent's fees 60
Other accrued expenses and payables 98
----------
Total liabilities 7,103
----------
Net assets applicable to capital shares outstanding $1,178,714
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 774,978
Accumulated undistributed net investment income 7,815
Accumulated net realized gain on investments 30,492
Net unrealized appreciation of investments 365,538
Net unrealized depreciation of foreign currency translations (109)
----------
Net assets applicable to capital shares outstanding $1,178,714
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,156,590/41,799 shares outstanding) $ 27.67
==========
Institutional Shares (net assets of $4,800/173 shares outstanding) $ 27.68
==========
Adviser Shares (net assets of $17,324/630 shares outstanding) $ 27.51
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA WORLD GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $239) $ 9,275
Interest 6
--------
Total income 9,281
--------
EXPENSES
Management fees 4,633
Administration and servicing fees:
Fund Shares 873
Institutional Shares* 1
Adviser Shares 18
Transfer agent's fees:
Fund Shares 1,080
Institutional Shares* 1
Adviser Shares 10
Distribution and service fees (Note 6F):
Adviser Shares 29
Custody and accounting fees:
Fund Shares 117
Adviser Shares 2
Postage:
Fund Shares 55
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 23
Trustees' fees 13
Registration fees:
Fund Shares 21
Institutional Shares* 5
Adviser Shares 13
Professional fees 62
Other 11
--------
Total expenses 6,968
--------
Expenses reimbursed:
Institutional Shares* (3)
--------
Net expenses 6,965
--------
NET INVESTMENT INCOME 2,316
--------
*Institutional Shares commenced operations on August 7, 2015.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (net of foreign taxes withheld of $1) 14,888
Foreign currency transactions (41)
Change in net unrealized appreciation/(depreciation) of:
Investments (61,773)
Foreign currency translations 7
--------
Net realized and unrealized loss (46,919)
--------
Decrease in net assets resulting from operations $(44,603)
========
See accompanying notes to financial statements.
================================================================================
24 | USAA WORLD GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2015 (unaudited), and year ended
May 31, 2015
--------------------------------------------------------------------------------------------------------
11/30/2015 5/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,316 $ 10,545
Net realized gain on investments 14,888 25,085
Net realized loss on foreign currency transactions (41) (70)
Change in net unrealized appreciation/(depreciation) of:
Investments (61,773) 23,130
Foreign currency translations 7 (47)
-------------------------------
Increase (decrease) in net assets resulting
from operations (44,603) 58,643
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (11,513)
Institutional Shares* - -
Adviser Shares - (213)
-------------------------------
Total distributions of net investment income - (11,726)
-------------------------------
Net realized gains:
Fund Shares - (17,567)
Institutional Shares* - -
Adviser Shares - (372)
-------------------------------
Total distributions of net realized gains - (17,939)
-------------------------------
Distributions to shareholders - (29,665)
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (9,018) 51,994
Institutional Shares* 5,000 -
Adviser Shares (8,371) 4,565
-------------------------------
Total net increase (decrease) in net assets from capital
share transactions (12,389) 56,559
-------------------------------
Net increase (decrease) in net assets (56,992) 85,537
NET ASSETS
Beginning of period 1,235,706 1,150,169
-------------------------------
End of period $1,178,714 $1,235,706
===============================
Accumulated undistributed net investment income:
End of period $ 7,815 $ 5,499
===============================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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 54 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 World Growth Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek capital appreciation.
The Fund consists of three classes of shares: World Growth Fund Shares (Fund
Shares), World Growth Fund Adviser Shares (Adviser Shares), and effective August
7, 2015, a new share class designated World Growth 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, distribution and
service (12b-1) 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 all 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 bank
================================================================================
26 | USAA WORLD GROWTH FUND
================================================================================
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). The Adviser Shares
permit investors to purchase shares through financial intermediaries, including
banks, broker-dealers, insurance companies, investment advisers, plan sponsors,
and financial professionals that provide various administrative and distribution
services.
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), an affiliate of the Fund. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
or the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
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 need to be reflected in the value of the Fund's
foreign securities. However, the Manager and the Fund's subadviser(s)
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 Committee will
consider such available information that it deems relevant and will
determine a fair value for the affected foreign securities in
accordance with valuation procedures. In addition, information from an
external vendor or other sources may be used to adjust the foreign
market closing prices of foreign equity securities to reflect what the
Committee 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, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day.
================================================================================
28 | USAA WORLD GROWTH FUND
================================================================================
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
include certain common stocks, which are valued based on methods discussed
in Note 1A2, and commercial paper, which is valued at amortized cost.
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. Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are accrued as applicable,
as a reduction to such income and realized gains. These foreign taxes have
been provided for in accordance with the understanding of the applicable
countries' tax rules and rates.
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
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.
================================================================================
30 | USAA WORLD GROWTH FUND
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or
loss from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2015, there were no custodian and other bank credits.
G. REDEMPTION FEES - Adviser Shares held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed
or exchanged shares. All redemption fees paid will be accounted for by the
Fund as an addition to paid in capital. For the six-month period ended
November 30, 2015, the Adviser Shares charged redemption fees of less than
$500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet 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 9.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
up to $750 million. If the USAA Funds increase the committed loan agreement
above the $500 million, the assessed facility fee by CAPCO will be increased to
10.0 basis points.
For the six-month period ended November 30, 2015, the Fund paid CAPCO facility
fees of $3,000, which represents 1.7% of the total fees paid to CAPCO
================================================================================
32 | USAA WORLD GROWTH FUND
================================================================================
by the USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2015.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2016, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At May 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 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 the Fund's tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2015, were
$62,188,000 and $62,128,000, respectively.
As of November 30, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2015, were $399,794,000 and $34,256,000, respectively, resulting in net
unrealized appreciation of $365,538,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 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
NOVEMBER 30, 2015 MAY 31, 2015
------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 2,707 $ 75,026 7,452 $ 207,878
Shares issued from reinvested dividends - - 1,028 28,632
Shares redeemed (3,047) (84,044) (6,641) (184,516)
------------------------------------------------
Net increase (decrease) from
capital share transactions (340) $ (9,018) 1,839 $ 51,994
================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 173 $ 5,000 - $ -
Shares issued from reinvested dividends - - - -
Shares redeemed - - - -
------------------------------------------------
Net increase from capital
share transactions 173 $ 5,000 - $ -
================================================
ADVISER SHARES:
Shares sold 35 $ 973 207 $ 5,734
Shares issued from reinvested dividends - - 13 362
Shares redeemed* (344) (9,344) (55) (1,531)
------------------------------------------------
Net increase (decrease) from
capital share transactions (309) $ (8,371) 165 $ 4,565
================================================
*Net of redemption fees.
(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
================================================================================
34 | USAA WORLD GROWTH FUND
================================================================================
affairs of the Fund. 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 can range from 0% to 100% of the Fund's
assets, and the Manager can 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 0.75% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance over the performance
period to that of the Lipper Global Funds Index. The Lipper Global Funds
Index tracks the total return performance of the 30 largest funds in the
Lipper Global Funds category. For the Fund Shares and Adviser Shares, the
performance period consists of the current month plus the previous 35
months. The performance period for the Institutional Shares commenced on
August 7, 2015, and includes the performance of the Fund Shares for periods
prior to August 7, 2015. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 Global Funds Index over that period, even if the
class had overall negative returns during the performance period.
For the six-month period ended November 30, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $4,633,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $168,000, less than $500, and $2,000,
respectively. For the Fund Shares, Institutional Shares, and Adviser
Shares, the performance adjustments were 0.03%, less than 0.01%, and 0.02%,
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with MFS Investment Management (MFS), under which MFS
directs the investment and reinvestment of the Fund's assets (as allocated
from time to time by the Manager).
The Manager (not the Fund) pays MFS a subadvisory fee based on the
aggregate average net assets in the USAA World Growth Fund and the USAA
International Fund combined, in an annual amount of 0.33% on the first $2
billion of assets, 0.30% of assets over $2 billion and up to $3 billion,
and 0.25% on assets over $3 billion. For the six-month period ended
November 30, 2015, the Manager incurred subadvisory fees with respect to
the Fund, paid or payable to MFS, of $1,810,000.
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 Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For
================================================================================
36 | USAA WORLD GROWTH FUND
================================================================================
the six-month period ended November 30, 2015, the Fund Shares,
Institutional Shares, and Adviser Shares incurred administration and
servicing fees, paid or payable to the Manager, of $873,000, $1,000, and
$18,000, respectively.
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 November 30, 2015, the Fund reimbursed the
Manager $15,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through October 1, 2016, to limit
the total annual operating expenses of the Institutional Shares to 1.10% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and will reimburse the
Institutional Shares for all expenses in excess of that amount. This
expense limitation arrangement may not be changed or terminated through
October 1, 2016, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. For the six-month
period ended November 30, 2015, the Institutional Shares incurred
reimbursable expenses, from the Manager of $3,000.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund Shares and Adviser Shares based on an
annual charge of $23 per shareholder account plus out-of-pocket expenses.
SAS pays a portion of these fees to certain intermediaries for the
administration and servicing of accounts that are held with such
intermediaries. 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 November 30, 2015, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $1,080,000, $1,000, and $10,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
F. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for
investment by their customers. The fee is accrued daily and paid monthly at
an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser
Shares are offered and sold without imposition of an initial sales charge
or a contingent deferred sales charge. For the six-month period ended
November 30, 2015, the Adviser Shares incurred distribution and service
(12b-1) fees of $29,000.
G. 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 Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2015, USAA and its affiliates owned 173,000 Institutional Shares and 315,000
Adviser Shares, which represents 100% of the Institutional Shares, 50.1% of the
Adviser Shares, and 1.1% of the Fund.
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.
================================================================================
38 | USAA WORLD GROWTH FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 28.69 $ 28.00 $ 24.24 $ 18.41 $ 20.41 $ 15.48
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .24 .20 .19 .17 .16
Net realized and
unrealized gain (loss) (1.08) 1.16 4.19 5.85 (2.01) 4.88
------------------------------------------------------------------------------
Total from investment
operations (1.02) 1.40 4.39 6.04 (1.84) 5.04
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.28) (.19) (.20) (.16) (.11)
Realized capital gains - (.43) (.44) (.01) - -
------------------------------------------------------------------------------
Total distributions - (.71) (.63) (.21) (.16) (.11)
------------------------------------------------------------------------------
Net asset value at
end of period $ 27.67 $ 28.69 $ 28.00 $ 24.24 $ 18.41 $ 20.41
==============================================================================
Total return (%)* (3.56) 5.10 18.24 32.93 (8.95) 32.63
Net assets at end
of period (000) $1,156,590 $1,208,909 $1,128,586 $879,178 $615,644 $642,494
Ratios to average
net assets:**
Expenses (%)(a) 1.17(b) 1.17 1.19 1.25 1.30 1.29
Net investment income (%) .39(b) .91 .75 .93 .96 .95
Portfolio turnover (%) 5 9 9 12 12 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$1,162,586,000.
(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 as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
NOVEMBER 30,
---------------
2015***
---------------
Net asset value at beginning of period $28.37
------
Income (loss) from investment operations:
Net investment income .06
Net realized and unrealized loss (.75)
------
Total from investment operations (.69)
------
Net asset value at end of period $27.68
======
Total return (%)* (3.99)
Net assets at end of period (000) $4,800
Ratios to average net assets:**
Expenses (%)(a) 1.10
Expenses, excluding reimbursements (%)(a) 1.33
Net investment income (%)(a) .68
Portfolio turnover (%) 5
* 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 period ended November 30, 2015, average net assets were $4,700,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA WORLD GROWTH FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
--------------------------------------------------------------------------------
2015 2015 2014 2013 2012 2011***
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 28.55 $ 27.90 $ 24.17 $18.37 $20.38 $16.79
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .01 .19 .18 .13 .12 .12
Net realized and
unrealized gain (loss) (1.05) 1.13 4.16 5.82 (2.01) 3.57
----------------------------------------------------------------------------
Total from investment
operations (1.04) 1.32 4.34 5.95 (1.89) 3.69
----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.24) (.17) (.14) (.12) (.10)
Realized capital gains - (.43) (.44) (.01) - -
----------------------------------------------------------------------------
Total distributions - (.67) (.61) (.15) (.12) (.10)
----------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(c) .00(c) - - - -
----------------------------------------------------------------------------
Net asset value at
end of period $ 27.51 $ 28.55 $ 27.90 $24.17 $18.37 $20.38
============================================================================
Total return (%)* (3.64) 4.84 18.08 32.47 (9.26) 22.02
Net assets at end
of period (000) $17,324 $26,797 $21,583 $8,490 $5,808 $6,435
Ratios to average
net assets:**
Expenses (%)(a) 1.42(b) 1.38(d) 1.35 1.60 1.60 1.60(b)
Expenses, excluding
reimbursements (%)(a) 1.42(b) 1.38 1.35 1.63 1.76 1.92(b)
Net investment income (%) .15(b) .72 .64 .59 .64 .80(b)
Portfolio turnover (%) 5 9 9 12 12 17
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2015, average net assets were
$23,487,000.
*** Adviser Shares commenced operations on August 1, 2010.
(a) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Represents less than $0.01 per share.
(d) Prior to October 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.60% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
EXPENSE EXAMPLE
November 30, 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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2015, through
November 30, 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
================================================================================
42 | USAA WORLD GROWTH FUND
================================================================================
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do 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 JUNE 1, 2015 -
JUNE 1, 2015 NOVEMBER 30, 2015 NOVEMBER 30, 2015
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 964.40 $5.75
Hypothetical
(5% return before expenses) 1,000.00 1,019.15 5.91
INSTITUTIONAL SHARES*
Actual 1,000.00 960.10 3.30
Hypothetical
(5% return before expenses) 1,000.00 1,011.93 3.39
ADVISER SHARES
Actual 1,000.00 963.60 6.97
Hypothetical
(5% return before expenses) 1,000.00 1,017.90 7.16
*Institutional Shares commenced operations on August 7, 2015.
**Expenses are equal to the annualized expense ratio of 1.17% for Fund Shares,
1.10% for Institutional Shares, and 1.42% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/366 days for Fund Shares
and Adviser Shares (to reflect the one-half-year period) or 112 days/366 days
for Institutional Shares (to reflect the current period beginning with the
Institutional Shares' inception date). The Fund's actual ending account values
are based on its actual total returns of (3.56)% for Fund Shares, (3.99)% for
Institutional Shares, and (3.64)% for Adviser Shares for the six-month period
of June 1, 2015, through November 30, 2015, and August 7, 2015, through
November 30, 2015 for the Institutional Shares.
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(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 PRSRT STD
San Antonio, TX 78288 U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23412-0116 (C)2016, 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 November 30, 2015
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 01/26/16
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 01/27/16
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 01/26/16
------------------------------
*Print the name and title of each signing officer under his or her signature.