UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: JULY 31
Date of reporting period: JANUARY 31, 2016
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2016
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA AGGRESSIVE GROWTH FUND]
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SEMIANNUAL REPORT
USAA AGGRESSIVE GROWTH FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2016
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PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
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MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
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That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 10
Notes to Portfolio of Investments 17
Financial Statements 18
Notes to Financial Statements 21
EXPENSE EXAMPLE 35
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.
202720-0316
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FUND OBJECTIVE
THE USAA AGGRESSIVE GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
The Fund invests primarily in equity securities of large capitalization
companies that are selected for their growth potential. Although the Fund
invests primarily in U.S. securities, it may invest up to 20% of its total
assets in foreign securities including securities issued in emerging markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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
Wellington Management Company LLP Winslow Capital Management, LLC
PAUL E. MARRKAND, CFA CLARK J. WINSLOW
JUSTIN H. KELLY, CFA
PATRICK M. BURTON, CFA
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o HOW DID THE OVERALL MARKET PERFORM DURING THE REPORTING PERIOD?
For the reporting period ended January 31, 2016, concerns regarding the
possibility of a significant slowdown in China's economic growth dominated
headlines. Fears were amplified in early August 2015 when China unexpectedly
devalued its currency, the renminbi, triggering concerns regarding global
disinflationary trends and a weaker than anticipated global growth backdrop.
In September 2015, Chinese manufacturing activity fell to its lowest level
since 2009. Investor risk tolerance also appeared to curtail due to the
European Central Bank's downgrade of its Eurozone growth, inflation outlook
and the cut in Brazil's credit rating to below investment-grade. Global
equities rallied in October 2015 amid increasing signs of extended monetary
policy accommodations by major central banks. After much anticipation, on
December 16, 2015, the Federal Reserve delivered its first interest rate
increase since 2006, approving a small increase in the federal funds rate.
The market initially reacted positively to the news, but remained volatile
through the end of the reporting period as the S&P 500(R) Index was down
4.96% in January 2016 alone.
Seven of the 10 sectors within the Russell 1000(R) Growth Index (the Index)
posted negative returns for the reporting period. Energy, health care, and
materials were the Index's bottom-performing sectors, while
telecommunication services, utilities, and consumer staples were the
top-performing market segments.
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2 | USAA AGGRESSIVE GROWTH FUND
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O HOW DID THE USAA AGGRESSIVE GROWTH FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the reporting period ended January 31, 2016, the Fund Shares and
Institutional Shares had total returns of -8.24% and -8.15%, respectively.
This compares to returns of -7.18% for the Index and -10.09% for the Lipper
Large-Cap Growth Funds 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. Wellington Management Company LLP (Wellington Management) and
Winslow Capital Management, LLC (Winslow 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 WELLINGTON MANAGEMENT'S PORTION OF THE FUND PERFORM DURING THE
REPORTING PERIOD?
Wellington Management's portion of the Fund's assets outperformed the Index
during the reporting period. Stock selection was the primary contributor to
the Fund's relative performance, driven by strong selection in the
information technology, health care, and consumer discretionary sectors.
Stock selection in the consumer staples sector partially offset positive
returns. Sector allocation, a result of Wellington Management's bottom-up
stock selection process, detracted from relative performance due to an
overweight allocation to health care and an underweight allocation in
consumer staples. Top individual contributors included positions in First
Solar, Inc. (information technology) and Microsoft Corp. (information
technology), as well as a lack of holdings in Walt Disney Co., an Index
constituent. The top individual detractors came from underweight positions
in Altria Group, Inc. (consumer staples)
Refer to page 6 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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and Chipotle Mexican Grill, Inc.* (consumer discretionary), and the lack of
a position in Coca-Cola.
o HOW DID WINSLOW CAPITAL'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
Winslow Capital's portion of the Fund's assets underperformed the Index over
the reporting period. Top-performing sectors were consumer discretionary,
materials, and industrials. Within the consumer discretionary sector, stock
selection drove outperformance, with the online retailer Amazon.com, Inc.
and the Chinese travel services company Ctrip.com International Ltd. ADR* as
contributors. Within the materials sector, stock selection was incremental,
led by Winslow Capital's position in the agricultural producer Monsanto Co.*
An underweight position in industrials also contributed to the Fund's
performance. The bottom-performing sectors within Winslow Capital's portion
of the Fund were health care, consumer staples, and telecommunication
services. Within the health care sector, stock selection drove
underperformance. Individual detractors included the specialty
pharmaceutical firms Valeant Pharmaceuticals International, Inc.* and
Mallinckrodt plc.* An underweight position in consumer staples also
contributed to underperformance. Stock selection in telecommunication
services sector, stemming from the Fund's holdings in the wireless tower
operator SBA Communications Corp. "A", contributed to underperformance
during the reporting period.
Thank you for allowing us to help with your investment needs.
*Chipolte Mexican Grill, Inc., Ctrip.com International Ltd. ADR, Monsanto
Co., Valeant Pharmaceuticals International Inc., and Mallinckrodt plc were
sold out of the Fund prior to January 31, 2016.
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 United
States. Foreign securities also may be subject to foreign taxes. Investments
made in emerging market countries may be particularly volatile. Economies of
emerging market countries generally are less diverse and mature than more
developed countries and may have less stable political systems.
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4 | USAA AGGRESSIVE GROWTH FUND
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INVESTMENT OVERVIEW
USAA AGGRESSIVE GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USAUX)
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1/31/16 7/31/15
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Net Assets $1.1 Billion $1.2 Billion
Net Asset Value Per Share $36.59 $42.55
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
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7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-8.24% 0.96% 9.61% 5.35%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
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1 YEAR 5 YEARS 10 YEARS
6.00% 11.62% 6.35%
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EXPENSE RATIO AS OF 7/31/15**
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0.78%
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 December 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. Effective December 1, 2015, the
administration and servicing fees for the Fund Shares was reduced from 0.25% to
0.15% of the Fund Shares' 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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INVESTMENT OVERVIEW | 5
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER LARGE-CAP USAA AGGRESSIVE
RUSSELL 1000 GROWTH FUNDS GROWTH FUND
GROWTH INDEX INDEX SHARES
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 9,984.11 9,865.11 9,950.25
3/31/2006 10,131.53 9,960.23 10,034.20
4/30/2006 10,117.75 9,944.59 10,031.09
5/31/2006 9,774.81 9,480.66 9,601.99
6/30/2006 9,736.24 9,449.50 9,592.66
7/31/2006 9,550.80 9,207.57 9,291.04
8/31/2006 9,848.78 9,420.76 9,353.23
9/30/2006 10,119.41 9,623.89 9,561.57
10/31/2006 10,475.14 9,913.43 9,850.75
11/30/2006 10,683.01 10,139.92 10,087.06
12/31/2006 10,719.19 10,193.56 10,264.30
1/31/2007 10,994.73 10,456.66 10,743.16
2/28/2007 10,788.07 10,220.62 10,360.70
3/31/2007 10,846.58 10,297.54 10,323.38
4/30/2007 11,357.24 10,715.60 10,621.89
5/31/2007 11,765.81 11,078.48 11,032.34
6/30/2007 11,590.18 10,973.99 10,923.51
7/31/2007 11,410.50 10,834.74 10,796.02
8/31/2007 11,592.32 11,013.29 11,019.90
9/30/2007 12,077.93 11,685.11 11,791.04
10/31/2007 12,488.99 12,207.28 12,490.67
11/30/2007 12,028.93 11,709.60 11,856.34
12/31/2007 11,985.43 11,719.83 11,791.84
1/31/2008 11,050.85 10,716.95 10,785.03
2/29/2008 10,831.37 10,493.68 10,407.86
3/31/2008 10,765.42 10,404.39 10,195.90
4/30/2008 11,330.60 11,045.55 10,841.14
5/31/2008 11,745.91 11,347.13 11,015.69
6/30/2008 10,899.95 10,512.32 10,195.90
7/31/2008 10,692.71 10,304.90 10,093.04
8/31/2008 10,807.85 10,332.41 10,005.76
9/30/2008 9,556.25 9,008.00 8,908.56
10/31/2008 7,873.78 7,434.78 7,590.04
11/30/2008 7,247.59 6,688.96 6,785.84
12/31/2008 7,378.57 6,868.64 6,898.87
1/31/2009 7,023.63 6,513.57 6,349.35
2/28/2009 6,495.25 6,088.71 5,925.43
3/31/2009 7,074.60 6,611.94 6,324.23
4/30/2009 7,753.81 7,312.50 6,955.39
5/31/2009 8,138.18 7,712.84 7,432.69
6/30/2009 8,229.22 7,715.86 7,259.99
7/31/2009 8,813.71 8,297.28 7,796.95
8/31/2009 8,996.50 8,460.97 8,016.76
9/30/2009 9,379.17 8,867.29 8,365.31
10/31/2009 9,252.13 8,691.85 8,214.59
11/30/2009 9,820.51 9,216.12 8,823.77
12/31/2009 10,124.05 9,513.00 8,872.10
1/31/2010 9,682.28 9,014.60 8,484.17
2/28/2010 10,015.02 9,334.38 8,727.02
3/31/2010 10,594.32 9,920.68 9,342.04
4/30/2010 10,712.70 10,022.72 9,480.82
5/31/2010 9,894.87 9,217.56 8,793.25
6/30/2010 9,350.01 8,687.06 8,194.00
7/31/2010 10,016.96 9,276.27 8,692.33
8/31/2010 9,549.27 8,820.88 8,244.46
9/30/2010 10,565.80 9,766.41 9,244.27
10/31/2010 11,070.42 10,279.31 9,682.67
11/30/2010 11,198.98 10,382.18 9,799.37
12/31/2010 11,815.84 10,951.85 10,407.96
1/31/2011 12,116.54 11,167.96 10,641.42
2/28/2011 12,513.08 11,470.14 10,988.46
3/31/2011 12,528.36 11,475.91 11,061.02
4/30/2011 12,947.92 11,823.89 11,414.37
5/31/2011 12,806.96 11,679.99 11,225.07
6/30/2011 12,623.27 11,525.37 11,054.71
7/31/2011 12,496.74 11,463.70 10,906.43
8/31/2011 11,837.23 10,692.96 10,158.72
9/30/2011 10,965.01 9,759.79 9,275.36
10/31/2011 12,168.31 10,931.19 10,486.83
11/30/2011 12,167.13 10,796.66 10,341.71
12/31/2011 12,128.01 10,633.76 10,149.26
1/31/2012 12,851.95 11,362.67 10,903.28
2/29/2012 13,466.59 12,031.87 11,464.85
3/31/2012 13,909.53 12,457.04 11,903.37
4/30/2012 13,888.05 12,365.46 11,739.32
5/31/2012 12,997.18 11,417.40 10,761.31
6/30/2012 13,350.09 11,670.29 11,054.71
7/31/2012 13,529.05 11,688.33 11,070.48
8/31/2012 13,893.04 12,127.30 11,464.85
9/30/2012 14,165.50 12,425.08 11,698.31
10/31/2012 13,752.06 11,993.11 11,177.75
11/30/2012 13,982.34 12,259.96 11,455.38
12/31/2012 13,978.47 12,326.45 11,430.45
1/31/2013 14,577.58 12,858.51 11,947.63
2/28/2013 14,758.98 12,927.21 12,028.00
3/31/2013 15,312.64 13,333.69 12,447.34
4/30/2013 15,637.67 13,506.52 12,597.60
5/31/2013 15,928.18 13,862.46 12,988.99
6/30/2013 15,628.44 13,581.59 12,761.85
7/31/2013 16,457.09 14,430.77 13,432.79
8/31/2013 16,175.04 14,257.30 13,184.68
9/30/2013 16,895.85 15,072.43 13,890.56
10/31/2013 17,643.25 15,704.56 14,467.15
11/30/2013 18,140.95 16,173.96 14,921.43
12/31/2013 18,659.15 16,691.30 15,365.48
1/31/2014 18,127.21 16,292.86 15,004.84
2/28/2014 19,060.26 17,227.35 15,787.50
3/31/2014 18,868.04 16,672.73 15,315.60
4/30/2014 18,868.80 16,382.80 14,981.82
5/31/2014 19,456.84 16,977.60 15,576.49
6/30/2014 19,836.03 17,393.46 15,887.25
7/31/2014 19,532.39 17,213.29 15,691.59
8/31/2014 20,427.32 17,927.66 16,366.82
9/30/2014 20,131.00 17,615.02 16,171.16
10/31/2014 20,661.48 18,129.99 16,658.40
11/30/2014 21,316.21 18,586.66 17,214.70
12/31/2014 21,094.13 18,416.67 17,011.46
1/31/2015 20,771.12 18,116.93 16,679.34
2/28/2015 22,155.63 19,259.52 17,766.27
3/31/2015 21,903.65 19,050.95 17,455.72
4/30/2015 22,013.35 19,046.68 17,403.96
5/31/2015 22,323.21 19,411.86 17,809.41
6/30/2015 21,929.95 19,230.36 17,606.68
7/31/2015 22,673.61 19,913.22 18,352.88
8/31/2015 21,296.67 18,604.23 17,201.24
9/30/2015 20,769.84 17,970.36 16,679.34
10/31/2015 22,558.24 19,536.86 18,171.72
11/30/2015 22,621.56 19,643.45 18,223.48
12/31/2015 22,289.59 19,450.17 18,031.89
1/31/2016 21,045.14 17,903.27 16,839.90
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Aggressive Growth Fund Shares to the following benchmarks:
o The unmanaged Russell 1000 Growth Index measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values.
o The unmanaged Lipper Large-Cap Growth Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Large-Cap Growth 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 Large-Cap Growth Funds Index reflects the fees and expenses of
the underlying funds included in the index.
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6 | USAA AGGRESSIVE GROWTH FUND
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USAA AGGRESSIVE GROWTH FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIAGX)
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1/31/16 7/31/15
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Net Assets $124.9 Million $163.1 Million
Net Asset Value Per Share $36.91 $42.92
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
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7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-8.15% 1.19% 9.95% 7.57%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
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1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
6.21% 11.97% 8.65%
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EXPENSE RATIO AS OF 7/31/15**
0.68%
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 December 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).
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER LARGE-CAP USAA AGGRESSIVE GROWTH
RUSSELL 1000 GROWTH FUNDS FUND INSTITUTIONAL
GROWTH INDEX INDEX SHARES
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,107.67 10,026.70 10,012.48
9/30/2008 8,937.16 8,741.47 8,914.54
10/31/2008 7,363.69 7,214.80 7,595.13
11/30/2008 6,778.06 6,491.05 6,790.39
12/31/2008 6,900.56 6,665.41 6,909.17
1/31/2009 6,568.61 6,320.85 6,357.57
2/28/2009 6,074.46 5,908.55 5,938.36
3/31/2009 6,616.28 6,416.31 6,341.81
4/30/2009 7,251.48 7,096.14 6,978.52
5/31/2009 7,610.95 7,484.63 7,460.77
6/30/2009 7,696.10 7,487.57 7,290.56
7/31/2009 8,242.73 8,051.78 7,832.71
8/31/2009 8,413.67 8,210.62 8,056.50
9/30/2009 8,771.55 8,604.93 8,409.52
10/31/2009 8,652.74 8,434.67 8,261.38
11/30/2009 9,184.30 8,943.43 8,879.17
12/31/2009 9,468.18 9,231.53 8,926.20
1/31/2010 9,055.02 8,747.88 8,538.24
2/28/2010 9,366.21 9,058.20 8,789.46
3/31/2010 9,907.97 9,627.15 9,412.73
4/30/2010 10,018.69 9,726.17 9,552.65
5/31/2010 9,253.84 8,944.83 8,865.78
6/30/2010 8,744.28 8,430.03 8,264.76
7/31/2010 9,368.02 9,001.80 8,770.38
8/31/2010 8,930.63 8,559.89 8,318.82
9/30/2010 9,881.30 9,477.45 9,330.05
10/31/2010 10,353.23 9,975.17 9,778.43
11/30/2010 10,473.47 10,075.00 9,899.27
12/31/2010 11,050.36 10,627.81 10,517.15
1/31/2011 11,331.58 10,837.52 10,759.87
2/28/2011 11,702.43 11,130.76 11,114.38
3/31/2011 11,716.72 11,136.36 11,191.03
4/30/2011 12,109.10 11,474.04 11,548.74
5/31/2011 11,977.27 11,334.40 11,363.50
6/30/2011 11,805.49 11,184.35 11,194.23
7/31/2011 11,687.16 11,124.51 11,050.51
8/31/2011 11,070.37 10,376.57 10,296.77
9/30/2011 10,254.66 9,471.02 9,405.71
10/31/2011 11,380.00 10,607.76 10,635.32
11/30/2011 11,378.90 10,477.21 10,491.60
12/31/2011 11,342.31 10,319.13 10,299.97
1/31/2012 12,019.35 11,026.47 11,066.48
2/29/2012 12,594.17 11,675.87 11,641.36
3/31/2012 13,008.42 12,088.46 12,091.68
4/30/2012 12,988.33 11,999.59 11,928.80
5/31/2012 12,155.17 11,079.58 10,938.73
6/30/2012 12,485.22 11,324.98 11,238.94
7/31/2012 12,652.59 11,342.50 11,261.30
8/31/2012 12,992.99 11,768.47 11,666.91
9/30/2012 13,247.80 12,057.45 11,909.64
10/31/2012 12,861.15 11,638.25 11,382.66
11/30/2012 13,076.51 11,897.21 11,670.10
12/31/2012 13,072.90 11,961.73 11,647.13
1/31/2013 13,633.19 12,478.05 12,179.13
2/28/2013 13,802.84 12,544.72 12,264.25
3/31/2013 14,320.63 12,939.17 12,696.94
4/30/2013 14,624.61 13,106.88 12,852.99
5/31/2013 14,896.29 13,452.29 13,257.30
6/30/2013 14,615.98 13,179.73 13,026.77
7/31/2013 15,390.94 14,003.78 13,714.82
8/31/2013 15,127.16 13,835.45 13,466.56
9/30/2013 15,801.28 14,626.46 14,190.07
10/31/2013 16,500.26 15,239.89 14,782.36
11/30/2013 16,965.71 15,695.40 15,246.97
12/31/2013 17,450.34 16,197.44 15,704.57
1/31/2014 16,952.86 15,810.78 15,334.46
2/28/2014 17,825.47 16,717.63 16,137.02
3/31/2014 17,645.70 16,179.41 15,657.82
4/30/2014 17,646.42 15,898.07 15,318.88
5/31/2014 18,196.36 16,475.27 15,930.54
6/30/2014 18,550.98 16,878.82 16,253.90
7/31/2014 18,267.01 16,703.98 16,059.10
8/31/2014 19,103.97 17,397.21 16,756.48
9/30/2014 18,826.84 17,093.82 16,553.89
10/31/2014 19,322.96 17,593.55 17,060.36
11/30/2014 19,935.27 18,036.71 17,633.07
12/31/2014 19,727.58 17,871.76 17,427.74
1/31/2015 19,425.49 17,580.88 17,085.66
2/28/2015 20,720.31 18,689.66 18,203.96
3/31/2015 20,484.65 18,487.27 17,892.60
4/30/2015 20,587.24 18,483.12 17,839.97
5/31/2015 20,877.03 18,837.49 18,260.97
6/30/2015 20,509.25 18,661.37 18,050.47
7/31/2015 21,204.73 19,324.03 18,822.30
8/31/2015 19,917.00 18,053.77 17,647.00
9/30/2015 19,424.29 17,438.65 17,111.97
10/31/2015 21,096.84 18,958.80 18,646.88
11/30/2015 21,156.05 19,062.23 18,703.89
12/31/2015 20,845.59 18,874.67 18,510.81
1/31/2016 19,681.76 17,373.55 17,288.31
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Aggressive Growth Fund Institutional Shares to the Fund's benchmarks listed
above (see page 6 for benchmark definitions).
*The performance of the Russell 1000 Growth Index and the Lipper Large-Cap
Growth Funds Index is calculated from the end of the month, July 31, 2008, while
the inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Large-Cap Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
8 | USAA AGGRESSIVE GROWTH FUND
================================================================================
o TOP 10 HOLDINGS* - 1/31/16 o
(% of Net Assets)
Alphabet, Inc. "C" ...................................................... 4.2%
Apple, Inc. ............................................................. 4.0%
Facebook, Inc. "A" ...................................................... 3.8%
Amazon.com, Inc. ........................................................ 3.7%
Visa, Inc. "A" .......................................................... 3.4%
Microsoft Corp. ......................................................... 2.6%
Home Depot, Inc. ........................................................ 2.4%
Bristol-Myers Squibb Co. ................................................ 2.2%
UnitedHealth Group, Inc. ................................................ 1.8%
MasterCard, Inc. "A" .................................................... 1.7%
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 36.8%
HEALTH CARE 19.8%
CONSUMER DISCRETIONARY 19.8%
CONSUMER STAPLES 7.0%
INDUSTRIALS 5.0%
FINANCIALS 4.2%
MATERIALS 2.3%
TELECOMMUNICATION SERVICES 1.7%
ENERGY 0.4%
UTILITIES 0.2%
MONEY MARKET INSTRUMENTS 2.5%
*Does not include money market instruments.
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 10-16.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.2%)
COMMON STOCKS (97.2%)
CONSUMER DISCRETIONARY (19.8%)
------------------------------
APPAREL RETAIL (1.6%)
90,350 L Brands, Inc. $ 8,687
92,161 Ross Stores, Inc. 5,185
97,261 TJX Companies, Inc. 6,929
----------
20,801
----------
APPAREL, ACCESSORIES & LUXURY GOODS (1.1%)
107,450 Lululemon Athletica, Inc.* 6,670
12,136 Ralph Lauren Corp. 1,365
68,200 Under Armour, Inc. "A"* 5,826
----------
13,861
----------
AUTO PARTS & EQUIPMENT (0.5%)
91,400 Delphi Automotive plc 5,935
----------
AUTOMOTIVE RETAIL (1.1%)
29,287 Advance Auto Parts, Inc. 4,453
35,700 O'Reilly Automotive, Inc.* 9,314
----------
13,767
----------
BROADCASTING (0.3%)
47,430 Discovery Communications, Inc. "A"* 1,309
38,527 Scripps Networks Interactive "A" 2,349
----------
3,658
----------
CABLE & SATELLITE (1.0%)
222,090 Comcast Corp. "A" 12,373
----------
CASINOS & GAMING (0.2%)
49,811 Las Vegas Sands Corp. 2,246
----------
FOOTWEAR (1.4%)
290,900 NIKE, Inc. "B" 18,039
----------
GENERAL MERCHANDISE STORES (0.7%)
106,300 Dollar Tree, Inc.* 8,644
----------
================================================================================
10 | USAA AGGRESSIVE GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (3.2%)
241,092 Home Depot, Inc. $ 30,320
132,066 Lowe's Companies, Inc. 9,464
----------
39,784
----------
HOMEBUILDING (0.1%)
83,373 PulteGroup, Inc. 1,397
----------
HOTELS, RESORTS & CRUISE LINES (0.3%)
88,107 Hilton Worldwide Holdings, Inc. 1,569
35,079 Wyndham Worldwide Corp. 2,277
----------
3,846
----------
INTERNET RETAIL (5.1%)
79,547 Amazon.com, Inc.* 46,694
8,618 Expedia, Inc. 871
42,380 Netflix, Inc.* 3,892
11,466 Priceline Group, Inc.* 12,211
----------
63,668
----------
MOVIES & ENTERTAINMENT (0.5%)
66,300 Walt Disney Co. 6,353
----------
RESTAURANTS (2.0%)
52,788 Dunkin' Brands Group, Inc. 2,078
68,821 McDonald's Corp. 8,519
244,600 Starbucks Corp. 14,864
----------
25,461
----------
SPECIALTY STORES (0.7%)
49,895 Ulta Salon, Cosmetics & Fragrance, Inc.* 9,039
----------
Total Consumer Discretionary 248,872
----------
CONSUMER STAPLES (7.0%)
-----------------------
BREWERS (0.2%)
16,284 Anheuser-Busch InBev N.V. ADR 2,049
----------
DRUG RETAIL (1.7%)
216,461 CVS Health Corp. 20,908
----------
HOUSEHOLD PRODUCTS (0.4%)
69,477 Colgate-Palmolive Co. 4,692
----------
HYPERMARKETS & SUPER CENTERS (1.3%)
108,422 Costco Wholesale Corp. 16,385
----------
PACKAGED FOODS & MEAT (0.8%)
37,058 Hershey Co. 3,265
148,780 Mondelez International, Inc. "A" 6,413
----------
9,678
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS (0.5%)
79,112 Estee Lauder Companies, Inc. "A" $ 6,744
----------
SOFT DRINKS (1.6%)
30,742 Monster Beverage Corp.* 4,151
160,015 PepsiCo, Inc. 15,889
----------
20,040
----------
TOBACCO (0.5%)
113,975 Altria Group, Inc. 6,965
----------
Total Consumer Staples 87,461
----------
ENERGY (0.4%)
-------------
INTEGRATED OIL & GAS (0.4%)
100,589 BP plc ADR 3,256
26,045 Chevron Corp. 2,252
----------
5,508
----------
Total Energy 5,508
----------
FINANCIALS (4.2%)
-----------------
DIVERSIFIED BANKS (0.7%)
296,419 Bank of America Corp. 4,191
77,987 JPMorgan Chase & Co. 4,640
----------
8,831
----------
INVESTMENT BANKING & BROKERAGE (0.3%)
24,179 Goldman Sachs Group, Inc. 3,906
----------
MULTI-LINE INSURANCE (0.4%)
82,490 American International Group, Inc. 4,659
----------
REITs - SPECIALIZED (1.6%)
132,500 American Tower Corp. 12,500
29,566 Public Storage 7,497
----------
19,997
----------
SPECIALIZED FINANCE (1.2%)
15,317 FactSet Research Systems, Inc. 2,308
28,244 Intercontinental Exchange, Inc. 7,451
67,779 Moody's Corp. 6,042
----------
15,801
----------
Total Financials 53,194
----------
HEALTH CARE (19.8%)
-------------------
BIOTECHNOLOGY (5.7%)
74,250 Alexion Pharmaceuticals, Inc.* 10,835
121,781 Amgen, Inc. 18,600
================================================================================
12 | USAA AGGRESSIVE GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
198,608 Celgene Corp.* $ 19,924
211,459 Gilead Sciences, Inc. 17,551
3,470 Regeneron Pharmaceuticals, Inc.* 1,458
34,838 Vertex Pharmaceuticals, Inc.* 3,162
----------
71,530
----------
HEALTH CARE DISTRIBUTORS (0.5%)
80,184 Cardinal Health, Inc. 6,525
----------
HEALTH CARE EQUIPMENT (4.2%)
38,469 Becton, Dickinson & Co. 5,592
551,100 Boston Scientific Corp.* 9,661
25,450 C.R. Bard, Inc. 4,664
80,445 DexCom, Inc.* 5,734
95,000 Edwards Lifesciences Corp.* 7,430
208,512 Medtronic plc 15,830
24,405 Varian Medical Systems, Inc.* 1,882
22,340 Zimmer Biomet Holdings, Inc. 2,218
----------
53,011
----------
LIFE SCIENCES TOOLS & SERVICES (0.8%)
152,900 Quintiles Transnational Holdings, Inc.* 9,301
----------
MANAGED HEALTH CARE (2.4%)
49,758 Aetna, Inc. 5,067
17,510 Anthem, Inc. 2,285
197,250 UnitedHealth Group, Inc. 22,715
----------
30,067
----------
PHARMACEUTICALS (6.2%)
52,910 Allergan plc* 15,049
104,956 AstraZeneca plc ADR 3,382
444,216 Bristol-Myers Squibb Co. 27,612
159,008 Eli Lilly and Co. 12,578
59,086 Johnson & Johnson 6,171
94,058 Merck & Co., Inc. 4,766
206,300 Zoetis, Inc. 8,881
----------
78,439
----------
Total Health Care 248,873
----------
INDUSTRIALS (5.0%)
------------------
AEROSPACE & DEFENSE (1.1%)
39,028 Boeing Co. 4,689
91,571 Honeywell International, Inc. 9,450
----------
14,139
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
AIRLINES (0.7%)
196,900 Delta Air Lines, Inc. $ 8,721
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
22,031 Rockwell Automation, Inc. 2,105
----------
INDUSTRIAL CONGLOMERATES (1.9%)
196,985 Danaher Corp. 17,069
223,500 General Electric Co. 6,504
----------
23,573
----------
RESEARCH & CONSULTING SERVICES (1.1%)
49,641 IHS, Inc. "A"* 5,193
78,170 Nielsen Holdings plc 3,765
63,400 Verisk Analytics, Inc.* 4,628
----------
13,586
----------
Total Industrials 62,124
----------
INFORMATION TECHNOLOGY (36.8%)
------------------------------
APPLICATION SOFTWARE (3.9%)
177,800 Adobe Systems, Inc.* 15,848
129,402 Intuit, Inc. 12,359
207,000 Mobileye N.V.* 5,616
233,444 salesforce.com, Inc.* 15,888
----------
49,711
----------
COMMUNICATIONS EQUIPMENT (1.1%)
167,485 Cisco Systems, Inc. 3,985
15,252 F5 Networks, Inc.* 1,430
41,100 Palo Alto Networks, Inc.* 6,144
59,499 QUALCOMM, Inc. 2,698
----------
14,257
----------
DATA PROCESSING & OUTSOURCED SERVICES (8.5%)
14,940 Alliance Data Systems Corp.* 2,985
627,500 First Data Corp. "A"* 8,390
54,846 Fiserv, Inc.* 5,186
52,353 Jack Henry & Associates, Inc. 4,250
240,430 MasterCard, Inc. "A" 21,405
122,826 Paychex, Inc. 5,878
328,581 PayPal Holdings, Inc.* 11,875
103,082 Vantiv, Inc. "A"* 4,850
565,561 Visa, Inc. "A" 42,129
----------
106,948
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
42,942 Activision Blizzard, Inc. 1,495
----------
================================================================================
14 | USAA AGGRESSIVE GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES (11.7%)
105,569 Alibaba Group Holding Ltd. ADR* $ 7,076
22,840 Alphabet, Inc. "A"* 17,389
70,684 Alphabet, Inc. "C"* 52,515
10,431 Baidu, Inc. ADR* 1,703
32,650 CoStar Group, Inc.* 5,726
85,681 eBay, Inc.* 2,010
427,244 Facebook, Inc. "A"* 47,941
66,550 LinkedIn Corp. "A"* 13,171
10,208 Marketo, Inc.* 194
----------
147,725
----------
IT CONSULTING & OTHER SERVICES (0.3%)
57,930 Amdocs Ltd. 3,171
----------
SEMICONDUCTORS (2.1%)
69,100 Avago Technologies Ltd. 9,240
37,254 Broadcom Corp. "A" 2,037
94,538 First Solar, Inc.* 6,491
99,982 Linear Technology Corp. 4,272
127,764 Maxim Integrated Products, Inc. 4,267
----------
26,307
----------
SYSTEMS SOFTWARE (5.0%)
110,573 Check Point Software Technologies Ltd.* 8,714
586,005 Microsoft Corp. 32,283
451,094 Oracle Corp. 16,379
88,200 ServiceNow, Inc.* 5,487
----------
62,863
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
28,467 CDW Corp. 1,095
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (4.0%)
511,900 Apple, Inc. 49,828
----------
Total Information Technology 463,400
----------
MATERIALS (2.3%)
----------------
SPECIALTY CHEMICALS (2.3%)
91,350 Ecolab, Inc. 9,854
83,100 PPG Industries, Inc. 7,904
43,750 Sherwin-Williams Co. 11,186
----------
28,944
----------
Total Materials 28,944
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (1.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.1%)
262,965 Verizon Communications, Inc. $ 13,141
----------
WIRELESS TELECOMMUNICATION SERVICES (0.6%)
78,700 SBA Communications Corp. "A"* 7,813
----------
Total Telecommunication Services 20,954
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
25,592 NextEra Energy, Inc. 2,859
----------
Total Common Stocks 1,222,189
----------
Total Equity Securities (cost: $912,259) 1,222,189
----------
MONEY MARKET INSTRUMENTS (2.5%)
MONEY MARKET FUNDS (2.5%)
31,713,158 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a)
(cost: $31,713) 31,713
----------
TOTAL INVESTMENTS (COST: $943,972) $1,253,902
==========
---------------------------------------------------------------------------------------------------
($ 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 $1,222,189 $- $- $1,222,189
Money Market Instruments:
Money Market Funds 31,713 - - 31,713
---------------------------------------------------------------------------------------------------
Total $1,253,902 $- $- $1,253,902
---------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2015, through January 31, 2016, 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 AGGRESSIVE GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 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) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $943,972) $1,253,902
Cash 123
Receivables:
Capital shares sold 399
USAA Asset Management Company (Note 6C) 9
Dividends and interest 595
Securities sold 22,394
----------
Total assets 1,277,422
----------
LIABILITIES
Payables:
Securities purchased 18,159
Capital shares redeemed 526
Accrued management fees 492
Accrued transfer agent's fees 25
Other accrued expenses and payables 94
----------
Total liabilities 19,296
----------
Net assets applicable to capital shares outstanding $1,258,126
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 951,560
Accumulated overdistribution of net investment income (10,608)
Accumulated net realized gain on investments 7,244
Net unrealized appreciation of investments 309,930
----------
Net assets applicable to capital shares outstanding $1,258,126
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,133,253/30,971 shares outstanding) $ 36.59
==========
Institutional Shares (net assets of $124,873/3,384 shares outstanding) $ 36.91
==========
See accompanying notes to financial statements.
================================================================================
18 | USAA AGGRESSIVE GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $7) $ 6,669
Interest 18
---------
Total income 6,687
---------
EXPENSES
Management fees 3,046
Administration and servicing fees:
Fund Shares 1,300
Institutional Shares 67
Transfer agent's fees:
Fund Shares 973
Institutional Shares 67
Custody and accounting fees:
Fund Shares 101
Institutional Shares 10
Postage:
Fund Shares 58
Shareholder reporting fees:
Fund Shares 28
Trustees' fees 13
Registration fees:
Fund Shares 31
Institutional Shares 14
Professional fees 57
Other 12
---------
Total expenses 5,777
Expenses paid indirectly:
Fund Shares (19)
Institutional Shares (2)
---------
Net expenses 5,756
---------
NET INVESTMENT INCOME 931
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 28,830
Change in net unrealized appreciation/(depreciation) (143,211)
---------
Net realized and unrealized loss (114,381)
---------
Decrease in net assets resulting from operations $(113,450)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
---------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 931 $ 4,263
Net realized gain on investments 28,830 96,651
Change in net unrealized appreciation/
(depreciation) of investments (143,211) 105,903
----------------------------
Increase (decrease) in net assets resulting from operations (113,450) 206,817
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (10,241) (22,980)
Institutional Shares (1,324) (3,308)
----------------------------
Total distributions of net investment income (11,565) (26,288)
----------------------------
Net realized gains:
Fund Shares (68,053) (108,265)
Institutional Shares (7,384) (13,990)
----------------------------
Total distributions of net realized gains (75,437) (122,255)
----------------------------
Distributions to shareholders (87,002) (148,543)
----------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 65,909 101,935
Institutional Shares (18,199) 37,812
----------------------------
Total net increase in net assets from
capital share transactions 47,710 139,747
----------------------------
Net increase (decrease) in net assets (152,742) 198,021
NET ASSETS
Beginning of period 1,410,868 1,212,847
----------------------------
End of period $1,258,126 $1,410,868
============================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (10,608) $ 26
============================
See accompanying notes to financial statements.
================================================================================
20 | USAA AGGRESSIVE GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Aggressive 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 two classes of shares: Aggressive Growth Fund Shares (Fund
Shares) and Aggressive 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, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and 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).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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
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.
================================================================================
22 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 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.
================================================================================
24 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended January 31, 2016, brokerage
commission recapture credits reduced the expenses of the Fund Shares and
Institutional Shares by $19,000 and $2,000, respectively. Additionally,
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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.
For the six-month period ended January 31, 2016, the Fund paid CAPCO facility
fees of $4,000, 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 January 31, 2016.
================================================================================
26 | USAA AGGRESSIVE GROWTH FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$381,541,000 and $447,532,000, respectively.
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $332,310,000 and $22,380,000, respectively, resulting in net
unrealized appreciation of $309,930,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
--------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 1,554 $ 61,913 3,059 $ 125,750
Shares issued from
reinvested dividends 1,931 77,371 3,240 129,519
Shares redeemed (1,837) (73,375) (3,718) (153,334)
---------------------------------------------------
Net increase from capital
share transactions 1,648 $ 65,909 2,581 $ 101,935
===================================================
INSTITUTIONAL SHARES:
Shares sold 173 $ 6,970 999 $ 42,027
Shares issued from
reinvested dividends 216 8,707 429 17,298
Shares redeemed (805) (33,876) (516) (21,513)
---------------------------------------------------
Net increase (decrease) from
capital share transactions (416) $(18,199) 912 $ 37,812
===================================================
(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 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 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
================================================================================
28 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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, which is accrued daily and paid
monthly, is computed as a percentage of the Fund's average net assets at
annualized rates of 0.50% of the first $750 million of average net assets,
0.40% of that portion of average net assets over $750 million but not over
$1.5 billion, and 0.33% of that portion of average net assets over $1.5
billion. For the six-month period ended January 31, 2016, the Fund's
effective annualized base fee was 0.46% of the Fund's average net assets for
the same period.
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 Large-Cap Growth Funds Index. The Lipper
Large-Cap Growth Funds Index tracks the total return performance of the 30
largest funds in the Lipper Large-Cap Growth 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
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 Large-Cap Growth Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $3,046,000, which did
not include any performance adjustments for the Fund Shares and
Institutional Shares.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory
Agreements with Wellington Management Company LLP (Wellington Management)
and Winslow Capital Management, LLC (Winslow Capital), under which
Wellington Management and Winslow 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 Wellington Management a subadvisory fee in
the annual amount of 0.325% on the first $300 million, 0.30% on the next
$700 million, and 0.28% on assets over $1 billion of the portion of the
Fund's average net assets that Wellington Management manages. For the
six-month period ended January 31, 2016, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Wellington Management, of
$1,002,000.
The Manager (not the Fund) pays Winslow Capital a subadvisory fee in the
annual amount of 0.40% on the first $100 million, 0.35% on the next $250
million, 0.30% on the next $250 million, and 0.25% on the next $400 million
of the portion of the Fund's average net assets that Winslow Capital
manages. For the six-month period ended January 31, 2016, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to
Winslow Capital, of $1,131,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services,
================================================================================
30 | USAA AGGRESSIVE GROWTH FUND
================================================================================
the Manager receives a fee accrued daily and paid monthly at an annualized
rate of 0.15% and 0.10% of average net assets of the Fund Shares and
Institutional Shares, respectively. Prior to December 1, 2015, the
administration and servicing fees for the Fund Shares was 0.25% of the Fund
Shares' average net assets. For the six-month period ended January 31, 2016,
the Fund Shares and Institutional Shares incurred administration and
servicing fees, paid or payable to the Manager, of $1,300,000 and $67,000,
respectively. At January 31, 2016, the Fund Shares recorded a receivable
from the Manager of $9,000 due to the change in administration and servicing
fees.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended January 31, 2016, 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.
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 based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to
certain intermediaries for the administration and servicing of accounts held
with such intermediaries. Transfer agent's fees for Institutional Shares are
paid monthly based on a fee accrued daily at an annualized rate of 0.10% of
the Institutional Shares' average net assets, plus out-of-pocket expenses.
For the six-month period ended January 31, 2016, the Fund Shares and
Institutional Shares incurred transfer agent's fees, paid or payable to SAS,
of $973,000 and $67,000, respectively.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fee or other compensation for these
services.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(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
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31, 2016, 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 0.3
USAA Target Retirement Income 0.4
USAA Target Retirement 2020 1.1
USAA Target Retirement 2030 2.7
USAA Target Retirement 2040 3.3
USAA Target Retirement 2050 1.8
USAA Target Retirement 2060 0.1
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.
================================================================================
32 | USAA AGGRESSIVE 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
JANUARY 31, YEAR ENDED JULY 31,
---------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
---------------------------------------------------------------------------
Net asset value at
beginning of period $ 42.55 $ 40.90 $ 38.44 $ 35.09 $ 34.57 $ 27.56
---------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .03 .79 .79 .13 .00(a) (.01)
Net realized and
unrealized gain (loss) (3.33) 5.75 5.47 6.73 .52 7.03
---------------------------------------------------------------------------
Total from investment
operations (3.30) 6.54 6.26 6.86 .52 7.02
---------------------------------------------------------------------------
Less distributions from:
Net investment income (.33) (.79) (.89) (.08) - (.01)
Realized capital gains (2.33) (4.10) (2.91) (3.43) - -
---------------------------------------------------------------------------
Total distributions (2.66) (4.89) (3.80) (3.51) - (.01)
---------------------------------------------------------------------------
Net asset value at
end of period $ 36.59 $ 42.55 $ 40.90 $ 38.44 $ 35.09 $ 34.57
===========================================================================
Total return (%)* (8.24) 16.96 16.82 21.34 1.50 25.47
Net assets at end of
period (000) $1,133,253 $1,247,753 $1,093,796 $1,009,963 $878,246 $1,207,205
Ratios to average
net assets:**
Expenses (%)(b) .88(c) .88 .93 1.08 1.08 1.02
Net investment
income (loss) (%) .12(c) .30 .17 .40 (.01) (.12)
Portfolio turnover (%) 29 55 68 67 55 63
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,191,786,000.
(a) Represents less than $0.01 per share.
(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%)(+) (.01%) (.01%) (.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 | 33
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 42.92 $ 41.22 $ 38.67 $ 35.26 $ 34.60 $ 27.58
-------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .10 .21(a) 1.10 .30 .13 .14
Net realized and
unrealized gain (loss) (3.38) 6.47(a) 5.29 6.73 .53 7.02
-------------------------------------------------------------------------
Total from investment
operations (3.28) 6.68(a) 6.39 7.03 .66 7.16
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.40) (.88) (.93) (.19) - (.14)
Realized capital gains (2.33) (4.10) (2.91) (3.43) - -
-------------------------------------------------------------------------
Total distributions (2.73) (4.98) (3.84) (3.62) - (.14)
-------------------------------------------------------------------------
Net asset value at
end of period $ 36.91 $ 42.92 $ 41.22 $ 38.67 $ 35.26 $ 34.60
=========================================================================
Total return (%)* (8.15) 17.21 17.09 21.79 1.91 26.00
Net assets at end
of period (000) $124,873 $163,115 $119,051 $165,058 $177,320 $136,837
Ratios to average
net assets:**
Expenses (%)(b) .71(d) .68 .68 .71 .68 .58(c)
Expenses, excluding
reimbursements (%)(b) .71(d) .68 .68 .71 .68 .58
Net investment income (%) .31(d) .50 .43 .78 .37 .31
Portfolio turnover (%) 29 55 68 67 55 63
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$133,292,000.
(a) Calculated using average shares.
(b) Reflects total 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%)(+) (.01%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to .61% of the Institutional
Shares' average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
34 | USAA AGGRESSIVE GROWTH FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund
================================================================================
EXPENSE EXAMPLE | 35
================================================================================
and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 917.60** $4.24**
Hypothetical
(5% return before expenses) 1,000.00 1,020.71** 4.47**
INSTITUTIONAL SHARES
Actual 1,000.00 918.50 3.42
Hypothetical
(5% return before expenses) 1,000.00 1,021.57 3.61
*Expenses are equal to the annualized expense ratio of 0.88% for Fund Shares
and 0.71% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/366 days (to reflect the one-half-year
period). The Fund's actual ending account values are based on its actual
total returns of (8.24)% for Fund Shares and (8.15)% for Institutional Shares
for the six-month period of August 1, 2015, through January 31, 2016.
**The Fund Shares' annualized expense ratio of 0.88% above reflects a change
effective December 1, 2015, in the rate of the Manager's administration and
servicing fees from 0.25% to 0.15%. Had the decrease been in effect for the
entire six-month period of August 1, 2015, through January 31, 2016, the Fund
Shares' expense ratio would have been 0.81%, net of expenses paid indirectly,
and the values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 917.90 $3.90
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.12
================================================================================
36 | USAA AGGRESSIVE GROWTH 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)
=============================================================================
23418-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CAPITAL GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA CAPITAL GROWTH FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 20
Financial Statements 21
Notes to Financial Statements 24
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.
202723-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CAPITAL GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in equity securities that are believed to be the most
attractive in the global marketplace. The Fund may invest up to 100% of its
assets in foreign 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 JOSEPH S. GIROUX] [PHOTO OF STEPHEN A. LANZENDORF]
JOSEPH S. GIROUX STEPHEN A. LANZENDORF, CFA
QS Batterymarch Financial QS Batterymarch Financial
Management, Inc. Management, Inc.
--------------------------------------------------------------------------------
o PLEASE CHARACTERIZE THE PERFORMANCE OF GLOBAL STOCKS DURING THE REPORTING
PERIOD.
For the reporting period ended January 31, 2016, equities sold off in
reaction to several events, including China's depreciation of its currency,
the renminbi, and continued downward pressure on commodity prices. On
September 17, 2015, the Federal Reserve (the Fed) announced that short-term
interest rates would remain unchanged, causing investors to speculate
whether global growth was weaker than anticipated. Nevertheless, global
equities rebounded in October 2015, with virtually all markets in positive
territory. However, global stocks declined later during the final quarter
of 2015, as market volatility increased. On December 16, 2015, the Fed
eventually raised short-term interest rates. The year 2016 began with many
stocks hit hard amid the continued slide in oil prices, fears of a global
slowdown due to China's slowing growth, and uncertainty regarding the Fed's
interest rate policy going forward. Defensive market sectors held up well,
with utilities and consumer staples posted positive returns.
o HOW DID THE USAA CAPITAL GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the reporting period ended January 31, 2016, the Fund Shares had a total
return of -9.32%. This compares to returns of -10.79% for the
================================================================================
2 | USAA CAPITAL GROWTH FUND
================================================================================
MSCI World Index (the Index) and -11.54% for the Lipper Global Funds
Index. The Institutional Shares commenced operations on August 7, 2015, and
from that time through January 31, 2016, had a total return of -9.72%.
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. QS Batterymarch Financial Management, Inc. (QS Batterymarch)
is the subadviser to the Fund. The subadviser provides day-to-day
discretionary management for the Fund's assets.
o PLEASE DISCUSS THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD.
During the reporting period, stock selection contributed to relative
performance and was especially strong within Continental Europe, led by
stock selection in the financials and health care sectors. Stock selection
also was positive in Japan, led by consumer discretionary stocks. Stock
selection was mixed and an overall detractor within the Fund's U.S.
holdings. Positive selections within the energy and industrials sectors
were offset by negative results in information technology and
telecommunications sectors. Stock selection was neutral in the United
Kingdom but detracted from relative return in developed Asia ex-Japan.
Regional and sector allocations contributed to returns. Underweight
positions in the commodity-sensitive countries of Australia, New Zealand,
and Canada, as well as to Continental Europe, contributed to the Fund's
performance. The primary contributor to relative return at the stock level
were holdings in Tyson Foods, Inc. "A", based on a reasonable valuation and
attractive growth prospects. We expect that Tyson should benefit from lower
feed costs and synergies
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
realized as the company proceeds with its integration of Hillshire Brands.
Cameron International Corp. and Fuji Heavy Industries Ltd. also were strong
contributors to the Fund's performance, due to overweight positions and
above-benchmark returns. A lack of holdings in Microsoft Corp. represented
the primary detractor at the individual security level. Overweight
positions in Macy's, Inc. and United Therapeutics Corp. also detracted
from the Fund's performance.
Thank you for allowing us to help you with your investments needs.
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
United States. Foreign securities also may be subject to foreign taxes.
Investments made in emerging market countries may be particularly volatile.
Economies of emerging market countries generally are less diverse and
mature than more developed countries and may have less stable political
systems.
================================================================================
4 | USAA CAPITAL GROWTH FUND
================================================================================
INVESTMENT OVERVIEW
USAA CAPITAL GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USCGX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $675.3 Million $760.8 Million
Net Asset Value Per Share $9.11 $10.16
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-9.32% -2.91% 7.38% 3.95%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
3.04% 9.09% 5.23%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.23%
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 December 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 CAPITAL GROWTH MSCI WORLD LIPPER GLOBAL
FUND SHARES INDEX FUNDS INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 9,988.15 9,985.11 9,930.07
3/31/2006 10,272.51 10,204.67 10,184.22
4/30/2006 10,651.66 10,514.50 10,462.70
5/31/2006 10,047.39 10,155.33 10,075.58
6/30/2006 10,071.09 10,152.35 10,053.61
7/31/2006 10,142.18 10,215.71 10,055.27
8/31/2006 10,426.54 10,480.88 10,319.53
9/30/2006 10,462.09 10,605.86 10,460.84
10/31/2006 10,876.78 10,995.12 10,795.42
11/30/2006 11,244.08 11,264.37 11,104.12
12/31/2006 11,575.30 11,493.39 11,346.51
1/31/2007 11,750.69 11,629.07 11,521.45
2/28/2007 11,683.23 11,568.55 11,405.26
3/31/2007 12,007.02 11,780.32 11,634.74
4/30/2007 12,384.77 12,299.85 12,079.66
5/31/2007 12,870.44 12,644.49 12,452.73
6/30/2007 12,762.51 12,546.96 12,434.62
7/31/2007 12,600.62 12,269.09 12,183.06
8/31/2007 12,573.64 12,259.78 12,162.56
9/30/2007 13,464.05 12,842.80 12,658.44
10/31/2007 14,098.13 13,236.71 13,089.88
11/30/2007 13,221.21 12,695.65 12,513.79
12/31/2007 13,047.91 12,531.86 12,398.94
1/31/2008 11,942.40 11,574.18 11,524.51
2/29/2008 11,956.94 11,507.19 11,421.67
3/31/2008 11,724.21 11,396.89 11,350.28
4/30/2008 12,364.24 11,995.89 11,847.19
5/31/2008 12,713.35 12,178.81 12,011.00
6/30/2008 11,855.12 11,207.46 11,017.71
7/31/2008 11,491.47 10,933.62 10,760.88
8/31/2008 11,040.54 10,780.03 10,642.57
9/30/2008 9,775.02 9,497.88 9,517.40
10/31/2008 7,854.93 7,697.07 7,807.24
11/30/2008 7,214.90 7,198.85 7,283.94
12/31/2008 7,374.42 7,429.81 7,591.22
1/31/2009 6,751.23 6,778.92 7,022.65
2/28/2009 6,113.20 6,085.04 6,424.51
3/31/2009 6,498.99 6,543.90 6,850.88
4/30/2009 6,944.12 7,277.99 7,496.58
5/31/2009 7,493.12 7,937.42 8,173.81
6/30/2009 7,433.77 7,901.61 8,157.66
7/31/2009 8,116.31 8,570.85 8,838.85
8/31/2009 8,353.72 8,924.44 9,190.22
9/30/2009 8,680.15 9,280.16 9,525.72
10/31/2009 8,502.10 9,115.05 9,329.63
11/30/2009 8,873.04 9,487.52 9,692.64
12/31/2009 9,082.07 9,657.89 9,949.22
1/31/2010 8,646.73 9,258.72 9,571.63
2/28/2010 8,796.85 9,389.23 9,705.01
3/31/2010 9,457.36 9,970.71 10,271.68
4/30/2010 9,382.31 9,972.11 10,311.35
5/31/2010 8,481.60 9,020.73 9,355.43
6/30/2010 8,136.34 8,707.75 9,075.82
7/31/2010 8,856.90 9,413.71 9,794.67
8/31/2010 8,481.60 9,062.25 9,419.01
9/30/2010 9,337.27 9,907.26 10,341.81
10/31/2010 9,772.61 10,276.56 10,755.70
11/30/2010 9,562.45 10,054.70 10,538.51
12/31/2010 10,183.39 10,793.97 11,281.32
1/31/2011 10,319.77 11,037.83 11,441.16
2/28/2011 10,638.01 11,424.29 11,807.38
3/31/2011 10,653.16 11,311.63 11,831.32
4/30/2011 11,062.31 11,792.17 12,274.17
5/31/2011 10,804.70 11,547.54 12,009.88
6/30/2011 10,668.31 11,364.86 11,781.69
7/31/2011 10,471.31 11,158.79 11,515.36
8/31/2011 9,562.08 10,372.58 10,589.90
9/30/2011 8,622.54 9,476.69 9,502.24
10/31/2011 9,546.93 10,456.93 10,492.17
11/30/2011 9,471.16 10,201.62 10,304.34
12/31/2011 9,378.00 10,195.95 10,157.84
1/31/2012 9,931.46 10,707.62 10,805.94
2/29/2012 10,331.18 11,230.67 11,342.15
3/31/2012 10,392.67 11,375.05 11,416.03
4/30/2012 10,285.05 11,245.88 11,214.99
5/31/2012 9,331.88 10,275.09 10,213.26
6/30/2012 9,793.09 10,798.66 10,667.89
7/31/2012 9,900.71 10,937.48 10,816.51
8/31/2012 10,146.69 11,214.77 11,005.93
9/30/2012 10,408.04 11,522.88 11,288.06
10/31/2012 10,300.43 11,445.01 11,278.82
11/30/2012 10,469.54 11,591.56 11,406.10
12/31/2012 10,712.61 11,809.56 11,773.95
1/31/2013 11,273.97 12,411.13 12,357.97
2/28/2013 11,367.53 12,431.62 12,332.13
3/31/2013 11,617.02 12,723.74 12,612.88
4/30/2013 12,038.04 13,123.47 12,971.84
5/31/2013 12,038.04 13,128.42 13,055.55
6/30/2013 11,788.55 12,804.93 12,767.97
7/31/2013 12,474.66 13,479.06 13,413.26
8/31/2013 12,053.64 13,192.16 13,132.47
9/30/2013 12,739.74 13,851.93 13,791.18
10/31/2013 13,379.07 14,394.15 14,273.02
11/30/2013 13,690.94 14,649.95 14,539.45
12/31/2013 13,829.34 14,959.94 14,802.46
1/31/2014 13,482.82 14,405.85 14,301.88
2/28/2014 14,112.85 15,127.02 15,000.56
3/31/2014 14,112.85 15,148.91 15,060.80
4/30/2014 14,112.85 15,304.14 15,133.52
5/31/2014 14,396.37 15,605.25 15,439.05
6/30/2014 14,711.39 15,884.41 15,706.94
7/31/2014 14,664.14 15,630.71 15,371.33
8/31/2014 15,057.91 15,975.13 15,722.93
9/30/2014 14,758.64 15,541.75 15,242.88
10/31/2014 14,916.15 15,642.29 15,345.01
11/30/2014 15,372.93 15,955.78 15,643.65
12/31/2014 15,270.33 15,698.49 15,373.87
1/31/2015 15,174.39 15,414.04 15,179.59
2/28/2015 16,037.84 16,317.13 16,017.38
3/31/2015 15,877.94 16,061.71 15,843.91
4/30/2015 16,181.75 16,438.39 16,168.99
5/31/2015 16,373.63 16,495.02 16,260.45
6/30/2015 16,021.85 16,111.47 15,924.93
7/31/2015 16,245.71 16,400.67 16,091.42
8/31/2015 15,222.36 15,315.37 15,046.45
9/30/2015 14,790.63 14,750.47 14,489.33
10/31/2015 15,925.91 15,919.36 15,525.60
11/30/2015 15,957.89 15,840.15 15,524.90
12/31/2015 15,734.85 15,561.72 15,196.28
1/31/2016 14,732.21 14,630.76 14,233.70
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Capital 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 this category. This category includes funds that
invest at least 25% of their portfolio in securities traded outside of the
United States and that may own U.S. securities as well.
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 Global Funds Index reflects the fees and expenses of the underlying
funds included in the index.
================================================================================
6 | USAA CAPITAL GROWTH FUND
================================================================================
USAA CAPITAL GROWTH FUND INSTITUTIONAL SHARES* (INSTITUTIONAL SHARES)
(Ticker Symbol: UICGX)
--------------------------------------------------------------------------------
1/31/16
--------------------------------------------------------------------------------
Net Assets $4.5 Million
Net Asset Value Per Share $9.10
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/16
--------------------------------------------------------------------------------
SINCE INCEPTION 8/07/15**
-9.72%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/15
--------------------------------------------------------------------------------
SINCE INCEPTION 8/07/15**
-3.57%
--------------------------------------------------------------------------------
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 December 1,
2015, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through December 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 the 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 December 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]
USAA CAPITAL
GROWTH FUND MSCI WORLD LIPPER GLOBAL
INSTITUTIONAL SHARES INDEX FUNDS INDEX
7/31/2015 $10,000.00 $10,000.00 $10,000.00
8/31/2015 9,323.53 9,338.25 9,350.60
9/30/2015 9,068.63 8,993.82 9,004.38
10/31/2015 9,764.71 9,706.53 9,648.38
11/30/2015 9,784.31 9,658.23 9,647.94
12/31/2015 9,643.40 9,488.46 9,443.72
1/31/2016 9,028.29 8,920.83 8,845.52
[END CHART]
Data from 7/31/15 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Capital 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 CAPITAL GROWTH FUND
================================================================================
o TOP 10 HOLDINGS - 1/31/16 o
(% of Net Assets)
Apple, Inc. .............................................................. 2.5%
Altria Group, Inc. ....................................................... 1.6%
Toyota Motor Corp. ....................................................... 1.6%
Fuji Heavy Industries Ltd. ............................................... 1.5%
JPMorgan Chase & Co. ..................................................... 1.5%
CVS Health Corp. ......................................................... 1.3%
Intel Corp. .............................................................. 1.3%
Alaska Air Group, Inc. ................................................... 1.2%
Lowe's Companies, Inc. ................................................... 1.2%
Tyson Foods, Inc. "A" .................................................... 1.2%
o ASSET ALLOCATION - 1/31/16 o
[PIE CHART OF ASSET ALLOCATION]
FINANCIALS 18.7%
CONSUMER DISCRETIONARY 14.4%
HEALTH CARE 14.3%
INFORMATION TECHNOLOGY 13.0%
INDUSTRIALS 11.7%
CONSUMER STAPLES 10.9%
ENERGY 7.0%
MATERIALS 3.9%
TELECOMMUNICATION SERVICES 3.0%
UTILITIES 2.9%
MONEY MARKET INSTRUMENTS 0.2%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 11-19
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o COUNTRY ALLOCATION* - 1/31/16 o
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 58.7%
JAPAN 9.5%
UNITED KINGDOM 6.2%
CHINA 3.3%
NETHERLANDS 3.1%
OTHER** 19.0%
[END CHART]
*Excludes money market instruments.
**Includes countries with less than 3% of the portfolio.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA CAPITAL GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.8%)
COMMON STOCKS (99.7%)
CONSUMER DISCRETIONARY (14.4%)
------------------------------
APPAREL RETAIL (0.8%)
73,500 TJX Companies, Inc. $ 5,236
-----------
AUTOMOBILE MANUFACTURERS (3.5%)
252,000 Fuji Heavy Industries Ltd.(a) 10,298
146,600 Mazda Motor Corp.(a) 2,663
174,600 Toyota Motor Corp.(a) 10,545
-----------
23,506
-----------
AUTOMOTIVE RETAIL (0.9%)
23,800 O'Reilly Automotive, Inc.* 6,209
-----------
BROADCASTING (1.1%)
1,964,881 ITV plc(a) 7,503
-----------
CABLE & SATELLITE (1.6%)
85,600 Comcast Corp. "A" 4,769
920,000 Sirius XM Holdings, Inc.* 3,404
100,000 Starz "A"* 2,843
-----------
11,016
-----------
DEPARTMENT STORES (1.8%)
41,500 Kohl's Corp. 2,065
100,200 Macy's, Inc. 4,049
61,643 Next plc(a) 6,102
-----------
12,216
-----------
GENERAL MERCHANDISE STORES (0.7%)
63,000 Target Corp. 4,562
-----------
HOME IMPROVEMENT RETAIL (2.3%)
57,900 Home Depot, Inc. 7,282
116,900 Lowe's Companies, Inc. 8,377
-----------
15,659
-----------
HOMEBUILDING (0.9%)
110,200 Bellway plc(a) 4,377
66,000 Persimmon plc(a) 1,923
-----------
6,300
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (0.3%)
47,000 Viacom, Inc. "B" $ 2,145
-----------
RESTAURANTS (0.5%)
74,100 Brinker International, Inc. 3,686
-----------
Total Consumer Discretionary 98,038
-----------
CONSUMER STAPLES (10.9%)
------------------------
AGRICULTURAL PRODUCTS (0.4%)
84,300 Archer-Daniels-Midland Co. 2,980
-----------
BREWERS (0.8%)
58,800 Heineken N.V.(a) 5,113
-----------
DRUG RETAIL (1.3%)
90,400 CVS Health Corp. 8,732
-----------
FOOD RETAIL (1.9%)
285,171 Koninklijke Ahold N.V.(a) 6,473
174,370 Kroger Co. 6,767
-----------
13,240
-----------
HOUSEHOLD PRODUCTS (1.6%)
51,900 Kimberly-Clark Corp. 6,665
49,946 Reckitt Benckiser Group plc(a) 4,457
-----------
11,122
-----------
HYPERMARKETS & SUPER CENTERS (0.4%)
42,000 Wal-Mart Stores, Inc. 2,787
-----------
PACKAGED FOODS & MEAT (1.2%)
147,100 Tyson Foods, Inc. "A" 7,849
-----------
SOFT DRINKS (1.7%)
63,000 Dr. Pepper Snapple Group, Inc. 5,912
58,100 PepsiCo, Inc. 5,769
-----------
11,681
-----------
TOBACCO (1.6%)
174,500 Altria Group, Inc. 10,664
-----------
Total Consumer Staples 74,168
-----------
ENERGY (7.0%)
-------------
INTEGRATED OIL & GAS (2.1%)
84,636 Exxon Mobil Corp. 6,589
613,881 Gazprom PAO ADR(a) 2,221
231,400 Royal Dutch Shell plc "A"(a) 5,079
-----------
13,889
-----------
================================================================================
12 | USAA CAPITAL GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.3%)
200,000 Transocean Ltd. $ 2,084
-----------
OIL & GAS EQUIPMENT & SERVICES (1.1%)
85,753 Cameron International Corp.* 5,631
343,000 Subsea 7 S.A.*(a) 2,064
-----------
7,695
-----------
OIL & GAS REFINING & MARKETING (3.5%)
77,600 Marathon Petroleum Corp. 3,243
215,883 Neste Oyj(a) 6,747
77,630 Phillips 66 6,222
113,900 Valero Energy Corp. 7,730
-----------
23,942
-----------
Total Energy 47,610
-----------
FINANCIALS (18.7%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
1,623,000 Man Group PLC(a) 3,807
-----------
DIVERSIFIED BANKS (8.3%)
6,260,000 Agricultural Bank of China Ltd. "H"(a) 2,255
314,900 Bank of America Corp. 4,453
57,000 BNP Paribas S.A.(a) 2,709
1,627,000 BOC Hong Kong Holdings Ltd.(a) 4,285
5,021,000 China Construction Bank Corp. "H"(a) 3,107
1,799,400 China Merchants Bank Co. Ltd. "H"(a) 3,499
6,758,000 Industrial & Commercial Bank of China Ltd. "H"(a) 3,544
170,400 JPMorgan Chase & Co. 10,139
3,000,000 Lloyds Banking Group plc(a) 2,814
134,200 National Bank of Canada 3,829
422,000 Oversea-Chinese Banking Corp. Ltd.(a) 2,366
92,000 Royal Bank of Canada 4,764
120,000 Societe Generale S.A.(a) 4,591
315,000 United Overseas Bank Ltd.(a) 4,030
-----------
56,385
-----------
LIFE & HEALTH INSURANCE (2.7%)
357,600 Dai-Ichi Life Insurance Co., Ltd.(a) 4,938
1,200,000 Legal & General Group plc(a) 4,193
79,000 Lincoln National Corp. 3,117
45,000 Prudential Financial, Inc. 3,154
107,000 Sun Life Financial, Inc. 3,069
-----------
18,471
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE (2.1%)
97,650 Ageas(a) $ 3,962
36,300 Allianz SE(a) 5,859
84,500 American International Group, Inc. 4,772
-----------
14,593
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.1%)
325,700 ORIX Corp.(a) 4,622
87,200 Voya Financial, Inc. 2,667
-----------
7,289
-----------
PROPERTY & CASUALTY INSURANCE (1.3%)
78,000 Allstate Corp. 4,727
113,300 Tokio Marine Holdings, Inc.(a) 4,054
-----------
8,781
-----------
REAL ESTATE DEVELOPMENT (0.9%)
576,000 China Overseas Land & Investment Ltd.(a) 1,655
5,527,000 Country Garden Holdings Co. Ltd.(a) 2,118
1,512,000 Shimao Property Holdings Ltd.(a) 2,148
-----------
5,921
-----------
REAL ESTATE SERVICES (0.0%)
192,000 China Overseas Property Holdings Ltd.*(a) 23
-----------
REGIONAL BANKS (0.3%)
93,000 Popular, Inc. 2,338
-----------
REINSURANCE (1.4%)
50,705 Hannover Rueck SE(a) 5,337
21,724 Muenchener Rueckversicherungs-Gesellschaft AG(a) 4,161
-----------
9,498
-----------
Total Financials 127,106
-----------
HEALTH CARE (14.3%)
-------------------
BIOTECHNOLOGY (4.9%)
99,300 AbbVie, Inc. 5,452
57,635 Actelion Ltd.(a) 7,624
35,500 Amgen, Inc. 5,422
12,800 Biogen, Inc.* 3,495
48,667 Gilead Sciences, Inc. 4,039
60,800 United Therapeutics Corp.* 7,489
-----------
33,521
-----------
================================================================================
14 | USAA CAPITAL GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS (2.5%)
53,000 AmerisourceBergen Corp. $ 4,747
82,450 Cardinal Health, Inc. 6,709
33,300 McKesson Corp. 5,361
-----------
16,817
-----------
HEALTH CARE EQUIPMENT (1.3%)
56,218 Edwards Lifesciences Corp.* 4,397
30,713 Teleflex, Inc. 4,167
-----------
8,564
-----------
HEALTH CARE SUPPLIES (0.6%)
100,000 Hoya Corp.(a) 3,863
-----------
MANAGED HEALTH CARE (1.6%)
54,100 Aetna, Inc. 5,510
47,000 UnitedHealth Group, Inc. 5,412
-----------
10,922
-----------
PHARMACEUTICALS (3.4%)
125,165 Novo Nordisk A/S "B"(a) 6,990
134,756 Pfizer, Inc. 4,109
87,701 Shire plc(a) 4,919
120,700 Teva Pharmaceutical Industries Ltd. ADR 7,420
-----------
23,438
-----------
Total Health Care 97,125
-----------
INDUSTRIALS (11.7%)
-------------------
AEROSPACE & DEFENSE (4.7%)
56,500 Boeing Co. 6,787
35,500 Huntington Ingalls Industries, Inc. 4,540
29,400 Lockheed Martin Corp. 6,204
39,797 Northrop Grumman Corp. 7,365
54,900 Raytheon Co. 7,040
-----------
31,936
-----------
AIRLINES (1.9%)
119,600 Alaska Air Group, Inc. 8,420
99,000 Delta Air Lines, Inc. 4,384
-----------
12,804
-----------
HEAVY ELECTRICAL EQUIPMENT (0.7%)
78,000 Vestas Wind Systems A/S(a) 5,092
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%)
49,800 Adecco S.A.(a) 3,074
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.4%)
2,000,000 CITIC Ltd.(a) $ 2,856
-----------
INDUSTRIAL MACHINERY (1.1%)
48,800 Illinois Tool Works, Inc. 4,396
56,600 Lincoln Electric Holdings, Inc. 3,013
-----------
7,409
-----------
RAILROADS (2.4%)
85,200 Canadian National Railway Co. 4,619
36,700 Central Japan Railway Co.(a) 6,814
74,300 West Japan Railway Co.(a) 4,812
-----------
16,245
-----------
Total Industrials 79,416
-----------
INFORMATION TECHNOLOGY (13.0%)
------------------------------
APPLICATION SOFTWARE (1.0%)
117,300 Aspen Technology, Inc.* 3,805
150,000 Nuance Communications, Inc.* 2,645
-----------
6,450
-----------
COMMUNICATIONS EQUIPMENT (2.2%)
565,000 Brocade Communications Systems, Inc. 4,509
250,000 Cisco Systems, Inc. 5,947
203,800 Juniper Networks, Inc. 4,810
-----------
15,266
-----------
INTERNET SOFTWARE & SERVICES (1.2%)
187,000 eBay, Inc.* 4,387
47,100 VeriSign, Inc.* 3,561
-----------
7,948
-----------
IT CONSULTING & OTHER SERVICES (1.1%)
64,480 Computer Sciences Corp. 2,068
64,480 CSRA, Inc. 1,727
85,400 Leidos Holdings, Inc. 3,938
-----------
7,733
-----------
SEMICONDUCTORS (3.4%)
278,000 Intel Corp. 8,623
155,000 NVIDIA Corp. 4,540
56,500 NXP Semiconductors N.V.* 4,225
106,800 Texas Instruments, Inc. 5,653
-----------
23,041
-----------
================================================================================
16 | USAA CAPITAL GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (4.1%)
179,757 Apple, Inc. $ 17,497
139,546 Hewlett Packard Enterprise Co. 1,920
139,546 HP, Inc. 1,355
92,000 NetApp, Inc. 2,018
5,511 Samsung Electronics Co. Ltd.(a) 5,320
-----------
28,110
-----------
Total Information Technology 88,548
-----------
MATERIALS (3.9%)
----------------
COMMODITY CHEMICALS (0.4%)
33,700 LyondellBasell Industries N.V. "A" 2,628
-----------
DIVERSIFIED CHEMICALS (0.5%)
80,700 Dow Chemical Co. 3,389
-----------
DIVERSIFIED METALS & MINING (0.3%)
78,500 Rio Tinto plc(a) 1,931
-----------
PAPER PACKAGING (1.9%)
71,280 Avery Dennison Corp. 4,340
118,400 International Paper Co. 4,050
93,800 Packaging Corp. of America 4,768
-----------
13,158
-----------
PAPER PRODUCTS (0.4%)
173,000 UPM-Kymmene Oyj(a) 2,815
-----------
SPECIALTY CHEMICALS (0.4%)
66,500 Novozymes A/S "B"(a) 2,773
-----------
Total Materials 26,694
-----------
TELECOMMUNICATION SERVICES (3.0%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.0%)
524,050 BT Group plc(a) 3,645
7,000,000 China Telecom Corp. Ltd. "H"(a) 3,305
189,662 Hellenic Telecommunications Organization S.A.(a) 1,646
117,600 Nippon Telegraph & Telephone Corp.(a) 5,003
-----------
13,599
-----------
WIRELESS TELECOMMUNICATION SERVICES (1.0%)
284,000 NTT DOCOMO, Inc.(a) 6,336
-----------
Total Telecommunication Services 19,935
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
UTILITIES (2.8%)
----------------
ELECTRIC UTILITIES (1.9%)
59,600 Entergy Corp. $ 4,207
100,000 Korea Electric Power Corp.*(a) 4,404
1,347,600 Tenaga Nasional Berhad(a) 4,412
--------
13,023
--------
GAS UTILITIES (0.9%)
135,310 Enagas S.A.(a) 3,943
96,520 Gas Natural SDG S.A.(a) 1,901
--------
5,844
--------
Total Utilities 18,867
--------
Total Common Stocks (cost: $576,836) 677,507
--------
PREFERRED STOCKS (0.1%)
UTILITIES (0.1%)
----------------
RENEWABLE ELECTRICITY (0.1%)
246,800 Companhia Energetica de Sao Paulo "B"(cost: $3,200) 814
--------
Total Equity Securities (cost: $580,036) 678,321
--------
MONEY MARKET INSTRUMENTS (0.2%)
MONEY MARKET FUNDS (0.2%)
1,226,254 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(b)
(cost: $1,226) 1,226
--------
TOTAL INVESTMENTS (COST: $581,262) $679,547
========
---------------------------------------------------------------------------------------------------
($ 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 $428,387 $249,120 $- $677,507
Preferred Stocks 814 - - 814
Money Market Instruments:
Money Market Funds 1,226 - - 1,226
---------------------------------------------------------------------------------------------------
Total $430,427 $249,120 $- $679,547
---------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
18 | USAA CAPITAL GROWTH FUND
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
---------------------------------------------------------------------------------------------------
COMMON
STOCKS
---------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $ 1,665
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (1,665)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
---------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $ -
---------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, common stocks with a
fair value of $255,021,000 were transferred from Level 1 to Level 2. Due to an
assessment of events at the end of the current reporting period, these
securities had adjustments to their foreign market closing prices to reflect
changes in value that occurred after the close of foreign markets and prior to
the close of the U.S. securities markets. Common stocks with a fair value of
$1,665,000 were transferred from Level 3 to Level 2 as a result of no longer
being affected by the Athens stock exchange closure but rather due to an
assessment of events at the end of the current reporting period, these
securities had adjustments to their foreign market closing prices to reflect
changes in value that occurred after the close of foreign markets and prior to
the close of the U.S. securities markets. 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
January 31, 2016 (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 41.1% of net assets at
January 31, 2016.
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 $249,120,000, which represented 36.6% of the
Fund's net assets, were classified as Level 2 at January 31, 2016, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
(b) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
20 | USAA CAPITAL GROWTH FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $581,262) $679,547
Cash denominated in foreign currencies (identified cost of $26) 26
Receivables:
Capital shares sold 245
USAA Asset Management Company (Note 6D) 1
Dividends and interest 761
--------
Total assets 680,580
--------
LIABILITIES
Payables:
Capital shares redeemed 260
Accrued management fees 465
Accrued transfer agent's fees 25
Other accrued expenses and payables 63
--------
Total liabilities 813
--------
Net assets applicable to capital shares outstanding $679,767
========
NET ASSETS CONSIST OF:
Paid-in capital $681,475
Accumulated overdistribution of net investment income (196)
Accumulated net realized loss on investments (99,765)
Net unrealized appreciation of investments 98,285
Net unrealized depreciation of foreign currency translations (32)
--------
Net assets applicable to capital shares outstanding $679,767
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $675,304/74,144 shares outstanding) $ 9.11
========
Institutional Shares (net assets of $4,463/490 shares outstanding) $ 9.10
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $205) $ 7,595
Interest 3
--------
Total income 7,598
--------
EXPENSES
Management fees 2,886
Administration and servicing fees:
Fund Shares 541
Institutional Shares* 2
Transfer agent's fees:
Fund Shares 830
Institutional Shares* 2
Custody and accounting fees:
Fund Shares 77
Institutional Shares* 1
Postage:
Fund Shares 47
Shareholder reporting fees:
Fund Shares 23
Trustees' fees 13
Registration fees:
Fund Shares 22
Institutional Shares* 10
Professional fees 50
Other 8
--------
Total expenses 4,512
Expenses reimbursed:
Institutional Shares* (8)
--------
Net expenses 4,504
--------
NET INVESTMENT INCOME 3,094
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 1,237
Foreign currency transactions (87)
Change in net unrealized appreciation/(depreciation) of:
Investments (75,132)
Foreign currency translations 20
--------
Net realized and unrealized loss (73,962)
--------
Decrease in net assets resulting from operations $(70,868)
========
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
22 | USAA CAPITAL GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
---------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,094 $ 7,013
Net realized gain on investments 1,237 59,348
Net realized loss on foreign currency transactions (87) (168)
Change in net unrealized appreciation/(depreciation) of:
Investments (75,132) 8,188
Foreign currency translations 20 (46)
-----------------------------
Increase (decrease) in net assets resulting from operations (70,868) 74,335
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (8,090) (10,941)
Institutional Shares* (57) -
-----------------------------
Distributions to shareholders (8,147) (10,941)
-----------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (6,982) (9,553)
Institutional Shares* 5,000 -
-----------------------------
Total net decrease in net assets from capital
share transactions (1,982) (9,553)
-----------------------------
Capital contribution from USAA Transfer Agency Company:
Fund Shares - 5
-----------------------------
Net increase (decrease) in net assets (80,997) 53,846
NET ASSETS
Beginning of period 760,764 706,918
-----------------------------
End of period $679,767 $760,764
=============================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (196) $ 4,857
=============================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Capital 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 two classes of shares: Capital Growth Fund Shares (Fund
Shares), and effective August 7, 2015, a new share class designated Capital
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, and certain registration and custodian fees. Expenses not
attributable to a specific class, income, and realized gains or losses on
investments are allocated to each class of shares based on each class's relative
net assets. Each class has exclusive voting rights on matters related solely to
that class and separate voting rights on matters that relate to both classes.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to
================================================================================
24 | USAA CAPITAL GROWTH FUND
================================================================================
time, or for purchase by a USAA fund participating in a fund-of-funds investment
strategy (USAA fund-of-funds).
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 has 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.
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.
================================================================================
26 | USAA CAPITAL GROWTH FUND
================================================================================
5. Repurchase agreements are valued at cost.
6. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service.
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:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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.
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,
================================================================================
28 | USAA CAPITAL GROWTH FUND
================================================================================
foreign currency amounts are translated into U.S. dollars on the following
bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended January 31, 2016, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 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 Funds based on their respective average net assets for
the period.
The Funds may request an optional increase of the committed loan agreement up to
$750 million. If the 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 January 31, 2016, the Fund paid CAPCO facility
fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2016.
================================================================================
30 | USAA CAPITAL GROWTH FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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.
The Fund is permitted to carry forward post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and/or long-term capital losses.
Post-enactment capital loss carryforwards must be used before pre-enactment
capital loss carryforwards. As a result, pre-enactment capital loss
carryforwards may be more likely to expire unused.
At July 31, 2015, the Fund had pre-enactment capital loss carryforwards of
$98,365,000, 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 January 31, 2016, 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 January 31, 2016, were
$68,210,000 and $72,508,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $156,475,000 and $58,190,000, respectively, resulting in net
unrealized appreciation of $98,285,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
-----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------
FUND SHARES:
Shares sold 3,659 $ 35,106 84,759 $ 8,624
Shares issued from
reinvested dividends 832 8,029 10,856 1,122
Shares redeemed (5,239) (50,117) (105,168) (10,764)
-------------------------------------------------------
Net decrease from
capital share transactions (748) $ (6,982) (9,553) $ (1,018)
=======================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 490 $ 5,000 - $ -
Shares issued from
reinvested dividends - - - -
Shares redeemed - - - -
-------------------------------------------------------
Net increase from
capital share transactions 490 $ 5,000 - $ -
=======================================================
================================================================================
32 | USAA CAPITAL GROWTH FUND
================================================================================
(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 also is 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 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 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, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 classes 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 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 January 31, 2016 (and for the period from
August 7, 2015, to January 31, 2016, for the Institutional Shares), the
Fund incurred total management fees, paid or payable to the Manager, of
$2,886,000, which included a performance adjustment for the Fund Shares and
the Institutional Shares of $161,000 and less than $500, respectively. For
the Fund Shares and the Institutional Shares, the performance adjustments
were 0.04% and less than 0.01%, respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with QS Batterymarch Financial Management,
================================================================================
34 | USAA CAPITAL GROWTH FUND
================================================================================
Inc. (QS Batterymarch), under which QS Batterymarch 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 QS Batterymarch a subadvisory fee in the
annual amount of 0.25% of the first $250 million of assets, 0.21% on assets
over $250 million and up to $500 million, and 0.17% on assets over $500
million of the Fund's average net assets that QS Batterymarch manages. For
the six-month period ended January 31, 2016, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to QS
Batterymarch, of $769,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and 0.10% of average net
assets of the Institutional Shares. For the six-month period ended January
31, 2016 (and for the period from August 7, 2015, to January 31, 2016, for
the Institutional Shares), the Fund Shares and Institutional Shares
incurred administration and servicing fees, paid or payable to the Manager,
of $541,000 and $2,000, 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 January 31, 2016, the Fund
reimbursed the Manager $9,000 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 December 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 to reimburse the
Institutional Shares for all expenses in excess of that amount. This expense
limitation arrangement may not be changed or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
terminated through December 1, 2016, without approval of the Board, and
may be changed or terminated by the Manager at any time after that date.
For the period from August 7, 2015, to January 31, 2016, the Fund incurred
reimbursable expenses from the Manager for the Institutional Shares of
$8,000, of which $1,000 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 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
January 31, 2016, (and for the period from August 7, 2015, to January 31,
2016, for the Institutional Shares), the Fund Shares and Institutional
Shares incurred transfer agent's fees, paid or payable to SAS, of $830,000
and $2,000, respectively.
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 fee or other compensation for
these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2016, USAA and its affiliates owned 490,000 Institutional Shares, which
represents 100.0% of the Institutional Shares and 0.7% 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.
================================================================================
36 | USAA CAPITAL 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
JANUARY 31, YEAR ENDED JULY 31,
----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
----------------------------------------------------------------------------------
Net asset value at beginning
of period $ 10.16 $ 9.31 $ 8.00 $ 6.44 $ 6.91 $ 5.90
----------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .04 .12 .12 .10 .10 .08
Net realized and unrealized
gain (loss) (.98) .88 1.28 1.56 (.48) .99
----------------------------------------------------------------------------------
Total from investment
operations (.94) 1.00 1.40 1.66 (.38) 1.07
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.15) (.09) (.10) (.09) (.06)
----------------------------------------------------------------------------------
Net asset value at end
of period $ 9.11 $ 10.16 $ 9.31 $ 8.00 $ 6.44 $ 6.91
==================================================================================
Total return (%)* (9.32) 10.79 17.55 26.00 (5.45) 18.23
Net assets at end of
period (000) $675,304 $760,764 $706,918 $642,927 $568,904 $683,864
Ratios to average
net assets:**
Expenses (%)(a) 1.24(d) 1.23(b) 1.28 1.30 1.30 1.30
Expenses, excluding
reimbursements (%)(a) 1.24(d) 1.23 1.28 1.34 1.38 1.34
Net investment income (%) .85(d) .95 1.41 1.40 1.43 1.31
Portfolio turnover (%) 9 38 36(c) 83 100 113(c)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$716,936,000.
(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%)(+)
(+)Represents less than 0.01% of average net assets.
(b) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.30% of the Fund Shares' average net
assets.
(c) Reflects overall decrease in purchases and sales of securities.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JANUARY 31,
------------
2016***
------------
Net asset value at beginning of period $10.09
------
Income (loss) from investment operations:
Net investment income 05
Net realized and unrealized loss (.92)
------
Total from investment operations (.87)
------
Less distributions from:
Net investment income (.12)
------
Net asset value at end of period $ 9.10
======
Total return (%)* (9.72)
Net assets at end of period (000) $4,463
Ratios to average net assets:**
Expenses (%)(a) 1.10
Expenses, excluding reimbursements (%)(a) 1.46
Net investment income (%)(a) 1.02
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 period ended January 31, 2016, average net assets were
$4,711,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA CAPITAL GROWTH FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
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
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
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 AUGUST 1, 2015-
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 906.80 $5.94
Hypothetical
(5% return before expenses) 1,000.00 1,018.90 6.29
INSTITUTIONAL SHARES*
Actual 1,000.00 902.80 4.98
Hypothetical
(5% return before expenses) 1,000.00 1,018.54 5.28
*Institutional Shares commenced operations on August 7, 2015.
**Expenses are equal to the annualized expense ratio of 1.24% for Fund Shares
and 1.10% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/366 days for Fund Shares (to reflect the
one-half-year period) or 174 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 (9.32)% for Fund Shares for the six-month period of
August 1, 2015, through January 31, 2016, and (9.72)% for Institutional
Shares for the period of August 7, 2015, through January 31, 2016.
================================================================================
40 | USAA CAPITAL GROWTH 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)
=============================================================================
36843-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA FIRST START GROWTH FUND]
============================================================
SEMIANNUAL REPORT
USAA FIRST START GROWTH FUND
JANUARY 31, 2016
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 29
Financial Statements 33
Notes to Financial Statements 36
EXPENSE EXAMPLE 48
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.
202738-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA FIRST START GROWTH FUND (THE FUND), SEEKS LONG-TERM CAPITAL GROWTH WITH
REDUCED VOLATILITY OVER TIME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in equity securities when we believe the reward
characteristics outweigh the risk in the market. The Fund considers equity
securities to include, among others, domestic or foreign common stocks,
securities convertible into common stocks, securities that carry the right to
buy common stocks, preferred securities, and domestic and foreign
exchange-traded funds (ETFs). To reduce the overall volatility to investors, we
generally will invest between 20% and 80% of the Fund's assets in bonds and
money market instruments, depending on our view of the overall direction of the
stock and bond markets. To the extent the Fund invests in debt securities, it
will invest primarily in investment-grade securities, but the Fund also may
invest up to 10% of its net assets in below-investment grade securities, with
are sometimes referred to as high yield or "junk" bonds. Although the Fund
typically will invest primarily in U.S. securities, it may invest without limit
in foreign securities.
In our attempt to reduce the Fund's volatility over time, the Fund at times may
implement an index option-based risk management strategy. The strategy involves
selling index call or corresponding ETF and purchasing put index or
corresponding ETF options or put spread options against a highly correlated
stock portfolio to reduce the Fund's volatility. This option strategy may not
fully protect the Fund against declines in the value of its stock portfolio, and
the Fund could experience a loss in both the stock and option portions of its
portfolio. It could also cause the Fund to underperform. The combination of the
diversified stock portfolio with the index call and put or corresponding ETF
options is designed to provide the Fund with fairly consistent returns over a
wide range of equity market environments. We expect to implement this strategy
at times when we believe stocks are significantly overpriced or are at
materially elevated risk of a major sell-off based on the portfolio manager's
assessment of economic and market conditions.
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**
ARNOLD J. ESPE, CFA PETER Xu, Ph.D.
WASIF A. LATIF DANIEL CARLUCCI, CFA
JOHN P. TOOHEY, CFA* STACIE L. MINTZ, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The reporting period ended January 31, 2016, proved to be a challenging
time for the financial markets due largely to the mounting evidence of
slowing global growth. While economic conditions in the United States
remained relatively firm thanks to strength in the housing and job markets,
the uncertain outlook for growth overseas weighed heavily on market
performance. Most notably, the continued slowdown in China's growth rate
translated into a sharp drop in the prices of oil and other commodities.
In turn, this fueled significant underperformance for the energy and
materials sectors, as well as emerging-market nations whose economies are
dependent on commodity exports. The persistent decline in oil prices
beginning in November 2015 through January 2016 also pressured investor
sentiment during the latter half of the reporting period, fueling a sharp
sell-off in equities during the first two weeks of January 2016. The
Federal Reserve's (the Fed) decision in December 2015 to raise interest
rates for the first time in nearly a decade also contributed to the
difficult backdrop for equities. Amid this environment, higher-risk asset
classes generally lagged more defensive market segments by a substantial
margin, leading
*Effective January 29, 2016, John P. Toohey is a co-manager of the Fund.
**Effective January 29, 2016, Quantitative Management Associates LLC is no
longer a subadviser for the Fund.
================================================================================
2 | USAA FIRST START GROWTH FUND
================================================================================
to significant underperformance for both domestic small-cap and
emerging-market stocks.
Slowing growth and increased investor uncertainty, while a negative for
stocks, provided a boost to U.S. Treasuries. Yields fell (and prices rose),
as investors sought "safe haven" assets that have the potential to hold up
well even during a period of slowing growth. These gains did not extend
to the performance of corporate bonds, however. Weakness in the energy
and materials sectors, in combination with the prospect of declining
profits for U.S. companies, led to a substantial shortfall in the
performance of corporate bonds relative to U.S. Treasuries.
o HOW DID THE USAA FIRST START GROWTH FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended January 31, 2016, the Fund had a total
return of -7.79%. This compares to total returns of 1.33% for the Barclays
U.S. Aggregate Bond Index, -11.40% for the MSCI All-Country World Index*,
-7.43% for First Start Growth Composite Index**, and -7.59% for the Lipper
Flexible Portfolio Funds Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, the Manager employed dedicated
resources to support the research, selection, and monitoring of the Fund's
former subadviser, Quantitative Management Associates LLC (QMA). The
investment adviser provides day-to-day discretionary management of the
Fund's assets and will continue to manage the Fund in a manner consistent
with its existing investment objective and strategy.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*As of December 1, 2015, the MSCI All-Country World Index replaced the
Barclays U.S. Aggregate Bond Index as the Fund's broad-based securities
market index as it more closely represents the securities held by the Fund.
**The First Start Growth Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) (40%), the MSCI ACWI ex USA IMI (27%),
the Barclays U.S. Universal Index (28%), 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 (3-M) (2%).
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
As would be expected at a time of poor performance for the global stock
markets, the Fund's equity allocation lost ground on an absolute basis. In
addition, it slightly underperformed the broader market due to the impact
of individual stock selection. However, the Fund's relative performance was
helped by our decision to favor large-cap stocks over small-cap stocks. We
consider small-cap stocks to be overvalued relative to large-cap stocks.
The Fund's allocation to international equities had a negative impact on
the Fund's performance, which was consistent with the poor returns of both
the developed and emerging markets overseas. While these investments may
hinder short-term returns, we continue to believe that a favorable
longer-term outlook may be in store for both of these asset classes. We
believe this to be especially true with respect to developed-market
Europe, a view that is based primarily on relative stock valuations.
Fundamental measures, such as price-to-earnings and price-to-book-value
ratios, show European equities to be significantly cheaper than U.S.
stocks. European earnings growth is forecast to be higher than that of the
United States in 2016, and lower profit margins in Europe could potentially
provide an advantage. European economic growth, while low on an absolute
basis, is showing signs of a gradual improvement. The European Central
Bank's monetary easing policy adds to the appeal of European equities by
leading to a weaker euro, which provides an advantage to Europe's exporters
over their U.S. competitors. We have a preference for emerging markets in
the long run because of their higher economic growth potential and the
inexpensive valuations in their equity markets.
The Fund's fixed-income portfolio, which emphasizes corporate bonds and
other credit-sensitive segments of the fixed-income market, finished the
reporting period with a negative return. At a time in which the downturn in
oil prices weighed on the credit outlook for energy issuers and fueled a
"flight to quality" in the corporate bond market, many lower-rated
investment-grade corporate bonds held in the Fund's bond
================================================================================
4 | USAA FIRST START GROWTH FUND
================================================================================
portfolio underperformed. The Fund also holds a position in longer-term
maturity U.S. Treasuries, as a hedge against market volatility, which aided
performance and offset some of the weakness in corporate bonds at a time in
which yields fell (as prices rose). It's also important to note that the
Fund's bond allocation succeeded in providing both income and overall
stability to the portfolio during a time of poor performance and
above-average volatility for equities.
We believe the financial markets could experience continued disruptions in
the months ahead, as many of the issues that weighed on investor sentiment
in 2015, such as slow global growth, weak commodity prices, and uncertainty
regarding Fed interest rate policy, continues as we enter the new year.
Still, investors investing for the long-term should keep their perspective
regarding current market conditions, since the impact of shorter-term
events tends to even out over time. With this as background, we believe the
Fund will be well served by our continued emphasis on diversification and
our preference for market segments where we see the most potential for
attractive valuations.
Thank you for allowing us to help you with your investment needs.
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 United States. Foreign securities also may be subject to
foreign taxes. Investments made in emerging market countries may be particularly
volatile. Economies of emerging market countries generally are less diverse and
mature than more developed countries and may have less stable political systems.
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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA FIRST START GROWTH FUND (THE FUND)
(Ticker Symbol: UFSGX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $353.3 Million $378.4 Million
Net Asset Value Per Share $11.66 $13.29
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-7.79% -5.23% 5.54% 3.90%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-2.32% 6.64% 4.50%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/15**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.84% AFTER REIMBURSEMENT 1.47%
(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 December 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through December 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 1.38% of the Fund's average net
assets. This reimbursement arrangement may not be changed or terminated during
this time period without approval of the Fund's Board of Trustees and may be
changed or terminated by the Manager at any time after December 1, 2016. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses. If the total annual
operating expense ratio of the Fund is lower than 1.38%, the Fund will operate
at the lower expense ratio.
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 FIRST START GROWTH FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
FIRST START GROWTH BARCLAY U.S. AGGREGATE LIPPER FLEXIBLE USAA FIRST START MSCI ALL-COUNTRY
COMPOSITE INDEX BOND INDEX PORTFOLIO FUNDS INDEX GROWTH FUND WORLD INDEX*
1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2006 9,997.21 10,033.20 9,957.23 9,870.73 9,985.34
3/31/2006 10,133.37 9,934.74 10,115.67 9,796.86 10,195.33
4/30/2006 10,321.97 9,916.73 10,229.54 9,639.89 10,534.66
5/31/2006 10,054.33 9,906.15 9,995.04 9,104.34 10,119.37
6/30/2006 10,060.63 9,927.15 9,984.53 9,021.24 10,115.00
7/31/2006 10,131.09 10,061.38 10,017.72 8,882.73 10,184.04
8/31/2006 10,349.69 10,215.41 10,194.48 8,993.54 10,448.08
9/30/2006 10,467.41 10,305.14 10,306.82 9,261.31 10,569.84
10/31/2006 10,771.53 10,373.30 10,578.93 9,455.22 10,966.26
11/30/2006 11,029.20 10,493.65 10,815.54 9,612.19 11,276.34
12/31/2006 11,148.82 10,432.75 10,924.06 9,710.49 11,527.94
1/31/2007 11,263.71 10,428.47 11,053.80 9,841.08 11,642.61
2/28/2007 11,265.59 10,589.28 11,010.63 9,738.47 11,581.32
3/31/2007 11,402.48 10,589.60 11,114.00 9,813.10 11,813.72
4/30/2007 11,750.72 10,646.70 11,460.70 10,120.92 12,336.84
5/31/2007 11,987.13 10,566.01 11,718.60 10,316.81 12,704.76
6/30/2007 11,899.43 10,534.76 11,665.44 10,186.22 12,667.44
7/31/2007 11,740.99 10,622.63 11,547.38 9,981.00 12,474.01
8/31/2007 11,794.02 10,752.83 11,539.54 10,036.97 12,439.49
9/30/2007 12,220.05 10,834.40 11,994.38 10,316.81 13,107.28
10/31/2007 12,535.55 10,931.73 12,313.67 10,475.39 13,618.62
11/30/2007 12,181.58 11,128.31 12,022.18 10,158.24 13,016.49
12/31/2007 12,111.08 11,159.57 11,969.49 10,106.97 12,872.41
1/31/2008 11,553.15 11,347.03 11,580.45 9,613.95 11,818.09
2/29/2008 11,524.21 11,362.78 11,507.23 9,490.69 11,851.45
3/31/2008 11,438.09 11,401.55 11,354.18 9,376.92 11,677.62
4/30/2008 11,867.79 11,377.72 11,763.88 9,566.54 12,329.02
5/31/2008 12,005.64 11,294.29 11,950.21 9,737.20 12,521.79
6/30/2008 11,332.44 11,285.16 11,413.39 9,263.14 11,493.58
7/31/2008 11,162.03 11,275.96 11,197.55 9,158.85 11,195.11
8/31/2008 11,112.39 11,382.97 11,159.28 9,206.26 10,953.82
9/30/2008 10,161.98 11,230.08 10,113.80 8,533.09 9,584.80
10/31/2008 8,646.74 10,965.00 8,558.50 7,328.98 7,685.57
11/30/2008 8,266.31 11,321.91 8,076.38 6,826.47 7,180.65
12/31/2008 8,563.14 11,744.32 8,376.40 6,982.60 7,440.89
1/31/2009 8,039.54 11,640.70 8,020.93 6,570.12 6,805.15
2/28/2009 7,462.77 11,596.76 7,479.85 6,128.19 6,138.85
3/31/2009 7,924.27 11,757.97 7,975.44 6,462.10 6,644.51
4/30/2009 8,619.35 11,814.19 8,614.17 7,100.45 7,428.86
5/31/2009 9,172.11 11,899.88 9,162.71 7,679.88 8,169.06
6/30/2009 9,175.27 11,967.56 9,012.33 7,876.29 8,123.26
7/31/2009 9,769.20 12,160.60 9,745.79 8,298.59 8,838.34
8/31/2009 10,068.06 12,286.51 9,983.24 8,622.67 9,154.43
9/30/2009 10,430.07 12,415.58 10,406.55 9,064.61 9,574.39
10/31/2009 10,306.35 12,476.88 10,244.17 9,084.25 9,426.47
11/30/2009 10,669.04 12,638.41 10,681.15 9,300.31 9,814.15
12/31/2009 10,827.18 12,440.86 10,819.59 9,540.59 10,017.38
1/31/2010 10,569.08 12,630.90 10,536.76 9,489.84 9,584.47
2/28/2010 10,734.48 12,678.07 10,719.25 9,662.39 9,706.56
3/31/2010 11,222.34 12,662.48 11,242.53 10,048.07 10,331.01
4/30/2010 11,352.28 12,794.29 11,413.74 10,129.27 10,348.39
5/31/2010 10,655.45 12,901.96 10,757.33 9,713.14 9,358.25
6/30/2010 10,420.34 13,104.28 10,407.24 9,398.50 9,078.72
7/31/2010 11,027.47 13,244.09 10,966.38 9,875.53 9,817.44
8/31/2010 10,773.96 13,414.50 10,705.44 9,601.49 9,474.24
9/30/2010 11,505.38 13,428.80 11,385.93 10,322.11 10,380.60
10/31/2010 11,827.80 13,476.61 11,761.16 10,616.45 10,755.74
11/30/2010 11,709.97 13,399.16 11,752.05 10,565.70 10,516.44
12/31/2010 12,285.67 13,254.67 12,216.43 11,045.54 11,286.56
1/31/2011 12,437.94 13,270.09 12,471.67 11,191.01 11,463.68
2/28/2011 12,722.80 13,303.29 12,723.47 11,544.30 11,797.49
3/31/2011 12,747.62 13,310.64 12,781.30 11,710.56 11,785.71
4/30/2011 13,134.24 13,479.60 13,143.84 12,053.46 12,267.89
5/31/2011 13,010.26 13,655.51 13,029.85 11,928.77 12,004.19
6/30/2011 12,836.13 13,615.53 12,840.08 11,772.90 11,815.04
7/31/2011 12,745.13 13,831.59 12,736.56 11,585.87 11,622.71
8/31/2011 12,172.53 14,033.67 12,179.11 10,879.28 10,773.66
9/30/2011 11,386.93 14,135.75 11,361.30 10,172.70 9,756.48
10/31/2011 12,283.12 14,150.94 12,305.21 10,952.02 10,801.82
11/30/2011 12,076.46 14,138.66 12,117.01 10,848.11 10,478.47
12/31/2011 12,117.95 14,294.06 12,075.09 10,796.36 10,457.30
1/31/2012 12,645.62 14,419.57 12,631.63 11,306.93 11,065.36
2/29/2012 13,069.81 14,416.26 13,029.34 11,689.85 11,622.10
3/31/2012 13,167.20 14,337.27 13,149.65 11,828.13 11,699.37
4/30/2012 13,125.91 14,496.22 13,118.03 11,753.67 11,565.50
5/31/2012 12,393.75 14,627.38 12,419.61 11,104.83 10,528.56
6/30/2012 12,805.01 14,633.12 12,769.05 11,455.84 11,048.56
7/31/2012 12,974.43 14,834.96 12,925.86 11,562.21 11,199.81
8/31/2012 13,191.10 14,844.65 13,191.74 11,806.86 11,443.33
9/30/2012 13,475.62 14,865.08 13,477.73 12,094.05 11,803.75
10/31/2012 13,396.78 14,894.32 13,384.74 12,104.69 11,725.08
11/30/2012 13,509.66 14,917.82 13,501.99 12,200.42 11,875.01
12/31/2012 13,706.40 14,896.58 13,686.11 12,405.16 12,143.99
1/31/2013 14,150.83 14,792.39 14,106.53 12,839.29 12,703.44
2/28/2013 14,202.75 14,866.53 14,120.93 12,893.55 12,701.47
3/31/2013 14,449.74 14,878.41 14,356.40 13,164.88 12,933.70
4/30/2013 14,739.90 15,028.96 14,554.62 13,436.21 13,303.18
5/31/2013 14,697.85 14,760.81 14,548.20 13,447.06 13,266.69
6/30/2013 14,360.77 14,532.48 14,213.90 13,143.17 12,878.92
7/31/2013 14,864.13 14,552.35 14,732.82 13,631.57 13,495.46
8/31/2013 14,613.08 14,477.96 14,498.46 13,316.83 13,214.29
9/30/2013 15,149.93 14,615.03 15,007.91 13,718.39 13,896.83
10/31/2013 15,604.10 14,733.19 15,431.73 14,130.81 14,455.38
11/30/2013 15,760.71 14,678.02 15,578.55 14,380.43 14,660.09
12/31/2013 15,953.97 14,595.08 15,813.67 14,586.82 14,913.01
1/31/2014 15,639.03 14,810.72 15,547.60 14,196.80 14,316.48
2/28/2014 16,207.37 14,889.47 16,136.52 14,742.83 15,008.08
3/31/2014 16,249.64 14,864.11 16,121.78 14,865.40 15,074.80
4/30/2014 16,359.72 14,989.54 16,146.38 15,010.27 15,218.31
5/31/2014 16,641.40 15,160.20 16,468.63 15,300.00 15,541.99
6/30/2014 16,902.79 15,168.04 16,761.46 15,489.44 15,834.61
7/31/2014 16,693.82 15,130.00 16,514.30 15,288.86 15,642.42
8/31/2014 17,054.37 15,297.02 16,853.11 15,645.45 15,987.92
9/30/2014 16,614.54 15,193.16 16,453.34 15,333.43 15,469.66
10/31/2014 16,811.83 15,342.49 16,554.37 15,534.01 15,578.57
11/30/2014 17,019.41 15,451.34 16,701.29 15,745.74 15,839.14
12/31/2014 16,840.36 15,465.83 16,495.99 15,593.53 15,533.51
1/31/2015 16,744.58 15,790.10 16,477.86 15,461.98 15,290.65
2/28/2015 17,350.77 15,641.66 16,932.88 16,035.98 16,141.90
3/31/2015 17,215.59 15,714.26 16,739.54 15,928.36 15,891.79
4/30/2015 17,486.87 15,657.89 16,941.62 16,000.11 16,352.88
5/31/2015 17,510.15 15,620.17 16,977.84 16,059.90 16,331.54
6/30/2015 17,200.78 15,449.83 16,663.23 15,737.02 15,947.07
7/31/2015 17,305.47 15,557.25 16,749.36 15,892.48 16,085.55
8/31/2015 16,510.34 15,534.88 16,060.23 15,079.32 14,982.87
9/30/2015 16,138.18 15,639.96 15,658.17 14,744.49 14,440.05
10/31/2015 16,991.02 15,642.63 16,414.92 15,581.57 15,573.38
11/30/2015 16,906.68 15,601.27 16,328.56 15,545.69 15,444.78
12/31/2015 16,668.70 15,550.87 16,079.43 15,231.98 15,166.25
1/31/2016 16,020.29 15,764.83 15,477.94 14,653.87 14,251.23
[END CHART]
Data from 1/31/06 through 1/31/16
See next page for benchmark definitions.
*As of December 1, 2015, the MSCI All-Country World Index replaced the Barclays
U.S. Aggregate Bond Index as the Fund's broad-based securities market index as
it more closely represents the securities held by the Fund.
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 Flexible Portfolio Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA First Start Growth Fund to the following benchmarks:
o The First Start Growth Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the
MSCI USA Investable Market Index (IMI) (40%), the MSCI ACWI ex
USA IMI (27%), the Barclays U.S. Universal Index (28%), 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 (3-M) (2%).
o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S.
investment-grade fixed-rate bond market, including government and
credit securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have
remaining maturities of more than one year.
o The unmanaged Lipper Flexible Portfolio Funds Index tracks the total
return performance of the 30 largest funds within the Lipper Flexible
Portfolio Funds category.
o The unmanaged MSCI All-Country World Index reflects the movements
of world stock markets by representing a broad selection of domestically
listed companies within each market.
================================================================================
8 | USAA FIRST START GROWTH FUND
================================================================================
o TOP 10 HOLDINGS - 1/31/16 o
(% of Net Assets)
iShares MSCI EAFE ETF* ..................................................... 5.7%
iShares Core MSCI EAFE ETF* ................................................ 5.1%
U.S. Treasury Bond, 3.13%, 8/15/2044 ....................................... 3.2%
iShares MSCI Germany ETF* .................................................. 2.9%
iShares Core MSCI Emerging Markets ETF* .................................... 2.5%
Apple, Inc. ................................................................ 1.6%
Microsoft Corp. ............................................................ 1.6%
U.S. Treasury Bond, 3.08%, 5/15/2045 ....................................... 1.3%
U.S. Treasury Bond, 3.00%, 5/15/2045 ....................................... 1.2%
Alphabet, Inc. "C" ......................................................... 1.0%
*The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
You will find a complete list of securities that the Fund owns on pages 11-28.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 19.4%
INTERNATIONAL EXCHANGE-TRADED FUNDS* 17.4%
INFORMATION TECHNOLOGY 11.3%
GOVERNMENT 9.1%
HEALTH CARE 8.2%
CONSUMER DISCRETIONARY 7.1%
INDUSTRIALS 5.5%
CONSUMER STAPLES 5.2%
ENERGY 4.0%
UTILITIES 3.8%
TELECOMMUNICATION SERVICES 2.0%
MATERIALS 1.8%
DOMESTIC EXCHANGE-TRADED FUNDS* 0.5%
MONEY MARKET INSTRUMENTS 4.4%
[END CHART]
*The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA FIRST START GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (72.8%)
COMMON STOCKS (53.7%)
CONSUMER DISCRETIONARY (7.1%)
-----------------------------
APPAREL RETAIL (0.7%)
29,600 Gap, Inc. $ 732
29,600 Ross Stores, Inc. 1,665
----------
2,397
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.2%)
4,500 Carter's, Inc. 437
1,700 Michael Kors Holdings Ltd.* 68
3,300 Oxford Industries, Inc. 231
----------
736
----------
AUTO PARTS & EQUIPMENT (0.1%)
4,300 Dana Holding Corp. 51
2,700 Visteon Corp. 181
----------
232
----------
AUTOMOBILE MANUFACTURERS (0.3%)
8,500 Ford Motor Co. 102
29,200 General Motors Co. 865
4,600 Thor Industries, Inc. 241
----------
1,208
----------
AUTOMOTIVE RETAIL (0.0%)
3,300 AutoNation, Inc.* 143
----------
BROADCASTING (0.1%)
12,700 Tribune Media Co. "A" 418
----------
CABLE & SATELLITE (0.7%)
36,500 Comcast Corp. "A" 2,033
6,300 DISH Network Corp. "A"* 304
----------
2,337
----------
DEPARTMENT STORES (0.5%)
6,800 Dillard's, Inc. "A" 479
24,100 Macy's, Inc. 974
8,800 Nordstrom, Inc. 432
----------
1,885
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
DISTRIBUTORS (0.1%)
4,100 Genuine Parts Co. $ 353
----------
FOOTWEAR (0.2%)
8,800 NIKE, Inc. "B" 546
9,000 Wolverine World Wide, Inc. 152
----------
698
----------
GENERAL MERCHANDISE STORES (0.2%)
10,300 Target Corp. 746
----------
HOME FURNISHINGS (0.1%)
7,400 La-Z-Boy, Inc. 159
----------
HOME IMPROVEMENT RETAIL (0.4%)
11,600 Home Depot, Inc. 1,459
----------
HOMEBUILDING (0.0%)
3,300 Meritage Homes Corp.* 109
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
13,400 Extended Stay America, Inc. 171
6,600 Marriott Vacations Worldwide Corp. 326
----------
497
----------
INTERNET RETAIL (1.0%)
5,700 Amazon.com, Inc.* 3,346
6,400 NutriSystem, Inc. 127
----------
3,473
----------
MOVIES & ENTERTAINMENT (0.3%)
16,200 Cinemark Holdings, Inc. 478
11,100 Viacom, Inc. "B" 506
2,200 Walt Disney Co. 211
----------
1,195
----------
PUBLISHING (0.4%)
22,300 News Corp. "A" 289
20,500 Thomson Reuters Corp. 767
16,800 Time, Inc. 252
----------
1,308
----------
RESTAURANTS (1.3%)
15,100 Bloomin' Brands, Inc. 267
1,700 Chipotle Mexican Grill, Inc.* 770
11,400 Denny's Corp.* 107
1,900 DineEquity, Inc. 161
18,600 McDonald's Corp. 2,302
13,000 Yum! Brands, Inc. 941
----------
4,548
----------
================================================================================
12 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.4%)
15,200 GNC Holdings, Inc. "A" $ 426
106,500 Staples, Inc. 950
----------
1,376
----------
Total Consumer Discretionary 25,277
----------
CONSUMER STAPLES (4.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.7%)
35,300 Archer-Daniels-Midland Co. 1,248
17,600 Bunge Ltd. 1,091
----------
2,339
----------
FOOD RETAIL (0.5%)
45,300 Kroger Co. 1,758
----------
HOUSEHOLD PRODUCTS (1.3%)
11,800 Colgate-Palmolive Co. 797
12,800 Kimberly-Clark Corp. 1,644
24,400 Procter & Gamble Co. 1,993
----------
4,434
----------
HYPERMARKETS & SUPER CENTERS (0.6%)
32,800 Wal-Mart Stores, Inc. 2,177
----------
PACKAGED FOODS & MEAT (0.3%)
27,900 ConAgra Foods, Inc. 1,162
----------
SOFT DRINKS (1.2%)
43,100 Coca-Cola Co. 1,850
24,900 PepsiCo, Inc. 2,472
----------
4,322
----------
Total Consumer Staples 16,192
----------
ENERGY (2.9%)
-------------
INTEGRATED OIL & GAS (0.8%)
9,000 Chevron Corp. 778
26,900 Exxon Mobil Corp. 2,094
----------
2,872
----------
OIL & GAS DRILLING (0.2%)
61,600 Ensco plc "A" 603
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
21,500 Hess Corp. 914
9,400 Marathon Oil Corp. 91
----------
1,005
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING (1.5%)
26,000 HollyFrontier Corp. $ 909
26,100 Marathon Petroleum Corp. 1,091
19,100 Phillips 66 1,531
22,400 Valero Energy Corp. 1,520
4,900 World Fuel Services Corp. 191
----------
5,242
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
22,500 Columbia Pipeline Group, Inc. 417
----------
Total Energy 10,139
----------
FINANCIALS (8.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
19,400 Franklin Resources, Inc. 672
----------
CONSUMER FINANCE (0.5%)
8,600 Capital One Financial Corp. 565
100,000 Navient Corp. 956
2,500 Nelnet, Inc. "A" 81
----------
1,602
----------
DIVERSIFIED BANKS (2.1%)
167,700 Bank of America Corp. 2,371
21,100 Citigroup, Inc. 898
48,700 JPMorgan Chase & Co. 2,898
25,100 Wells Fargo & Co. 1,261
----------
7,428
----------
INVESTMENT BANKING & BROKERAGE (0.5%)
10,200 Goldman Sachs Group, Inc. 1,648
4,800 Piper Jaffray Co., Inc.* 163
----------
1,811
----------
LIFE & HEALTH INSURANCE (0.4%)
19,800 AFLAC, Inc. 1,147
6,400 MetLife, Inc. 286
----------
1,433
----------
MULTI-LINE INSURANCE (0.2%)
12,400 American Financial Group, Inc. 880
----------
MULTI-SECTOR HOLDINGS (1.0%)
26,300 Berkshire Hathaway, Inc. "B"* 3,413
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
13,000 Allstate Corp. 788
================================================================================
14 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
28,600 Old Republic International Corp. $ 517
9,300 Travelers Companies, Inc. 995
----------
2,300
----------
REAL ESTATE SERVICES (0.5%)
23,000 CBRE Group, Inc. "A"* 644
7,100 Jones Lang LaSalle, Inc. 999
----------
1,643
----------
REGIONAL BANKS (0.5%)
7,400 PNC Financial Services Group, Inc. 641
16,600 Regions Financial Corp. 135
30,200 SunTrust Banks, Inc. 1,105
----------
1,881
----------
REITs - DIVERSIFIED (0.2%)
5,600 American Assets Trust, Inc. 209
60,400 Lexington Realty Trust 443
3,500 WP Carey, Inc. 204
----------
856
----------
REITs - HOTEL & RESORT (0.4%)
15,500 Ashford Hospitality Trust, Inc. 86
30,200 Hospitality Properties Trust 713
9,000 RLJ Lodging Trust 165
1,900 Ryman Hospitality Properties, Inc. 89
10,800 Summit Hotel Properties, Inc. 110
15,775 Sunstone Hotel Investors, Inc. 187
8,900 Xenia Hotels & Resorts, Inc. 130
----------
1,480
----------
REITs - INDUSTRIAL (0.4%)
31,400 ProLogis, Inc. 1,239
----------
REITs - MORTGAGE (0.6%)
5,500 AG Mortgage Investment Trust, Inc. 65
110,000 Annaly Capital Management, Inc. 1,045
22,800 Invesco Mortgage Capital 258
41,400 Starwood Property Trust, Inc. 788
----------
2,156
----------
REITs - OFFICE (0.0%)
15,700 Franklin Street Properties Corp. 153
----------
REITs - RETAIL (0.4%)
36,200 CBL & Associates Properties, Inc. 389
5,800 Simon Property Group, Inc. 1,081
----------
1,470
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - SPECIALIZED (0.1%)
11,600 Geo Group, Inc. $ 343
----------
SPECIALIZED FINANCE (0.2%)
9,500 McGraw Hill Financial, Inc. 808
----------
Total Financials 31,568
----------
HEALTH CARE (8.2%)
------------------
BIOTECHNOLOGY (2.2%)
14,100 Amgen, Inc. 2,154
5,100 Baxalta, Inc. 204
5,500 Biogen, Inc.* 1,502
10,400 Celgene Corp.* 1,043
21,800 Gilead Sciences, Inc. 1,809
2,700 Regeneron Pharmaceuticals, Inc.* 1,134
----------
7,846
----------
HEALTH CARE DISTRIBUTORS (0.4%)
7,900 McKesson Corp. 1,272
----------
HEALTH CARE EQUIPMENT (1.6%)
33,700 Abbott Laboratories 1,276
29,500 Baxter International, Inc. 1,080
5,900 C.R. Bard, Inc. 1,081
3,900 Edwards Lifesciences Corp.* 305
17,100 Hologic, Inc.* 580
14,300 Stryker Corp. 1,418
----------
5,740
----------
HEALTH CARE SERVICES (0.3%)
12,600 Express Scripts Holdings Co.* 906
----------
LIFE SCIENCES TOOLS & SERVICES (0.4%)
11,900 Thermo Fisher Scientific, Inc. 1,571
----------
MANAGED HEALTH CARE (0.5%)
2,000 Aetna, Inc. 204
5,800 Anthem, Inc. 757
2,500 Cigna Corp. 334
1,800 Magellan Health, Inc.* 102
2,200 UnitedHealth Group, Inc. 253
----------
1,650
----------
PHARMACEUTICALS (2.8%)
22,500 Bristol-Myers Squibb Co. 1,399
6,300 Jazz Pharmaceuticals plc* 811
26,500 Johnson & Johnson 2,768
11,300 Mallinckrodt plc* 657
================================================================================
16 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
32,900 Merck & Co., Inc. $ 1,667
77,900 Pfizer, Inc. 2,375
2,900 Prestige Brands Holdings, Inc.* 135
5,800 Sucampo Pharmaceuticals, Inc. "A"* 37
----------
9,885
----------
Total Health Care 28,870
----------
INDUSTRIALS (5.3%)
------------------
AEROSPACE & DEFENSE (1.6%)
10,700 General Dynamics Corp. 1,431
9,500 Huntington Ingalls Industries, Inc. 1,215
7,500 Lockheed Martin Corp. 1,582
1,200 Moog, Inc. "A"* 56
4,500 Raytheon Co. 577
8,200 United Technologies Corp. 719
----------
5,580
----------
AIR FREIGHT & LOGISTICS (0.4%)
10,000 FedEx Corp. 1,329
----------
AIRLINES (0.7%)
18,800 Delta Air Lines, Inc. 833
37,200 Southwest Airlines Co. 1,399
6,100 United Continental Holdings, Inc.* 295
----------
2,527
----------
BUILDING PRODUCTS (0.4%)
3,800 American Woodmark Corp.* 262
8,100 Continental Building Products, Inc.* 121
38,900 Masco Corp. 1,026
1,200 Universal Forest Products, Inc. 83
----------
1,492
----------
CONSTRUCTION & ENGINEERING (0.2%)
5,900 EMCOR Group, Inc. 270
18,500 KBR, Inc. 264
10,500 MasTec, Inc.* 162
----------
696
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
16,900 Meritor, Inc.* 115
37,800 Trinity Industries, Inc. 810
18,600 Wabash National Corp.* 206
----------
1,131
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
1,200 Acuity Brands, Inc. $ 243
1,400 Regal-Beloit Corp. 79
----------
322
----------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
3,800 Babcock & Wilcox Enterprises, Inc.* 78
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.2%)
12,100 Robert Half International, Inc. 530
----------
INDUSTRIAL CONGLOMERATES (1.1%)
13,200 3M Co. 1,993
6,200 Carlisle Companies, Inc. 519
27,046 General Electric Co. 787
2,200 Roper Industries, Inc. 387
----------
3,686
----------
INDUSTRIAL MACHINERY (0.1%)
8,700 Colfax Corp.* 192
11,100 Rexnord Corp.* 182
7,500 SPX Corp. 70
----------
444
----------
MARINE (0.1%)
7,800 Matson, Inc. 315
----------
OFFICE SERVICES & SUPPLIES (0.0%)
5,600 West Corp. 101
----------
RAILROADS (0.1%)
2,800 Union Pacific Corp. 202
----------
SECURITY & ALARM SERVICES (0.0%)
3,400 Brink's Co. 100
----------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
3,500 WESCO International, Inc.* 141
----------
Total Industrials 18,674
----------
INFORMATION TECHNOLOGY (11.3%)
------------------------------
APPLICATION SOFTWARE (0.9%)
11,500 Citrix Systems, Inc.* 810
12,300 Intuit, Inc. 1,175
10,900 Manhattan Associates, Inc.* 628
7,800 Nuance Communications, Inc.* 138
7,300 Synopsys, Inc.* 313
----------
3,064
----------
COMMUNICATIONS EQUIPMENT (1.1%)
17,100 Brocade Communications Systems, Inc. 136
================================================================================
18 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
86,700 Cisco Systems, Inc. $ 2,063
41,600 Juniper Networks, Inc. 982
14,300 QUALCOMM, Inc. 648
----------
3,829
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.3%)
7,400 DST Systems, Inc. 780
14,800 Fiserv, Inc.* 1,400
2,900 MasterCard, Inc. "A" 258
1,600 Syntel, Inc.* 76
29,500 Visa, Inc. "A" 2,197
----------
4,711
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
10,000 Sanmina Corp.* 187
----------
INTERNET SOFTWARE & SERVICES (2.2%)
2,890 Alphabet, Inc. "A"* 2,200
4,802 Alphabet, Inc. "C"* 3,568
48,700 eBay, Inc.* 1,143
9,100 Facebook, Inc."A"* 1,021
----------
7,932
----------
IT CONSULTING & OTHER SERVICES (0.3%)
4,700 Computer Sciences Corp. 151
5,200 CSRA, Inc. 139
6,500 International Business Machines Corp. 811
----------
1,101
----------
SEMICONDUCTOR EQUIPMENT (0.1%)
7,900 Tessera Technologies, Inc. 228
----------
SEMICONDUCTORS (1.2%)
22,600 Integrated Device Technology, Inc.* 576
68,600 Intel Corp. 2,128
28,200 Texas Instruments, Inc. 1,492
----------
4,196
----------
SYSTEMS SOFTWARE (2.0%)
103,900 Microsoft Corp. 5,724
32,900 Oracle Corp. 1,195
11,000 Symantec Corp. 218
----------
7,137
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
14,800 CDW Corp. 569
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.0%)
59,260 Apple, Inc. 5,768
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
4,100 EMC Corp. $ 102
53,400 Hewlett Packard Enterprise Co. 735
53,400 HP, Inc. 518
----------
7,123
----------
Total Information Technology 40,077
----------
MATERIALS (1.3%)
----------------
COMMODITY CHEMICALS (0.7%)
10,000 Cabot Corp. 404
16,200 LyondellBasell Industries N.V. "A" 1,263
14,300 Westlake Chemical Corp. 650
----------
2,317
----------
CONSTRUCTION MATERIALS (0.1%)
13,100 Headwaters, Inc.* 209
----------
DIVERSIFIED CHEMICALS (0.0%)
18,400 Huntsman Corp. 159
----------
FOREST PRODUCTS (0.0%)
7,000 Boise Cascade Co.* 145
----------
GOLD (0.0%)
19,672 Hycroft Mining Corp., acquired 6/09/2015; cost $620*(a),(b) 6
----------
METAL & GLASS CONTAINERS (0.1%)
4,000 Crown Holdings, Inc.* 183
----------
PAPER PACKAGING (0.2%)
23,600 International Paper Co. 807
----------
SPECIALTY CHEMICALS (0.0%)
3,100 Minerals Technologies, Inc. 127
----------
STEEL (0.2%)
32,200 Steel Dynamics, Inc. 591
2,900 Worthington Industries, Inc. 89
----------
680
----------
Total Materials 4,633
----------
TELECOMMUNICATION SERVICES (1.8%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
7,200 Inteliquent, Inc. 124
----------
INTEGRATED TELECOMMUNICATION SERVICES (1.7%)
81,066 AT&T, Inc. 2,923
63,300 Verizon Communications, Inc. 3,163
----------
6,086
----------
Total Telecommunication Services 6,210
----------
================================================================================
20 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
UTILITIES (2.3%)
----------------
ELECTRIC UTILITIES (1.2%)
10,800 Entergy Corp. $ 762
47,200 Exelon Corp. 1,396
21,900 FirstEnergy Corp. 724
38,900 PPL Corp. 1,364
----------
4,246
----------
GAS UTILITIES (0.2%)
19,500 UGI Corp. 663
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
23,200 AES Corp. 220
70,300 NRG Energy, Inc. 748
----------
968
----------
MULTI-UTILITIES (0.6%)
32,000 Public Service Enterprise Group, Inc. 1,322
8,200 Sempra Energy 777
----------
2,099
----------
Total Utilities 7,976
----------
Total Common Stocks (cost: $178,620) 189,616
----------
PREFERRED STOCKS (1.2%)
CONSUMER STAPLES (0.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.6%)
40,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 1,132
10,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(c) 1,067
----------
2,199
----------
Total Consumer Staples 2,199
----------
ENERGY (0.1%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
800 Chesapeake Energy Corp., 5.75%, perpetual(c) 123
----------
FINANCIALS (0.5%)
-----------------
LIFE & HEALTH INSURANCE (0.2%)
28,000 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 694
----------
REGIONAL BANKS (0.1%)
500 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 511
----------
REINSURANCE (0.0%)
500 American Overseas Group Ltd., 7.50%, non-cumulative,
acquired 3/09/2007; cost $526*(a),(b) 125
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - OFFICE (0.2%)
20,000 Equity Commonwealth, Series E, 7.25%, cumulative
redeemable, perpetual $ 515
----------
Total Financials 1,845
----------
Total Preferred Stocks (cost: $4,640) 4,167
----------
EXCHANGE-TRADED FUNDS (17.9%)
-----------------------------
DOMESTIC EXCHANGE-TRADED FUNDS (0.5%)
16,200 iShares Russell 1000 ETF 1,736
----------
INTERNATIONAL EXCHANGE-TRADED FUNDS (17.4%)
29,398 EGShares Emerging Markets Consumer ETF 604
356,000 iShares Core MSCI EAFE ETF 18,256
233,824 iShares Core MSCI Emerging Markets ETF 8,731
366,771 iShares MSCI EAFE ETF 20,348
420,976 iShares MSCI Germany ETF 10,242
17,870 iShares MSCI Turkey ETF 665
110,000 PowerShares FTSE RAFI Emerging Markets Portfolio 1,457
20,334 WisdomTree Emerging Markets SmallCap Dividend Fund 675
36,637 WisdomTree India Earnings Fund 681
----------
Total International Exchange-Traded Funds 61,659
----------
Total Exchange-Traded Funds (cost: $70,777) 63,395
----------
Total Equity Securities (cost: $254,037) 257,178
----------
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------------
BONDS (22.5%)
CORPORATE OBLIGATIONS (7.6%)
ENERGY (1.0%)
-------------
OIL & GAS DRILLING (0.1%)
$ 782 Schahin II Finance Co. SPV Ltd.(c),(d) 5.88% 9/25/2023 160
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
500 Newfield Exploration Co. 5.38 1/01/2026 405
----------
OIL & GAS STORAGE & TRANSPORTATION (0.8%)
800 DCP Midstream, LLC(c) 5.85 5/21/2043 460
1,000 Enbridge Energy Partners, LP 8.05 10/01/2077 708
1,000 Energy Transfer Partners, LP 3.35(e) 11/01/2066 590
================================================================================
22 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 1,000 Enterprise Products Operating, LLC 7.00% 6/01/2067 $ 802
500 TEPPCO Partners, LP 7.00 6/01/2067 394
----------
2,954
----------
Total Energy 3,519
----------
FINANCIALS (4.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.3%)
900 Prospect Capital Corp. 5.00 7/15/2019 905
----------
DIVERSIFIED BANKS (0.2%)
1,000 JPMorgan Chase Capital XIII 1.55(e) 9/30/2034 841
----------
LIFE & HEALTH INSURANCE (0.7%)
800 Lincoln National Corp. 7.00(e) 5/17/2066 598
200 Lincoln National Corp. 6.05 4/20/2067 146
1,000 Prudential Financial, Inc. 5.63 6/15/2043 1,012
1,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 815
----------
2,571
----------
MULTI-LINE INSURANCE (0.6%)
1,000 Genworth Holdings, Inc. 6.15 11/15/2066 270
1,000 Glen Meadow Pass-Through Trust(c) 6.51 2/12/2067 772
1,000 Nationwide Mutual Insurance Co.(c) 2.80(e) 12/15/2024 970
----------
2,012
----------
PROPERTY & CASUALTY INSURANCE (1.8%)
1,000 Allstate Corp. 5.75 8/15/2053 1,021
1,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 1,068
1,000 HSB Group, Inc.(b) 1.53(e) 7/15/2027 750
750 Ironshore Holdings, Inc.(c) 8.50 5/15/2020 872
1,300 Oil Insurance Ltd.(c) 3.59(e) -(f) 1,157
500 Progressive Corp. 6.70 6/15/2067 500
1,000 Travelers Companies, Inc. 6.25 3/15/2067 995
----------
6,363
----------
REGIONAL BANKS (1.1%)
500 Compass Bank 3.88 4/10/2025 464
1,000 Cullen/Frost Capital Trust II 1.96(e) 3/01/2034 880
1,000 KeyCorp Capital I 1.35(e) 7/01/2028 824
1,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 982
1,000 SunTrust Capital I 1.03(e) 5/15/2027 808
----------
3,958
----------
REINSURANCE (0.2%)
500 Alterra USA Holdings Ltd.(c) 7.20 4/14/2017 526
----------
Total Financials 17,176
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
INDUSTRIALS (0.2%)
------------------
AEROSPACE & DEFENSE (0.2%)
$ 750 Constellis Holdings, LLC & Constellis Finance Corp.(c) 9.75% 5/15/2020 $ 577
----------
MATERIALS (0.1%)
----------------
DIVERSIFIED METALS & MINING (0.1%)
1,000 Freeport-McMoRan, Inc. 5.45 3/15/2043 399
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
900 Frontier Communications Corp.(c) 11.00 9/15/2025 871
----------
UTILITIES (1.2%)
----------------
ELECTRIC UTILITIES (0.4%)
983 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 739
1,000 PPL Capital Funding, Inc. 6.70 3/30/2067 770
----------
1,509
----------
MULTI-UTILITIES (0.8%)
1,000 Dominion Resources, Inc. 7.50(e) 6/30/2066 839
770 Integrys Holding, Inc. 6.11 12/01/2066 562
1,000 Puget Sound Energy, Inc. 6.97 6/01/2067 767
975 WEC Energy Group, Inc. 6.25 5/15/2067 707
----------
2,875
----------
Total Utilities 4,384
----------
Total Corporate Obligations (cost: $29,453) 26,926
----------
EURODOLLAR AND YANKEE OBLIGATIONS (1.3%)
FINANCIALS (0.6%)
-----------------
DIVERSIFIED BANKS (0.0%)
500 LBI hf, acquired 10/12/2007; cost $500(a),(b),(c),(d) 7.43 -(f) -
----------
LIFE & HEALTH INSURANCE (0.3%)
1,000 Great-West Life & Annuity Insurance Capital, LP(c) 7.15(e) 5/16/2046 1,002
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
250 QBE Capital Funding III Ltd.(c) 7.25 5/24/2041 276
----------
REGIONAL BANKS (0.0%)
1,000 Glitnir Banki hf, acquired 9/11/2006-10/18/2006;
cost $1,017(a),(b),(c),(d) 7.45 -(f) -
----------
REINSURANCE (0.2%)
804 Swiss Re Capital I, LP(c) 6.85(e) -(f) 813
----------
Total Financials 2,091
----------
================================================================================
24 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MATERIALS (0.4%)
----------------
COMMODITY CHEMICALS (0.2%)
$ 1,000 Braskem Finance Ltd. 6.45% 2/03/2024 $ 883
----------
GOLD (0.2%)
1,000 Kinross Gold Corp. 5.95 3/15/2024 625
----------
Total Materials 1,508
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
650 Electricite De France S.A.(c) 5.25 -(f) 585
500 Enel S.p.A.(c) 8.75 9/24/2073 551
----------
1,136
----------
Total Utilities 1,136
----------
Total Eurodollar and Yankee Obligations (cost: $6,608) 4,735
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
FINANCIALS (0.2%)
-----------------
864 Structured Asset Mortgage Investments, Inc.
(cost: $796) 0.93(e) 7/19/2035 793
----------
COMMERCIAL MORTGAGE SECURITIES (4.3%)
FINANCIALS (4.3%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (4.3%)
500 Banc of America Commercial Mortgage, Inc. 6.05 5/10/2045 500
355 Banc of America Commercial Mortgage, Inc. 5.58 9/10/2047 355
500 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 517
1,000 Bear Stearns Commercial Mortgage Securities, Inc.(c) 5.66 9/11/2041 995
44 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 44
530 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 528
500 Commercial Mortgage Trust 5.38 12/10/2046 496
1,000 GE Capital Commercial Mortgage Corp. 5.61 11/10/2045 997
1,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 1,020
252 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 255
250 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 259
319 GS Mortgage Securities Trust 5.83 4/10/2038 319
690 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.57 4/15/2043 691
378 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.72 12/15/2044 377
500 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.72 12/15/2044 499
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.11% 4/15/2045 $ 880
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.48 5/15/2045 1,013
900 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 909
107 Merrill Lynch Mortgage Trust 5.68 7/12/2038 107
135 Merrill Lynch Mortgage Trust 5.71 7/12/2038 135
670 Merrill Lynch Mortgage Trust 5.91 5/12/2039 660
33 Merrill Lynch Mortgage Trust 5.01 10/12/2041 33
1,000 Merrill Lynch Mortgage Trust 6.03 6/12/2050 1,018
1,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 1,017
500 ML-CFC Commercial Mortgage Trust 6.07 8/12/2049 505
1,000 Wachovia Bank Commercial Mortgage Trust 5.95 5/15/2043 1,000
----------
15,129
----------
Total Financials 15,129
----------
Total Commercial Mortgage Securities (cost: $14,574) 15,129
----------
U.S. GOVERNMENT AGENCY ISSUES (0.3%)(g)
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.3%)
1,000 Freddie Mac(+) (cost: $1,019) 3.51 4/25/2030 1,037
----------
U.S. TREASURY SECURITIES (8.8%)
BONDS (7.3%)
8,100 2.87%, 8/15/2044 (STRIPS Principal)(h) 3,568
10,500 3.13%, 8/15/2044 11,301
2,000 3.00%, 11/15/2044 2,098
4,200 3.00%, 5/15/2045 4,403
10,300 3.08%, 5/15/2045 (STRIPS Principal)(h) 4,413
----------
25,783
----------
NOTES (1.5%)
1,970 1.63%, 8/15/2022 1,972
390 1.63%, 11/15/2022 390
1,000 2.75%, 11/15/2023 1,073
800 2.38%, 8/15/2024 833
1,000 2.25%, 11/15/2024 1,030
----------
5,298
----------
Total U.S. Treasury Securities (cost: $29,432) 31,081
----------
Total Bonds (cost: $81,882) 79,701
----------
================================================================================
26 | USAA FIRST START GROWTH FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.4%)
MONEY MARKET FUNDS (4.4%)
15,396,746 State Street Institutional Liquid Reserves Fund
Premier Class, 0.36%(i) (cost: $15,397) $ 15,397
--------
TOTAL INVESTMENTS (COST: $351,316) $352,276
========
-------------------------------------------------------------------------------------------------------------
($ 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 $189,610 $ - $ 6 $189,616
Preferred Stocks - 4,042 125 4,167
Exchange-Traded Funds 63,395 - - 63,395
Bonds:
Corporate Obligations - 26,176 750 26,926
Eurodollar and Yankee
Obligations - 4,735 - 4,735
Collateralized Mortgage
Obligations - 793 - 793
Commercial Mortgage Securities - 15,129 - 15,129
U.S. Government Agency Issues - 1,037 - 1,037
U.S. Treasury Securities 23,100 7,981 - 31,081
Money Market Instruments:
Money Market Funds 15,397 - - 15,397
-------------------------------------------------------------------------------------------------------------
Total $291,502 $59,893 $881 $352,276
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
--------------------------------------------------------------------------------------------------------
COMMON PREFERRED CORPORATE
STOCKS STOCKS OBLIGATIONS
--------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $ - $125 $630
Purchases 620 - -
Sales - - -
Transfers into Level 3 - - -
Transfers out of Level 3 - - -
Net realized gain (loss) on investments - - -
Change in net unrealized appreciation/(depreciation)
of investments (614) - 120
--------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $ 6 $125 $750
--------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, 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.
================================================================================
28 | USAA FIRST START GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 19.1% of net assets at
January 31, 2016.
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
later than
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
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
REIT Real estate investment trust
STRIPS Separate trading of registered interest and principal of securities
o SPECIFIC NOTES
(a) Security deemed illiquid by 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 January 31, 2016, was $131,000, which represented
less than 0.1% of the Fund's net assets.
(b) Security was fair valued at January 31, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The
================================================================================
30 | USAA FIRST START GROWTH FUND
================================================================================
total value of all such securities was $881,000, which represented
0.2% of the Fund's net assets.
(c) 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.
(d) At January 31, 2016, the issuer was in default with respect to interest
and/or principal payments.
(e) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2016.
(f) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(g) 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
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.
(h) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(i) Rate represents the money market fund annualized seven-day yield
at January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
32 | USAA FIRST START GROWTH FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $351,316) $352,276
Cash 14
Receivables:
Capital shares sold 384
USAA Asset Management Company (Note 5D) 115
Dividends and interest 1,049
--------
Total assets 353,838
--------
LIABILITIES
Payables:
Capital shares redeemed 162
Accrued management fees 235
Accrued transfer agent's fees 31
Other accrued expenses and payables 74
--------
Total liabilities 502
--------
Net assets applicable to capital shares outstanding $353,336
========
NET ASSETS CONSIST OF:
Paid-in capital $351,518
Accumulated overdistribution of net investment income (341)
Accumulated net realized gain on investments 1,199
Net unrealized appreciation of investments 960
--------
Net assets applicable to capital shares outstanding $353,336
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 30,314
========
Net asset value, redemption price, and offering price per share $ 11.66
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2) $ 3,125
Interest 2,297
--------
Total income 5,422
--------
EXPENSES
Management fees 1,436
Administration and servicing fees 274
Transfer agent's fees 1,345
Custody and accounting fees 76
Postage 63
Shareholder reporting fees 34
Trustees' fees 13
Registration fees 17
Professional fees 49
Other 5
--------
Total expenses 3,312
Expenses reimbursed (787)
--------
Net expenses 2,525
--------
NET INVESTMENT INCOME 2,897
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 2,498
Change in net unrealized appreciation/(depreciation) (35,027)
--------
Net realized and unrealized loss (32,529)
--------
Decrease in net assets resulting from operations $(29,632)
========
See accompanying notes to financial statements.
================================================================================
34 | USAA FIRST START GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
---------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,897 $ 5,255
Net realized gain on investments 2,498 16,832
Net realized loss on options - (456)
Change in net unrealized appreciation/(depreciation) of:
Investments (35,027) (7,748)
Options - (174)
----------------------------
Increase (decrease) in net assets resulting from operations (29,632) 13,709
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,667) (4,944)
Net realized gains (12,398) (19,776)
----------------------------
Distributions to shareholders (18,065) (24,720)
----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 38,231 92,830
Reinvested dividends 17,963 24,530
Cost of shares redeemed (33,545) (68,939)
----------------------------
Increase in net assets from capital share transactions 22,649 48,421
----------------------------
Net increase (decrease) in net assets (25,048) 37,410
NET ASSETS
Beginning of period 378,384 340,974
----------------------------
End of period $353,336 $378,384
============================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (341) $ 2,429
============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,055 6,900
Shares issued for dividends reinvested 1,456 1,850
Shares redeemed (2,676) (5,129)
----------------------------
Increase in shares outstanding 1,835 3,621
============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 First Start Growth Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek long-term capital growth with reduced volatility over time.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund.
================================================================================
36 | USAA FIRST START GROWTH 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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
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.
================================================================================
38 | USAA FIRST START GROWTH FUND
================================================================================
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, and certain bonds, valued based on methods discussed
in Note 1A5.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by a discounted prior tender offer and quoted prices obtained
from the 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. 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.
================================================================================
40 | USAA FIRST START GROWTH FUND
================================================================================
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 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 January 31, 2016, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 January 31, 2016, the Fund paid CAPCO facility
fees of $1,000, which represents 0.5% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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
================================================================================
42 | USAA FIRST START GROWTH FUND
================================================================================
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 January 31, 2016, were
$93,255,000 and $92,097,000, respectively.
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $30,113,000 and $29,153,000, respectively, resulting in net
unrealized appreciation of $960,000.
(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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 monthly by comparing the Fund's
performance over the performance period to that of the Lipper Flexible
Portfolio Funds Index. The Lipper Flexible Portfolio Funds Index tracks the
total return performance of the 30 largest funds in the Lipper Flexible
Portfolio Funds category. The performance period for the Fund consists of
the current month plus the previous 35 months. The following table is
utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE
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 Flexible Portfolio Funds Index over that period,
even if the Fund had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $1,436,000, which
included a 0.04% performance adjustment of $64,000.
================================================================================
44 | USAA FIRST START GROWTH FUND
================================================================================
B. SUBADVISORY ARRANGEMENT(S) - The Manager had previously entered into an
Investment Subadvisory Agreement with Quantitative Management Associates
LLC (QMA), under which QMA directed the investment and reinvestment of a
portion of the Fund's assets invested in domestic stocks (as allocated from
time to time by the Manager).
The Manager (not the Fund) paid QMA a subadvisory fee in the annual amount
of 0.20% on the first $250 million, and 0.15% on assets over $250 million
of the portion of the Fund's average net assets that QMA managed. Effective
January 29, 2016, the Manager terminated its Investment Subadvisory
Agreement with QMA. For the six-month period ended January 31, 2016, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to QMA, of $200,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
January 31, 2016, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $274,000.
In addition to the services provided under its Administration and
Servicing Agreement with the Fund, the Manager also provides certain
compliance and legal services for the benefit of the Fund. The Board has
approved the reimbursement of a portion of these expenses incurred by the
Manager. For the six-month period ended January 31, 2016, the Fund
reimbursed the Manager $5,000 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 December 1, 2016, to
limit the total annual operating expenses of the Fund to 1.38% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the Fund for all expenses
in excess of that amount. This expense limitation arrangement may not be
changed or terminated through December 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
January 31, 2016, the Fund incurred reimbursable expenses of $787,000, of
which $115,000 was receivable from the Manager.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of
these fees to certain intermediaries for the administration and servicing
of accounts that are held with such intermediaries. For the six-month
period ended January 31, 2016, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $1,345,000.
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 fee, or other compensation
for these services.
(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.
================================================================================
46 | USAA FIRST START GROWTH FUND
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.29 $ 13.72 $ 12.56 $ 10.87 $ 11.15 $ 9.73
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .18 .20 .23 .24 .21
Net realized and
unrealized gain (loss) (1.10) .35 1.31 1.69 (.28) 1.46
-----------------------------------------------------------------------------------
Total from investment
operations (1.01) .53 1.51 1.92 (.04) 1.67
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.18) (.23) (.23) (.24) (.25)
Realized capital gains (.43) (.78) (.12) - - -
-----------------------------------------------------------------------------------
Total distributions (.62) (.96) (.35) (.23) (.24) (.25)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 11.66 $ 13.29 $ 13.72 $ 12.56 $ 10.87 $ 11.15
===================================================================================
Total return (%)* (7.79) 3.95 12.16 17.90 (.20) 17.32
Net assets at end
of period (000) $353,336 $378,384 $340,974 $278,214 $222,427 $226,948
Ratios to average
net assets:**
Expenses (%)(a) 1.38(b) 1.38 1.38 1.38 1.38 1.38
Expenses, excluding
reimbursements (%)(a) 1.81(b) 1.75 1.74 1.79 1.90 1.91
Net investment
income (%) 1.59(b) 1.45 1.53 2.01 2.26 1.95
Portfolio turnover (%) 26 62 64 70 85(c) 133(c)
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets
were $363,537,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects decreased trading activity due to changes in subadviser(s)
and asset allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
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
================================================================================
48 | USAA FIRST START GROWTH 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 AUGUST 1, 2015-
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
---------------------------------------------------------------
Actual $1,000.00 $ 922.10 $6.67
Hypothetical
(5% return before expenses) 1,000.00 1,018.20 7.00
*Expenses are equal to the Fund's annualized expense ratio of 1.38%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 184 days/366 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (7.79)% for the six-month period of August
1, 2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 49
================================================================================
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)
=============================================================================
31703-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 10
Notes to Portfolio of Investments 16
Financial Statements 17
Notes to Financial Statements 20
EXPENSE EXAMPLE 34
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.
202722-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GROWTH FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in a diversified portfolio of equity
securities selected for their growth potential. Although the Fund will invest
primarily in U.S. securities, it may invest up to 20% of its total assets in
foreign securities including securities issued in emerging markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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
Loomis, Sayles & Company, L.P. Renaissance Investment Management
AZIZ V. HAMZAOGULLARI, CFA MICHAEL E. SCHROER, CFA
PAUL A. RADOMSKI, CFA
ERIC J. STRANGE, CPA, CFA
--------------------------------------------------------------------------------
o PLEASE DISCUSS THE MARKET CONDITIONS DURING THE REPORTING PERIOD.
For the reporting period ended January 31, 2016, stocks sold off in
reaction to several events, including China's depreciation of its currency,
the renminbi, and continued downward pressure on commodity prices. On
September 17, 2015, the Federal Reserve (the Fed) announced that short-
term interest rates would remain unchanged, causing investors to speculate
whether growth was weaker than anticipated. Nevertheless, stocks rebounded
in October 2015, with virtually all markets in positive territory. However,
stocks declined later during the final quarter of 2015, as market
volatility increased. On December 16, 2015, the Fed eventually raised
short-term interest rates. The year 2016 began with many stocks hit hard
amid the continued slide in oil prices, fears of a global slowdown due to
China's slowing growth, and uncertainty regarding the Fed's interest rate
policy going forward. Defensive market sectors held up well, with utilities
and consumer staples posted positive returns.
o HOW DID THE USAA GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the reporting period ended January 31, 2016, the Fund Shares and
Institutional Shares had total returns of -6.87% and -6.82%, respectively.
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
2 | USAA GROWTH FUND
================================================================================
This compares to returns of -7.18% for the Russell 1000(R) Growth Index (the
Index) and -10.09% for the Lipper Large-Cap Growth Funds 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. Loomis, Sayles & Company, L.P. (Loomis Sayles) and Renaissance
Investment Management (Renaissance) 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 LOOMIS SAYLES' PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
Loomis Sayles' portion of the Fund posted negative returns that
outperformed the Index during the reporting period. Through their
proprietary, bottom-up research framework, Loomis Sayles looks to invest in
those few high-quality businesses with sustainable competitive advantages
and profitable growth when they trade at a significant discount to
intrinsic value. Stock selection in the consumer discretionary, energy,
information technology, and health care sectors as well as Loomis Sayles'
allocation to the information technology and consumer staples sectors
contributed positively to relative performance. Stock selection in the
financials sector and Loomis Sayles' allocation to the energy sector
detracted from the Fund's relative return. Top contributors to the Fund's
performance included Facebook, Inc. "A" (Facebook), Alphabet Inc., and
Amazon.com, Inc (Amazon). Facebook reported strong growth in key
fundamentals such as revenue, mobile advertising and free cash flow. The
largest detractors from the Fund's performance included QUALCOMM, Inc.
(QUALCOMM), SEI Investments Co. (SEI), and Novartis AG ADR. QUALCOMM shares
were under pressure as the implementation of new licensing agreements and
improved device reporting progressed more slowly than anticipated following
the company's settlement with China's antitrust regulators. Loomis Sayles
initiated a position in Cerner Corp. and sold the Fund's position in Zimmer
Biomet Holdings, Inc. Loomis Sayles also added to positions in Alibaba
Group Holdings Ltd. ADR, Coca-Cola Co., Oracle Corp., Procter & Gamble Co.,
QUALCOMM, SABMiller plc ADR (SABMiller), Schlumberger
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
Ltd., and Yum! Brands, Inc. on the basis of price weakness during the
reporting period. Positions in Amazon, Facebook, FactSet Research Systems,
Inc., SABMiller, and SEI were reduced to help finance the purchases and
take advantage of compelling reward-to-risk opportunities.
o HOW DID RENAISSANCE'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
Renaissance's portion of the Fund underperformed the Index over the
reporting period, primarily due to weak stock selection and
underrepresentation in higher-priced stocks that led the market. In
particular the "FANG" stocks (Facebook, Amazon, Netflix, Inc., and Google -
now known as Alphabet Inc. (Alphabet)) contributed about 60% of the return
of the Index for the year, and Alphabet was Renaissance's only holding of
that group. Most of the negative impact from stock selection is
attributable to Renaissance's holdings in the financials, information
technology, and consumer staples sectors. Within the information technology
segment, several of the Fund's holdings associated with traditional
technology markets, including SanDisk Corp. and Western Digital Corp., saw
their stock prices come under pressure partly as a result of slowing global
economic growth. Within the consumer discretionary sector, retailers with
brick and mortar stores, which generally are more susceptible to declining
mall traffic and/or erosion from online sales, witnessed a greater than
anticipated decline in their share prices. Conversely, the Fund's airline
holdings, within the industrials sector, continued to fare well partly due
to the sustained decline in oil prices. Sector allocation effects were
slightly negative, with the Fund's overweight position in the industrials
sector and its underweight position within consumer staples the principal
detractors from performance.
Thank you for allowing us to help you with your investment needs.
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
United States. Foreign securities also may be subject to foreign taxes.
Investments made in emerging market countries may be particularly volatile.
Economies of emerging market countries generally are less diverse and
mature than more developed countries and may have less stable political
systems.
================================================================================
4 | USAA GROWTH FUND
================================================================================
INVESTMENT OVERVIEW
USAA GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USAAX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $1.0 Billion $1.3 Billion
Net Asset Value Per Share $22.59 $25.91
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-6.87% 1.34% 12.05% 5.30%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
5.63% 13.71% 6.31%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.11%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 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]
RUSSELL 1000 LIPPER LARGE-CAP USAA GROWTH
GROWTH INDEX GROWTH FUNDS INDEX FUND SHARES
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 9,984.11 9,865.11 9,866.33
3/31/2006 10,131.53 9,960.23 9,885.42
4/30/2006 10,117.75 9,944.59 9,751.75
5/31/2006 9,774.81 9,480.66 9,102.48
6/30/2006 9,736.24 9,449.50 9,064.29
7/31/2006 9,550.80 9,207.57 8,784.21
8/31/2006 9,848.78 9,420.76 8,879.69
9/30/2006 10,119.41 9,623.89 9,153.41
10/31/2006 10,475.14 9,913.43 9,433.48
11/30/2006 10,683.01 10,139.92 9,592.62
12/31/2006 10,719.19 10,193.56 9,643.54
1/31/2007 10,994.73 10,456.66 10,025.46
2/28/2007 10,788.07 10,220.62 9,669.00
3/31/2007 10,846.58 10,297.54 9,802.67
4/30/2007 11,357.24 10,715.60 10,082.75
5/31/2007 11,765.81 11,078.48 10,471.04
6/30/2007 11,590.18 10,973.99 10,339.86
7/31/2007 11,410.50 10,834.74 10,206.15
8/31/2007 11,592.32 11,013.29 10,390.79
9/30/2007 12,077.93 11,685.11 11,103.89
10/31/2007 12,488.99 12,207.28 11,778.78
11/30/2007 12,028.93 11,709.60 11,256.69
12/31/2007 11,985.43 11,719.83 11,543.20
1/31/2008 11,050.85 10,716.95 10,110.65
2/29/2008 10,831.37 10,493.68 9,887.81
3/31/2008 10,765.42 10,404.39 9,894.18
4/30/2008 11,330.60 11,045.55 10,499.03
5/31/2008 11,745.91 11,347.13 10,791.91
6/30/2008 10,899.95 10,512.32 10,097.92
7/31/2008 10,692.71 10,304.90 9,773.20
8/31/2008 10,807.85 10,332.41 9,677.70
9/30/2008 9,556.25 9,008.00 8,347.02
10/31/2008 7,873.78 7,434.78 6,901.73
11/30/2008 7,247.59 6,688.96 6,252.30
12/31/2008 7,378.57 6,868.64 6,324.36
1/31/2009 7,023.63 6,513.57 6,100.99
2/28/2009 6,495.25 6,088.71 5,673.41
3/31/2009 7,074.60 6,611.94 6,075.47
4/30/2009 7,753.81 7,312.50 6,471.14
5/31/2009 8,138.18 7,712.84 6,732.79
6/30/2009 8,229.22 7,715.86 6,726.41
7/31/2009 8,813.71 8,297.28 7,096.55
8/31/2009 8,996.50 8,460.97 7,217.81
9/30/2009 9,379.17 8,867.29 7,556.04
10/31/2009 9,252.13 8,691.85 7,377.35
11/30/2009 9,820.51 9,216.12 7,804.93
12/31/2009 10,124.05 9,513.00 8,086.91
1/31/2010 9,682.28 9,014.60 7,595.05
2/28/2010 10,015.02 9,334.38 7,959.15
3/31/2010 10,594.32 9,920.68 8,463.79
4/30/2010 10,712.70 10,022.72 8,540.44
5/31/2010 9,894.87 9,217.56 7,901.66
6/30/2010 9,350.01 8,687.06 7,460.91
7/31/2010 10,016.96 9,276.27 7,997.48
8/31/2010 9,549.27 8,820.88 7,492.85
9/30/2010 10,565.80 9,766.41 8,425.46
10/31/2010 11,070.42 10,279.31 8,853.44
11/30/2010 11,198.98 10,382.18 8,955.65
12/31/2010 11,815.84 10,951.85 9,401.47
1/31/2011 12,116.54 11,167.96 9,490.94
2/28/2011 12,513.08 11,470.14 9,682.68
3/31/2011 12,528.36 11,475.91 9,759.37
4/30/2011 12,947.92 11,823.89 10,130.06
5/31/2011 12,806.96 11,679.99 10,034.20
6/30/2011 12,623.27 11,525.37 9,868.02
7/31/2011 12,496.74 11,463.70 9,650.72
8/31/2011 11,837.23 10,692.96 9,024.38
9/30/2011 10,965.01 9,759.79 8,378.87
10/31/2011 12,168.31 10,931.19 9,414.25
11/30/2011 12,167.13 10,796.66 9,299.21
12/31/2011 12,128.01 10,633.76 9,213.37
1/31/2012 12,851.95 11,362.67 9,796.82
2/29/2012 13,466.59 12,031.87 10,175.10
3/31/2012 13,909.53 12,457.04 10,502.09
4/30/2012 13,888.05 12,365.46 10,418.74
5/31/2012 12,997.18 11,417.40 9,662.18
6/30/2012 13,350.09 11,670.29 9,963.52
7/31/2012 13,529.05 11,688.33 10,072.51
8/31/2012 13,893.04 12,127.30 10,425.15
9/30/2012 14,165.50 12,425.08 10,675.20
10/31/2012 13,752.06 11,993.11 10,412.32
11/30/2012 13,982.34 12,259.96 10,771.37
12/31/2012 13,978.47 12,326.45 10,865.11
1/31/2013 14,577.58 12,858.51 11,540.96
2/28/2013 14,758.98 12,927.21 11,650.39
3/31/2013 15,312.64 13,333.69 11,920.73
4/30/2013 15,637.67 13,506.52 12,075.21
5/31/2013 15,928.18 13,862.46 12,467.85
6/30/2013 15,628.44 13,581.59 12,268.31
7/31/2013 16,457.09 14,430.77 12,905.54
8/31/2013 16,175.04 14,257.30 12,615.89
9/30/2013 16,895.85 15,072.43 13,220.94
10/31/2013 17,643.25 15,704.56 13,780.93
11/30/2013 18,140.95 16,173.96 14,192.88
12/31/2013 18,659.15 16,691.30 14,736.34
1/31/2014 18,127.21 16,292.86 14,353.66
2/28/2014 19,060.26 17,227.35 15,060.64
3/31/2014 18,868.04 16,672.73 14,956.86
4/30/2014 18,868.80 16,382.80 14,833.63
5/31/2014 19,456.84 16,977.60 15,313.60
6/30/2014 19,836.03 17,393.46 15,618.44
7/31/2014 19,532.39 17,213.29 15,320.08
8/31/2014 20,427.32 17,927.66 16,007.61
9/30/2014 20,131.00 17,615.02 15,800.05
10/31/2014 20,661.48 18,129.99 16,234.62
11/30/2014 21,316.21 18,586.66 16,999.97
12/31/2014 21,094.13 18,416.67 16,917.67
1/31/2015 20,771.12 18,116.93 16,542.50
2/28/2015 22,155.63 19,259.52 17,619.39
3/31/2015 21,903.65 19,050.95 17,383.17
4/30/2015 22,013.35 19,046.68 17,390.12
5/31/2015 22,323.21 19,411.86 17,668.02
6/30/2015 21,929.95 19,230.36 17,278.95
7/31/2015 22,673.61 19,913.22 18,001.51
8/31/2015 21,296.67 18,604.23 16,875.99
9/30/2015 20,769.84 17,970.36 16,521.65
10/31/2015 22,558.24 19,536.86 17,994.57
11/30/2015 22,621.56 19,643.45 18,098.78
12/31/2015 22,289.59 19,450.17 17,869.94
1/31/2016 21,045.14 17,903.27 16,764.19
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth Fund Shares to the following benchmarks:
o The unmanaged Russell 1000 Growth Index measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values.
o The unmanaged Lipper Large-Cap Growth Funds Index tracks the total return
performance of the 30 largest funds in the Lipper Large-Cap Growth 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 Large-Cap Growth Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
6 | USAA GROWTH FUND
================================================================================
USAA GROWTH FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIGRX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $899.6 Million $866.0 Million
Net Asset Value Per Share $22.54 $25.86
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-6.82% 1.42% 12.10% 7.64%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
5.72% 13.76% 8.66%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.01%
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 December 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).
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 1000 LIPPER LARGE-CAP USAA GROWTH FUND
GROWTH INDEX GROWTH FUNDS INDEX INSTITUTIONAL SHARES
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,107.67 10,026.70 9,980.30
9/30/2008 8,937.16 8,741.47 8,608.01
10/31/2008 7,363.69 7,214.80 7,117.53
11/30/2008 6,778.06 6,491.05 6,447.80
12/31/2008 6,900.56 6,665.41 6,520.15
1/31/2009 6,568.61 6,320.85 6,289.64
2/28/2009 6,074.46 5,908.55 5,854.96
3/31/2009 6,616.28 6,416.31 6,269.88
4/30/2009 7,251.48 7,096.14 6,671.63
5/31/2009 7,610.95 7,484.63 6,941.65
6/30/2009 7,696.10 7,487.57 6,941.65
7/31/2009 8,242.73 8,051.78 7,323.64
8/31/2009 8,413.67 8,210.62 7,448.78
9/30/2009 8,771.55 8,604.93 7,797.83
10/31/2009 8,652.74 8,434.67 7,613.43
11/30/2009 9,184.30 8,943.43 8,054.69
12/31/2009 9,468.18 9,231.53 8,348.25
1/31/2010 9,055.02 8,747.88 7,840.09
2/28/2010 9,366.21 9,058.20 8,216.26
3/31/2010 9,907.97 9,627.15 8,744.21
4/30/2010 10,018.69 9,726.17 8,823.41
5/31/2010 9,253.84 8,944.83 8,163.47
6/30/2010 8,744.28 8,430.03 7,701.51
7/31/2010 9,368.02 9,001.80 8,262.46
8/31/2010 8,930.63 8,559.89 7,741.10
9/30/2010 9,881.30 9,477.45 8,704.62
10/31/2010 10,353.23 9,975.17 9,153.38
11/30/2010 10,473.47 10,075.00 9,258.97
12/31/2010 11,050.36 10,627.81 9,716.04
1/31/2011 11,331.58 10,837.52 9,815.11
2/28/2011 11,702.43 11,130.76 10,013.27
3/31/2011 11,716.72 11,136.36 10,092.53
4/30/2011 12,109.10 11,474.04 10,475.62
5/31/2011 11,977.27 11,334.40 10,376.54
6/30/2011 11,805.49 11,184.35 10,204.81
7/31/2011 11,687.16 11,124.51 9,980.24
8/31/2011 11,070.37 10,376.57 9,339.55
9/30/2011 10,254.66 9,471.02 8,672.44
10/31/2011 11,380.00 10,607.76 9,742.46
11/30/2011 11,378.90 10,477.21 9,623.57
12/31/2011 11,342.31 10,319.13 9,534.56
1/31/2012 12,019.35 11,026.47 10,138.35
2/29/2012 12,594.17 11,675.87 10,529.81
3/31/2012 13,008.42 12,088.46 10,868.20
4/30/2012 12,988.33 11,999.59 10,781.94
5/31/2012 12,155.17 11,079.58 10,005.64
6/30/2012 12,485.22 11,324.98 10,310.86
7/31/2012 12,652.59 11,342.50 10,423.65
8/31/2012 12,992.99 11,768.47 10,788.58
9/30/2012 13,247.80 12,057.45 11,053.98
10/31/2012 12,861.15 11,638.25 10,775.31
11/30/2012 13,076.51 11,897.21 11,153.51
12/31/2012 13,072.90 11,961.73 11,249.13
1/31/2013 13,633.19 12,478.05 11,950.11
2/28/2013 13,802.84 12,544.72 12,063.60
3/31/2013 14,320.63 12,939.17 12,337.32
4/30/2013 14,624.61 13,106.88 12,504.22
5/31/2013 14,896.29 13,452.29 12,904.79
6/30/2013 14,615.98 13,179.73 12,697.83
7/31/2013 15,390.94 14,003.78 13,365.43
8/31/2013 15,127.16 13,835.45 13,065.01
9/30/2013 15,801.28 14,626.46 13,685.88
10/31/2013 16,500.26 15,239.89 14,266.70
11/30/2013 16,965.71 15,695.40 14,693.96
12/31/2013 17,450.34 16,197.44 15,253.33
1/31/2014 16,952.86 15,810.78 14,863.08
2/28/2014 17,825.47 16,717.63 15,589.75
3/31/2014 17,645.70 16,179.41 15,482.09
4/30/2014 17,646.42 15,898.07 15,360.98
5/31/2014 18,196.36 16,475.27 15,852.16
6/30/2014 18,550.98 16,878.82 16,168.39
7/31/2014 18,267.01 16,703.98 15,858.89
8/31/2014 19,103.97 17,397.21 16,572.10
9/30/2014 18,826.84 17,093.82 16,356.79
10/31/2014 19,322.96 17,593.55 16,807.59
11/30/2014 19,935.27 18,036.71 17,594.82
12/31/2014 19,727.58 17,871.76 17,512.60
1/31/2015 19,425.49 17,580.88 17,130.49
2/28/2015 20,720.31 18,689.66 18,240.79
3/31/2015 20,484.65 18,487.27 17,995.66
4/30/2015 20,587.24 18,483.12 18,010.08
5/31/2015 20,877.03 18,837.49 18,298.47
6/30/2015 20,509.25 18,661.37 17,894.72
7/31/2015 21,204.73 19,324.03 18,644.55
8/31/2015 19,917.00 18,053.77 17,476.56
9/30/2015 19,424.29 17,438.65 17,116.07
10/31/2015 21,096.84 18,958.80 18,644.55
11/30/2015 21,156.05 19,062.23 18,752.70
12/31/2015 20,845.59 18,874.67 18,514.45
1/31/2016 19,681.76 17,373.55 17,373.66
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth Fund Institutional Shares to the Fund's benchmarks listed above (see
page 6 for benchmark definitions).
*The performance of the Russell 1000 Growth Index and the Lipper Large-Cap
Growth Funds Index is calculated from the end of the month, July 31, 2008, while
the inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Large-Cap Growth Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
8 | USAA GROWTH FUND
================================================================================
o TOP 10 HOLDINGS - 1/31/16 o
(% of Net Assets)
Facebook, Inc. "A" ....................................................... 4.2%
Amazon.com, Inc. ......................................................... 3.8%
Oracle Corp. ............................................................. 3.5%
Visa, Inc. "A" ........................................................... 3.2%
Cisco Systems, Inc. ...................................................... 2.8%
Alphabet, Inc. "A" ....................................................... 2.7%
Microsoft Corp. .......................................................... 2.7%
Monster Beverage Corp. ................................................... 2.7%
Alibaba Group Holding Ltd. ADR ........................................... 2.5%
Danone ADR ............................................................... 2.5%
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
Information Technology 38.1%
Consumer Discretionary 15.0%
Health Care 14.2%
Consumer Staples 13.2%
Industrials 10.2%
Financials 6.1%
Energy 1.6%
Materials 0.6%
Money Market Instruments 0.7%
[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 10-15.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
EQUITY SECURITIES (99.0%)
COMMON STOCKS (99.0%)
CONSUMER DISCRETIONARY (15.0%)
-----------------------------
ADVERTISING (0.8%)
701,844 Interpublic Group of Companies, Inc. $ 15,749
-----------
APPAREL RETAIL (1.7%)
222,025 Foot Locker, Inc. 15,000
313,216 Ross Stores, Inc. 17,622
-----------
32,622
-----------
AUTOMOTIVE RETAIL (1.5%)
19,307 AutoZone, Inc.* 14,816
54,889 O'Reilly Automotive, Inc.* 14,321
-----------
29,137
-----------
DEPARTMENT STORES (0.5%)
221,937 Macy's, Inc. 8,968
-----------
GENERAL MERCHANDISE STORES (0.7%)
177,295 Dollar General Corp. 13,308
-----------
HOME IMPROVEMENT RETAIL (2.5%)
114,646 Home Depot, Inc. 14,418
464,247 Lowe's Companies, Inc. 33,268
-----------
47,686
-----------
HOTELS, RESORTS & CRUISE LINES (1.3%)
205,506 Marriott International, Inc. "A" 12,593
151,495 Royal Caribbean Cruises Ltd. 12,417
-----------
25,010
-----------
INTERNET RETAIL (3.8%)
125,765 Amazon.com, Inc.* 73,824
-----------
MOVIES & ENTERTAINMENT (0.7%)
135,788 Walt Disney Co. 13,011
-----------
RESTAURANTS (1.5%)
402,283 Yum! Brands, Inc. 29,113
-----------
Total Consumer Discretionary 288,428
-----------
================================================================================
10 | USAA GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
CONSUMER STAPLES (13.2%)
-----------------------
BREWERS (1.7%)
540,369 SABMiller plc ADR $ 32,239
-----------
DRUG RETAIL (0.7%)
150,247 CVS Health Corp. 14,512
-----------
FOOD RETAIL (0.9%)
432,234 Kroger Co. 16,775
-----------
HOUSEHOLD PRODUCTS (2.3%)
547,461 Procter & Gamble Co. 44,722
-----------
PACKAGED FOODS & MEAT (2.5%)
3,433,449 Danone ADR 47,485
-----------
SOFT DRINKS (5.1%)
1,094,538 Coca-Cola Co. 46,977
378,892 Monster Beverage Corp.* 51,162
-----------
98,139
-----------
Total Consumer Staples 253,872
-----------
ENERGY (1.6%)
------------
OIL & GAS EQUIPMENT & SERVICES (1.6%)
432,310 Schlumberger Ltd. 31,243
-----------
FINANCIALS (6.1%)
----------------
ASSET MANAGEMENT & CUSTODY BANKS (2.4%)
42,877 BlackRock, Inc. 13,475
835,838 SEI Investments Co. 32,798
-----------
46,273
-----------
CONSUMER FINANCE (1.0%)
359,279 American Express Co. 19,221
-----------
INVESTMENT BANKING & BROKERAGE (0.2%)
145,014 Greenhill & Co., Inc. 3,449
-----------
LIFE & HEALTH INSURANCE (0.6%)
169,194 Prudential Financial, Inc. 11,857
-----------
REGIONAL BANKS (0.8%)
102,534 Signature Bank* 14,287
-----------
SPECIALIZED FINANCE (1.1%)
144,198 FactSet Research Systems, Inc. 21,731
-----------
Total Financials 116,818
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
HEALTH CARE (14.2%)
------------------
BIOTECHNOLOGY (3.1%)
261,220 Amgen, Inc. $ 39,896
37,232 Biogen, Inc.* 10,166
127,071 Gilead Sciences, Inc. 10,547
-----------
60,609
-----------
HEALTH CARE DISTRIBUTORS (1.3%)
172,267 Cardinal Health, Inc. 14,018
64,923 McKesson Corp. 10,451
-----------
24,469
-----------
HEALTH CARE EQUIPMENT (1.5%)
363,204 Varian Medical Systems, Inc.* 28,014
-----------
HEALTH CARE SERVICES (0.7%)
174,023 Express Scripts Holdings Co.* 12,507
-----------
HEALTH CARE TECHNOLOGY (1.0%)
336,639 Cerner Corp.* 19,528
-----------
MANAGED HEALTH CARE (1.9%)
125,074 Aetna, Inc. 12,738
92,895 Anthem, Inc. 12,122
93,924 Cigna Corp. 12,548
-----------
37,408
-----------
PHARMACEUTICALS (4.7%)
315,893 Merck & Co., Inc. 16,006
378,614 Novartis AG ADR 29,521
805,821 Novo Nordisk A/S ADR 45,021
-----------
90,548
-----------
Total Health Care 273,083
-----------
INDUSTRIALS (10.2%)
------------------
AEROSPACE & DEFENSE (0.7%)
110,072 Boeing Co. 13,223
-----------
AIR FREIGHT & LOGISTICS (4.2%)
802,606 Expeditors International of Washington, Inc. 36,213
476,834 United Parcel Service, Inc. "B" 44,441
-----------
80,654
-----------
AIRLINES (1.4%)
207,013 Alaska Air Group, Inc. 14,574
308,081 Southwest Airlines Co. 11,590
-----------
26,164
-----------
================================================================================
12 | USAA GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
BUILDING PRODUCTS (0.7%)
514,348 Masco Corp. $ 13,574
-----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.5%)
103,811 Cummins, Inc. 9,332
-----------
DIVERSIFIED SUPPORT SERVICES (0.7%)
152,286 Cintas Corp. 13,084
-----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
126,181 Rockwell Automation, Inc. 12,059
-----------
INDUSTRIAL CONGLOMERATES (0.7%)
159,897 Danaher Corp. 13,855
-----------
RESEARCH & CONSULTING SERVICES (0.7%)
129,209 Equifax, Inc. 13,670
-----------
Total Industrials 195,615
-----------
INFORMATION TECHNOLOGY (38.1%)
-----------------------------
APPLICATION SOFTWARE (2.0%)
532,721 Autodesk, Inc.* 24,942
305,518 Synopsys, Inc.* 13,107
-----------
38,049
-----------
COMMUNICATIONS EQUIPMENT (6.0%)
2,285,917 Cisco Systems, Inc. 54,382
111,899 F5 Networks, Inc.* 10,494
475,956 Juniper Networks, Inc. 11,232
888,882 QUALCOMM, Inc. 40,302
-----------
116,410
-----------
DATA PROCESSING & OUTSOURCED SERVICES (5.0%)
130,326 Automatic Data Processing, Inc. 10,829
216,293 Global Payments, Inc. 12,750
254,565 Total System Services, Inc. 10,223
829,237 Visa, Inc. "A" 61,770
-----------
95,572
-----------
ELECTRONIC COMPONENTS (0.7%)
716,708 Corning, Inc. 13,338
-----------
HOME ENTERTAINMENT SOFTWARE (0.6%)
197,366 Electronic Arts, Inc.* 12,739
-----------
INTERNET SOFTWARE & SERVICES (11.6%)
715,500 Alibaba Group Holding Ltd. ADR* 47,960
68,348 Alphabet, Inc. "A"* 52,037
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
56,239 Alphabet, Inc. "C"* $ 41,783
725,877 Facebook, Inc. "A"* 81,450
----------
223,230
----------
SEMICONDUCTOR EQUIPMENT (0.7%)
180,841 Lam Research Corp. 12,983
----------
SEMICONDUCTORS (2.8%)
90,266 Analog Devices, Inc. 4,862
568,576 ARM Holdings plc ADR 24,494
142,049 Skyworks Solutions, Inc. 9,790
286,281 Texas Instruments, Inc. 15,153
----------
54,299
----------
SYSTEMS SOFTWARE (6.2%)
938,172 Microsoft Corp. 51,684
1,862,310 Oracle Corp. 67,620
----------
119,304
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.5%)
119,331 Apple, Inc. 11,616
558,997 EMC Corp. 13,846
207,760 SanDisk Corp. 14,689
167,944 Western Digital Corp. 8,058
----------
48,209
----------
Total Information Technology 734,133
----------
MATERIALS (0.6%)
---------------
DIVERSIFIED CHEMICALS (0.6%)
287,625 Dow Chemical Co. 12,080
----------
Total Common Stocks 1,905,272
----------
Total Equity Securities (cost: $1,392,881) 1,905,272
----------
MONEY MARKET INSTRUMENTS (0.7%)
MONEY MARKET FUNDS (0.7%)
14,117,092 State Street Institutional Liquid Reserves Fund
Premier Class, 0.36%(a) (cost: $14,117) 14,117
----------
TOTAL INVESTMENTS (COST: $1,406,998) $1,919,389
==========
================================================================================
14 | USAA GROWTH FUND
================================================================================
---------------------------------------------------------------------------------------------------------
($ 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 $1,905,272 $- $- $1,905,272
Money Market Instruments:
Money Market Funds 14,117 - - 14,117
---------------------------------------------------------------------------------------------------------
Total $1,919,389 $- $- $1,919,389
---------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2015, through January 31, 2016, 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 | 15
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 11.8% of net assets at
January 31, 2016.
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) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
16 | USAA GROWTH FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,406,998) $1,919,389
Receivables:
Capital shares sold 6,118
Dividends and interest 1,188
----------
Total assets 1,926,695
----------
LIABILITIES
Payables:
Capital shares redeemed 942
Accrued management fees 1,287
Accrued transfer agent's fees 89
Other accrued expenses and payables 123
----------
Total liabilities 2,441
----------
Net assets applicable to capital shares outstanding $1,924,254
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,398,419
Accumulated overdistribution of net investment income (7,143)
Accumulated net realized gain on investments 20,587
Net unrealized appreciation of investments 512,391
----------
Net assets applicable to capital shares outstanding $1,924,254
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,024,616/45,364 shares outstanding) $ 22.59
==========
Institutional Shares (net assets of $899,638/39,922
shares outstanding) $ 22.54
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $30) $ 13,599
Interest 14
---------
Total income 13,613
---------
EXPENSES
Management fees 7,966
Administration and servicing fees:
Fund Shares 916
Institutional Shares 404
Transfer agent's fees:
Fund Shares 887
Institutional Shares 404
Custody and accounting fees:
Fund Shares 67
Institutional Shares 42
Postage:
Fund Shares 39
Institutional Shares 28
Shareholder reporting fees:
Fund Shares 19
Institutional Shares 5
Trustees' fees 13
Registration fees:
Fund Shares 31
Institutional Shares 41
Professional fees 64
Other 16
---------
Total expenses 10,942
Expenses paid indirectly:
Fund Shares (3)
Institutional Shares (3)
---------
Net expenses 10,936
---------
NET INVESTMENT INCOME 2,677
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 31,207
Change in net unrealized appreciation/(depreciation) (177,715)
---------
Net realized and unrealized loss (146,508)
---------
Decrease in net assets resulting from operations $(143,831)
=========
See accompanying notes to financial statements.
================================================================================
18 | USAA GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
---------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,677 $ 5,647
Net realized gain on investments 31,207 153,331
Change in net unrealized appreciation/(depreciation)
of investments (177,715) 166,123
--------------------------
Increase (decrease) in net assets resulting from
operations (143,831) 325,101
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (5,575) (14,131)
Institutional Shares (4,245) (9,931)
--------------------------
Total distributions of net investment income (9,820) (24,062)
--------------------------
Net realized gains:
Fund Shares (75,648) (67,618)
Institutional Shares (49,069) (46,698)
--------------------------
Total distributions of net realized gains (124,717) (114,316)
--------------------------
Distributions to shareholders (134,537) (138,378)
--------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (68,423) 49,443
Institutional Shares 142,974 72,793
--------------------------
Total net increase in net assets from
capital share transactions 74,551 122,236
--------------------------
Net increase (decrease) in net assets (203,817) 308,959
NET ASSETS
Beginning of period 2,128,071 1,819,112
--------------------------
End of period $1,924,254 $2,128,071
==========================
Accumulated overdistribution of net investment income:
End of period $ (7,143) $ -
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Fund (the Fund), which is
classified as diversified under the 1940 Act. The Fund's investment objective
is to seek long-term growth of capital.
The Fund consists of two classes of shares: Growth Fund Shares (Fund Shares) and
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, and certain registration and custodian fees. Expenses not
attributable to a specific class, income, and realized gains or losses on
investments are allocated to each class of shares based on each class's relative
net assets. Each class has exclusive voting rights on matters related solely to
that class and separate voting rights on matters that relate to both classes.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and 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).
================================================================================
20 | USAA GROWTH 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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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.
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
================================================================================
22 | USAA GROWTH FUND
================================================================================
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31,
2016, brokerage commission recapture credits reduced the expenses of the
Fund Shares and Institutional Shares by $3,000 each. Additionally, 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
================================================================================
24 | USAA GROWTH FUND
================================================================================
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.
For the six-month period ended January 31, 2016, the Fund paid CAPCO facility
fees of $6,000, which represents 2.9% of the total fees paid to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during
the six-month period ended January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$208,051,000 and $275,855,000, respectively.
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $564,211,000 and $51,820,000, respectively, resulting in net
unrealized appreciation of $512,391,000.
================================================================================
26 | USAA GROWTH FUND
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
-------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------
FUND SHARES:
Shares sold 3,756 $ 91,828 8,489 $ 210,943
Shares issued from reinvested
dividends 3,267 80,214 3,305 80,688
Shares redeemed (10,372) (240,465) (9,724) (242,188)
--------------------------------------------
Net increase (decrease) from capital
share transactions (3,349) $ (68,423) 2,070 $ 49,443
=============================================
INSTITUTIONAL SHARES:
Shares sold 8,246 $ 187,350 6,240 $ 153,659
Shares issued from reinvested
dividends 2,175 53,304 2,324 56,608
Shares redeemed (3,985) (97,680) (5,526) (137,474)
--------------------------------------------
Net increase from capital share
transactions 6,436 $ 142,974 3,038 $ 72,793
=============================================
(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 day-to-day investment of a
portion of the Fund's assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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 for
the fiscal year.
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 Large-Cap Growth Funds Index. The
Lipper Large-Cap Growth Funds Index tracks the total return performance of
the 30 largest funds within the Lipper Large-Cap Growth 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.
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
================================================================================
28 | USAA GROWTH FUND
================================================================================
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 Large-Cap Growth Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $7,966,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $205,000 and $153,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.03% and 0.04%,
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment
Subadvisory Agreements with Loomis, Sayles & Company, L.P. (Loomis Sayles)
and Renaissance Investment Management (Renaissance), under which Loomis
Sayles and Renaissance 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 Loomis Sayles a subadvisory fee in the
annual amount of 0.20% of the portion of the Fund's average net assets that
Loomis Sayles manages. For the six-month period ended January 31, 2016, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Loomis Sayles, of $1,250,000.
The Manager (not the Fund) pays Renaissance a subadvisory fee in the
annual amount of 0.20% of the portion of the Fund's average net assets that
Renaissance manages. For the six-month period ended January 31, 2016, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Renaissance, of $781,000.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
rate of 0.15% of average net assets of the Fund Shares, and 0.10% of
average net assets of the Institutional Shares. For the six-month period
ended January 31, 2016, the Fund Shares and Institutional Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$916,000 and $404,000, 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 January 31, 2016, the Fund
reimbursed the Manager $26,000 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 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 held with such intermediaries. Transfer agent's fees for
Institutional Shares are paid monthly based on a fee accrued daily at an
annualized rate of 0.10% of the Institutional Shares' average net assets,
plus out-of-pocket expenses. For the six-month period ended January 31,
2016, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $887,000 and $404,000, respectively.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no fees or other compensation
for these services.
(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
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31, 2016,
================================================================================
30 | USAA GROWTH FUND
================================================================================
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 0.3
USAA Target Retirement Income 0.4
USAA Target Retirement 2020 1.1
USAA Target Retirement 2030 2.7
USAA Target Retirement 2040 3.4
USAA Target Retirement 2050 1.8
USAA Target Retirement 2060 0.1
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 | 31
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 25.91 $ 23.62 $ 20.05 $ 15.71 $ 15.10 $ 12.52
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .28 .11 .13 .06 .04
Net realized and
unrealized gain (loss) (1.67) 3.73 3.63 4.28 .59 2.55
-----------------------------------------------------------------------------------
Total from investment
operations (1.65) 4.01 3.74 4.41 .65 2.59
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.28) (.17) (.07) (.04) (.01)
Realized capital gains (1.56) (1.44) - - - -
-----------------------------------------------------------------------------------
Total distributions (1.67) (1.72) (.17) (.07) (.04) (.01)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 22.59 $ 25.91 $ 23.62 $ 20.05 $ 15.71 $ 15.10
===================================================================================
Total Return(%)* (6.87) 17.50 18.71 28.13 4.37 20.67
Net assets at end
of period (000) $1,024,616 $1,262,075 $1,101,533 $796,024 $1,035,999 $794,896
Ratios to average
net assets:**
Expenses(%)(a) 1.12(b) 1.08(c) 1.00 1.00 1.00 1.00
Expenses, excluding
reimbursements(%)(a) 1.12(b) 1.11 1.12 1.19 1.17 1.17
Net investment
income (%) .23(b) .25 .39 .51 .42 .30
Portfolio turnover(%) 10 31 31 28 43 39(d)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,212,523,000.
(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:
(.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.00% of the Fund Shares' average net
assets.
(d) Reflects overall decrease in purchases and sales of securities.
================================================================================
32 | USAA GROWTH FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 25.86 $ 23.57 $ 20.02 $ 15.71 $ 15.11 $ 12.52
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .04(a) .30 .10 .10(a) .06 .06
Net realized and
unrealized gain (loss) (1.67)(a) 3.72 3.62 4.32(a) .60 2.54
-----------------------------------------------------------------------------------
Total from investment
operations (1.63)(a) 4.02 3.72 4.42(a) .66 2.60
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.13) (.29) (.17) (.11) (.06) (.01)
Realized capital gains (1.56) (1.44) - - - -
-----------------------------------------------------------------------------------
Total distributions (1.69) (1.73) (.17) (.11) (.06) (.01)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 22.54 $ 25.86 $ 23.57 $ 20.02 $ 15.71 $ 15.11
===================================================================================
Total return(%)* (6.82) 17.57 18.66 28.22 4.44 20.79
Net assets at end of
period (000) $899,638 $865,996 $717,579 $664,513 $233,849 $157,225
Ratios to average
net assets:**
Expenses(%)(b) 1.03(e) 1.01 1.00 .99 .95 .86(d)
Expenses, excluding
reimbursements(%)(b) 1.03(e) 1.01 1.00 .99 .95 .86
Net investment income(%) .31(e) .31 .39 .53 .46 .43
Portfolio turnover(%) 10 31 31 28 43 39(f)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$802,332,000.
(a) Calculated using average shares. For the six-month period ended
January 31, 2016, average shares were 33,477,000.
(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%.
(d) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.87% of the Institutional
Shares' average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) Reflects overall decrease in purchases and sales of securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
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
================================================================================
34 | USAA GROWTH FUND
================================================================================
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 931.30 $5.39
Hypothetical
(5% return before expenses) 1,000.00 1,019.56 5.63
INSTITUTIONAL SHARES
Actual 1,000.00 931.80 5.00
Hypothetical
(5% return before expenses) 1,000.00 1,019.96 5.23
*Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares and
1.03% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/366 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of (6.87)% for Fund Shares and (6.82)% for Institutional Shares for the
six-month period of August 1, 2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 35
================================================================================
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)
=============================================================================
23420-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH & INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH & INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 21
Financial Statements 22
Notes to Financial Statements 26
EXPENSE EXAMPLE 43
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.
202739-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GROWTH & INCOME FUND (THE FUND) SEEKS CAPITAL GROWTH WITH A SECONDARY
INVESTMENT OBJECTIVE OF CURRENT INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in equity securities that show the best
potential for total return through a combination of capital growth and income.
Although the Fund invests primarily in U.S. securities, it may invest up to 20%
of its total assets in foreign securities, including securities issued in
emerging markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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 Barrow, Hanley, Mewhinney & Strauss, LLC
JOHN B. JARES, CFA MARK GIAMBRONE
JOHN P. TOOHEY, CFA MICHAEL B. NAYFA, CFA
TERRY L. PELZEL, CFA
--------------------------------------------------------------------------------
o PLEASE DISCUSS THE MARKET BACKDROP DURING THE REPORTING PERIOD.
Stocks finished notably lower for the reporting period ended January 31,
2016. Financial markets also exhibited a lot of volatility over the
reporting period as China's policy with regard to its currency, global
central bank policies, disappointing economic growth, weakening global
trade, lower oil prices, higher high-yield credit spreads, and impacts from
the strength of the U.S. dollar dominated the headlines. China concerns
drove the biggest moves during the reporting period as the government's
mid-August 2015 devaluation of the renminbi in the face of the Chinese
economy's slowing growth raised fears of a global currency war and helped
drive investor risk aversion that led to a sell-off in equities and other
risk assets. Uncertainty over China's future economic growth intensified
through the end of September 2015, further weakening commodities markets
and suppressing any recovery in stock prices. U.S. equities rebounded in
October 2015 as worries over China eased momentarily. U.S. employment
numbers exceeded expectations, and markets increasingly focused on the
Federal Reserve's (the Fed) December 16, 2015, meeting as a likely
candidate for the first increase in the benchmark federal funds rate. The
Fed's 25 basis point rate increase to short term interest rates during
December 2015 was received as a positive sign with respect to the path of
the U.S. economy, and investors anticipated an incremental but fairly
steady pace with respect to future increases. However, the period of
relatively optimistic sentiment proved short-lived. A resumption of the
drop in oil prices as 2016 opened
================================================================================
2 | USAA GROWTH & INCOME FUND
================================================================================
raised alarms that the global demand outlook had further deteriorated,
leading to substantial losses for equities in January 2016.
o HOW DID THE USAA GROWTH & INCOME 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 January 31, 2016, the Fund
Shares and Adviser Shares had total returns of -11.41% and -11.51%,
respectively. This compares to returns of -8.53% for the Russell 3000(R)
Index (the Index) and -10.28% for the Lipper Multi-Cap Core Funds Index.
The Institutional Shares commenced operation on August 7, 2015, and from
that time through January 31, 2016, had a total return of -11.79%.
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. Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS) is the
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 BHMS' VALUE-ORIENTED PORTION OF THE FUND PERFORM DURING THE
REPORTING PERIOD?
Within BHMS' portion of the Fund, stock selection within financials was the
leading detractor from performance relative to the benchmark. Stock
selection within industrials and an underweight to utilities also detracted
from performance. Conversely, issue selection within information technology
was the leading contributor to performance, followed by stock selection in
consumer discretionary and consumer staples. Within financials, their
position in American Express Co. (American Express)
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
was a leading individual detractor from performance, as the company saw its
shares negatively affected by flat earnings, driven largely by heightened
competition within the consumer finance segment. The Fund has maintained
the position as BHMS believes that American Express' earnings growth can be
expected to resume over time. Another straggler within financials was the
investment manager/custodian bank State Street Corp. (State Street), whose
shares tend to be highly sensitive to stock market and interest rate
movements. BHMS believes that State Street's shares are trading at a
substantially discounted valuation and has maintained the position. The
leading positive contribution to performance came from holdings in Reynolds
American Inc., which saw its shares benefit from the company's stable
business model against a backdrop of heightened uncertainty. The company
continues to offer strong cash flows and an attractive dividend. Lastly,
BHMS' focus on valuation was rewarded, as a position in the chip industry
pioneer Fairchild Semiconductor International, Inc.* rose on news of a
proposed acquisition.
With markets on edge over faltering Chinese growth and the ripple effects
from weakness in crude oil prices, we believe that the Fed will proceed
even more incrementally in its normalization of short-term interest rates,
and that there may likely be upward pressure on long-term interest rates.
While this scenario is not necessarily supportive of BHMS' focus on
valuation, they remain steadfast in their commitment to not overpay for
utilities, real estate investment trusts (REITs), and other
dividend-oriented stocks. BHMS will continue to focus on broad measures of
valuation, including low-payout ratios and solid earnings prospects that
together suggest the potential for long-term growth in dividends.
o HOW DID THE MANAGER'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
For the reporting period ended January 31, 2016, the Manager's portion of
the Fund substantially underperformed the Index. The vast majority of the
underperformance took place in January 2016, as U.S. and world markets
endured a major bout of volatility. Investors shunned
*Fairchild Semiconductor International, Inc. was sold out of the Fund
prior to January 31, 2016.
================================================================================
4 | USAA GROWTH & INCOME FUND
================================================================================
economically sensitive stocks as they instead sought the relative safety of
consumer staples and utilities stocks. Concern over slowing growth in
China, falling crude oil prices, and a strengthening U.S. dollar ignited
fears of a global recession. Many of the Fund's holdings managed by the
Manager suffered during the reporting period as investors generally sold
stocks without regard to their steady fundamentals.
The bottom-performing sectors in the portfolio were consumer discretionary,
industrials, and financials, while top-performing sectors included
information technology, materials, and health care. The Fund's holdings in
cruise line stocks represented the largest detractor from performance
within the consumer sectors, as recessionary concerns rose and fears of a
spreading Zika virus spurred a sell-off. In addition, railroad and airlines
positions suffered within the industrial sector, driven by a strengthening
U.S. dollar and plummeting oil and coal prices. Additionally, financial
holdings dipped after the Fed raised interest rates on December 16, 2015,
and investors fretted over the pace of economic growth and future Fed
interest rate increases. Conversely, technology positions performed well
thanks to the Fund's holdings in Internet and social media stocks. Also,
the Fund's positions in the materials sector performed relatively well
thanks to an underweight in the sector, along with holdings in companies
that have no revenue exposure to China. Lastly, health care was additive
based on the Fund's underweight positioning.
Despite the severe bout of volatility that has been recently experienced,
the fundamental performance of Manager's portion of the Fund continues to
be strong. The Manager firmly believes that over time fears of a global
recession will subside, and that the Fund's holdings will recover from
recent losses as the market returns to a focus on fundamentals.
Thank you for allowing us to help you with your investment needs.
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
United States. Foreign securities also may be subject to foreign taxes.
Investments made in emerging market countries may be particularly volatile.
Economies of emerging market countries generally are less diverse and
mature than more developed countries and may have less stable political
systems. o Investing in REITs has some of the same risks associated with
the direct ownership of real estate.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA GROWTH & INCOME FUND SHARES (FUND SHARES)
(Ticker Symbol: USGRX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $1.3 Billion $1.6 Billion
Net Asset Value Per Share $18.40 $22.00
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-11.41% -4.38% 8.36% 4.73%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-0.53% 10.52% 5.91%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
0.93%
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 December 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 GROWTH & INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA GROWTH &
CORE FUNDS INCOME FUND
RUSSELL 3000 INDEX INDEX SHARES
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,017.78 9,960.25 9,931.94
3/31/2006 10,190.94 10,182.24 10,023.50
4/30/2006 10,301.50 10,308.38 10,154.56
5/31/2006 9,971.69 9,951.29 9,667.01
6/30/2006 9,989.33 9,921.97 9,684.45
7/31/2006 9,979.98 9,803.06 9,532.07
8/31/2006 10,224.12 10,035.07 9,621.40
9/30/2006 10,452.99 10,250.55 9,937.20
10/31/2006 10,829.27 10,631.89 10,247.74
11/30/2006 11,064.89 10,883.69 10,537.22
12/31/2006 11,197.40 11,005.40 10,588.17
1/31/2007 11,410.53 11,245.28 10,898.90
2/28/2007 11,223.35 11,097.06 10,711.29
3/31/2007 11,340.17 11,214.03 10,893.04
4/30/2007 11,793.17 11,650.15 11,250.67
5/31/2007 12,222.94 12,086.33 11,795.91
6/30/2007 11,994.03 11,981.67 11,678.65
7/31/2007 11,585.00 11,598.34 11,291.71
8/31/2007 11,751.29 11,673.23 11,391.37
9/30/2007 12,179.71 12,080.06 11,807.63
10/31/2007 12,403.14 12,323.51 12,188.71
11/30/2007 11,844.77 11,769.75 11,672.79
12/31/2007 11,773.09 11,662.36 11,593.42
1/31/2008 11,059.50 11,007.41 10,787.57
2/29/2008 10,716.00 10,717.38 10,401.58
3/31/2008 10,652.51 10,566.55 10,252.60
4/30/2008 11,185.23 11,097.63 10,841.75
5/31/2008 11,414.38 11,369.63 11,119.39
6/30/2008 10,472.45 10,463.14 10,260.74
7/31/2008 10,388.93 10,310.03 10,077.51
8/31/2008 10,550.28 10,408.44 10,158.94
9/30/2008 9,558.30 9,247.89 9,092.71
10/31/2008 7,863.04 7,500.90 7,372.10
11/30/2008 7,242.34 6,846.31 6,685.21
12/31/2008 7,380.89 7,061.78 6,787.24
1/31/2009 6,761.48 6,562.39 6,281.95
2/28/2009 6,053.18 5,955.33 5,715.21
3/31/2009 6,583.40 6,436.27 6,197.57
4/30/2009 7,276.20 7,269.89 6,896.08
5/31/2009 7,664.43 7,718.22 7,265.88
6/30/2009 7,690.55 7,711.29 7,200.83
7/31/2009 8,289.15 8,350.95 7,783.75
8/31/2009 8,585.33 8,635.62 8,051.21
9/30/2009 8,945.03 9,027.33 8,438.63
10/31/2009 8,714.96 8,763.38 8,246.37
11/30/2009 9,210.18 9,241.50 8,727.01
12/31/2009 9,472.64 9,554.64 8,977.42
1/31/2010 9,131.18 9,203.08 8,626.58
2/28/2010 9,440.74 9,513.06 8,956.79
3/31/2010 10,035.76 10,098.25 9,509.85
4/30/2010 10,252.34 10,294.79 9,675.12
5/31/2010 9,442.43 9,484.67 8,876.32
6/30/2010 8,899.61 9,011.91 8,339.91
7/31/2010 9,517.44 9,594.84 9,009.04
8/31/2010 9,069.42 9,166.61 8,505.47
9/30/2010 9,925.73 10,003.03 9,376.65
10/31/2010 10,313.60 10,425.93 9,742.87
11/30/2010 10,373.14 10,464.22 9,756.69
12/31/2010 11,076.33 11,143.48 10,407.58
1/31/2011 11,318.25 11,410.28 10,629.17
2/28/2011 11,730.33 11,803.29 10,933.85
3/31/2011 11,783.24 11,854.83 10,920.73
4/30/2011 12,133.96 12,201.30 11,295.15
5/31/2011 11,995.51 12,032.37 11,156.48
6/30/2011 11,780.08 11,819.84 10,940.31
7/31/2011 11,510.32 11,541.93 10,586.05
8/31/2011 10,819.76 10,721.24 9,905.32
9/30/2011 9,980.19 9,806.52 9,085.17
10/31/2011 11,128.84 10,890.60 10,199.06
11/30/2011 11,098.76 10,826.58 10,115.52
12/31/2011 11,189.99 10,830.60 10,144.80
1/31/2012 11,754.67 11,423.53 10,738.27
2/29/2012 12,251.92 11,917.77 11,206.06
3/31/2012 12,629.86 12,199.83 11,498.33
4/30/2012 12,547.02 12,083.02 11,302.49
5/31/2012 11,771.38 11,255.23 10,414.24
6/30/2012 12,232.41 11,635.92 10,742.82
7/31/2012 12,353.57 11,742.01 10,826.97
8/31/2012 12,661.89 12,050.14 11,205.63
9/30/2012 12,994.39 12,369.14 11,475.35
10/31/2012 12,770.26 12,218.04 11,257.51
11/30/2012 12,869.15 12,372.35 11,306.70
12/31/2012 13,026.86 12,579.84 11,412.33
1/31/2013 13,741.65 13,294.64 12,033.02
2/28/2013 13,923.76 13,421.75 12,110.61
3/31/2013 14,469.39 13,930.39 12,497.34
4/30/2013 14,706.23 14,100.63 12,688.19
5/31/2013 15,053.16 14,458.68 13,119.38
6/30/2013 14,857.92 14,242.75 12,938.37
7/31/2013 15,672.25 15,038.75 13,739.04
8/31/2013 15,234.75 14,641.29 13,363.51
9/30/2013 15,801.12 15,232.09 13,876.85
10/31/2013 16,472.31 15,820.46 14,551.18
11/30/2013 16,950.35 16,243.94 15,076.44
12/31/2013 17,397.55 16,678.08 15,510.15
1/31/2014 16,847.90 16,158.67 14,976.79
2/28/2014 17,647.10 16,920.52 15,652.38
3/31/2014 17,740.76 16,954.61 15,703.59
4/30/2014 17,762.29 16,898.84 15,667.88
5/31/2014 18,149.88 17,280.70 16,082.07
6/30/2014 18,605.12 17,721.23 16,450.02
7/31/2014 18,238.09 17,349.44 16,185.27
8/31/2014 19,003.26 18,015.65 16,886.49
9/30/2014 18,607.14 17,572.84 16,622.31
10/31/2014 19,119.09 17,981.48 16,851.78
11/30/2014 19,582.42 18,354.74 17,239.02
12/31/2014 19,582.19 18,355.78 17,249.32
1/31/2015 19,037.19 17,859.15 16,608.35
2/28/2015 20,139.46 18,884.88 17,630.66
3/31/2015 19,934.72 18,752.03 17,377.58
4/30/2015 20,024.89 18,821.63 17,580.88
5/31/2015 20,301.87 19,103.01 17,979.34
6/30/2015 19,962.21 18,779.28 17,696.95
7/31/2015 20,296.08 18,955.61 17,925.09
8/31/2015 19,070.82 17,857.33 16,808.85
9/30/2015 18,515.10 17,241.97 16,234.95
10/31/2015 19,977.52 18,478.60 17,540.93
11/30/2015 20,088.26 18,585.87 17,622.55
12/31/2015 19,675.94 18,086.40 17,157.99
1/31/2016 18,565.73 17,006.27 15,880.64
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund Shares to the following benchmarks:
o The unmanaged Russell 3000 Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market.
o The unmanaged Lipper Multi-Cap Core Funds Index tracks the total return
performance of the 30 largest funds in the Lipper Multi-Cap Core 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 Multi-Cap Core Funds Index
reflects the fees and expenses of the underlying funds included in the
index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA GROWTH & INCOME FUND INSTITUTIONAL SHARES* (INSTITUTIONAL SHARES)
(Ticker Symbol: UIGIX)
--------------------------------------------------------------------------------
1/31/16
--------------------------------------------------------------------------------
Net Assets $104.7 Million
Net Asset Value Per Share $18.39
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/16
--------------------------------------------------------------------------------
SINCE INCEPTION 8/7/15**
-11.79%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
SINCE INCEPTION 8/7/15**
-4.74%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/15***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.98% AFTER REIMBURSEMENT 0.85%
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
December 1, 2015, and are based on estimated expenses for the current fiscal
year. USAA Asset Management Company (the Manager) has agreed, through
December 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 0.85% of the Institutional Shares' average net assets. If the total annual
operating expense ratio of the Institutional Shares is lower than 0.85%, 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 December 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).
================================================================================
8 | USAA GROWTH & INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA GROWTH &
CORE FUNDS INCOME FUND
RUSSELL 3000 INDEX INDEX INSTITUTIONAL SHARES
7/31/2015 $10,000.00 $10,000.00 $10,000.00
8/31/2015 9,396.30 9,420.60 9,334.84
9/30/2015 9,122.50 9,095.97 9,016.07
10/31/2015 9,843.04 9,748.35 9,741.71
11/30/2015 9,897.61 9,804.94 9,787.06
12/31/2015 9,694.45 9,541.45 9,526.05
1/31/2016 9,147.45 8,971.62 8,820.94
[END CHART]
Data from 7/31/15 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income 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 Multi-Cap Core Funds Index reflects the fees and expenses of the
underlying funds included in the index.
*The performance of the Russell 3000 Index and the Lipper Multi-Cap Core 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.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA GROWTH & INCOME FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: USGIX)
-----------------------------------------------------------------------------------------
1/31/16 7/31/15
-----------------------------------------------------------------------------------------
Net Assets $7.6 Million $9.1 Million
Net Asset Value Per Share $18.35 $21.93
-----------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
-----------------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-11.51% -4.58% 8.02% 10.09%
-----------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
-----------------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-0.83% 10.17% 11.83%
-----------------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/15**
-----------------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.27% AFTER REIMBURSEMENT 1.20%
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 December 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through December 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 1.20% 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 December 1, 2016. If
the total annual operating expense ratio of the Adviser Shares is lower than
1.20%, 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 GROWTH & INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA GROWTH &
CORE FUNDS INCOME FUND
RUSSELL 3000 INDEX INDEX ADVISER SHARES
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,529.27 9,553.69 9,242.88
9/30/2010 10,429.00 10,425.42 10,181.90
10/31/2010 10,836.53 10,866.19 10,572.36
11/30/2010 10,899.09 10,906.09 10,594.88
12/31/2010 11,637.93 11,614.04 11,294.92
1/31/2011 11,892.12 11,892.10 11,535.56
2/28/2011 12,325.09 12,301.71 11,858.92
3/31/2011 12,380.68 12,355.43 11,843.03
4/30/2011 12,749.19 12,716.53 12,249.34
5/31/2011 12,603.72 12,540.46 12,091.33
6/30/2011 12,377.37 12,318.96 11,856.29
7/31/2011 12,093.93 12,029.32 11,464.60
8/31/2011 11,368.35 11,173.96 10,726.40
9/30/2011 10,486.22 10,220.62 9,836.31
10/31/2011 11,693.10 11,350.48 11,035.68
11/30/2011 11,661.50 11,283.76 10,945.16
12/31/2011 11,757.35 11,287.94 10,972.69
1/31/2012 12,350.66 11,905.91 11,615.47
2/29/2012 12,873.13 12,421.03 12,114.58
3/31/2012 13,270.23 12,714.99 12,431.21
4/30/2012 13,183.19 12,593.26 12,211.66
5/31/2012 12,368.22 11,730.51 11,257.74
6/30/2012 12,852.62 12,127.27 11,605.30
7/31/2012 12,979.93 12,237.85 11,696.32
8/31/2012 13,303.88 12,558.98 12,098.34
9/30/2012 13,653.24 12,891.45 12,389.98
10/31/2012 13,417.75 12,733.97 12,154.49
11/30/2012 13,521.65 12,894.80 12,200.07
12/31/2012 13,687.36 13,111.05 12,299.97
1/31/2013 14,438.39 13,856.03 12,962.98
2/28/2013 14,629.74 13,988.51 13,046.81
3/31/2013 15,203.03 14,518.63 13,461.18
4/30/2013 15,451.88 14,696.06 13,659.59
5/31/2013 15,816.40 15,069.23 14,125.08
6/30/2013 15,611.25 14,844.19 13,925.21
7/31/2013 16,466.88 15,673.79 14,781.20
8/31/2013 16,007.19 15,259.55 14,376.13
9/30/2013 16,602.28 15,875.29 14,917.60
10/31/2013 17,307.51 16,488.51 15,644.36
11/30/2013 17,809.78 16,929.88 16,202.81
12/31/2013 18,279.65 17,382.35 16,664.88
1/31/2014 17,702.13 16,841.00 16,090.50
2/28/2014 18,541.85 17,635.03 16,810.40
3/31/2014 18,640.27 17,670.55 16,868.28
4/30/2014 18,662.89 17,612.44 16,822.15
5/31/2014 19,070.13 18,010.42 17,268.07
6/30/2014 19,548.45 18,469.56 17,661.32
7/31/2014 19,162.81 18,082.06 17,368.75
8/31/2014 19,966.78 18,776.40 18,107.85
9/30/2014 19,550.58 18,314.90 17,831.45
10/31/2014 20,088.48 18,740.79 18,070.43
11/30/2014 20,575.30 19,129.82 18,479.02
12/31/2014 20,575.07 19,130.90 18,481.06
1/31/2015 20,002.43 18,613.30 17,783.67
2/28/2015 21,160.59 19,682.34 18,882.07
3/31/2015 20,945.47 19,543.89 18,608.20
4/30/2015 21,040.21 19,616.42 18,817.77
5/31/2015 21,331.23 19,909.68 19,236.92
6/30/2015 20,974.35 19,572.29 18,938.40
7/31/2015 21,325.15 19,756.06 19,174.48
8/31/2015 20,037.76 18,611.40 17,976.62
9/30/2015 19,453.87 17,970.06 17,358.12
10/31/2015 20,990.44 19,258.91 18,749.22
11/30/2015 21,106.80 19,370.71 18,827.96
12/31/2015 20,673.57 18,850.14 18,327.67
1/31/2016 19,507.07 17,724.40 16,968.35
[END CHART]
Data from 7/31/10 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund Adviser Shares to the Fund's benchmarks listed above
(see page 7 for benchmark definitions).
*The performance of the Russell 3000 Index and the Lipper Multi-Cap Core 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.
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 Multi-Cap Core Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o TOP 10 HOLDINGS* - 1/31/16 o
(% of Net Assets)
Norwegian Cruise Line Holdings Ltd. ..................................... 2.6%
Microsoft Corp. ......................................................... 2.1%
Facebook, Inc. "A" ...................................................... 2.0%
Alphabet, Inc. "A" ...................................................... 1.7%
Citigroup, Inc. ......................................................... 1.7%
Canadian Pacific Railway Ltd. ........................................... 1.7%
Juniper Networks, Inc. .................................................. 1.6%
NXP Semiconductors N.V. ................................................. 1.6%
Royal Caribbean Cruises Ltd. ............................................ 1.5%
American International Group, Inc. ...................................... 1.5%
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 19.4%
INFORMATION TECHNOLOGY 19.2%
CONSUMER DISCRETIONARY 16.5%
INDUSTRIALS 16.0%
HEALTH CARE 11.1%
CONSUMER STAPLES 5.9%
ENERGY 5.5%
MATERIALS 3.2%
TELECOMMUNICATION SERVICES 1.8%
MONEY MARKET INSTRUMENTS 2.0%
[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 13-20.
*Does not include money market instruments.
================================================================================
12 | USAA GROWTH & INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.6%)
COMMON STOCKS (98.6%)
CONSUMER DISCRETIONARY (16.5%)
------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.8%)
348,400 Hanesbrands, Inc. $ 10,651
----------
AUTO PARTS & EQUIPMENT (2.2%)
100,000 BorgWarner, Inc. 2,936
190,930 Delphi Automotive plc 12,399
426,600 Johnson Controls, Inc. 15,302
----------
30,637
----------
CABLE & SATELLITE (0.7%)
171,100 Comcast Corp. "A" 9,532
----------
CASINOS & GAMING (1.2%)
126,610 Las Vegas Sands Corp. 5,710
548,600 MGM Resorts International* 11,016
----------
16,726
----------
GENERAL MERCHANDISE STORES (1.2%)
52,900 Dollar General Corp. 3,970
172,090 Target Corp. 12,463
----------
16,433
----------
HOME IMPROVEMENT RETAIL (1.0%)
115,890 Home Depot, Inc. 14,574
----------
HOMEBUILDING (0.6%)
5,055 NVR, Inc.* 8,346
----------
HOTELS, RESORTS & CRUISE LINES (5.1%)
188,900 Carnival Corp. 9,092
275,100 Hilton Worldwide Holdings, Inc. 4,900
797,100 Norwegian Cruise Line Holdings Ltd.* 36,164
260,300 Royal Caribbean Cruises Ltd. 21,334
----------
71,490
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
INTERNET RETAIL (1.7%)
34,810 Amazon.com, Inc.* $ 20,433
38,000 Expedia, Inc. 3,840
----------
24,273
----------
LEISURE FACILITIES (0.6%)
431,800 SeaWorld Entertainment, Inc. 8,230
----------
MOVIES & ENTERTAINMENT (1.1%)
154,600 Walt Disney Co. 14,814
----------
SPECIALTY STORES (0.3%)
73,590 Tiffany & Co. 4,698
----------
Total Consumer Discretionary 230,404
----------
CONSUMER STAPLES (5.9%)
-----------------------
DRUG RETAIL (1.5%)
117,775 CVS Health Corp. 11,376
115,860 Walgreens Boots Alliance, Inc. 9,236
----------
20,612
----------
FOOD RETAIL (0.5%)
180,000 Kroger Co. 6,986
----------
HOUSEHOLD PRODUCTS (1.0%)
165,715 Procter & Gamble Co. 13,537
----------
SOFT DRINKS (0.7%)
98,700 PepsiCo, Inc. 9,801
----------
TOBACCO (2.2%)
189,300 Altria Group, Inc. 11,568
81,500 Philip Morris International, Inc. 7,336
244,626 Reynolds American, Inc. 12,219
----------
31,123
----------
Total Consumer Staples 82,059
----------
ENERGY (5.5%)
-------------
INTEGRATED OIL & GAS (1.9%)
285,700 BP plc ADR 9,248
97,800 Chevron Corp. 8,457
130,600 Occidental Petroleum Corp. 8,989
----------
26,694
----------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
393,200 Fairmount Santrol Holdings Inc.* 963
252,650 Halliburton Co. 8,032
----------
8,995
----------
================================================================================
14 | USAA GROWTH & INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (2.5%)
151,540 Cimarex Energy Co. $ 14,093
166,900 ConocoPhillips 6,523
195,000 EOG Resources, Inc. 13,849
----------
34,465
----------
OIL & GAS REFINING & MARKETING (0.4%)
74,100 Phillips 66 5,939
----------
Total Energy 76,093
----------
FINANCIALS (19.4%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (2.8%)
179,640 Ameriprise Financial, Inc. 16,284
252,500 Bank of New York Mellon Corp. 9,146
236,400 Invesco Ltd. 7,075
126,700 State Street Corp. 7,061
----------
39,566
----------
CONSUMER FINANCE (3.0%)
116,400 American Express Co. 6,227
300,100 Capital One Financial Corp. 19,693
137,200 Discover Financial Services 6,282
515,720 Navient Corp. 4,930
797,120 SLM Corp.* 5,102
----------
42,234
----------
DIVERSIFIED BANKS (4.8%)
1,384,900 Bank of America Corp. 19,582
557,200 Citigroup, Inc. 23,726
188,955 JPMorgan Chase & Co. 11,243
232,935 Wells Fargo & Co. 11,700
----------
66,251
----------
INVESTMENT BANKING & BROKERAGE (2.0%)
397,900 Charles Schwab Corp. 10,158
265,900 E*Trade Financial Corp.* 6,265
430,700 Morgan Stanley 11,147
----------
27,570
----------
MULTI-LINE INSURANCE (1.5%)
375,115 American International Group, Inc. 21,186
----------
REGIONAL BANKS (2.3%)
370,300 Fifth Third Bancorp 5,851
289,100 First Niagara Financial Group, Inc. 2,830
706,100 KeyCorp 7,880
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
490,000 People's United Financial, Inc. $ 7,041
103,250 PNC Financial Services Group, Inc. 8,947
----------
32,549
----------
SPECIALIZED FINANCE (2.4%)
177,070 CME Group, Inc. 15,910
67,020 Intercontinental Exchange, Inc. 17,680
----------
33,590
----------
THRIFTS & MORTGAGE FINANCE (0.6%)
538,300 New York Community Bancorp, Inc. 8,333
----------
Total Financials 271,279
----------
HEALTH CARE (11.1%)
-------------------
BIOTECHNOLOGY (1.2%)
98,300 AbbVie, Inc. 5,396
58,280 Amgen, Inc. 8,901
30,600 Gilead Sciences, Inc. 2,540
----------
16,837
----------
HEALTH CARE DISTRIBUTORS (1.0%)
88,700 Cardinal Health, Inc. 7,218
45,000 McKesson Corp. 7,244
----------
14,462
----------
HEALTH CARE EQUIPMENT (2.0%)
536,000 Hologic, Inc.* 18,192
137,200 Medtronic plc 10,416
----------
28,608
----------
MANAGED HEALTH CARE (2.2%)
50,428 Anthem, Inc. 6,580
62,260 Cigna Corp. 8,318
131,600 UnitedHealth Group, Inc. 15,155
----------
30,053
----------
PHARMACEUTICALS (4.7%)
50,615 Allergan plc* 14,396
168,000 Johnson & Johnson 17,546
135,575 Merck & Co., Inc. 6,870
320,682 Pfizer, Inc. 9,778
205,800 Sanofi ADR 8,569
129,600 Teva Pharmaceutical Industries Ltd. ADR 7,968
----------
65,127
----------
Total Health Care 155,087
----------
================================================================================
16 | USAA GROWTH & INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
INDUSTRIALS (16.0%)
-------------------
AEROSPACE & DEFENSE (5.5%)
65,360 Boeing Co. $ 7,852
49,300 General Dynamics Corp. 6,595
130,130 Honeywell International, Inc. 13,430
57,500 Raytheon Co. 7,374
643,000 Rolls-Royce Holdings plc ADR 5,163
456,000 Spirit AeroSystems Holdings, Inc. "A"* 19,334
42,580 TransDigm Group, Inc.* 9,569
94,405 United Technologies Corp. 8,278
----------
77,595
----------
AGRICULTURAL & FARM MACHINERY (0.4%)
69,200 Deere & Co. 5,329
----------
AIR FREIGHT & LOGISTICS (0.6%)
62,055 FedEx Corp. 8,246
----------
AIRLINES (1.8%)
287,625 Southwest Airlines Co. 10,821
293,380 United Continental Holdings, Inc.* 14,164
----------
24,985
----------
BUILDING PRODUCTS (0.8%)
253,600 Owens Corning, Inc. 11,714
----------
CONSTRUCTION & ENGINEERING (0.3%)
300,400 KBR, Inc. 4,283
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
96,472 Eaton Corp. plc 4,873
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.6%)
186,700 Republic Services, Inc. 8,159
----------
INDUSTRIAL CONGLOMERATES (0.7%)
331,556 General Electric Co. 9,648
----------
INDUSTRIAL MACHINERY (1.4%)
100,000 Illinois Tool Works, Inc. 9,007
55,500 SPX Flow, Inc.* 1,323
101,800 Stanley Black & Decker, Inc. 9,604
----------
19,934
----------
RAILROADS (2.3%)
193,800 Canadian Pacific Railway Ltd. 23,204
120,790 Kansas City Southern 8,561
----------
31,765
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
RESEARCH & CONSULTING SERVICES (0.7%)
193,600 Nielsen Holdings plc $ 9,324
----------
SECURITY & ALARM SERVICES (0.6%)
239,800 Tyco International plc 8,247
----------
Total Industrials 224,102
----------
INFORMATION TECHNOLOGY (19.2%)
------------------------------
APPLICATION SOFTWARE (1.2%)
122,200 Adobe Systems, Inc.* 10,892
90,000 Citrix Systems, Inc.* 6,341
------------
17,233
----------
COMMUNICATIONS EQUIPMENT (2.3%)
943,600 Juniper Networks, Inc. 22,269
226,300 QUALCOMM, Inc. 10,260
----------
32,529
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.3%)
16,000 Alliance Data Systems Corp.* 3,197
195,960 Visa, Inc. "A" 14,597
----------
17,794
----------
INTERNET SOFTWARE & SERVICES (3.7%)
31,416 Alphabet, Inc. "A"* 23,918
245,100 Facebook, Inc. "A"* 27,503
----------
51,421
----------
IT CONSULTING & OTHER SERVICES (0.2%)
40,000 Cognizant Technology Solutions Corp. "A"* 2,532
----------
SEMICONDUCTOR EQUIPMENT (0.9%)
524,500 Applied Materials, Inc. 9,257
55,000 Lam Research Corp. 3,949
----------
13,206
----------
SEMICONDUCTORS (5.2%)
367,000 Broadcom Corp. "A" 20,064
424,200 Intel Corp. 13,159
182,800 Microchip Technology, Inc. 8,191
292,245 NXP Semiconductors N.V.* 21,854
185,600 Texas Instruments, Inc. 9,824
----------
73,092
----------
================================================================================
18 | USAA GROWTH & INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (3.5%)
522,935 Microsoft Corp. $ 28,808
560,065 Oracle Corp. 20,336
----------
49,144
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.9%)
121,950 Apple, Inc. 11,871
----------
Total Information Technology 268,822
----------
MATERIALS (3.2%)
----------------
CONSTRUCTION MATERIALS (1.7%)
366,000 CRH plc ADR 9,853
156,190 Vulcan Materials Co. 13,776
----------
23,629
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.9%)
197,400 FMC Corp. 7,051
56,000 Monsanto Co. 5,074
----------
12,125
----------
INDUSTRIAL GASES (0.6%)
68,500 Air Products & Chemicals, Inc. 8,679
----------
Total Materials 44,433
----------
TELECOMMUNICATION SERVICES (1.8%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.7%)
192,640 Verizon Communications, Inc. 9,626
----------
WIRELESS TELECOMMUNICATION SERVICES (1.1%)
286,500 T-Mobile US, Inc.* 11,503
135,727 Vodafone Group plc ADR 4,371
----------
15,874
----------
Total Telecommunication Services 25,500
----------
Total Common Stocks 1,377,779
----------
Total Equity Securities (cost: $1,201,521) 1,377,779
----------
MONEY MARKET INSTRUMENTS (2.0%)
MONEY MARKET FUNDS (2.0%)
28,206,726 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a)
(cost: $28,207) 28,207
----------
TOTAL INVESTMENTS (COST: $1,229,728) $1,405,986
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
($ 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 $1,377,779 $- $- $1,377,779
Money Market Instruments:
Money Market Funds 28,207 - - 28,207
-------------------------------------------------------------------------------------------------------------
Total $1,405,986 $- $- $1,405,986
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2015, through January 31, 2016, 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 GROWTH & INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 7.3% of net assets at
January 31, 2016.
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) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,229,728) $1,405,986
Receivables:
Capital shares sold 5,641
USAA Asset Management Company (Note 6D) 1
Dividends and interest 1,094
Securities sold 655
----------
Total assets 1,413,377
----------
LIABILITIES
Payables:
Securities purchased 14,125
Capital shares redeemed 499
Accrued management fees 765
Accrued transfer agent's fees 68
Other accrued expenses and payables 79
----------
Total liabilities 15,536
----------
Net assets applicable to capital shares outstanding $1,397,841
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,249,200
Accumulated undistributed net investment income 247
Accumulated net realized loss on investments (27,864)
Net unrealized appreciation of investments 176,258
----------
Net assets applicable to capital shares outstanding $1,397,841
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,285,487/69,848 shares outstanding) $ 18.40
==========
Institutional Shares (net assets of $104,720/5,693 shares outstanding) $ 18.39
==========
Adviser Shares (net assets of $7,634/416 shares outstanding) $ 18.35
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA GROWTH & INCOME FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $34) $ 13,166
Interest 36
--------
Total income 13,202
--------
EXPENSES
Management fees 4,734
Administration and servicing fees:
Fund Shares 1,122
Institutional Shares* 4
Adviser Shares 6
Transfer agent's fees:
Fund Shares 1,074
Institutional Shares* 4
Adviser Shares 1
Distribution and service fees (Note 6F):
Adviser Shares 11
Custody and accounting fees:
Fund Shares 95
Adviser Shares 1
Postage:
Fund Shares 64
Shareholder reporting fees:
Fund Shares 27
Trustees' fees 13
Registration fees:
Fund Shares 22
Institutional Shares* 9
Adviser Shares 11
Professional fees 60
Other 14
--------
Total expenses 7,272
Expenses reimbursed:
Institutional Shares* (9)
Adviser Shares (5)
--------
Net expenses 7,258
--------
NET INVESTMENT INCOME 5,944
--------
*Institutional Shares commenced operations on August 7, 2015.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on:
Investments (22,913)
Foreign currency transactions (1)
Change in net unrealized appreciation/(depreciation) (163,313)
---------
Net realized and unrealized loss (186,227)
---------
Decrease in net assets resulting from operations $(180,283)
=========
See accompanying notes to financial statements.
================================================================================
24 | USAA GROWTH & INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
-------------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,944 $ 10,517
Net realized gain (loss) on investments (22,913) 98,872
Net realized loss on foreign currency transactions (1) (5)
Change in net unrealized appreciation/ (depreciation) of investments (163,313) 51,091
-----------------------------
Increase (decrease) in net assets resulting from operations (180,283) 160,475
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (5,657) (12,643)
Institutional Shares* (20) -
Adviser Shares (18) (45)
-----------------------------
Total distributions of net investment income (5,695) (12,688)
-----------------------------
Net realized gains:
Fund Shares (79,462) (183,949)
Institutional Shares* (252) -
Adviser Shares (461) (1,135)
-----------------------------
Total distributions of net realized gains (80,175) (185,084)
-----------------------------
Distributions to shareholders (85,870) (197,772)
-----------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (32,409) 105,598
Institutional Shares* 103,932 -
Adviser Shares 20 50
-----------------------------
Total net increase in net assets from capital
share transactions 71,543 105,648
-----------------------------
Net increase (decrease) in net assets (194,610) 68,351
NET ASSETS
Beginning of period 1,592,451 1,524,100
-----------------------------
End of period $1,397,841 $1,592,451
=============================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ 247 $ (2)
=============================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 & Income Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objectives are to seek capital growth and, secondarily, current income.
The Fund consists of three classes of shares: Growth & Income Fund Shares (Fund
Shares), Growth & Income Fund Adviser Shares (Adviser Shares), and effective
August 7, 2015, a new share class designated Growth & Income 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 GROWTH & INCOME 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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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 GROWTH & INCOME 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. 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. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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, 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
================================================================================
30 | USAA GROWTH & INCOME FUND
================================================================================
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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
expenses. For the six-month period ended January 31, 2016, there were no
custodian and other bank credits.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 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.
================================================================================
32 | USAA GROWTH & INCOME FUND
================================================================================
For the six-month period ended January 31, 2016, the Fund paid CAPCO facility
fees of $4,000, which represents 2.1% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$200,268,000 and $202,076,000, respectively.
As of January 31, 2016, 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 | 33
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $256,949,000 and $80,691,000, respectively, resulting in net
unrealized appreciation of $176,258,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
--------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
FUND SHARES:
Shares sold 3,072 $ 62,425 6,888 $ 151,852
Shares issued from reinvested dividends 4,163 83,881 9,062 193,462
Shares redeemed (9,355) (178,715) (10,934) (239,716)
------------------------------------------------------------
Net increase (decrease)
from capital share transactions (2,120) $ (32,409) 5,016 $ 105,598
============================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 5,693 $ 103,932 - $ -
Shares issued from reinvested dividends - - - -
Shares redeemed - - - -
------------------------------------------------------------
Net increase from capital share transactions 5,693 $ 103,932 - $ -
============================================================
ADVISER SHARES:
Shares sold 2 $ 40 7 $ 143
Shares issued from reinvested dividends 1 18 2 38
Shares redeemed (2) (38) (6) (131)
------------------------------------------------------------
Net increase from capital share transactions 1 $ 20 3 $ 50
============================================================
================================================================================
34 | USAA GROWTH & INCOME FUND
================================================================================
(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 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 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 0.60% 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 Multi-Cap Core Funds Index. The Lipper
Multi-Cap Core Funds Index tracks the total return performance of the 30
largest funds within the Lipper Multi-Cap Core 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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.
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 Multi-Cap Core Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, and for the period from
August 7, 2015, to January 31, 2016, for the Institutional Shares, the Fund
incurred total management fees, paid or payable to the Manager, of
$4,734,000, which included a performance adjustment for the Fund Shares,
Institutional Shares, and Adviser Shares of $199,000, less than $500, and
$1,000, respectively. For the Fund Shares, Institutional Shares, and
Adviser Shares, the performance adjustments were 0.03%, less than 0.01%,
and 0.01%, respectively.
B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into an Investment
Subadvisory Agreement with Barrow, Hanley, Mewhinney & Strauss,
================================================================================
36 | USAA GROWTH & INCOME FUND
================================================================================
LLC (BHMS), under which BHMS 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 BHMS a subadvisory fee based on the
aggregate net assets that BHMS manages in the USAA Value Fund and the USAA
Growth & Income Fund combined, in an annual amount of 0.75% on the first
$15 million of assets, 0.55% on assets over $15 million and up to $25
million, 0.45% on assets over $25 million and up to $100 million, 0.35% on
assets over $100 million and up to $200 million, 0.25% on assets over $200
million and up to $1 billion, and 0.15% on assets over $1 billion. For the
six-month period ended January 31, 2016, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to BHMS, of $664,000.
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 January 31, 2016 (and for the period from August 7, 2015, to
January 31, 2016, for the Institutional Shares), for the Fund Shares,
Institutional Shares and Adviser Shares incurred administration and
servicing fees, paid or payable to the Manager, of $1,122,000, $4,000, and
$6,000, 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 January 31, 2016, the Fund reimbursed the
Manager $19,000 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 December 1, 2016, to
limit the total annual operating expenses of the Institutional Shares and
Adviser Shares to 0.85% and 1.20%, respectively, of their average net
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Institutional Shares and
the Adviser Shares for all expenses in excess of that amount. This expense
limitation arrangement may not be changed or terminated through December 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
January 31, 2016 (and for the period from August 7, 2015, to January 31,
2016, for the Institutional Shares), Institutional Shares, and Adviser
Shares incurred reimbursable expenses from the Manager of $9,000 and $5,000,
respectively, of which $1,000 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 January 31, 2016 (and for the period from August
7, 2015, to January 31, 2016, for the Institutional Shares), the Fund
Shares, Institutional Shares, and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $1,074,000, $4,000, and $1,000,
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
================================================================================
38 | USAA GROWTH & INCOME FUND
================================================================================
initial sales charge or a contingent deferred sales charge. For the six-
month period ended January 31, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $11,000.
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 fee or other compensation for
these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2016, USAA and its affiliates owned 226,000 Institutional Shares and 398,000
Adviser Shares, which represents 4.0% of the Institutional Shares, 95.6% of the
Adviser Shares, and 0.8% 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 | 39
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 22.00 $ 22.63 $ 19.39 $ 15.44 $ 15.24 $ 13.06
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .17 .21 .18 .14 .11
Net realized and
unrealized gain (loss) (2.49) 2.14 3.24 3.95 .20 2.17
-----------------------------------------------------------------------------------
Total from investment
operations (2.41) 2.31 3.45 4.13 .34 2.28
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.18) (.21) (.18) (.14) (.10)
Realized capital gains (1.11) (2.76) - - - -
-----------------------------------------------------------------------------------
Total distributions (1.19) (2.94) (.21) (.18) (.14) (.10)
-----------------------------------------------------------------------------------
Net asset value
at end of period $ 18.40 $ 22.00 $ 22.63 $ 19.39 $ 15.44 $ 15.24
===================================================================================
Total return (%)* (11.41) 10.70 17.86 26.90 2.28 17.50
Net assets at
end of period (000) $1,285,487 $1,583,353 $1,514,795 $1,418,296 $1,152,540 $1,153,199
Ratios to average
net assets:**
Expenses (%)(a) .96(d) .93 .94 .96 1.01 .98
Net investment
income (%) .79(d) .66 .97 1.04 .93 .72
Portfolio turnover (%) 14 35 61(c) 112(b) 51 52
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,484,483,000.
(a) Reflects total 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) Reflects increased trading activity due to changes in subadviser(s).
(c) Reflects decreased trading activity due to changes in subadviser(s).
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA GROWTH & INCOME FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JANUARY 31, 2016***
-------------------
Net asset value at beginning of period $ 21.83
--------
Income (loss) from investment operations:
Net investment income(b) .03
Net realized and unrealized loss(b) (2.27)
--------
Total from investment operations(b) (2.24)
--------
Less distributions from:
Net investment income (.09)
Realized capital gains (1.11)
--------
Total distributions (1.20)
--------
Net asset value at end of period $ 18.39
========
Total return (%)* (11.79)
Net assets at end of period (000) $104,720
Ratios to average net assets:**
Expenses (%)(a) .79
Expenses, excluding reimbursements (%)(a) 1.02
Net investment income (%)(a) .65
Portfolio turnover (%) 14
* 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 January 31, 2016, average net assets were $8,391,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using average shares. For the six-month period ended
January 31, 2016, the average shares were 1,007,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(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
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
----------------------------------------------------------------------------------
Net asset value at beginning
of period $ 21.93 $22.56 $19.34 $15.42 $15.22 $13.34
-----------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .06(f) .10 .15 .12 .10 .05
Net realized and
unrealized gain (loss) (2.49)(f) 2.14 3.23 3.93 .20 1.90
-----------------------------------------------------------------------------
Total from investment
operations (2.43)(f) 2.24 3.38 4.05 .30 1.95
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.04) (.11) (.16) (.13) (.10) (.07)
Realized capital gains (1.11) (2.76) - - - -
-----------------------------------------------------------------------------
Total distributions (1.15) (2.87) (.16) (.13) (.10) (.07)
-----------------------------------------------------------------------------
Net asset value at end
of period $ 18.35 $21.93 $22.56 $19.34 $15.42 $15.22
=============================================================================
Total return (%)* (11.51) 10.40 17.51 26.37 2.02 14.65
Net assets at end
of period (000) $ 7,634 $9,098 $9,305 $7,919 $6,223 $6,151
Ratios to average net assets:**
Expenses (%)(a) 1.20(b) 1.22(e) 1.22 1.30 1.30 1.30(b)
Expenses, excluding
reimbursements (%)(a) 1.31(b) 1.27 1.22 1.39 1.43 1.83(b)
Net investment income (%) .55(b) .37 .70 .70 .64 .35(b)
Portfolio turnover (%) 14 35 61(d) 112(c) 51 52
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$8,464,000.
*** Adviser Shares commenced operations on August 1, 2010.
(a) Reflects total 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) Reflects increased trading activity due to changes in subadviser(s).
(d) Reflects decreased trading activity due to changes in subadviser(s).
(e) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.30% of the Adviser Shares'
average net assets.
(f) Calculated using average shares. For the six-month period ended
January 31, 2016, the average shares were 415,000.
================================================================================
42 | USAA GROWTH & INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
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 | 43
================================================================================
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 885.90 $4.55
Hypothetical
(5% return before expenses) 1,000.00 1,020.31 4.88
INSTITUTIONAL SHARES*
Actual 1,000.00 882.10 3.53
Hypothetical
(5% return before expenses) 1,000.00 1,020.01 3.79
ADVISER SHARES
Actual 1,000.00 884.90 5.69
Hypothetical
(5% return before expenses) 1,000.00 1,019.10 6.09
*Institutional Shares commenced operations on August 7, 2015.
**Expenses are equal to the annualized expense ratio of 0.96% for Fund Shares,
0.79% for Institutional Shares, and 1.20% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 days/366 days for Fund Shares
and Adviser Shares (to reflect the one-half-year period) or 174 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 (11.41)% for Fund Shares and (11.51)%
for Adviser Shares for the six-month period of August 1, 2015, through January
31, 2016, and (11.79)% for Institutional Shares for the period of August 7,
2015, through January 31, 2016.
================================================================================
44 | USAA GROWTH & INCOME 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)
=============================================================================
23432-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA HIGH INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA HIGH INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
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That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 17
Notes to Portfolio of Investments 39
Financial Statements 43
Notes to Financial Statements 47
EXPENSE EXAMPLE 66
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.
202741-0316
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FUND OBJECTIVE
THE USAA HIGH INCOME FUND (THE FUND) SEEKS TO PROVIDE AN ATTRACTIVE TOTAL RETURN
PRIMARILY THROUGH HIGH CURRENT INCOME AND SECONDARILY THROUGH CAPITAL
APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund primarily invests its assets in a broad range of U.S. dollar-
denominated high-yield securities, including bonds (often referred to as "junk"
bonds), convertible securities, leveraged loans, or preferred stocks, with an
emphasis on non-investment-grade debt securities. Although the Fund will invest
primarily in U.S. securities, it may invest without limit in dollar-denominated
foreign securities and to a limited extent in non-dollar-denominated foreign
securities, including in each case emerging markets securities. The Fund also
may use derivatives or various other investment techniques to increase or
decrease its exposure to changing security prices or other factors that affect
security prices.
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 R. MATTHEW FREUND] [PHOTO OF JULIANNE BASS]
R. MATTHEW FREUND, CFA JULIANNE BASS, CFA
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Longer-term interest rates fell during the reporting period ended January
31, 2016, pushed lower by economic uncertainty. China was at the epicenter
of concern, as that country's slowing pace of growth threatened to hinder
the broader global economy. Investors also worried about plummeting oil and
commodity prices, which are widely considered to be evidence of global
economic weakness. In the United States, economic data was mixed during the
reporting period, with slower-than-expected growth in the fourth quarter of
2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell
from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from
2.85% to 2.74%, during the reporting period. These lower yields tend to
reflect changing expectations about the U.S. economy.
Shorter-term interest rates, which are more correlated to action by the
Federal Reserve (the Fed), rose during the reporting period in anticipation
of an interest rate increase. In December 2015, the Fed lifted the target
federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it
intended to proceed gradually with interest rate increases based on the
performance of the U.S. economy. In January 2016, the Fed chose not to raise
interest rates amid increased uncertainty about financial and economic
conditions.
In this environment, the U.S. Treasury yield curve experienced a "bear
flattening." In a bear flattening, short-term interest rates increase faster
than longer-term interest rates (though during the reporting period,
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2 | USAA HIGH INCOME FUND
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o 10-YEAR TREASURY YIELDS o
[CHART OF 10-YEAR TREASURY YIELDS]
DATE YIELD IN PERCENT
7/31/2015 2.18
8/3/2015 2.15
8/4/2015 2.22
8/5/2015 2.27
8/6/2015 2.22
8/7/2015 2.16
8/10/2015 2.23
8/11/2015 2.14
8/12/2015 2.15
8/13/2015 2.19
8/14/2015 2.20
8/17/2015 2.17
8/18/2015 2.19
8/19/2015 2.13
8/20/2015 2.07
8/21/2015 2.04
8/24/2015 2.00
8/25/2015 2.07
8/26/2015 2.18
8/27/2015 2.18
8/28/2015 2.18
8/31/2015 2.22
9/1/2015 2.15
9/2/2015 2.18
9/3/2015 2.16
9/4/2015 2.12
9/7/2015 2.12
9/8/2015 2.18
9/9/2015 2.20
9/10/2015 2.22
9/11/2015 2.19
9/14/2015 2.18
9/15/2015 2.29
9/16/2015 2.29
9/17/2015 2.19
9/18/2015 2.13
9/21/2015 2.20
9/22/2015 2.13
9/23/2015 2.15
9/24/2015 2.13
9/25/2015 2.16
9/28/2015 2.09
9/29/2015 2.05
9/30/2015 2.04
10/1/2015 2.04
10/2/2015 1.99
10/5/2015 2.06
10/6/2015 2.03
10/7/2015 2.07
10/8/2015 2.10
10/9/2015 2.09
10/12/2015 2.09
10/13/2015 2.04
10/14/2015 1.97
10/15/2015 2.02
10/16/2015 2.03
10/19/2015 2.02
10/20/2015 2.07
10/21/2015 2.02
10/22/2015 2.03
10/23/2015 2.09
10/26/2015 2.06
10/27/2015 2.04
10/28/2015 2.10
10/29/2015 2.17
10/30/2015 2.14
11/2/2015 2.17
11/3/2015 2.21
11/4/2015 2.23
11/5/2015 2.23
11/6/2015 2.33
11/9/2015 2.34
11/10/2015 2.34
11/11/2015 2.33
11/12/2015 2.31
11/13/2015 2.27
11/16/2015 2.27
11/17/2015 2.27
11/18/2015 2.27
11/19/2015 2.25
11/20/2015 2.26
11/23/2015 2.24
11/24/2015 2.24
11/25/2015 2.23
11/26/2015 2.23
11/27/2015 2.22
11/30/2015 2.21
12/1/2015 2.14
12/2/2015 2.18
12/3/2015 2.31
12/4/2015 2.27
12/7/2015 2.23
12/8/2015 2.22
12/9/2015 2.22
12/10/2015 2.23
12/11/2015 2.13
12/14/2015 2.22
12/15/2015 2.27
12/16/2015 2.30
12/17/2015 2.22
12/18/2015 2.20
12/21/2015 2.19
12/22/2015 2.24
12/23/2015 2.25
12/24/2015 2.24
12/25/2015 2.24
12/28/2015 2.23
12/29/2015 2.31
12/30/2015 2.29
12/31/2015 2.27
1/1/2016 2.27
1/4/2016 2.24
1/5/2016 2.24
1/6/2016 2.17
1/7/2016 2.15
1/8/2016 2.12
1/11/2016 2.18
1/12/2016 2.10
1/13/2016 2.09
1/14/2016 2.09
1/15/2016 2.03
1/18/2016 2.03
1/19/2016 2.06
1/20/2016 1.98
1/21/2016 2.03
1/22/2016 2.05
1/25/2016 2.00
1/26/2016 1.99
1/27/2016 2.00
1/28/2016 1.98
1/29/2016 1.92
[END CHART]
Source: Bloomberg Finance L.P.
longer-term interest rates actually trended down), thereby creating a
flatter yield curve. This generally indicates that investor sentiment is
becoming more "bearish."
As longer-term interest rates fell, the prices of longer-maturity securities
edged up (bond prices and yields move in opposite directions). Credit
spreads widened across the credit spectrum, with single A, BBB, and
below investment-grade "high-yield" spreads widening 19 basis points, 58
basis points, and 221 basis points, respectively. A basis point is 1/100th
of a percent. Spreads (yield differentials versus U.S. Treasury securities
of comparable maturity) generally are considered an indication of risk; the
wider the spread, the greater the risk.
High-yield bond prices, which have historically weakened when economic
growth decelerates, dropped during the reporting period. Interestingly, a
decline in the high-yield bond market often precedes a fall in U.S. stock
prices. As can be seen in the comparative returns chart,
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MANAGERS' COMMENTARY ON THE FUND | 3
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o U.S. TREASURY YIELD CURVE o
[CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD
--------------------------------- (CHANGE IN
MATURITY 7/01/15 1/31/16 BASIS POINTS)
1M 0.008 0.221 21.4
3M 0.018 0.313 29.5
6M 0.114 0.428 31.3
1Y 0.273 0.451 17.9
2Y 0.69 0.776 8.5
3Y 1.064 0.968 -9.7
5Y 1.706 1.329 -37.7
7Y 2.146 1.668 -47.7
10Y 2.423 1.922 -50.1
30Y 3.202 2.744 -45.8
[END CHART]
Source: Bloomberg Finance L.P.
high-yield bonds underperformed stocks until January 2016, when stocks fell
and began to exhibit performance similar to high-yield bonds. Overall,
during the reporting period, high-yield securities underperformed both
stocks and intermediate-term treasury bonds - a departure from the asset
class' long-term track record. Historically, high-yield securities tend to
perform between stocks and high-quality bonds, with generally less
volatility. High-yield bonds were pressured by the steep drop in oil prices
and the deteriorating outlook for energy companies, especially exploration
and production companies. Weakness in the metals and mining sector, driven
by falling commodity prices, also negatively affected the performance of
high-yield bonds.
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4 | USAA HIGH INCOME FUND
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o THREE-YEAR COMPARATIVE RETURNS o
[CHART OF THREE-YEAR COMPARATIVE RETURNS]
CITI U.S. TREASURY
S&P 500 10-YEAR USAA HIGH
DATE INDEX DATE INDEX DATE INCOME FUND
1/31/2016 0.00% 1/31/2013 0.00% 1/31/2013 0.00%
2/1/2013 1.01 2/1/2013 -0.24 2/1/2013 0.23
2/4/2013 -0.16 2/4/2013 0.14 2/4/2013 0
2/5/2013 0.9 2/5/2013 -0.21 2/5/2013 0.11
2/6/2013 0.96 2/6/2013 0.21 2/6/2013 0.11
2/7/2013 0.82 2/7/2013 0.35 2/7/2013 0
2/8/2013 1.39 2/8/2013 0.32 2/8/2013 0
2/11/2013 1.34 2/11/2013 0.4 2/11/2013 0
2/12/2013 1.5 2/12/2013 0.08 2/12/2013 0.11
2/13/2013 1.61 2/13/2013 -0.23 2/13/2013 0.23
2/14/2013 1.69 2/14/2013 0.19 2/14/2013 0.34
2/15/2013 1.6 2/15/2013 0.15 2/15/2013 0.46
2/21/2013 0.48 2/21/2013 0.44 2/21/2013 0.46
2/22/2013 1.37 2/22/2013 0.52 2/22/2013 0.57
2/25/2013 -0.48 2/25/2013 1.17 2/25/2013 0.57
2/26/2013 0.14 2/26/2013 1.32 2/26/2013 0.62
2/27/2013 1.44 2/27/2013 1.11 2/27/2013 0.74
2/28/2013 1.36 2/28/2013 1.26 2/28/2013 0.85
3/1/2013 1.59 3/1/2013 1.58 3/1/2013 0.97
3/4/2013 2.06 3/4/2013 1.39 3/4/2013 0.97
3/5/2013 3.04 3/5/2013 1.24 3/5/2013 1.08
3/6/2013 3.18 3/6/2013 0.84 3/6/2013 1.2
3/7/2013 3.38 3/7/2013 0.36 3/7/2013 1.31
3/8/2013 3.85 3/8/2013 -0.21 3/8/2013 1.43
3/11/2013 4.2 3/11/2013 -0.21 3/11/2013 1.54
3/12/2013 3.95 3/12/2013 0.1 3/12/2013 1.65
3/13/2013 4.13 3/13/2013 0.14 3/13/2013 1.65
3/14/2013 4.71 3/14/2013 0 3/14/2013 1.88
3/15/2013 4.54 3/15/2013 0.34 3/15/2013 1.88
3/18/2013 3.97 3/18/2013 0.75 3/18/2013 1.88
3/19/2013 3.72 3/19/2013 1.18 3/19/2013 1.88
3/20/2013 4.41 3/20/2013 0.92 3/20/2013 1.88
3/21/2013 3.55 3/21/2013 0.98 3/21/2013 1.88
3/22/2013 4.29 3/22/2013 1.15 3/22/2013 2
3/25/2013 3.94 3/25/2013 1.15 3/25/2013 2
3/26/2013 4.79 3/26/2013 1.23 3/26/2013 2
3/27/2013 4.73 3/27/2013 1.74 3/27/2013 2.01
3/28/2013 5.16 3/28/2013 1.66 3/28/2013 2.13
4/1/2013 4.69 4/1/2013 1.86 4/1/2013 2.13
4/3/2013 4.15 4/3/2013 2.12 4/3/2013 2.24
4/5/2013 4.13 4/5/2013 3.22 4/5/2013 2.36
4/8/2013 4.82 4/8/2013 2.87 4/8/2013 2.36
4/9/2013 5.19 4/9/2013 2.74 4/9/2013 2.47
4/10/2013 6.48 4/10/2013 2.24 4/10/2013 2.7
4/11/2013 6.87 4/11/2013 2.37 4/11/2013 2.93
4/12/2013 6.56 4/12/2013 2.99 4/12/2013 2.93
4/15/2013 4.12 4/15/2013 3.19 4/15/2013 2.7
4/16/2013 5.61 4/16/2013 3.05 4/16/2013 2.82
4/17/2013 4.09 4/17/2013 3.21 4/17/2013 2.7
4/18/2013 3.4 4/18/2013 3.38 4/18/2013 2.7
4/19/2013 4.32 4/19/2013 3.19 4/19/2013 2.82
4/22/2013 4.81 4/22/2013 3.26 4/22/2013 2.93
4/23/2013 5.9 4/23/2013 3.26 4/23/2013 3.05
4/24/2013 5.91 4/24/2013 3.28 4/24/2013 3.28
4/25/2013 6.34 4/25/2013 3.16 4/25/2013 3.39
4/26/2013 6.15 4/26/2013 3.58 4/26/2013 3.53
4/29/2013 6.92 4/29/2013 3.58 4/29/2013 3.76
4/30/2013 7.18 4/30/2013 3.52 4/30/2013 3.88
5/1/2013 6.19 5/1/2013 3.89 5/1/2013 4.11
5/2/2013 7.2 5/2/2013 3.95 5/2/2013 4.22
5/3/2013 8.34 5/3/2013 2.92 5/3/2013 4.45
5/6/2013 8.55 5/6/2013 2.66 5/6/2013 4.57
5/7/2013 9.12 5/7/2013 2.57 5/7/2013 4.8
5/8/2013 9.62 5/8/2013 2.77 5/8/2013 4.92
5/9/2013 9.27 5/9/2013 2.72 5/9/2013 5.03
5/10/2013 9.74 5/10/2013 1.95 5/10/2013 4.92
5/13/2013 9.76 5/13/2013 1.78 5/13/2013 4.8
5/14/2013 10.89 5/14/2013 1.48 5/14/2013 4.8
5/15/2013 11.49 5/15/2013 1.59 5/15/2013 4.8
5/16/2013 10.94 5/16/2013 2.26 5/16/2013 4.8
5/17/2013 12.09 5/17/2013 1.52 5/17/2013 4.92
5/20/2013 12.01 5/20/2013 1.44 5/20/2013 4.92
5/21/2013 12.2 5/21/2013 1.64 5/21/2013 5.03
5/22/2013 11.29 5/22/2013 0.89 5/22/2013 4.92
5/23/2013 10.98 5/23/2013 0.92 5/23/2013 4.69
5/24/2013 10.92 5/24/2013 1.04 5/24/2013 4.69
5/28/2013 11.63 5/28/2013 -0.03 5/28/2013 4.57
5/29/2013 10.86 5/29/2013 0.02 5/29/2013 4.16
5/31/2013 9.69 5/31/2013 -0.31 5/31/2013 3.93
6/3/2013 10.35 6/3/2013 -0.02 6/3/2013 3.69
6/5/2013 8.26 6/5/2013 0.28 6/5/2013 3
6/6/2013 9.2 6/6/2013 0.53 6/6/2013 3
6/7/2013 10.6 6/7/2013 -0.24 6/7/2013 3.35
6/10/2013 10.57 6/10/2013 -0.71 6/10/2013 3.23
6/11/2013 9.45 6/11/2013 -0.51 6/11/2013 2.65
6/12/2013 8.56 6/12/2013 -0.83 6/12/2013 2.42
6/13/2013 10.18 6/13/2013 -0.34 6/13/2013 2.42
6/14/2013 9.53 6/14/2013 0.13 6/14/2013 2.65
6/17/2013 10.36 6/17/2013 -0.3 6/17/2013 2.88
6/18/2013 11.22 6/18/2013 -0.38 6/18/2013 3
6/19/2013 9.68 6/19/2013 -1.57 6/19/2013 2.77
6/20/2013 6.96 6/20/2013 -2.45 6/20/2013 1.61
6/21/2013 7.24 6/21/2013 -3.29 6/21/2013 1.26
6/24/2013 5.94 6/24/2013 -3.53 6/24/2013 0.45
6/25/2013 6.96 6/25/2013 -3.92 6/25/2013 0.33
6/26/2013 8 6/26/2013 -3.48 6/26/2013 0.57
6/27/2013 8.68 6/27/2013 -2.94 6/27/2013 1.04
6/28/2013 8.22 6/28/2013 -2.92 6/28/2013 1.27
7/1/2013 8.81 7/1/2013 -2.97 7/1/2013 1.39
7/2/2013 8.78 7/2/2013 -2.83 7/2/2013 1.39
7/3/2013 8.87 7/3/2013 -3.09 7/3/2013 1.39
7/5/2013 9.98 7/5/2013 -4.91 7/5/2013 1.15
7/8/2013 10.59 7/8/2013 -4.31 7/8/2013 1.15
7/9/2013 11.39 7/9/2013 -4.15 7/9/2013 1.39
7/11/2013 12.94 7/11/2013 -3.68 7/11/2013 2.08
7/12/2013 13.29 7/12/2013 -3.9 7/12/2013 2.2
7/15/2013 13.44 7/15/2013 -3.46 7/15/2013 2.43
7/17/2013 13.35 7/17/2013 -2.92 7/17/2013 2.78
7/18/2013 13.93 7/18/2013 -3.29 7/18/2013 3.02
7/19/2013 14.12 7/19/2013 -2.89 7/19/2013 3.13
7/22/2013 14.35 7/22/2013 -2.88 7/22/2013 3.25
7/23/2013 14.14 7/23/2013 -3.1 7/23/2013 3.37
7/24/2013 13.71 7/24/2013 -3.71 7/24/2013 3.13
7/25/2013 14 7/25/2013 -3.85 7/25/2013 2.9
7/26/2013 14.1 7/26/2013 -3.44 7/26/2013 2.9
7/29/2013 13.68 7/29/2013 -3.65 7/29/2013 2.98
7/30/2013 13.72 7/30/2013 -3.79 7/30/2013 2.98
7/31/2013 13.72 7/31/2013 -3.66 7/31/2013 2.98
8/1/2013 15.16 8/1/2013 -4.8 8/1/2013 2.98
8/2/2013 15.35 8/2/2013 -3.75 8/2/2013 2.98
8/5/2013 15.19 8/5/2013 -4.05 8/5/2013 2.98
8/6/2013 14.54 8/6/2013 -4.07 8/6/2013 2.98
8/7/2013 14.14 8/7/2013 -3.71 8/7/2013 2.86
8/8/2013 14.61 8/8/2013 -3.51 8/8/2013 2.98
8/9/2013 14.22 8/9/2013 -3.48 8/9/2013 2.98
8/12/2013 14.09 8/12/2013 -3.69 8/12/2013 2.98
8/13/2013 14.43 8/13/2013 -4.63 8/13/2013 2.86
8/14/2013 13.86 8/14/2013 -4.61 8/14/2013 2.86
8/15/2013 12.26 8/15/2013 -4.96 8/15/2013 2.51
8/16/2013 11.89 8/16/2013 -5.64 8/16/2013 2.51
8/19/2013 11.24 8/19/2013 -6.12 8/19/2013 2.28
8/20/2013 11.67 8/20/2013 -5.53 8/20/2013 2.28
8/21/2013 11.03 8/21/2013 -5.86 8/21/2013 2.04
8/22/2013 11.99 8/22/2013 -6.23 8/22/2013 2.04
8/23/2013 12.45 8/23/2013 -5.56 8/23/2013 2.16
8/26/2013 11.99 8/26/2013 -5.44 8/26/2013 2.28
8/27/2013 10.21 8/27/2013 -4.71 8/27/2013 2.16
8/28/2013 10.54 8/28/2013 -5.2 8/28/2013 2.22
8/29/2013 10.77 8/29/2013 -4.9 8/29/2013 2.22
8/30/2013 10.43 8/30/2013 -4.9 8/30/2013 2.22
9/3/2013 10.9 9/3/2013 -5.7 9/3/2013 2.34
9/4/2013 11.82 9/4/2013 -6.07 9/4/2013 2.22
9/5/2013 11.96 9/5/2013 -6.73 9/5/2013 2.1
9/6/2013 11.98 9/6/2013 -6.4 9/6/2013 2.22
9/10/2013 13.94 9/10/2013 -6.53 9/10/2013 2.34
9/11/2013 14.3 9/11/2013 -6.2 9/11/2013 2.34
9/12/2013 13.95 9/12/2013 -6.11 9/12/2013 2.45
9/13/2013 14.26 9/13/2013 -6.01 9/13/2013 2.57
9/17/2013 15.39 9/17/2013 -5.62 9/17/2013 2.81
9/18/2013 16.8 9/18/2013 -4.34 9/18/2013 3.16
9/19/2013 16.6 9/19/2013 -4.74 9/19/2013 3.4
9/20/2013 15.76 9/20/2013 -4.6 9/20/2013 3.4
9/23/2013 15.22 9/23/2013 -4.43 9/23/2013 3.28
9/24/2013 14.93 9/24/2013 -3.93 9/24/2013 3.28
9/25/2013 14.62 9/25/2013 -3.59 9/25/2013 3.28
9/26/2013 15.04 9/26/2013 -3.83 9/26/2013 3.3
9/27/2013 14.58 9/27/2013 -3.61 9/27/2013 3.19
9/30/2013 13.89 9/30/2013 -3.58 9/30/2013 3.07
10/1/2013 14.81 10/1/2013 -3.83 10/1/2013 3.19
10/2/2013 14.76 10/2/2013 -3.65 10/2/2013 3.19
10/3/2013 13.73 10/3/2013 -3.49 10/3/2013 3.19
10/4/2013 14.53 10/4/2013 -3.82 10/4/2013 3.3
10/7/2013 13.56 10/7/2013 -3.67 10/7/2013 3.3
10/8/2013 12.19 10/8/2013 -3.66 10/8/2013 3.3
10/9/2013 12.27 10/9/2013 -3.8 10/9/2013 3.3
10/10/2013 14.74 10/10/2013 -4.09 10/10/2013 3.42
10/11/2013 15.46 10/11/2013 -4.05 10/11/2013 3.66
10/14/2013 15.93 10/14/2013 -4.03 10/14/2013 3.66
10/15/2013 15.11 10/15/2013 -4.34 10/15/2013 3.66
10/16/2013 16.71 10/16/2013 -3.92 10/16/2013 3.9
10/17/2013 17.51 10/17/2013 -3.21 10/17/2013 4.25
10/18/2013 18.28 10/18/2013 -3.21 10/18/2013 4.49
10/21/2013 18.29 10/21/2013 -3.36 10/21/2013 4.61
10/22/2013 18.97 10/22/2013 -2.55 10/22/2013 4.84
10/23/2013 18.41 10/23/2013 -2.33 10/23/2013 4.84
10/24/2013 18.8 10/24/2013 -2.6 10/24/2013 4.96
10/25/2013 19.32 10/25/2013 -2.44 10/25/2013 5.2
10/28/2013 19.48 10/28/2013 -2.53 10/28/2013 5.2
10/29/2013 20.15 10/29/2013 -2.46 10/29/2013 5.27
10/30/2013 19.58 10/30/2013 -2.63 10/30/2013 5.27
10/31/2013 19.13 10/31/2013 -2.75 10/31/2013 5.27
11/1/2013 19.47 11/1/2013 -3.38 11/1/2013 5.27
11/4/2013 19.9 11/4/2013 -3.19 11/4/2013 5.27
11/5/2013 19.58 11/5/2013 -3.7 11/5/2013 5.15
11/6/2013 20.15 11/6/2013 -3.53 11/6/2013 5.27
11/7/2013 18.6 11/7/2013 -3.26 11/7/2013 5.27
11/8/2013 20.19 11/8/2013 -4.36 11/8/2013 5.04
11/11/2013 20.28 11/11/2013 -4.35 11/11/2013 5.04
11/12/2013 20 11/12/2013 -4.52 11/12/2013 4.92
11/13/2013 21.01 11/13/2013 -4.18 11/13/2013 4.92
11/14/2013 21.62 11/14/2013 -3.82 11/14/2013 5.04
11/15/2013 22.13 11/15/2013 -3.85 11/15/2013 5.15
11/18/2013 21.68 11/18/2013 -3.59 11/18/2013 5.39
11/19/2013 21.46 11/19/2013 -3.84 11/19/2013 5.39
11/20/2013 21.02 11/20/2013 -4.45 11/20/2013 5.27
11/21/2013 22.01 11/21/2013 -4.4 11/21/2013 5.39
11/22/2013 22.64 11/22/2013 -4.14 11/22/2013 5.51
11/25/2013 22.48 11/25/2013 -4.03 11/25/2013 5.63
11/26/2013 22.52 11/26/2013 -3.65 11/26/2013 5.64
11/27/2013 22.85 11/27/2013 -3.98 11/27/2013 5.76
11/29/2013 22.76 11/29/2013 -4.02 11/29/2013 5.76
12/2/2013 22.43 12/2/2013 -4.49 12/2/2013 5.76
12/3/2013 22.04 12/3/2013 -4.26 12/3/2013 5.76
12/4/2013 21.92 12/4/2013 -4.79 12/4/2013 5.64
12/5/2013 21.39 12/5/2013 -4.98 12/5/2013 5.76
12/9/2013 23 12/9/2013 -4.89 12/9/2013 5.77
12/10/2013 22.61 12/10/2013 -4.39 12/10/2013 5.89
12/11/2013 21.23 12/11/2013 -4.78 12/11/2013 5.89
12/12/2013 20.81 12/12/2013 -5.04 12/12/2013 5.77
12/13/2013 20.8 12/13/2013 -4.95 12/13/2013 5.89
12/17/2013 21.19 12/17/2013 -4.71 12/17/2013 5.93
12/18/2013 23.21 12/18/2013 -5.06 12/18/2013 6.05
12/19/2013 23.15 12/19/2013 -5.38 12/19/2013 6.05
12/20/2013 23.74 12/20/2013 -5.05 12/20/2013 6.18
12/23/2013 24.42 12/23/2013 -5.38 12/23/2013 6.18
12/24/2013 24.79 12/24/2013 -5.81 12/24/2013 6.18
12/26/2013 25.38 12/26/2013 -5.86 12/26/2013 6.3
12/27/2013 25.36 12/27/2013 -5.95 12/27/2013 6.3
12/30/2013 25.35 12/30/2013 -5.72 12/30/2013 6.42
12/31/2013 25.86 12/31/2013 -5.94 12/31/2013 6.42
1/2/2014 24.76 1/2/2014 -5.75 1/2/2014 6.54
1/3/2014 24.72 1/3/2014 -5.81 1/3/2014 6.67
1/6/2014 24.41 1/6/2014 -5.52 1/6/2014 6.79
1/7/2014 25.17 1/7/2014 -5.32 1/7/2014 6.91
1/8/2014 25.18 1/8/2014 -5.76 1/8/2014 6.91
1/9/2014 25.22 1/9/2014 -5.51 1/9/2014 7.03
1/10/2014 25.51 1/10/2014 -4.68 1/10/2014 7.28
1/13/2014 23.95 1/13/2014 -4.38 1/13/2014 7.28
1/14/2014 25.29 1/14/2014 -4.73 1/14/2014 7.28
1/15/2014 25.94 1/15/2014 -4.84 1/15/2014 7.4
1/16/2014 25.77 1/16/2014 -4.51 1/16/2014 7.52
1/17/2014 25.28 1/17/2014 -4.36 1/17/2014 7.52
1/21/2014 25.63 1/21/2014 -4.29 1/21/2014 7.65
1/22/2014 25.72 1/22/2014 -4.6 1/22/2014 7.65
1/23/2014 24.6 1/23/2014 -3.87 1/23/2014 7.65
1/24/2014 22 1/24/2014 -3.55 1/24/2014 7.4
1/27/2014 21.41 1/27/2014 -3.78 1/27/2014 7.28
1/28/2014 22.16 1/28/2014 -3.63 1/28/2014 7.4
1/30/2014 22.3 1/30/2014 -3.18 1/30/2014 7.49
1/31/2014 21.5 1/31/2014 -2.91 1/31/2014 7.61
2/3/2014 18.73 2/3/2014 -2.2 2/3/2014 7.49
2/4/2014 19.64 2/4/2014 -2.56 2/4/2014 7.36
2/5/2014 19.44 2/5/2014 -2.91 2/5/2014 7.36
2/6/2014 20.98 2/6/2014 -3.2 2/6/2014 7.61
2/10/2014 22.79 2/10/2014 -2.95 2/10/2014 7.98
2/11/2014 24.15 2/11/2014 -3.3 2/11/2014 8.1
2/12/2014 24.18 2/12/2014 -3.65 2/12/2014 8.22
2/13/2014 24.92 2/13/2014 -3.16 2/13/2014 8.35
2/14/2014 25.53 2/14/2014 -3.27 2/14/2014 8.47
2/18/2014 25.69 2/18/2014 -2.97 2/18/2014 8.59
2/19/2014 24.88 2/19/2014 -3.14 2/19/2014 8.72
2/20/2014 25.65 2/20/2014 -3.3 2/20/2014 8.72
2/21/2014 25.43 2/21/2014 -3.12 2/21/2014 8.96
2/24/2014 26.21 2/24/2014 -3.24 2/24/2014 8.96
2/25/2014 26.04 2/25/2014 -2.83 2/25/2014 9.21
2/26/2014 26.07 2/26/2014 -2.57 2/26/2014 9.22
2/28/2014 27.06 2/28/2014 -2.43 2/28/2014 9.47
3/3/2014 26.13 3/3/2014 -1.98 3/3/2014 9.47
3/4/2014 28.06 3/4/2014 -2.68 3/4/2014 9.47
3/5/2014 28.08 3/5/2014 -2.74 3/5/2014 9.59
3/6/2014 28.32 3/6/2014 -3.06 3/6/2014 9.59
3/7/2014 28.4 3/7/2014 -3.51 3/7/2014 9.47
3/10/2014 28.35 3/10/2014 -3.42 3/10/2014 9.47
3/12/2014 27.77 3/12/2014 -2.91 3/12/2014 9.59
3/13/2014 26.29 3/13/2014 -2.33 3/13/2014 9.59
3/14/2014 25.94 3/14/2014 -2.23 3/14/2014 9.47
3/17/2014 27.15 3/17/2014 -2.65 3/17/2014 9.59
3/18/2014 28.07 3/18/2014 -2.49 3/18/2014 9.72
3/19/2014 27.29 3/19/2014 -3.22 3/19/2014 9.59
3/20/2014 28.06 3/20/2014 -3.26 3/20/2014 9.59
3/21/2014 27.68 3/21/2014 -3.04 3/21/2014 9.72
3/24/2014 27.06 3/24/2014 -2.9 3/24/2014 9.72
3/25/2014 27.63 3/25/2014 -2.91 3/25/2014 9.84
3/26/2014 26.74 3/26/2014 -2.61 3/26/2014 9.84
3/27/2014 26.52 3/27/2014 -2.36 3/27/2014 9.87
3/28/2014 27.12 3/28/2014 -2.69 3/28/2014 10
3/31/2014 28.13 3/31/2014 -2.76 3/31/2014 10.12
4/1/2014 29.04 4/1/2014 -3.04 4/1/2014 10.12
4/2/2014 29.43 4/2/2014 -3.41 4/2/2014 10.25
4/3/2014 29.29 4/3/2014 -3.28 4/3/2014 10.25
4/4/2014 27.67 4/4/2014 -2.74 4/4/2014 10.37
4/7/2014 26.3 4/7/2014 -2.48 4/7/2014 10.37
4/8/2014 26.81 4/8/2014 -2.34 4/8/2014 10.37
4/9/2014 28.21 4/9/2014 -2.37 4/9/2014 10.49
4/10/2014 25.53 4/10/2014 -1.9 4/10/2014 10.49
4/11/2014 24.35 4/11/2014 -1.8 4/11/2014 10.37
4/14/2014 25.38 4/14/2014 -1.96 4/14/2014 10.49
4/15/2014 26.22 4/15/2014 -1.85 4/15/2014 10.49
4/16/2014 27.55 4/16/2014 -1.93 4/16/2014 10.62
4/17/2014 27.73 4/17/2014 -2.53 4/17/2014 10.62
4/21/2014 28.21 4/21/2014 -2.57 4/21/2014 10.62
4/22/2014 28.74 4/22/2014 -2.63 4/22/2014 10.74
4/23/2014 28.47 4/23/2014 -2.27 4/23/2014 10.74
4/24/2014 28.69 4/24/2014 -2.29 4/24/2014 10.87
4/25/2014 27.65 4/25/2014 -2.1 4/25/2014 10.87
4/28/2014 28.07 4/28/2014 -2.17 4/28/2014 10.93
4/29/2014 28.69 4/29/2014 -2.3 4/29/2014 11.05
4/30/2014 29.08 4/30/2014 -1.9 4/30/2014 11.05
5/2/2014 28.89 5/2/2014 -1.42 5/2/2014 11.18
5/5/2014 29.14 5/5/2014 -1.55 5/5/2014 11.18
5/6/2014 27.99 5/6/2014 -1.42 5/6/2014 11.18
5/7/2014 28.76 5/7/2014 -1.37 5/7/2014 11.3
5/8/2014 28.61 5/8/2014 -1.23 5/8/2014 11.43
5/9/2014 28.83 5/9/2014 -1.4 5/9/2014 11.55
5/12/2014 30.08 5/12/2014 -1.68 5/12/2014 11.55
5/13/2014 30.17 5/13/2014 -1.35 5/13/2014 11.68
5/15/2014 28.4 5/15/2014 -0.35 5/15/2014 11.8
5/16/2014 28.88 5/16/2014 -0.51 5/16/2014 11.8
5/19/2014 29.38 5/19/2014 -0.64 5/19/2014 11.93
5/20/2014 28.55 5/20/2014 -0.38 5/20/2014 11.93
5/21/2014 29.61 5/21/2014 -0.61 5/21/2014 11.93
5/22/2014 29.93 5/22/2014 -0.79 5/22/2014 11.93
5/23/2014 30.49 5/23/2014 -0.6 5/23/2014 11.93
5/27/2014 31.27 5/27/2014 -0.4 5/27/2014 12.05
5/28/2014 31.14 5/28/2014 0.27 5/28/2014 12.14
5/29/2014 31.86 5/29/2014 0.21 5/29/2014 12.14
5/30/2014 32.11 5/30/2014 0.14 5/30/2014 12.27
6/2/2014 32.21 6/2/2014 -0.53 6/2/2014 12.27
6/3/2014 32.17 6/3/2014 -1.04 6/3/2014 12.27
6/4/2014 32.44 6/4/2014 -1.12 6/4/2014 12.14
6/5/2014 33.32 6/5/2014 -0.95 6/5/2014 12.39
6/6/2014 33.95 6/6/2014 -1.03 6/6/2014 12.64
6/10/2014 34.05 6/10/2014 -1.35 6/10/2014 12.64
6/11/2014 33.6 6/11/2014 -1.39 6/11/2014 12.64
6/12/2014 32.69 6/12/2014 -0.91 6/12/2014 12.64
6/13/2014 33.1 6/13/2014 -1.05 6/13/2014 12.77
6/16/2014 33.22 6/16/2014 -0.98 6/16/2014 12.77
6/17/2014 33.51 6/17/2014 -1.47 6/17/2014 12.89
6/18/2014 34.54 6/18/2014 -1.11 6/18/2014 12.89
6/19/2014 34.73 6/19/2014 -1.16 6/19/2014 13.02
6/20/2014 34.96 6/20/2014 -1.17 6/20/2014 13.14
6/24/2014 34.09 6/24/2014 -0.83 6/24/2014 13.14
6/25/2014 34.75 6/25/2014 -0.58 6/25/2014 13.27
6/26/2014 34.61 6/26/2014 -0.27 6/26/2014 13.3
6/27/2014 34.88 6/27/2014 -0.35 6/27/2014 13.3
6/30/2014 34.83 6/30/2014 -0.17 6/30/2014 13.43
7/1/2014 35.76 7/1/2014 -0.6 7/1/2014 13.43
7/2/2014 35.86 7/2/2014 -1.14 7/2/2014 13.43
7/3/2014 36.6 7/3/2014 -1.3 7/3/2014 13.43
7/7/2014 36.07 7/7/2014 -1.01 7/7/2014 13.43
7/8/2014 35.15 7/8/2014 -0.55 7/8/2014 13.43
7/9/2014 35.79 7/9/2014 -0.37 7/9/2014 13.43
7/10/2014 35.23 7/10/2014 -0.26 7/10/2014 13.43
7/11/2014 35.44 7/11/2014 -0.14 7/11/2014 13.43
7/14/2014 36.09 7/14/2014 -0.37 7/14/2014 13.43
7/15/2014 35.83 7/15/2014 -0.36 7/15/2014 13.43
7/16/2014 36.42 7/16/2014 -0.26 7/16/2014 13.3
7/17/2014 34.82 7/17/2014 0.3 7/17/2014 13.18
7/18/2014 36.2 7/18/2014 0.22 7/18/2014 13.05
7/22/2014 36.57 7/22/2014 0.4 7/22/2014 13.18
7/23/2014 36.81 7/23/2014 0.42 7/23/2014 13.18
7/24/2014 36.88 7/24/2014 0.04 7/24/2014 13.3
7/25/2014 36.22 7/25/2014 0.4 7/25/2014 13.3
7/28/2014 36.26 7/28/2014 0.22 7/28/2014 13.3
7/29/2014 35.65 7/29/2014 0.49 7/29/2014 13.24
7/30/2014 35.68 7/30/2014 -0.29 7/30/2014 13.11
7/31/2014 32.98 7/31/2014 -0.3 7/31/2014 12.6
8/1/2014 32.59 8/1/2014 0.14 8/1/2014 12.35
8/4/2014 33.55 8/4/2014 0.29 8/4/2014 12.35
8/6/2014 32.31 8/6/2014 0.42 8/6/2014 12.35
8/7/2014 31.61 8/7/2014 0.88 8/7/2014 12.35
8/8/2014 33.13 8/8/2014 0.97 8/8/2014 12.48
8/11/2014 33.52 8/11/2014 0.94 8/11/2014 12.6
8/12/2014 33.31 8/12/2014 0.74 8/12/2014 12.73
8/13/2014 34.24 8/13/2014 1 8/13/2014 12.86
8/14/2014 34.83 8/14/2014 1.22 8/14/2014 12.98
8/15/2014 34.83 8/15/2014 1.69 8/15/2014 13.11
8/18/2014 35.99 8/18/2014 1.37 8/18/2014 13.24
8/19/2014 36.7 8/19/2014 1.24 8/19/2014 13.24
8/20/2014 37.05 8/20/2014 1.02 8/20/2014 13.36
8/21/2014 37.46 8/21/2014 1.2 8/21/2014 13.36
8/22/2014 37.2 8/22/2014 1.24 8/22/2014 13.36
8/25/2014 37.86 8/25/2014 1.39 8/25/2014 13.49
8/26/2014 38 8/26/2014 1.38 8/26/2014 13.49
8/27/2014 38.04 8/27/2014 1.63 8/27/2014 13.58
8/28/2014 37.83 8/28/2014 1.87 8/28/2014 13.71
8/29/2014 38.29 8/29/2014 1.81 8/29/2014 13.71
9/2/2014 38.22 9/2/2014 1.14 9/2/2014 13.71
9/3/2014 38.14 9/3/2014 1.22 9/3/2014 13.71
9/4/2014 37.93 9/4/2014 0.9 9/4/2014 13.45
9/5/2014 38.63 9/5/2014 0.79 9/5/2014 13.45
9/8/2014 38.23 9/8/2014 0.73 9/8/2014 13.33
9/9/2014 37.33 9/9/2014 0.49 9/9/2014 13.2
9/10/2014 37.84 9/10/2014 0.18 9/10/2014 13.07
9/11/2014 38 9/11/2014 0.21 9/11/2014 12.95
9/12/2014 37.18 9/12/2014 -0.49 9/12/2014 12.82
9/15/2014 37.09 9/15/2014 -0.28 9/15/2014 12.82
9/16/2014 38.11 9/16/2014 -0.26 9/16/2014 12.82
9/18/2014 38.99 9/18/2014 -0.6 9/18/2014 12.95
9/19/2014 38.93 9/19/2014 -0.22 9/19/2014 13.07
9/22/2014 37.81 9/22/2014 -0.01 9/22/2014 12.95
9/23/2014 37.03 9/23/2014 0.28 9/23/2014 12.69
9/24/2014 38.11 9/24/2014 -0.03 9/24/2014 12.57
9/25/2014 35.88 9/25/2014 0.5 9/25/2014 12.31
9/26/2014 37.07 9/26/2014 0.28 9/26/2014 12.07
9/29/2014 36.73 9/29/2014 0.67 9/29/2014 11.82
9/30/2014 36.36 9/30/2014 0.56 9/30/2014 12.07
10/1/2014 34.56 10/1/2014 1.49 10/1/2014 12.07
10/2/2014 34.57 10/2/2014 1.19 10/2/2014 12.07
10/6/2014 35.87 10/6/2014 1.33 10/6/2014 12.33
10/7/2014 33.81 10/7/2014 1.99 10/7/2014 12.2
10/8/2014 36.2 10/8/2014 2.17 10/8/2014 12.2
10/9/2014 33.39 10/9/2014 2.2 10/9/2014 11.95
10/10/2014 31.88 10/10/2014 2.42 10/10/2014 11.56
10/13/2014 29.7 10/13/2014 2.44 10/13/2014 11.44
10/14/2014 29.91 10/14/2014 3.33 10/14/2014 11.18
10/15/2014 28.87 10/15/2014 4.37 10/15/2014 10.93
10/16/2014 28.89 10/16/2014 3.82 10/16/2014 11.05
10/17/2014 30.55 10/17/2014 3.41 10/17/2014 11.69
10/20/2014 31.75 10/20/2014 3.58 10/20/2014 11.82
10/21/2014 34.33 10/21/2014 3.36 10/21/2014 12.33
10/22/2014 33.36 10/22/2014 3.15 10/22/2014 12.33
10/23/2014 35.01 10/23/2014 2.76 10/23/2014 12.46
10/24/2014 35.96 10/24/2014 2.78 10/24/2014 12.46
10/27/2014 35.76 10/27/2014 2.92 10/27/2014 12.33
10/28/2014 37.38 10/28/2014 2.71 10/28/2014 12.46
10/29/2014 37.2 10/29/2014 2.38 10/29/2014 12.36
10/30/2014 38.06 10/30/2014 2.53 10/30/2014 12.49
10/31/2014 39.69 10/31/2014 2.3 10/31/2014 12.61
11/3/2014 39.67 11/3/2014 2.18 11/3/2014 12.61
11/4/2014 39.28 11/4/2014 2.23 11/4/2014 12.36
11/5/2014 40.12 11/5/2014 2.18 11/5/2014 12.36
11/6/2014 40.69 11/6/2014 1.96 11/6/2014 12.23
11/7/2014 4 0.76 11/7/2014 2.54 11/7/2014 12.36
11/10/2014 41.21 11/10/2014 2.13 11/10/2014 12.23
11/11/2014 41.31 11/11/2014 2.14 11/11/2014 12.23
11/12/2014 41.25 11/12/2014 2.14 11/12/2014 12.36
11/13/2014 41.34 11/13/2014 2.29 11/13/2014 12.23
11/14/2014 41.39 11/14/2014 2.52 11/14/2014 12.23
11/17/2014 41.5 11/17/2014 2.35 11/17/2014 12.1
11/18/2014 42.26 11/18/2014 2.5 11/18/2014 11.97
11/19/2014 42.05 11/19/2014 2.26 11/19/2014 11.85
11/20/2014 42.34 11/20/2014 2.43 11/20/2014 11.72
11/21/2014 43.1 11/21/2014 2.61 11/21/2014 12.1
11/24/2014 43.51 11/24/2014 2.67 11/24/2014 12.1
11/25/2014 43.36 11/25/2014 3.07 11/25/2014 12.3
11/26/2014 43.8 11/26/2014 3.34 11/26/2014 12.3
11/28/2014 43.44 11/28/2014 3.76 11/28/2014 12.17
12/1/2014 42.47 12/1/2014 3.52 12/1/2014 11.53
12/2/2014 43.38 12/2/2014 2.91 12/2/2014 11.27
12/3/2014 43.96 12/3/2014 2.92 12/3/2014 11.27
12/4/2014 43.8 12/4/2014 3.2 12/4/2014 11.14
12/5/2014 44.04 12/5/2014 2.74 12/5/2014 11.14
12/8/2014 43.01 12/8/2014 3.21 12/8/2014 10.8
12/9/2014 42.98 12/9/2014 3.56 12/9/2014 10.41
12/10/2014 40.65 12/10/2014 4.05 12/10/2014 10.02
12/11/2014 41.33 12/11/2014 3.96 12/11/2014 9.89
12/12/2014 39.04 12/12/2014 4.67 12/12/2014 9.25
12/15/2014 38.16 12/15/2014 4.55 12/15/2014 8.99
12/17/2014 39.78 12/17/2014 4.28 12/17/2014 8.75
12/18/2014 43.16 12/18/2014 3.77 12/18/2014 9.53
12/19/2014 43.82 12/19/2014 4.02 12/19/2014 9.79
12/22/2014 44.39 12/22/2014 4.19 12/22/2014 10.05
12/23/2014 44.65 12/23/2014 3.29 12/23/2014 10.05
12/24/2014 44.63 12/24/2014 3.28 12/24/2014 10.05
12/26/2014 45.1 12/26/2014 3.42 12/26/2014 10.18
12/29/2014 45.25 12/29/2014 3.8 12/29/2014 10.18
12/30/2014 44.56 12/30/2014 3.96 12/30/2014 10.31
12/31/2014 43.07 12/31/2014 4.15 12/31/2014 10.18
1/2/2015 43.04 1/2/2015 4.58 1/2/2015 10.31
1/5/2015 40.44 1/5/2015 5.4 1/5/2015 10.05
1/7/2015 40.85 1/7/2015 6.19 1/7/2015 10.05
1/8/2015 43.37 1/8/2015 5.62 1/8/2015 10.31
1/9/2015 42.17 1/9/2015 6.06 1/9/2015 10.44
1/12/2015 41.02 1/12/2015 6.64 1/12/2015 10.31
1/13/2015 40.67 1/13/2015 6.81 1/13/2015 10.18
1/14/2015 39.86 1/14/2015 7.35 1/14/2015 9.92
1/15/2015 38.57 1/15/2015 7.92 1/15/2015 9.92
1/16/2015 40.43 1/16/2015 7.55 1/16/2015 10.05
1/20/2015 40.65 1/20/2015 7.66 1/20/2015 10.05
1/21/2015 41.33 1/21/2015 7.23 1/21/2015 10.05
1/22/2015 43.49 1/22/2015 6.84 1/22/2015 10.18
1/23/2015 42.7 1/23/2015 7.57 1/23/2015 10.31
1/26/2015 43.07 1/26/2015 7.47 1/26/2015 10.44
1/27/2015 41.16 1/27/2015 7.54 1/27/2015 10.31
1/28/2015 39.26 1/28/2015 8.48 1/28/2015 10.33
1/29/2015 40.6 1/29/2015 8.22 1/29/2015 10.46
1/30/2015 38.78 1/30/2015 8.97 1/30/2015 10.46
2/2/2015 40.58 2/2/2015 9.03 2/2/2015 10.46
2/3/2015 42.61 2/3/2015 7.99 2/3/2015 10.59
2/4/2015 42.06 2/4/2015 7.84 2/4/2015 10.72
2/5/2015 43.55 2/5/2015 7.65 2/5/2015 10.85
2/9/2015 42.5 2/9/2015 6.45 2/9/2015 10.98
2/10/2015 44.03 2/10/2015 6.04 2/10/2015 11.11
2/11/2015 44.07 2/11/2015 6.09 2/11/2015 11.11
2/12/2015 45.5 2/12/2015 6.07 2/12/2015 11.24
2/13/2015 46.1 2/13/2015 5.73 2/13/2015 11.37
2/17/2015 46.36 2/17/2015 4.63 2/17/2015 11.37
2/18/2015 46.32 2/18/2015 5.32 2/18/2015 11.5
2/19/2015 46.19 2/19/2015 4.9 2/19/2015 11.5
2/20/2015 47.1 2/20/2015 4.74 2/20/2015 11.63
2/23/2015 47.06 2/23/2015 5.42 2/23/2015 11.77
2/24/2015 47.47 2/24/2015 6.11 2/24/2015 11.9
2/25/2015 47.38 2/25/2015 6.28 2/25/2015 12.13
2/26/2015 47.19 2/26/2015 5.86 2/26/2015 12.26
3/2/2015 47.66 3/2/2015 5.26 3/2/2015 12.26
3/3/2015 46.99 3/3/2015 4.87 3/3/2015 12.26
3/4/2015 46.38 3/4/2015 4.89 3/4/2015 12.13
3/5/2015 46.56 3/5/2015 5.01 3/5/2015 12
3/6/2015 44.5 3/6/2015 3.81 3/6/2015 11.73
3/10/2015 42.63 3/10/2015 4.88 3/10/2015 11.47
3/11/2015 42.38 3/11/2015 5.03 3/11/2015 11.47
3/12/2015 44.21 3/12/2015 5.17 3/12/2015 11.6
3/13/2015 43.34 3/13/2015 5.03 3/13/2015 11.34
3/16/2015 45.28 3/16/2015 5.18 3/16/2015 11.21
3/17/2015 44.8 3/17/2015 5.58 3/17/2015 11.08
3/18/2015 46.56 3/18/2015 6.61 3/18/2015 11.21
3/19/2015 45.85 3/19/2015 6.37 3/19/2015 11.34
3/20/2015 47.16 3/20/2015 6.79 3/20/2015 11.47
3/23/2015 46.91 3/23/2015 6.96 3/23/2015 11.47
3/24/2015 46.02 3/24/2015 7.31 3/24/2015 11.6
3/25/2015 43.89 3/25/2015 6.94 3/25/2015 11.47
3/26/2015 43.56 3/26/2015 6.1 3/26/2015 11.34
3/27/2015 43.92 3/27/2015 6.68 3/27/2015 11.33
3/31/2015 44.43 3/31/2015 6.86 3/31/2015 11.6
4/1/2015 43.88 4/1/2015 7.46 4/1/2015 11.46
4/2/2015 44.39 4/2/2015 7.12 4/2/2015 11.6
4/6/2015 45.34 4/6/2015 7.17 4/6/2015 11.73
4/7/2015 45.05 4/7/2015 7.26 4/7/2015 11.86
4/8/2015 45.49 4/8/2015 7.23 4/8/2015 12.12
4/9/2015 46.14 4/9/2015 6.64 4/9/2015 11.99
4/10/2015 46.9 4/10/2015 6.72 4/10/2015 12.26
4/13/2015 46.24 4/13/2015 6.87 4/13/2015 12.26
4/14/2015 46.48 4/14/2015 7.2 4/14/2015 12.26
4/15/2015 47.23 4/15/2015 7.24 4/15/2015 12.65
4/16/2015 47.12 4/16/2015 7.46 4/16/2015 12.65
4/17/2015 45.46 4/17/2015 7.72 4/17/2015 12.52
4/20/2015 46.81 4/20/2015 7.32 4/20/2015 12.65
4/21/2015 46.59 4/21/2015 7.13 4/21/2015 12.65
4/22/2015 47.34 4/22/2015 6.59 4/22/2015 12.65
4/23/2015 47.7 4/23/2015 6.84 4/23/2015 12.65
4/24/2015 48.04 4/24/2015 7.13 4/24/2015 12.78
4/28/2015 47.84 4/28/2015 6.61 4/28/2015 12.79
4/29/2015 47.3 4/29/2015 6.03 4/29/2015 12.79
4/30/2015 45.82 4/30/2015 5.97 4/30/2015 12.79
5/1/2015 47.41 5/1/2015 5.3 5/1/2015 12.79
5/4/2015 47.84 5/4/2015 5.13 5/4/2015 12.93
5/5/2015 46.11 5/5/2015 4.78 5/5/2015 12.79
5/6/2015 45.51 5/6/2015 4.22 5/6/2015 12.66
5/7/2015 46.1 5/7/2015 4.72 5/7/2015 12.66
5/8/2015 48.07 5/8/2015 5.04 5/8/2015 12.93
5/11/2015 47.34 5/11/2015 3.92 5/11/2015 12.79
5/12/2015 46.91 5/12/2015 4.04 5/12/2015 12.66
5/13/2015 46.9 5/13/2015 3.85 5/13/2015 12.79
5/14/2015 48.5 5/14/2015 4.19 5/14/2015 12.93
5/15/2015 48.63 5/15/2015 5.1 5/15/2015 13.06
5/18/2015 49.09 5/18/2015 4.29 5/18/2015 12.93
5/20/2015 48.91 5/20/2015 4.11 5/20/2015 12.79
5/21/2015 49.28 5/21/2015 4.73 5/21/2015 12.93
5/22/2015 48.94 5/22/2015 4.34 5/22/2015 12.93
5/26/2015 47.41 5/26/2015 5.19 5/26/2015 12.79
5/27/2015 48.79 5/27/2015 5.2 5/27/2015 12.99
5/28/2015 48.63 5/28/2015 5.26 5/28/2015 12.85
5/29/2015 47.69 5/29/2015 5.62 5/29/2015 12.85
6/1/2015 48.01 6/1/2015 4.7 6/1/2015 12.72
6/2/2015 47.87 6/2/2015 4.02 6/2/2015 12.72
6/3/2015 48.21 6/3/2015 3.1 6/3/2015 12.59
6/4/2015 46.93 6/4/2015 3.65 6/4/2015 12.32
6/5/2015 46.73 6/5/2015 2.79 6/5/2015 12.19
6/8/2015 45.8 6/8/2015 3 6/8/2015 12.05
6/9/2015 45.87 6/9/2015 2.7 6/9/2015 11.79
6/10/2015 47.64 6/10/2015 2.14 6/10/2015 11.79
6/11/2015 47.94 6/11/2015 3 6/11/2015 11.92
6/12/2015 46.91 6/12/2015 3.03 6/12/2015 11.92
6/15/2015 46.23 6/15/2015 3.26 6/15/2015 11.65
6/16/2015 47.07 6/16/2015 3.64 6/16/2015 11.65
6/18/2015 48.84 6/18/2015 3.34 6/18/2015 11.65
6/19/2015 48.05 6/19/2015 4.14 6/19/2015 11.79
6/22/2015 48.95 6/22/2015 3.29 6/22/2015 11.79
6/23/2015 49.06 6/23/2015 2.86 6/23/2015 11.65
6/24/2015 47.97 6/24/2015 3.22 6/24/2015 11.65
6/25/2015 47.53 6/25/2015 3.01 6/25/2015 12
6/26/2015 47.5 6/26/2015 2.26 6/26/2015 11.46
6/29/2015 44.44 6/29/2015 3.61 6/29/2015 11.06
6/30/2015 44.83 6/30/2015 3.6 6/30/2015 11.06
7/1/2015 45.87 7/1/2015 2.81 7/1/2015 11.19
7/2/2015 45.83 7/2/2015 3.08 7/2/2015 11.19
7/6/2015 45.27 7/6/2015 4.14 7/6/2015 11.06
7/7/2015 46.15 7/7/2015 4.56 7/7/2015 10.79
7/8/2015 43.76 7/8/2015 4.8 7/8/2015 10.66
7/9/2015 44.09 7/9/2015 3.95 7/9/2015 10.66
7/10/2015 45.87 7/10/2015 2.88 7/10/2015 10.79
7/14/2015 48.15 7/14/2015 3.09 7/14/2015 10.79
7/15/2015 48.05 7/15/2015 3.56 7/15/2015 10.92
7/16/2015 49.24 7/16/2015 3.51 7/16/2015 10.92
7/17/2015 49.4 7/17/2015 3.55 7/17/2015 10.79
7/20/2015 49.52 7/20/2015 3.36 7/20/2015 10.52
7/21/2015 48.89 7/21/2015 3.66 7/21/2015 10.26
7/22/2015 48.55 7/22/2015 3.83 7/22/2015 9.99
7/23/2015 47.72 7/23/2015 4.26 7/23/2015 9.85
7/24/2015 46.13 7/24/2015 4.3 7/24/2015 9.72
7/27/2015 45.29 7/27/2015 4.73 7/27/2015 9.32
7/28/2015 47.09 7/28/2015 4.54 7/28/2015 9.45
7/30/2015 48.2 7/30/2015 4.39 7/30/2015 9.74
7/31/2015 47.87 7/31/2015 4.97 7/31/2015 9.88
8/3/2015 47.46 8/3/2015 5.5 8/3/2015 9.88
8/4/2015 47.13 8/4/2015 4.96 8/4/2015 9.74
8/5/2015 47.65 8/5/2015 4.42 8/5/2015 9.61
8/6/2015 46.54 8/6/2015 4.73 8/6/2015 9.2
8/7/2015 46.13 8/7/2015 5.29 8/7/2015 9.07
8/10/2015 48 8/10/2015 4.72 8/10/2015 9.07
8/11/2015 46.62 8/11/2015 5.63 8/11/2015 8.67
8/12/2015 46.79 8/12/2015 5.7 8/12/2015 8.4
8/13/2015 46.62 8/13/2015 5.17 8/13/2015 8.4
8/14/2015 47.2 8/14/2015 5.09 8/14/2015 8.4
8/17/2015 47.99 8/17/2015 5.49 8/17/2015 8.4
8/18/2015 47.63 8/18/2015 5.08 8/18/2015 8.26
8/19/2015 46.42 8/19/2015 5.69 8/19/2015 8.13
8/20/2015 43.33 8/20/2015 6.12 8/20/2015 7.86
8/21/2015 38.79 8/21/2015 6.42 8/21/2015 7.59
8/25/2015 31.52 8/25/2015 5.66 8/25/2015 6.78
8/26/2015 36.67 8/26/2015 5.3 8/26/2015 6.92
8/27/2015 40 8/27/2015 5.33 8/27/2015 7.4
8/28/2015 40.11 8/28/2015 5.2 8/28/2015 7.53
8/31/2015 38.95 8/31/2015 5.1 8/31/2015 7.53
9/1/2015 34.84 9/1/2015 5.35 9/1/2015 7.4
9/2/2015 37.33 9/2/2015 5.17 9/2/2015 7.4
9/3/2015 37.5 9/3/2015 5.4 9/3/2015 7.67
9/4/2015 35.4 9/4/2015 5.82 9/4/2015 7.53
9/8/2015 38.82 9/8/2015 5.19 9/8/2015 7.8
9/9/2015 36.9 9/9/2015 5.33 9/9/2015 7.94
9/10/2015 37.63 9/10/2015 4.95 9/10/2015 7.8
9/11/2015 38.29 9/11/2015 5.33 9/11/2015 7.94
9/14/2015 37.74 9/14/2015 5.36 9/14/2015 7.8
9/15/2015 39.51 9/15/2015 4.43 9/15/2015 7.8
9/16/2015 40.73 9/16/2015 4.24 9/16/2015 7.53
9/17/2015 40.39 9/17/2015 5.03 9/17/2015 7.53
9/18/2015 38.12 9/18/2015 5.87 9/18/2015 7.4
9/21/2015 38.75 9/21/2015 5.1 9/21/2015 7.4
9/22/2015 37.05 9/22/2015 5.96 9/22/2015 6.86
9/23/2015 36.77 9/23/2015 5.76 9/23/2015 6.86
9/24/2015 36.31 9/24/2015 6 9/24/2015 6.32
9/25/2015 36.25 9/25/2015 5.56 9/25/2015 6.18
9/28/2015 32.79 9/28/2015 6.26 9/28/2015 5.28
9/29/2015 32.96 9/29/2015 6.65 9/29/2015 4.87
9/30/2015 35.51 9/30/2015 6.62 9/30/2015 5.14
10/1/2015 35.79 10/1/2015 6.75 10/1/2015 5
10/5/2015 40.27 10/5/2015 6.67 10/5/2015 5.41
10/6/2015 39.77 10/6/2015 6.88 10/6/2015 5.82
10/7/2015 40.94 10/7/2015 6.63 10/7/2015 6.23
10/8/2015 42.19 10/8/2015 6.19 10/8/2015 6.36
10/9/2015 42.29 10/9/2015 6.29 10/9/2015 6.77
10/12/2015 42.48 10/12/2015 6.31 10/12/2015 6.91
10/13/2015 41.52 10/13/2015 6.72 10/13/2015 6.63
10/14/2015 40.86 10/14/2015 7.42 10/14/2015 6.63
10/15/2015 42.96 10/15/2015 7.04 10/15/2015 6.63
10/16/2015 43.61 10/16/2015 7.02 10/16/2015 6.91
10/19/2015 43.65 10/19/2015 7.02 10/19/2015 6.91
10/20/2015 43.45 10/20/2015 6.62 10/20/2015 7.18
10/21/2015 42.63 10/21/2015 7.01 10/21/2015 7.18
10/22/2015 45.01 10/22/2015 7.07 10/22/2015 7.18
10/23/2015 46.61 10/23/2015 6.52 10/23/2015 7.45
10/26/2015 46.33 10/26/2015 6.76 10/26/2015 7.45
10/27/2015 45.96 10/27/2015 7.05 10/27/2015 7.04
10/28/2015 47.7 10/28/2015 6.45 10/28/2015 7.16
10/30/2015 46.94 10/30/2015 5.95 10/30/2015 7.02
11/2/2015 48.68 11/2/2015 5.61 11/2/2015 7.16
11/3/2015 49.09 11/3/2015 5.3 11/3/2015 7.29
11/4/2015 48.62 11/4/2015 5.21 11/4/2015 7.29
11/5/2015 48.48 11/5/2015 5.08 11/5/2015 7.02
11/6/2015 48.44 11/6/2015 4.28 11/6/2015 6.61
11/9/2015 47.02 11/9/2015 4.23 11/9/2015 6.34
11/10/2015 47.28 11/10/2015 4.41 11/10/2015 6.07
11/11/2015 46.8 11/11/2015 4.41 11/11/2015 6.07
11/12/2015 44.77 11/12/2015 4.37 11/12/2015 5.52
11/13/2015 43.15 11/13/2015 4.7 11/13/2015 5.25
11/16/2015 45.31 11/16/2015 4.79 11/16/2015 5.11
11/17/2015 45.15 11/17/2015 4.91 11/17/2015 5.25
11/18/2015 47.51 11/18/2015 4.82 11/18/2015 5.11
11/19/2015 47.35 11/19/2015 5.03 11/19/2015 4.84
11/20/2015 47.93 11/20/2015 4.89 11/20/2015 4.56
11/23/2015 47.75 11/23/2015 5.04 11/23/2015 4.29
11/24/2015 47.94 11/24/2015 5.11 11/24/2015 4.29
11/25/2015 47.93 11/25/2015 5.21 11/25/2015 4.4
11/27/2015 48.06 11/27/2015 5.31 11/27/2015 4.4
11/30/2015 47.38 11/30/2015 5.41 11/30/2015 4.4
12/1/2015 48.96 12/1/2015 6.01 12/1/2015 4.68
12/2/2015 47.36 12/2/2015 5.8 12/2/2015 4.54
12/3/2015 45.25 12/3/2015 4.4 12/3/2015 3.99
12/4/2015 48.23 12/4/2015 4.91 12/4/2015 3.72
12/7/2015 47.2 12/7/2015 5.41 12/7/2015 3.03
12/8/2015 46.26 12/8/2015 5.27 12/8/2015 2.21
12/9/2015 45.14 12/9/2015 5.55 12/9/2015 2.34
12/10/2015 45.48 12/10/2015 5.28 12/10/2015 2.07
12/11/2015 42.68 12/11/2015 6.22 12/11/2015 0.97
12/14/2015 43.37 12/14/2015 5.42 12/14/2015 -0.26
12/15/2015 44.89 12/15/2015 5.05 12/15/2015 0.33
12/16/2015 47 12/16/2015 4.86 12/16/2015 0.74
12/17/2015 44.81 12/17/2015 5.34 12/17/2015 0.47
12/18/2015 42.24 12/18/2015 5.72 12/18/2015 -0.09
12/21/2015 43.36 12/21/2015 5.73 12/21/2015 -0.22
12/22/2015 44.64 12/22/2015 5.36 12/22/2015 0.05
12/23/2015 46.44 12/23/2015 5.12 12/23/2015 0.47
12/28/2015 45.89 12/28/2015 5.51 12/28/2015 0.47
12/29/2015 47.46 12/29/2015 4.75 12/29/2015 0.61
12/30/2015 46.42 12/30/2015 4.78 12/30/2015 0.61
12/31/2015 45.04 12/31/2015 5.09 12/31/2015 0.74
1/4/2016 42.85 1/4/2016 5.41 1/4/2016 0.47
1/5/2016 43.14 1/5/2016 5.37 1/5/2016 0.74
1/6/2016 41.31 1/6/2016 6.03 1/6/2016 0.61
1/7/2016 37.97 1/7/2016 6.25 1/7/2016 0.19
1/8/2016 36.47 1/8/2016 6.45 1/8/2016 0.33
1/11/2016 36.59 1/11/2016 6.24 1/11/2016 -0.09
1/12/2016 37.65 1/12/2016 6.77 1/12/2016 -0.36
1/13/2016 34.23 1/13/2016 7.11 1/13/2016 -0.91
1/14/2016 36.48 1/14/2016 6.79 1/14/2016 -1.33
1/15/2016 33.54 1/15/2016 7.43 1/15/2016 -2.3
1/19/2016 33.61 1/19/2016 7.42 1/19/2016 -2.3
1/20/2016 32.06 1/20/2016 7.91 1/20/2016 -3.54
1/21/2016 32.75 1/21/2016 7.6 1/21/2016 -3.26
1/22/2016 35.45 1/22/2016 7.31 1/22/2016 -2.43
1/25/2016 33.33 1/25/2016 7.6 1/25/2016 -2.43
1/27/2016 33.76 1/27/2016 7.77 1/27/2016 -2.09
1/28/2016 34.51 1/28/2016 7.94 1/28/2016 -1.95
1/29/2016 37.84 1/29/2016 8.52 1/29/2016 -1.4
[END CHART]
Source: Bloomberg L.P.
At the end of the reporting period, default expectations remained relatively
low, with the high-yield default rate below the 20-year average. The
trailing 12-month high-yield default rate, according to J.P. Morgan, was
1.90% at the end of January 2016. That said, default risk in
commodity-related sectors is expected to increase as long as commodity
prices remain low.
o HOW DID THE USAA HIGH INCOME 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 January 31, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had total returns of
-10.26%, -10.33%, and -10.51%, respectively. This compares to
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
returns of -8.50% for the Credit Suisse High Yield Index*, -7.75% for the
Barclays U.S. High Yield 2% Issuer Capped Bond Index (the Index) and -8.53%
for the Lipper High Yield Bond Funds Index. At the same time, the Fund
Shares, Institutional Shares, and Adviser Shares provided a one-year
dividend yield of 6.66%, 6.79%, and 6.33%, respectively, compared to 5.90%
for the Lipper High Yield Bond Funds Average.
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 WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
In keeping with our investment approach, we sought to maximize the Fund's
income while maintaining an acceptable level of price volatility. We have
always believed the Fund should be adequately compensated for any risk
taken. However, allocations to and selection among energy-related and
metals and mining high-yield bonds detracted from Fund performance. Many of
these securities were affected negatively by the continued drop in oil and
commodity prices during the reporting period. Although we reduced some of
these holdings, we believe that over the long-term the Fund's positions in
these industries will generate attractive total returns.
During the reporting period, we continued to seek relative value
opportunities within the high-yield market while continuing to maintain a
diversified, liquid portfolio. The portfolio also has positions in high-
yield exchange-traded funds (ETFs), investment-grade bonds, and high-
quality equities so it can meet any potential investment outflows with
minimal impact to the Fund's performance. This liquidity strategy helps to
prevent the Fund from being a forced seller due to investment outflows.
Refer to page 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond
Index replaced the Credit Suisse High Yield Index as the Fund's broad-based
securities market index as it more closely represents the securities held
by the Fund.
================================================================================
6 | USAA HIGH INCOME FUND
================================================================================
To identify attractive opportunities, we continued to work with our in-
house team of analysts, building the portfolio bond-by-bond, through
fundamental analysis. We seek ideas where our fundamental understanding of
the credit risk is different than the market. In addition, our analysts
continue to analyze and monitor every holding in the portfolio.
Thank you for allowing us to help you with your investment needs.
As interest rates rise, bond prices generally fall; given the historically
low interest rate environment, risks associated with rising interest rates
may be heightened. o Diversification is a technique to help reduce risk and
does not guarantee a profit or prevent a loss. 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 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 | 7
================================================================================
INVESTMENT OVERVIEW
USAA HIGH INCOME FUND SHARES (FUND SHARES)
(Ticker Symbol: USHYX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $978.0 Million $1.3 Billion
Net Asset Value Per Share $7.10 $8.17
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-10.26% -10.73% 3.33% 5.65%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-8.56% 4.17% 6.00%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
7.67% 0.89%
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 December 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 HIGH INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S.
HIGH YIELD 2% CREDIT SUISSE USAA HIGH LIPPER HIGH
ISSUER CAPPED HIGH YIELD INCOME FUND YIELD BOND
BOND INDEX* INDEX SHARES FUNDS INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,097.70 10,100.42 10,091.18 10,083.84
3/31/2006 10,140.00 10,178.59 10,135.26 10,125.08
4/30/2006 10,203.26 10,247.16 10,190.14 10,183.42
5/31/2006 10,189.78 10,275.27 10,191.31 10,161.16
6/30/2006 10,132.88 10,217.75 10,144.41 10,104.46
7/31/2006 10,219.73 10,305.33 10,239.47 10,181.57
8/31/2006 10,370.58 10,448.82 10,410.27 10,320.24
9/30/2006 10,514.32 10,578.98 10,538.81 10,434.33
10/31/2006 10,657.68 10,725.07 10,692.25 10,585.15
11/30/2006 10,826.13 10,919.90 10,855.10 10,767.90
12/31/2006 10,945.91 11,049.42 10,963.70 10,876.52
1/31/2007 11,071.31 11,176.33 11,061.97 10,993.03
2/28/2007 11,233.02 11,349.39 11,226.03 11,135.58
3/31/2007 11,252.11 11,381.89 11,253.42 11,170.99
4/30/2007 11,398.84 11,543.25 11,405.87 11,325.25
5/31/2007 11,477.82 11,632.95 11,472.52 11,421.77
6/30/2007 11,269.70 11,455.66 11,337.40 11,236.20
7/31/2007 10,877.78 11,095.57 11,045.14 10,871.94
8/31/2007 11,040.61 11,211.43 11,147.48 10,976.78
9/30/2007 11,314.99 11,460.86 11,340.49 11,241.36
10/31/2007 11,391.35 11,550.56 11,385.67 11,338.17
11/30/2007 11,151.41 11,336.06 11,129.74 11,097.17
12/31/2007 11,194.09 11,341.91 11,102.99 11,108.09
1/31/2008 11,023.02 11,162.19 10,849.51 10,881.74
2/29/2008 10,886.77 11,038.85 10,729.91 10,735.16
3/31/2008 10,861.31 11,013.34 10,661.68 10,718.89
4/30/2008 11,307.88 11,446.24 10,921.34 11,120.62
5/31/2008 11,353.55 11,489.30 11,001.27 11,177.96
6/30/2008 11,073.18 11,212.56 10,743.58 10,883.76
7/31/2008 10,934.31 11,061.44 10,599.70 10,742.58
8/31/2008 10,967.62 11,091.83 10,624.96 10,757.52
9/30/2008 10,125.77 10,311.35 9,890.35 9,954.38
10/31/2008 8,496.35 8,677.59 8,582.82 8,349.87
11/30/2008 7,751.08 7,928.96 7,884.33 7,634.82
12/31/2008 8,296.84 8,373.39 7,984.09 7,904.08
1/31/2009 8,849.34 8,865.27 8,278.19 8,248.96
2/28/2009 8,609.40 8,683.76 8,048.17 8,058.10
3/31/2009 8,845.59 8,859.91 8,116.04 8,177.46
4/30/2009 9,888.83 9,753.00 8,833.71 8,971.04
5/31/2009 10,552.13 10,283.24 9,612.58 9,492.63
6/30/2009 10,862.44 10,652.27 10,033.19 9,812.09
7/31/2009 11,514.13 11,298.69 10,630.87 10,433.82
8/31/2009 11,735.35 11,507.82 10,923.74 10,608.61
9/30/2009 12,405.39 12,155.71 11,577.99 11,163.26
10/31/2009 12,630.36 12,377.35 11,845.18 11,327.95
11/30/2009 12,754.26 12,549.93 11,999.71 11,472.31
12/31/2009 13,172.37 12,913.60 12,312.31 11,815.89
1/31/2010 13,344.56 13,078.05 12,593.36 11,965.65
2/28/2010 13,361.78 13,117.86 12,647.62 11,983.69
3/31/2010 13,766.80 13,491.28 13,092.07 12,364.56
4/30/2010 14,095.08 13,804.09 13,417.19 12,633.38
5/31/2010 13,590.49 13,364.53 12,876.63 12,165.72
6/30/2010 13,758.19 13,519.07 13,003.47 12,262.23
7/31/2010 14,241.81 13,936.85 13,410.75 12,700.35
8/31/2010 14,246.30 13,954.73 13,465.46 12,692.74
9/30/2010 14,667.79 14,324.90 13,854.07 13,079.23
10/31/2010 15,042.86 14,663.55 14,222.31 13,442.78
11/30/2010 14,871.05 14,508.69 14,138.66 13,307.44
12/31/2010 15,139.81 14,775.67 14,422.53 13,577.73
1/31/2011 15,474.45 15,073.21 14,700.20 13,861.25
2/28/2011 15,678.08 15,269.83 14,989.90 14,084.59
3/31/2011 15,729.37 15,332.07 15,076.00 14,113.55
4/30/2011 15,972.30 15,545.26 15,351.72 14,334.96
5/31/2011 16,050.53 15,612.38 15,430.96 14,366.61
6/30/2011 15,894.44 15,491.31 15,215.64 14,207.22
7/31/2011 16,077.86 15,703.86 15,326.20 14,325.20
8/31/2011 15,431.78 15,122.77 14,626.81 13,681.33
9/30/2011 14,924.20 14,698.32 14,137.41 13,197.86
10/31/2011 15,819.95 15,488.39 14,739.97 13,967.26
11/30/2011 15,478.57 15,207.75 14,469.27 13,652.67
12/31/2011 15,891.07 15,583.61 14,786.76 13,964.67
1/31/2012 16,373.20 15,998.47 15,223.45 14,429.52
2/29/2012 16,762.49 16,363.61 15,575.81 14,763.26
3/31/2012 16,741.16 16,366.69 15,644.10 14,766.16
4/30/2012 16,913.35 16,536.51 15,748.98 14,897.35
5/31/2012 16,688.00 16,317.78 15,525.99 14,654.94
6/30/2012 17,040.24 16,621.98 15,780.43 14,930.26
7/31/2012 17,364.40 16,914.31 16,091.68 15,203.47
8/31/2012 17,567.66 17,117.44 16,378.28 15,395.85
9/30/2012 17,812.09 17,332.26 16,632.36 15,608.98
10/31/2012 17,968.93 17,480.78 16,880.39 15,743.67
11/30/2012 18,112.67 17,612.90 16,934.97 15,869.67
12/31/2012 18,397.90 17,876.31 17,231.48 16,120.52
1/31/2013 18,644.58 18,108.52 17,563.01 16,354.53
2/28/2013 18,739.28 18,213.00 17,712.85 16,440.75
3/31/2013 18,930.19 18,401.01 17,936.38 16,612.39
4/30/2013 19,272.32 18,739.66 18,243.94 16,924.88
5/31/2013 19,160.77 18,631.60 18,252.52 16,829.29
6/30/2013 18,658.43 18,147.03 17,785.80 16,391.14
7/31/2013 19,011.79 18,508.26 18,086.13 16,713.04
8/31/2013 18,896.50 18,401.66 17,952.60 16,594.36
9/30/2013 19,084.03 18,581.39 18,101.71 16,770.90
10/31/2013 19,560.92 19,031.02 18,489.26 17,176.22
11/30/2013 19,659.74 19,105.93 18,574.22 17,247.62
12/31/2013 19,766.42 19,222.93 18,691.05 17,351.27
1/31/2014 19,904.92 19,369.34 18,899.52 17,459.96
2/28/2014 20,306.56 19,759.99 19,226.59 17,803.50
3/31/2014 20,354.85 19,813.13 19,340.83 17,855.13
4/30/2014 20,483.62 19,940.69 19,504.30 17,944.73
5/31/2014 20,671.15 20,120.90 19,717.38 18,111.97
6/30/2014 20,844.46 20,290.71 19,921.61 18,266.42
7/31/2014 20,567.46 20,034.94 19,776.86 18,030.46
8/31/2014 20,894.25 20,326.13 19,970.48 18,270.45
9/30/2014 20,456.29 19,896.65 19,683.36 17,918.54
10/31/2014 20,698.85 20,085.31 19,778.44 18,116.39
11/30/2014 20,549.12 19,923.14 19,700.31 18,008.91
12/31/2014 20,252.29 19,580.92 19,351.12 17,739.35
1/31/2015 20,385.54 19,665.09 19,399.43 17,835.86
2/28/2015 20,876.65 20,176.64 19,716.36 18,250.10
3/31/2015 20,762.49 20,088.40 19,599.43 18,177.34
4/30/2015 21,013.66 20,352.30 19,810.11 18,390.10
5/31/2015 21,077.29 20,431.11 19,820.48 18,467.66
6/30/2015 20,763.98 20,149.01 19,505.79 18,195.59
7/31/2015 20,643.45 20,008.12 19,298.18 18,133.00
8/31/2015 20,281.86 19,598.30 18,886.29 17,812.81
9/30/2015 19,760.80 19,108.05 18,466.30 17,334.01
10/31/2015 20,302.45 19,597.49 18,796.88 17,745.19
11/30/2015 19,854.38 19,181.17 18,336.79 17,343.07
12/31/2015 19,354.29 18,615.19 17,694.30 16,876.49
1/31/2016 19,043.23 18,306.60 17,318.32 16,586.29
[END CHART]
Data from 1/31/06 through 1/31/16.
See next page for benchmark definitions.
*As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond
Index replaced the Credit Suisse High Yield Index as it more closely represents
the securities held by the Fund.
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 High Yield Bond Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
The graph on page 9 illustrates the comparison of a $10,000 hypothetical
investment in the USAA High Income Fund Shares to the following benchmarks:
o The unmanaged Barclays U.S. High Yield 2% Issuer Capped Bond Index is an
index comprised of fixed rate, non-investment grade debt securities that are
dollar denominated and non-convertible. The index limits the maximum
exposure to any one issuer to 2%.
o The unmanaged Credit Suisse High Yield Index is a trader-priced portfolio
constructed to mirror the high-yield debt market.
o The unmanaged Lipper High Yield Bond Funds Index tracks the total return
performance of the 30 largest funds in the Lipper High Yield Funds category.
================================================================================
10 | USAA HIGH INCOME FUND
================================================================================
USAA HIGH INCOME FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIHIX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $879.3 Million $811.0 Million
Net Asset Value Per Share $7.09 $8.17
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-10.33% -10.65% 3.47% 6.97%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-8.47% 4.34% 7.38%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
7.81% 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
usaa.com.
*Total returns for periods of less than one year are not annualized. This 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 December 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).
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S.
HIGH YIELD 2% USAA HIGH INCOME CREDIT SUISSE LIPPER HIGH
ISSUER CAPPED FUND INSTITUTIONAL HIGH YIELD YIELD BOND
BOND INDEX* SHARES INDEX FUNDS INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,030.47 10,026.02 10,027.47 10,013.91
9/30/2008 9,260.55 9,335.20 9,321.88 9,266.29
10/31/2008 7,770.36 8,103.33 7,844.90 7,772.69
11/30/2008 7,088.77 7,445.43 7,168.10 7,107.07
12/31/2008 7,587.89 7,543.33 7,569.89 7,357.71
1/31/2009 8,093.18 7,823.87 8,014.57 7,678.75
2/28/2009 7,873.75 7,609.28 7,850.48 7,501.09
3/31/2009 8,089.76 7,676.57 8,009.73 7,612.19
4/30/2009 9,043.85 8,357.89 8,817.12 8,350.92
5/31/2009 9,650.47 9,096.76 9,296.47 8,836.46
6/30/2009 9,934.27 9,497.08 9,630.09 9,133.84
7/31/2009 10,530.28 10,065.93 10,214.48 9,712.59
8/31/2009 10,732.60 10,345.72 10,403.55 9,875.29
9/30/2009 11,345.38 10,968.20 10,989.26 10,391.60
10/31/2009 11,551.13 11,223.91 11,189.64 10,544.91
11/30/2009 11,664.44 11,372.72 11,345.65 10,679.29
12/31/2009 12,046.83 11,671.04 11,674.43 10,999.13
1/31/2010 12,204.31 11,939.80 11,823.10 11,138.53
2/28/2010 12,220.05 11,993.82 11,859.09 11,155.32
3/31/2010 12,590.46 12,402.89 12,196.68 11,509.86
4/30/2010 12,890.69 12,729.23 12,479.47 11,760.10
5/31/2010 12,429.22 12,219.38 12,082.09 11,324.77
6/30/2010 12,582.59 12,327.95 12,221.80 11,414.61
7/31/2010 13,024.89 12,733.43 12,599.49 11,822.45
8/31/2010 13,029.00 12,772.39 12,615.65 11,815.36
9/30/2010 13,414.47 13,143.99 12,950.30 12,175.14
10/31/2010 13,757.49 13,512.55 13,256.45 12,513.55
11/30/2010 13,600.36 13,435.99 13,116.45 12,387.57
12/31/2010 13,846.15 13,709.37 13,357.82 12,639.18
1/31/2011 14,152.20 13,976.04 13,626.80 12,903.10
2/28/2011 14,338.43 14,254.25 13,804.56 13,111.00
3/31/2011 14,385.33 14,339.23 13,860.82 13,137.96
4/30/2011 14,607.51 14,587.46 14,053.56 13,344.06
5/31/2011 14,679.06 14,665.36 14,114.23 13,373.53
6/30/2011 14,536.30 14,463.99 14,004.79 13,225.15
7/31/2011 14,704.05 14,588.71 14,196.94 13,334.98
8/31/2011 14,113.18 13,926.64 13,671.61 12,735.61
9/30/2011 13,648.97 13,445.71 13,287.89 12,285.56
10/31/2011 14,468.18 14,021.53 14,002.14 13,001.78
11/30/2011 14,155.97 13,766.01 13,748.44 12,708.93
12/31/2011 14,533.22 14,070.91 14,088.23 12,999.37
1/31/2012 14,974.15 14,488.88 14,463.28 13,432.09
2/29/2012 15,330.18 14,844.97 14,793.38 13,742.76
3/31/2012 15,310.67 14,912.45 14,796.17 13,745.45
4/30/2012 15,468.14 15,014.83 14,949.68 13,867.58
5/31/2012 15,262.06 14,804.97 14,751.95 13,641.93
6/30/2012 15,584.20 15,050.08 15,026.96 13,898.22
7/31/2012 15,880.66 15,349.07 15,291.24 14,152.54
8/31/2012 16,066.55 15,606.31 15,474.87 14,331.62
9/30/2012 16,290.09 15,869.23 15,669.08 14,530.02
10/31/2012 16,433.53 16,093.89 15,803.35 14,655.40
11/30/2012 16,564.99 16,168.58 15,922.79 14,772.69
12/31/2012 16,825.85 16,455.70 16,160.92 15,006.20
1/31/2013 17,051.45 16,774.76 16,370.85 15,224.03
2/28/2013 17,138.06 16,920.46 16,465.31 15,304.29
3/31/2013 17,312.65 17,116.97 16,635.28 15,464.07
4/30/2013 17,625.55 17,432.33 16,941.43 15,754.96
5/31/2013 17,523.54 17,442.77 16,843.74 15,665.98
6/30/2013 17,064.12 16,998.05 16,405.66 15,258.11
7/31/2013 17,387.29 17,267.67 16,732.24 15,557.76
8/31/2013 17,281.85 17,161.63 16,635.87 15,447.29
9/30/2013 17,453.36 17,286.37 16,798.34 15,611.62
10/31/2013 17,889.49 17,679.02 17,204.83 15,988.93
11/30/2013 17,979.87 17,762.06 17,272.55 16,055.39
12/31/2013 18,077.44 17,875.99 17,378.33 16,151.88
1/31/2014 18,204.10 18,056.69 17,510.69 16,253.06
2/28/2014 18,571.43 18,391.93 17,863.85 16,572.84
3/31/2014 18,615.59 18,481.69 17,911.89 16,620.90
4/30/2014 18,733.35 18,639.83 18,027.21 16,704.31
5/31/2014 18,904.86 18,865.99 18,190.13 16,860.00
6/30/2014 19,063.37 19,041.80 18,343.64 17,003.77
7/31/2014 18,810.04 18,926.50 18,112.41 16,784.12
8/31/2014 19,108.89 19,113.39 18,375.67 17,007.52
9/30/2014 18,708.36 18,818.71 17,987.40 16,679.94
10/31/2014 18,930.20 18,911.20 18,157.95 16,864.11
11/30/2014 18,793.26 18,837.81 18,011.34 16,764.06
12/31/2014 18,521.79 18,527.14 17,701.96 16,513.13
1/31/2015 18,643.66 18,552.88 17,778.06 16,602.97
2/28/2015 19,092.80 18,857.73 18,240.51 16,988.57
3/31/2015 18,988.39 18,747.30 18,160.74 16,920.84
4/30/2015 19,218.10 18,950.57 18,399.32 17,118.89
5/31/2015 19,276.30 18,962.08 18,470.57 17,191.10
6/30/2015 18,989.76 18,662.32 18,215.54 16,937.84
7/31/2015 18,879.53 18,487.09 18,088.17 16,879.57
8/31/2015 18,548.83 18,094.12 17,717.68 16,581.51
9/30/2015 18,072.30 17,670.94 17,274.46 16,135.82
10/31/2015 18,567.66 17,989.11 17,716.94 16,518.57
11/30/2015 18,157.88 17,574.72 17,340.57 16,144.25
12/31/2015 17,700.52 16,957.56 16,828.90 15,709.92
1/31/2016 17,416.04 16,577.53 16,549.93 15,439.78
[END CHART]
Data from 7/31/08 through 1/31/16.**
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA High Income Fund Institutional Shares to the Fund's benchmarks listed above
(see page 10 for benchmark definitions).
*As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond
Index replaced the Credit Suisse High Yield Index as it more closely represents
the securities held by the Fund.
**The performance of the Barclays U.S. High Yield 2% Issuer Capped Bond Index,
Credit Suisse High Yield Index, and the Lipper High Yield Bond Funds Index is
calculated from the end of the month, July 31, 2008, while the inception date of
the Institutional Shares is August 1, 2008. There may be a slight variation of
performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper High Yield Bond Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
12 | USAA HIGH INCOME FUND
================================================================================
USAA HIGH INCOME FUND ADVISER SHARES
(ADVISER SHARES) (Ticker Symbol: UHYOX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $8.4 Million $12.5 Million
Net Asset Value Per Share $7.11 $8.19
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-10.51% -10.98% 3.09% 4.49%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-8.79% 3.96% 5.01%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16
--------------------------------------------------------------------------------
UNSUBSIDIZED 7.23% SUBSIDIZED 7.29%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/15***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.21% AFTER REIMBURSEMENT 1.15%
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 December 1, 2015, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through December 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 1.15% 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 December 1, 2016. If
the total annual operating expense ratio of the Adviser Shares is lower than
1.15%, 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 | 13
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S.
HIGH YIELD 2% CREDIT SUISSE LIPPER HIGH USAA HIGH
ISSUER CAPPED HIGH YIELD YIELD BOND INCOME FUND
BOND INDEX* INDEX FUNDS INDEX ADVISER SHARES
7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,003.15 10,012.83 9,994.01 10,030.71
9/30/2010 10,299.10 10,278.43 10,298.32 10,316.99
10/31/2010 10,562.46 10,521.42 10,584.57 10,588.61
11/30/2010 10,441.82 10,410.30 10,478.01 10,524.02
12/31/2010 10,630.54 10,601.87 10,690.83 10,732.48
1/31/2011 10,865.51 10,815.36 10,914.07 10,937.44
2/28/2011 11,008.49 10,956.44 11,089.92 11,150.86
3/31/2011 11,044.50 11,001.10 11,112.72 11,212.33
4/30/2011 11,215.08 11,154.07 11,287.05 11,402.05
5/31/2011 11,270.01 11,202.22 11,311.98 11,458.62
6/30/2011 11,160.41 11,115.36 11,186.47 11,296.48
7/31/2011 11,289.19 11,267.87 11,279.37 11,389.73
8/31/2011 10,835.54 10,850.92 10,772.40 10,867.67
9/30/2011 10,479.14 10,546.37 10,391.72 10,488.62
10/31/2011 11,108.10 11,113.26 10,997.53 10,935.08
11/30/2011 10,868.40 10,911.90 10,749.83 10,744.35
12/31/2011 11,158.04 11,181.59 10,995.50 10,977.63
1/31/2012 11,496.57 11,479.26 11,361.51 11,300.22
2/29/2012 11,769.92 11,741.25 11,624.29 11,573.59
3/31/2012 11,754.93 11,743.46 11,626.57 11,622.25
4/30/2012 11,875.84 11,865.31 11,729.87 11,698.18
5/31/2012 11,717.61 11,708.37 11,539.01 11,530.79
6/30/2012 11,964.94 11,926.64 11,755.79 11,703.61
7/31/2012 12,192.55 12,136.39 11,970.90 11,932.28
8/31/2012 12,335.27 12,282.14 12,122.38 12,142.34
9/30/2012 12,506.90 12,436.28 12,290.19 12,342.50
10/31/2012 12,617.02 12,542.85 12,396.25 12,510.75
11/30/2012 12,717.95 12,637.64 12,495.46 12,549.54
12/31/2012 12,918.23 12,826.64 12,692.97 12,766.88
1/31/2013 13,091.44 12,993.26 12,877.22 13,025.23
2/28/2013 13,157.93 13,068.23 12,945.11 13,118.86
3/31/2013 13,291.98 13,203.13 13,080.26 13,281.44
4/30/2013 13,532.21 13,446.12 13,326.30 13,506.02
5/31/2013 13,453.88 13,368.58 13,251.04 13,523.71
6/30/2013 13,101.16 13,020.89 12,906.05 13,160.55
7/31/2013 13,349.28 13,280.09 13,159.51 13,379.59
8/31/2013 13,268.33 13,203.60 13,066.07 13,293.36
9/30/2013 13,400.00 13,332.56 13,205.07 13,385.58
10/31/2013 13,734.85 13,655.18 13,524.21 13,684.01
11/30/2013 13,804.24 13,708.93 13,580.43 13,743.82
12/31/2013 13,879.15 13,792.88 13,662.04 13,826.14
1/31/2014 13,976.40 13,897.93 13,747.62 13,961.33
2/28/2014 14,258.42 14,178.23 14,018.11 14,216.55
3/31/2014 14,292.32 14,216.36 14,058.76 14,282.69
4/30/2014 14,382.74 14,307.88 14,129.31 14,417.38
5/31/2014 14,514.42 14,437.19 14,261.00 14,570.63
6/30/2014 14,636.11 14,559.03 14,382.61 14,716.84
7/31/2014 14,441.61 14,375.51 14,196.82 14,604.62
8/31/2014 14,671.06 14,584.45 14,385.78 14,744.01
9/30/2014 14,363.55 14,276.29 14,108.70 14,528.89
10/31/2014 14,533.86 14,411.65 14,264.48 14,595.51
11/30/2014 14,428.73 14,295.29 14,179.85 14,535.31
12/31/2014 14,220.30 14,049.74 13,967.61 14,290.31
1/31/2015 14,313.87 14,110.14 14,043.60 14,307.20
2/28/2015 14,658.71 14,477.18 14,369.76 14,538.26
3/31/2015 14,578.55 14,413.87 14,312.47 14,449.25
4/30/2015 14,754.91 14,603.22 14,479.99 14,601.30
5/31/2015 14,799.59 14,659.77 14,541.06 14,605.55
6/30/2015 14,579.60 14,457.36 14,326.84 14,370.85
7/31/2015 14,494.96 14,356.27 14,277.56 14,231.58
8/31/2015 14,241.07 14,062.22 14,025.45 13,925.14
9/30/2015 13,875.21 13,710.44 13,648.46 13,612.80
10/31/2015 14,255.52 14,061.63 13,972.21 13,835.00
11/30/2015 13,940.91 13,762.91 13,655.59 13,510.92
12/31/2015 13,589.77 13,356.81 13,288.21 13,034.07
1/31/2016 13,371.36 13,135.39 13,059.71 12,736.51
[END CHART]
Data from 7/31/10 through 1/31/16.**
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA High Income Fund Adviser Shares to the Fund's benchmarks listed above (see
page 10 for benchmark definitions).
*As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond
Index replaced the Credit Suisse High Yield Index as it more closely represents
the securities held by the Fund.
**The performance of the Barclays U.S. High Yield 2% Issuer Capped Bond Index,
Credit Suisse High Yield Index, and the Lipper High Yield Bond 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.
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 High Yield Bond Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
14 | USAA HIGH INCOME FUND
================================================================================
o TOP 10 HOLDINGS - 1/31/16 o
(% of Net Assets)
% OF NET ASSETS
---------------
SPDR Barclays High Yield Bond ETF* .......................... 3.1%
iShares iBoxx High Yield
Corporate Bond ETF* ...................................... 1.6%
NuStar Logistics, LP, 7.63% ................................. 1.5%
Neptune Finco Corp. ......................................... 1.4%
St. Barbara Ltd. ............................................ 1.3%
Dairy Farmers of America, Inc., 7.88%,
cumulative redeemable, perpetual ......................... 1.1%
Frontier Communications Corp. ............................... 1.0%
Hawaiian Airlines Pass-Through Trust ........................ 0.9%
QBE Capital Funding III Ltd. ................................ 0.9%
ILFC E-Capital Trust II ..................................... 0.8%
You will find a complete list of securities that the Fund owns on pages
17-38.
*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.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 18.6%
CONSUMER DISCRETIONARY 13.6%
ENERGY 12.8%
MATERIALS 12.1%
TELECOMMUNICATION SERVICES 8.6%
INDUSTRIALS 8.3%
UTILITIES 6.1%
HEALTH CARE 5.5%
MONEY MARKET INSTRUMENTS 1.1%
EXCHANGE-TRADED FUNDS* 4.8%
CONSUMER STAPLES 3.9%
INFORMATION TECHNOLOGY 2.9%
MUNICIPAL BONDS 0.1%
[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.
================================================================================
16 | USAA HIGH INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
BONDS (88.1%)
CORPORATE OBLIGATIONS (63.5%)
CONSUMER DISCRETIONARY (11.9%)
------------------------------
ADVERTISING (0.8%)
$ 1,000 Acosta, Inc.(a) 7.75% 10/01/2022 $ 825
1,000 Advantage Sales & Marketing, Inc.(b) 7.50 7/25/2022 889
5,000 Checkout Holding Corp.(b) 7.75 4/11/2022 2,881
5,000 Clear Channel Worldwide Holdings, Inc. 7.63 3/15/2020 4,144
2,240 iHeartCommunications, Inc.(b) 7.18 1/30/2019 1,492
4,310 iHeartCommunications, Inc.(b) 7.93 7/30/2019 2,870
1,000 Lamar Media Corp.(a) 5.75 2/01/2026 1,033
---------
14,134
---------
APPAREL RETAIL (0.9%)
2,000 Caleres, Inc. 6.25 8/15/2023 1,985
10,000 L Brands, Inc. 6.95 3/01/2033 10,056
2,362 L Brands, Inc. 7.60 7/15/2037 2,492
3,000 The Men's Wearhouse, Inc. 7.00 7/01/2022 2,160
---------
16,693
---------
AUTO PARTS & EQUIPMENT (0.1%)
3,000 Omega US Sub, LLC(a) 8.75 7/15/2023 2,707
---------
BROADCASTING (0.2%)
4,000 Univision Communications, Inc.(a) 8.50 5/15/2021 3,985
---------
CABLE & SATELLITE (2.8%)
5,000 Cablevision Systems Corp. 8.00 4/15/2020 4,738
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp. 6.63 1/31/2022 5,313
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp. 5.75 1/15/2024 5,156
5,000 CCOH Safari, LLC(a) 5.75 2/15/2026 4,984
5,000 Neptune Finco Corp.(a) 10.13 1/15/2023 5,300
25,000 Neptune Finco Corp.(a) 10.88 10/15/2025 26,500
---------
51,991
---------
CASINOS & GAMING (2.4%)
4,000 Caesar's Entertainment Operating Co., Inc.(c) 8.50 2/15/2020 3,020
9,800 Caesar's Entertainment Resort Properties, LLC(b) 7.00 10/11/2020 8,590
2,000 Eldorado Resorts, Inc.(a) 7.00 8/01/2023 1,980
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 7,500 Golden Nugget Escrow, Inc.(a) 8.50% 12/01/2021 $ 7,312
2,472 Inn of the Mountain Gods Resort & Casino(a) 9.25 11/30/2020 2,299
4,000 Isle of Capri Casinos 8.88 6/15/2020 4,240
7,000 MGM Resorts International 8.63 2/01/2019 7,805
5,000 Pinnacle Entertainment, Inc. 8.75 5/15/2020 5,225
5,000 Scientific Games International, Inc. 6.25 9/01/2020 2,400
3,000 Scientific Games International, Inc.(a) 7.00 1/01/2022 2,835
---------
45,706
---------
DEPARTMENT STORES (0.9%)
10,346 J.C. Penney Corp., Inc.(b) 6.00 5/22/2018 10,126
2,100 Macy's Retail Holdings, Inc. 7.88 8/15/2036 2,164
5,000 Neiman Marcus Group Ltd., LLC(b),(d) 4.25 10/25/2020 4,352
---------
16,642
---------
HOMEBUILDING (0.6%)
4,000 Beazer Homes USA, Inc.(e) 9.13 5/15/2019 3,900
2,000 CalAtlantic Group, Inc. 5.88 11/15/2024 2,085
3,000 KB Home 7.50 9/15/2022 2,856
3,000 M/I Homes, Inc.(a) 6.75 1/15/2021 2,925
---------
11,766
---------
HOTELS, RESORTS & CRUISE LINES (0.2%)
3,000 Royal Caribbean Cruises Ltd. 5.25 11/15/2022 3,090
---------
LEISURE FACILITIES (0.1%)
3,000 Clubcorp Club Operations(a) 8.25 12/15/2023 2,880
---------
MOVIES & ENTERTAINMENT (0.1%)
2,000 Production Resource Group, Inc. 8.88 5/01/2019 1,450
---------
PUBLISHING (0.7%)
195 American Media, Inc.(a) 13.50 6/15/2018 193
4,834 Cengage Learning Acquisitions, Inc.(b) 7.00 3/31/2020 4,723
7,500 McGraw-Hill Global Education Holdings, LLC 9.75 4/01/2021 8,006
---------
12,922
---------
RESTAURANTS (0.2%)
4,000 NPC International, Inc. & NPC Operating Co., Inc. 10.50 1/15/2020 4,125
---------
SPECIALIZED CONSUMER SERVICES (0.2%)
4,927 Weight Watchers International, Inc.(b) 4.00 4/02/2020 3,438
---------
SPECIALTY STORES (1.4%)
7,000 Guitar Center, Inc.(a) 6.50 4/15/2019 5,933
2,000 Guitar Center, Inc.(a) 9.63 4/15/2020 1,380
4,762 Toys R Us Property Co. I, LLC(b) 6.00 8/21/2019 4,293
15,000 Toys R Us Property Co. II, LLC 8.50 12/01/2017 13,957
---------
25,563
---------
================================================================================
18 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
TIRES & RUBBER (0.3%)
$ 5,000 Goodyear Tire & Rubber Co. 6.50% 3/01/2021 $ 5,269
---------
Total Consumer Discretionary 222,361
---------
CONSUMER STAPLES (1.2%)
-----------------------
DRUG RETAIL (0.1%)
2,000 Rite Aid Corp.(a) 6.13 4/01/2023 2,118
---------
HOUSEHOLD PRODUCTS (0.2%)
3,000 Central Garden & Pet Co. 6.13 11/15/2023 3,082
---------
PACKAGED FOODS & MEAT (0.9%)
5,000 B&G Foods, Inc. 4.63 6/01/2021 5,006
2,250 Chiquita Brands International, Inc. 7.88 2/01/2021 2,386
6,000 Post Holdings, Inc.(a) 8.00 7/15/2025 6,465
3,000 Smithfield Foods, Inc.(a) 5.88 8/01/2021 3,052
---------
16,909
---------
Total Consumer Staples 22,109
---------
ENERGY (10.6%)
--------------
COAL & CONSUMABLE FUELS (0.1%)
6,500 Peabody Energy Corp. 6.00 11/15/2018 585
---------
OIL & GAS DRILLING (0.4%)
10,000 Noble Holding International Ltd. 5.95 4/01/2025 5,043
1,000 Paragon Offshore plc(a) 7.25 8/15/2024 129
5,212 Schahin II Finance Co. SPV Ltd.(a),(c) 5.88 9/25/2023 1,068
3,000 Transocean, Inc.(e) 7.13 12/15/2021 1,770
---------
8,010
---------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
3,000 Archrock Partners, LP & Archrock Partners
Finance Corp. 6.00 4/01/2021 2,250
3,000 Basic Energy Services(e) 7.75 2/15/2019 813
2,000 Brand Energy & Infrastructure Service, Inc.(a) 8.50 12/01/2021 1,640
1,500 CSI Compressco, LP & CSI Compressco Finance, Inc. 7.25 8/15/2022 983
5,880 Weatherford International Ltd. 5.13 9/15/2020 4,219
---------
9,905
---------
OIL & GAS EXPLORATION & PRODUCTION (2.1%)
4,000 Alta Mesa Holdings, LP & Alta Mesa
Finance Services Corp.(f) 9.63 10/15/2018 1,140
1,500 Approach Resources, Inc. 7.00 6/15/2021 304
6,000 Bill Barrett Corp. 7.00 10/15/2022 3,375
3,000 BreitBurn Energy Partners, LP 7.88 4/15/2022 502
6,162 California Resources Corp.(a) 8.00 12/15/2022 2,465
2,297 California Resources Corp. 6.00 11/15/2024 442
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 2,887 Chesapeake Energy Corp.(a) 8.00% 12/15/2022 $ 1,249
500 Clayton Williams Energy, Inc. 7.75 4/01/2019 268
3,000 Comstock Resources, Inc. 7.75 4/01/2019 382
3,000 Comstock Resources, Inc.(a) 10.00 3/15/2020 1,177
5,000 Devon Energy Corp. 5.85 12/15/2025 4,678
3,000 EP Energy, LLC & Everest Acquisition Finance, Inc. 9.38 5/01/2020 1,290
3,000 EV Energy Partners, LP & EV Energy Finance Corp.(e) 8.00 4/15/2019 1,005
3,000 Fieldwood Energy, LLC(b) 8.38 9/30/2020 519
3,000 Goodrich Petroleum Corp. 8.88 3/15/2019 150
1,000 Halcon Resources Corp.(a) 8.63 2/01/2020 634
1,950 Halcon Resources Corp.(a) 12.00 2/15/2022 1,160
6,500 Linn Energy, LLC & Linn Energy Finance Corp. 6.50 9/15/2021 764
5,000 Newfield Exploration Co. 5.38 1/01/2026 4,050
500 Northern Oil and Gas, Inc. 8.00 6/01/2020 283
1,000 Northern Oil and Gas, Inc. 8.00 6/01/2020 565
2,000 PDC Energy, Inc. 7.75 10/15/2022 1,910
5,000 Quicksilver Resources, Inc.(b),(c) 7.00 6/21/2019 1,335
3,000 Resolute Energy Corp. 8.50 5/01/2020 1,301
5,000 Rex Energy Corp. 8.88 12/01/2020 625
5,000 Sabine Oil & Gas, LLC(b),(c) 8.75 12/31/2018 167
6,000 Samson Investment Co.(b),(c) 5.00 9/25/2018 165
4,000 SandRidge Energy, Inc.(a) 8.75 6/01/2020 760
7,000 SandRidge Energy, Inc. 7.50 2/15/2023 22
5,000 Southwestern Energy Co. 4.95 1/23/2025 3,106
2,000 Swift Energy Co.(c) 7.88 3/01/2022 158
1,000 Triangle USA Petroleum Corp.(a) 6.75 7/15/2022 175
4,000 Ultra Petroleum Corp.(a) 6.13 10/01/2024 580
2,500 WPX Energy, Inc. 8.25 8/01/2023 1,606
---------
38,312
---------
OIL & GAS REFINING & MARKETING (0.7%)
4,000 CITGO Petroleum Corp.(a) 6.25 8/15/2022 3,850
5,000 Northern Tier Energy, LLC &
Northern Tier Finance Corp. 7.13 11/15/2020 4,782
5,000 PBF Holding Co., LLC(a) 7.00 11/15/2023 4,581
---------
13,213
---------
OIL & GAS STORAGE & TRANSPORTATION (6.8%)
5,000 Blue Racer Midstream, LLC &
Blue Racer Finance Corp.(a) 6.13 11/15/2022 3,762
10,000 Boardwalk Pipelines, LP 4.95 12/15/2024 8,483
5,000 Crestwood Midstream Partners, LP 6.00 12/15/2020 3,194
15,000 DCP Midstream, LLC(a) 5.85 5/21/2043 8,625
2,500 Energy Transfer Equity, LP 7.50 10/15/2020 2,212
5,000 Energy Transfer Partners, LP 3.35(g) 11/01/2066 2,950
================================================================================
20 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 12,915 Enterprise Products Operating, LLC 7.00% 6/01/2067 $ 10,364
9,000 Enterprise Products Operating, LLC 7.03 1/15/2068 9,022
5,061 Kinder Morgan Inc. 7.80 8/01/2031 4,862
5,000 Martin Midstream Partners, LP & Martin
Midstream Finance Corp. 7.25 2/15/2021 4,300
3,000 NGL Energy Partners, LP & NGL Energy
Finance Corp. 6.88 10/15/2021 2,115
12,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 11,340
3,000 NGPL PipeCo, LLC(a) 9.63 6/01/2019 2,820
5,000 ONEOK, Inc. 4.25 2/01/2022 3,475
5,000 Regency Energy Partners, LP &
Regency Energy Finance Corp. 5.88 3/01/2022 4,584
13,000 Sabine Pass Liquefaction, LLC 5.63 2/01/2021 11,960
5,000 Southern Union Co. 3.35(g) 11/01/2066 2,537
2,000 Sunoco, LP & Sunoco Finance Corp.(a) 5.50 8/01/2020 1,878
2,000 Sunoco, LP & Sunoco Finance Corp.(a) 6.38 4/01/2023 1,855
5,000 Targa Pipeline Partners, LP &
Atlas Pipeline Finance Corp. 6.63 10/01/2020 4,175
3,000 Targa Resources Partners, LP 6.88 2/01/2021 2,610
3,000 Targa Resources Partners, LP 5.25 5/01/2023 2,340
3,000 TEPPCO Partners, LP 7.00 6/01/2067 2,362
5,000 Tesoro Logistics, LP & Tesoro Logistics Finance Corp. 6.13 10/15/2021 4,550
1,000 Tesoro Logistics, LP & Tesoro Logistics Finance Corp.(a) 6.25 10/15/2022 915
3,000 Transcontinental Gas Pipe Line Co., LLC(a) 7.85 2/01/2026 3,134
10,000 Williams Companies, Inc. 4.55 6/24/2024 6,565
---------
126,989
---------
Total Energy 197,014
---------
FINANCIALS (9.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,050
---------
CONSUMER FINANCE (1.5%)
5,000 Ally Financial, Inc. 5.75 11/20/2025 5,000
4,000 American Express Co. 6.80 9/01/2066 3,955
5,000 Credit Acceptance Corp. 6.13 2/15/2021 4,806
15,000 Navient Corp. 7.25 1/25/2022 13,407
1,000 Navient Corp. 6.13 3/25/2024 825
---------
27,993
---------
INVESTMENT BANKING & BROKERAGE (0.0%)
1,000 Lehman Brothers Holdings, Inc.(c) 5.75 4/25/2011 84
1,500 Lehman Brothers Treasury Co. B.V.(c) 6.88 12/29/2010 191
---------
275
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (1.8%)
$ 3,000 American Equity Investment Life Holding Co. 6.63% 7/15/2021 $ 3,135
3,000 Forethought Financial Group(a) 8.63 4/15/2021 3,461
8,000 Lincoln National Corp. 7.00(g) 5/17/2066 5,980
2,000 MetLife, Inc. 10.75 8/01/2069 3,076
10,000 Prudential Financial, Inc. 5.20 3/15/2044 9,712
10,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 8,150
---------
33,514
---------
MULTI-LINE INSURANCE (1.2%)
20,000 Genworth Holdings, Inc. 6.15 11/15/2066 5,400
8,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 6,180
10,000 Nationwide Mutual Insurance Co.(a) 2.80(g) 12/15/2024 9,695
---------
21,275
---------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.0%)
1,000 Washington Mutual Bank(c) 5.55 6/16/2010 213
---------
PROPERTY & CASUALTY INSURANCE (1.3%)
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,686
3,780 Hanover Insurance Group, Inc. 8.21 2/03/2027 4,724
5,400 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 6,278
2,000 Zenith National Insurance Capital Trust I(a) 8.55 8/01/2028 1,965
---------
23,653
---------
REGIONAL BANKS (1.1%)
5,000 Banc of California, Inc. 5.25 4/15/2025 5,020
10,409 Regions Bank 6.45 6/26/2037 12,693
1,790 Regions Financial Corp. 7.38 12/10/2037 2,323
---------
20,036
---------
REINSURANCE (0.1%)
2,000 Alterra USA Holdings Ltd.(a) 7.20 4/14/2017 2,104
---------
REITs - HEALTH CARE (0.2%)
4,000 Sabra Health Care, LP & Sabra Capital Corp. 5.50 2/01/2021 4,090
---------
REITs - SPECIALIZED (0.2%)
1,000 Communications Sales & Leasing, Inc.(a) 6.00 4/15/2023 958
2,000 Communications Sales & Leasing, Inc. 8.25 10/15/2023 1,775
---------
2,733
---------
SPECIALIZED FINANCE (0.5%)
10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 9,650
---------
THRIFTS & MORTGAGE FINANCE (1.0%)
5,000 Ocwen Financial Corp. 6.63 5/15/2019 4,437
5,000 PHH Corp. 6.38 8/15/2021 4,362
================================================================================
22 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 8,031 Walter Investment Management Corp.(b) 4.75% 12/19/2020 $ 6,280
5,000 Walter Investment Management Corp. 7.88 12/15/2021 3,638
---------
18,717
---------
Total Financials 174,303
---------
HEALTH CARE (5.2%)
------------------
HEALTH CARE EQUIPMENT (0.2%)
5,000 Universal Hospital Services, Inc. 7.63 8/15/2020 4,425
---------
HEALTH CARE FACILITIES (2.5%)
10,000 HCA, Inc. 5.25 4/15/2025 10,275
13,500 HCA, Inc. 5.88 2/15/2026 13,804
2,000 HealthSouth Corp.(a) 5.75 11/01/2024 1,984
2,000 HealthSouth Corp.(a) 5.75 9/15/2025 1,950
5,000 Kindred Healthcare, Inc. 6.38 4/15/2022 4,087
3,000 LifePoint Health, Inc. 5.88 12/01/2023 3,120
2,000 Tenet Healthcare Corp. 8.00 8/01/2020 2,015
11,000 Tenet Healthcare Corp. 6.75 6/15/2023 10,230
---------
47,465
---------
HEALTH CARE SERVICES (0.3%)
1,500 Centene Escrow Corp.(d) 5.63 2/15/2021 1,530
1,500 Centene Escrow Corp.(d) 6.13 2/15/2024 1,545
2,000 DaVita HealthCare Partners, Inc. 5.13 7/15/2024 2,015
---------
5,090
---------
HEALTH CARE SUPPLIES (0.4%)
2,930 DJO Finance, LLC. & DJO Finance Corp.(a) 8.13 6/15/2021 2,476
1,000 DJO Finance, LLC. & DJO Finance Corp.(e) 9.75 10/15/2017 1,003
3,000 Halyard Health, Inc. 6.25 10/15/2022 2,919
---------
6,398
---------
PHARMACEUTICALS (1.8%)
5,000 Endo Finance, LLC & Endo Ltd.(a) 6.00 7/15/2023 5,050
9,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 7,853
10,000 Valeant Pharmaceuticals International, Inc.(a) 6.38 10/15/2020 9,650
13,000 Valeant Pharmaceuticals International, Inc.(a) 6.13 4/15/2025 11,716
---------
34,269
---------
Total Health Care 97,647
---------
INDUSTRIALS (6.5%)
------------------
AEROSPACE & DEFENSE (0.7%)
3,000 Constellis Holdings, LLC & Constellis Finance Corp.(a) 9.75 5/15/2020 2,306
15,000 Textron Financial Corp.(a) 6.00 2/15/2067 10,688
---------
12,994
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
AIRLINES (2.6%)
$ 221 America West Airlines, Inc. Pass-Through Trust 6.87% 7/02/2018 $ 221
4,280 American Airlines, Inc. Pass-Through Trust 5.63 1/15/2021 4,318
5,000 Continental Airlines, Inc. Pass-Through Trust 6.13 4/29/2018 5,231
2,465 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 2,588
17,641 Hawaiian Airlines Pass-Through Trust 4.95 1/15/2022 16,635
5,000 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 5,031
5,000 US Airways Group, Inc. Pass-Through Trust 5.45 6/03/2018 4,994
2,224 US Airways Group, Inc. Pass-Through Trust(f) 9.75 4/22/2020 2,502
5,950 Virgin Australia Holdings Ltd. Pass-Through Trust(a) 7.13 10/23/2018 5,980
---------
47,500
---------
COMMERCIAL PRINTING (0.1%)
3,000 R.R. Donnelley & Sons Co. 6.00 4/01/2024 2,546
---------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
5,000 Navistar International Corp. 8.25 11/01/2021 3,137
---------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
5,079 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 4,444
---------
INDUSTRIAL CONGLOMERATES (0.6%)
4,000 GE Capital Trust I 6.38 11/15/2067 4,313
5,921 General Electric Co. 5.00 -(h) 6,091
---------
10,404
---------
MARINE (0.1%)
1,000 Navios Maritime Acquisition Corp. &
Navios Acquisition Finance U.S., Inc.(a) 8.13 11/15/2021 799
5,000 Navios Maritime Holdings, Inc. &
Navios Maritime Finance II U.S., Inc.(a) 7.38 1/15/2022 1,819
---------
2,618
---------
TRADING COMPANIES & DISTRIBUTORS (1.4%)
6,034 ILFC E-Capital Trust I(a) 4.49(g) 12/21/2065 5,430
16,362 ILFC E-Capital Trust II(a) 4.74(g) 12/21/2065 14,808
4,000 United Rentals North America, Inc. 5.75 11/15/2024 3,710
3,000 United Rentals North America, Inc. 5.50 7/15/2025 2,689
---------
26,637
---------
TRUCKING (0.6%)
3,000 Ahern Rentals, Inc.(a) 7.38 5/15/2023 2,205
4,000 Avis Budget Car Rental, LLC &
Avis Budget Finance, Inc.(a) 5.13 6/01/2022 3,793
6,860 YRC Worldwide, Inc.(b) 8.00 2/13/2019 5,719
---------
11,717
---------
Total Industrials 121,997
---------
================================================================================
24 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (2.5%)
-----------------------------
APPLICATION SOFTWARE (0.3%)
$ 5,000 Informatica, LLC(a) 7.13% 7/15/2023 $ 4,500
---------
COMMUNICATIONS EQUIPMENT (0.3%)
3,500 Avaya, Inc.(a) 7.00 4/01/2019 2,345
3,500 Avaya, Inc.(a) 10.50 3/01/2021 892
3,000 CommScope Technologies Finance, LLC(a) 6.00 6/15/2025 2,925
---------
6,162
---------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
5,000 First Data Corp.(a) 5.38 8/15/2023 5,112
6,000 First Data Corp.(a) 7.00 12/01/2023 6,060
---------
11,172
---------
HOME ENTERTAINMENT SOFTWARE (0.3%)
5,000 Activision Blizzard, Inc.(a) 5.63 9/15/2021 5,263
---------
SEMICONDUCTORS (0.2%)
5,000 Micron Technology, Inc.(a) 5.63 1/15/2026 3,888
---------
SYSTEMS SOFTWARE (0.5%)
3,781 BMC Software Finance, Inc.(b) 5.00 9/10/2020 3,034
2,000 BMC Software Finance, Inc.(a) 8.13 7/15/2021 1,233
6,000 Ensemble S Merger Sub, Inc.(a) 9.00 9/30/2023 5,617
---------
9,884
---------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%)
5,000 Denali Borrower, LLC & Denali Finance Corp.(a) 5.63 10/15/2020 5,275
---------
Total Information Technology 46,144
---------
MATERIALS (4.6%)
----------------
ALUMINUM (0.3%)
3,000 Alcoa, Inc. 5.13 10/01/2024 2,475
4,000 Aleris International, Inc.(e) 7.63 2/15/2018 3,500
---------
5,975
---------
COMMODITY CHEMICALS (0.4%)
5,000 Hexion U.S. Finance Corp. 8.88 2/01/2018 3,425
5,000 Hexion U.S. Finance Corp. 6.63 4/15/2020 3,900
---------
7,325
---------
DIVERSIFIED METALS & MINING (1.1%)
5,000 Compass Minerals International, Inc.(a) 4.88 7/15/2024 4,600
15,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 6,450
20,000 Freeport-McMoRan, Inc. 5.45 3/15/2043 7,990
4,000 Thompson Creek Metals Co., Inc.(e) 7.38 6/01/2018 620
---------
19,660
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
METAL & GLASS CONTAINERS (1.5%)
$ 2,000 Ardagh Packaging Finance plc &
Ardagh MP Holdings USA, Inc.(a) 6.25% 1/31/2019 $ 1,945
4,000 Ardagh Packaging Finance plc(a) 9.13 10/15/2020 4,020
4,925 BWAY Holding Co.(b) 5.50 8/14/2020 4,663
8,500 Reynolds Group Issuer, Inc. &
Reynolds Group Issuer, LLC 7.88 8/15/2019 8,829
9,000 Reynolds Group Issuer, Inc. &
Reynolds Group Issuer, LLC 9.88 8/15/2019 8,809
---------
28,266
---------
PAPER PACKAGING (0.4%)
7,000 Sealed Air Corp.(a) 6.88 7/15/2033 7,219
---------
STEEL (0.9%)
10,456 Allegheny Ludlum Corp. 6.95 12/15/2025 5,437
10,000 Cliffs Natural Resources, Inc.(a) 8.25 3/31/2020 7,250
3,000 Fortescue Metals Group Ltd.(b),(d) 4.25 6/30/2019 2,089
4,000 JMC Steel Group(a) 8.25 3/15/2018 3,000
---------
17,776
---------
Total Materials 86,221
---------
TELECOMMUNICATION SERVICES (7.5%)
---------------------------------
ALTERNATIVE CARRIERS (0.5%)
5,000 Cogent Communications Finance, Inc.(a) 5.63 4/15/2021 4,775
5,000 Level 3 Financing, Inc. 6.13 1/15/2021 5,250
---------
10,025
---------
INTEGRATED TELECOMMUNICATION SERVICES (3.7%)
10,000 CenturyLink, Inc. 5.80 3/15/2022 9,287
5,000 CenturyLink, Inc. 6.75 12/01/2023 4,750
5,000 Frontier Communications Corp.(a) 10.50 9/15/2022 4,881
20,000 Frontier Communications Corp.(a) 11.00 9/15/2025 19,350
9,000 Frontier Communications Corp. 9.00 8/15/2031 7,200
10,000 Verizon Communications, Inc. 4.50 9/15/2020 10,839
13,000 Windstream Corp. 7.50 6/01/2022 10,075
3,000 Windstream Corp. 6.38 8/01/2023 2,183
---------
68,565
---------
WIRELESS TELECOMMUNICATION SERVICES (3.3%)
12,000 Sprint Communications, Inc. 7.00 8/15/2020 8,880
20,000 Sprint Corp. 7.25 9/15/2021 14,500
20,000 Sprint Corp. 7.63 2/15/2025 13,762
4,000 T-Mobile USA, Inc. 6.63 11/15/2020 4,134
4,500 T-Mobile USA, Inc. 6.13 1/15/2022 4,601
================================================================================
26 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 10,000 T-Mobile USA, Inc. 6.50% 1/15/2024 $ 10,150
5,000 Zayo Group, LLC & Zayo Capital, Inc. 6.38 5/15/2025 4,863
-----------
60,890
-----------
Total Telecommunication Services 139,480
-----------
UTILITIES (4.1%)
----------------
ELECTRIC UTILITIES (1.2%)
34 FPL Energy National Wind Portfolio, LLC(a) 6.13 3/25/2019 35
67 FPL Energy Wind Funding, LLC(a) 6.88 6/27/2017 65
2,000 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 1,370
2,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 1,503
2,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 1,865
10,000 PPL Capital Funding, Inc. 6.70 3/30/2067 7,702
5,000 Talen Energy Supply, LLC 6.50 6/01/2025 3,425
16,960 Texas Competitive Electric Holdings Co., LLC(b) 4.91 10/10/2017 5,182
3,000 Texas Competitive Electric Holdings Co., LLC &
Tech Finance, Inc.(a),(c) 11.50 10/01/2020 975
-----------
22,122
-----------
GAS UTILITIES (0.2%)
4,000 Southern Star Central Corp.(a) 5.13 7/15/2022 3,380
-----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (1.8%)
7,000 AES Corp. 7.38 7/01/2021 7,245
5,000 Calpine Corp. 5.75 1/15/2025 4,513
4,000 DPL, Inc. 6.75 10/01/2019 4,060
5,000 Dynegy, Inc. 7.38 11/01/2022 4,450
5,000 Dynegy, Inc. 5.88 6/01/2023 4,075
15,000 GenOn Energy, Inc. 9.88 10/15/2020 10,275
-----------
34,618
-----------
MULTI-UTILITIES (0.9%)
10,790 Integrys Holding, Inc. 6.11 12/01/2066 7,878
11,025 Puget Sound Energy, Inc. 6.97 6/01/2067 8,462
-----------
16,340
-----------
Total Utilities 76,460
-----------
Total Corporate Obligations (cost: $1,393,485) 1,183,736
-----------
CONVERTIBLE SECURITIES (0.0%)
MATERIALS (0.0%)
----------------
GOLD (0.0%)
467 Hycroft Mining Corp.(i) (cost: $447) 15.00 10/22/2020 565
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (15.8%)
CONSUMER DISCRETIONARY (1.3%)
-----------------------------
CABLE & SATELLITE (0.9%)
$ 2,000 Altice Luxembourg S.A.(a) 7.75% 5/15/2022 $ 1,875
7,000 Altice Luxembourg S.A.(a) 7.63 2/15/2025 6,247
3,000 Numericable Group S.A.(a) 4.88 5/15/2019 2,993
5,000 Numericable Group S.A.(a) 6.00 5/15/2022 4,950
---------
16,065
---------
HOMEBUILDING (0.1%)
3,000 Brookfield Residential Properties, Inc.(a) 6.38 5/15/2025 2,543
---------
RESTAURANTS (0.3%)
5,000 1011778 B.C. ULC & New Red Finance, Inc.(a) 4.63 1/15/2022 5,037
---------
Total Consumer Discretionary 23,645
---------
CONSUMER STAPLES (0.5%)
-----------------------
PACKAGED FOODS & MEAT (0.5%)
1,000 JBS Investments GmbH(a) 7.25 4/03/2024 817
8,000 JBS USA, LLC & JBS USA Finance, Inc.(a) 5.88 7/15/2024 6,480
3,000 Minerva Luxembourg S.A. 7.75 1/31/2023 2,813
---------
10,110
---------
Total Consumer Staples 10,110
---------
ENERGY (0.6%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
13,000 TransCanada Trust 5.63 5/20/2075 11,715
---------
FINANCIALS (2.2%)
-----------------
DIVERSIFIED BANKS (0.8%)
3,500 BayernLB Capital Trust l 6.20 -(h) 3,478
5,000 Royal Bank of Scotland Group plc 7.64 -(h) 5,163
5,000 Royal Bank of Scotland Group plc 9.50 3/16/2022 5,333
---------
13,974
---------
DIVERSIFIED CAPITAL MARKETS (0.3%)
5,000 Deutsche Bank Capital Trust IV 4.59(g) -(h) 5,002
---------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
2,000 ING Capital Funding Trust III 4.21(g) -(h) 1,977
---------
PROPERTY & CASUALTY INSURANCE (1.0%)
15,000 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 16,556
4,000 XLIT Ltd. 6.50 -(h) 2,912
---------
19,468
---------
Total Financials 40,421
---------
================================================================================
28 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
INDUSTRIALS (1.7%)
------------------
AEROSPACE & DEFENSE (0.4%)
$ 12,000 Bombardier, Inc.(a) 7.50% 3/15/2025 $ 8,310
---------
AIRLINES (1.0%)
1,000 Air Canada(a) 7.75 4/15/2021 1,005
2,500 Air Canada Pass-Through Trust(a) 6.63 5/15/2018 2,509
5,000 Air Canada Pass-Through Trust(a) 5.00 9/15/2020 4,613
10,156 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 9,991
---------
18,118
---------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
5,250 Ashtead Capital, Inc.(a) 6.50 7/15/2022 5,381
---------
Total Industrials 31,809
---------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTOR EQUIPMENT (0.1%)
4,000 Global A&T Electronics(a) 10.00 2/01/2019 2,950
---------
MATERIALS (7.0%)
----------------
COMMODITY CHEMICALS (0.5%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 8,825
---------
CONSTRUCTION MATERIALS (0.5%)
1,000 CEMEX Finance, LLC(a) 9.38 10/12/2022 1,015
1,500 CEMEX Finance, LLC(a) 6.00 4/01/2024 1,286
3,000 CEMEX SAB de C.V.(a) 6.50 12/10/2019 2,839
5,000 CEMEX SAB de C.V.(a) 6.13 5/05/2025 4,292
---------
9,432
---------
DIVERSIFIED METALS & MINING (1.5%)
5,000 First Quantum Minerals Ltd.(a) 7.25 5/15/2022 2,275
10,000 Glencore Funding, LLC(a) 4.13 5/30/2023 6,810
1,000 Imperial Metals Corp.(a) 7.00 3/15/2019 880
15,000 Teck Resources Ltd. 4.75 1/15/2022 8,287
15,000 Teck Resources Ltd. 6.13 10/01/2035 6,975
5,000 Vedanta Resources plc(a) 8.25 6/07/2021 2,908
---------
28,135
---------
GOLD (2.6%)
3,000 Alamos Gold, Inc.(a) 7.75 4/01/2020 2,513
10,000 Eldorado Gold Corp.(a) 6.13 12/15/2020 8,425
2,975 Kinross Gold Corp. 5.95 3/15/2024 1,859
10,000 New Gold, Inc.(a) 6.25 11/15/2022 7,525
4,000 Newcrest Finance Property Ltd.(a) 4.20 10/01/2022 3,429
25,000 St. Barbara Ltd.(a) 8.88 4/15/2018 24,375
---------
48,126
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
METAL & GLASS CONTAINERS (0.2%)
$ 5,000 Ardagh Packaging Finance plc &
Ardagh MP Holdings USA, Inc.(a) 6.00% 6/30/2021 $ 4,538
---------
PAPER PACKAGING (0.4%)
6,200 Smurfit Kappa Treasury Funding Ltd. 7.50 11/20/2025 6,851
---------
PAPER PRODUCTS (0.3%)
5,000 Sappi Papier Holding GmbH(a) 6.63 4/15/2021 5,100
---------
PRECIOUS METALS & MINERALS (0.3%)
5,000 Fresnillo plc(a) 5.50 11/13/2023 5,050
---------
STEEL (0.7%)
20,000 ArcelorMittal 8.00 10/15/2039 14,200
---------
Total Materials 130,257
---------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
3,000 Intelsat Jackson Holdings S.A. 7.25 10/15/2020 2,595
---------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
2,000 Altice Finco S.A.(a) 7.63 2/15/2025 1,850
5,000 Digicel Ltd.(a) 6.00 4/15/2021 4,381
3,000 Digicel Ltd.(a) 6.75 3/01/2023 2,595
---------
8,826
---------
Total Telecommunication Services 11,421
---------
UTILITIES (1.8%)
----------------
ELECTRIC UTILITIES (1.4%)
5,000 EDP Finance B.V.(a) 5.25 1/14/2021 5,146
10,000 Electricite De France S.A.(a) 5.25 -(h) 9,000
10,975 Enel S.p.A.(a) 8.75 9/24/2073 12,100
---------
26,246
---------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.4%)
7,000 AES Gener S.A.(a) 8.38 12/18/2073 6,877
---------
Total Utilities 33,123
---------
Total Eurodollar and Yankee Obligations (cost: $317,623) 295,451
---------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
FINANCIALS (0.3%)
-----------------
4,483 Countrywide Home Loans 1.39(g) 2/25/2035 2,732
2,455 Wells Fargo Mortgage Backed Securities Trust 2.73(g) 4/25/2035 2,321
---------
Total Financials 5,053
---------
Total Collateralized Mortgage Obligations (cost: $5,092) 5,053
---------
================================================================================
30 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (3.6%)
FINANCIALS (3.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (3.6%)
$ 6,900 Banc of America Commercial Mortgage, Inc. 5.42% 10/10/2045 $ 6,887
5,000 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 5,169
8,610 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 8,566
5,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.57 1/12/2045 5,009
2,500 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 2,491
2,997 Citigroup Commercial Mortgage Trust 6.34 12/10/2049 2,568
15,000 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.62 2/15/2040 14,251
5,000 FHLMC Multifamily Structured
Pass-Through Certificates(d) 3.15 11/25/2025 5,150
5,000 GE Capital Commercial Mortgage Corp. 5.61 11/10/2045 4,983
1,008 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 1,022
1,608 Merrill Lynch Mortgage Trust 5.68 7/12/2038 1,608
5,000 Merrill Lynch Mortgage Trust 5.05 8/12/2039 4,964
4,000 Morgan Stanley Capital I Trust 5.68 3/12/2044 3,983
---------
66,651
---------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
2,444 Banc of America Commercial Mortgage, Inc.(a) 5.43 12/10/2042 132
488 Credit Suisse First Boston Corp.,
acquired 6/13/2003; cost $24(j) 1.91 5/17/2040 15
---------
147
---------
Total Financials 66,798
---------
Total Commercial Mortgage Securities (cost: $68,265) 66,798
---------
U.S. TREASURY SECURITIES (0.0%)
NOTES (0.0%)
550 2.00%, 2/15/2025(k) (cost: $541) 2.00 2/15/2025 554
---------
MUNICIPAL BONDS (0.1%)
CASINOS & GAMING (0.0%)
5,193 Mashantucket (Western) Pequot Tribe(i) 7.35 7/01/2026 428
---------
GENERAL OBLIGATION (0.1%)
1,500 Atlantic City 7.00 3/01/2028 1,553
---------
Total Municipal Bonds (cost: $4,514) 1,981
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
---------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (4.8%)
383 iShares iBoxx High Yield Corporate Bond ETF $ 30,328
1,752 SPDR Barclays High Yield Bond ETF 58,174
----------
Total Exchange-Traded Funds (cost: $96,394) 88,502
----------
Total Bonds (cost: $1,886,361) 1,642,640
----------
EQUITY SECURITIES (9.2%)
COMMON STOCKS (3.0%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
10,001 Lear Corp. 1,038
----------
CABLE & SATELLITE (0.1%)
38,950 Comcast Corp. "A" 2,170
----------
CASINOS & GAMING (0.0%)
13,500 Las Vegas Sands Corp. 609
----------
GENERAL MERCHANDISE STORES (0.1%)
15,215 Target Corp. 1,102
----------
HOME FURNISHINGS (0.1%)
27,070 Tempur Sealy International, Inc.* 1,633
----------
HOTELS, RESORTS & CRUISE LINES (0.0%)
25,400 Hyatt Hotels Corp. "A"* 983
----------
Total Consumer Discretionary 7,535
----------
CONSUMER STAPLES (0.2%)
-----------------------
DRUG RETAIL (0.1%)
18,400 CVS Health Corp. 1,777
----------
HOUSEHOLD PRODUCTS (0.1%)
11,242 Kimberly-Clark Corp. 1,444
----------
Total Consumer Staples 3,221
----------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
8,522 Chevron Corp. 737
32,263 Royal Dutch Shell plc ADR "A" 1,417
----------
2,154
----------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
88,602 Deepocean Group Holdings AS, acquired 6/28/2011; cost $1,636*(j),(l) 572
----------
================================================================================
32 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (0.0%)
22,883 Thunderbird Resources Equity, Inc., acquired 5/27/2014; cost $1,821*(j),(l) $ 22
----------
Total Energy 2,748
----------
FINANCIALS (0.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
202,000 Prospect Capital Corp. 1,226
----------
CONSUMER FINANCE (0.0%)
13,639 Synchrony Financial* 388
----------
DIVERSIFIED BANKS (0.1%)
18,507 JPMorgan Chase & Co. 1,101
----------
LIFE & HEALTH INSURANCE (0.1%)
21,952 MetLife, Inc. 980
----------
REGIONAL BANKS (0.2%)
27,800 BB&T Corp. 908
151,918 KeyCorp 1,695
193,207 Regions Financial Corp. 1,569
----------
4,172
----------
REITs - MORTGAGE (0.1%)
70,100 Hatteras Financial Corp. 859
129,100 MFA Financial, Inc. 820
180,900 Two Harbors Investment Corp. 1,375
----------
3,054
----------
REITs - SPECIALIZED (0.1%)
29,000 Crown Castle International Corp. 2,500
----------
SPECIALIZED FINANCE (0.1%)
24,700 CME Group, Inc. 2,220
----------
Total Financials 15,641
----------
HEALTH CARE (0.3%)
------------------
BIOTECHNOLOGY (0.1%)
22,300 AbbVie, Inc. 1,224
----------
HEALTH CARE EQUIPMENT (0.0%)
3,407 Diagnostic Services Holdings, acquired 6/01/2009; cost $756*(j),(l) 109
----------
PHARMACEUTICALS (0.2%)
16,562 Johnson & Johnson 1,730
30,900 Merck & Co., Inc. 1,565
14,607 Novartis AG ADR 1,139
----------
4,434
----------
Total Health Care 5,767
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
---------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.1%)
23,000 United Continental Holdings, Inc.* $ 1,110
----------
INDUSTRIAL CONGLOMERATES (0.0%)
35,316 General Electric Co. 1,028
----------
Total Industrials 2,138
----------
INFORMATION TECHNOLOGY (0.3%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.0%)
18,500 QUALCOMM, Inc. 839
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
13,899 Automatic Data Processing, Inc. 1,155
----------
SEMICONDUCTORS (0.1%)
42,500 Intel Corp. 1,318
----------
SYSTEMS SOFTWARE (0.1%)
33,200 Microsoft Corp. 1,829
----------
Total Information Technology 5,141
----------
MATERIALS (0.5%)
----------------
COMMODITY CHEMICALS (0.1%)
25,915 LyondellBasell Industries N.V. "A" 2,020
----------
CONSTRUCTION MATERIALS (0.1%)
596 Panolam Holdings Co., acquired 1/20/2010; cost $315*(j),(l) 1,010
----------
GOLD (0.1%)
245,000 Alamos Gold, Inc. "A" 794
107,726 AuRico Metals, Inc.* 45
56,750 Goldcorp, Inc. 643
33,650 Newmont Mining Corp. 672
----------
2,154
----------
PAPER PRODUCTS (0.1%)
54,650 Clearwater Paper Corp.* 2,140
534 Resolute Forest Products* 3
----------
2,143
----------
SPECIALTY CHEMICALS (0.1%)
172,882 MPM Holdings, Inc.*(l) 1,383
----------
Total Materials 8,710
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
50,503 AT&T, Inc. 1,821
63,000 CenturyLink, Inc.(e) 1,601
================================================================================
34 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------
28,650 Verizon Communications, Inc.(e) $ 1,432
----------
4,854
----------
Total Telecommunication Services 4,854
----------
Total Common Stocks (cost: $57,338) 55,755
----------
PREFERRED STOCKS (6.2%)
CONSUMER STAPLES (2.0%)
-----------------------
AGRICULTURAL PRODUCTS (2.0%)
400,000 CHS, Inc., 7.10%, cumulative redeemable, perpetual 10,745
200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 5,660
200,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a) 21,331
----------
37,736
----------
Total Consumer Staples 37,736
----------
ENERGY (1.5%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.0%)
3,800 Chesapeake Energy Corp., 5.75%, perpetual(a) 587
----------
OIL & GAS STORAGE & TRANSPORTATION (1.5%)
1,327,328 NuStar Logistics, LP, 7.63% 26,920
----------
Total Energy 27,507
----------
FINANCIALS (2.3%)
-----------------
DIVERSIFIED BANKS (0.4%)
36,000 ING Groep N.V., 7.20%, perpetual 941
8,000 US Bancorp, 3.50%, perpetual 6,335
----------
7,276
----------
LIFE & HEALTH INSURANCE (0.4%)
274,059 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(f) 6,792
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 3,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(a) 2,347
----------
REGIONAL BANKS (0.1%)
1,515 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 1,548
----------
REINSURANCE (0.0%)
3,000 American Overseas Group Ltd., 7.50%, non-cumulative,
acquired 1/23/2007 - 3/02/2007; cost $3,109*(j),(l) 750
----------
REITs - INDUSTRIAL (0.6%)
185,741 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual 11,586
----------
REITs - OFFICE (0.3%)
240,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 6,185
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
---------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------
REITs - RESIDENTIAL (0.4%)
100,000 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual $ 6,572
---------
THRIFTS & MORTGAGE FINANCE (0.0%)
20,000 Freddie Mac, 6.02%, perpetual* 44
80,000 Freddie Mac, 8.38%, perpetual* 245
---------
289
---------
Total Financials 43,345
---------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
187,000 Qwest Corp., 7.38% 4,793
---------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
29,100 Southern California Edison, Series D, 6.50%,
cumulative redeemable, perpetual 3,024
---------
Total Preferred Stocks (cost: $124,184) 116,405
---------
Total Equity Securities (cost: $181,522) 172,160
---------
---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
---------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.1%)
COMMERCIAL PAPER (0.8%)
ENERGY (0.3%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
$ 4,671 Encana Corp.(a),(m) 1.15% 2/01/2016 4,671
---------
MATERIALS (0.5%)
----------------
SPECIALTY CHEMICALS (0.5%)
5,710 Albemarle Corp.(a),(m) 1.15 2/02/2016 5,710
4,251 Albemarle Corp.(a),(m) 1.15 2/05/2016 4,250
---------
9,960
---------
Total Materials 9,960
---------
Total Commercial Paper 14,631
---------
================================================================================
36 | USAA HIGH INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.3%)
6,497,500 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(n) $ 6,498
----------
Total Money Market Instruments (cost: $21,129) 21,129
----------
TOTAL INVESTMENTS (COST: $2,089,012) $1,835,929
==========
---------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS EXPIRATION CONTRACT (DEPRECIATION)
LONG/(SHORT) DATE VALUE (000) (000)
---------------------------------------------------------------------------------------------------------------
FUTURES (0.6%)
(100) Russell 2000 Mini 3/18/2016 $(10,314) $ 759
======== ==========
---------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 3)
QUOTED PRICES (LEVEL 2) SIGNIFICANT
IN ACTIVE MARKETS OTHER SIGNIFICANT UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS OBSERVABLE INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $1,183,736 $ - $1,183,736
Convertible Securities - - 565 565
Eurodollar and Yankee Obligations - 295,451 - 295,451
Collateralized Mortgage Obligations - 5,053 - 5,053
Commercial Mortgage Securities - 66,798 - 66,798
U.S. Treasury Securities 554 - - 554
Municipal Bonds - 1,981 - 1,981
Exchange-Traded Funds 88,502 - - 88,502
Equity Securities:
Common Stocks 52,659 1,383 1,713 55,755
Preferred Stocks 4,793 110,862 750 116,405
Money Market Instruments:
Commercial Paper - 14,631 - 14,631
Money Market Funds 6,498 - - 6,498
Futures(1) 759 - - 759
---------------------------------------------------------------------------------------------------------------
Total $153,765 $1,679,895 $3,028 $1,836,688
---------------------------------------------------------------------------------------------------------------
(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 | 37
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
---------------------------------------------------------------------------------------------------------------
CORPORATE CONVERTIBLE COMMON PREFERRED
OBLIGATIONS SECURITIES STOCKS STOCKS
---------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $ 425 $ - $ 4,273 $750
Purchases 3 446 - -
Sales (398) - - -
Transfers into Level 3 - - - -
Transfers out of Level 3 - - - -
Net realized gain (loss) on investments 2 - - -
Change in net unrealized
appreciation/(depreciation) of investments (32) 119 (2,560) -
---------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $ - $565 $ 1,713 $750
---------------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, 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.
================================================================================
38 | USAA HIGH INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 16.8% of net assets at
January 31, 2016.
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
================================================================================
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.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of
the underlying pool on which current interest is calculated. CMBS IOs are
backed by loans that have various forms of prepayment protection, which
include lock-out provisions, yield maintenance provisions, and prepayment
penalties. This serves to moderate their prepayment risk. CMBS IOs are
subject to default-related prepayments that may have a negative impact on
yield.
================================================================================
40 | USAA HIGH INCOME FUND
================================================================================
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) 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) 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. The
interest rate is adjusted periodically, and the rate disclosed
represents the current rate at January 31, 2016. 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.
(c) At January 31, 2016, the issuer was in default with respect to
interest and/or principal payments.
(d) At January 31, 2016, the aggregate market value of securities
purchased on a delayed delivery basis was $14,666,000, which included
when-issued securities of $8,225,000.
(e) At January 31, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(f) The security, or a portion thereof, is segregated to cover the
value of open futures contracts at January 31, 2016.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 41
================================================================================
(g) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2016.
(h) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(i) 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.
(j) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at January 31, 2016, was $2,478,000, which represented 0.1% of the
Fund's net assets.
(k) Securities with a value of $554,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(l) Security was fair valued at January 31, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $3,846,000, which represented 0.2% of
the Fund's net assets.
(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
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
42 | USAA HIGH INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,089,012) $1,835,929
Receivables:
Capital shares sold 810
Dividends and interest 31,443
Securities sold 15,592
Variation margin on futures contracts 759
----------
Total assets 1,884,533
----------
LIABILITIES
Payables:
Securities purchased 14,651
Capital shares redeemed 2,772
Bank overdraft 813
Accrued management fees 705
Accrued transfer agent's fees 96
Other accrued expenses and payables 263
----------
Total liabilities 19,300
----------
Net assets applicable to capital shares outstanding $1,865,233
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,162,798
Accumulated undistributed net investment income 1,640
Accumulated net realized loss on investments and futures transactions (46,881)
Net unrealized depreciation of investments and futures contracts (252,324)
----------
Net assets applicable to capital shares outstanding $1,865,233
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $977,552/137,705 shares outstanding) $ 7.10
==========
Institutional Shares (net assets of $879,282/123,976
shares outstanding) $ 7.09
==========
Adviser Shares (net assets of $8,399/1,181 shares outstanding) $ 7.11
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 43
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $11) $ 7,923
Interest 65,404
----------
Total income 73,327
----------
EXPENSES
Management fees 4,833
Administration and servicing fees:
Fund Shares 903
Institutional Shares 419
Adviser Shares 8
Transfer agent's fees:
Fund Shares 1,075
Institutional Shares 419
Adviser Shares 5
Distribution and service fees (Note 6E):
Adviser Shares 13
Custody and accounting fees:
Fund Shares 99
Institutional Shares 68
Adviser Shares 1
Postage:
Fund Shares 51
Institutional Shares 69
Shareholder reporting fees:
Fund Shares 20
Institutional Shares 14
Trustees' fees 13
Registration fees:
Fund Shares 28
Institutional Shares 66
Adviser Shares 11
Professional fees 64
Other 19
----------
Total expenses 8,198
Expenses reimbursed:
Adviser Shares (3)
----------
Net expenses 8,195
----------
NET INVESTMENT INCOME 65,132
----------
================================================================================
44 | USAA HIGH INCOME FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions (36,218)
Affiliated transactions (Note 8) 272
Futures transactions 1,436
Change in net unrealized appreciation/(depreciation) of:
Investments (251,055)
Futures contracts 485
---------
Net realized and unrealized loss (285,080)
---------
Decrease in net assets resulting from operations $(219,948)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 45
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
--------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 65,132 $ 121,930
Net realized loss on investments (35,946) (10,436)
Net realized loss on foreign currency transactions - (3)
Net realized gain (loss) on futures transactions 1,436 (607)
Change in net unrealized appreciation/(depreciation) of:
Investments (251,055) (166,361)
Futures contracts 485 274
---------------------------
Decrease in net assets resulting from operations (219,948) (55,203)
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (37,334) (77,570)
Institutional Shares (27,470) (43,723)
Adviser Shares (300) (616)
---------------------------
Total distributions of net investment income (65,104) (121,909)
---------------------------
Net realized gains:
Fund Shares - (10,575)
Institutional Shares - (5,700)
Adviser Shares - (84)
---------------------------
Total distributions of net realized gains - (16,359)
---------------------------
Distributions to shareholders (65,104) (138,268)
---------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (176,570) (75,824)
Institutional Shares 183,925 122,335
Adviser Shares (2,733) 4,353
---------------------------
Total net increase in net assets from
capital share transactions 4,622 50,864
---------------------------
Net decrease in net assets (280,430) (142,607)
NET ASSETS
Beginning of period 2,145,663 2,288,270
---------------------------
End of period $1,865,233 $2,145,663
===========================
Accumulated undistributed net investment income:
End of period $ 1,640 $ 1,612
===========================
See accompanying notes to financial statements.
================================================================================
46 | USAA HIGH INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 High Income Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek to provide an attractive total return primarily through high current
income and secondarily through capital appreciation.
The Fund consists of three classes of shares: High Income Fund Shares (Fund
Shares), High Income Fund Institutional Shares (Institutional Shares), and High
Income 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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 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
================================================================================
48 | USAA HIGH INCOME FUND
================================================================================
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. 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.
3. 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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
4. 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.
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. 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. 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
================================================================================
50 | USAA HIGH INCOME FUND
================================================================================
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 1A3, and certain common stocks, valued using market
inputs and other observable factors deemed by the Manager to appropriately
reflect fair value. Additionally, certain bonds are valued based on methods
discussed in Note 1A1, 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.
The valuation of securities falling in the Level 3 category are supported
by: values ascribed to the stock in a prior equity compensation award and
considers the movement for comparable companies, discounted price derived
from the use of inputs such as the price movements of comparable companies
and other relevant information related to the security, and discounted prior
tender offer. 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.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
FAIR VALUE AT SIGNIFICANT
JANUARY 31, 2016 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $1,119 Market Revenue Multiple(a) 0.3x-1.1x
Comparables EBITDA Multiple(a) 2.1x-11.2x
Discount for lack
of marketability(b) 25%
(a) Represents amounts used when the reporting entity has determined
that market participants would use such multiples when pricing the
security.
(b) Represents amounts used when the reporting entity has determined
that market participants would take into account these discounts when
pricing the security.
Increases in the earnings before interest depreciation and amortization
(EBITDA), revenue multiples, or earnings per share will increase the value
of the security while an increase in the discount for lack of marketability
will decrease the value of the security.
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 January 31, 2016, did not include
master netting provisions.
================================================================================
52 | USAA HIGH INCOME FUND
================================================================================
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.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JANUARY 31, 2016*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
----------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
ASSETS AND ASSETS AND
DERIVATIVES NOT ACCOUNTED LIABILITIES LIABILITIES
FOR AS HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
----------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $759** - $-
depreciation of
investments and
futures contracts
----------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2016, see the
Portfolio of Investments, which also is indicative of activity for the
six-month period ended January 31, 2016.
** Includes cumulative appreciation of futures as reported on the Portfolio
of Investments. Only current day's variation margin is reported within
the Statement of Assets and Liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JANUARY 31, 2016 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED GAIN APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF (LOSS) ON (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION DERIVATIVES ON DERIVATIVES
---------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) $1,436 $485
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 are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
================================================================================
54 | USAA HIGH INCOME FUND
================================================================================
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 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 January 31, 2016, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $14,647,000; which included
when-issued securities of $8,150,000.
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 January 31, 2016, there were no custodian
and other bank credits.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
I. REDEMPTION FEES - All share classes held in the Fund less than 180 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 January 31, 2016, the Fund Shares, Institutional Shares, and Adviser
Shares charged redemption fees of $113,000, less than $500, and $2,000,
respectively.
J. 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.
K. 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 Funds based on their respective average net assets for
the period.
================================================================================
56 | USAA HIGH INCOME FUND
================================================================================
The Funds may request an optional increase of the committed loan agreement up to
$750 million. If the 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 January 31, 2016, the Fund paid CAPCO facility
fees of $6,000, which represents 2.9% 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 2016,
in accordance with applicable tax law.
Distributions of net investment income are made 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.
For the year ended July 31, 2015, the Fund had capital loss carryforwards of
$3,381,000, for federal income tax purposes. It is unlikely that the Board will
authorize distribution of capital gains realized in the future until the capital
loss carryforwards have been used.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$450,532,000 and $395,382,000, respectively.
As of January 31, 2016, 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 | 57
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $72,343,000 and $325,426,000, respectively, resulting in net
unrealized depreciation of $253,083,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 12,756 $ 97,805 38,813 $ 333,461
Shares issued from reinvested
dividends 4,574 34,600 9,610 81,962
Shares redeemed* (41,462) (308,975) (57,316) (491,247)
---------------------------------------------------
Net decrease from capital
share transactions (24,132) $(176,570) (8,893) $ (75,824)
===================================================
INSTITUTIONAL SHARES:
Shares sold 30,782 $ 231,033 27,578 $ 236,540
Shares issued from reinvested
dividends 3,549 26,746 5,663 48,225
Shares redeemed* (9,704) (73,854) (18,915) (162,430)
---------------------------------------------------
Net increase from capital
share transactions 24,627 $ 183,925 14,326 $ 122,335
===================================================
ADVISER SHARES:
Shares sold 27 $ 217 784 $ 6,763
Shares issued from reinvested
dividends 19 142 42 362
Shares redeemed* (398) (3,092) (326) (2,772)
---------------------------------------------------
Net increase (decrease) from
capital share transactions (352) $ (2,733) 500 $ 4,353
===================================================
*Net of redemption fees.
================================================================================
58 | USAA HIGH INCOME FUND
================================================================================
(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 day-to-day investment of a
portion of the Fund's assets. For the six-month period ended January 31,
2016, 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 0.50% 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 High Yield Bond Funds Index. The Lipper High
Yield Bond Funds Index tracks the total return performance of the 30
largest funds within the Lipper High Yield 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)
-------------------------------------------------------------------
+/- 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 of the share class 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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 High Yield Bond Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $4,833,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $(204,000), $(95,000), and $(2,000),
respectively. For the Fund Shares, Institutional Shares, and Adviser Shares
the performance adjustments were (0.03)%, (0.02)%, and (0.04)%,
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 January 31, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $903,000, $419,000, and $8,000, 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 January 31, 2016, the Fund
reimbursed the Manager $26,000 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 December 1, 2016, to
limit the total annual operating expenses of the Adviser Shares to 1.15% 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
arrangement may
================================================================================
60 | USAA HIGH INCOME FUND
================================================================================
not be changed or terminated through December 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 January 31, 2016, the
Adviser Shares incurred reimbursable expenses of $3,000, of which less than
$500 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 January 31, 2016, the Fund Shares, Institutional
Shares and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $1,075,000, $419,000, and $5,000, 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
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
January 31, 2016, the Adviser Shares incurred distribution and service
(12b-1) fees of $13,000.
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 fee or other compensation for
these services.
(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
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
exercising management or control. As of January 31, 2016, the USAA fund-of-funds
owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
USAA Cornerstone Conservative 1.0
USAA Target Retirement Income 1.2
USAA Target Retirement 2020 1.8
USAA Target Retirement 2030 3.1
USAA Target Retirement 2040 2.3
USAA Target Retirement 2050 0.9
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 January 31,
2016, USAA and its affiliates owned 617,000 Adviser Shares, which represents
52.3% 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.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2016, 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 High Income USAA Income $ 4,994,000 $ (6,000)
USAA High Income USAA Short-Term Bond 13,823,000 278,000
USAA Real Return USAA High Income 1,053,000 95,000
USAA Target Managed
Allocation USAA High Income 2,201,000 (36,000)
================================================================================
62 | USAA HIGH INCOME FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.17 $ 8.91 $ 8.79 $ 8.42 $ 8.60 $ 8.08
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .47 .50 .55 .57 .60
Net realized and
unrealized gain (loss) (1.08) (.68) .29 .46 (.18) .52
-----------------------------------------------------------------------------------
Total from investment
operations (.83) (.21) .79 1.01 .39 1.12
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.47) (.51) (.53) (.57) (.60)
Realized capital gains - (.06) (.16) (.11) - -
-----------------------------------------------------------------------------------
Total distributions (.24) (.53) (.67) (.64) (.57) (.60)
Redemption fees added
to beneficial interests .00(c) .00(c) .00(c) - - -
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 7.10 $ 8.17 $ 8.91 $ 8.79 $ 8.42 $ 8.60
===================================================================================
Total return (%)* (10.26) (2.42) 9.35 12.39 4.99 14.28
Net assets at end of
period (000) $977,552 $1,322,058 $1,521,633 $1,250,728 $1,464,070 $1,482,706
Ratios to average
net assets:**
Expenses (%)(a) .84(d) .89 .89 .94 .95 .90
Net investment
income (%) 6.30(d) 5.46 5.71 6.15 6.96 7.06
Portfolio turnover (%) 20 16 21 47 52 54(b)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,195,471,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Reflects overall decrease in purchases and sales of securities.
(c) Represents less than $0.01 per share.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.16 $ 8.91 $ 8.78 $ 8.41 $ 8.60 $ 8.08
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .48 .52 .54 .58 .62
Net realized and
unrealized gain (loss) (1.07) (.69) .29 .49 (.18) .52
-----------------------------------------------------------------------------------
Total from investment
operations (.82) (.21) .81 1.03 .40 1.14
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.48) (.52) (.55) (.59) (.62)
Realized capital gains - (.06) (.16) (.11) - -
-----------------------------------------------------------------------------------
Total distributions (.25) (.54) (.68) (.66) (.59) (.62)
Redemption fees added to
beneficial interests .00(d) .00(d) - - - -
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 7.09 $ 8.16 $ 8.91 $ 8.78 $ 8.41 $ 8.60
===================================================================================
Total return (%)* (10.22) (2.44) 9.61 12.63 5.09 14.57
Net assets at end of
period (000) $879,282 $811,060 $757,419 $764,558 $264,540 $146,535
Ratios to average
net assets:**
Expenses (%)(b) .74(e) .80 .76 .76 .76 .65(a)
Net investment income (%) 6.42(e) 5.55 5.87 6.22 7.09 7.30
Portfolio turnover (%) 20 16 21 47 52 54(c)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$834,974,000.
(a) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to .65% of the Institutional
Shares' average net assets.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Reflects overall decrease in purchases and sales of securities.
(d) Represents less than $0.01 per share.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
64 | USAA HIGH INCOME FUND
================================================================================
(9) 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
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.18 $ 8.92 $ 8.79 $ 8.42 $ 8.60 $ 8.09
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .45 .49 .52 .55 .55
Net realized and
unrealized gain (loss) (1.07) (.69) .27 .47 (.19) .54
---------------------------------------------------------------------------------
Total from investment
operations (.84) (.24) .76 .99 .36 1.09
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.45) (.48) (.51) (.55) (.58)
Realized capital gains - (.06) (.16) (.11) - -
---------------------------------------------------------------------------------
Total distributions (.23) (.51) (.64) (.62) (.55) (.58)
---------------------------------------------------------------------------------
Redemption fees added to
beneficial interests .00(e) .01 .01 .00(e) .01 -
---------------------------------------------------------------------------------
Net asset value at
end of period $ 7.11 $ 8.18 $ 8.92 $ 8.79 $ 8.42 $ 8.60
=================================================================================
Total return (%)* (10.40) (2.67) 9.16 12.13 4.76 13.90
Net assets at
end of period (000) $ 8,399 $12,545 $9,218 $7,108 $5,711 $5,533
Ratios to average
net assets:**
Expenses (%)(b) 1.15(a) 1.16(d) 1.19 1.20 1.20 1.20(a)
Expenses, excluding
reimbursements (%)(b) 1.21(a) 1.21 1.19 1.34 1.45 1.86(a)
Net investment income (%) 5.97(a) 5.19 5.41 5.85 6.71 6.77(a)
Portfolio turnover (%) 20 16 21 47 52 54(c)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$10,188,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Reflects overall increase in purchases and sales of securities.
(d) Prior to December 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 1.20% of their annual average net
assets.
(e) Represents less than $0.01 per share.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
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
================================================================================
66 | USAA HIGH INCOME FUND
================================================================================
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 AUGUST 1, 2015-
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 897.40 $4.01
Hypothetical
(5% return before expenses) 1,000.00 1,020.91 4.27
INSTITUTIONAL SHARES
Actual 1,000.00 897.80 3.53
Hypothetical
(5% return before expenses) 1,000.00 1,021.42 3.76
ADVISER SHARES
Actual 1,000.00 896.00 6.17
Hypothetical
(5% return before expenses) 1,000.00 1,019.16 6.11
*Expenses are equal to the annualized expense ratio of 0.84% for Fund Shares,
0.74% for Institutional Shares, and 1.15% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 (10.26)% for Fund Shares, (10.22)% for
Institutional Shares, and (10.40)% for Adviser Shares for the six-month period
of August 1, 2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 67
================================================================================
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)
=============================================================================
40051-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk. From
all of us here at USAA Investments, thank you for your continued investment in
our family of mutual funds. We look forward to continuing to help you with your
investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 19
Notes to Portfolio of Investments 51
Financial Statements 57
Notes to Financial Statements 61
EXPENSE EXAMPLE 80
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.
202376-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA INCOME FUND (THE FUND) SEEKS MAXIMUM CURRENT INCOME WITHOUT UNDUE RISK
TO PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in U.S. dollar-denominated debt
securities, including, among others, obligations of U.S., state and local
governments, their agencies and instrumental mortgage-and asset-backed
securities, corporate debt securities and repurchase agreements that have been
selected for their high yields relative to the risk involved. The Fund will
invest primarily in investment-grade securities but also may invest up to 10% of
its net assets in below-investment-grade securities, which are sometimes
referred as high-yield or "junk" bonds.
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
R. MATTHEW FREUND, CFA
JULIANNE BASS, CFA
BRIAN W. SMITH, CFA, CPA
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Longer-term interest rates fell during the reporting period ended January
31, 2016, pushed lower by economic uncertainty. China was at the epicenter
of concern, as that country's slowing pace of growth threatened to hinder
the broader global economy. Investors also worried about plummeting oil and
commodity prices, which are widely considered to be evidence of global
economic weakness. In the United States, economic data was mixed during the
reporting period, with slower-than-expected growth in the fourth quarter of
2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell
from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from
2.85% to 2.74%, during the reporting period. These lower yields tend to
reflect changing expectations about the U.S. economy.
Shorter-term interest rates, which are more correlated to action by the
Federal Reserve (the Fed), rose during the reporting period in anticipation
of an interest rate increase. In December 2015, the Fed lifted the target
federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it
intended to proceed gradually with interest rate increases based on the
performance of the U.S. economy. In January 2016, the Fed chose not to raise
interest rates amid increased uncertainty about financial and economic
conditions.
================================================================================
2 | USAA INCOME FUND
================================================================================
o 10-YEAR U.S. TREASURY YIELDS o
[CHART OF 10-YEAR U.S. TREASURY YIELDS]
YIELD IN PERCENT
7/31/2015 2.18%
8/3/2015 2.15
8/4/2015 2.22
8/5/2015 2.27
8/6/2015 2.22
8/7/2015 2.16
8/10/2015 2.23
8/11/2015 2.14
8/12/2015 2.15
8/13/2015 2.19
8/14/2015 2.20
8/17/2015 2.17
8/18/2015 2.19
8/19/2015 2.13
8/20/2015 2.07
8/21/2015 2.04
8/24/2015 2.00
8/25/2015 2.07
8/26/2015 2.18
8/27/2015 2.18
8/28/2015 2.18
8/31/2015 2.22
9/1/2015 2.15
9/2/2015 2.18
9/3/2015 2.16
9/4/2015 2.12
9/7/2015 2.12
9/8/2015 2.18
9/9/2015 2.20
9/10/2015 2.22
9/11/2015 2.19
9/14/2015 2.18
9/15/2015 2.29
9/16/2015 2.29
9/17/2015 2.19
9/18/2015 2.13
9/21/2015 2.20
9/22/2015 2.13
9/23/2015 2.15
9/24/2015 2.13
9/25/2015 2.16
9/28/2015 2.09
9/29/2015 2.05
9/30/2015 2.04
10/1/2015 2.04
10/2/2015 1.99
10/5/2015 2.06
10/6/2015 2.03
10/7/2015 2.07
10/8/2015 2.10
10/9/2015 2.09
10/12/2015 2.09
10/13/2015 2.04
10/14/2015 1.97
10/15/2015 2.02
10/16/2015 2.03
10/19/2015 2.02
10/20/2015 2.07
10/21/2015 2.02
10/22/2015 2.03
10/23/2015 2.09
10/26/2015 2.06
10/27/2015 2.04
10/28/2015 2.10
10/29/2015 2.17
10/30/2015 2.14
11/2/2015 2.17
11/3/2015 2.21
11/4/2015 2.23
11/5/2015 2.23
11/6/2015 2.33
11/9/2015 2.34
11/10/2015 2.34
11/11/2015 2.33
11/12/2015 2.31
11/13/2015 2.27
11/16/2015 2.27
11/17/2015 2.27
11/18/2015 2.27
11/19/2015 2.25
11/20/2015 2.26
11/23/2015 2.24
11/24/2015 2.24
11/25/2015 2.23
11/26/2015 2.23
11/27/2015 2.22
11/30/2015 2.21
12/1/2015 2.14
12/2/2015 2.18
12/3/2015 2.31
12/4/2015 2.27
12/7/2015 2.23
12/8/2015 2.22
12/9/2015 2.22
12/10/2015 2.23
12/11/2015 2.13
12/14/2015 2.22
12/15/2015 2.27
12/16/2015 2.30
12/17/2015 2.22
12/18/2015 2.20
12/21/2015 2.19
12/22/2015 2.24
12/23/2015 2.25
12/24/2015 2.24
12/25/2015 2.24
12/28/2015 2.23
12/29/2015 2.31
12/30/2015 2.29
12/31/2015 2.27
1/1/2016 2.27
1/4/2016 2.24
1/5/2016 2.24
1/6/2016 2.17
1/7/2016 2.15
1/8/2016 2.12
1/11/2016 2.18
1/12/2016 2.10
1/13/2016 2.09
1/14/2016 2.09
1/15/2016 2.03
1/18/2016 2.03
1/19/2016 2.06
1/20/2016 1.98
1/21/2016 2.03
1/22/2016 2.05
1/25/2016 2.00
1/26/2016 1.99
1/27/2016 2.00
1/28/2016 1.98
1/29/2016 1.92
[END CHART]
Source: Bloomberg Finance L.P.
In this environment, the U.S. Treasury yield curve experienced a "bear
flattening." In a bear flattening, short-term interest rates increase faster
than longer-term interest rates (though during the reporting period, longer-term
interest rates actually trended down), thereby creating a flatter yield curve.
This generally indicates that investor sentiment is becoming more "bearish."
As longer-term interest rates fell, the prices of longer-maturity securities
edged up (bond prices and yields move in opposite directions). Credit spreads
widened across the credit spectrum, with single A, BBB, and below
investment-grade "high-yield" spreads widening 19 basis points, 58 basis points,
and 221 basis points, respectively. A basis point is 1/100th of a percent.
Spreads (yield differentials versus U.S. Treasury securities of comparable
maturity) are generally considered an indication of risk; the wider the spread,
the greater the risk.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
o U.S. TREASURY YIELD CURVE o
[CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD
--------------------------------- (CHANGE IN
MATURITY 7/01/15 1/31/16 BASIS POINTS)
1M 0.008 0.221 21.4
3M 0.018 0.313 29.5
6M 0.114 0.428 31.3
1Y 0.273 0.451 17.9
2Y 0.69 0.776 8.5
3Y 1.064 0.968 -9.7
5Y 1.706 1.329 -37.7
7Y 2.146 1.668 -47.7
10Y 2.423 1.922 -50.1
30Y 3.202 2.744 -45.8
[END CHART]
Source: Bloomberg Finance L.P.
o HOW DID THE USAA INCOME 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 January 31, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had total returns of
-0.77%, -0.82%, and -0.98%, respectively. This compares to returns of 1.33%
for the Barclays U.S. Aggregate Bond Index (the Index) and 0.09% for the
Lipper A Rated Bond Funds Index. At the same time, the
Refer to page 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
4 | USAA INCOME FUND
================================================================================
Fund Shares, Institutional Shares, and Adviser Shares provided a one-year
dividend yield of 3.65%, 3.77%, and 3.41%, respectively, compared to 2.75%
for the Lipper Corporate Debt Funds A Rated Average.
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 WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus on generating an attractive yield with an acceptable
level of price volatility. During the reporting period, the Fund's 30-day
SEC yield continued to trend up. In addition, we sought to manage the
portfolio's sensitivity to interest rates by maintaining a neutral duration
position relative to the Lipper peer group (duration is a measure of a
portfolio's interest-rate sensitivity).
Underweight positions in U.S. Treasury securities and agency mortgage-
backed securities dampened Fund returns during the reporting period. The
portfolio also was hampered by its overweight in corporate bonds, which
underperformed as credit spreads widened. In addition, allocations to and
security selection among oil and gas exploration and production bonds as
well as metals and mining bonds detracted from the Fund's performance. Many
of these securities were negatively affected by the continued drop in oil
and commodity prices during the reporting period. Although we reduced some
of these holdings, we believe that over the long-term the Fund's positions
in these industries will generate attractive total returns.
During the reporting period, we continued to seek relative values across the
fixed-income market. Our team of analysts help us evaluate each potential
investment individually, rather than on the basis of thematic trends. We
seek ideas where our fundamental understanding of the credit risk is
different than the market, building the Fund bond-by-bond through
fundamental bottom-up analysis. Due to uncertain times, we continued to
emphasize liquidity in the Fund. Our liquidity strategy helps to prevent the
Fund from being a forced seller due to investment outflows.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
Our analysts continue to analyze and monitor every holding in the Fund. We
are committed to building a portfolio diversified among multiple asset
classes and across a large number of issuers. To minimize the Fund's
exposure to potential surprises, we limit the positions we take in any one
issuer.
Thank you for allowing us to help you with your investment needs.
As interest rates rise, bond prices generally fall; given the historically
low interest rate environment, risks associated with rising interest rates
may be heightened. o Diversification is a technique intended to help reduce
risk and does not guarantee a profit or prevent a loss. o 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.
================================================================================
6 | USAA INCOME FUND
================================================================================
INVESTMENT OVERVIEW
USAA INCOME FUND SHARES (FUND SHARES)
(Ticker Symbol: USAIX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $3.1 Billion $3.5 Billion
Net Asset Value Per Share $12.65 $12.99
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-0.77% -2.32% 3.68% 4.93%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-1.11% 3.63% 4.86%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
3.54% 0.53%
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 December 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 | 7
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
JANUARY 31, 2016
---------------------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
---------------------------------------------------------------------------------------------
10 YEARS 4.93% = 4.49% + 0.44%
5 YEARS 3.68% = 3.78% + -0.10%
1 YEAR -2.32% = 3.42% + -5.74%
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 ONE-YEAR PERIODS ENDED
JANUARY 31, 2007 - JANUARY 31, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
1/31/2007 4.23% 4.89% -0.66%
1/31/2008 6.75% 5.26% 1.49%
1/31/2009 -6.65% 4.94% -11.59%
1/31/2010 22.04% 6.53% 15.51%
1/31/2011 6.56% 4.56% 2.00%
1/31/2012 7.64% 4.11% 3.53%
1/31/2013 5.87% 3.72% 2.15%
1/31/2014 1.34% 3.98% -2.64%
1/31/2015 6.23% 3.75% 2.48%
1/31/2016 -2.32% 3.42% -5.74%
[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.
================================================================================
8 | USAA INCOME FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME LIPPER CORPORATE DEBT
FUND SHARES FUNDS A RATED AVERAGE
1/31/2007 4.79% 4.38%
1/31/2008 4.98 4.59
1/31/2009 5.80 5.46
1/31/2010 5.16 4.34
1/31/2011 4.37 3.82
1/31/2012 3.83 3.36
1/31/2013 3.55 2.83
1/31/2014 3.96 3.21
1/31/2015 3.63 2.76
1/31/2016 3.65 2.75
[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 1/31/07 through 1/31/16.
The Lipper Corporate Debt Funds A Rated Average is the average performance level
of all corporate A rated debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND BARCLAYS U.S. AGGREGATE LIPPER A RATED
SHARES BOND INDEX BOND FUNDS INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,036.30 10,033.20 10,037.01
3/31/2006 9,945.41 9,934.74 9,923.25
4/30/2006 9,900.74 9,916.73 9,883.43
5/31/2006 9,900.63 9,906.15 9,878.92
6/30/2006 9,920.95 9,927.15 9,885.77
7/31/2006 10,046.99 10,061.38 10,016.43
8/31/2006 10,197.97 10,215.41 10,176.00
9/30/2006 10,291.87 10,305.14 10,265.68
10/31/2006 10,366.83 10,373.30 10,339.44
11/30/2006 10,477.00 10,493.65 10,464.59
12/31/2006 10,420.56 10,432.75 10,395.34
1/31/2007 10,423.30 10,428.47 10,390.54
2/28/2007 10,591.85 10,589.28 10,565.44
3/31/2007 10,581.42 10,589.60 10,543.44
4/30/2007 10,615.50 10,646.70 10,598.89
5/31/2007 10,519.39 10,566.01 10,515.98
6/30/2007 10,477.32 10,534.76 10,467.37
7/31/2007 10,558.46 10,622.63 10,524.47
8/31/2007 10,674.53 10,752.83 10,605.16
9/30/2007 10,743.13 10,834.40 10,690.50
10/31/2007 10,825.99 10,931.73 10,770.27
11/30/2007 10,967.88 11,128.31 10,895.08
12/31/2007 10,944.64 11,159.57 10,868.51
1/31/2008 11,126.53 11,347.03 11,007.00
2/29/2008 11,117.05 11,362.78 10,976.85
3/31/2008 11,128.23 11,401.55 10,922.84
4/30/2008 11,143.19 11,377.72 10,963.21
5/31/2008 11,114.62 11,294.29 10,890.67
6/30/2008 11,073.09 11,285.16 10,852.52
7/31/2008 11,020.28 11,275.96 10,767.55
8/31/2008 11,097.24 11,382.97 10,797.93
9/30/2008 10,783.23 11,230.08 10,435.46
10/31/2008 10,189.48 10,965.00 9,885.47
11/30/2008 10,185.86 11,321.91 9,988.57
12/31/2008 10,392.98 11,744.32 10,358.14
1/31/2009 10,386.92 11,640.70 10,329.67
2/28/2009 10,371.13 11,596.76 10,207.40
3/31/2009 10,532.20 11,757.97 10,328.81
4/30/2009 10,775.64 11,814.19 10,534.70
5/31/2009 11,199.83 11,899.88 10,817.45
6/30/2009 11,405.63 11,967.56 11,007.05
7/31/2009 11,723.07 12,160.60 11,338.95
8/31/2009 12,003.94 12,286.51 11,476.49
9/30/2009 12,226.50 12,415.58 11,759.84
10/31/2009 12,337.55 12,476.88 11,855.19
11/30/2009 12,502.70 12,638.41 11,995.33
12/31/2009 12,444.56 12,440.86 11,883.49
1/31/2010 12,676.00 12,630.90 12,078.85
2/28/2010 12,731.41 12,678.07 12,113.79
3/31/2010 12,773.50 12,662.48 12,159.49
4/30/2010 12,942.66 12,794.29 12,336.20
5/31/2010 12,945.94 12,901.96 12,336.89
6/30/2010 13,095.38 13,104.28 12,541.08
7/31/2010 13,247.59 13,244.09 12,702.86
8/31/2010 13,459.42 13,414.50 12,926.62
9/30/2010 13,551.24 13,428.80 12,966.09
10/31/2010 13,635.25 13,476.61 12,990.00
11/30/2010 13,577.08 13,399.16 12,906.10
12/31/2010 13,459.09 13,254.67 12,809.57
1/31/2011 13,507.11 13,270.09 12,823.74
2/28/2011 13,570.93 13,303.29 12,912.90
3/31/2011 13,610.66 13,310.64 12,917.58
4/30/2011 13,772.75 13,479.60 13,106.05
5/31/2011 13,923.84 13,655.51 13,268.57
6/30/2011 13,892.17 13,615.53 13,173.44
7/31/2011 14,088.06 13,831.59 13,403.76
8/31/2011 14,178.27 14,033.67 13,478.49
9/30/2011 14,170.05 14,135.75 13,548.49
10/31/2011 14,258.15 14,150.94 13,663.80
11/30/2011 14,230.21 14,138.66 13,552.71
12/31/2011 14,383.63 14,294.06 13,739.13
1/31/2012 14,539.10 14,419.57 13,955.57
2/29/2012 14,595.43 14,416.26 14,013.19
3/31/2012 14,583.48 14,337.27 13,920.27
4/30/2012 14,736.12 14,496.22 14,095.54
5/31/2012 14,830.92 14,627.38 14,237.96
6/30/2012 14,852.28 14,633.12 14,264.14
7/31/2012 15,052.67 14,834.96 14,582.15
8/31/2012 15,120.79 14,844.65 14,615.60
9/30/2012 15,219.96 14,865.08 14,647.57
10/31/2012 15,333.34 14,894.32 14,750.01
11/30/2012 15,401.53 14,917.82 14,772.20
12/31/2012 15,390.80 14,896.58 14,740.05
1/31/2013 15,392.22 14,792.39 14,646.32
2/28/2013 15,504.37 14,866.53 14,747.65
3/31/2013 15,549.36 14,878.41 14,760.59
4/30/2013 15,742.68 15,028.96 15,025.54
5/31/2013 15,516.64 14,760.81 14,649.69
6/30/2013 15,178.12 14,532.48 14,244.17
7/31/2013 15,247.82 14,552.35 14,292.51
8/31/2013 15,153.14 14,477.96 14,169.37
9/30/2013 15,281.44 14,615.03 14,290.58
10/31/2013 15,446.10 14,733.19 14,497.95
11/30/2013 15,429.93 14,678.02 14,438.70
12/31/2013 15,363.26 14,595.08 14,380.38
1/31/2014 15,597.76 14,810.72 14,727.76
2/28/2014 15,715.14 14,889.47 14,881.46
3/31/2014 15,725.98 14,864.11 14,919.61
4/30/2014 15,882.41 14,989.54 15,094.14
5/31/2014 16,060.26 15,160.20 15,306.87
6/30/2014 16,111.98 15,168.04 15,349.56
7/31/2014 16,076.18 15,130.00 15,340.12
8/31/2014 16,229.41 15,297.02 15,581.16
9/30/2014 16,114.04 15,193.16 15,383.76
10/31/2014 16,233.31 15,342.49 15,553.44
11/30/2014 16,298.67 15,451.34 15,689.65
12/31/2014 16,268.04 15,465.83 15,759.54
1/31/2015 16,568.99 15,790.10 16,295.68
2/28/2015 16,488.01 15,641.66 15,994.70
3/31/2015 16,533.96 15,714.26 16,051.22
4/30/2015 16,495.50 15,657.89 15,926.71
5/31/2015 16,465.93 15,620.17 15,811.84
6/30/2015 16,245.80 15,449.83 15,553.36
7/31/2015 16,309.68 15,557.25 15,700.81
8/31/2015 16,200.54 15,534.88 15,574.58
9/30/2015 16,245.33 15,639.96 15,672.83
10/31/2015 16,305.46 15,642.63 15,747.81
11/30/2015 16,237.30 15,601.27 15,696.19
12/31/2015 16,087.12 15,550.87 15,574.51
1/31/2016 16,184.22 15,764.83 15,714.47
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Shares to the following benchmarks:
o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S.
investment-grade rated 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.
o The unmanaged Lipper A Rated Bond Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Corporate Debt Funds A
Rated 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 into an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper A Rated Bond Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
10 | USAA INCOME FUND
================================================================================
USAA INCOME FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIINX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $2.6 Billion $2.2 Billion
Net Asset Value Per Share $12.63 $12.99
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-0.82% -2.29% 3.78% 5.39%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-1.05% 3.77% 5.38%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
3.63% 0.46%
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 December 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).
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER CORPORATE
USAA INCOME FUND DEBT FUNDS
INSTITUTIONAL SHARES A RATED AVERAGE
1/31/2010 5.40% 4.34%
1/31/2011 4.60 3.82
1/31/2012 4.00 3.36
1/31/2013 3.68 2.83
1/31/2014 4.09 3.21
1/31/2015 3.71 2.76
1/31/2016 3.77 2.75
[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 1/31/10 through 1/31/16.
The Lipper Corporate Debt Funds A Rated Average is the average performance level
of all corporate A rated debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
12 | USAA INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND LIPPER A RATED BARCLAYS U.S.
INSTITUTIONAL SHARES BOND FUNDS INDEX AGGREGATE BOND INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,055.01 10,028.22 10,094.91
9/30/2008 9,773.05 9,691.59 9,959.32
10/31/2008 9,237.79 9,180.80 9,724.23
11/30/2008 9,236.65 9,276.55 10,040.76
12/31/2008 9,427.63 9,619.78 10,415.37
1/31/2009 9,415.64 9,593.33 10,323.47
2/28/2009 9,411.92 9,479.78 10,284.50
3/31/2009 9,560.51 9,592.54 10,427.47
4/30/2009 9,783.97 9,783.75 10,477.33
5/31/2009 10,171.39 10,046.35 10,553.32
6/30/2009 10,360.57 10,222.43 10,613.35
7/31/2009 10,652.16 10,530.67 10,784.54
8/31/2009 10,900.47 10,658.41 10,896.20
9/30/2009 11,105.20 10,921.56 11,010.66
10/31/2009 11,217.48 11,010.12 11,065.03
11/30/2009 11,370.44 11,140.26 11,208.28
12/31/2009 11,309.79 11,036.39 11,033.08
1/31/2010 11,531.30 11,217.83 11,201.62
2/28/2010 11,574.58 11,250.28 11,243.45
3/31/2010 11,624.81 11,292.72 11,229.63
4/30/2010 11,781.04 11,456.84 11,346.52
5/31/2010 11,786.08 11,457.48 11,442.00
6/30/2010 11,915.28 11,647.11 11,621.43
7/31/2010 12,065.96 11,797.36 11,745.42
8/31/2010 12,261.25 12,005.17 11,896.55
9/30/2010 12,347.04 12,041.82 11,909.23
10/31/2010 12,425.80 12,064.03 11,951.63
11/30/2010 12,365.74 11,986.12 11,882.94
12/31/2010 12,261.04 11,896.47 11,754.80
1/31/2011 12,316.56 11,909.62 11,768.48
2/28/2011 12,377.14 11,992.42 11,797.92
3/31/2011 12,406.22 11,996.78 11,804.44
4/30/2011 12,556.24 12,171.81 11,954.28
5/31/2011 12,705.90 12,322.75 12,110.29
6/30/2011 12,669.48 12,234.39 12,074.83
7/31/2011 12,850.45 12,448.30 12,266.44
8/31/2011 12,945.08 12,517.70 12,445.65
9/30/2011 12,938.91 12,582.71 12,536.18
10/31/2011 13,010.56 12,689.80 12,549.65
11/30/2011 12,996.48 12,586.63 12,538.76
12/31/2011 13,128.02 12,759.76 12,676.57
1/31/2012 13,281.25 12,960.77 12,787.88
2/29/2012 13,334.15 13,014.29 12,784.95
3/31/2012 13,314.58 12,927.99 12,714.90
4/30/2012 13,455.34 13,090.77 12,855.86
5/31/2012 13,543.31 13,223.03 12,972.18
6/30/2012 13,574.18 13,247.35 12,977.27
7/31/2012 13,747.80 13,542.69 13,156.26
8/31/2012 13,810.98 13,573.75 13,164.86
9/30/2012 13,902.20 13,603.45 13,182.98
10/31/2012 14,009.00 13,698.58 13,208.91
11/30/2012 14,072.75 13,719.19 13,229.75
12/31/2012 14,075.26 13,689.34 13,210.92
1/31/2013 14,067.78 13,602.29 13,118.52
2/28/2013 14,171.56 13,696.39 13,184.27
3/31/2013 14,224.22 13,708.41 13,194.80
4/30/2013 14,391.52 13,954.47 13,328.31
5/31/2013 14,196.33 13,605.42 13,090.51
6/30/2013 13,877.48 13,228.80 12,888.02
7/31/2013 13,943.43 13,273.70 12,905.64
8/31/2013 13,858.26 13,159.34 12,839.67
9/30/2013 13,977.33 13,271.90 12,961.22
10/31/2013 14,130.02 13,464.49 13,066.01
11/30/2013 14,116.77 13,409.46 13,017.09
12/31/2013 14,068.49 13,355.30 12,943.53
1/31/2014 14,273.39 13,677.92 13,134.78
2/28/2014 14,382.12 13,820.67 13,204.61
3/31/2014 14,393.06 13,856.09 13,182.12
4/30/2014 14,537.52 14,018.19 13,293.36
5/31/2014 14,701.37 14,215.75 13,444.71
6/30/2014 14,749.47 14,255.40 13,451.66
7/31/2014 14,728.51 14,246.63 13,417.92
8/31/2014 14,867.63 14,470.49 13,566.04
9/30/2014 14,762.80 14,287.16 13,473.93
10/31/2014 14,862.00 14,444.74 13,606.37
11/30/2014 14,933.76 14,571.25 13,702.90
12/31/2014 14,907.37 14,636.15 13,715.75
1/31/2015 15,175.82 15,134.08 14,003.33
2/28/2015 15,103.46 14,854.55 13,871.68
3/31/2015 15,145.21 14,907.04 13,936.07
4/30/2015 15,121.13 14,791.40 13,886.08
5/31/2015 15,079.94 14,684.73 13,852.63
6/30/2015 14,890.83 14,444.67 13,701.56
7/31/2015 14,950.99 14,581.61 13,796.83
8/31/2015 14,840.40 14,464.38 13,776.99
9/30/2015 14,882.44 14,555.62 13,870.18
10/31/2015 14,950.11 14,625.26 13,872.54
11/30/2015 14,888.27 14,577.32 13,835.87
12/31/2015 14,751.13 14,464.31 13,791.17
1/31/2016 14,828.30 14,594.30 13,980.91
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Institutional Shares to the Fund's benchmarks listed above (see
page 10 for benchmark definitions).
*The performance of the Lipper A Rated Bond Funds Index and the Barclays U.S.
Aggregate Bond Index is calculated from the end of the month, July 31, 2008,
while the inception date of the Institutional Shares is August 1, 2008. There
may be a slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper A Rated Bond Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
USAA INCOME FUND ADVISER SHARES
(ADVISER SHARES) (Ticker Symbol: UINCX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $188.5 Million $222.5 Million
Net Asset Value Per Share $12.61 $12.96
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-0.98% -2.64% 3.37% 3.41%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-1.36% 3.34% 3.37%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
3.18% 0.79%
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 December 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.
================================================================================
14 | USAA INCOME FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME FUND LIPPER CORPORATE DEBT
ADVISER SHARES FUNDS A RATED AVERAGE
1/31/2012 3.58% 3.36%
1/31/2013 3.26 2.83
1/31/2014 3.69 3.21
1/31/2015 3.42 2.76
1/31/2016 3.41 2.75
[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 1/31/12 through 1/31/16.
The Lipper Corporate Debt Funds A Rated Average is the average performance level
of all corporate A rated debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER A RATED BOND USAA INCOME FUND BARCLAYS U.S.
FUNDS INDEX ADVISER SHARES AGGREGATE BOND INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,176.15 10,162.09 10,128.67
9/30/2010 10,207.22 10,236.32 10,139.47
10/31/2010 10,226.04 10,297.51 10,175.57
11/30/2010 10,160.00 10,243.44 10,117.09
12/31/2010 10,084.01 10,151.81 10,007.99
1/31/2011 10,095.16 10,186.50 10,019.64
2/28/2011 10,165.34 10,232.86 10,044.70
3/31/2011 10,169.04 10,260.68 10,050.25
4/30/2011 10,317.40 10,373.18 10,177.83
5/31/2011 10,445.34 10,493.60 10,310.65
6/30/2011 10,370.45 10,459.46 10,280.46
7/31/2011 10,551.77 10,605.46 10,443.59
8/31/2011 10,610.59 10,678.79 10,596.17
9/30/2011 10,665.70 10,670.09 10,673.26
10/31/2011 10,756.47 10,725.79 10,684.72
11/30/2011 10,669.02 10,710.40 10,675.45
12/31/2011 10,815.78 10,814.83 10,792.78
1/31/2012 10,986.16 10,938.11 10,887.55
2/29/2012 11,031.53 10,978.09 10,885.05
3/31/2012 10,958.38 10,958.31 10,825.41
4/30/2012 11,096.35 11,070.64 10,945.43
5/31/2012 11,208.47 11,139.03 11,044.46
6/30/2012 11,229.08 11,160.94 11,048.79
7/31/2012 11,479.42 11,300.09 11,201.19
8/31/2012 11,505.75 11,348.41 11,208.51
9/30/2012 11,530.92 11,419.79 11,223.94
10/31/2012 11,611.57 11,502.01 11,246.01
11/30/2012 11,629.03 11,550.18 11,263.76
12/31/2012 11,603.73 11,539.02 11,247.72
1/31/2013 11,529.94 11,537.85 11,169.05
2/28/2013 11,609.71 11,619.18 11,225.04
3/31/2013 11,619.89 11,649.96 11,234.00
4/30/2013 11,828.47 11,791.82 11,347.67
5/31/2013 11,532.59 11,618.75 11,145.21
6/30/2013 11,213.36 11,362.36 10,972.81
7/31/2013 11,251.41 11,412.37 10,987.81
8/31/2013 11,154.47 11,339.19 10,931.64
9/30/2013 11,249.89 11,433.14 11,035.13
10/31/2013 11,413.14 11,553.80 11,124.35
11/30/2013 11,366.49 11,539.62 11,082.70
12/31/2013 11,320.58 11,486.42 11,020.07
1/31/2014 11,594.05 11,650.77 11,182.90
2/28/2014 11,715.05 11,745.73 11,242.36
3/31/2014 11,745.08 11,751.25 11,223.21
4/30/2014 11,882.48 11,857.24 11,317.91
5/31/2014 12,049.94 11,988.67 11,446.77
6/30/2014 12,083.55 12,025.10 11,452.69
7/31/2014 12,076.11 11,995.29 11,423.96
8/31/2014 12,265.87 12,108.43 11,550.08
9/30/2014 12,110.47 12,020.91 11,471.65
10/31/2014 12,244.04 12,108.34 11,584.41
11/30/2014 12,351.27 12,155.37 11,666.59
12/31/2014 12,406.29 12,129.26 11,677.53
1/31/2015 12,828.36 12,350.95 11,922.38
2/28/2015 12,591.42 12,279.13 11,810.29
3/31/2015 12,635.91 12,320.19 11,865.12
4/30/2015 12,537.89 12,288.94 11,822.55
5/31/2015 12,447.47 12,254.94 11,794.07
6/30/2015 12,243.99 12,097.58 11,665.46
7/31/2015 12,360.06 12,143.11 11,746.57
8/31/2015 12,260.69 12,050.06 11,729.67
9/30/2015 12,338.03 12,090.36 11,809.01
10/31/2015 12,397.06 12,132.91 11,811.03
11/30/2015 12,356.42 12,079.89 11,779.80
12/31/2015 12,260.63 11,964.73 11,741.75
1/31/2016 12,370.81 12,024.37 11,903.29
[END CHART]
Data from 7/31/10 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Adviser Shares to the Fund's benchmarks listed above (see page
10 for benchmark definitions).
*The performance of the Lipper A Rated Bond Funds Index and the Barclays U.S.
Aggregate Bond 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.
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 A Rated Bond Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
16 | USAA INCOME FUND
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 22.0%
AA 11.8%
A 29.2%
BBB 27.8%
BELOW INVESTMENT-GRADE 6.7%
UNRATED 2.5%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 19-50.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
o TOP 10 HOLDINGS* - 1/31/16 o
(% of Net Assets)
COUPON RATE % MATURITY DATE % OF NET ASSETS
----------------------------------------------------
U.S. Treasury Notes ................... 2.00 2/15/2025 1.4
U.S. Treasury Notes ................... 3.63 2/15/2020 1.3
U.S. Treasury Bonds ................... 2.50 2/15/2045 1.1
U.S. Treasury Inflation-Indexed Notes . 2.38 1/15/2025 1.1
U.S. Treasury Notes ................... 2.63 11/15/2020 1.0
U.S. Treasury Notes ................... 3.50 5/15/2020 0.8
U.S. Treasury Bonds ................... 3.00 11/15/2044 0.7
U.S. Treasury Bonds ................... 2.75 8/15/2042 0.7
U.S. Treasury Bonds ................... 3.88 5/15/2040 0.6
Electricite De France S.A. ............ 5.25 - 0.4
o ASSET ALLOCATION** - 1/31/16 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 47.4%
EURODOLLAR AND YANKEE OBLIGATIONS 15.6%
U.S. TREASURY SECURITIES 11.8%
MUNICIPAL BONDS 8.6%
COMMERCIAL MORTGAGE SECURITIES 6.3%
ASSET-BACKED SECURITIES 3.2%
U.S. GOVERNMENT AGENCY ISSUES 2.3%
PREFERRED STOCKS 1.8%
COMMON STOCKS 0.8%
MONEY MARKET INSTRUMENTS 0.8%
FOREIGN GOVERNMENT OBLIGATIONS 0.4%
[END CHART]
*Excludes futures and money market instruments.
**Excludes futures.
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
18 | USAA INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
BONDS (95.6%)
CORPORATE OBLIGATIONS (47.4%)
CONSUMER DISCRETIONARY (2.7%)
-----------------------------
APPAREL RETAIL (0.3%)
$ 10,000 L Brands, Inc. 5.63% 2/15/2022 $ 10,760
5,000 Mens Wearhouse, Inc.(a) 5.00 6/18/2021 4,419
----------
15,179
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
1,985 Hanesbrands, Inc.(a) 3.25 4/29/2022 1,993
----------
AUTOMOTIVE RETAIL (0.3%)
15,048 Advance Auto Parts, Inc. 4.50 12/01/2023 15,441
5,000 CST Brands, Inc. 5.00 5/01/2023 5,012
----------
20,453
----------
CABLE & SATELLITE (1.1%)
20,000 CCO Safari II, LLC(b) 6.38 10/23/2035 20,139
5,000 CCOH Safari, LLC(b) 5.75 2/15/2026 4,985
3,500 Charter Communications Operating, LLC(a),(c),(d) -(e) 5/31/2016 3,500
10,000 NBCUniversal Enterprise, Inc.(b) 1.97 4/15/2019 10,055
10,000 NBCUniversal Media, LLC(f) 5.15 4/30/2020 11,242
3,750 Neptune Finco Corp.(a) 5.00 10/09/2022 3,750
10,000 Time Warner Cable, Inc. 6.75 7/01/2018 10,929
----------
64,600
----------
CASINOS & GAMING (0.1%)
3,000 International Game Technology 7.50 6/15/2019 3,223
----------
CATALOG RETAIL (0.1%)
4,000 QVC, Inc. 3.13 4/01/2019 3,970
----------
GENERAL MERCHANDISE STORES (0.0%)
2,076 Dollar Tree, Inc.(a) 3.50 7/06/2022 2,073
----------
HOME FURNISHINGS (0.1%)
4,428 Serta Simmons Holdings, LLC(a) 4.25 10/01/2019 4,409
493 Tempur Sealy International, Inc.(a) 3.50 3/18/2020 493
----------
4,902
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
HOMEBUILDING (0.1%)
$ 7,000 Lennar Corp. 4.50% 11/15/2019 $ 7,227
2,000 Lennar Corp. 4.88 12/15/2023 1,970
----------
9,197
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
5,000 Hyatt Hotels Corp. 3.38 7/15/2023 4,787
----------
MOVIES & ENTERTAINMENT (0.1%)
1,105 Metropolitan Opera Assoc., Inc. 1.79 10/01/2017 1,109
2,235 Metropolitan Opera Assoc., Inc. 2.14 10/01/2018 2,248
2,285 Metropolitan Opera Assoc., Inc. 2.39 10/01/2019 2,309
----------
5,666
----------
RESTAURANTS (0.1%)
3,793 1011778 B.C. Unlimited Liability Co.(a) 3.75 12/10/2021 3,775
----------
SPECIALTY STORES (0.3%)
7,905 Harbor Freight Tools USA, Inc.(a) 4.75 7/26/2019 7,917
2,978 PetSmart, Inc.(a) 4.25 3/11/2022 2,891
7,300 Staples, Inc.(a),(c) 4.94 4/07/2021 7,259
----------
18,067
----------
Total Consumer Discretionary 157,885
----------
CONSUMER STAPLES (2.5%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
4,000 Bunge Ltd. Finance Co. 8.50 6/15/2019 4,663
----------
DRUG RETAIL (0.5%)
7,340 CVS Pass-Through Trust 6.04 12/10/2028 8,184
4,316 CVS Pass-Through Trust(b) 7.51 1/10/2032 5,199
4,500 CVS Pass-Through Trust(b) 5.93 1/10/2034 4,972
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 9,862
----------
28,217
----------
FOOD RETAIL (0.1%)
3,850 Albertson's, LLC(a) 5.13 12/21/2022 3,774
2,000 Albertson's, LLC(a) 5.50 8/25/2019 1,960
----------
5,734
----------
HOUSEHOLD PRODUCTS (0.3%)
4,975 Energizer Holdings, Inc.(a) 3.25 6/30/2022 4,896
10,000 SC Johnson & Son, Inc.(b) 4.35 9/30/2044 9,948
----------
14,844
----------
HYPERMARKETS & SUPER CENTERS (0.3%)
20,000 Costco Wholesale Corp. 1.70 12/15/2019 20,137
----------
================================================================================
20 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEAT (0.7%)
$ 10,000 J.M. Smucker Co. 3.50% 10/15/2021 $ 10,388
5,000 J.M. Smucker Co. 4.25 3/15/2035 4,947
10,000 Kraft Foods Group, Inc. 3.50 6/06/2022 10,240
3,899 Kraft Heinz Foods Co.(b) 4.88 2/15/2025 4,175
10,000 Kraft Heinz Foods Co.(b) 3.95 7/15/2025 10,270
3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,595
----------
43,615
----------
PERSONAL PRODUCTS (0.0%)
1,489 Prestige Brands, Inc.(a) 3.50 9/03/2021 1,489
----------
SOFT DRINKS (0.2%)
5,000 PepsiCo, Inc. 7.90 11/01/2018 5,838
5,000 PepsiCo, Inc. 4.25 10/22/2044 4,999
----------
10,837
----------
TOBACCO (0.3%)
5,000 Reynolds American, Inc. 2.30 8/21/2017 5,053
10,000 Reynolds American, Inc. 4.00 6/12/2022 10,595
----------
15,648
----------
Total Consumer Staples 145,184
----------
ENERGY (6.5%)
-------------
COAL & CONSUMABLE FUELS (0.0%)
3,500 Peabody Energy Corp. 6.00 11/15/2018 315
----------
INTEGRATED OIL & GAS (0.1%)
10,000 ConocoPhillips Co. 4.15 11/15/2034 7,980
----------
OIL & GAS DRILLING (0.4%)
3,000 Nabors Industries, Inc. 9.25 1/15/2019 3,046
7,000 Nabors Industries, Inc. 4.63 9/15/2021 5,211
10,000 Noble Holding International Ltd. 4.90 8/01/2020 6,031
5,000 Noble Holding International Ltd. 5.95 4/01/2025 2,521
5,000 Rowan Companies, Inc. 7.88 8/01/2019 4,085
5,000 Rowan Companies, Inc. 4.88 6/01/2022 3,309
----------
24,203
----------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
5,000 Baker Hughes, Inc. 7.50 11/15/2018 5,620
20,000 Halliburton Co. 3.80 11/15/2025 18,771
10,000 Schlumberger Holdings Corp.(b) 4.00 12/21/2025 9,758
5,000 Weatherford Bermuda 9.63 3/01/2019 3,950
5,000 Weatherford Bermuda 4.50 4/15/2022 3,312
----------
41,411
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (1.1%)
$ 5,000 Anadarko Petroleum Corp. 5.95% 9/15/2016 $ 5,076
460 California Resources Corp. 5.00 1/15/2020 94
1,232 California Resources Corp.(b) 8.00 12/15/2022 493
7,575 Chesapeake Energy Corp.(b) 8.00 12/15/2022 3,276
5,000 Denbury Resources, Inc. 4.63 7/15/2023 1,675
15,000 EOG Resources, Inc. 3.90 4/01/2035 12,814
4,000 EQT Corp. 8.13 6/01/2019 4,324
5,000 Hess Corp. 8.13 2/15/2019 5,157
6,730 Newfield Exploration Co. 5.63 7/01/2024 5,670
5,000 Newfield Exploration Co. 5.38 1/01/2026 4,050
5,000 Noble Energy, Inc. 8.25 3/01/2019 5,447
5,000 QEP Resources, Inc. 6.88 3/01/2021 3,825
10,000 Southwestern Energy Co. 4.05 1/23/2020 6,762
2,000 Southwestern Energy Co. 4.95 1/23/2025 1,243
3,000 WPX Energy, Inc. 5.25 1/15/2017 2,888
----------
62,794
----------
OIL & GAS REFINING & MARKETING (0.6%)
14,000 EnLink Midstream Partners, LP 4.15 6/01/2025 9,598
10,000 Marathon Petroleum Corp. 4.75 9/15/2044 7,618
10,000 Phillips 66 4.65 11/15/2034 8,778
5,000 Valero Energy Corp. 9.38 3/15/2019 5,876
----------
31,870
----------
OIL & GAS STORAGE & TRANSPORTATION (3.6%)
15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 12,724
10,000 Buckeye Partners, LP 2.65 11/15/2018 9,687
10,000 Buckeye Partners, LP 5.60 10/15/2044 7,411
15,000 Columbia Pipeline Group, Inc.(b) 4.50 6/01/2025 13,555
15,000 DCP Midstream, LLC(b) 5.85 5/21/2043 8,625
4,000 Enbridge Energy Partners, LP 8.05 10/01/2077 2,830
3,000 Energy Transfer Partners, LP 9.00 6/1/2077 3,144
7,000 Energy Transfer Partners, LP 5.20 3/29/2067 6,279
5,000 Energy Transfer Partners, LP 4.75 6/15/2027 4,233
20,010 Energy Transfer Partners, LP 3.35(g) 3/15/2067 11,806
10,000 Enterprise Products Operating, LLC 6.30 7/02/2018 10,489
5,000 Enterprise Products Operating, LLC 3.90 11/23/2017 4,654
9,250 Enterprise Products Operating, LLC 7.03 7/31/2019 9,273
6,437 EQT Midstream Partners, LP 4.00 4/01/2028 4,988
7,500 MPLX, LP 4.00 3/22/2029 5,556
5,000 NGPL PipeCo, LLC(b) 7.12 1/08/2018 4,725
10,000 NuStar Logistics, LP 8.15 1/02/2020 9,850
5,000 ONEOK Partners, LP 8.63 4/29/2022 5,361
10,000 ONEOK Partners, LP 4.90 10/11/2025 8,046
================================================================================
22 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Plains All American Pipeline, LP 6.50% 4/29/2026 $ 5,046
3,000 Plains All American Pipeline, LP 8.75 1/30/2029 3,304
5,000 Questar Pipeline Co. 5.83 10/01/2029 5,387
7,000 Regency Energy Partners 4.50 6/01/2024 5,608
10,000 Sabine Pass LNG, LP 7.50 2/15/2027 10,338
4,000 Targa Resources Partners, LP 5.00 3/03/2028 3,755
1,000 Targa Resources Partners, LP 4.13 10/22/2024 845
10,000 TC PipeLines, LP 4.65 5/15/2027 9,650
3,000 Transcontinental Gas Pipe Line Co., LLC(b) 7.85 10/10/2034 3,134
10,000 Western Gas Partners, LP 5.38 11/15/2026 9,346
15,000 Williams Companies, Inc. 4.55 9/15/2028 9,847
----------
209,496
----------
Total Energy 378,069
----------
FINANCIALS (17.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.9%)
10,000 Ares Capital Corp. 4.88 6/15/2029 10,317
5,000 Bank of New York Mellon(f) 2.40 11/15/2022 5,060
10,000 Bank of New York Mellon 1.30 12/20/2025 9,981
5,000 Main Street Capital Corp. 4.50 9/15/2028 5,104
10,000 Prospect Capital Corp. 5.00 4/23/2022 10,050
15,000 State Street Capital Trust IV 1.51(g) 6/01/2077 11,801
----------
52,313
----------
CONSUMER FINANCE (0.6%)
5,000 Capital One Bank USA, N.A. 3.38 7/15/2023 4,892
5,000 Capital One Financial Corp.(f) 4.75 5/15/2042 5,437
10,000 Capital One Financial Corp. 3.75 4/24/2024 10,068
10,000 Citizens Bank, N.A. 2.45 12/04/2019 10,012
5,000 Discover Bank 3.10 6/04/2020 5,029
----------
35,438
----------
DIVERSIFIED BANKS (1.5%)
6,000 Bank of America Corp. 8.00 -(h) 6,066
9,000 Bank of America Corp. 4.00 4/01/2024 9,193
10,000 Bank of America Corp. 4.20 8/26/2024 9,944
5,000 Bank of America Corp. 3.95 4/21/2025 4,884
5,000 Bank of America, N.A. 6.10 6/15/2017 5,288
20,000 Citigroup, Inc. 4.40 6/10/2025 20,011
5,000 Citigroup, Inc. 4.45 9/29/2027 4,946
3,000 JPMorgan Chase & Co. 7.90 -(h) 3,032
5,000 JPMorgan Chase & Co. 4.25 10/01/2027 4,996
2,610 JPMorgan Chase Bank, N.A. 6.00 10/01/2017 2,780
16,800 USB Realty Corp.(b) 1.77(g) -(h) 14,322
----------
85,462
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.2%)
$ 10,000 Morgan Stanley 4.88% 11/01/2022 $ 10,651
----------
LIFE & HEALTH INSURANCE (1.8%)
10,000 Forethought Financial Group(b) 8.63 4/15/2021 11,536
10,000 Lincoln National Corp. 4.20 3/15/2022 10,459
15,000 Lincoln National Corp. 7.00(g) 5/17/2066 11,213
10,000 MetLife, Inc. 4.13 8/13/2042 9,148
4,000 Ohio National Financial Services, Inc.(b) 6.38 4/30/2020 4,507
5,000 Ohio National Financial Services, Inc.(b) 6.63 5/01/2031 6,079
10,000 Primerica, Inc. 4.75 7/15/2022 10,842
10,000 Prudential Financial, Inc. 5.63 6/15/2043 10,125
17,050 StanCorp Financial Group, Inc. 5.00 8/15/2022 18,201
6,625 StanCorp Financial Group, Inc. 6.90 6/01/2067 5,399
5,000 TIAA Asset Management Finance Co., LLC(b) 4.13 11/01/2024 5,107
----------
102,616
----------
MULTI-LINE INSURANCE (1.4%)
10,000 American International Group, Inc. 3.88 1/15/2035 8,268
17,500 Genworth Holdings, Inc. 6.15 11/15/2066 4,725
14,000 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 10,815
20,500 Kemper Corp. 4.35 2/15/2025 20,918
10,000 Loews Corp. 2.63 5/15/2023 9,665
10,000 MassMutual Global Funding II(b) 3.60 4/09/2024 10,395
19,505 Nationwide Mutual Insurance Co.(b) 2.80(g) 12/15/2024 18,911
----------
83,697
----------
MULTI-SECTOR HOLDINGS (0.3%)
10,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 10,026
5,000 Lubrizol Corp. 8.88 2/01/2019 6,010
----------
16,036
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
5,000 Icahn Enterprises, LP 3.50 3/15/2017 4,975
----------
PROPERTY & CASUALTY INSURANCE (1.9%)
15,000 ACE INA Holdings, Inc. 3.35 5/15/2024 15,369
5,000 Allstate Corp. 5.75 8/15/2053 5,103
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,686
20,050 Chubb Corp. 6.38 3/29/2067 18,827
10,000 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 11,626
19,300 Oil Insurance Ltd.(b) 3.59(g) -(h) 17,177
10,000 ProAssurance Corp. 5.30 11/15/2023 10,841
14,538 Progressive Corp. 6.70 6/15/2067 14,538
5,000 Travelers Companies, Inc. 6.25 3/15/2067 4,975
----------
109,142
----------
================================================================================
24 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (4.2%)
$ 5,000 AmSouth Bancorp. 6.75% 11/01/2025 $ 5,828
15,000 Banc of California, Inc. 5.25 4/15/2025 15,061
5,000 BankUnited, Inc. 4.88 11/17/2025 4,963
15,000 Citizens Financial Group, Inc.(b) 4.15 9/28/2022 15,431
8,000 CoBiz Financial, Inc. 5.63 6/25/2030 8,452
20,000 Compass Bank 3.88 4/10/2025 18,557
10,000 Cullen/Frost Capital Trust II 1.96(g) 3/01/2034 8,799
5,000 Fifth Third Bancorp 2.30 3/01/2019 5,021
3,500 First Maryland Capital Trust I 1.62(g) 1/15/2027 2,953
10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,933
10,000 First Republic Bank 2.38 6/17/2019 10,020
10,000 FirstMerit Bank, N.A. 4.27 11/25/2026 10,342
10,000 FirstMerit Corp. 4.35 2/04/2023 10,270
10,000 Fulton Financial Corp. 4.50 11/15/2024 10,179
5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 4,962
20,000 MUFG Americas Holdings Corp. 3.00 2/10/2025 19,577
10,000 MUFG Union Bank, N.A. 2.25 5/06/2019 10,008
22,685 People's United Financial, Inc. 3.65 12/06/2022 22,425
7,000 PNC Bank, N.A. 4.20 11/01/2025 7,579
10,000 PNC Financial Services 2.85 11/09/2022 10,003
10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,853
6,021 Susquehanna Bancshares, Inc. 5.38 8/15/2022 6,751
10,000 TCF National Bank 6.25 6/08/2022 10,933
5,000 Webster Financial Corp. 4.38 2/15/2024 5,121
----------
245,021
----------
REINSURANCE (0.2%)
10,000 Alterra Finance, LLC 6.25 9/30/2020 11,358
----------
REITs - DIVERSIFIED (0.3%)
5,000 Liberty Property, LP 6.63 10/01/2017 5,345
15,000 Washington REIT 3.95 10/15/2022 15,036
----------
20,381
----------
REITs - HEALTH CARE (0.4%)
10,000 Ventas Realty, LP 4.00 4/30/2019 10,499
10,000 Welltower, Inc. 6.13 4/15/2020 11,325
----------
21,824
----------
REITs - INDUSTRIAL (0.1%)
5,000 ProLogis, LP 7.38 10/30/2019 5,849
----------
REITs - OFFICE (1.2%)
5,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 5,347
5,000 Alexandria Real Estate Equities, Inc. 4.50 7/30/2029 5,037
5,000 BioMed Realty, LP 6.13 4/15/2020 5,814
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 8,034 Boston Properties, LP(f) 3.70% 11/15/2018 $ 8,365
10,000 Boston Properties, LP 5.88 10/15/2019 11,171
10,000 Boston Properties, LP 3.85 2/01/2023 10,357
11,000 Columbia Property Trust Operating Partnership, LP(i) 5.88 4/01/2018 11,775
3,000 Mack-Cali Realty, LP 7.75 8/15/2019 3,352
10,000 VEREIT Operating Partnership, LP 3.00 2/06/2019 9,500
----------
70,718
----------
REITs - RESIDENTIAL (0.3%)
5,000 AvalonBay Communities, Inc. 3.63 10/01/2020 5,263
5,000 AvalonBay Communities, Inc. 3.45 6/01/2025 5,050
7,000 UDR, Inc. 4.63 1/10/2022 7,620
----------
17,933
----------
REITs - RETAIL (0.8%)
3,000 Federal Realty Investment Trust 5.90 4/01/2020 3,438
7,000 Federal Realty Investment Trust 3.00 8/01/2022 7,076
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,789
5,000 National Retail Properties, Inc. 6.88 10/15/2017 5,394
5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,027
5,000 Realty Income Corp. 4.13 10/15/2026 5,178
2,000 Regency Centers, LP 6.00 6/15/2020 2,264
10,000 Simon Property Group, LP 4.13 12/01/2021 10,909
----------
49,075
----------
REITs - SPECIALIZED (0.3%)
4,478 Communications Sales & Leasing, Inc.(a) 5.00 10/24/2022 4,209
10,000 Crown Castle International Corp. 5.25 1/15/2023 10,688
4,000 EPR Properties 7.75 7/15/2020 4,723
----------
19,620
----------
SPECIALIZED FINANCE (0.3%)
10,000 McGraw Hill Financial, Inc. 4.00 6/15/2025 10,109
10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 9,650
----------
19,759
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
3,250 Chittenden Corp. 1.05(g) 2/14/2017 3,225
10,000 EverBank Financial Corp. 5.75 7/02/2025 10,362
----------
13,587
----------
Total Financials 995,455
----------
================================================================================
26 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
HEALTH CARE (2.1%)
------------------
BIOTECHNOLOGY (0.7%)
$ 10,000 AbbVie, Inc. 1.75% 11/06/2017 $ 9,991
5,000 AbbVie, Inc. 3.20 11/06/2022 5,009
10,000 AbbVie, Inc. 3.60 5/14/2025 10,026
15,000 Baxalta, Inc.(b) 4.00 6/23/2025 14,938
----------
39,964
----------
HEALTH CARE EQUIPMENT (0.3%)
10,000 Covidien International Finance S.A. 2.95 6/15/2023 10,040
10,000 Medtronic, Inc. 4.38 3/15/2035 10,228
----------
20,268
----------
HEALTH CARE FACILITIES (0.4%)
5,000 HCA, Inc. 5.00 3/15/2024 5,075
15,000 HCA, Inc. 5.25 4/15/2025 15,412
2,000 Tenet Healthcare Corp. 4.50 4/01/2021 1,970
----------
22,457
----------
PHARMACEUTICALS (0.7%)
15,000 Actavis Funding SCS 3.80 3/15/2025 15,248
20,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 17,450
5,000 Mylan N.V.(b) 3.75 12/15/2020 5,062
5,000 Valeant Pharmaceuticals International, Inc.(b) 6.75 8/15/2021 4,875
----------
42,635
----------
Total Health Care 125,324
----------
INDUSTRIALS (5.8%)
------------------
AEROSPACE & DEFENSE (0.3%)
10,000 Lockheed Martin Corp. 3.60 3/01/2035 9,136
10,000 Raytheon Co. 4.20 12/15/2044 10,474
----------
19,610
----------
AIR FREIGHT & LOGISTICS (0.2%)
10,000 FedEx Corp. 3.90 2/01/2035 9,190
----------
AIRLINES (2.2%)
662 America West Airlines, Inc. Pass-Through Trust 6.87 7/02/2018 664
1,350 American Airlines, Inc. Pass-Through Trust 7.38 11/23/2017 1,350
5,370 American Airlines, Inc. Pass-Through Trust(b) 7.00 7/31/2019 5,592
9,418 American Airlines, Inc. Pass-Through Trust 3.70 4/01/2028 9,418
10,000 American Airlines, Inc. Pass-Through Trust 4.00 3/22/2029 9,813
3,255 Continental Airlines, Inc. Pass-Through Trust 9.00 1/08/2018 3,356
608 Continental Airlines, Inc. Pass-Through Trust 7.88 1/02/2020 636
2,447 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 2,524
8,770 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 9,044
4,485 Continental Airlines, Inc. Pass-Through Trust 4.00 4/29/2026 4,596
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 9,000 Delta Air Lines Pass-Through Trust 3.88% 1/30/2029 $ 9,056
15,792 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 1/15/2026 15,377
15,000 Spirit Airlines, Inc. Pass-Through Trust 4.10 10/01/2029 14,831
7,000 United Airlines, Inc. Pass-Through Trust 3.70 6/01/2024 7,079
4,760 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,968
20,000 United Airlines, Inc. Pass-Through Trust 3.75 3/03/2028 20,250
3,547 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,907
9,046 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 9,171
----------
131,632
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%)
10,000 Caterpillar Financial Services, Corp. 1.25 11/06/2017 9,985
6,500 CNH Industrial Capital, LLC 3.38 7/15/2019 6,012
4,962 Terex Corp.(a) 3.50 8/13/2021 4,913
----------
20,910
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
15,000 Eaton Corp. 2.75 11/02/2022 14,683
----------
INDUSTRIAL CONGLOMERATES (0.7%)
10,000 Danaher Corp. 5.63 1/15/2018 10,813
9,000 General Electric Capital Corp. 6.38 11/15/2067 9,563
15,000 General Electric Capital Corp./LJ VP Holdings, LLC(b) 3.80 6/18/2019 16,001
5,921 General Electric Co. 5.00 -(h) 6,091
----------
42,468
----------
INDUSTRIAL MACHINERY (0.4%)
10,000 CNH Industrial Capital, LLC 3.88 7/16/2018 9,725
5,000 Hillenbrand, Inc. 5.50 7/15/2020 5,476
1,500 Ingersoll-Rand Co. 9.00 8/15/2021 1,914
1,500 SPX Flow, Inc. 6.88 9/01/2017 1,592
5,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 5,235
----------
23,942
----------
RAILROADS (0.8%)
8,000 Burlington Northern Santa Fe, LLC 3.75 4/01/2024 8,311
10,000 Burlington Northern Santa Fe, LLC 3.65 9/01/2025 10,192
5,000 TTX Co.(b) 4.15 1/15/2024 5,265
10,000 TTX Co.(b) 3.60 1/15/2025 10,083
5,000 Union Pacific Corp. 7.88 1/15/2019 5,814
10,000 Union Pacific Corp. 3.38 2/01/2035 9,115
----------
48,780
----------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
10,000 ILFC E-Capital Trust I(b) 4.49(g) 12/21/2065 9,000
5,000 International Lease Finance Corp.(b) 7.13 9/01/2018 5,425
================================================================================
28 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 4,000 United Rentals North America, Inc. 6.13% 6/15/2023 $ 3,870
----------
18,295
----------
TRUCKING (0.2%)
5,000 J.B. Hunt Transport Services, Inc. 3.85 3/15/2024 5,179
5,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 3.38 3/15/2018 5,088
----------
10,267
----------
Total Industrials 339,777
----------
INFORMATION TECHNOLOGY (1.4%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.3%)
5,000 Cisco Systems, Inc. 2.90 3/04/2021 5,225
3,000 Commscope, Inc.(b) 4.38 6/15/2020 3,060
10,000 Qualcomm, Inc. 4.65 5/20/2035 9,356
----------
17,641
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
5,000 FLIR Systems, Inc.(f) 3.75 9/01/2016 5,064
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
10,000 Molex Electronic Technologies, LLC(b) 3.90 4/15/2025 9,485
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
3,738 Activision Blizzard, Inc.(a) 3.25 10/12/2020 3,743
----------
INTERNET SOFTWARE & SERVICES (0.1%)
4,250 Verisign, Inc. 5.25 4/01/2025 4,214
----------
IT CONSULTING & OTHER SERVICES (0.1%)
5,000 IBM Corp. 7.63 10/15/2018 5,763
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
10,000 Applied Materials, Inc. 5.10 10/01/2035 10,187
----------
SYSTEMS SOFTWARE (0.3%)
20,000 Microsoft Corp. 4.20 11/03/2035 20,313
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.1%)
4,829 Dell International, LLC(a) 4.00 4/29/2020 4,825
----------
Total Information Technology 81,235
----------
MATERIALS (2.4%)
----------------
ALUMINUM (0.2%)
15,000 Alcoa, Inc. 5.13 10/01/2024 12,375
----------
DIVERSIFIED CHEMICALS (0.6%)
20,000 Dow Chemical Co. 4.25 10/01/2034 18,021
10,000 E.I. du Pont de Nemours & Co. 2.80 2/15/2023 9,470
8,028 E.I. du Pont de Nemours & Co. 4.90 1/15/2041 7,958
----------
35,449
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS & MINING (0.1%)
$ 5,000 Freeport-McMoRan, Inc.(a) 2.18% 5/31/2018 $ 3,850
5,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 2,337
5,000 Freeport-McMoRan, Inc. 4.00 11/14/2021 2,225
----------
8,412
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
5,000 Monsanto Co. 3.38 7/15/2024 4,726
5,000 Monsanto Co. 3.95 4/15/2045 3,832
----------
8,558
----------
METAL & GLASS CONTAINERS (0.5%)
4,000 Ball Corp. 4.38 12/15/2020 4,151
3,000 Ball Corp. 5.00 3/15/2022 3,120
5,000 Ball Corp. 5.25 7/01/2025 5,156
4,868 Berry Plastics Group, Inc.(a) 4.00 10/01/2022 4,854
3,883 Greif, Inc. 6.75 2/01/2017 4,024
9,553 Reynolds Group Holdings, Inc.(a) 4.50 12/01/2018 9,523
----------
30,828
----------
PAPER PACKAGING (0.2%)
5,000 International Paper Co. 3.80 1/15/2026 4,872
5,000 Sealed Air Corp.(b) 6.88 7/15/2033 5,156
----------
10,028
----------
SPECIALTY CHEMICALS (0.4%)
3,321 Albemarle Corp. 3.00 12/01/2019 3,300
2,505 Cytec Industries, Inc. 8.95 7/01/2017 2,721
15,000 RPM International, Inc. 6.13 10/15/2019 16,662
----------
22,683
----------
STEEL (0.2%)
5,000 Allegheny Ludlum Corp. 6.95 12/15/2025 2,600
5,000 Allegheny Technologies, Inc. 9.38 6/01/2019 3,715
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 6,350
----------
12,665
----------
Total Materials 140,998
----------
TELECOMMUNICATION SERVICES (1.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.6%)
25,000 AT&T, Inc. 4.50 5/15/2035 22,617
10,000 Centel Capital Corp. 9.00 10/15/2019 11,571
10,000 CenturyLink, Inc. 5.80 3/15/2022 9,288
2,000 CenturyLink, Inc. 6.75 12/01/2023 1,900
10,000 Frontier Communications Corp.(b) 11.00 9/15/2025 9,675
8,409 Frontier Communications Corp. 7.88 1/15/2027 6,517
5,000 Qwest Corp.(f) 6.75 12/01/2021 5,225
================================================================================
30 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 15,000 Verizon Communications, Inc. 4.50% 9/15/2020 $ 16,258
10,000 Verizon Communications, Inc. 4.40 11/01/2034 9,137
----------
92,188
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
4,887 Grain Spectrum Funding II(b) 3.29 10/10/2034 4,893
----------
Total Telecommunication Services 97,081
----------
UTILITIES (5.3%)
----------------
ELECTRIC UTILITIES (2.3%)
5,000 Atlantic City Electric Co. 3.38 9/01/2024 5,029
5,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 5,883
10,000 Duke Energy Progress, Inc. 4.15 12/01/2044 10,061
3,500 Duquesne Light Holdings, Inc.(b) 5.90 12/01/2021 3,973
4,000 Entergy Arkansas, Inc. 3.05 6/01/2023 4,001
7,000 Entergy Louisiana, LLC 4.95 1/15/2045 7,131
582 FPL Energy American Wind, LLC(b) 6.64 6/20/2023 584
3,168 Mississippi Power Co. 4.25 3/15/2042 2,364
10,000 Monongahela Power Co.(b) 4.10 4/15/2024 10,371
5,000 Nevada Power Co. 7.13 3/15/2019 5,723
4,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 3,006
5,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 4,662
5,000 Oglethorpe Power Corp. 6.10 3/15/2019 5,569
5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 4,380
26,130 PPL Capital Funding, Inc. 6.70 3/30/2067 20,125
5,000 South Carolina Electric & Gas Co. 5.30 5/15/2033 5,618
10,000 Southern California Edison Co. 6.25 -(h) 11,025
2,534 Tri-State Generation & Transmission Association
Pass-Through Trust(b) 6.04 1/31/2018 2,626
10,000 Tri-State Generation & Transmission Association, Inc. 4.70 11/01/2044 10,445
10,000 Xcel Energy, Inc. 3.30 6/01/2025 10,078
----------
132,654
----------
GAS UTILITIES (1.0%)
8,000 AGL Capital Corp. 6.38 7/15/2016 8,186
4,000 Atmos Energy Corp. 8.50 3/15/2019 4,703
10,000 Atmos Energy Corp. 4.13 10/15/2044 9,958
10,000 Florida Gas Transmission Co.(b) 5.45 7/15/2020 10,773
10,000 National Fuel Gas Co.(f) 4.90 12/01/2021 10,480
10,000 National Fuel Gas Co. 5.20 7/15/2025 9,036
5,000 Southern Star Central Gas Pipeline, Inc.(b) 6.00 6/01/2016 5,043
----------
58,179
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
2,500 AES Corp. 3.41(g) 6/01/2019 2,319
5,000 AES Corp. 4.88 5/15/2023 4,450
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 AES Corp. 5.50% 4/15/2025 $ 9,025
4,975 Calpine Corp.(a) 3.50 5/27/2022 4,735
----------
20,529
----------
MULTI-UTILITIES (1.5%)
5,000 Ameren Illinois Co. 9.75 11/15/2018 6,027
15,000 Berkshire Hathaway Energy Co. 4.50 2/01/2045 14,751
5,000 Black Hills Corp. 5.88 7/15/2020 5,581
10,000 Black Hills Corp. 4.25 11/30/2023 10,422
12,387 Integrys Holding, Inc. 6.11 12/01/2066 9,044
5,000 NiSource Finance Corp. 10.75 3/15/2016 5,051
15,000 Northern States Power Co. 4.00 8/15/2045 15,246
5,000 Northwestern Corp. 6.34 4/01/2019 5,675
8,000 Puget Sound Energy, Inc. 6.97 6/01/2067 6,140
15,000 WEC Energy Group, Inc. 6.25 5/15/2067 10,875
----------
88,812
----------
WATER UTILITIES (0.2%)
10,000 Aquarion Co., Inc.(b) 4.00 8/15/2024 9,963
----------
Total Utilities 310,137
----------
Total Corporate Obligations (cost: $2,860,539) 2,771,145
----------
EURODOLLAR AND YANKEE OBLIGATIONS (15.6%)
CONSUMER DISCRETIONARY (0.5%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.3%)
10,000 American Honda Finance Corp.(b) 7.63 10/01/2018 11,487
5,000 Daimler Finance, N.A., LLC(b) 1.88 1/11/2018 4,986
5,000 Daimler Finance, N.A., LLC(b) 2.25 7/31/2019 4,989
----------
21,462
----------
PUBLISHING (0.2%)
10,000 Pearson Funding Four plc(b) 3.75 5/08/2022 10,022
----------
Total Consumer Discretionary 31,484
----------
CONSUMER STAPLES (1.4%)
-----------------------
BREWERS (0.3%)
20,000 Anheuser-Busch InBev S.A./N.V. 4.70 2/01/2036 20,301
----------
DISTILLERS & VINTNERS (0.2%)
10,000 Pernod Ricard S.A.(b) 4.25 7/15/2022 10,547
----------
PACKAGED FOODS & MEAT (0.2%)
6,471 JBS S.A. 10.50 8/04/2016 6,600
4,000 Kerry Group Financial Services(b) 3.20 4/09/2023 3,877
----------
10,477
----------
================================================================================
32 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
TOBACCO (0.7%)
$ 20,000 BAT International Finance plc(b) 3.95% 6/15/2025 $ 20,859
20,000 Imperial Tobacco Finance plc(b) 4.25 7/21/2025 20,564
----------
41,423
----------
Total Consumer Staples 82,748
----------
ENERGY (1.0%)
-------------
INTEGRATED OIL & GAS (0.5%)
10,000 BP Capital Markets plc 1.63 8/17/2017 9,989
4,000 Husky Energy, Inc. 7.25 12/15/2019 4,170
10,000 Petrobras Global Finance B.V. 3.00 1/15/2019 7,625
10,000 Shell International Finance B.V. 3.63 8/21/2042 8,130
----------
29,914
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
3,500 Repsol Oil & Gas Canada, Inc. 7.75 6/01/2019 3,245
10,000 Woodside Finance Ltd.(b) 8.75 3/01/2019 11,532
----------
14,777
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 5,895
12,124 TransCanada PipeLines Ltd. 6.35 5/15/2067 8,123
----------
14,018
----------
Total Energy 58,709
----------
FINANCIALS (6.5%)
-----------------
DIVERSIFIED BANKS (4.1%)
5,000 Abbey National Treasury Services plc 4.00 3/13/2024 5,321
15,000 ABN AMRO Bank N.V.(b) 4.75 7/28/2025 14,946
4,000 Banco Santander Chile(b) 1.52(g) 4/11/2017 3,980
10,000 Bank of Montreal 2.50 1/11/2017 10,132
10,000 Bank of Nova Scotia 4.50 12/16/2025 9,904
5,000 Barclays Bank plc(b) 6.05 12/04/2017 5,336
10,000 BBVA Bancomer S.A. Texas Agency(b) 4.38 4/10/2024 9,897
5,000 BNP Paribas(b) 7.20 -(h) 5,637
5,000 BNP Paribas Co. S.A.(b) 4.38 9/28/2025 4,862
4,089 Canadian Imperial Bank of Commerce(b) 7.26 4/10/2032 4,835
5,000 Caribbean Development Bank(b) 4.38 11/09/2027 5,236
10,000 Cooperatieve Rabobank U.A. 3.38 1/19/2017 10,211
10,000 Cooperatieve Rabobank U.A. 3.88 2/08/2022 10,616
10,000 Cooperatieve Rabobank U.A. 3.95 11/09/2022 10,252
15,000 DNB Bank ASA(b) 3.20 4/03/2017 15,300
10,000 DNB Boligkreditt AS(b) 2.90 3/29/2016 10,028
5,000 HBOS plc(b) 6.75 5/21/2018 5,477
15,000 HSBC Bank plc 1.13(g) -(h) 8,924
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 National Australia Bank Ltd. 3.00% 1/20/2023 $ 5,042
11,000 Nordea Bank AB(b) 4.88 5/13/2021 11,914
10,000 Royal Bank of Canada 0.85 3/08/2016 10,003
20,000 Royal Bank of Canada 4.65 1/27/2026 20,072
5,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 5,405
10,000 Santander UK plc(b) 5.00 11/07/2023 10,445
4,355 Standard Chartered Bank(b) 6.40 9/26/2017 4,641
10,000 Swedbank AB(b) 1.75 3/12/2018 10,028
10,000 Westpac Banking Corp.(b),(f) 2.45 11/28/2016 10,127
----------
238,571
----------
LIFE & HEALTH INSURANCE (0.2%)
8,500 Great-West Life & Annuity Insurance Capital, LP(b) 7.15(g) 5/16/2046 8,521
----------
MULTI-LINE INSURANCE (0.3%)
19,072 ZFS Finance USA Trust II(b) 6.45(g) 12/15/2065 19,191
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%)
15,000 ING Bank N.V.(b) 3.75 3/07/2017 15,375
5,500 ING Bank N.V. 4.13 11/21/2023 5,593
5,000 ING Capital Funding Trust III 4.21(g) -(h) 4,944
----------
25,912
----------
PROPERTY & CASUALTY INSURANCE (0.5%)
20,000 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 22,075
5,000 XLIT Ltd. 6.50 -(h) 3,640
5,000 XLIT Ltd. 4.45 3/31/2025 4,946
----------
30,661
----------
REGIONAL BANKS (0.0%)
5,000 Kaupthing Bank hf, acquired 6/22/2006;
cost $4,942(b),(d),(j),(k) 7.13 5/19/2016 -
----------
REINSURANCE (0.3%)
15,000 Swiss Re Capital I, LP(b) 6.85(g) -(h) 15,160
----------
REITs - RESIDENTIAL (0.1%)
5,000 Vonovia Finance B.V.(b) 3.20 10/02/2017 5,056
----------
REITs - RETAIL (0.6%)
5,000 Scentre Group Trust(b) 2.38 4/28/2021 4,913
10,000 Scentre Group Trust(b) 3.25 10/28/2025 9,634
20,000 WEA Finance, LLC/Westfield UK &
Europe Finance plc(b) 3.75 9/17/2024 20,170
----------
34,717
----------
Total Financials 377,789
----------
================================================================================
34 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
GOVERNMENT (0.3%)
-----------------
FOREIGN GOVERNMENT (0.3%)
$ 15,000 Italy Government International Bond 5.38% 6/15/2033 $ 17,568
----------
HEALTH CARE (0.2%)
------------------
PHARMACEUTICALS (0.2%)
10,000 GlaxoSmithKline Capital, Inc. 4.20 3/18/2043 10,134
2,222 Roche Holdings, Inc.(b) 6.00 3/01/2019 2,512
----------
12,646
----------
Total Health Care 12,646
----------
INDUSTRIALS (3.1%)
------------------
AEROSPACE & DEFENSE (0.1%)
5,000 Bombardier, Inc.(b) 5.50 9/15/2018 4,462
----------
AIRLINES (1.4%)
23,081 Air Canada Pass-Through Trust(b) 4.13 11/15/2026 23,225
10,000 Air Canada Pass-Through Trust(b) 3.60 9/15/2028 9,637
6,000 Air Canada Pass-Through Trust(b) 3.75 6/15/2029 6,023
5,016 Air Canada Pass-Through Trust(b) 5.38 11/15/2022 4,935
18,717 British Airways Pass-Through Trust(b) 4.63 12/20/2025 19,583
9,772 Turkish Airlines Pass-Through Trust(b) 4.20 9/15/2028 9,344
3,197 Virgin Australia Trust(b) 6.00 4/23/2022 3,233
7,028 Virgin Australia Trust(b) 5.00 4/23/2025 7,248
----------
83,228
----------
AIRPORT SERVICES (0.5%)
10,000 Heathrow Funding Ltd.(b) 4.88 7/15/2023 11,116
15,000 Sydney Airport Finance Co. Proprietary Ltd.(b) 3.90 3/22/2023 15,274
----------
26,390
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
5,500 Brambles USA, Inc.(b) 4.13 10/23/2025 5,627
----------
INDUSTRIAL CONGLOMERATES (0.9%)
10,000 Hutchison Whampoa International Ltd.(b) 2.00 11/08/2017 10,070
5,000 Hutchison Whampoa International Ltd.(b) 4.63 1/13/2022 5,449
10,000 Hutchison Whampoa International Ltd.(b) 3.63 10/31/2024 10,112
20,000 Siemens Financieringsmaatschappij N.V.(b) 3.25 5/27/2025 20,433
7,000 Smiths Group plc(b) 3.63 10/12/2022 6,933
----------
52,997
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
7,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 6,825
----------
Total Industrials 179,529
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (0.0%)
-----------------------------
SEMICONDUCTORS (0.0%)
$ 2,000 NXP B.V.(a) 3.75% 12/07/2020 $ 1,999
----------
MATERIALS (2.0%)
----------------
COMMODITY CHEMICALS (0.1%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 8,825
----------
CONSTRUCTION MATERIALS (0.2%)
10,000 Holcim US Finance Sarl & Cie SCS(b) 6.00 12/30/2019 11,167
----------
DIVERSIFIED METALS & MINING (0.5%)
5,000 Anglo American Capital plc(b) 2.63 9/27/2017 4,375
10,000 Anglo American Capital plc(b) 4.88 5/14/2025 6,000
10,000 Glencore Funding, LLC(b) 2.50 1/15/2019 7,630
5,000 Glencore Funding, LLC(b) 4.13 5/30/2023 3,405
5,000 Rio Tinto Finance (USA) Ltd. 9.00 5/01/2019 5,804
----------
27,214
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
10,000 Potash Corp. of Saskatchewan, Inc. 3.00 4/01/2025 9,325
2,000 Yara International ASA(b) 7.88 6/11/2019 2,289
----------
11,614
----------
GOLD (0.6%)
10,000 Barrick North America Finance, LLC 6.80 9/15/2018 10,538
20,000 Goldcorp, Inc. 3.70 3/15/2023 18,257
10,000 Kinross Gold Corp. 5.95 3/15/2024 6,250
----------
35,045
----------
PRECIOUS METALS & MINERALS (0.2%)
10,000 Fresnillo plc(b) 5.50 11/13/2023 10,100
----------
STEEL (0.2%)
10,000 ArcelorMittal 7.25 2/25/2022 8,175
5,000 Vale Overseas Ltd. 4.38 1/11/2022 3,500
----------
11,675
----------
Total Materials 115,640
----------
UTILITIES (0.6%)
----------------
ELECTRIC UTILITIES (0.4%)
30,000 Electricite De France S.A.(b) 5.25 -(h) 27,000
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
10,200 Transalta Corp. 6.90 5/15/2018 10,054
----------
Total Utilities 37,054
----------
Total Eurodollar and Yankee Obligations (cost: $929,216) 915,166
----------
================================================================================
36 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(L) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS (0.4%)
CAD15,000 Province of Alberta 2.55% 12/15/2022 $ 11,135
CAD20,000 Province of Ontario 2.85 6/02/2023 15,142
----------
Total Foreign Government Obligations (cost: $34,603) 26,277
----------
ASSET-BACKED SECURITIES (3.2%)
FINANCIALS (2.7%)
-----------------
ASSET-BACKED FINANCING (2.7%)
$ 1,231 Access Group, Inc. 0.88(g) 4/25/2029 1,214
588 ACS Pass-Through Trust(b) 0.72(g) 6/14/2037 568
10,000 AESOP Funding II, LLC(b) 3.41 11/20/2017 10,110
2,672 ARL First, LLC(b) 2.18(g) 12/15/2042 2,669
1,230 Arran Residential Mortgages Funding plc(b),(f) 1.82(g) 11/19/2047 1,232
10,000 Babson CLO Ltd.(b) 2.01(g) 10/17/2026 9,815
7,474 CIT Education Loan Trust(b) 0.90(g) 6/25/2042 6,230
8,500 CIT Equipment Collateral(b) 2.15 2/20/2020 8,575
2,000 Citibank Credit Card Issuance Trust 5.35 2/07/2020 2,162
5,000 Credit Acceptance Auto Loan Trust(b) 2.29 4/15/2022 5,004
3,000 Credit Acceptance Auto Loan Trust(b) 3.30 7/17/2023 2,990
5,000 Drive Auto Receivables Trust "B"(b) 2.28 6/17/2019 5,007
7,500 Dryden Senior Loan Fund(b) 2.12(g) 4/15/2027 7,419
7,000 Element Rail Leasing I, LLC(b) 3.67 4/19/2044 7,179
10,000 Exeter Automobile Receivables Trust(b) 2.42 1/15/2019 10,010
5,000 Exeter Automobile Receivables Trust(b) 2.17 5/15/2019 4,972
2,623 First Investors Auto Owner Trust(b) 0.86 8/15/2018 2,620
3,000 First Investors Auto Owner Trust(b) 2.26 3/15/2019 3,014
5,000 Loomis Sayles Ltd.(b) 1.96(g) 10/15/2027 4,890
20,000 Louisiana Environmental Facilities and
Community Dev. 3.24 8/01/2028 21,020
10,000 MMAF Equipment Finance, LLC(b) 2.49 2/19/2036 10,252
5,000 SBA Tower Trust(b) 2.90 10/15/2044 5,025
2,727 SLM Student Loan Trust 1.17(g) 10/25/2038 2,372
7,161 SLM Student Loan Trust 0.85(g) 1/25/2041 5,631
3,750 TCF Auto Receivables Owner Trust(b) 2.89 7/15/2021 3,714
10,000 Trip Rail Master Funding, LLC(b) 4.09 4/15/2044 10,061
4,725 Westlake Automobile Receivables Trust(b) 2.24 4/15/2020 4,701
2,000 Westlake Automobile Receivables Trust(b) 2.45 1/15/2021 1,987
----------
160,443
----------
Total Financials 160,443
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
10,000 Crown Castle Towers, LLC(b) 3.22 5/15/2042 10,013
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
$ 15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24% 1/01/2031 $ 15,334
----------
Total Asset-Backed Securities (cost: $184,404) 185,790
----------
COMMERCIAL MORTGAGE SECURITIES (6.3%)
FINANCIALS (6.3%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (5.3%)
1,258 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 1,256
5,000 Banc of America Commercial Mortgage, Inc. 6.04 7/10/2044 5,041
710 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 711
878 CD Commercial Mortgage Trust 5.48 7/15/2044 878
10,000 Citigroup Commercial Mortgage Trust 3.36 7/10/2047 10,310
2,500 Citigroup Commercial Mortgage Trust 3.62 7/10/2047 2,615
4,000 Citigroup Commercial Mortgage Trust 3.86 7/10/2047 4,127
23,957 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 23,869
8,600 Commercial Mortgage Trust 3.25 10/15/2045 8,724
5,925 Commercial Mortgage Trust(b) 3.42 10/15/2045 6,072
6,000 Commercial Mortgage Trust 2.77 12/10/2045 6,050
4,000 Commercial Mortgage Trust 3.61 6/10/2046 4,209
10,000 Commercial Mortgage Trust 5.35 12/10/2046 10,212
7,500 Commercial Mortgage Trust 4.08 8/10/2047 7,917
507 Credit Suisse Commercial Mortgage Trust 5.72 2/15/2039 507
10,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 10,198
3,667 GMAC Commercial Mortgage Securities, Inc. 5.29 11/10/2045 3,664
6,000 GS Mortgage Securities Corp. II 3.21 5/10/2045 6,198
5,000 GS Mortgage Securities Corp. II 3.38 5/10/2045 5,239
3,188 GS Mortgage Securities Trust 5.83 4/10/2038 3,186
5,000 GS Mortgage Securities Trust 3.28 2/10/2046 5,083
5,000 GS Mortgage Securities Trust(b) 3.68 2/10/2046 4,980
5,000 GS Mortgage Securities Trust 4.24 8/10/2046 5,478
6,000 GS Mortgage Securities Trust 3.76 7/10/2048 6,290
967 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.84 7/15/2042 966
1,856 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.81 6/12/2043 1,859
15,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(b) 5.74 11/15/2043 15,977
5,697 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.82 5/15/2045 6,098
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.48 5/15/2045 5,067
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.27 6/15/2045 10,783
================================================================================
38 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37% 5/15/2047 $ 10,095
9,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 4.44 2/15/2047 9,710
5,000 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 5,101
7,000 Morgan Stanley Capital I, Inc. 4.16 5/15/2048 7,450
8,499 Morgan Stanley Capital I, Inc. 5.37 12/15/2043 8,648
2,750 Morgan Stanley Capital I, Inc.(b) 5.20 6/15/2044 3,025
3,000 Morgan Stanley Capital I, Inc. 3.77 3/15/2045 3,138
5,000 Timberstar Trust(b) 5.88 10/15/2036 5,082
9,375 UBS Commercial Mortgage Trust 4.17 5/10/2045 10,073
15,000 UBS Commercial Mortgage Trust 4.82 5/10/2045 15,917
2,313 UBS-Barclays Commercial Mortgage Trust(b) 4.18 5/10/2063 2,469
4,089 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 4,144
1,500 WF-RBS Commercial Mortgage Trust(b),(f) 5.43 6/15/2044 1,637
5,000 WF-RBS Commercial Mortgage Trust 3.35 5/15/2045 5,071
10,000 WF-RBS Commercial Mortgage Trust 4.09 6/15/2045 10,655
5,000 WF-RBS Commercial Mortgage Trust 3.24 12/15/2045 5,113
20,000 WF-RBS Commercial Mortgage Trust 3.65 12/15/2046 21,016
----------
311,908
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.0%)
45,109 Commercial Mortgage Pass-Through Certificates,
acquired 5/22/2012; cost $6,252(j) 2.26 5/15/2045 3,867
71,165 Commercial Mortgage Pass-Through Certificates,
acquired 11/06/2012; cost $9,540(j) 2.09 10/15/2045 6,116
70,811 Freddie Mac(+) 1.71 10/25/2018 2,621
68,397 Freddie Mac(+) 1.66 3/25/2019 2,811
60,574 Freddie Mac(+) 1.55 1/25/2022 4,085
95,864 Freddie Mac(+) 1.59 5/25/2022 7,181
73,142 Freddie Mac(+) 1.63 6/25/2022 5,558
71,043 Freddie Mac(+) 1.02 10/25/2022 3,370
97,105 Freddie Mac(+) 1.16 11/25/2022 5,407
38,498 GS Mortgage Securities Corp. II,
acquired 5/18/2012; cost $5,882(j) 2.70 5/10/2045 3,427
190,667 GS Mortgage Securities Trust,
acquired 6/27/2013; cost $4,998(b),(j) 0.39 5/03/2032 4,103
58,465 UBS Commercial Mortgage Trust,
acquired 9/26/2012; cost $9,007(b),(j) 2.36 5/10/2045 5,798
34,112 WF Commercial Mortgage Trust,
acquired 9/21/2012; cost $4,732(b),(j) 2.22 10/15/2045 2,954
----------
57,298
----------
Total Financials 369,206
----------
Total Commercial Mortgage Securities (cost: $358,782) 369,206
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (2.3%)(m)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.3%)
$ 13,438 Fannie Mae(+) 2.50% 2/01/2028 $ 13,810
2,625 Fannie Mae(+) 5.00 6/01/2033 2,915
730 Fannie Mae(+) 5.50 7/01/2021 790
2,717 Fannie Mae(+) 5.50 9/01/2035 3,098
1,344 Fannie Mae(+) 5.50 10/01/2035 1,512
362 Fannie Mae(+) 5.50 1/01/2036 406
1,533 Fannie Mae(+) 5.50 4/01/2036 1,725
1,613 Fannie Mae(+) 5.50 2/01/2037 1,807
1,621 Fannie Mae(+) 5.50 3/01/2037 1,828
859 Fannie Mae(+) 5.50 11/01/2037 963
2,355 Fannie Mae(+) 5.50 5/01/2038 2,641
1,598 Fannie Mae(+) 6.00 5/01/2036 1,811
1,228 Fannie Mae(+) 6.00 6/01/2036 1,401
1,328 Fannie Mae(+) 6.00 8/01/2037 1,514
355 Fannie Mae(+) 6.50 4/01/2031 406
6 Fannie Mae(+) 6.50 7/01/2031 7
620 Fannie Mae(+) 6.50 3/01/2032 727
15 Fannie Mae(+) 7.00 10/01/2022 16
8 Fannie Mae(+) 7.00 3/01/2023 9
33 Fannie Mae(+) 7.00 4/01/2023 34
14,541 Freddie Mac(+) 3.50 5/01/2042 15,220
425 Freddie Mac(+) 5.00 6/01/2020 442
1,050 Freddie Mac(+) 5.00 1/01/2021 1,115
1,335 Freddie Mac(+) 5.50 11/01/2020 1,436
374 Freddie Mac(+) 5.50 12/01/2020 400
1,229 Freddie Mac(+) 5.50 12/01/2035 1,385
1,059 Freddie Mac(+) 5.50 4/01/2036 1,180
4,246 Government National Mortgage Assn. I 5.00 8/15/2033 4,784
103 Government National Mortgage Assn. I 6.00 8/15/2028 116
60 Government National Mortgage Assn. I 6.00 9/15/2028 68
290 Government National Mortgage Assn. I 6.00 9/15/2028 333
1,852 Government National Mortgage Assn. I 6.00 9/15/2028 2,128
310 Government National Mortgage Assn. I 6.00 10/15/2028 357
145 Government National Mortgage Assn. I 6.00 1/15/2029 164
36 Government National Mortgage Assn. I 6.00 1/15/2029 41
246 Government National Mortgage Assn. I 6.00 1/15/2029 281
307 Government National Mortgage Assn. I 6.00 1/15/2033 353
16 Government National Mortgage Assn. I 6.50 6/15/2023 18
183 Government National Mortgage Assn. I 6.50 7/15/2023 210
8 Government National Mortgage Assn. I 6.50 7/15/2023 9
38 Government National Mortgage Assn. I 6.50 9/15/2023 44
178 Government National Mortgage Assn. I 6.50 10/15/2023 204
================================================================================
40 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 167 Government National Mortgage Assn. I 6.50% 10/15/2023 $ 191
25 Government National Mortgage Assn. I 6.50 10/15/2023 29
273 Government National Mortgage Assn. I 6.50 12/15/2023 313
156 Government National Mortgage Assn. I 6.50 12/15/2023 179
66 Government National Mortgage Assn. I 6.50 1/15/2024 75
116 Government National Mortgage Assn. I 6.50 2/15/2024 133
68 Government National Mortgage Assn. I 6.50 4/15/2026 78
327 Government National Mortgage Assn. I 6.50 5/15/2028 384
565 Government National Mortgage Assn. I 6.50 10/15/2031 652
52 Government National Mortgage Assn. I 7.00 5/15/2023 57
43 Government National Mortgage Assn. I 7.00 5/15/2023 47
27 Government National Mortgage Assn. I 7.00 5/15/2023 28
27 Government National Mortgage Assn. I 7.00 5/15/2023 29
127 Government National Mortgage Assn. I 7.00 6/15/2023 138
103 Government National Mortgage Assn. I 7.00 6/15/2023 112
91 Government National Mortgage Assn. I 7.00 8/15/2023 98
16 Government National Mortgage Assn. I 7.00 8/15/2023 17
56 Government National Mortgage Assn. I 7.00 8/15/2023 59
31 Government National Mortgage Assn. I 7.00 8/15/2023 34
71 Government National Mortgage Assn. I 7.00 9/15/2023 76
27 Government National Mortgage Assn. I 7.00 1/15/2026 30
27 Government National Mortgage Assn. I 7.00 3/15/2026 30
13 Government National Mortgage Assn. I 7.00 3/15/2026 14
226 Government National Mortgage Assn. I 7.00 10/15/2027 267
175 Government National Mortgage Assn. I 7.00 6/15/2029 197
343 Government National Mortgage Assn. I 7.00 6/15/2029 387
21 Government National Mortgage Assn. I 7.00 7/15/2029 21
239 Government National Mortgage Assn. I 7.00 8/15/2031 264
129 Government National Mortgage Assn. I 7.00 7/15/2032 151
122 Government National Mortgage Assn. I 7.50 7/15/2023 134
155 Government National Mortgage Assn. I 7.50 6/15/2026 174
114 Government National Mortgage Assn. I 7.50 6/15/2026 128
100 Government National Mortgage Assn. I 7.50 7/15/2026 112
179 Government National Mortgage Assn. I 7.50 5/15/2027 205
183 Government National Mortgage Assn. I 7.50 2/15/2028 218
146 Government National Mortgage Assn. I 7.50 12/15/2028 177
122 Government National Mortgage Assn. I 7.50 8/15/2029 145
757 Government National Mortgage Assn. II 5.50 4/20/2033 848
704 Government National Mortgage Assn. II 6.00 8/20/2032 801
518 Government National Mortgage Assn. II 6.00 9/20/2032 602
233 Government National Mortgage Assn. II 6.50 8/20/2031 277
----------
75,619
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.7%)
$ 15,500 Freddie Mac(+) 3.51% 4/25/2030 $ 16,068
8,000 Freddie Mac(+) 3.01 7/25/2025 8,257
17,000 Freddie Mac(+) 2.77 5/25/2025 17,194
----------
41,519
----------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.3%)
9,740 Totem Ocean Trailer Express, Inc., Title XI 6.37 4/15/2028 11,363
6,092 Washington Aircraft 1 Co. Ltd. (NBGA) 2.64 9/15/2026 6,276
----------
17,639
----------
Total U.S. Government Agency Issues (cost: $126,458) 134,777
----------
U.S. TREASURY SECURITIES (11.8%)
BONDS (4.0%)
30,000 3.88%, 8/15/2040 36,737
20,000 4.25%, 11/15/2040 25,886
40,000 2.75%, 8/15/2042 40,241
10,000 2.75%, 11/15/2042 10,038
5,000 3.38%, 5/15/2044 5,643
40,000 3.00%, 11/15/2044 41,961
70,000 2.50%, 2/15/2045 66,266
5,000 3.00%, 11/15/2045 5,248
----------
232,020
----------
INFLATION-INDEXED NOTES (1.1%)
56,663 2.38%, 1/15/2025 65,691
----------
NOTES (6.7%)
5,000 3.38%, 11/15/2019 5,411
70,000 3.63%, 2/15/2020 76,642
45,000 3.50%, 5/15/2020 49,179
25,000 2.63%, 8/15/2020 26,446
55,000 2.63%, 11/15/2020 58,223
25,000 2.00%, 2/15/2022 25,699
20,000 1.63%, 8/15/2022 20,023
20,000 1.63%, 11/15/2022 19,978
10,000 2.00%, 2/15/2023 10,224
5,000 2.50%, 5/15/2024 5,261
10,000 2.25%, 11/15/2024 10,302
80,000 2.00%, 2/15/2025 80,664
5,000 2.25%, 11/15/2025 5,143
----------
393,195
----------
Total U.S. Treasury Securities (cost: $653,573) 690,906
----------
================================================================================
42 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (8.6%)
AIRPORT/PORT (1.1%)
$ 6,500 Chicago Midway Airport 5.00% 1/01/2025 $ 7,682
8,000 Chicago Midway Airport 5.00 1/01/2026 9,366
5,000 Chicago O'Hare International Airport 5.00 1/01/2021 5,784
12,570 Dallas-Fort Worth International Airport Facilities 4.00 11/01/2021 14,003
2,265 Dallas-Fort Worth International Airport Facilities(f) 4.44 11/01/2021 2,511
1,700 Port of Corpus Christi Auth. 3.29 12/01/2023 1,761
1,500 Port of Corpus Christi Auth. 3.39 12/01/2024 1,554
1,000 Port of Corpus Christi Auth. 3.49 12/01/2025 1,038
5,000 Port of Oakland 4.50 5/01/2030 5,526
11,700 Port of Oakland 4.50 5/01/2032 12,799
4,350 Port of Seattle 4.00 8/01/2016 4,428
----------
66,452
----------
APPROPRIATED DEBT (1.0%)
5,600 Brevard County School Board 1.70 7/01/2017 5,655
4,955 Indiana Finance Auth. 4.36 7/15/2029 5,265
4,260 Indiana Finance Auth. 4.53 7/15/2031 4,487
3,250 Jacksonville 2.00 10/01/2019 3,311
3,000 Jacksonville 2.37 10/01/2020 3,089
5,000 Kannapolis 7.28 3/01/2027 5,454
10,000 Kansas Dev. Finance Auth. 4.73 4/15/2037 10,317
2,000 McLennan County Public Facility 3.90 6/01/2029 2,045
10,000 Miami-Dade County School Board (INS) 5.38 5/01/2031 11,621
6,000 Palm Beach County School Board 5.40 8/01/2025 7,000
850 Placentia Yorba Linda USD 5.40 8/01/2021 976
----------
59,220
----------
CASINOS & GAMING (0.0%)
6,491 Mashantucket (Western) Pequot Tribe(n) 7.35 7/01/2026 535
----------
COMMUNITY SERVICE (0.0%)
2,750 Art Institute of Chicago 3.23 3/01/2022 2,888
----------
EDUCATION (0.8%)
2,000 Austin Texas Community College District Public Auth. 6.91 8/01/2035 2,598
5,000 El Paso County 4.47 10/01/2035 5,208
9,520 Indiana State 2.13 7/15/2019 9,771
5,000 New Jersey EDA 2.42 6/15/2018 5,023
14,310 New Jersey EDA 4.45 6/15/2020 14,570
2,700 New Jersey EDA 5.25 9/01/2022 2,980
1,625 State Public School Building Auth. 2.84 12/01/2019 1,710
1,300 State Public School Building Auth. 4.08 12/01/2023 1,474
2,000 Torrance USD 5.52 8/01/2021 2,315
----------
45,649
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
EDUCATION SERVICES (0.2%)
$ 6,080 Princeton Theological Seminary 4.11% 7/01/2023 $ 6,596
5,000 Univ. of Notre Dame 3.44 2/15/2045 4,822
----------
11,418
----------
ELECTRIC UTILITIES (0.2%)
5,000 Appling County Dev. Auth 2.40 1/01/2038(o) 5,127
3,000 Hawaii Department of Budget and Finance 3.25 1/01/2025 3,116
5,000 Ohio Water Dev. Auth. 4.00 12/01/2033(o) 5,199
----------
13,442
----------
ELECTRIC/GAS UTILITIES (0.8%)
10,000 Cleveland Public Power 5.50 11/15/2038 10,373
2,000 Jackson Energy Auth. 2.90 4/01/2022 2,013
2,745 Jackson Energy Auth. 3.05 4/01/2023 2,759
3,915 Jackson Energy Auth. 3.20 4/01/2024 3,935
10,000 Long Island Power Auth. 5.25 5/01/2022 11,082
2,500 Long Island Power Auth. 3.98 9/01/2025 2,627
2,500 Long Island Power Auth. 4.13 9/01/2026 2,621
5,682 Pedernales Electric Cooperative, Inc.(b) 5.95 11/15/2022 6,417
3,680 Piedmont Municipal Power Agency 4.34 1/01/2017 3,759
----------
45,586
----------
ESCROWED BONDS (0.1%)
7,300 New Jersey EDA (PRE) 5.25 9/01/2022 8,749
----------
GENERAL OBLIGATION (1.3%)
1,250 City and County of Honolulu 2.51 11/01/2022 1,302
5,000 City and County of Honolulu 2.51 11/01/2022 5,072
900 City and County of Honolulu 2.81 11/01/2023 912
730 City and County of Honolulu 2.91 11/01/2024 738
680 City and County of Honolulu 3.06 11/01/2025 691
775 City and County of Honolulu 3.16 11/01/2026 790
625 City and County of Honolulu 3.26 11/01/2027 641
690 City and County of Honolulu 3.36 11/01/2028 709
1,250 Las Virgenes USD 5.54 8/01/2025 1,470
2,200 Marin County (INS) 4.89 8/01/2016 2,240
4,250 Riverside Community College District 3.49 8/01/2023 4,503
3,000 Riverside Community College District 3.61 8/01/2024 3,159
10,000 Scranton School District(b) 4.00 12/01/2025 10,051
1,800 State of Mississippi 2.83 12/01/2024 1,841
2,000 State of Mississippi 3.03 12/01/2025 2,046
10,000 State of Mississippi 3.73 10/01/2032 9,971
10,000 State of Washington 5.25 2/01/2036 11,732
================================================================================
44 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 3,845 Town of Hamden 4.93% 8/15/2030 $ 3,879
10,000 Town of Stratford 5.75 8/15/2030 11,523
----------
73,270
----------
HOSPITAL (0.8%)
7,000 Baylor Scott & White Holdings 3.10 11/15/2025 6,952
10,000 Community Hospitals of Indiana 4.24 5/01/2025 10,492
15,000 Mercy Healthcare System 3.38 11/01/2025 14,989
10,000 Rochester Health Care Facilities 4.50 11/15/2038(o) 11,692
----------
44,125
----------
MULTI-UTILITIES (0.1%)
5,000 New York Energy Research and Dev. Auth. 2.38 7/01/2026(o) 5,097
----------
MUNICIPAL FINANCE (0.2%)
10,000 Pennsylvania State IDA(b) 3.56 7/01/2024 10,014
----------
REAL ESTATE TAX/FEE (0.4%)
5,000 Industry Public Facilities Auth. (INS) 3.47 1/01/2021 5,228
5,000 Industry Public Facilities Auth. (INS) 3.82 1/01/2022 5,336
5,250 San Marcos Redevelopment Agency 4.02 10/01/2025 5,466
6,500 San Marcos Redevelopment Agency 4.47 10/01/2029 6,781
2,590 Vista Redevelopment Agency 4.13 9/01/2030 2,591
----------
25,402
----------
SALES TAX (0.1%)
3,500 Arizona School Facilities Board 2.38 9/01/2019 3,550
----------
SEMICONDUCTORS (0.0%)
1,250 Sandoval County 2.32 6/01/2019 1,270
1,000 Sandoval County 2.72 6/01/2020 1,026
----------
2,296
----------
SPECIAL ASSESSMENT/TAX/FEE (0.9%)
9,000 Colony Local Dev. Corp. (INS) 4.38 10/01/2033 9,050
5,000 Maine Municipal Bond Bank 4.25 6/01/2023 5,517
5,000 New Jersey Transportation Trust Fund Auth. 1.76 12/15/2018 4,983
3,320 New Jersey Transportation Trust Fund Auth. 5.50 12/15/2022 3,827
5,000 New Jersey Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,733
5,000 New York City Transitional Finance Auth. 5.00 2/01/2035 5,778
7,000 New York MTA (ETM) 1.47 7/01/2018 7,082
10,000 South Carolina Public Service Auth. 4.77 12/01/2045 10,727
----------
52,697
----------
TOLL ROADS (0.1%)
3,000 North Texas Tollway Auth. 5.00 9/01/2031 3,512
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
WATER/SEWER UTILITY (0.5%)
$ 6,500 Chicago Wastewater Transmission 5.84% 1/01/2035 $ 6,937
5,000 Houston Utility System 5.00 11/15/2033 5,764
10,825 New York Municipal Water Finance Auth. 5.25 6/15/2040 12,267
2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,949
----------
27,917
----------
Total Municipal Bonds (cost: $473,141) 501,819
----------
Total Bonds (cost: $5,620,716) 5,595,086
----------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (2.6%)
COMMON STOCKS (0.8%)
CONSUMER STAPLES (0.1%)
-----------------------
HOUSEHOLD PRODUCTS (0.1%)
24,000 Kimberly-Clark Corp. 3,082
----------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
41,780 Chevron Corp. 3,613
55,000 Royal Dutch Shell plc ADR "A" 2,416
----------
6,029
----------
Total Energy 6,029
----------
FINANCIALS (0.2%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.0%)
202,000 Prospect Capital Corp. 1,226
----------
CONSUMER FINANCE (0.0%)
24,649 Synchrony Financial* 701
----------
DIVERSIFIED BANKS (0.0%)
50,000 Bank of Montreal 2,676
25,000 Canadian Imperial Bank of Commerce 1,621
----------
4,297
----------
REGIONAL BANKS (0.1%)
260,336 KeyCorp 2,906
282,414 Regions Financial Corp. 2,293
----------
5,199
----------
================================================================================
46 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - MORTGAGE (0.1%)
89,000 American Capital Agency Corp. $ 1,519
135,000 Annaly Capital Management, Inc. 1,282
80,000 Hatteras Financial Corp. 981
199,850 MFA Financial, Inc. 1,269
292,200 Two Harbors Investment Corp. 2,221
----------
7,272
----------
Total Financials 18,695
----------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
59,920 Merck & Co., Inc. 3,036
----------
INDUSTRIALS (0.0%)
------------------
INDUSTRIAL CONGLOMERATES (0.0%)
91,835 General Electric Co. 2,672
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.0%)
18,500 QUALCOMM, Inc. 839
----------
SEMICONDUCTORS (0.1%)
91,943 Intel Corp. 2,852
----------
Total Information Technology 3,691
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
70,050 AT&T, Inc. 2,526
21,000 Verizon Communications, Inc. 1,049
----------
3,575
----------
Total Telecommunication Services 3,575
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.0%)
46,500 Southern Co. 2,275
----------
MULTI-UTILITIES (0.1%)
65,000 CMS Energy Corp.(f) 2,527
15,200 Dominion Resources, Inc.(f) 1,097
----------
3,624
----------
Total Utilities 5,899
----------
Total Common Stocks (cost: $44,762) 46,679
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (1.8%)
CONSUMER STAPLES (0.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual $ 5,660
172,520 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 18,400
----------
24,060
----------
Total Consumer Staples 24,060
----------
FINANCIALS (1.1%)
-----------------
DIVERSIFIED BANKS (0.0%)
80,000 Citigroup Capital XIII, 7.88% 2,051
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$5,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(b) 3,913
----------
REGIONAL BANKS (0.2%)
10,800 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 11,034
----------
REITs - INDUSTRIAL (0.3%)
344,500 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual 21,488
----------
REITs - OFFICE (0.1%)
200,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 5,154
----------
REITs - RESIDENTIAL (0.4%)
142,500 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual 9,365
250,000 Post Properties, Inc., Series A, 8.50%, cumulative redeemable, perpetual 16,078
----------
25,443
----------
Total Financials 69,083
----------
INDUSTRIALS (0.1%)
------------------
OFFICE SERVICES & SUPPLIES (0.1%)
3,000 Pitney Bowes International Holdings, Series F, 6.13%,
cumulative redeemable, perpetual(b) 3,108
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
200,000 Entergy Texas, Inc., 5.63% 5,395
50,000 Southern California Edison, Series D, 6.50%,
cumulative redeemable, perpetual 5,195
----------
10,590
----------
Total Utilities 10,590
----------
Total Preferred Stocks (cost: $92,579) 106,841
----------
Total Equity Securities (cost: $137,341) 153,520
----------
================================================================================
48 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.8%)
COMMERCIAL PAPER (0.7%)
FINANCIALS (0.5%)
-----------------
ASSET-BACKED FINANCING (0.0%)
$ 1,010 Hannover Funding Co., LLC(b),(p) 0.55% 2/03/2016 $ 1,010
----------
SPECIALIZED FINANCE (0.5%)
9,775 Intercontinental Exchange, Inc.(b),(p) 0.60 2/02/2016 9,775
22,268 Intercontinental Exchange, Inc.(b),(p) 0.42 2/05/2016 22,267
----------
32,042
----------
Total Financials 33,052
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
10,000 MidAmerican Energy Co. 0.38 2/02/2016 10,000
----------
Total Commercial Paper 43,052
----------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.1%)
6,758,977 State Street Institutional Liquid Reserves Fund
Premier Class, 0.36%(q) 6,759
----------
Total Money Market Instruments (cost: $49,811) 49,811
----------
TOTAL INVESTMENTS (COST: $5,807,868) $5,798,417
==========
-------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS EXPIRATION CONTRACT (DEPRECIATION)
LONG/(SHORT) DATE VALUE (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES (1.0%)(R)
218 U.S. Treasury Bond Futures 3/21/2016 $35,105 $ 149
194 10YR U.S. Treasury Note Futures 3/21/2016 25,138 123
------- -----------
TOTAL FUTURES $60,243 $ 272
======= ===========
================================================================================
PORTFOLIO OF INVESTMENTS | 49
================================================================================
--------------------------------------------------------------------------------------------------------------
($ 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
--------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $2,767,645 $3,500 $2,771,145
Eurodollar and Yankee Obligations - 915,166 - 915,166
Foreign Government Obligations - 26,277 - 26,277
Asset-Backed Securities - 185,790 - 185,790
Commercial Mortgage Securities - 369,206 - 369,206
U.S. Government Agency Issues - 134,777 - 134,777
U.S. Treasury Securities 690,906 - - 690,906
Municipal Bonds - 501,819 - 501,819
Equity Securities:
Common Stocks 46,679 - - 46,679
Preferred Stocks - 106,841 - 106,841
Money Market Instruments:
Commercial Paper - 43,052 - 43,052
Money Market Funds 6,759 - - 6,759
Futures(1) 272 - - 272
--------------------------------------------------------------------------------------------------------------
Total $744,616 $5,050,573 $3,500 $5,798,689
--------------------------------------------------------------------------------------------------------------
(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. Reconciliation of investments in which
significant unobservable inputs (Level 3) were used in determining value:
COMMERCIAL
CORPORATE MORTGAGE
OBLIGATIONS SECURITIES
--------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $11,200 $ 6,250
Purchases (7,700) -
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - $(6,250)
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation)
of investments - -
--------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $ 3,500 $ -
--------------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, commercial mortgage
securities with a fair value of $6,250,000 were transferred from Level 3 to
Level 2 as a result of these securities being priced during the period by the
Fund's pricing service. 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.
================================================================================
50 | USAA INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 16.9% of net assets at
January 31, 2016.
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,
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 51
================================================================================
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.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of
the underlying pool on which current interest is calculated. CMBS IOs are
backed by loans that have various forms of prepayment protection, which
include lock-out provisions, yield maintenance provisions, and prepayment
penalties. This serves to moderate their prepayment risk. CMBS IOs are
subject to default-related prepayments that may have a negative impact on
yield.
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. Inflation adjustments to the face value of these securities are
included in interest income.
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.
CAD Canadian dollars
CLO Collateralized Loan Obligation
EDA Economic Development Authority
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
================================================================================
52 | USAA INCOME FUND
================================================================================
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
REIT Real estate investment trust
Title XI The Title XI Guarantee Program provides a guarantee of payment of
principal and interest of debt obligations issued by U.S. merchant
marine and U.S. shipyards by enabling owners of eligible vessels
and shipyards to obtain financing at attractive terms. The
guarantee carries the full faith and credit of the U.S. government.
USD Unified School District
CREDIT ENHANCEMENTS - Adds 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: AMBAC Assurance Corp., Assured Guaranty Corp., Berkshire
Hathaway Assurance Corp., 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 Export-Import Bank of the United
States.
o SPECIFIC NOTES
(a) Senior loan (loan) - is not registered under the Securities Act of 1933.
The loan contains certain restrictions on resale and cannot be sold
publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the senior loan facility. The
interest rate is adjusted periodically, and the rate disclosed
represents the
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 53
================================================================================
current rate at January 31, 2016. The weighted average life of the loan
is likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by USAA
Asset Management Company (the Manager), under liquidity guidelines
approved by the Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by the Manager
under liquidity guidelines approved by the Board, unless otherwise
noted as illiquid.
(c) At January 31, 2016, the aggregate market value of securities
purchased on a delayed delivery basis was $10,759,000, all of which
were when-issued securities.
(d) Security was fair valued at January 31, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The
total value of all such securities was $3,500,000, which represented
0.1% of the Fund's net assets.
(e) The senior loan will settle after January 31, 2016, at which time the
interest rate will be determined.
(f) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at January 31, 2016.
(g) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2016.
(h) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(i) At January 31, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
================================================================================
54 | USAA INCOME FUND
================================================================================
(j) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these
securities at January 31, 2016, was $26,265,000, which represented
0.4% of the Fund's net assets.
(k) At January 31, 2016, the issuer was in default with respect to interest
and/or principal payments.
(l) In U.S. dollars unless otherwise noted.
(m) 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.
(n) 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 55
================================================================================
(o) Put bond - provides the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the
effective maturity of the security.
(p) 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.
(q) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
(r) Cash of $1,310,000 is segregated as collateral for initial margin
requirements on open futures contracts.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
56 | USAA INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $5,807,868) $5,798,417
Cash 1,880
Receivables:
Capital shares sold 3,976
Dividends and interest 58,453
Securities sold 25,647
Variation margin on futures contracts 275
----------
Total assets 5,888,648
----------
LIABILITIES
Payables:
Securities purchased 10,744
Capital shares redeemed 22,116
Accrued management fees 974
Accrued transfer agent's fees 254
Other accrued expenses and payables 213
----------
Total liabilities 34,301
----------
Net assets applicable to capital shares outstanding $5,854,347
==========
NET ASSETS CONSIST OF:
Paid-in capital $5,869,390
Accumulated overdistribution of net investment income (2,397)
Accumulated net realized loss on investments (3,467)
Net unrealized depreciation of investments and futures contracts (9,179)
----------
Net assets applicable to capital shares outstanding $5,854,347
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $3,083,288/243,804 shares outstanding) $ 12.65
==========
Institutional Shares (net assets of $2,582,592/204,440
shares outstanding) $ 12.63
==========
Adviser Shares (net assets of $188,467/14,941 shares outstanding) $ 12.61
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 57
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $44) $ 5,567
Interest 121,047
---------
Total income 126,614
---------
EXPENSES
Management fees 6,727
Administration and servicing fees:
Fund Shares 2,639
Institutional Shares 1,120
Adviser Shares 157
Transfer agent's fees:
Fund Shares 2,288
Institutional Shares 1,120
Adviser Shares 96
Distribution and service fees (Note 6D):
Adviser Shares 262
Custody and accounting fees:
Fund Shares 209
Institutional Shares 129
Adviser Shares 12
Postage:
Fund Shares 98
Institutional Shares 71
Adviser Shares 4
Shareholder reporting fees:
Fund Shares 38
Institutional Shares 12
Adviser Shares 1
Trustees' fees 13
Registration fees:
Fund Shares 89
Institutional Shares 79
Adviser Shares 50
Professional fees 131
Other 47
---------
Total expenses 15,392
---------
NET INVESTMENT INCOME 111,222
---------
================================================================================
58 | USAA INCOME FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
-----------------------------------------------------------------------------------------
Net realized gain (loss) on:
Unaffiliated transactions $ (2,993)
Affiliated transactions (Note 8) 79
Foreign currency transactions (16)
Change in net unrealized appreciation/(depreciation) of:
Investments (156,141)
Foreign currency translations 4
Futures contracts 272
---------
Net realized and unrealized loss (158,795)
---------
Decrease in net assets resulting from operations $ (47,573)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 59
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
---------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
---------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 111,222 $ 189,148
Net realized gain (loss) on investments (2,914) 5,614
Net realized loss on foreign currency transactions (16) (27)
Change in net unrealized appreciation/(depreciation) of:
Investments (156,141) (122,886)
Foreign currency translations 4 (2)
Futures contracts 272 -
----------------------------
Increase (decrease) in net assets resulting from operations (47,573) 71,847
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (65,045) (113,440)
Institutional Shares (44,991) (76,086)
Adviser Shares (3,612) (4,771)
----------------------------
Total distributions of net investment income (113,648) (194,297)
----------------------------
Net realized gains:
Fund Shares - (1,257)
Institutional Shares - (845)
Adviser Shares - (47)
----------------------------
Total distributions of net realized gains - (2,149)
Tax return of capital:
Fund Shares - (5,337)
Institutional Shares - (3,389)
Adviser Shares - (307)
----------------------------
Total distributions of tax return of capital - (9,033)
----------------------------
Distributions to shareholders (113,648) (205,479)
----------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (365,479) 764,619
Institutional Shares 415,402 178,024
Adviser Shares (28,414) 185,044
----------------------------
Total net increase in net assets from capital share transactions 21,509 1,127,687
----------------------------
Net increase (decrease) in net assets (139,712) 994,055
NET ASSETS
Beginning of period 5,994,059 5,000,004
----------------------------
End of period $5,854,347 $5,994,059
============================
Accumulated undistributed (overdistribution of) net investment income:
End of period $ (2,397) $ 29
============================
See accompanying notes to financial statements.
================================================================================
60 | USAA INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Income Fund (the Fund), which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek maximum current income without undue risk to principal.
The Fund consists of three classes of shares: Income Fund Shares (Fund Shares),
Income Fund Institutional Shares (Institutional Shares), and Income 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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
================================================================================
62 | USAA INCOME FUND
================================================================================
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.
2. 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.
3. 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
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.
4. 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.
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. 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. 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
================================================================================
64 | USAA INCOME 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 preferred stocks, which are valued based on methods discussed in
Note 1A3. Additionally, certain bonds are valued based on methods discussed
in Note 1A1, 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.
The valuation of securities falling in the Level 3 category are valued at
the purchase price. However, these securities are included in the Level 3
category due to limited market transparency and/or a lack of corroboration
to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
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 January 31, 2016, 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.
================================================================================
66 | USAA INCOME FUND
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JANUARY 31, 2016*
(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
-------------------------------------------------------------------------------------------------
Interest rate contracts Net unrealized
depreciation of
investments and
Futures contracts $272** $-
-------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2016, see the Portfolio of
Investments, which also is indicative of activity for the six-month period
ended January 31, 2016.
** Includes cumulative appreciation 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 JANUARY 31, 2016
(IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT STATEMENT OF REALIZED GAIN APPRECIATION/
ACCOUNTED FOR AS OPERATIONS (LOSS) ON (DEPRECIATION)
HEDGING INSTRUMENTS LOCATION DERIVATIVES ON DERIVATIVES
-------------------------------------------------------------------------------------------------
Interest rate contracts Change in net
unrealized
appreciation/
(depreciation) of
Futures contracts $- $272
-------------------------------------------------------------------------------------------------
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
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
================================================================================
68 | USAA INCOME FUND
================================================================================
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 January 31, 2016, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $10,744,000.
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 January 31, 2016, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
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 January 31, 2016, the Fund paid CAPCO facility
fees of $17,000, which represents 8.5% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 2016,
in accordance with applicable tax law.
================================================================================
70 | USAA INCOME FUND
================================================================================
Distributions of net investment income are made 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$386,385,000 and $382,648,000, respectively.
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $222,197,000 and $231,648,000, respectively, resulting in net
unrealized depreciation of $9,451,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------
FUND SHARES:
Shares sold 25,528 $ 327,076 87,186 $1,156,870
Shares issued from
reinvested dividends 4,864 62,075 8,609 113,776
Shares redeemed (59,423) (754,630) (38,241) (506,027)
-----------------------------------------------
Net increase (decrease) from
capital share transactions (29,031) $(365,479) 57,554 $ 764,619
===============================================
INSTITUTIONAL SHARES:
Shares sold 47,072 $ 596,510 38,579 $ 510,760
Shares issued from
reinvested dividends 3,451 43,989 5,966 78,816
Shares redeemed (17,591) (225,097) (31,075) (411,552)
-----------------------------------------------
Net increase from capital
share transactions 32,932 $ 415,402 13,470 $ 178,024
===============================================
ADVISER SHARES:
Shares sold 925 $ 11,923 16,664 $ 220,527
Shares issued from
reinvested dividends 276 3,519 375 4,936
Shares redeemed (3,431) (43,856) (3,078) (40,419)
-----------------------------------------------
Net increase (decrease) from
capital share transactions (2,230) $ (28,414) 13,961 $ 185,044
===============================================
(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
================================================================================
72 | USAA INCOME FUND
================================================================================
and without shareholder approval) one or more subadvisers to manage the
day-to-day investment of the Fund's assets. For the six-month period ended
January 31, 2016, 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 0.24% 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 A Rated Bond Funds Index. The Lipper A Rated
Bond Funds Index tracks the total return performance of the 30 largest funds
within the Lipper Corporate Debt Funds A Rated 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)
-------------------------------------------------------------------------
+/- 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 of the share class 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
outperforms the Lipper A Rated Bond Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $6,727,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and Adviser Shares of $(329,000), $(90,000), and $(15,000), respectively.
For the Fund Shares, Institutional Shares, and Adviser Shares, the
performance adjustments were (0.02)%, (0.01)%, and (0.02)%, 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 January 31, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $2,639,000, $1,120,000, and $157,000, 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 January 31, 2016, the Fund reimbursed the Manager
$77,000 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 Shares and Adviser Shares based on an annual charge of
$25.50 per shareholder account plus
================================================================================
74 | USAA INCOME FUND
================================================================================
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 January 31, 2016, the Fund Shares,
Institutional Shares and Adviser Shares incurred transfer agent's fees, paid
or payable to SAS, of $2,288,000, $1,120,000, and $96,000, 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 January 31, 2016, the Adviser Shares
incurred distribution and service (12b-1) fees of $262,000.
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 fee or other compensation for these
services.
(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
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 75
================================================================================
2016, the USAA fund-of-funds owned the following percentages of the total
outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
------------------------------------------------------------------------------
USAA Cornerstone Conservative 0.5
USAA Target Retirement Income 0.7
USAA Target Retirement 2020 1.0
USAA Target Retirement 2030 1.2
USAA Target Retirement 2040 0.7
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 January 31,
2016, USAA and its affiliates owned 387,000 Adviser Shares, which represents
2.6% of the Adviser Shares and 0.1% 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.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2016, 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 Income USAA Short-Term Bond $10,070,000 $79,000
USAA High Income USAA Income 4,994,000 (6,000)
USAA Real Return USAA Income 644,000 44,000
================================================================================
76 | USAA INCOME FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.99 $ 13.28 $ 13.10 $ 13.43 $ 13.05 $ 12.78
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .47 .51 .49 .49 .52
Net realized and
unrealized gain (loss) (.34) (.27) .18 (.32) .38 .27
-------------------------------------------------------------------------------------
Total from investment
operations (.10) .20 .69 .17 .87 .79
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.46) (.51) (.47) (.49) (.52)
Realized capital gains - (.01) (.00)(a) (.03) - -
Return of capital - (.02) - - - -
-------------------------------------------------------------------------------------
Total distributions (.24) (.49) (.51) (.50) (.49) (.52)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.65 $ 12.99 $ 13.28 $ 13.10 $ 13.43 $ 13.05
=====================================================================================
Total return (%)* (.77) 1.45 5.43 1.30 6.85 6.34
Net assets at end
of period (000) $3,083,288 $3,544,344 $2,859,427 $2,659,263 $3,570,505 $3,144,378
Ratios to average
net assets:**
Expenses (%)(b) .53(c) .53 .59 .58 .59 .61
Net investment
income (%) 3.71(c) 3.36 3.55 3.53 3.75 4.09
Portfolio turnover (%) 7 10 14 24 19 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 January 31, 2016, average net assets were
$3,497,891,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) 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 | 77
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.99 $ 13.28 $ 13.09 $ 13.42 $ 13.04 $ 12.78
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .49 .53 .48 .51 .56
Net realized and
unrealized gain (loss) (.35) (.28) .19 (.29) .38 .25
-------------------------------------------------------------------------------------
Total from investment
operations (.11) .21 .72 .19 .89 .81
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.47) (.53) (.49) (.51) (.55)
Realized capital gains - (.01) (.00)(a) (.03) - -
Return of capital - (.02) - - - -
-------------------------------------------------------------------------------------
Total distributions (.25) (.50) (.53) (.52) (.51) (.55)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.63 $ 12.99 $ 13.28 $ 13.09 $ 13.42 $ 13.04
=====================================================================================
Total return (%)* (.82) 1.51 5.63 1.42 6.98 6.50
Net assets at end
of period (000) $2,582,592 $2,227,221 $2,098,035 $1,847,503 $685,149 $318,276
Ratios to average
net assets:**
Expenses (%)(b) .46(d) .46 .48 .47 .48 .38(c)
Net investment
income (%) 3.78(d) 3.43 3.65 3.63 3.81 4.30
Portfolio turnover (%) 7 10 14 24 19 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 January 31, 2016, average net assets were
$2,230,482,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.40% of the Institutional
Shares' average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
78 | USAA INCOME FUND
================================================================================
(9) 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
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.96 $ 13.25 $ 13.08 $13.41 $13.03 $12.77
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .44 .37(a) .43 .46 .49(a)
Net realized and
unrealized gain (loss) (.35) (.27) .28(a) (.30) .38 .27(a)
-------------------------------------------------------------------------------
Total from investment
operations (.13) .17 .65(a) .13 .84 .76(a)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.43) (.48) (.43) (.46) (.50)
(.00)(b)
Realized capital gains - (.01) (.03) - -
Return of capital - (.02) - - - -
-------------------------------------------------------------------------------
Total distributions (.22) (.46) (.48) (.46) (.46) (.50)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 12.61 $ 12.96 $ 13.25 $13.08 $13.41 $13.03
===============================================================================
Total return (%)* (.98) 1.23 5.11 .99 6.55 6.05
Net assets at end
of period (000) $188,467 $222,494 $42,542 $5,875 $5,880 $5,469
Ratios to average
net assets:**
Expenses (%)(d) .79(c) .79(e) .88 .90 .90 .90(c)
Expenses, excluding
reimbursements (%)(d) .79(c) .79 .88 1.08 1.12 1.62(c)
Net investment income (%) 3.46(c) 3.10 3.13 3.21 3.45 3.82(c)
Portfolio turnover (%) 7 10 14 24 19 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 January 31, 2016, average net assets were
$208,112,000.
*** Adviser Shares commenced operations on August 1, 2010.
(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 Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 79
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
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
================================================================================
80 | USAA INCOME FUND
================================================================================
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 992.30 $2.65
Hypothetical
(5% return before expenses) 1,000.00 1,022.47 2.69
INSTITUTIONAL SHARES
Actual 1,000.00 991.80 2.30
Hypothetical
(5% return before expenses) 1,000.00 1,022.82 2.34
ADVISER SHARES
Actual 1,000.00 990.20 4.03
Hypothetical
(5% return before expenses) 1,000.00 1,021.17 4.08
*Expenses are equal to the annualized expense ratio of 0.53% for Fund Shares,
0.46% for Institutional Shares, and 0.79% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 (0.77)% for Fund Shares, (0.82)% for Institutional
Shares, and (0.98)% for Adviser Shares for the six-month period of August 1,
2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 81
================================================================================
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
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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
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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
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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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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)
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23424-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME STOCK FUND]
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SEMIANNUAL REPORT
USAA INCOME STOCK FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2016
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PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
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MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
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That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 20
Financial Statements 21
Notes to Financial Statements 24
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.
203451-0316
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FUND OBJECTIVE
THE USAA INCOME STOCK FUND (THE FUND) SEEKS CURRENT INCOME WITH THE PROSPECT OF
INCREASING DIVIDEND INCOME AND THE POTENTIAL FOR CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in common stocks, with at
least 65% of the Fund's assets normally invested in common stocks of companies
that pay dividends. This 80% policy may be changed upon at least 60 days'
written notice to shareholders. Although the Fund will invest primarily in U.S.
securities, it may invest up to 20% of its total assets in foreign securities
including securities in emerging markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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 Epoch Investment Partners, Inc.
STEPHAN KLAFFKE, CFA ERIC SAPPENFIELD
JOHN P. TOOHEY, CFA MICHAEL A. WELHOELTER, CFA
DAN DENBOW, CFA JOHN TOBIN, Ph.D., CFA
KERA VAN VALEN, CFA
WILLIAM W. PRIEST, CFA
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o PLEASE REVIEW MARKET CONDITIONS OVER THE REPORTING PERIOD.
Stocks finished notably lower for the reporting period ended January 31,
2016. Financial markets also exhibited lots of volatility over the reporting
period as China's policy with regard to its currency, global central bank
policies, disappointing economic growth, weakening global trade, lower oil
prices, higher high-yield credit spreads, and impacts from the strength of
the U.S. dollar dominated the headlines. China concerns drove the biggest
moves during the reporting period as the government's mid-August 2015
devaluation of the renminbi in the face of the Chinese economy's slowing
growth raised fears of a global currency war and helped drive investor risk
aversion that led to a sell-off in equities and other risk assets.
Uncertainty over China's future economic growth intensified through the end
of September 2015, further weakening commodities markets and suppressing any
recovery in stock prices. U.S. equities rebounded in October 2015 as worries
over China eased momentarily. U.S. employment numbers exceeded expectations,
and markets increasingly focused on the Federal Reserve's (the Fed) December
16, 2015, meeting as a likely candidate for the first increase in the
benchmark federal funds rate. The Fed's 25 basis point rate increase to
short-term interest rates during December 2015 was received as a positive
sign with respect to the path of the U.S. economy, and investors anticipated
an incremental but fairly steady pace with respect to future increases.
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2 | USAA INCOME STOCK FUND
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However, the period of relatively optimistic sentiment proved short-lived. A
resumption of the drop in oil prices as 2016 opened raised alarms that the
global demand outlook had further deteriorated, leading to substantial losses
for equities in January 2016.
o HOW DID THE USAA INCOME STOCK FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the reporting period ended January 31, 2016, the Fund Shares and
Institutional Shares had total returns of -5.40% and -5.38%, respectively.
This compares to returns of -8.63% for the Russell 1000(R) Value Index (the
Index) and -7.37% for the Lipper Equity Income Funds 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. Epoch
Investment Partners, Inc. (Epoch) is a subadviser to the Fund. The investment
adviser and the subadviser each provide day-to-day discretionary management
for a portion of the Fund's assets.
o HOW DID THE MANAGER'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
For the reporting period, the portion of the Fund managed by the Manager
slightly underperformed the Index. Relative performance was constrained by an
underweight and stock selection within the utilities sector, as well as by
stock selection within materials and health care sectors. Performance was
helped by stock selection and an overweight in industrials, stock selection
in consumer discretionary, and an underweight stock selection in the energy
sector.
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
================================================================================
Within the Manager's portion of the Fund, leading positive contributors to
the Fund's relative performance included technology giant Microsoft Corp.,
which has made strides under new management towards addressing the shift away
from the desktop and towards mobile-and cloud-based computing. Multinational
conglomerate General Electric Co. also outperformed, as the company has
exceeded expectations with respect to the divestment of its finance-based
businesses and correspondingly tighter focus within the industrials sector.
Another holding within industrials, defense contractor Raytheon Co., saw its
share price benefit from strong international sales results and an outlook
for strengthened shareholder-friendly measures.
Negative contributors to relative performance included a pair of
pharmaceutical giants, AbbVie Inc. (AbbVie) and Novartis AG ADR (Novartis).
AbbVie saw its shares decline on concerns over the potential for increased
marketplace competition with respect to its blockbuster product Humira, the
lead selling drug used to treat rheumatoid arthritis. Novartis shares lagged
as issues with its eye treatment business caused the company to fall short on
quarterly earnings expectations. Within information technology, data storage
firm Seagate Technology plc shares declined on lower-than-expected hard disk
drive sales and challenges around the company's efforts to gain market
traction in cloud-based solutions.
The Fund remains overweight in the financial sector, on the view that a
number of its holdings are well-positioned to benefit as interest rates
ultimately normalize. The Fund had below-benchmark exposure to consumer
staples as the Manager believes that the slow growth rates for many of those
companies that do not support their valuations. The Fund remains underweight
in the energy sector, while the Manager closely monitors conditions in the
beaten-down sector for a possible re-entry point.
Going forward, the Manager will continue to closely monitor developments with
respect to China and global growth prospects. Against this uncertain
backdrop, the Manager will seek to take advantage of relative value
opportunities within the dividend stock universe that may be created by
elevated market volatility.
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4 | USAA INCOME STOCK FUND
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o HOW DID EPOCH'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD?
The portion of the Fund managed by Epoch outperformed relative to the Index.
Losses were substantially less than the Index because of the Fund's focus on
companies with growing free cash flow and capital allocation policies that
emphasize shareholder yield. The Fund's holdings in the consumer staples and
utilities sectors performed better than other sectors generally. Positioning
in the energy and materials sectors detracted modestly from relative
performance.
Within Epoch's portion of the Fund, leading individual contributors included
a number of consumer staples holdings, most notably Molson Coors Brewing Co.
"B" (Moslon Coors), Reynolds American, Inc. (Reynolds American), and
Kimberly-Clark Corp. (Kimberly Clark). Molson Coors saw its valuation rise on
merger and acquisition activity elsewhere in the beverage segment, and on its
announced acquisition of SABMiller plc's share of the Miller Coors joint
venture. Reynolds American acquired Lorillard, Inc. earlier in the year, thus
solidifying its number two position in the U.S. tobacco market. Pricing
power, cost savings, and relatively low capital expenditures drove attractive
cash flow generation for the entire tobacco space, allowing for attractive
and growing dividends. Shares of global personal care and paper products
distributor Kimberly-Clark also outperformed, as the company continued to
deliver strong organic sales growth and margin improvement. The company
consistently generates attractive levels of free cash flow and returns cash
to shareholders through a combination of dividends and share repurchases.
Leading detractors included a number of commodity-sensitive companies,
including Kinder Morgan, Inc. (Kinder Morgan)*, Potash Corporation of
Saskatchewan Inc. (Potash Corp.)*, and ConocoPhillips. Kinder Morgan is an
energy pipeline and terminal storage operator, which chose to significantly
reduce its cash dividend and redirect the cash flow to fund growth.
The position was sold in response to the company's
*Kinder Morgan, Inc. and Potash Corporation of Saskatchewan, Inc. were sold
out of the Fund prior to January 31, 2016.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
reversal in strategy. Materials company Potash Corp. is one of the world's
largest providers of crop nutrients including potash, nitrogen, and
phosphate. The company saw its shares drop along with the overall downturn
in commodities prices. ConocoPhillips is involved in the exploration,
production, and marketing of crude oil, natural gas, and liquid natural gas
globally. The company's shares were hindered by the collapse in energy
prices during the reporting period.
In Epoch's view, the global economy is likely to produce modest growth in the
coming year, restraining corporate revenues. While self-sustaining recoveries
are visibly underway in the United States and Europe, China's slowdown in
economic activity casts a long shadow, as witnessed in the past year. The
accumulation of debt globally is another drag on economic activity. In this
environment, Epoch believes free cash flow growth rates will differentiate
the winners from the losers.
A longer-term theme Epoch is exploring the impact of new disruptive
technologies on corporations. For some, it will make their business models
obsolete. For many others, however, taking advantage of big data, artificial
intelligence, robotics, and the sharing economy will be the path to
maintaining strong profit margins.
Thank you for allowing us to help you with your investment needs.
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 United
States. Foreign securities also may be subject to foreign taxes. Investments
made in emerging market countries may be particularly volatile. Economies of
emerging market countries generally are less diverse and mature than more
developed countries and may have less stable political systems. o Dividends
are not guaranteed. In any year, dividends may be higher, lower, or not paid
at all.
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6 | USAA INCOME STOCK FUND
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INVESTMENT OVERVIEW
USAA INCOME STOCK FUND SHARES (FUND SHARES)
(Ticker Symbol: USISX)
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1/31/16 7/31/15
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Net Assets $1.4 Billion $1.7 Billion
Net Asset Value Per Share $16.07 $17.78
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-5.40% -2.88% 9.27% 4.19%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-3.26% 10.64% 4.93%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
0.79%
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 December 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.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EQUITY USAA INCOME
INCOME FUNDS RUSSELL 1000 STOCK FUND
INDEX VALUE INDEX SHARES
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,045.17 10,061.04 10,044.33
3/31/2006 10,169.58 10,197.34 10,135.80
4/30/2006 10,394.28 10,456.48 10,326.57
5/31/2006 10,127.74 10,192.35 10,002.27
6/30/2006 10,163.50 10,257.54 10,061.04
7/31/2006 10,295.61 10,506.84 10,291.01
8/31/2006 10,493.45 10,682.70 10,482.65
9/30/2006 10,715.71 10,895.65 10,736.22
10/31/2006 11,058.05 11,252.29 11,044.07
11/30/2006 11,273.20 11,509.17 11,217.24
12/31/2006 11,480.90 11,767.52 11,456.15
1/31/2007 11,635.24 11,918.01 11,612.25
2/28/2007 11,502.49 11,732.21 11,354.35
3/31/2007 11,631.51 11,913.59 11,478.05
4/30/2007 12,115.91 12,353.84 11,907.45
5/31/2007 12,547.88 12,799.43 12,323.22
6/30/2007 12,338.96 12,500.36 12,024.63
7/31/2007 11,865.46 11,922.29 11,395.00
8/31/2007 11,994.30 12,055.89 11,525.03
9/30/2007 12,347.55 12,469.98 11,846.07
10/31/2007 12,481.15 12,471.36 11,811.69
11/30/2007 11,930.81 11,861.83 11,179.17
12/31/2007 11,822.69 11,747.13 11,077.41
1/31/2008 11,284.64 11,276.62 10,645.92
2/29/2008 10,917.92 10,804.15 10,169.80
3/31/2008 10,808.73 10,722.92 10,029.81
4/30/2008 11,299.18 11,245.61 10,486.05
5/31/2008 11,400.20 11,227.76 10,448.66
6/30/2008 10,376.75 10,153.03 9,453.74
7/31/2008 10,298.01 10,116.38 9,423.65
8/31/2008 10,409.54 10,288.23 9,596.63
9/30/2008 9,587.17 9,532.34 8,974.36
10/31/2008 8,022.19 7,882.18 7,438.28
11/30/2008 7,483.89 7,316.95 6,976.70
12/31/2008 7,637.06 7,418.51 7,131.15
1/31/2009 6,947.56 6,565.46 6,421.85
2/28/2009 6,182.82 5,688.25 5,621.03
3/31/2009 6,688.40 6,174.61 6,027.64
4/30/2009 7,321.94 6,836.48 6,549.78
5/31/2009 7,754.28 7,259.22 6,879.95
6/30/2009 7,738.80 7,205.61 6,835.10
7/31/2009 8,326.92 7,795.40 7,344.26
8/31/2009 8,698.25 8,203.14 7,652.84
9/30/2009 8,958.45 8,520.07 7,891.40
10/31/2009 8,813.18 8,259.32 7,744.26
11/30/2009 9,281.05 8,724.84 8,154.70
12/31/2009 9,458.78 8,879.24 8,311.79
1/31/2010 9,156.28 8,629.52 8,070.76
2/28/2010 9,402.17 8,901.92 8,288.47
3/31/2010 9,934.61 9,481.43 8,772.57
4/30/2010 10,063.81 9,726.77 8,881.74
5/31/2010 9,307.19 8,927.27 8,156.54
6/30/2010 8,850.32 8,424.71 7,692.47
7/31/2010 9,477.84 8,995.05 8,208.43
8/31/2010 9,110.39 8,610.16 7,903.55
9/30/2010 9,839.47 9,278.16 8,589.72
10/31/2010 10,133.48 9,556.56 8,942.40
11/30/2010 10,086.67 9,505.99 8,864.03
12/31/2010 10,786.51 10,256.05 9,394.79
1/31/2011 11,022.54 10,488.06 9,677.81
2/28/2011 11,382.28 10,874.91 10,078.76
3/31/2011 11,417.79 10,918.10 10,079.01
4/30/2011 11,786.72 11,208.83 10,465.15
5/31/2011 11,679.21 11,090.41 10,346.95
6/30/2011 11,476.87 10,863.01 10,191.13
7/31/2011 11,141.93 10,502.70 9,898.83
8/31/2011 10,575.95 9,847.26 9,330.02
9/30/2011 9,865.93 9,103.07 8,719.11
10/31/2011 10,851.40 10,145.30 9,622.73
11/30/2011 10,872.99 10,092.72 9,654.44
12/31/2011 11,073.24 10,296.10 9,749.59
1/31/2012 11,425.90 10,685.61 10,099.78
2/29/2012 11,835.57 11,111.57 10,513.64
3/31/2012 12,101.16 11,440.96 10,812.21
4/30/2012 12,056.77 11,324.30 10,716.39
5/31/2012 11,368.18 10,660.23 10,109.50
6/30/2012 11,845.12 11,189.50 10,529.62
7/31/2012 12,038.88 11,305.30 10,625.78
8/31/2012 12,237.32 11,550.76 10,834.13
9/30/2012 12,507.93 11,917.41 11,032.88
10/31/2012 12,428.00 11,858.91 10,880.09
11/30/2012 12,450.98 11,853.98 10,904.21
12/31/2012 12,590.06 12,098.82 10,987.62
1/31/2013 13,266.11 12,885.20 11,601.63
2/28/2013 13,415.62 13,070.15 11,738.98
3/31/2013 13,922.89 13,587.94 12,183.99
4/30/2013 14,244.03 13,793.41 12,508.47
5/31/2013 14,429.57 14,147.43 12,784.27
6/30/2013 14,275.60 14,022.73 12,635.21
7/31/2013 14,932.72 14,779.87 13,270.64
8/31/2013 14,467.88 14,219.18 12,855.17
9/30/2013 14,869.45 14,575.38 13,190.82
10/31/2013 15,477.69 15,213.68 13,795.98
11/30/2013 15,833.99 15,638.11 14,065.85
12/31/2013 16,203.36 16,034.17 14,394.82
1/31/2014 15,584.57 15,464.73 13,916.12
2/28/2014 16,237.79 16,133.47 14,394.82
3/31/2014 16,534.15 16,518.63 14,743.23
4/30/2014 16,700.24 16,675.60 14,921.57
5/31/2014 16,989.89 16,919.82 15,142.38
6/30/2014 17,372.41 17,361.78 15,504.01
7/31/2014 16,995.63 17,065.91 15,136.70
8/31/2014 17,574.53 17,693.17 15,691.94
9/30/2014 17,264.08 17,328.20 15,410.57
10/31/2014 17,593.08 17,717.48 15,737.00
11/30/2014 17,984.25 18,080.26 16,132.14
12/31/2014 17,935.96 18,191.16 16,100.29
1/31/2015 17,363.62 17,464.00 15,525.28
2/28/2015 18,205.83 18,309.07 16,206.45
3/31/2015 17,933.62 18,059.84 15,794.10
4/30/2015 18,144.96 18,228.68 16,123.70
5/31/2015 18,266.79 18,447.75 16,230.59
6/30/2015 17,824.91 18,079.40 15,679.36
7/31/2015 18,043.12 18,158.67 15,939.34
8/31/2015 16,986.27 17,077.21 15,087.68
9/30/2015 16,532.40 16,561.64 14,802.67
10/31/2015 17,748.23 17,811.27 15,902.50
11/30/2015 17,727.72 17,879.44 15,848.41
12/31/2015 17,405.26 17,494.93 15,575.13
1/31/2016 16,712.56 16,590.96 15,077.86
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Stock Fund Shares to the following benchmarks:
o The unmanaged Lipper Equity Income Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Equity Income Funds
category.
o The unmanaged Russell 1000 Value Index measures the performance of those
Russell 1000 companies with lower price-to-book ratios and lower forecasted
growth values.
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 Equity Income Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
8 | USAA INCOME STOCK FUND
================================================================================
USAA INCOME STOCK FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIISX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $1.0 Billion $1.1 Billion
Net Asset Value Per Share $16.06 $17.77
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-5.38% -2.83% 9.41% 6.65%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-3.22% 10.76% 7.19%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
0.73%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 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).
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME
LIPPER EQUITY STOCK FUND
RUSSELL 1000 INCOME FUNDS INSTITUTIONAL
VALUE INDEX INDEX SHARES
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,169.88 10,108.31 10,208.00
9/30/2008 9,422.68 9,309.73 9,549.79
10/31/2008 7,791.50 7,790.03 7,915.22
11/30/2008 7,232.78 7,267.31 7,424.04
12/31/2008 7,333.17 7,416.05 7,586.24
1/31/2009 6,489.93 6,746.50 6,838.98
2/28/2009 5,622.81 6,003.90 5,986.14
3/31/2009 6,103.58 6,494.84 6,424.15
4/30/2009 6,757.83 7,110.06 6,972.46
5/31/2009 7,175.71 7,529.88 7,332.54
6/30/2009 7,122.72 7,514.85 7,281.29
7/31/2009 7,705.72 8,085.95 7,832.53
8/31/2009 8,108.77 8,446.54 8,153.40
9/30/2009 8,422.06 8,699.21 8,412.89
10/31/2009 8,164.31 8,558.14 8,264.14
11/30/2009 8,624.47 9,012.47 8,702.14
12/31/2009 8,777.09 9,185.06 8,872.16
1/31/2010 8,530.25 8,891.31 8,606.58
2/28/2010 8,799.51 9,130.08 8,847.27
3/31/2010 9,372.36 9,647.12 9,360.58
4/30/2010 9,614.87 9,772.58 9,477.17
5/31/2010 8,824.57 9,037.86 8,702.68
6/30/2010 8,327.80 8,594.20 8,211.94
7/31/2010 8,891.57 9,203.56 8,763.31
8/31/2010 8,511.11 8,846.75 8,437.50
9/30/2010 9,171.43 9,554.73 9,176.45
10/31/2010 9,446.62 9,840.24 9,553.57
11/30/2010 9,396.63 9,794.78 9,478.14
12/31/2010 10,138.07 10,474.37 10,040.92
1/31/2011 10,367.40 10,703.56 10,343.66
2/28/2011 10,749.80 11,052.90 10,772.54
3/31/2011 10,792.50 11,087.38 10,778.44
4/30/2011 11,079.88 11,445.63 11,191.70
5/31/2011 10,962.82 11,341.23 11,065.19
6/30/2011 10,738.04 11,144.74 10,913.10
7/31/2011 10,381.87 10,819.50 10,591.63
8/31/2011 9,733.98 10,269.90 9,990.99
9/30/2011 8,998.35 9,580.43 9,341.93
10/31/2011 10,028.59 10,537.38 10,301.60
11/30/2011 9,976.61 10,558.35 10,335.57
12/31/2011 10,177.66 10,752.80 10,441.32
1/31/2012 10,562.68 11,095.25 10,816.66
2/29/2012 10,983.74 11,493.07 11,268.78
3/31/2012 11,309.35 11,750.97 11,584.37
4/30/2012 11,194.02 11,707.87 11,481.63
5/31/2012 10,537.59 11,039.21 10,839.48
6/30/2012 11,060.78 11,502.35 11,293.95
7/31/2012 11,175.25 11,690.49 11,388.49
8/31/2012 11,417.89 11,883.19 11,611.96
9/30/2012 11,780.32 12,145.97 11,828.64
10/31/2012 11,722.49 12,068.35 11,673.34
11/30/2012 11,717.62 12,090.67 11,699.22
12/31/2012 11,959.64 12,225.73 11,786.92
1/31/2013 12,736.97 12,882.21 12,446.09
2/28/2013 12,919.80 13,027.39 12,593.54
3/31/2013 13,431.63 13,519.99 13,074.51
4/30/2013 13,634.74 13,831.83 13,414.22
5/31/2013 13,984.68 14,012.00 13,719.09
6/30/2013 13,861.42 13,862.49 13,562.04
7/31/2013 14,609.85 14,500.59 14,244.52
8/31/2013 14,055.60 14,049.20 13,798.29
9/30/2013 14,407.70 14,439.15 14,153.78
10/31/2013 15,038.66 15,029.79 14,812.71
11/30/2013 15,458.21 15,375.78 15,102.64
12/31/2013 15,849.72 15,734.46 15,450.25
1/31/2014 15,286.83 15,133.58 14,935.84
2/28/2014 15,947.87 15,767.89 15,450.25
3/31/2014 16,328.60 16,055.68 15,826.55
4/30/2014 16,483.77 16,216.96 16,018.22
5/31/2014 16,725.18 16,498.23 16,264.65
6/30/2014 17,162.05 16,869.68 16,655.87
7/31/2014 16,869.59 16,503.80 16,261.05
8/31/2014 17,489.63 17,065.96 16,857.87
9/30/2014 17,128.86 16,764.48 16,549.32
10/31/2014 17,513.67 17,083.97 16,909.48
11/30/2014 17,872.27 17,463.82 17,334.30
12/31/2014 17,981.90 17,416.93 17,293.88
1/31/2015 17,263.10 16,861.15 16,685.08
2/28/2015 18,098.45 17,678.98 17,417.55
3/31/2015 17,852.08 17,414.65 16,966.59
4/30/2015 18,018.99 17,619.88 17,330.64
5/31/2015 18,235.53 17,738.19 17,445.60
6/30/2015 17,871.43 17,309.09 16,845.29
7/31/2015 17,949.78 17,520.98 17,134.57
8/31/2015 16,880.76 16,494.71 16,218.54
9/30/2015 16,371.13 16,053.99 15,914.09
10/31/2015 17,606.38 17,234.63 17,097.22
11/30/2015 17,673.76 17,214.71 17,029.34
12/31/2015 17,293.68 16,901.58 16,737.79
1/31/2016 16,400.11 16,228.93 16,212.84
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Stock Fund Institutional Shares to the Fund's benchmarks listed
above (see page 8 for benchmark definitions).
*The performance of the Russell 1000 Value Index and the Lipper Equity Income
Funds Index is calculated from the end of the month, July 31, 2008, while the
inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Equity Income Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
10 | USAA INCOME STOCK FUND
================================================================================
o TOP 10 HOLDINGS* - 1/31/16 o
(% of Net Assets)
AbbVie, Inc. .............................................................. 2.8%
Microsoft Corp. ........................................................... 2.6%
Johnson & Johnson ......................................................... 2.4%
Occidental Petroleum Corp. ................................................ 2.0%
General Electric Co. ...................................................... 2.0%
Pfizer, Inc. .............................................................. 1.9%
Verizon Communications, Inc. .............................................. 1.8%
Raytheon Co. .............................................................. 1.8%
JPMorgan Chase & Co. ...................................................... 1.7%
Merck & Co., Inc. ......................................................... 1.7%
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
INDUSTRIALS 15.0%
FINANCIALS 14.9%
CONSUMER STAPLES 12.8%
INFORMATION TECHNOLOGY 12.5%
HEALTH CARE 11.6%
UTILITIES 10.1%
ENERGY 6.8%
TELECOMMUNICATION SERVICES 5.5%
CONSUMER DISCRETIONARY 5.2%
MONEY MARKET INSTRUMENTS 3.1%
MATERIALS 2.6%
[END CHART]
*Does not include money market instruments.
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 12-19.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.0%)
COMMON STOCKS (97.0%)
CONSUMER DISCRETIONARY (5.2%)
-----------------------------
ADVERTISING (0.5%)
150,200 Omnicom Group, Inc. $ 11,017
----------
AUTO PARTS & EQUIPMENT (0.5%)
351,300 Johnson Controls, Inc. 12,601
----------
AUTOMOBILE MANUFACTURERS (0.4%)
804,000 Ford Motor Co. 9,600
----------
DISTRIBUTORS (0.5%)
145,100 Genuine Parts Co. 12,503
----------
HOME IMPROVEMENT RETAIL (0.5%)
101,000 Home Depot, Inc. 12,702
----------
HOTELS, RESORTS & CRUISE LINES (0.6%)
303,589 Carnival Corp. 14,612
----------
MOVIES & ENTERTAINMENT (0.7%)
471,200 Regal Entertainment Group "A" 8,128
112,615 Time Warner, Inc. 7,933
----------
16,061
----------
RESTAURANTS (0.8%)
187,640 Brinker International, Inc. 9,333
86,740 McDonald's Corp. 10,737
----------
20,070
----------
SPECIALIZED CONSUMER SERVICES (0.7%)
468,900 H&R Block, Inc. 15,966
----------
Total Consumer Discretionary 125,132
----------
CONSUMER STAPLES (12.8%)
------------------------
BREWERS (0.5%)
143,202 Molson Coors Brewing Co. "B" 12,957
----------
================================================================================
12 | USAA INCOME STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
DRUG RETAIL (0.8%)
99,240 CVS Health Corp. $ 9,586
133,900 Walgreens Boots Alliance, Inc. 10,674
----------
20,260
----------
FOOD DISTRIBUTORS (0.2%)
141,000 Sysco Corp. 5,613
----------
HOUSEHOLD PRODUCTS (2.8%)
114,275 Colgate-Palmolive Co. 7,717
224,344 Kimberly-Clark Corp. 28,810
366,880 Procter & Gamble Co. 29,971
----------
66,498
----------
HYPERMARKETS & SUPER CENTERS (0.7%)
263,400 Wal-Mart Stores, Inc. 17,479
----------
PACKAGED FOODS & MEAT (2.0%)
77,000 B&G Foods, Inc. 2,804
291,900 Campbell Soup Co. 16,466
93,400 Hershey Co. 8,230
271,900 Kraft Heinz Co. 21,225
----------
48,725
----------
PERSONAL PRODUCTS (0.7%)
374,200 Unilever N.V. 16,618
----------
SOFT DRINKS (1.6%)
347,800 Coca-Cola Co. 14,927
261,050 Coca-Cola Enterprises, Inc. 12,118
110,914 PepsiCo, Inc. 11,014
----------
38,059
----------
TOBACCO (3.5%)
382,825 Altria Group, Inc. 23,394
410,860 Philip Morris International, Inc. 36,982
483,728 Reynolds American, Inc. 24,162
----------
84,538
----------
Total Consumer Staples 310,747
----------
ENERGY (6.8%)
-------------
INTEGRATED OIL & GAS (5.4%)
342,100 Chevron Corp. 29,581
186,827 Exxon Mobil Corp. 14,545
711,795 Occidental Petroleum Corp. 48,993
871,574 Royal Dutch Shell plc ADR "A" 38,288
----------
131,407
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.2%)
585,100 Transocean Ltd. $ 6,096
----------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
216,100 ConocoPhillips 8,445
408,800 Marathon Oil Corp. 3,978
----------
12,423
----------
OIL & GAS STORAGE & TRANSPORTATION (0.7%)
338,335 Enterprise Products Partners, LP 8,090
301,100 Spectra Energy Corp. 8,265
----------
16,355
----------
Total Energy 166,281
----------
FINANCIALS (14.9%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
37,520 BlackRock, Inc. 11,791
127,100 State Street Corp. 7,083
----------
18,874
----------
CONSUMER FINANCE (0.3%)
289,413 Synchrony Financial* 8,225
----------
DIVERSIFIED BANKS (4.5%)
482,200 Bank of America Corp. 6,818
115,940 Commonwealth Bank of Australia ADR 6,538
676,200 HSBC Holdings plc ADR 23,937
720,200 JPMorgan Chase & Co. 42,852
580,650 Wells Fargo & Co. 29,166
----------
109,311
----------
INSURANCE BROKERS (1.1%)
399,500 Arthur J. Gallagher & Co. 15,037
222,670 Marsh & McLennan Companies, Inc. 11,875
----------
26,912
----------
INVESTMENT BANKING & BROKERAGE (0.2%)
182,600 Morgan Stanley 4,726
----------
LIFE & HEALTH INSURANCE (1.2%)
633,400 MetLife, Inc. 28,281
----------
MULTI-LINE INSURANCE (0.4%)
662,200 Allianz SE ADR 10,728
----------
PROPERTY & CASUALTY INSURANCE (0.2%)
47,100 Chubb Ltd. 5,326
----------
================================================================================
14 | USAA INCOME STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
REGIONAL BANKS (3.4%)
686,500 BB&T Corp. $ 22,421
402,900 Fifth Third Bancorp 6,366
580,200 KeyCorp 6,475
85,900 M&T Bank Corp. 9,464
592,160 People's United Financial, Inc. 8,509
336,500 PNC Financial Services Group, Inc. 29,158
----------
82,393
----------
REITs - HEALTH CARE (0.9%)
342,520 Welltower, Inc. 21,312
----------
REITs - SPECIALIZED (1.0%)
275,245 Corrections Corp. of America 7,930
623,855 Iron Mountain, Inc. 17,181
----------
25,111
----------
SPECIALIZED FINANCE (0.9%)
227,680 CME Group, Inc. 20,457
----------
Total Financials 361,656
----------
HEALTH CARE (11.6%)
-------------------
BIOTECHNOLOGY (3.0%)
1,248,050 AbbVie, Inc. 68,518
64,800 Gilead Sciences, Inc. 5,378
----------
73,896
----------
HEALTH CARE EQUIPMENT (1.1%)
348,580 Medtronic plc 26,464
----------
MANAGED HEALTH CARE (0.7%)
152,636 UnitedHealth Group, Inc. 17,578
----------
PHARMACEUTICALS (6.8%)
550,500 Johnson & Johnson 57,494
824,150 Merck & Co., Inc. 41,760
251,400 Novartis AG ADR 19,602
1,517,870 Pfizer, Inc. 46,280
----------
165,136
----------
Total Health Care 283,074
----------
INDUSTRIALS (15.0%)
-------------------
AEROSPACE & DEFENSE (5.7%)
100,390 Boeing Co. 12,060
95,905 General Dynamics Corp. 12,829
131,750 Honeywell International, Inc. 13,597
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
141,790 Lockheed Martin Corp. $ 29,918
341,150 Raytheon Co. 43,749
295,650 United Technologies Corp. 25,925
----------
138,078
----------
AIR FREIGHT & LOGISTICS (0.7%)
193,810 United Parcel Service, Inc. "B" 18,063
----------
COMMERCIAL PRINTING (1.1%)
281,900 Deluxe Corp. 15,758
713,100 R.R. Donnelley & Sons Co. 9,962
----------
25,720
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
76,000 Caterpillar, Inc. 4,731
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.0%)
717,800 Eaton Corp. plc 36,256
271,900 Emerson Electric Co. 12,502
----------
48,758
----------
ENVIRONMENTAL & FACILITIES SERVICES (2.0%)
621,550 Republic Services, Inc. 27,162
401,990 Waste Management, Inc. 21,285
----------
48,447
----------
INDUSTRIAL CONGLOMERATES (2.8%)
133,450 3M Co. 20,151
1,617,603 General Electric Co. 47,072
----------
67,223
----------
INDUSTRIAL MACHINERY (0.5%)
56,200 Parker-Hannifin Corp. 5,461
77,500 Stanley Black & Decker, Inc. 7,311
----------
12,772
----------
Total Industrials 363,792
----------
INFORMATION TECHNOLOGY (12.5%)
------------------------------
COMMUNICATIONS EQUIPMENT (1.8%)
1,492,400 Cisco Systems, Inc. 35,504
183,800 QUALCOMM, Inc. 8,334
----------
43,838
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.2%)
206,850 Automatic Data Processing, Inc. 17,187
252,261 Paychex, Inc. 12,073
----------
29,260
----------
================================================================================
16 | USAA INCOME STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (4.0%)
1,306,900 Intel Corp. $ 40,540
190,180 Linear Technology Corp. 8,126
361,950 Microchip Technology, Inc. 16,219
608,400 Texas Instruments, Inc. 32,203
----------
97,088
----------
SYSTEMS SOFTWARE (3.3%)
1,127,750 Microsoft Corp. 62,128
483,950 Oracle Corp. 17,572
----------
79,700
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.2%)
136,759 Apple, Inc. 13,312
803,600 Hewlett Packard Enterprise Co. 11,057
1,004,700 HP, Inc. 9,756
711,980 Seagate Technology plc 20,683
----------
54,808
----------
Total Information Technology 304,694
----------
MATERIALS (2.6%)
----------------
COMMODITY CHEMICALS (0.1%)
34,600 LyondellBasell Industries N.V. "A" 2,698
----------
DIVERSIFIED CHEMICALS (0.8%)
313,570 Dow Chemical Co. 13,170
808,500 Huntsman Corp. 6,977
----------
20,147
----------
DIVERSIFIED METALS & MINING (0.6%)
640,400 Freeport-McMoRan, Inc. 2,946
414,920 Rio Tinto plc ADR 10,227
----------
13,173
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%)
92,560 Agrium, Inc. 8,041
----------
PAPER PACKAGING (0.8%)
417,310 Bemis Co., Inc. 19,977
----------
Total Materials 64,036
----------
TELECOMMUNICATION SERVICES (5.5%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (3.5%)
728,112 AT&T, Inc. 26,256
559,604 CenturyLink, Inc. 14,225
898,406 Verizon Communications, Inc. 44,893
----------
85,374
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (2.0%)
430,900 Rogers Communications, Inc. "B" $ 14,732
1,029,800 Vodafone Group plc ADR 33,160
----------
47,892
----------
Total Telecommunication Services 133,266
----------
UTILITIES (10.1%)
-----------------
ELECTRIC UTILITIES (4.5%)
92,700 American Electric Power Co., Inc. 5,652
302,670 Duke Energy Corp. 22,791
101,500 Edison International 6,273
143,450 Entergy Corp. 10,125
342,760 Eversource Energy 18,440
723,680 PPL Corp. 25,372
209,350 Southern Co. 10,241
249,350 Westar Energy, Inc. 10,862
----------
109,756
----------
GAS UTILITIES (0.5%)
168,450 WGL Holdings, Inc. 11,251
----------
MULTI-UTILITIES (5.1%)
468,700 Ameren Corp. 21,054
332,900 CenterPoint Energy, Inc. 5,949
428,700 CMS Energy Corp. 16,668
184,300 Dominion Resources, Inc. 13,301
94,800 National Grid plc ADR 6,713
484,565 NiSource, Inc. 10,181
155,950 SCANA Corp. 9,817
277,860 TECO Energy, Inc. 7,535
241,850 Vectren Corp. 10,119
438,360 WEC Energy Group, Inc. 24,211
----------
125,548
----------
Total Utilities 246,555
----------
Total Common Stocks 2,359,233
----------
Total Equity Securities (cost: $2,130,282) 2,359,233
----------
MONEY MARKET INSTRUMENTS (3.1%)
MONEY MARKET FUNDS (3.1%)
76,628,367 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a)
(cost: $76,628) 76,628
----------
TOTAL INVESTMENTS (COST: $2,206,910) $2,435,861
==========
================================================================================
18 | USAA INCOME STOCK FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
($ 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 $2,359,233 $- $- $2,359,233
Money Market Instruments:
Money Market Funds 76,628 - - 76,628
-----------------------------------------------------------------------------------------------------------------
Total $2,435,861 $- $- $2,435,861
-----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2015, through January 31, 2016, 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
January 31, 2016 (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 7.8% of net assets at January 31,
2016.
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) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security. As of January 31, 2016, 99.8% of the
Fund's net assets were invested in dividend-paying stocks.
See accompanying notes to financial statements.
================================================================================
20 | USAA INCOME STOCK FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,206,910) $2,435,861
Receivables:
Capital shares sold 1,137
Dividends and interest 4,919
Securities sold 4,955
----------
Total assets 2,446,872
----------
LIABILITIES
Payables:
Securities purchased 11,945
Capital shares redeemed 1,168
Accrued management fees 1,107
Accrued transfer agent's fees 73
Other accrued expenses and payables 184
----------
Total liabilities 14,477
----------
Net assets applicable to capital shares outstanding $2,432,395
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,224,388
Accumulated undistributed net investment income 5,549
Accumulated net realized loss on investments (26,493)
Net unrealized appreciation of investments 228,951
----------
Net assets applicable to capital shares outstanding $2,432,395
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,399,062/87,062 shares outstanding) $ 16.07
==========
Institutional Shares (net assets of $1,033,333/64,360 shares outstanding) $ 16.06
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $407) $ 42,149
Interest 51
---------
Total income 42,200
---------
EXPENSES
Management fees 6,504
Administration and servicing fees:
Fund Shares 1,188
Institutional Shares 485
Transfer agent's fees:
Fund Shares 902
Institutional Shares 485
Custody and accounting fees:
Fund Shares 107
Institutional Shares 63
Postage:
Fund Shares 47
Institutional Shares 23
Shareholder reporting fees:
Fund Shares 18
Institutional Shares 4
Trustees' fees 13
Registration fees:
Fund Shares 18
Institutional Shares 44
Professional fees 72
Other 23
---------
Total expenses 9,996
Expenses paid indirectly:
Fund Shares (10)
Institutional Shares (7)
---------
Net expenses 9,979
---------
NET INVESTMENT INCOME 32,221
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on:
Investments (5,487)
Foreign currency transactions (4)
Change in net unrealized appreciation/(depreciation) (170,127)
---------
Net realized and unrealized loss (175,618)
---------
Decrease in net assets resulting from operations $(143,397)
=========
See accompanying notes to financial statements.
================================================================================
22 | USAA INCOME STOCK FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
-----------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
-----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 32,221 $ 67,901
Net realized gain (loss) on investments (5,487) 78,531
Net realized loss on foreign currency transactions (4) (10)
Change in net unrealized appreciation/(depreciation)
of investments (170,127) (1,404)
--------------------------
Increase (decrease) in net assets resulting from operations (143,397) 145,018
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (17,725) (42,344)
Institutional Shares (10,940) (29,505)
--------------------------
Total distributions of net investment income (28,665) (71,849)
--------------------------
Net realized gains:
Fund Shares (53,051) (38,415)
Institutional Shares (31,658) (26,651)
--------------------------
Total distributions of net realized gains (84,709) (65,066)
--------------------------
Distributions to shareholders (113,374) (136,915)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (95,306) 11,581
Institutional Shares 46,676 40,961
--------------------------
Total net increase (decrease) in net assets
from capital share transactions (48,630) 52,542
--------------------------
Capital contribution from USAA Transfer Agency Company:
Fund Shares - 3
--------------------------
Net increase (decrease) in net assets (305,401) 60,648
NET ASSETS
Beginning of period 2,737,796 2,677,148
--------------------------
End of period $2,432,395 $2,737,796
==========================
Accumulated undistributed net investment income:
End of period $ 5,549 $ 1,993
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Income Stock Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek current income with the prospect of increasing dividend income and
the potential for capital appreciation.
The Fund consists of two classes of shares: Income Stock Fund Shares (Fund
Shares) and Income Stock Fund Institutional Shares (Institutional Shares). Each
class of shares has equal rights to assets and earnings, except that each class
bears certain class-related expenses specific to the particular class. These
expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and bank trusts, as
well as other persons or legal entities that the Fund may
================================================================================
24 | USAA INCOME STOCK FUND
================================================================================
approve from time to time, or for purchase by a USAA fund participating in a
fund-of-funds investment strategy (USAA fund-of-funds).
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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.
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.
================================================================================
26 | USAA INCOME STOCK FUND
================================================================================
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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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, 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.
================================================================================
28 | USAA INCOME STOCK FUND
================================================================================
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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
used to directly reduce the Fund's expenses. For the six-month period ended
January 31, 2016, brokerage commission recapture credits reduced the
expenses of the Fund Shares and Institutional Shares by $10,000 and $7,000,
respectively. Additionally, there were no custodian and other bank credits.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 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
================================================================================
30 | USAA INCOME STOCK 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 January 31, 2016, the Fund paid CAPCO facility
fees of $7,000, which represents 3.6% 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$248,596,000 and $368,608,000, respectively.
As of January 31, 2016, 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 | 31
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $423,583,000 and $194,632,000, respectively, resulting in net
unrealized appreciation of $228,951,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------
FUND SHARES:
Shares sold 3,063 $ 51,496 7,646 $ 137,783
Shares issued from
reinvested dividends 4,108 68,129 4,303 77,509
Shares redeemed (13,291) (214,931) (11,300) (203,711)
--------------------------------------------------
Net increase (decrease) from
capital share transactions (6,120) $ (95,306) 649 $ 11,581
==================================================
INSTITUTIONAL SHARES:
Shares sold 10,440 $ 166,552 12,512 $ 225,584
Shares issued from
reinvested dividends 2,572 42,597 3,120 56,149
Shares redeemed (9,458) (162,473) (13,377) (240,772)
--------------------------------------------------
Net increase from capital
share transactions 3,554 $ 46,676 2,255 $ 40,961
==================================================
(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
================================================================================
32 | USAA INCOME STOCK FUND
================================================================================
of 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 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 separately for each share class on
a monthly basis by comparing each class's performance over the performance
period to that of the Lipper Equity Income Funds Index. The Lipper Equity
Income Funds Index tracks the total return performance of the 30 largest
funds in the Lipper Equity Income Funds category. The performance period for
each class consists of the current month plus the previous 35 months. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Equity Income Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $6,504,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $53,000 and $68,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were each 0.01%.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Epoch Investment Partners, Inc. (Epoch), under
which Epoch 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 Epoch a subadvisory fee in the annual amount
of 0.30% of the Fund's average net assets for the first $600 million of
assets that Epoch manages, plus 0.20% on the next $900 million of assets,
and 0.18% on assets over $1.5 billion that Epoch manages. For the six-month
period ended January 31, 2016, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to Epoch of $1,675,000.
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
================================================================================
34 | USAA INCOME STOCK FUND
================================================================================
rate of 0.15% of average net assets of the Fund Shares, and 0.10% of average
net assets of the Institutional Shares. For the six-month period ended
January 31, 2016, the Fund Shares and Institutional Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$1,188,000 and $485,000, 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 January 31, 2016, the Fund reimbursed the Manager
$33,000 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 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 held
with such intermediaries. Transfer agent's fees for Institutional Shares are
paid monthly based on a fee accrued daily at an annualized rate of 0.10% of
the Institutional Shares' average net assets, plus out-of-pocket expenses.
For the six-month period ended January 31, 2016, the Fund Shares and
Institutional Shares incurred transfer agent's fees, paid or payable to SAS,
of $902,000 and $485,000, respectively.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fee or other compensation for these
services.
(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
invest. The USAA fund-of-funds do not invest in the underlying
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
funds for the purpose of exercising management or control. As of January 31,
2016, 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 0.4
USAA Target Retirement 2020 1.1
USAA Target Retirement 2030 2.7
USAA Target Retirement 2040 3.3
USAA Target Retirement 2050 1.9
USAA Target Retirement 2060 0.1
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.
================================================================================
36 | USAA INCOME STOCK FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.79 $ 17.72 $ 16.29 $ 13.26 $ 12.53 $ 10.50
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .44 .47 .24 .18 .13
Net realized and
unrealized gain (loss) (1.16) .51 1.77 3.03 .73 2.03
-------------------------------------------------------------------------------------
Total from investment
operations (.95) .95 2.24 3.27 .91 2.16
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.46) (.45) (.24) (.18) (.13)
Realized capital gains (.58) (.42) (.36) - - -
-------------------------------------------------------------------------------------
Total distributions (.77) (.88) (.81) (.24) (.18) (.13)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 16.07 $ 17.79 $ 17.72 $ 16.29 $ 13.26 $ 12.53
=====================================================================================
Total return (%)* (5.46) 5.36 14.06 24.89 7.34 20.59
Net assets at
end of period (000) $1,399,062 $1,657,268 $1,640,134 $1,453,425 $1,680,648 $1,440,420
Ratios to average
net assets:**
Expenses (%)(a) .81(b) .79 .80 .85 .85 .84
Net investment income (%) 2.50(b) 2.38 2.77 1.67 1.43 1.08
Portfolio turnover (%) 10 12(c) 57 64 42 38(c)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,572,388,000.
(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:
(.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects overall decrease in purchases and sales of securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.77 $ 17.71 $ 16.28 $ 13.25 $ 12.52 $ 10.49
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .45 .49 .26 .20 .16
Net realized and
unrealized gain (loss) (1.16) .50 1.76 3.03 .73 2.02
-----------------------------------------------------------------------------------
Total from investment
operations (.94) .95 2.25 3.29 .93 2.18
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.47) (.46) (.26) (.20) (.15)
Realized capital gains (.58) (.42) (.36) - - -
-----------------------------------------------------------------------------------
Total distributions (.77) (.89) (.82) (.26) (.20) (.15)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 16.06 $ 17.77 $ 17.71 $ 16.28 $ 13.25 $ 12.52
===================================================================================
Total return (%)* (5.38) 5.37 14.16 25.08 7.52 20.86
Net assets at end of
period (000) $1,033,333 $1,080,528 $1,037,014 $880,414 $249,551 $144,236
Ratios to average
net assets:**
Expenses (%)(a) .75(b) .73 .73 .73 .71 .61
Expenses, excluding
reimbursements (%)(a) .75(b) .73 .73 .73 .71 .61(c)
Net investment income (%) 2.57(b) 2.45 2.85 1.83 1.56 1.29
Portfolio turnover (%) 10 12(d) 57 64 42 38(d)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$962,807,000.
(a) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to .62% of the Institutional
Shares' average net assets.
(d) Reflects overall decrease in purchases and sales of securities.
================================================================================
38 | USAA INCOME STOCK FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 945.40 $3.91
Hypothetical
(5% return before expenses) 1,000.00 1,021.11 4.06
INSTITUTIONAL SHARES
Actual 1,000.00 946.20 3.67
Hypothetical
(5% return before expenses) 1,000.00 1,021.37 3.81
*Expenses are equal to the annualized expense ratio of 0.80% for Fund Shares and
0.75% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/366 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of (5.46)% for Fund Shares and (5.38)% for Institutional Shares for the
six-month period of August 1, 2015, through January 31, 2016.
================================================================================
40 | USAA INCOME STOCK 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
OR CALL select 'I want to...' and select
(800) 531-USAA (8722) the desired action.
(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 HTTTP://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)
=============================================================================
23422-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERMEDIATE-TERM BOND FUND]
==============================================================
SEMIANNUAL REPORT
USAA INTERMEDIATE-TERM BOND FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016.
In addition, the price of oil, a measure of global economic growth
expectations, dropped during the reporting period, driven by
lower-than-anticipated demand and oversupply. Other commodities, such as
copper, iron ore, and aluminum, also saw their prices tumble. At the same time,
global trade appeared to be softening, as a decline in the Baltic Dry Index (a
measure of global shipping rates) fell to a 28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The
following month, Fed policymakers left interest rates unchanged, citing "global
economic and financial developments." Only days later, the U.S. Department of
Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth
quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the
second quarter of 2015. Bond investors appeared to have anticipated this news
as longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in
2015. During volatile periods, when emotions run high, investors can be
tempted to make hasty decisions. Any investor who tries to respond to every
twist and turn in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that
you have crafted. An investment plan, based on your objectives, time horizon,
and risk tolerance, can help you stay focused on your future. It also can keep
you from getting distracted by short-term changes in market sentiment.
Furthermore, if you have cash reserves, you may find opportunities in the
coming months to put them to work. We tend to view volatility, not as a period
of crisis, but rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued
investment in our family of mutual funds. We look forward to continuing to help
you with your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312),
and USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 19
Notes to Portfolio of Investments 44
Financial Statements 49
Notes to Financial Statements 53
EXPENSE EXAMPLE 72
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.
202730-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA INTERMEDIATE-TERM BOND FUND (THE FUND) SEEKS HIGH CURRENT INCOME
WITHOUT UNDUE RISK TO PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in a broad range of debt
securities that have a dollar-weighted average portfolio maturity between three
to 10 years. The Fund will invest primarily in investment-grade securities, but
also may invest up to 10% of its net assets in below-investment-grade
securities which are sometimes referred to as high-yield or "junk" bonds. The
Fund's 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
USAA Asset Management Company
R. MATTHEW FREUND, CFA
JULIANNE BASS, CFA
BRIAN W. SMITH, CFA, CPA
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Longer-term interest rates fell during the reporting period ended January
31, 2016, pushed lower by economic uncertainty. China was at the epicenter
of concern, as the country's slowing pace of growth threatened to hinder the
broader global economy. Investors also worried about plummeting oil and
commodity prices, which are widely considered to be evidence of global
economic weakness. In the United States, economic data was mixed during the
reporting period, with slower-than-expected growth in the fourth quarter of
2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell
from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from
2.85% to 2.74%, during reporting period. These lower yields tend to reflect
changing expectations about the U.S. economy.
Shorter-term interest rates, which are more correlated to action by the
Federal Reserve (the Fed), rose during the reporting period in anticipation
of an interest rate increase. In December 2015, the Fed lifted the target
federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it
intended to proceed gradually with interest rate increases based on the
performance of the U.S. economy. In January 2016, the Fed chose not to raise
interest rates amid increased uncertainty about financial and economic
conditions.
In this environment, the U.S. Treasury yield curve experienced a "bear
flattening." In a bear flattening, short-term interest rates increase faster
than longer-term interest rates (though during the reporting period,
longer-term
================================================================================
2 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o 10-YEAR TREASURY YIELDS o
[CHART OF 10-YEAR TREASURY YIELDS]
DATE YIELD IN PERCENT
7/31/2015 2.18
8/3/2015 2.15
8/4/2015 2.22
8/5/2015 2.27
8/6/2015 2.22
8/7/2015 2.16
8/10/2015 2.23
8/11/2015 2.14
8/12/2015 2.15
8/13/2015 2.19
8/14/2015 2.20
8/17/2015 2.17
8/18/2015 2.19
8/19/2015 2.13
8/20/2015 2.07
8/21/2015 2.04
8/24/2015 2.00
8/25/2015 2.07
8/26/2015 2.18
8/27/2015 2.18
8/28/2015 2.18
8/31/2015 2.22
9/1/2015 2.15
9/2/2015 2.18
9/3/2015 2.16
9/4/2015 2.12
9/7/2015 2.12
9/8/2015 2.18
9/9/2015 2.20
9/10/2015 2.22
9/11/2015 2.19
9/14/2015 2.18
9/15/2015 2.29
9/16/2015 2.29
9/17/2015 2.19
9/18/2015 2.13
9/21/2015 2.20
9/22/2015 2.13
9/23/2015 2.15
9/24/2015 2.13
9/25/2015 2.16
9/28/2015 2.09
9/29/2015 2.05
9/30/2015 2.04
10/1/2015 2.04
10/2/2015 1.99
10/5/2015 2.06
10/6/2015 2.03
10/7/2015 2.07
10/8/2015 2.10
10/9/2015 2.09
10/12/2015 2.09
10/13/2015 2.04
10/14/2015 1.97
10/15/2015 2.02
10/16/2015 2.03
10/19/2015 2.02
10/20/2015 2.07
10/21/2015 2.02
10/22/2015 2.03
10/23/2015 2.09
10/26/2015 2.06
10/27/2015 2.04
10/28/2015 2.10
10/29/2015 2.17
10/30/2015 2.14
11/2/2015 2.17
11/3/2015 2.21
11/4/2015 2.23
11/5/2015 2.23
11/6/2015 2.33
11/9/2015 2.34
11/10/2015 2.34
11/11/2015 2.33
11/12/2015 2.31
11/13/2015 2.27
11/16/2015 2.27
11/17/2015 2.27
11/18/2015 2.27
11/19/2015 2.25
11/20/2015 2.26
11/23/2015 2.24
11/24/2015 2.24
11/25/2015 2.23
11/26/2015 2.23
11/27/2015 2.22
11/30/2015 2.21
12/1/2015 2.14
12/2/2015 2.18
12/3/2015 2.31
12/4/2015 2.27
12/7/2015 2.23
12/8/2015 2.22
12/9/2015 2.22
12/10/2015 2.23
12/11/2015 2.13
12/14/2015 2.22
12/15/2015 2.27
12/16/2015 2.30
12/17/2015 2.22
12/18/2015 2.20
12/21/2015 2.19
12/22/2015 2.24
12/23/2015 2.25
12/24/2015 2.24
12/25/2015 2.24
12/28/2015 2.23
12/29/2015 2.31
12/30/2015 2.29
12/31/2015 2.27
1/1/2016 2.27
1/4/2016 2.24
1/5/2016 2.24
1/6/2016 2.17
1/7/2016 2.15
1/8/2016 2.12
1/11/2016 2.18
1/12/2016 2.10
1/13/2016 2.09
1/14/2016 2.09
1/15/2016 2.03
1/18/2016 2.03
1/19/2016 2.06
1/20/2016 1.98
1/21/2016 2.03
1/22/2016 2.05
1/25/2016 2.00
1/26/2016 1.99
1/27/2016 2.00
1/28/2016 1.98
1/29/2016 1.92
[END CHART]
Source: Bloomberg Finance L.P.
interest rates actually trended down), thereby creating a flatter yield
curve. This generally indicates that investor sentiment is becoming more
"bearish."
As longer-term interest rates fell, the prices of longer-maturity securities
edged up (bond prices and yields move in opposite directions). Credit
spreads widened across the credit spectrum, with single A, BBB, and
below investment-grade "high-yield" spreads widening 19 basis points, 58
basis points, and 221 basis points, respectively. A basis point is 1/100(th)
of a percent. Spreads (yield differentials versus U.S. Treasury securities
of comparable maturity) are generally considered an indication of risk; the
wider the spread, the greater the risk.
o HOW DID THE USAA INTERMEDIATE-TERM BOND 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 January 31, 2016, the
============================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
============================================================================
o U.S. TREASURY YIELD CURVE o
[CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD
--------------------------------- (CHANGE IN
MATURITY 7/01/15 1/31/16 BASIS POINTS)
1M 0.008 0.221 21.4
3M 0.018 0.313 29.5
6M 0.114 0.428 31.3
1Y 0.273 0.451 17.9
2Y 0.69 0.776 8.5
3Y 1.064 0.968 -9.7
5Y 1.706 1.329 -37.7
7Y 2.146 1.668 -47.7
10Y 2.423 1.922 -50.1
30Y 3.202 2.744 -45.8
[END CHART]
Source: Bloomberg Finance L.P.
Fund Shares, Institutional Shares, and Adviser Shares had total returns of
-1.94%, -1.90%, and -2.15%, respectively. This compares to returns of 1.33%
for the Barclays U.S. Aggregate Bond Index (the Index) and 0.40% for the
Lipper Index.* At the same time, the Fund Shares,
*The Lipper Index tracks the performance of funds that invest primarily in
investment-grade debt issues (rated in top four grades) with dollar-weighted
average maturities of five to ten years.
SOURCE: LIPPER, A THOMSON REUTERS COMPANY.
Refer to page 9 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
4 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
Institutional Shares, and Adviser Shares provided a one-year dividend yield
of 4.21%, 4.31%, and 3.98%, respectively, compared to 2.96% for the Lipper
Core Plus Bond Funds Average.
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 WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus on generating an attractive yield with an acceptable
level of price volatility. During the reporting period, the Fund's SEC yield
continued to trend up. In addition, we sought to manage the portfolio's
sensitivity to interest rates by maintaining a neutral duration position
relative to the Lipper peer group. (Duration is a measure of a portfolio's
interest-rate sensitivity.)
The Fund was hindered by its investment in corporate bonds, which
underperformed as credit spreads widened. In addition, allocations to and
security selection among oil and gas exploration and production bonds,
metals and mining bonds, and pipeline junior subordinated debt detracted
from the Fund's performance. Many of these securities were negatively
affected by the continued drop in oil and commodity prices during the
reporting period. Although we reduced some of these holdings, we believe
that over the long-term the Fund's positions in these industries will help
to generate attractive total returns.
During the reporting period, we continued to seek relative values across the
fixed-income market. Our team of analysts helps us evaluate each potential
investment individually, rather than on the basis of thematic trends. We
seek ideas where our fundamental understanding of the credit risk is
different than the market, building the Fund bond-by-bond through
fundamental bottom-up analysis. Due to uncertain times, we continued to
emphasize liquidity in the Fund. Our liquidity strategy helps to prevent the
Fund from being forced to sell due to investment outflows.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
Our analysts continue to analyze and monitor every holding in the Fund. We
are committed to building a portfolio diversified among multiple asset
classes and across a large number of issuers. To minimize the Fund's
exposure to potential surprises, we limit the positions we take in any one
issuer.
Thank you for allowing us to help you with your investment needs.
Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. 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.
================================================================================
6 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
INVESTMENT OVERVIEW
USAA INTERMEDIATE-TERM BOND FUND SHARES (FUND SHARES)
(Ticker Symbol: USIBX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $1.7 Billion $2.1 Billion
Net Asset Value Per Share $10.15 $10.58
Dollar-Weighted Average
Portfolio Maturity(+) 7.3 Years 7.3 Years
(+)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 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-1.94% -3.36% 4.16% 5.42%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-2.32% 4.36% 5.38%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
4.20% 0.68%
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 December 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 | 7
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS
ENDED JANUARY 31, 2016
------------------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
------------------------------------------------------------------------------------------
10 YEARS 5.42% = 5.22% + 0.20%
5 YEARS 4.16% = 4.54% + -0.38%
1 YEAR -3.36% = 3.84% + -7.20%
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 ONE-YEAR PERIODS ENDED
JANUARY 31, 2007 - JANUARY 31, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
1/31/2007 4.92% 5.02% -0.10%
1/31/2008 4.20% 5.30% -1.10%
1/31/2009 -15.58% 5.07% -20.65%
1/31/2010 34.12% 8.61% 25.51%
1/31/2011 11.73% 6.04% 5.69%
1/31/2012 7.27% 3.33% 3.94%
1/31/2013 9.59% 7.54% 2.05%
1/31/2014 2.43% 4.30% -1.87%
1/31/2015 5.70% 4.17% 1.53%
1/31/2016 -3.36% 3.84% -7.20%
[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 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 INTERMEDIATE-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA
INTERMEDIATE-TERM BARCLAYS U.S.
BOND FUND AGGREGATE BOND
SHARES INDEX LIPPER INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,030.21 10,033.20 10,029.51
3/31/2006 9,963.50 9,934.74 9,932.57
4/30/2006 9,932.53 9,916.73 9,918.79
5/31/2006 9,933.93 9,906.15 9,907.99
6/30/2006 9,947.34 9,927.15 9,918.59
7/31/2006 10,067.67 10,061.38 10,056.20
8/31/2006 10,222.02 10,215.41 10,207.37
9/30/2006 10,337.61 10,305.14 10,292.80
10/31/2006 10,409.04 10,373.30 10,362.32
11/30/2006 10,535.68 10,493.65 10,482.34
12/31/2006 10,483.50 10,432.75 10,433.24
1/31/2007 10,492.40 10,428.47 10,422.64
2/28/2007 10,663.00 10,589.28 10,591.41
3/31/2007 10,655.74 10,589.60 10,587.75
4/30/2007 10,720.52 10,646.70 10,641.04
5/31/2007 10,626.97 10,566.01 10,550.79
6/30/2007 10,602.42 10,534.76 10,507.78
7/31/2007 10,616.96 10,622.63 10,565.74
8/31/2007 10,699.43 10,752.83 10,661.06
9/30/2007 10,774.63 10,834.40 10,775.20
10/31/2007 10,841.94 10,931.73 10,845.90
11/30/2007 10,903.78 11,128.31 10,986.17
12/31/2007 10,885.78 11,159.57 10,999.49
1/31/2008 10,933.54 11,347.03 11,183.00
2/29/2008 10,851.97 11,362.78 11,127.07
3/31/2008 10,787.18 11,401.55 11,011.87
4/30/2008 10,768.90 11,377.72 11,069.31
5/31/2008 10,799.24 11,294.29 10,982.56
6/30/2008 10,714.83 11,285.16 10,891.30
7/31/2008 10,608.33 11,275.96 10,786.79
8/31/2008 10,606.83 11,382.97 10,851.36
9/30/2008 10,189.21 11,230.08 10,513.57
10/31/2008 9,484.92 10,965.00 10,122.30
11/30/2008 9,303.29 11,321.91 10,105.64
12/31/2008 9,198.38 11,744.32 10,481.57
1/31/2009 9,231.76 11,640.70 10,465.69
2/28/2009 9,170.44 11,596.76 10,348.52
3/31/2009 9,357.34 11,757.97 10,544.17
4/30/2009 9,581.52 11,814.19 10,726.18
5/31/2009 10,228.45 11,899.88 10,983.21
6/30/2009 10,519.89 11,967.56 11,115.28
7/31/2009 10,899.89 12,160.60 11,437.54
8/31/2009 11,247.84 12,286.51 11,600.89
9/30/2009 11,616.13 12,415.58 11,813.27
10/31/2009 11,826.71 12,476.88 11,920.81
11/30/2009 11,994.47 12,638.41 12,068.22
12/31/2009 12,036.79 12,440.86 11,980.55
1/31/2010 12,379.30 12,630.90 12,196.98
2/28/2010 12,464.54 12,678.07 12,258.45
3/31/2010 12,654.72 12,662.48 12,326.85
4/30/2010 12,897.61 12,794.29 12,497.90
5/31/2010 12,751.04 12,901.96 12,503.23
6/30/2010 12,866.59 13,104.28 12,704.95
7/31/2010 13,109.39 13,244.09 12,880.60
8/31/2010 13,334.18 13,414.50 13,074.50
9/30/2010 13,526.21 13,428.80 13,151.88
10/31/2010 13,728.71 13,476.61 13,231.31
11/30/2010 13,694.39 13,399.16 13,127.27
12/31/2010 13,655.99 13,254.67 13,012.94
1/31/2011 13,831.62 13,270.09 13,081.67
2/28/2011 13,946.44 13,303.29 13,135.13
3/31/2011 14,011.69 13,310.64 13,150.68
4/30/2011 14,238.64 13,479.60 13,345.30
5/31/2011 14,406.90 13,655.51 13,486.37
6/30/2011 14,293.12 13,615.53 13,420.76
7/31/2011 14,476.41 13,831.59 13,608.70
8/31/2011 14,334.75 14,033.67 13,665.22
9/30/2011 14,210.38 14,135.75 13,633.48
10/31/2011 14,408.82 14,150.94 13,746.85
11/30/2011 14,346.16 14,138.66 13,658.57
12/31/2011 14,522.34 14,294.06 13,830.36
1/31/2012 14,788.57 14,419.57 14,066.61
2/29/2012 14,920.99 14,416.26 14,119.80
3/31/2012 14,955.83 14,337.27 14,085.82
4/30/2012 15,099.76 14,496.22 14,252.22
5/31/2012 15,134.97 14,627.38 14,348.91
6/30/2012 15,213.26 14,633.12 14,402.19
7/31/2012 15,529.47 14,834.96 14,652.26
8/31/2012 15,655.54 14,844.65 14,703.55
9/30/2012 15,809.64 14,865.08 14,795.12
10/31/2012 16,025.20 14,894.32 14,859.22
11/30/2012 16,106.41 14,917.82 14,906.73
12/31/2012 16,148.50 14,896.58 14,911.76
1/31/2013 16,206.45 14,792.39 14,855.72
2/28/2013 16,340.00 14,866.53 14,936.31
3/31/2013 16,429.24 14,878.41 14,963.49
4/30/2013 16,649.13 15,028.96 15,126.46
5/31/2013 16,467.57 14,760.81 14,860.88
6/30/2013 16,061.56 14,532.48 14,539.55
7/31/2013 16,163.74 14,552.35 14,592.51
8/31/2013 16,072.79 14,477.96 14,486.56
9/30/2013 16,160.68 14,615.03 14,663.83
10/31/2013 16,370.38 14,733.19 14,802.09
11/30/2013 16,385.72 14,678.02 14,774.84
12/31/2013 16,360.46 14,595.08 14,688.51
1/31/2014 16,599.96 14,810.72 14,899.37
2/28/2014 16,735.98 14,889.47 14,996.08
3/31/2014 16,794.38 14,864.11 14,969.88
4/30/2014 16,960.16 14,989.54 15,090.29
5/31/2014 17,125.89 15,160.20 15,265.91
6/30/2014 17,183.61 15,168.04 15,289.62
7/31/2014 17,192.97 15,130.00 15,245.64
8/31/2014 17,329.85 15,297.02 15,405.66
9/30/2014 17,230.54 15,193.16 15,290.24
10/31/2014 17,303.27 15,342.49 15,427.50
11/30/2014 17,377.44 15,451.34 15,532.00
12/31/2014 17,299.43 15,465.83 15,506.42
1/31/2015 17,546.40 15,790.10 15,840.51
2/28/2015 17,491.16 15,641.66 15,728.84
3/31/2015 17,532.25 15,714.26 15,788.42
4/30/2015 17,524.61 15,657.89 15,747.87
5/31/2015 17,484.74 15,620.17 15,707.00
6/30/2015 17,283.79 15,449.83 15,530.44
7/31/2015 17,291.93 15,557.25 15,638.37
8/31/2015 17,137.61 15,534.88 15,570.06
9/30/2015 17,150.30 15,639.96 15,629.02
10/31/2015 17,207.63 15,642.63 15,674.87
11/30/2015 17,119.10 15,601.27 15,637.75
12/31/2015 16,898.82 15,550.87 15,544.48
1/31/2016 16,956.75 15,764.83 15,701.70
[END CHART]
Data from 1/31/06 through 1/31/2016.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Intermediate-Term Bond Fund Shares to the following benchmarks:
o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S.
investment-grade rated 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.
o The Lipper Index tracks the performance of funds that invest primarily in
investment-grade debt issues (rated in top four grades) with dollar-
weighted average maturities of five to ten years. SOURCE: LIPPER, A
THOMSON REUTERS COMPANY.
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.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA LIPPER CORE
INTERMEDIATE-TERM PLUS BOND
BOND FUND FUNDS
SHARES AVERAGE
1/31/2007 4.79% 4.48%
1/31/2008 4.98 4.60
1/31/2009 5.80 5.63
1/31/2010 5.16 4.60
1/31/2011 4.37 3.71
1/31/2012 3.83 3.62
1/31/2013 4.60 3.06
1/31/2014 4.31 2.83
1/31/2015 4.02 3.15
1/31/2016 4.21 2.96
[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 net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data
for periods ending 1/31/07 through 1/31/16.
The Lipper Core Plus Bond Funds Average is the average performance level of all
investment-grade debt funds, as reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
10 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
USAA INTERMEDIATE-TERM BOND FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIITX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $1.4 Billion $1.3 Billion
Net Asset Value Per Share $10.15 $10.58
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-1.90% -3.27% 4.27% 6.59%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-2.22% 4.47% 6.62%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
4.26% 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.
**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 December 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).
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA
INTERMEDIATE-TERM
BOND FUND BARCLAYS U.S.
INSTITUTIONAL AGGREGATE
SHARES LIPPER INDEX BOND INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 9,995.51 10,059.87 10,094.91
9/30/2008 9,603.48 9,746.71 9,959.32
10/31/2008 8,941.32 9,383.98 9,724.23
11/30/2008 8,771.29 9,368.53 10,040.76
12/31/2008 8,673.92 9,717.05 10,415.37
1/31/2009 8,706.83 9,702.33 10,323.47
2/28/2009 8,650.28 9,593.70 10,284.50
3/31/2009 8,827.96 9,775.08 10,427.47
4/30/2009 9,040.93 9,943.81 10,477.33
5/31/2009 9,652.88 10,182.10 10,553.32
6/30/2009 9,929.45 10,304.54 10,613.35
7/31/2009 10,289.85 10,603.29 10,784.54
8/31/2009 10,619.91 10,754.73 10,896.20
9/30/2009 10,969.35 10,951.61 11,010.66
10/31/2009 11,170.03 11,051.31 11,065.03
11/30/2009 11,330.16 11,187.97 11,208.28
12/31/2009 11,372.15 11,106.69 11,033.08
1/31/2010 11,697.42 11,307.34 11,201.62
2/28/2010 11,779.67 11,364.32 11,243.45
3/31/2010 11,949.41 11,427.73 11,229.63
4/30/2010 12,193.02 11,586.31 11,346.52
5/31/2010 12,056.28 11,591.25 11,442.00
6/30/2010 12,167.42 11,778.25 11,621.43
7/31/2010 12,399.30 11,941.09 11,745.42
8/31/2010 12,613.97 12,120.85 11,896.55
9/30/2010 12,797.72 12,192.59 11,909.23
10/31/2010 12,991.55 12,266.22 11,951.63
11/30/2010 12,961.29 12,169.77 11,882.94
12/31/2010 12,927.36 12,063.78 11,754.80
1/31/2011 13,095.79 12,127.49 11,768.48
2/28/2011 13,206.51 12,177.05 11,797.92
3/31/2011 13,270.59 12,191.48 11,804.44
4/30/2011 13,474.88 12,371.90 11,954.28
5/31/2011 13,649.10 12,502.68 12,110.29
6/30/2011 13,543.39 12,441.86 12,074.83
7/31/2011 13,719.21 12,616.09 12,266.44
8/31/2011 13,587.04 12,668.48 12,445.65
9/30/2011 13,470.13 12,639.06 12,536.18
10/31/2011 13,659.13 12,744.16 12,549.65
11/30/2011 13,600.79 12,662.31 12,538.76
12/31/2011 13,768.99 12,821.58 12,676.57
1/31/2012 14,022.38 13,040.59 12,787.88
2/29/2012 14,148.83 13,089.91 12,784.95
3/31/2012 14,182.91 13,058.41 12,714.90
4/30/2012 14,320.11 13,212.66 12,855.86
5/31/2012 14,354.33 13,302.31 12,972.18
6/30/2012 14,429.43 13,351.70 12,977.27
7/31/2012 14,730.70 13,583.53 13,156.26
8/31/2012 14,851.51 13,631.08 13,164.86
9/30/2012 14,998.77 13,715.97 13,182.98
10/31/2012 15,204.39 13,775.39 13,208.91
11/30/2012 15,283.23 13,819.44 13,229.75
12/31/2012 15,324.47 13,824.10 13,210.92
1/31/2013 15,380.41 13,772.15 13,118.52
2/28/2013 15,508.42 13,846.86 13,184.27
3/31/2013 15,594.54 13,872.06 13,194.80
4/30/2013 15,804.67 14,023.14 13,328.31
5/31/2013 15,633.59 13,776.93 13,090.51
6/30/2013 15,263.30 13,479.04 12,888.02
7/31/2013 15,346.95 13,528.13 12,905.64
8/31/2013 15,261.84 13,429.91 12,839.67
9/30/2013 15,360.79 13,594.26 12,961.22
10/31/2013 15,546.78 13,722.43 13,066.01
11/30/2013 15,562.59 13,697.17 13,017.09
12/31/2013 15,539.84 13,617.14 12,943.53
1/31/2014 15,769.19 13,812.61 13,134.78
2/28/2014 15,900.11 13,902.27 13,204.61
3/31/2014 15,957.39 13,877.98 13,182.12
4/30/2014 16,116.67 13,989.61 13,293.36
5/31/2014 16,276.00 14,152.42 13,444.71
6/30/2014 16,347.03 14,174.40 13,451.66
7/31/2014 16,342.55 14,133.62 13,417.92
8/31/2014 16,474.27 14,281.98 13,566.04
9/30/2014 16,381.37 14,174.98 13,473.93
10/31/2014 16,452.05 14,302.22 13,606.37
11/30/2014 16,523.95 14,399.10 13,702.90
12/31/2014 16,451.14 14,375.39 13,715.75
1/31/2015 16,687.57 14,685.11 14,003.33
2/28/2015 16,636.38 14,581.58 13,871.68
3/31/2015 16,676.78 14,636.82 13,936.07
4/30/2015 16,670.89 14,599.22 13,886.08
5/31/2015 16,634.32 14,561.34 13,852.63
6/30/2015 16,444.58 14,397.66 13,701.56
7/31/2015 16,453.47 14,497.72 13,796.83
8/31/2015 16,307.92 14,434.38 13,776.99
9/30/2015 16,321.22 14,489.04 13,870.18
10/31/2015 16,377.03 14,531.55 13,872.54
11/30/2015 16,293.80 14,497.14 13,835.87
12/31/2015 16,085.36 14,410.67 13,791.17
1/31/2016 16,141.38 14,556.42 13,980.91
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Intermediate-Term Bond Fund Institutional Shares to the Fund's
benchmarks listed above (see page 8 for benchmark definitions).
*The performance of the Lipper Index and the Barclays U.S. Aggregate Bond Index
is calculated from the end of the month, July 31, 2008, while the inception
date of the Institutional Shares is August 1, 2008. There may be a slight
variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
12 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA
INTERMEDIATE-TERM LIPPER CORE
BOND FUND PLUS BOND
INSTITUTIONAL FUNDS
SHARES AVERAGE
1/31/2010 6.15% 4.60%
1/31/2011 5.64 3.71
1/31/2012 5.37 3.62
1/31/2013 4.69 3.06
1/31/2014 4.41 2.83
1/31/2015 4.13 3.15
1/31/2016 4.31 2.96
[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 net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data
for periods ending 1/31/10 through 1/31/16.
The Lipper Core Plus Bond Funds Average is the average performance level of all
investment-grade debt funds, as reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 13
================================================================================
USAA INTERMEDIATE-TERM BOND FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UITBX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $94.6 Million $118.8 Million
Net Asset Value Per Share $10.14 $10.58
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-2.15% -3.59% 3.88% 4.50%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-2.53% 4.10% 4.54%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
3.92% 0.89%
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 December 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.
================================================================================
14 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA
INTERMEDIATE-TERM BARCLAYS
BOND FUND U.S. AGGREGATE
ADVISER SHARES LIPPER INDEX BOND INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,167.97 10,150.54 10,128.67
9/30/2010 10,321.93 10,210.61 10,139.47
10/31/2010 10,473.75 10,272.28 10,175.57
11/30/2010 10,444.97 10,191.51 10,117.09
12/31/2010 10,402.80 10,102.74 10,007.99
1/31/2011 10,534.01 10,156.10 10,019.64
2/28/2011 10,629.23 10,197.61 10,044.70
3/31/2011 10,666.05 10,209.68 10,050.25
4/30/2011 10,836.23 10,360.78 10,177.83
5/31/2011 10,961.69 10,470.30 10,310.65
6/30/2011 10,882.66 10,419.36 10,280.46
7/31/2011 11,019.42 10,565.27 10,443.59
8/31/2011 10,898.39 10,609.15 10,596.17
9/30/2011 10,800.87 10,584.51 10,673.26
10/31/2011 10,949.26 10,672.52 10,684.72
11/30/2011 10,909.42 10,603.98 10,675.45
12/31/2011 11,040.42 10,737.36 10,792.78
1/31/2012 11,240.16 10,920.77 10,887.55
2/29/2012 11,327.45 10,962.07 10,885.05
3/31/2012 11,350.95 10,935.69 10,825.41
4/30/2012 11,468.29 11,064.87 10,945.43
5/31/2012 11,492.11 11,139.94 11,044.46
6/30/2012 11,537.81 11,181.31 11,048.79
7/31/2012 11,774.97 11,375.45 11,201.19
8/31/2012 11,867.33 11,415.27 11,208.51
9/30/2012 11,981.60 11,486.36 11,223.94
10/31/2012 12,142.42 11,536.12 11,246.01
11/30/2012 12,211.85 11,573.01 11,263.76
12/31/2012 12,240.84 11,576.91 11,247.72
1/31/2013 12,270.24 11,533.41 11,169.05
2/28/2013 12,379.76 11,595.97 11,225.04
3/31/2013 12,444.20 11,617.08 11,234.00
4/30/2013 12,596.42 11,743.60 11,347.67
5/31/2013 12,455.72 11,537.42 11,145.21
6/30/2013 12,156.60 11,287.95 10,972.81
7/31/2013 12,219.48 11,329.06 10,987.81
8/31/2013 12,147.56 11,246.80 10,931.64
9/30/2013 12,222.46 11,384.43 11,035.13
10/31/2013 12,377.93 11,491.77 11,124.35
11/30/2013 12,386.38 11,470.61 11,082.70
12/31/2013 12,352.59 11,403.60 11,020.07
1/31/2014 12,531.20 11,567.29 11,182.90
2/28/2014 12,643.21 11,642.38 11,242.36
3/31/2014 12,672.93 11,622.04 11,223.21
4/30/2014 12,795.45 11,715.52 11,317.91
5/31/2014 12,917.79 11,851.87 11,446.77
6/30/2014 12,970.20 11,870.27 11,452.69
7/31/2014 12,962.55 11,836.12 11,423.96
8/31/2014 13,075.34 11,960.36 11,550.08
9/30/2014 12,986.88 11,870.76 11,471.65
10/31/2014 13,051.48 11,977.32 11,584.41
11/30/2014 13,093.40 12,058.45 11,666.59
12/31/2014 13,044.24 12,038.59 11,677.53
1/31/2015 13,216.24 12,297.96 11,922.38
2/28/2015 13,172.46 12,211.26 11,810.29
3/31/2015 13,200.97 12,257.52 11,865.12
4/30/2015 13,192.98 12,226.04 11,822.55
5/31/2015 13,172.94 12,194.31 11,794.07
6/30/2015 13,006.82 12,057.24 11,665.46
7/31/2015 13,022.14 12,141.03 11,746.57
8/31/2015 12,903.60 12,087.99 11,729.67
9/30/2015 12,898.53 12,133.76 11,809.01
10/31/2015 12,939.27 12,169.37 11,811.03
11/30/2015 12,882.46 12,140.55 11,779.80
12/31/2015 12,714.05 12,068.13 11,741.75
1/31/2016 12,742.08 12,190.19 11,903.29
[END CHART]
Data from 7/31/10 to 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Intermediate-Term Bond Fund Adviser Shares to the Fund's benchmarks
listed above (see page 8 for benchmark definitions).
*The performance of the Lipper Index and the Barclays U.S. Aggregate Bond 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
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.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA
INTERMEDIATE-TERM LIPPER CORE
BOND FUND PLUS BOND
ADVISER SHARES FUNDS AVERAGE
1/31/2012 4.93% 3.62%
1/31/2013 4.31 3.06
1/31/2014 4.02 2.83
1/31/2015 3.80 3.15
1/31/2016 3.98 2.96
[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 net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data
for periods ending 1/31/12 through 1/31/16.
The Lipper Core Plus Bond Funds Average is the average performance level of all
investment-grade debt funds, as reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
16 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 13.6%
AA 6.0%
A 20.4%
BBB 48.2%
BELOW INVESTMENT-GRADE 9.8%
UNRATED 2.0%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 19-43.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
o ASSET ALLOCATION - 1/31/16 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 57.0%
EURODOLLAR AND YANKEE OBLIGATIONS 16.7%
COMMERCIAL MORTGAGE SECURITIES 8.8%
U.S. TREASURY SECURITIES 7.5%
MUNICIPAL BONDS 4.2%
PREFERRED STOCKS 2.6%
ASSET-BACKED SECURITIES 1.1%
U.S. GOVERNMENT AGENCY ISSUES 0.4%
FOREIGN GOVERNMENT OBLIGATIONS 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
MONEY MARKET INSTRUMENTS 0.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
18 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (57.0%)
CONSUMER DISCRETIONARY (3.2%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
$ 2,000 Lear Corp. 4.75% 1/15/2023 $ 2,030
----------
AUTOMOTIVE RETAIL (0.5%)
10,302 Advance Auto Parts, Inc. 4.50 12/01/2023 10,571
5,500 CST Brands, Inc. 5.00 5/01/2023 5,514
----------
16,085
----------
CABLE & SATELLITE (0.9%)
20,000 CCO Safari II, LLC(a) 4.91 7/23/2025 20,050
1,000 Comcast Corp. 6.50 1/15/2017 1,051
5,000 NBCUniversal Enterprise, Inc.(a) 1.97 4/15/2019 5,028
3,750 Neptune Finco Corp.(b) 0.05 10/09/2022 3,750
----------
29,879
----------
DEPARTMENT STORES (0.5%)
3,200 Dillard's, Inc. 7.13 8/01/2018 3,502
10,346 J.C. Penney Corp., Inc.(b) 0.06 5/22/2018 10,126
851 Macy's Retail Holdings, Inc. 5.90 12/01/2016 883
2,000 Macy's Retail Holdings, Inc. 7.45 7/15/2017 2,152
----------
16,663
----------
GENERAL MERCHANDISE STORES (0.1%)
1,730 Dollar Tree, Inc.(b) 0.04 7/06/2022 1,728
----------
HOME FURNISHINGS (0.2%)
4,428 Serta Simmons Holdings, LLC(b) 0.04 10/01/2019 4,409
----------
HOMEBUILDING (0.2%)
2,000 D.R. Horton, Inc. 5.75 8/15/2023 2,115
5,000 Lennar Corp. 4.50 11/15/2019 5,163
----------
7,278
----------
HOUSEHOLD APPLIANCES (0.0%)
1,000 Whirlpool Corp. 7.75 7/15/2016 1,029
----------
RESTAURANTS (0.1%)
3,793 1011778 B.C. Unlimited Liability Co.(b) 0.04 12/10/2021 3,775
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
SPECIALIZED CONSUMER SERVICES (0.1%)
$ 1,000 Service Corp. International 7.63% 10/01/2018 $ 1,124
2,000 Service Corp. International 5.38 5/15/2024 2,125
----------
3,249
----------
SPECIALTY STORES (0.5%)
4,392 Harbor Freight Tools USA, Inc.(b) 0.05 7/26/2019 4,398
2,978 PetSmart, Inc.(b) 0.04 3/11/2022 2,891
2,000 Sally Holdings, LLC / Sally Capital, Inc. 5.75 6/01/2022 2,098
6,000 Staples, Inc.(b),(c) 4.75 1/29/2022 5,966
----------
15,353
----------
Total Consumer Discretionary 101,478
----------
CONSUMER STAPLES (2.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
2,000 Cargill, Inc.(a) 6.00 11/27/2017 2,144
----------
DRUG RETAIL (0.8%)
5,000 CVS Health Corp. 4.88 7/20/2035 5,207
9,000 CVS Pass-Through Trust(a),(d) 5.93 1/10/2034 9,945
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 9,862
----------
25,014
----------
FOOD RETAIL (0.1%)
3,850 Albertson's, LLC(b) 0.05 8/25/2019 3,773
----------
PACKAGED FOODS & MEAT (1.2%)
10,000 J.M. Smucker Co. 4.25 3/15/2035 9,894
15,000 Kraft Foods Group, Inc. 3.50 6/06/2022 15,360
1,799 Kraft Heinz Foods Co(a) 4.88 2/15/2025 1,926
3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,595
10,000 Tyson Foods, Inc. 3.95 8/15/2024 10,371
----------
41,146
----------
Total Consumer Staples 72,077
----------
ENERGY (8.4%)
-------------
OIL & GAS DRILLING (0.7%)
10,000 Nabors Industries, Inc. 4.63 9/15/2021 7,445
5,000 Noble Holding International Ltd. 2.50 3/15/2017 4,401
1,000 Noble Holding International Ltd. 4.90 8/01/2020 603
3,000 Noble Holding International Ltd. 3.95 3/15/2022 1,524
5,000 Noble Holding International Ltd. 5.95 4/01/2025 2,522
5,000 Transocean, Inc.(d) 5.80 12/15/2016 4,869
----------
21,364
----------
================================================================================
20 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (0.2%)
$ 3,079 SEACOR Holdings, Inc. 7.38% 10/01/2019 $ 2,756
2,000 SESI, LLC 7.13 12/15/2021 1,425
2,000 Weatherford Bermuda 9.63 3/01/2019 1,580
3,180 Weatherford International Ltd. 5.13 9/15/2020 2,281
----------
8,042
----------
OIL & GAS EXPLORATION & PRODUCTION (1.5%)
8,000 Anadarko Petroleum Corp. 6.38 9/15/2017 8,084
1,830 Chesapeake Energy Corp.(a) 8.00 12/15/2022 791
4,000 Denbury Resources, Inc. 6.38 8/15/2021 1,460
2,000 Devon Energy Corp. 6.30 1/15/2019 1,865
5,000 Devon Energy Corp. 5.85 12/15/2025 4,678
2,000 EQT Corp. 6.50 4/01/2018 2,093
1,000 EQT Corp. 8.13 6/01/2019 1,081
3,000 EQT Corp. 4.88 11/15/2021 2,713
2,000 Hess Corp. 8.13 2/15/2019 2,063
5,000 Newfield Exploration Co. 5.38 1/01/2026 4,050
2,000 Noble Energy, Inc. 8.25 3/01/2019 2,179
5,000 Pioneer Natural Resource 3.95 7/15/2022 4,658
1,000 Polar Tankers, Inc.(a) 5.95 5/10/2037 1,154
900 QEP Resources, Inc. 6.80 3/01/2020 763
5,000 QEP Resources, Inc. 6.88 3/01/2021 3,825
10,000 Southwestern Energy Co. 4.10 3/15/2022 6,387
2,000 Southwestern Energy Co. 4.95 1/23/2025 1,242
----------
49,086
----------
OIL & GAS REFINING & MARKETING (0.2%)
5,000 Marathon Petroleum Corp. 4.75 9/15/2044 3,809
2,000 Motiva Enterprises, LLC(a) 5.75 1/15/2020 2,167
----------
5,976
----------
OIL & GAS STORAGE & TRANSPORTATION (5.8%)
15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 12,724
250 Buckeye Partners, LP 5.13 7/01/2017 255
10,000 Buckeye Partners, LP 2.65 11/15/2018 9,687
10,000 Buckeye Partners, LP 4.35 10/15/2024 8,235
10,000 Columbia Pipeline Group, Inc.(a) 4.50 6/01/2025 9,037
3,000 DCP Midstream Operating, LP 4.95 4/01/2022 2,256
4,000 DCP Midstream Operating, LP 3.88 3/15/2023 2,697
18,000 DCP Midstream, LLC(a) 5.85 5/21/2043 10,350
19,000 Enbridge Energy Partners, LP 8.05 10/01/2077 13,442
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,082
16,000 Energy Transfer Partners, LP 3.35(e) 11/01/2066 9,440
6,000 EnLink Midstream Partners, LP 4.15 6/01/2025 4,114
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 1,000 Enterprise Products Operating, LLC 8.38% 8/01/2066 $ 803
5,000 Enterprise Products Operating, LLC 7.00 6/01/2067 4,013
11,800 Enterprise Products Operating, LLC 7.03 1/15/2068 11,829
5,000 EQT Midstream Partners, LP 4.00 8/01/2024 3,874
3,000 Gulfstream Natural Gas System, LLC(a) 6.95 6/01/2016 3,048
2,000 Kinder Morgan Energy Partners 6.50 4/01/2020 2,043
7,000 Kinder Morgan Energy Partners(d) 5.00 10/01/2021 6,622
1,000 Kinder Morgan, Inc. 6.50 9/15/2020 1,002
6,000 Kinder Morgan, Inc.(a) 5.00 2/15/2021 5,728
7,500 MPLX, LP 4.00 2/15/2025 5,555
12,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 11,340
2,000 NuStar Logistics, LP 8.15 4/15/2018 1,970
5,000 NuStar Logistics, LP 4.80 9/01/2020 4,275
3,000 NuStar Logistics, LP 4.75 2/01/2022 2,475
2,000 ONEOK Partners, LP 8.63 3/01/2019 2,144
5,000 ONEOK Partners, LP 4.90 3/15/2025 4,023
8,000 ONEOK, Inc. 4.25 2/01/2022 5,560
1,000 Plains All American Pipeline, LP 8.75 5/01/2019 1,101
1,000 Questar Pipeline Co. 5.83 2/01/2018 1,077
2,000 Southern Union Co. 3.35(e) 11/01/2066 1,015
1,000 Spectra Energy Capital, LLC 8.00 10/01/2019 1,121
4,500 Targa Resources Partners, LP 5.00 1/15/2018 4,224
3,000 Targa Resources Partners, LP 6.88 2/01/2021 2,610
2,000 Tennessee Gas Pipeline Co. 7.00 10/15/2028 1,983
3,000 Transcontinental Gas Pipe Line Co., LLC(a) 7.85 2/01/2026 3,134
5,000 Western Gas Partners, LP 5.38 6/01/2021 4,673
10,000 Williams Companies, Inc. 4.55 6/24/2024 6,565
----------
187,126
----------
Total Energy 271,594
----------
FINANCIALS (24.7%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.4%)
10,000 Ares Capital Corp. 4.88 11/30/2018 10,317
10,000 FS Investment Corp. 4.00 7/15/2019 10,114
5,000 Main Street Capital Corp. 4.50 12/01/2019 5,104
11,400 Prospect Capital Corp. 5.00 7/15/2019 11,457
10,000 State Street Capital Trust IV 1.51(e) 6/01/2077 7,867
----------
44,859
----------
CONSUMER FINANCE (0.3%)
8,000 American Express Co. 6.80 9/01/2066 7,910
----------
DIVERSIFIED BANKS (2.2%)
1,000 Bank of America Corp. 8.00 -(f) 1,011
1,000 Bank of America Corp. 8.13 -(f) 1,016
================================================================================
22 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,000 Bank of America Corp. 5.63% 10/14/2016 $ 2,061
2,000 Bank of America Corp. 5.75 12/01/2017 2,128
10,000 Bank of America Corp. 1.66(e) 3/22/2018 10,011
10,000 Bank of America Corp. 4.20 8/26/2024 9,945
15,000 Citigroup, Inc. 4.40 6/10/2025 15,009
1,000 Comerica Bank 5.20 8/22/2017 1,052
6,035 Compass Bank 6.40 10/01/2017 6,377
2,000 JPMorgan Chase Capital XIII 1.55(e) 9/30/2034 1,682
10,000 JPMorgan Chase Capital XXI 1.28(e) 1/15/2087 7,588
7,500 USB Realty Corp.(a) 1.77(e) -(f) 6,394
5,000 Wells Fargo & Co. 3.50 3/08/2022 5,228
----------
69,502
----------
INVESTMENT BANKING & BROKERAGE (0.3%)
10,000 Morgan Stanley 4.88 11/01/2022 10,651
----------
LIFE & HEALTH INSURANCE (2.1%)
3,000 American Equity Investment Life Holding Co. 6.63 7/15/2021 3,135
2,000 Forethought Financial Group(a) 8.63 4/15/2021 2,307
13,018 Lincoln National Corp. 7.00(e) 5/17/2066 9,731
5,000 MetLife Capital Trust X(a) 9.25 4/08/2068 6,712
8,000 MetLife, Inc. 6.40 12/15/2066 8,420
1,000 Ohio National Financial Services, Inc.(a) 6.38 4/30/2020 1,127
2,000 Ohio National Financial Services, Inc.(a) 6.63 5/01/2031 2,432
5,000 Primerica, Inc. 4.75 7/15/2022 5,421
3,000 Principal Financial Global Fund, LLC 1.14(e) 1/10/2031 2,692
2,000 Prudential Financial, Inc. 6.00 12/01/2017 2,157
10,000 Prudential Financial, Inc. 5.88 9/15/2042 10,500
16,271 StanCorp Financial Group, Inc. 6.90 6/01/2067 13,261
----------
67,895
----------
MULTI-LINE INSURANCE (1.4%)
2,000 American International Group, Inc. 8.18 5/15/2068 2,608
10,000 Genworth Holdings, Inc. 6.15 11/15/2066 2,700
14,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 10,815
10,000 Kemper Corp. 4.35 2/15/2025 10,204
20,235 Nationwide Mutual Insurance Co.(a) 2.80(e) 12/15/2024 19,618
----------
45,945
----------
MULTI-SECTOR HOLDINGS (0.5%)
5,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 5,013
10,000 BNSF Funding Trust I 6.61 12/15/2055 11,175
----------
16,188
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
5,000 Icahn Enterprises, LP 3.50 3/15/2017 4,975
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (4.8%)
$ 2,000 Allied World Assurance Holdings Ltd. 7.50% 8/01/2016 $ 2,059
2,000 Allied World Assurance Holdings Ltd. 5.50 11/15/2020 2,206
5,000 Allied World Assurance Holdings Ltd. 4.35 10/29/2025 4,987
15,000 Allstate Corp. 5.75 8/15/2053 15,309
5,000 Allstate Corp.(d) 6.13 5/15/2067 4,950
7,500 AmTrust Financial Services, Inc. 6.13 8/15/2023 8,015
1,535 Assured Guaranty U.S. Holdings, Inc. 7.00 6/01/2034 1,668
1,000 Assured Guaranty U.S. Holdings, Inc. 6.40 12/15/2066 693
25,000 Chubb Corp. 6.38 3/29/2067 23,475
9,760 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 11,346
4,000 Markel Corp. 3.63 3/30/2023 4,005
5,000 Navigators Group, Inc. 5.75 10/15/2023 5,451
15,000 Oil Insurance Ltd.(a) 3.59(e) -(f) 13,350
10,025 OneBeacon U.S. Holdings, Inc. 4.60 11/09/2022 10,346
10,000 ProAssurance Corp. 5.30 11/15/2023 10,840
20,010 Progressive Corp. 6.70 6/15/2067 20,010
5,000 RLI Corp. 4.88 9/15/2023 5,290
5,000 Sirius International Group(a) 6.38 3/20/2017 5,158
5,000 Travelers Companies, Inc.(d) 6.25 3/15/2067 4,975
----------
154,133
----------
REGIONAL BANKS (5.4%)
10,000 Associated Banc-Corp. 4.25 1/15/2025 10,236
10,000 Banc of California, Inc. 5.25 4/15/2025 10,041
1,750 Bank of Oklahoma, N.A.(d) 1.05(e) 5/15/2017 1,739
5,000 BankUnited, Inc. 4.88 11/17/2025 4,963
15,000 Citizens Financial Group, Inc.(a) 4.15 9/28/2022 15,431
4,750 CoBiz Financial, Inc. 5.63 6/25/2030 5,018
2,000 Cullen/Frost Bankers, Inc. 0.89(e) 2/15/2017 1,989
10,000 Cullen/Frost Capital Trust II 1.96(e) 3/01/2034 8,799
5,000 First Financial Bancorp 5.13 8/25/2025 5,066
1,000 First Maryland Capital Trust I 1.62(e) 1/15/2027 844
10,000 First Niagara Financial Group, Inc.(d) 7.25 12/15/2021 11,933
3,000 First Tennessee Bank, N.A. 5.65 4/01/2016 3,016
5,000 FirstMerit Bank, N.A. 4.27 11/25/2026 5,171
10,000 FirstMerit Corp. 4.35 2/04/2023 10,270
10,000 Fulton Financial Corp. 4.50 11/15/2024 10,179
1,000 Hancock Holding Co. 5.88 4/01/2017 1,034
5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 4,963
2,000 Key Bank, N.A. 5.45 3/03/2016 2,009
750 KeyCorp Capital II 6.88 3/17/2029 876
16,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 15,720
5,000 MUFG Americas Holdings Corp. 3.50 6/18/2022 5,201
================================================================================
24 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 People's United Bank 4.00% 7/15/2024 $ 9,874
10,000 People's United Financial, Inc. 3.65 12/06/2022 9,886
5,000 SunTrust Capital I 1.03(e) 5/15/2027 4,038
2,000 TCF National Bank 5.50 2/01/2016 2,000
5,000 TCF National Bank 4.60 2/27/2025 5,020
5,000 Webster Financial Corp. 4.38 2/15/2024 5,121
1,000 Wilmington Trust Corp. 8.50 4/02/2018 1,129
3,500 Wintrust Financial Corp. 5.00 6/13/2024 3,520
----------
175,086
----------
REINSURANCE (0.5%)
5,000 Alleghany Corp. 5.63 9/15/2020 5,526
6,259 Alterra USA Holdings Ltd.(a) 7.20 4/14/2017 6,584
5,000 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 5,336
----------
17,446
----------
REITs - DIVERSIFIED (0.2%)
1,000 Liberty Property, LP 6.63 10/01/2017 1,069
5,000 Washington REIT 3.95 10/15/2022 5,012
----------
6,081
----------
REITs - HEALTH CARE (0.7%)
2,000 Nationwide Health Properties, Inc. 6.90 10/01/2037 2,564
10,000 Omega Healthcare Investors, Inc. 4.95 4/01/2024 10,167
2,000 Senior Housing Properties Trust(d) 6.75 12/15/2021 2,277
2,000 Welltower, Inc. 4.70 9/15/2017 2,089
3,000 Welltower, Inc. 6.13 4/15/2020 3,397
2,000 Welltower, Inc. 4.95 1/15/2021 2,176
----------
22,670
----------
REITs - OFFICE (1.2%)
7,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 7,486
2,000 BioMed Realty, LP 6.13 4/15/2020 2,326
3,000 BioMed Realty, LP 4.25 7/15/2022 3,353
2,000 Boston Properties, LP 5.88 10/15/2019 2,234
8,000 Boston Properties, LP 3.85 2/01/2023 8,285
1,000 Brandywine Operating Partnership, LP 6.00 4/01/2016 1,007
6,000 Columbia Property Trust Operating Partnership, LP(d) 5.88 4/01/2018 6,423
92 Duke Realty, LP 5.95 2/15/2017 96
932 Duke Realty, LP 6.50 1/15/2018 1,011
2,000 Equity Commonwealth 6.25 8/15/2016 2,003
1,000 Equity Commonwealth 6.65 1/15/2018 1,060
1,000 Mack-Cali Realty, LP 7.75 8/15/2019 1,117
1,000 Reckson Operating Partnership, LP 6.00 3/31/2016 1,007
----------
37,408
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - RESIDENTIAL (0.5%)
$ 5,550 AvalonBay Communities, Inc. 2.85% 3/15/2023 $ 5,460
10,000 UDR, Inc. 4.63 1/10/2022 10,886
----------
16,346
----------
REITs - RETAIL (1.1%)
5,000 CBL & Associates, LP 5.25 12/01/2023 4,915
3,000 Federal Realty Investment Trust 3.00 8/01/2022 3,033
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,789
1,000 National Retail Properties, Inc. 6.88 10/15/2017 1,079
5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,027
2,000 Realty Income Corp. 5.95 9/15/2016 2,055
2,000 Realty Income Corp. 5.75 1/15/2021 2,252
2,100 Realty Income Corp. 3.25 10/15/2022 2,061
5,000 Realty Income Corp. 4.13 10/15/2026 5,178
1,500 Regency Centers, LP 5.88 6/15/2017 1,582
----------
36,971
----------
REITs - SPECIALIZED (1.3%)
5,000 American Tower Corp. 3.45 9/15/2021 5,018
5,000 American Tower Corp.(d) 5.90 11/01/2021 5,675
21,204 CC Holdings GS V, LLC / Crown Castle III Corp. 3.85 4/15/2023 21,345
3,980 Communications Sales & Leasing, Inc.(b) 0.05 10/24/2022 3,742
6,000 EPR Properties 7.75 7/15/2020 7,084
----------
42,864
----------
SPECIALIZED FINANCE (0.3%)
10,000 McGraw Hill Financial, Inc. 4.00 6/15/2025 10,109
----------
THRIFTS & MORTGAGE FINANCE (0.3%)
10,000 EverBank Financial Corp. 5.75 7/02/2025 10,362
----------
Total Financials 797,401
----------
HEALTH CARE (1.2%)
------------------
BIOTECHNOLOGY (0.1%)
5,000 Baxalta, Inc.(a) 4.00 6/23/2025 4,979
----------
PHARMACEUTICALS (1.1%)
10,000 Actavis Funding SCS 3.80 3/15/2025 10,165
5,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 4,363
5,000 Mylan N.V.(a) 3.75 12/15/2020 5,062
1,000 Pfizer, Inc. 6.05 3/30/2017 1,059
15,000 Zoetis, Inc. 3.25 2/01/2023 14,348
----------
34,997
----------
Total Health Care 39,976
----------
================================================================================
26 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
INDUSTRIALS (6.0%)
------------------
AEROSPACE & DEFENSE (0.9%)
$ 10,000 L-3 Communications Corp. 5.20% 10/15/2019 $ 10,674
15,000 Lockheed Martin Corp. 3.60 3/01/2035 13,704
5,000 United Technologies Corp. 3.10 6/01/2022 5,176
----------
29,554
----------
AIR FREIGHT & LOGISTICS (0.3%)
10,000 FedEx Corp. 3.90 2/01/2035 9,190
----------
AIRLINES (1.9%)
55 America West Airlines, Inc. Pass-Through Trust 6.87 7/02/2018 55
744 America West Airlines, Inc. Pass-Through Trust (INS)(d) 7.93 7/02/2020 795
8,754 American Airlines, Inc. Pass-Through Trust 4.00 1/15/2027 8,886
3,255 Continental Airlines, Inc. Pass-Through Trust 9.00 1/08/2018 3,356
633 Continental Airlines, Inc. Pass-Through Trust 6.55 8/02/2020 671
709 Continental Airlines, Inc. Pass-Through Trust (INS) 6.24 9/15/2021 752
9,646 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 9,949
9,016 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 1/15/2026 8,779
7,000 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 7,044
4,760 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,968
1,098 US Airways Group, Inc. Pass-Through Trust (INS) 7.08 9/20/2022 1,173
3,547 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,907
2,263 US Airways Group, Inc. Pass-Through Trust(d) 7.13 4/22/2025 2,603
9,046 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 9,171
----------
62,109
----------
BUILDING PRODUCTS (0.1%)
1,000 USG Corp. 6.30 11/15/2016 1,027
1,000 USG Corp. 9.75 1/15/2018 1,105
----------
2,132
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.6%)
5,000 CNH Industrial Capital, LLC 3.88 7/16/2018 4,863
10,000 CNH Industrial Capital, LLC 3.38 7/15/2019 9,250
4,938 Terex Corp.(b) 0.04 8/13/2021 4,888
----------
19,001
----------
INDUSTRIAL CONGLOMERATES (0.7%)
6,440 GE Capital Trust I 6.38 11/15/2067 6,943
9,000 General Electric Capital Corp. 6.38 11/15/2067 9,563
5,921 General Electric Co. 5.00 -(f) 6,091
----------
22,597
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (0.2%)
$ 1,500 SPX Flow, Inc. 6.88% 9/01/2017 $ 1,592
6,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 6,282
----------
7,874
----------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
7,000 ILFC E-Capital Trust I(a) 4.49(e) 12/21/2065 6,300
2,000 ILFC E-Capital Trust II(a) 4.74(e) 12/21/2065 1,810
6,000 International Lease Finance Corp.(a) 7.13 9/01/2018 6,510
----------
14,620
----------
TRUCKING (0.9%)
1,000 ERAC USA Finance, LLC(a) 6.20 11/01/2016 1,035
5,000 ERAC USA Finance, LLC(a) 3.30 10/15/2022 4,976
20,000 Penske Truck Leasing Co., LP(a) 4.25 1/17/2023 20,231
1,960 YRC Worldwide, Inc.(b) 0.08 2/13/2019 1,634
----------
27,876
----------
Total Industrials 194,953
----------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.3%)
10,000 QUALCOMM, Inc. 3.45 5/20/2025 9,744
----------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
5,000 Molex Electronic Technologies, LLC(a) 3.90 4/15/2025 4,742
----------
Total Information Technology 14,486
----------
MATERIALS (2.3%)
----------------
ALUMINUM (0.3%)
10,000 Alcoa, Inc. 5.40 4/15/2021 8,993
----------
CONSTRUCTION MATERIALS (0.3%)
3,000 CRH America, Inc. 5.75 1/15/2021 3,383
5,000 Martin Marietta Materials, Inc. 4.25 7/02/2024 5,002
----------
8,385
----------
DIVERSIFIED CHEMICALS (0.0%)
1,000 E.I. du Pont de Nemours & Co. 6.00 7/15/2018 1,093
----------
DIVERSIFIED METALS & MINING (0.1%)
10,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 4,300
----------
METAL & GLASS CONTAINERS (0.1%)
1,000 Ball Corp. 5.00 3/15/2022 1,040
2,500 Ball Corp. 5.25 7/01/2025 2,578
----------
3,618
----------
================================================================================
28 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PAPER PACKAGING (0.3%)
$ 5,000 Rock-Tenn Co. 4.45% 3/01/2019 $ 5,257
5,153 Sealed Air Corp.(a) 6.88 7/15/2033 5,314
----------
10,571
----------
PAPER PRODUCTS (0.6%)
3,000 Georgia-Pacific, LLC 7.25 6/01/2028 3,835
3,000 International Paper Co. 7.50 8/15/2021 3,600
5,000 International Paper Co.(d) 4.75 2/15/2022 5,374
5,000 International Paper Co. 3.80 1/15/2026 4,872
----------
17,681
----------
STEEL (0.6%)
2,000 Allegheny Technologies, Inc. 9.38 6/01/2019 1,486
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 6,350
3,000 Allegheny Technologies, Inc. 7.63 8/15/2023 1,995
2,000 Carpenter Technology Corp.(d) 5.20 7/15/2021 2,047
8,000 Worthington Industries, Inc. 4.55 4/15/2026 8,097
----------
19,975
----------
Total Materials 74,616
----------
MUNICIPAL BONDS (0.4%)
----------------------
EDUCATION (0.1%)
3,000 Rensselaer Polytechnic Institute 5.60 9/01/2020 3,413
----------
HOSPITAL (0.3%)
5,000 Bon Secours Charity Health System, Inc. 5.25 11/01/2025 5,138
3,000 Novant Health, Inc. 5.35 11/01/2016 3,096
----------
8,234
----------
MISCELLANEOUS (0.0%)
511 Keenan Dev. Association of Tennessee, LLC (INS)(a) 5.02 7/15/2028 559
----------
Total Municipal Bonds 12,206
----------
TELECOMMUNICATION SERVICES (1.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.1%)
10,000 AT&T, Inc. 4.50 5/15/2035 9,047
2,000 CenturyLink, Inc. 6.45 6/15/2021 1,959
5,000 CenturyLink, Inc. 5.80 3/15/2022 4,644
2,000 CenturyLink, Inc. 6.75 12/01/2023 1,900
3,301 Frontier Communications Corp. 8.25 4/15/2017 3,470
3,000 Frontier Communications Corp. 6.25 9/15/2021 2,543
5,000 Frontier Communications Corp.(a) 11.00 9/15/2025 4,837
6,000 Qwest Corp.(g) 6.75 12/01/2021 6,270
2,000 Windstream Corp. 7.88 11/01/2017 2,100
----------
36,770
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
$ 4,887 Grain Spectrum Funding II(a) 3.29% 10/10/2034 $ 4,893
1,500 SBA Telecommunications, Inc. 5.75 7/15/2020 1,562
----------
6,455
----------
Total Telecommunication Services 43,225
----------
UTILITIES (6.8%)
----------------
ELECTRIC UTILITIES (3.2%)
7,876 Bruce Mansfield Unit Pass-Through Trust 6.85 6/01/2034 7,878
2,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 2,353
2,000 Commonwealth Edison Co. 5.80 3/15/2018 2,172
1,045 Duke Energy Progress, Inc. 6.13 9/15/2033 1,280
13,000 Duquesne Light Holdings, Inc.(a) 6.40 9/15/2020 14,888
3,500 Duquesne Light Holdings, Inc.(a) 5.90 12/01/2021 3,973
164 FPL Energy National Wind, LLC(a) 5.61 3/10/2024 165
3,000 Great Plains Energy, Inc. 6.88 9/15/2017 3,193
2,000 Indiana Michigan Power Co. 7.00 3/15/2019 2,287
12,500 IPALCO Enterprises, Inc.(d) 5.00 5/01/2018 13,125
2,000 Metropolitan Edison Co. 7.70 1/15/2019 2,251
1,000 Nevada Power Co. 6.50 5/15/2018 1,118
14,000 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 9,590
1,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 933
3,000 NV Energy, Inc. 6.25 11/15/2020 3,467
2,000 Oglethorpe Power Corp. 6.10 3/15/2019 2,227
5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 4,380
15,000 PPL Capital Funding, Inc. 6.70 3/30/2067 11,553
3,000 Public Service Co. of New Mexico 7.95 5/15/2018 3,383
6,900 Southern California Edison Co. 6.25 -(f) 7,607
4,000 Texas - New Mexico Power Co.(a) 9.50 4/01/2019 4,825
----------
102,648
----------
GAS UTILITIES (1.0%)
2,000 Atmos Energy Corp. 6.35 6/15/2017 2,129
1,000 Atmos Energy Corp. 8.50 3/15/2019 1,176
2,000 Florida Gas Transmission Co.(a) 7.90 5/15/2019 2,270
3,000 Florida Gas Transmission Co.(a) 5.45 7/15/2020 3,232
4,000 National Fuel Gas Co.(d) 4.90 12/01/2021 4,192
10,000 National Fuel Gas Co. 3.75 3/01/2023 8,508
1,000 National Fuel Gas Co. 7.38 6/13/2025 1,058
8,110 SourceGas, LLC(a) 5.90 4/01/2017 8,430
2,000 Southern Natural Gas Co., LLC(a) 5.90 4/01/2017 2,029
1,000 Southern Star Central Gas Pipeline, Inc.(a) 6.00 6/01/2016 1,009
----------
34,033
----------
================================================================================
30 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
$ 2,000 DPL, Inc. 6.50% 10/15/2016 $ 2,050
----------
MULTI-UTILITIES (2.2%)
1,000 Ameren Illinois Co. 6.13 11/15/2017 1,081
2,000 Ameren Illinois Co. 9.75 11/15/2018 2,411
3,000 Black Hills Corp. 5.88 7/15/2020 3,348
5,000 Black Hills Corp. 3.95 1/15/2026 5,140
2,000 CMS Energy Corp. 6.25 2/01/2020 2,275
3,000 CMS Energy Corp. 5.05 3/15/2022 3,334
5,000 Consumers Energy Co. 2.85 5/15/2022 5,063
6,050 Dominion Resources, Inc. 7.50(e) 6/30/2066 5,074
10,000 Dominion Resources, Inc. 2.90(e) 9/30/2066 6,949
19,663 Integrys Holding, Inc. 6.11 12/01/2066 14,356
13,500 Puget Sound Energy, Inc. 6.97 6/01/2067 10,361
2,000 Sempra Energy 9.80 2/15/2019 2,408
14,500 WEC Energy Group, Inc. 6.25 5/15/2067 10,513
----------
72,313
----------
WATER UTILITIES (0.3%)
10,000 Aquarion Co., Inc.(a) 4.00 8/15/2024 9,963
----------
Total Utilities 221,007
----------
Total Corporate Obligations (cost: $1,898,375) 1,843,019
----------
EURODOLLAR AND YANKEE OBLIGATIONS (16.7%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.2%)
5,000 Daimler Finance, N.A., LLC(a) 2.25 7/31/2019 4,989
----------
PUBLISHING (0.1%)
4,622 Pearson Funding Four plc(a) 3.75 5/08/2022 4,632
----------
Total Consumer Discretionary 9,621
----------
CONSUMER STAPLES (2.1%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
8,000 Viterra, Inc.(a) 5.95 8/01/2020 6,486
----------
BREWERS (0.6%)
15,000 Anheuser-Busch InBev Worldwide, Inc. 3.65 2/01/2026 15,221
5,000 SABMiller Holdings, Inc.(a) 3.75 1/15/2022 5,187
----------
20,408
----------
DISTILLERS & VINTNERS (0.5%)
10,000 JB y Co. S.A. De C.V.(a) 3.75 5/13/2025 9,673
5,000 Pernod Ricard S.A.(a) 2.95 1/15/2017 5,052
----------
14,725
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.0%)
$ 535 Ahold Lease USA, Inc. Pass-Through Trust 7.82% 1/02/2020 $ 579
----------
PACKAGED FOODS & MEAT (0.2%)
4,713 JBS S.A. 10.50 8/04/2016 4,807
----------
TOBACCO (0.6%)
10,000 BAT International Finance plc(a) 3.25 6/07/2022 10,308
10,000 Imperial Tobacco Finance plc(a) 4.25 7/21/2025 10,282
----------
20,590
----------
Total Consumer Staples 67,595
----------
ENERGY (1.0%)
--------------
INTEGRATED OIL & GAS (0.4%)
1,000 Husky Energy, Inc. 7.25 12/15/2019 1,043
10,000 Petrobras Global Finance B.V. 4.88 3/17/2020 7,562
5,000 Petroleos Mexicanos(a) 4.50 1/23/2026 4,313
----------
12,918
----------
OIL & GAS DRILLING (0.0%)
1,115 QGOG Atlantic/Alaskan Rigs Ltd.(a),(d) 5.25 7/30/2019 725
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
1,500 Repsol Oil & Gas Canada, Inc. 7.75 6/01/2019 1,391
2,000 Woodside Finance Ltd.(a) 4.60 5/10/2021 2,024
----------
3,415
----------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
5,000 APT Pipelines Ltd.(a) 4.20 3/23/2025 4,822
1,275 Nakilat, Inc.(a) 6.07 12/31/2033 1,345
2,000 TransCanada PipeLines Ltd. 7.13 1/15/2019 2,217
11,860 TransCanada PipeLines Ltd. 6.35 5/15/2067 7,946
----------
16,330
----------
Total Energy 33,388
----------
FINANCIALS (5.5%)
-----------------
DIVERSIFIED BANKS (2.9%)
10,000 Abbey National Treasury Services plc 3.05 8/23/2018 10,310
10,000 ABN AMRO Bank N.V.(a) 4.75 7/28/2025 9,964
2,450 Barclays Bank plc 1.13(e) -(f) 1,470
3,000 BayernLB Capital Trust I 6.20 -(f) 2,981
10,000 HSBC Bank plc 1.13(e) -(f) 5,950
5,000 Lloyds Bank plc 4.20 3/28/2017 5,163
10,000 Nordea Bank AB(a) 4.25 9/21/2022 10,436
4,500 Rabobank Nederland 1.70 3/19/2018 4,515
10,000 Rabobank Nederland 3.88 2/08/2022 10,616
================================================================================
32 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Rabobank Nederland 3.95% 11/09/2022 $ 5,126
4,000 Royal Bank of Scotland Group plc 7.64 -(f) 4,130
10,000 Royal Bank of Scotland Group plc 9.50 3/16/2022 10,665
6,560 Santander Bank, N.A. 8.75 5/30/2018 7,427
5,000 Santander UK plc(a) 5.00 11/07/2023 5,223
1,000 Westpac Capital Trust IV(a) 5.26(e) -(f) 1,004
----------
94,980
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.1%)
4,500 Brookfield Asset Management, Inc. 5.80 4/25/2017 4,663
----------
LIFE & HEALTH INSURANCE (0.3%)
10,000 Great-West Life & Annuity Insurance Capital, LP(a),(d) 7.15(e) 5/16/2046 10,025
----------
MULTI-LINE INSURANCE (0.5%)
15,000 ZFS Finance USA Trust II(a) 6.45(e) 12/15/2065 15,094
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
7,000 ING Bank N.V.(a) 3.75 3/07/2017 7,175
----------
PROPERTY & CASUALTY INSURANCE (1.0%)
20,056 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 22,137
5,000 XLIT Ltd. 6.50 -(f) 3,640
5,000 XLIT Ltd. 4.45 3/31/2025 4,946
----------
30,723
----------
REINSURANCE (0.2%)
5,000 Swiss Re Capital I, LP(a) 6.85(e) -(f) 5,053
----------
REITs-RETAIL (0.3%)
10,750 WEA Finance, LLC/Westfield UK & Europe
Finance plc(a) 3.75 9/17/2024 10,841
----------
Total Financials 178,554
----------
GOVERNMENT (0.4%)
-----------------
FOREIGN GOVERNMENT (0.4%)
10,000 Italy Government International Bond 5.38 6/15/2033 11,712
----------
INDUSTRIALS (3.7%)
------------------
AEROSPACE & DEFENSE (0.3%)
10,000 BAE Systems Holdings, Inc.(a) 3.85 12/15/2025 10,118
----------
AIRLINES (1.6%)
9,046 Air Canada Pass-Through Trust(a) 4.13 11/15/2026 9,103
6,000 Air Canada Pass-Through Trust(a) 3.75 6/15/2029 6,022
10,000 Air Canada Pass-Through Trust(a) 3.88 9/15/2024 9,437
4,232 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 4,163
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Air Canada Pass-Through Trust(a) 5.00% 9/15/2020 $ 4,613
14,038 British Airways Pass-Through Trust(a) 4.63 12/20/2025 14,687
3,197 Virgin Australia Trust(a) 6.00 4/23/2022 3,233
----------
51,258
----------
AIRPORT SERVICES (0.7%)
10,000 Heathrow Funding Ltd.(a) 4.88 7/15/2023 11,116
10,000 Sydney Airport Finance Co. Proprietary Ltd.(a) 3.90 3/22/2023 10,183
----------
21,299
----------
DIVERSIFIED SUPPORT SERVICES (0.2%)
5,500 Brambles USA, Inc.(a) 4.13 10/23/2025 5,626
----------
INDUSTRIAL CONGLOMERATES (0.7%)
2,000 Hutchison Whampoa International Ltd.(a) 4.63 1/13/2022 2,179
20,000 Siemens Financieringsmaatschappij N.V.(a) 3.25 5/27/2025 20,433
1,000 Siemens Financieringsmaatschappij N.V.(a) 6.13 8/17/2026 1,256
----------
23,868
----------
RAILROADS (0.1%)
4,261 Asciano Finance Ltd.(a) 4.63 9/23/2020 4,371
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
3,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 2,925
----------
Total Industrials 119,465
----------
INFORMATION TECHNOLOGY (0.2%)
------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
5,000 Tyco Electronics Group S.A. 3.50 2/03/2022 5,168
----------
MATERIALS (3.0%)
----------------
COMMODITY CHEMICALS (0.3%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 8,825
----------
DIVERSIFIED CHEMICALS (0.1%)
3,000 Incitec Pivot Finance, LLC(a) 6.00 12/10/2019 3,249
----------
DIVERSIFIED METALS & MINING (0.6%)
5,000 Anglo American Capital plc(a) 2.63 9/27/2017 4,375
5,000 Anglo American Capital plc(a) 4.13 4/15/2021 3,162
10,000 Glencore Funding, LLC(a) 2.50 1/15/2019 7,630
3,000 Southern Copper Corp. 3.88 4/23/2025 2,679
5,000 Teck Resources Ltd. 3.75 2/01/2023 2,688
----------
20,534
----------
================================================================================
34 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(n) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%)
$ 10,000 Potash Corp. of Saskatchewan, Inc. 3.00% 4/01/2025 $ 9,325
----------
GOLD (0.9%)
2,000 Barrick Gold Corp. 6.95 4/01/2019 2,085
3,605 Barrick North America Finance, LLC 6.80 9/15/2018 3,799
20,000 Goldcorp, Inc. 3.70 3/15/2023 18,257
10,000 Kinross Gold Corp. 5.95 3/15/2024 6,250
----------
30,391
----------
PAPER PACKAGING (0.1%)
3,000 Smurfit Kappa Acquisitions(a) 4.88 9/15/2018 3,086
----------
PRECIOUS METALS & MINERALS (0.3%)
10,000 Fresnillo plc(a) 5.50 11/13/2023 10,100
----------
STEEL (0.4%)
3,000 ArcelorMittal 6.13 6/01/2018 2,745
2,000 ArcelorMittal 6.50 3/01/2021 1,635
4,000 ArcelorMittal 7.25 2/25/2022 3,270
2,000 Vale Overseas Ltd. 4.63 9/15/2020 1,603
5,000 Vale Overseas Ltd. 4.38 1/11/2022 3,500
----------
12,753
----------
Total Materials 98,263
----------
UTILITIES (0.5%)
----------------
ELECTRIC UTILITIES (0.5%)
6,000 EDP Finance B.V.(a) 4.13 1/15/2020 6,043
10,000 Electricite De France S.A.(a) 5.25 -(f) 9,000
----------
15,043
----------
Total Utilities 15,043
----------
Total Eurodollar and Yankee Obligations (cost: $556,455) 538,809
----------
FOREIGN GOVERNMENT OBLIGATIONS (0.3%)
CAD15,000 Province of Alberta (cost: $14,583) 2.55 12/15/2022 11,135
----------
ASSET-BACKED SECURITIES (1.1%)
FINANCIALS (0.6%)
-----------------
ASSET-BACKED FINANCING (0.6%)
1,000 Citibank Credit Card Issuance Trust 5.65 9/20/2019 1,072
5,000 GE Capital Credit Card Master Note Trust 4.47 3/15/2020 5,182
2,000 Hertz Vehicle Financing, LLC(a) 6.44 2/25/2019 2,103
5,289 SLM Student Loan Trust 0.98(e) 4/25/2025 5,046
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 1,091 SLM Student Loan Trust 1.17%(e) 10/25/2038 $ 949
1,220 Trinity Rail Leasing, LP (INS)(a) 5.27 8/14/2027 1,284
3,211 Trinity Rail Leasing, LP(a),(h) 5.90 5/14/2036 3,427
----------
19,063
----------
Total Financials 19,063
----------
UTILITIES (0.5%)
----------------
ELECTRIC UTILITIES (0.5%)
15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24 1/01/2031 15,334
----------
Total Asset-Backed Securities (cost: $33,503) 34,397
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
2,592 Structured Asset Mortgage Investments, Inc.
(cost: $2,388) 0.93(e) 7/19/2035 2,381
----------
COMMERCIAL MORTGAGE SECURITIES (8.8%)
FINANCIALS (8.8%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (7.8%)
820 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 819
1,000 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 998
2,000 Banc of America Commercial Mortgage, Inc. 5.87 5/10/2045 2,012
4,920 Banc of America Commercial Mortgage, Inc. 5.87 5/10/2045 4,922
4,200 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 4,192
5,980 Banc of America Commercial Mortgage, Inc. 6.27 2/10/2051 6,438
3,000 BCRR Trust(a) 5.86 7/17/2040 3,122
645 Bear Stearns Commercial Mortgage Securities, Inc. 5.00 2/11/2041 645
3,867 Bear Stearns Commercial Mortgage Securities, Inc. 5.21 2/11/2041 3,866
266 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 267
5,007 Bear Stearns Commercial Mortgage Securities, Inc. 5.33 2/11/2044 5,137
7,000 CFCRE Commercial Mortgage Trust(a) 5.76 12/15/2047 8,050
4,705 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 4,730
5,000 Citigroup Commercial Mortgage Trust 6.34 12/10/2049 5,316
2,234 Citigroup/Deutsche Bank Commercial Mortgage Trust 5.58 1/15/2046 2,232
6,000 Commercial Mortgage Trust 5.38 12/10/2046 5,951
3,000 Commercial Mortgage Trust(a) 5.54 12/11/2049 3,086
5,000 Commercial Mortgage Trust(a) 5.54 12/11/2049 5,100
507 Credit Suisse Commercial Mortgage Trust 5.72 2/15/2039 507
3,889 Credit Suisse Commercial Mortgage Trust 5.38 2/15/2040 3,964
1,950 DB-UBS Mortgage Trust(a),(d) 5.63 8/10/2044 2,177
5,000 GE Capital Commercial Mortgage Corp. 5.61 11/10/2045 4,983
================================================================================
36 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,469 GE Capital Commercial Mortgage Corp. 5.61% 11/10/2045 $ 2,468
1,632 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 1,563
5,000 Greenwich Capital Commercial Funding Corp. 6.05 7/10/2038 5,015
1,687 Greenwich Capital Commercial Funding Corp. 5.44 3/10/2039 1,728
1,347 GS Mortgage Securities Trust 5.83 4/10/2038 1,346
3,000 GS Mortgage Securities Trust(a) 4.95 1/10/2045 3,328
1,682 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.99 9/12/2037 1,686
1,071 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.84 7/15/2042 1,071
4,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(a) 5.74 11/15/2043 4,261
221 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.42 12/12/2043 221
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.46 12/12/2043 5,028
58 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.69 12/15/2044 58
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.11 4/15/2045 4,399
3,465 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.11 4/15/2045 3,488
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 3.51 5/15/2045 10,554
4,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.48 5/15/2045 4,054
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(a) 5.50 8/15/2046 5,683
8,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 8,076
2,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.21 2/15/2051 2,103
2,000 LB-UBS Commercial Mortgage Trust(d) 5.35 11/15/2038 2,030
7,750 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 7,906
6,000 LB-UBS Commercial Mortgage Trust 5.41 9/15/2039 6,108
4,449 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 4,431
858 Merrill Lynch Mortgage Trust 5.68 7/12/2038 858
3,000 Merrill Lynch Mortgage Trust 5.91 5/12/2039 2,957
2,000 Merrill Lynch Mortgage Trust(a) 6.48 2/12/2051 2,118
2,000 Merrill Lynch Mortgage Trust 6.48 2/12/2051 2,113
2,000 Merrill Lynch-Countrywide Commercial
Mortgage Trust 6.08 6/12/2046 2,019
2,531 Merrill Lynch-Countrywide Commercial
Mortgage Trust 5.38 8/12/2048 2,588
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Morgan Stanley Capital I, Inc. 5.37% 12/15/2043 $ 5,118
6,000 Morgan Stanley Capital I, Inc. 5.79 7/12/2044 6,059
2,217 Morgan Stanley Capital I, Inc. 4.77 7/15/2056 2,219
5,000 Royal Bank of Scotland Trust(a) 6.11 6/16/2049 5,262
3,000 TimberStar Trust(a) 5.75 10/15/2036 3,055
10,000 UBS Commercial Mortgage Trust 3.40 5/10/2045 10,385
4,756 UBS-Citigroup Commercial Mortgage Trust(a) 5.15 1/10/2045 5,411
5,000 Wachovia Bank Commercial Mortgage Trust 5.95 5/15/2043 5,002
2,216 Wachovia Bank Commercial Mortgage Trust 5.61 3/15/2045 2,215
5,000 Wachovia Bank Commercial Mortgage Trust 5.80 7/15/2045 5,067
843 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 854
3,000 Wachovia Bank Commercial Mortgage Trust 5.60 10/15/2048 3,058
5,000 Wachovia Bank Commercial Mortgage Trust 5.34 11/15/2048 5,093
5,000 Wachovia Bank Commercial Mortgage Trust 5.90 6/15/2049 5,132
3,000 Wells Fargo Commercial Mortgage Trust(a) 5.28 11/15/2043 3,251
6,000 WF-RBS Commercial Mortgage Trust(a) 5.17 2/15/2044 6,489
----------
251,442
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.0%)
183,776 Fannie Mae(+) 0.75 4/25/2022 5,489
42,744 Freddie Mac(+) 1.56 12/25/2021 2,843
23,233 Freddie Mac(+) 1.86 3/25/2022 1,974
72,494 Freddie Mac(+) 1.43 8/25/2022 4,951
71,043 Freddie Mac(+) 1.02 10/25/2022 3,370
33,099 J.P. Morgan Chase Commercial Mortgage Securities
Corp., acquired 9/28/2012; cost $4,518(i) 2.20 10/15/2045 2,813
36,192 Morgan Stanley-BAML Trust,
acquired 10/05/2012; cost $4,702(a),(i) 2.23 11/15/2045 2,735
29,736 UBS Commercial Mortgage Trust,
acquired 5/01/2012; cost $4,502(a),(i) 2.36 5/10/2045 2,949
75,746 WF-RBS Commercial Mortgage Trust,
acquired 12/04/2012; cost $9,451(a),(i) 1.89 12/15/2045 6,251
----------
33,375
----------
Total Financials 284,817
----------
Total Commercial Mortgage Securities (cost: $277,177) 284,817
----------
U.S. GOVERNMENT AGENCY ISSUES (0.4%)(j)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (0.4%)
11,257 Fannie Mae(+) 2.50 7/01/2027 11,583
324 Freddie Mac(+)(k) 5.00 9/01/2020 342
176 Freddie Mac(+) 5.50 4/01/2036 196
----------
12,121
----------
Total U.S. Government Agency Issues (cost: $11,874) 12,121
----------
================================================================================
38 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (7.5%)
BONDS (4.7%)
$ 25,775 4.50%, 2/15/2036 $ 34,528
10,000 3.00%, 5/15/2042 10,582
20,000 2.75%, 8/15/2042 20,121
5,000 2.75%, 11/15/2042 5,019
5,000 3.13%, 8/15/2044 5,381
28,000 3.00%, 11/15/2044 29,373
50,000 2.50%, 2/15/2045 47,333
----------
152,337
----------
NOTES (2.8%)
35,000 2.00%, 2/15/2025 35,291
10,000 2.00%, 8/15/2025 10,064
45,000 2.25%, 11/15/2025 46,287
----------
91,642
----------
Total U.S. Treasury Securities (cost: $243,993) 243,979
----------
MUNICIPAL BONDS (4.2%)
AIRPORT/PORT (0.3%)
4,975 Chicago Midway Airport 5.00% 1/01/2024 5,915
2,470 Chicago Midway Airport 5.00 1/01/2025 2,919
410 Riverside (INS) 5.19 8/01/2017 416
----------
9,250
----------
APPROPRIATED DEBT (0.5%)
3,000 Baltimore Board of School Commissioners 5.69 12/15/2025 3,651
710 Escondido Joint Powers Financing Auth. (INS) 5.53 9/01/2018 747
3,000 Kannapolis 7.28 3/01/2027 3,273
5,000 Miami-Dade County School Board (INS) 5.38 5/01/2031 5,811
4,000 Palm Beach County School Board 5.40 8/01/2025 4,666
----------
18,148
----------
CASINOS & GAMING (0.0%)
1,298 Mashantucket (Western) Pequot Tribe(l) 7.35 7/01/2026 107
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.0%)
380 American Eagle Northwest, LLC(a) 4.97 12/15/2018 403
----------
EDUCATION (1.1%)
3,430 Austin CCD 6.76 8/01/2030 4,293
485 California State Univ. (INS) 5.27 11/01/2017 507
1,000 Colorado State Board of Governors Univ.
Enterprise System 4.90 3/01/2021 1,114
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 3,000 Los Alamitos USD No. 1 6.19% 2/01/2026 $ 3,645
3,000 Miami Univ. 6.67 9/01/2028 3,825
10,000 New Jersey EDA 4.45 6/15/2020 10,181
10,000 New Jersey EDA 5.25 9/01/2026 10,957
----------
34,522
----------
GENERAL OBLIGATION (1.1%)
1,250 Las Virgenes USD 5.54 8/01/2025 1,470
3,000 Long Beach USD 5.91 8/01/2025 3,603
5,000 New York City 6.27 12/01/2037 6,594
10,000 Scranton School District(a) 4.00 12/01/2025 10,051
5,000 State of Washington 5.25 2/01/2036 5,866
4,045 Will County, Illinois 3.83 11/15/2016 4,127
1,520 Will County, Illinois 4.08 11/15/2017 1,584
1,405 Will County, Illinois 4.28 11/15/2018 1,495
----------
34,790
----------
MULTIFAMILY HOUSING (0.1%)
5,000 New York State Mortgage Agency 4.20 10/01/2027 5,208
----------
SALES TAX (0.1%)
3,300 Miami-Dade County Transit System 4.59 7/01/2021 3,612
----------
SPECIAL ASSESSMENT/TAX/FEE (0.8%)
2,000 Florida State Department of Environmental Protection 5.76 7/01/2020 2,310
4,700 Harris County 4.45 11/15/2031 4,729
1,745 Metropolitan Nashville Airport Auth. (INS) 5.14 7/01/2018 1,901
3,000 MTA 5.20 11/15/2018 3,284
5,000 MTA 6.73 11/15/2030 6,456
3,000 New Jersey Transportation Trust Fund Auth. 5.75 12/15/2028 3,220
2,500 New York City Transitional Finance Auth. 5.00 2/01/2035 2,889
----------
24,789
----------
WATER UTILITIES (0.1%)
3,000 Connecticut Dev. Auth. 5.50 4/01/2021 3,470
----------
WATER/SEWER UTILITY (0.1%)
2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,950
----------
Total Municipal Bonds (cost: $123,165) 137,249
----------
================================================================================
40 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
$(000)/ VALUE
SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (2.6%)
PREFERRED STOCKS (2.6%)
CONSUMER STAPLES (0.8%)
-----------------------
AGRICULTURAL PRODUCTS (0.8%)
400,000 CHS, Inc., 7.10%, cumulative redeemable, perpetual $ 10,745
150,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable,
perpetual(a),(d) 15,998
----------
26,743
----------
Total Consumer Staples 26,743
----------
FINANCIALS (1.1%)
-----------------
DIVERSIFIED BANKS (0.3%)
175,000 Citigroup Capital XIII, 7.88% 4,487
50,000 HSBC Holdings plc, 6.20%, perpetual(d) 1,277
36,000 ING Groep N.V., 7.20%, perpetual(d) 941
5,000 US Bancorp, 3.50%, perpetual(d) 3,960
----------
10,665
----------
LIFE & HEALTH INSURANCE (0.3%)
369,987 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(d) 9,169
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$3,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(a) 2,347
----------
REGIONAL BANKS (0.1%)
2 CoBank ACB, 1.46%, perpetual(a) 1,327
----------
REINSURANCE (0.0%)
2,000 American Overseas Group Ltd., 7.50%,
non-cumulative, perpetual, acquired
1/23/2007 - 3/02/2007; cost $2,058*(h),(i) 500
----------
REITs - OFFICE (0.1%)
160,000 Equity Commonwealth, Series E, 7.25%,
cumulative redeemable, perpetual 4,124
----------
REITs - RESIDENTIAL (0.2%)
100,000 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual(d) 6,572
----------
Total Financials 34,704
----------
INDUSTRIALS (0.1%)
------------------
OFFICE SERVICES & SUPPLIES (0.1%)
4,000 Pitney Bowes International Holdings, Series F, 6.13%,
cumulative redeemable, perpetual(a),(d) 4,144
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
200,000 Qwest Corp., 7.38% $ 5,126
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
2,000 Centaur Funding Corp., 9.08%(a),(d) 2,418
----------
Total Telecommunication Services 7,544
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
109,000 Southern California Edison, Series D, 6.50%,
cumulative redeemable, perpetual 11,326
----------
Total Preferred Stocks 84,461
----------
Total Equity Securities (cost: $81,600) 84,461
----------
MONEY MARKET INSTRUMENTS (0.1%)
MONEY MARKET FUNDS (0.1%)
2,185,256 State Street Institutional Liquid Reserves Fund Premier Class,
0.36%(m) (cost: $2,185) 2,185
----------
TOTAL INVESTMENTS (COST: $3,245,298) $3,194,553
==========
-------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF CONTRACT APPRECIATION/
CONTRACTS EXPIRATION VALUE (DEPRECIATION)
LONG/(SHORT) DATE (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES (4.4%)
1,056 10YR U.S. Treasury Note 3/21/2016 $136,834 $1,782
30 U.S. Treasury Bond 3/21/2016 4,831 216
-------- ------
TOTAL FUTURES $141,665 $1,998
======== ======
================================================================================
42 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
($ 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
-------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $1,843,019 $ - $1,843,019
Eurodollar and Yankee Obligations - 538,809 - 538,809
Foreign Government Obligations - 11,135 - 11,135
Asset-Backed Securities - 30,970 3,427 34,397
Collateralized Mortgage Obligations - 2,381 - 2,381
Commercial Mortgage Securities - 284,817 - 284,817
U.S. Government Agency Issues - 12,121 - 12,121
U.S. Treasury Securities 243,979 - - 243,979
Municipal Bonds - 137,249 - 137,249
Equity Securities:
Preferred Stocks 6,403 77,558 500 84,461
Money Market Instruments:
Money Market Funds 2,185 - - 2,185
Futures(1) 1,998 - - 1,998
-------------------------------------------------------------------------------------------------------------
Total $254,565 $2,938,059 $3,927 $3,196,551
-------------------------------------------------------------------------------------------------------------
(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.
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
-------------------------------------------------------------------------------------------------------------
ASSET-BACKED PREFERRED
SECURITIES STOCKS
-------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $3,596 $500
Purchases - -
Sales (136) -
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments 3 -
Change in net unrealized appreciation/(depreciation) of investments (36) -
-------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $3,427 $500
-------------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, 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 | 43
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 17.3% of net assets at January 31,
2016.
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,
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
================================================================================
44 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment penalties.
This serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CAD Canadian dollars
CCD Community College District
EDA Economic Development Authority
MTA Metropolitan Transportation Authority
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
REIT Real estate investment trust
USD Unified School District
CREDIT ENHANCEMENTS - Adds 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:
AMBAC Assurance Corp., Assured Guaranty Municipal Corp., MBIA
Insurance Corp., National Public Finance Guarantee Corp., or XL
Capital Assurance. Although bond insurance reduces the risk of loss
due to default by an issuer, such bonds remain subject to the risk
that value may fluctuate for other reasons, and there is no
assurance that the insurance company will meet its obligations.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) 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. The
interest rate is adjusted periodically, and the rate disclosed
represents the current rate at January 31, 2016. The weighted average
life of the loan is likely to be shorter than the stated final maturity
date due to
================================================================================
46 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(c) At January 31, 2016, the aggregate market value of securities
purchased on a when-issued basis was $5,966,000.
(d) The security, or a portion thereof, is segregated to cover the value
of open futures contracts at January 31, 2016.
(e) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at January
31, 2016.
(f) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(g) At January 31, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(h) Security was fair valued at January 31, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $3,927,000, which represented 0.1% of
the Fund's net assets.
(i) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2016, was $15,248,000, which represented 0.5% of the Fund's
net assets.
(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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 47
================================================================================
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) Securities with a value of $342,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(l) 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.
(m) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
(n) In U.S. dollars unless otherwise noted.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
48 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $3,245,298) $3,194,553
Cash 478
Receivables:
Capital shares sold 1,804
Dividends and interest 36,522
Securities sold 19,035
Variation margin on futures contracts 2,003
----------
Total assets 3,254,395
----------
LIABILITIES
Payables:
Securities purchased 5,950
Capital shares redeemed 13,983
Dividends on capital shares 627
Accrued management fees 732
Accrued transfer agent's fees 160
Other accrued expenses and payables 258
----------
Total liabilities 21,710
----------
Net assets applicable to capital shares outstanding $3,232,685
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,296,918
Undistributed net investment income 217
Accumulated net realized loss on investments and futures transactions (15,703)
Net unrealized depreciation of investments and futures contracts (48,747)
----------
Net assets applicable to capital shares outstanding $3,232,685
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,697,887/167,332 shares outstanding) $ 10.15
==========
Institutional Shares (net assets of $1,440,226/141,925
shares outstanding) $ 10.15
==========
Adviser Shares (net assets of $94,572/9,327 shares outstanding) $ 10.14
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 49
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,702
Interest 78,415
----------
Total income 81,117
----------
EXPENSES
Management fees 5,607
Administration and servicing fees:
Fund Shares 1,515
Institutional Shares 622
Adviser Shares 80
Transfer agent's fees:
Fund Shares 1,404
Institutional Shares 622
Adviser Shares 55
Distribution and service fees (Note 6D):
Adviser Shares 134
Custody and accounting fees:
Fund Shares 136
Institutional Shares 81
Adviser Shares 7
Postage:
Fund Shares 63
Institutional Shares 33
Adviser Shares 2
Shareholder reporting fees:
Fund Shares 30
Institutional Shares 8
Adviser Shares 1
Trustees' fees 13
Registration fees:
Fund Shares 85
Institutional Shares 53
Adviser Shares 29
Professional fees 91
Other 33
----------
Total expenses 10,704
----------
NET INVESTMENT INCOME 70,413
----------
================================================================================
50 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY, AND
FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions (13,172)
Affiliated transactions (Note 8) 572
Foreign currency transactions (8)
Futures transactions 299
Change in net unrealized appreciation/(depreciation) of:
Investments (127,548)
Foreign currency translations 1
Futures contracts 1,737
---------
Net realized and unrealized loss (138,119)
---------
Decrease in net assets resulting from operations $ (67,706)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 51
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
---------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
---------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 70,413 $ 136,759
Net realized gain (loss) on investments (12,600) 1,484
Net realized loss on foreign currency transactions (8) (10)
Net realized gain on futures transactions 299 261
Change in net unrealized appreciation/(depreciation) of:
Investments (127,548) (118,922)
Foreign currency translations 1 -
Futures contracts 1,737 145
-------------------------------
Increase (decrease) in net assets resulting from operations (67,706) 19,717
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (41,788) (81,293)
Institutional Shares (26,322) (51,845)
Adviser Shares (2,087) (3,708)
-------------------------------
Total distributions of net investment income (70,197) (136,846)
-------------------------------
Net realized gains:
Fund Shares (2,192) (2,835)
Institutional Shares (1,328) (1,745)
Adviser Shares (110) (128)
-------------------------------
Total distributions of net realized gains (3,630) (4,708)
-------------------------------
Distributions to shareholders (73,827) (141,554)
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (295,536) 226,113
Institutional Shares 210,268 40,948
Adviser Shares (19,681) 80,042
-------------------------------
Total net increase (decrease) in net assets from
capital share transactions (104,949) 347,103
-------------------------------
Net increase (decrease) in net assets (246,482) 225,266
NET ASSETS
Beginning of period 3,479,167 3,253,901
-------------------------------
End of period $3,232,685 $3,479,167
===============================
Undistributed net investment income:
End of period $ 217 $ 1
===============================
See accompanying notes to financial statements.
================================================================================
52 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Intermediate-Term Bond Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek high current income without undue risk to
principal.
The Fund consists of three classes of shares: Intermediate-Term Bond Fund Shares
(Fund Shares), Intermediate-Term Bond Fund Institutional Shares (Institutional
Shares), and Intermediate-Term Bond 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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
================================================================================
54 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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.
2. 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.
3. 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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.
4. 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.
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. 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. 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
================================================================================
56 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 1A3. Additionally, certain bonds are valued based on
methods discussed in Note 1A1.
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.
The valuation of 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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 January 31, 2016, 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
================================================================================
58 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 JANUARY 31, 2016*
(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
--------------------------------------------------------------------------------------------------
Interest rate contracts Net unrealized $1,998** - $-
depreciation of
investments and
futures contracts
--------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2016, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended January 31, 2016.
** Includes cumulative appreciation 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 JANUARY 31, 2016
(IN THOUSANDS)
CHANGE IN
DERIVATIVES NOT UNREALIZED
ACCOUNTED FOR STATEMENT OF REALIZED APPRECIATION/
AS HEDGING OPERATIONS GAIN ON (DEPRECIATION)
INSTRUMENTS LOCATION DERIVATIVES ON DERIVATIVES
--------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain (loss) $299 $1,737
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
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
================================================================================
60 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 January 31, 2016, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $5,950,000; all of which were when-issued
securities.
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 January 31, 2016, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 January 31, 2016, the Fund paid CAPCO facility
fees of $10,000, 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 January 31, 2016.
================================================================================
62 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$227,981,000 and $313,906,000, respectively.
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $108,457,000 and $159,202,000, respectively, resulting in net
unrealized depreciation of $50,745,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
FUND SHARES:
Shares sold 16,978 $ 175,877 54,712 $ 594,158
Shares issued from
reinvested dividends 4,019 41,492 7,369 79,868
Shares redeemed (50,172) (512,905) (41,362) (447,913)
--------------------------------------------------------
Net increase (decrease) from
capital share transactions (29,175) $(295,536) 20,719 $ 226,113
========================================================
INSTITUTIONAL SHARES:
Shares sold 38,828 $ 396,319 27,965 $ 303,345
Shares issued from
reinvested dividends 2,563 26,450 4,680 50,722
Shares redeemed (20,488) (212,501) (28,861) (313,119)
--------------------------------------------------------
Net increase from capital
share transactions 20,903 $ 210,268 3,784 $ 40,948
========================================================
ADVISER SHARES:
Shares sold 523 $ 5,453 11,174 $ 121,445
Shares issued from
reinvested dividends 203 2,093 323 3,490
Shares redeemed (2,627) (27,227) (4,177) (44,893)
--------------------------------------------------------
Net increase (decrease) from
capital share transactions (1,901) $ (19,681) 7,320 $ 80,042
========================================================
(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
================================================================================
64 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
Board. The Manager also is 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. For the six-month
period ended January 31, 2016, 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, accrued daily and paid monthly,
is computed as a percentage of the Fund's average net assets at annualized
rates of 0.50% of the first $50 million of average net assets, 0.40% of that
portion of average net assets over $50 million but not over $100 million,
and 0.30% of that portion of average net assets over $100 million. For the
six-month period ended January 31, 2016, the Fund's effective annualized
base fee was 0.30% of the Fund's average net assets for the same period.
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 Index. The Index tracks the performance of
funds in that invest primarily in investment-grade debt issues (rated in top
four grades) with dollar-weighted average maturities of five to ten years.
The share 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)
-----------------------------------------------------------------
+/- 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 of the share class 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
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 Index over that period, even if the class had overall
negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $5,607,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and Adviser Shares of $254,000, $214,000, and $5,000, respectively. For the
Fund Shares, Institutional Shares, and Adviser Shares, the performance
adjustments were 0.03%, 0.03%, and 0.01%, 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 January 31, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,515,000, $622,000, and $80,000, 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 January 31, 2016, the Fund reimbursed the Manager
$44,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
================================================================================
66 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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
$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 January 31, 2016, the Fund Shares, Institutional Shares and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of
$1,404,000, $622,000, and $55,000, 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 January 31, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $134,000.
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 fee or other compensation for these
services.
(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
invest. The USAA fund-of-funds do not invest in the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
underlying funds for the purpose of exercising management or control. As of
January 31, 2016, the USAA fund-of-funds owned the following percentages of the
total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
USAA Cornerstone Conservative 1.5
USAA Target Retirement Income 0.7
USAA Target Retirement 2020 1.6
USAA Target Retirement 2030 3.2
USAA Target Retirement 2040 1.9
USAA Target Retirement 2050 0.5
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 January 31,
2016, USAA and its affiliates owned 490,000 Adviser Shares, which represents
5.3% 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.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2016, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN TO
SELLER PURCHASER PURCHASER SELLER
---------------------------------------------------------------------------------
USAA Intermediate-Term Bond USAA Short-Term Bond $14,461,000 $572,000
================================================================================
68 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60 $ 10.12
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .43 .46 .48 .53 .56
Net realized and
unrealized gain (loss) (.42) (.36) .21 (.04) .21 .47
-------------------------------------------------------------------------------------
Total from investment
operations (.20) .07 .67 .44 .74 1.03
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.43) (.46) (.48) (.53) (.55)
Realized capital gains (.01) (.02) (.00)(a) (.02) - -
-------------------------------------------------------------------------------------
Total distributions (.23) (.45) (.46) (.50) (.53) (.55)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.15 $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60
=====================================================================================
Total return (%)* (1.94) .58 6.37 4.08 7.27 10.44
Net assets at end
of period (000) $1,697,887 $2,079,610 $1,926,334 $1,775,162 $2,117,767 $1,731,646
Ratios to average
net assets:**
Expenses (%)(b) .66(e) .68 .68(d) .65(d) .65 .65
Expenses, excluding
reimbursements (%)(b) .66(e) .68 .70 .71 .72 .72
Net investment
income (%) 4.15(e) 3.96 4.21 4.38 5.07 5.33
Portfolio turnover (%) 7 13 8 10 17 16(c)
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$2,007,583,000.
(a) Represents less than $0.01 per share.
(b) Reflects total 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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Reflects overall decrease in purchases and sales of securities.
(d) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 0.65% of the Fund Shares' average net
assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60 $ 10.12
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .44 .47 .49 .54 .58
Net realized and
unrealized gain (loss) (.42) (.36) .21 (.04) .21 .48
-------------------------------------------------------------------------------------
Total from investment
operations (.20) .08 .68 .45 .75 1.06
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.44) (.47) (.49) (.54) (.58)
Realized capital gains (.01) (.02) (.00)(a) (.02) - -
-------------------------------------------------------------------------------------
Total distributions (.23) (.46) (.47) (.51) (.54) (.58)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.15 $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60
=====================================================================================
Total return (%)* (1.90) .68 6.49 4.18 7.37 10.66
Net assets at
end of period (000) $1,440,226 $1,280,804 $1,284,768 $1,132,579 $336,501 $194,889
Ratios to average
net assets:**
Expenses (%)(b) .57(e) .58 .56 .55 .56 .45(c)
Net investment
income (%) 4.24(e) 4.07 4.32 4.41 5.13 5.53
Portfolio turnover (%) 7 13 8 10 17 16(d)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,239,171,000.
(a) Represents less than $0.01 per share.
(b) Reflects total 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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.91% of the Institutional
Shares' average net assets.
(d) Reflects overall decrease in purchases and sales of securities.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
70 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(9) 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
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
---------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
---------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.58 $ 10.95 $ 10.74 $10.80 $10.60 $10.11
------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .41 .39(a) .45 .50 .52
Net realized and
unrealized gain (loss) (.43) (.35) .25(a) (.04) .20 .49
------------------------------------------------------------------------
Total from investment
operations (.23) .06 .64(a) .41 .70 1.01
------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.41) (.43) (.45) (.50) (.52)
Realized capital gains (.01) (.02) (.00)(b) (.02) - -
------------------------------------------------------------------------
Total distributions (.21) (.43) (.43) (.47) (.50) (.52)
------------------------------------------------------------------------
Net asset value at
end of period $ 10.14 $ 10.58 $ 10.95 $10.74 $10.80 $10.60
========================================================================
Total return (%)* (2.15) .46 6.08 3.77 6.86 10.19
Net assets at
end of period (000) $94,572 $118,753 $42,799 $8,890 $7,929 $6,109
Ratios to average
net assets:**
Expenses (%)(c) .90(d) .89(f) .94 .95 .95 .95(d)
Expenses, excluding
reimbursements (%)(c) .90(d) .89 .94 1.06 1.14 1.70(d)
Net investment income (%) 3.92(d) 3.74 3.83 4.07 4.76 5.02(d)
Portfolio turnover (%) 7 13 8 10 17 16(e)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$106,092,000.
*** Adviser Shares commenced operations on August 1, 2010.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Reflects total 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%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects overall decrease in purchases and sales of securities.
(f) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to .95% of the Adviser Shares' average
net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
================================================================================
72 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 980.60 $3.29
Hypothetical
(5% return before expenses) 1,000.00 1,021.82 3.35
INSTITUTIONAL SHARES
Actual 1,000.00 981.00 2.84
Hypothetical
(5% return before expenses) 1,000.00 1,022.27 2.90
ADVISER SHARES
Actual 1,000.00 978.50 4.48
Hypothetical
(5% return before expenses) 1,000.00 1,020.61 4.57
*Expenses are equal to the annualized expense ratio of 0.66% for Fund Shares,
0.57% for Institutional Shares, and 0.90% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 (1.94)% for Fund Shares, (1.90)% for Institutional
Shares, and (2.15)% for Adviser Shares for the six-month period of
August 1, 2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 73
================================================================================
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)
=============================================================================
40049-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MONEY MARKET FUND]
============================================================
SEMIANNUAL REPORT
USAA MONEY MARKET FUND
JANUARY 31, 2016
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 26
Financial Statements 29
Notes to Financial Statements 32
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.
202727-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA MONEY MARKET FUND (THE FUND) SEEKS THE HIGHEST INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets in high-quality, U.S. dollar-denominated, short-term
debt securities of domestic and foreign issuers that have been determined to
present minimal credit risk and comply with strict Securities and Exchange
Commission (SEC) guidelines applicable to money market funds.
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
ANTHONY M. ERA, Jr. [PHOTO OF ANTHONY M. ERA, Jr.]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Longer-term interest rates fell during the reporting period ended January
31, 2016, pushed lower by economic uncertainty. China was at the epicenter
of concern, as the country's slowing pace of growth threatened to hinder
the broader global economy. Investors also worried about dropping oil and
commodity prices, which are widely considered to be evidence of global
economic weakness. In the United States, economic data was mixed during the
reporting period, with slower-than-expected growth in the fourth quarter of
2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell
from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from
2.85% to 2.74%. These lower yields tend to reflect changing expectations
about the U.S. economy.
In a move that had been anticipated for months, the Federal Reserve (the
Fed) raised interest rates during the reporting period, lifting the target
federal funds rate by 0.25% to a range between 0.25% and 0.5%. The federal
funds rate had been anchored near zero since 2008. The Fed's action, which
ultimately occurred on December 16, 2015, had a slightly positive impact on
taxable money market securities' interest rates. Nevertheless, yields on
money market funds remained near zero. Although money market funds
provided very low absolute yields, investors continued to rely on them for
the low risk and liquidity they offered.
================================================================================
2 | USAA MONEY MARKET FUND
================================================================================
o HOW DID THE USAA MONEY MARKET FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
For the reporting period ended January 31, 2016, the seven-day yield on the
Fund remained at 0.01%. The total return for the same period was less than
0.01%, compared to an average of 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 WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
During the reporting period, we continued to invest the proceeds of
maturing securities into commercial paper, Yankee certificates of deposit,
and corporate notes. We also continued to invest in variable-rate
demand notes (VRDNs), which we believe are likely to benefit when interest
rates rise because of the frequency of their interest rate reset feature.
We anticipate shorter-term yields rising gradually in response to any
further Fed increases in the target federal funds rate, whenever they may
occur in the future. The VRDNs owned by the Fund also give us flexibility
because they can be sold at par (100% of face value) upon notice of seven
days or less. In addition, most of these VRDNs are guaranteed by a bank
letter of credit for the payment of both principal and interest, providing
the Fund with a degree of safety and liquidity.
Refer to page 6 for the benchmark definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
As always, we relied on our team of analysts to help us identify securities
that represented relative value. These specialists continue to analyze and
monitor every holding in the portfolio.
Thank you for allowing us to help you with your investment needs.
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 Variable-rate demand notes (VRDNs) are securities which
the interest rate is reset periodically; typically weekly, although reset
intervals may vary.
================================================================================
4 | USAA MONEY MARKET FUND
================================================================================
INVESTMENT OVERVIEW
USAA MONEY MARKET FUND (THE FUND)
(Ticker Symbol: USAXX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $5.4 Billion $5.3 Billion
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 29 Days 51 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 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
0.01% 0.01% 0.01% 1.28%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.01% 0.01% 1.31%
--------------------------------------------------------------------------------
7-DAY YIELD AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
SUBSIDIZED 0.01% 0.65%
UNSUBSIDIZED -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 December 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 A MONEY MARKET FUND. ALTHOUGH THIS FUND
SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT
GUARANTEE TO DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR
MAY TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY
FALLS BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS.
AN INVESTMENT IN THIS 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
iMONEYNET USAA MONEY
AVERAGE MARKET FUND
1/27/2015 0.01% 0.01%
2/24/2015 0.01% 0.01%
3/31/2015 0.01% 0.01%
4/28/2015 0.01% 0.01%
5/26/2015 0.01% 0.01%
6/30/2015 0.01% 0.01%
7/28/2015 0.01% 0.01%
8/25/2015 0.01% 0.01%
9/29/2015 0.01% 0.01%
10/27/2015 0.01% 0.01%
11/24/2015 0.01% 0.01%
12/29/2015 0.03% 0.01%
1/26/2016 0.04% 0.01%
[END CHART]
Data represents the last Tuesday of each month. Ending date 1/26/16.
The graph tracks the USAA Money Market Fund's seven-day yield against an average
of first-tier major money market fund yields calculated by iMoneyNet, Inc.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
Past performance is no guarantee of future results.
================================================================================
6 | USAA MONEY MARKET FUND
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE OF $10,000]
USAA MONEY MARKET FUND
1/31/2006 $10,000.00
2/28/2006 10,031.12
3/31/2006 10,068.99
4/30/2006 10,102.31
5/31/2006 10,140.60
6/30/2006 10,181.43
7/31/2006 10,219.84
8/31/2006 10,261.75
9/30/2006 10,303.79
10/31/2006 10,344.62
11/30/2006 10,385.64
12/31/2006 10,431.04
1/31/2007 10,471.05
2/28/2007 10,509.69
3/31/2007 10,553.91
4/30/2007 10,594.05
5/31/2007 10,637.16
6/30/2007 10,680.20
7/31/2007 10,722.06
8/31/2007 10,770.45
9/30/2007 10,809.30
10/31/2007 10,851.40
11/30/2007 10,892.68
12/31/2007 10,932.26
1/31/2008 10,967.88
2/29/2008 10,997.00
3/31/2008 11,022.65
4/30/2008 11,048.10
5/31/2008 11,074.13
6/30/2008 11,096.17
7/31/2008 11,118.33
8/31/2008 11,141.33
9/30/2008 11,169.86
10/31/2008 11,208.22
11/30/2008 11,228.79
12/31/2008 11,247.40
1/31/2009 11,261.24
2/28/2009 11,272.31
3/31/2009 11,283.96
4/30/2009 11,294.47
5/31/2009 11,305.99
6/30/2009 11,316.27
7/31/2009 11,325.32
8/31/2009 11,331.24
9/30/2009 11,335.25
10/31/2009 11,338.06
11/30/2009 11,339.50
12/31/2009 11,342.15
1/31/2010 11,342.33
2/28/2010 11,342.42
3/31/2010 11,342.51
4/30/2010 11,342.61
5/31/2010 11,342.70
6/30/2010 11,342.79
7/31/2010 11,342.89
8/31/2010 11,342.99
9/30/2010 11,343.08
10/31/2010 11,343.18
11/30/2010 11,343.27
12/31/2010 11,344.64
1/31/2011 11,344.73
2/28/2011 11,344.82
3/31/2011 11,344.92
4/30/2011 11,345.01
5/31/2011 11,345.11
6/30/2011 11,345.20
7/31/2011 11,345.29
8/31/2011 11,345.39
9/30/2011 11,345.49
10/31/2011 11,345.58
11/30/2011 11,345.67
12/31/2011 11,345.77
1/31/2012 11,347.82
2/29/2012 11,347.91
3/31/2012 11,348.01
4/30/2012 11,348.10
5/31/2012 11,348.19
6/30/2012 11,348.29
7/31/2012 11,348.38
8/31/2012 11,348.49
9/30/2012 11,348.57
10/31/2012 11,348.67
11/30/2012 11,348.77
12/31/2012 11,349.20
1/31/2013 11,349.29
2/28/2013 11,349.38
3/31/2013 11,349.48
4/30/2013 11,349.57
5/31/2013 11,349.66
6/30/2013 11,349.76
7/31/2013 11,349.85
8/31/2013 11,349.95
9/30/2013 11,350.04
10/31/2013 11,350.15
11/30/2013 11,350.25
12/31/2013 11,350.40
1/31/2014 11,350.49
2/28/2014 11,350.58
3/31/2014 11,350.67
4/30/2014 11,350.77
5/31/2014 11,350.86
6/30/2014 11,350.95
7/31/2014 11,351.05
8/31/2014 11,351.15
9/30/2014 11,351.24
10/31/2014 11,351.34
11/30/2014 11,351.43
12/31/2014 11,351.59
1/31/2015 11,351.69
2/28/2015 11,351.78
3/31/2015 11,351.87
4/30/2015 11,351.97
5/31/2015 11,352.06
6/30/2015 11,352.16
7/31/2015 11,352.25
8/31/2015 11,352.35
9/30/2015 11,352.44
10/31/2015 11,352.54
11/30/2015 11,352.63
12/31/2015 11,352.73
1/31/2016 11,352.82
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted assumes reinvestment of all net investment income and realized capital
gain distributions and does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of shares. For seven-
day yield information, please refer to the Fund's investment overview page.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o PORTFOLIO MIX - 1/31/16 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 36.2%
COMMERCIAL PAPER 35.3%
FIXED-RATE INSTRUMENTS 15.5%
ADJUSTABLE-RATE NOTES 8.8%
REPURCHASE AGREEMENTS 3.8%
PUT BONDS 0.9%
[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 9-25.
================================================================================
8 | USAA MONEY MARKET FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (15.5%)
DIVERSIFIED BANKS (10.9%)
$ 25,000 Bank of Nova Scotia 0.51% 4/14/2016 $ 25,000
25,000 Canadian Imperial Bank of Commerce 0.56 4/21/2016 25,000
25,000 Canadian Imperial Bank of Commerce 0.77 6/17/2016 25,000
25,000 DnB NOR Bank ASA 0.38 2/24/2016 25,000
25,000 DnB NOR Bank ASA 0.70 6/14/2016 25,000
64,516 JPMorgan Chase & Co. 3.45 3/01/2016 64,652
25,000 Landesbank Hessen Thuringen 0.34 2/04/2016 25,000
25,000 Landesbank Hessen Thuringen 0.41 2/17/2016 25,000
25,000 Mizuho Bank Ltd. 0.65 4/08/2016 25,000
25,000 Natixis 0.40 2/10/2016 25,000
25,000 Natixis 0.59 3/17/2016 25,000
25,000 Norinchukin Bank 0.60 3/17/2016 25,000
25,000 Norinchukin Bank 0.63 4/07/2016 25,000
25,000 Norinchukin Bank 0.57 4/22/2016 25,000
25,000 Rabobank Nederland N.V. 0.40 2/04/2016 25,000
25,000 Skandinaviska Enskilda Banken AB 0.32 2/19/2016 25,000
25,000 Skandinaviska Enskilda Banken AB 0.53 4/19/2016 25,000
25,000 Skandinaviska Enskilda Banken AB 0.62 5/09/2016 25,000
25,000 Standard Chartered Bank 0.46 2/08/2016 25,000
25,000 Sumitomo Mitsui Banking Corp. 0.65 4/13/2016 25,000
25,000 Svenska Handelsbanken 0.46 4/29/2016 25,000
25,000 Swedbank AB 0.28 2/16/2016 25,000
----------
589,652
----------
DIVERSIFIED CAPITAL MARKETS (0.9%)
25,000 Credit Suisse AG 0.58 5/04/2016 25,000
25,000 Credit Suisse AG 0.86 7/06/2016 25,000
----------
50,000
----------
GENERAL OBLIGATION (0.7%)
26,670 Frontier CSD 1.50 6/28/2016 26,761
13,000 Yorkshire-Pioneer CSD 1.50 6/29/2016 13,044
----------
39,805
----------
INVESTMENT BANKING & BROKERAGE (1.1%)
33,910 Morgan Stanley 1.75 2/25/2016 33,932
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 23,459 Morgan Stanley 3.80% 4/29/2016 $ 23,622
----------
57,554
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.9%)
25,000 Toronto-Dominion Bank 0.35 2/02/2016 25,000
25,000 Toronto-Dominion Bank 0.52 5/05/2016 25,000
----------
50,000
----------
REGIONAL BANKS (1.0%)
25,000 MUFG Union Bank, N.A. 0.29 3/16/2016 25,000
25,000 MUFG Union Bank, N.A. 0.36 4/13/2016 25,000
5,405 MUFG Union Bank, N.A. 3.00 6/06/2016 5,443
----------
55,443
----------
Total Fixed-Rate Instruments (cost: $842,454) 842,454
----------
COMMERCIAL PAPER (35.3%)
ASSET-BACKED FINANCING (18.6%)
25,000 Barton Capital, LLC(a),(b) 0.29 2/02/2016 25,000
25,000 Barton Capital, LLC(a),(b) 0.60 3/02/2016 24,988
25,011 Cedar Springs Capital Co.(a) 0.33 2/11/2016 25,009
16,038 Cedar Springs Capital Co.(a) 0.60 2/16/2016 16,034
25,000 Cedar Springs Capital Co.(a) 0.65 4/07/2016 24,970
30,000 Crown Point Capital Co.(a) 0.35 2/09/2016 29,998
30,000 Crown Point Capital Co.(a) 0.60 4/20/2016 29,961
25,000 Crown Point Capital Co.(a) 0.64 5/09/2016 24,956
25,000 Fairway Finance Corp.(a),(b) 0.28 2/08/2016 24,999
10,000 Fairway Finance Corp.(a),(b) 0.30 2/10/2016 9,999
20,000 Fairway Finance Corp.(a),(b) 0.30 2/24/2016 19,996
35,000 Fairway Finance Corp.(a),(b) 0.37 3/01/2016 34,990
51,502 Gotham Funding Corp.(a),(b) 0.45 3/04/2016 51,481
25,000 Gotham Funding Corp.(a),(b) 0.50 3/09/2016 24,987
45,000 Hannover Funding Co. LLC(a),(b) 0.40 2/01/2016 45,000
30,000 Liberty Street Funding LLC(a),(b) 0.60 4/04/2016 29,968
10,000 LMA Americas, LLC(a),(b) 0.37 2/05/2016 10,000
18,000 LMA Americas, LLC(a),(b) 0.44 2/29/2016 17,994
30,000 LMA Americas, LLC(a),(b) 0.39 2/01/2016 30,000
31,600 LMA Americas, LLC(a),(b) 0.38 2/04/2016 31,599
40,000 Manhattan Asset Funding Co.(a),(b) 0.45 2/01/2016 40,000
31,636 Manhattan Asset Funding Co.(a),(b) 0.45 2/05/2016 31,634
25,000 Manhattan Asset Funding Co.(a),(b) 0.46 2/19/2016 24,994
8,982 Nieuw Amsterdam Receivable Corp.(a),(b) 0.40 2/16/2016 8,981
20,000 Nieuw Amsterdam Receivable Corp.(a),(b) 0.37 2/23/2016 19,995
5,647 Nieuw Amsterdam Receivable Corp.(a),(b) 0.45 3/16/2016 5,644
20,000 Old Line Funding LLC(a),(b) 0.47 3/28/2016 19,985
================================================================================
10 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 33,650 Old Line Funding LLC(a),(b) 0.73% 5/04/2016 $ 33,587
30,000 Ridgefield Funding Co., LLC(a) 0.38 2/11/2016 29,997
30,000 Ridgefield Funding Co., LLC(a) 0.43 2/18/2016 29,994
30,000 Ridgefield Funding Co., LLC(a) 0.60 3/17/2016 29,977
30,000 Ridgefield Funding Co., LLC(a) 0.62 4/05/2016 29,967
30,000 Sheffield Receivables(a),(b) 0.61 3/11/2016 29,980
45,000 Victory Receivables(a),(b) 0.45 2/05/2016 44,998
40,000 Working Capital Management Co.(a),(b) 0.45 2/02/2016 39,999
30,000 Working Capital Management Co.(a),(b) 0.41 2/03/2016 29,999
6,350 Working Capital Management Co.(a),(b) 0.46 2/16/2016 6,349
18,300 Working Capital Management Co.(a),(b) 0.47 2/23/2016 18,295
----------
1,006,304
----------
AUTOMOBILE MANUFACTURERS (0.4%)
2,580 Hyundai Capital America(a),(b) 0.65 2/02/2016 2,580
4,000 Hyundai Capital America(a),(b) 0.68 2/03/2016 4,000
12,000 Hyundai Capital America(a),(b) 0.78 2/19/2016 11,995
5,000 Hyundai Capital America(a),(b) 0.80 2/23/2016 4,997
----------
23,572
----------
AUTOMOTIVE RETAIL (0.4%)
22,000 Autozone Inc.(a),(b) 0.60 2/10/2016 21,997
----------
CONSUMER FINANCE (1.1%)
30,000 American Honda Finance 0.40 3/16/2016 29,985
28,000 American Honda Finance 0.47 4/27/2016 27,969
----------
57,954
----------
DIVERSIFIED CHEMICALS (0.4%)
18,750 BASF SE(a),(b) 0.50 3/29/2016 18,735
5,000 LyondellBasell Investment, LLC(a),(b) 0.70 2/16/2016 4,999
----------
23,734
----------
EDUCATION (3.1%)
8,690 DeKalb County Development Auth. 0.38 2/17/2016 8,690
36,870 Emory Univ. 0.31 2/01/2016 36,870
34,500 Emory Univ. 0.35 2/16/2016 34,499
26,000 Emory Univ. 0.40 3/10/2016 26,000
25,000 Univ. of Texas System 0.25 3/01/2016 24,999
37,000 Yale Univ. 0.35 2/09/2016 36,997
----------
168,055
----------
EDUCATION SERVICES (0.3%)
15,000 Baylor Univ. 0.38 3/10/2016 14,994
----------
ELECTRIC UTILITIES (0.4%)
22,000 Pacific Gas & Electric Co.(a),(b) 0.62 2/09/2016 21,997
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRIC/GAS UTILITIES (3.8%)
$ 30,000 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.32% 2/11/2016 $ 30,000
5,000 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.38 3/03/2016 5,000
25,000 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.38 3/17/2016 25,000
42,107 South Carolina Public Service Auth. 0.25 2/10/2016 42,107
12,500 South Carolina Public Service Auth. 0.45 2/22/2016 12,500
9,558 South Carolina Public Service Auth. 0.43 2/23/2016 9,558
42,674 South Carolina Public Service Auth. 0.40 2/29/2016 42,674
37,832 South Carolina Public Service Auth. 0.45 3/21/2016 37,832
----------
204,671
----------
HEALTH CARE FACILITIES (0.5%)
25,000 Trinity Health Corp. 0.48 2/16/2016 24,995
----------
HOSPITAL (3.5%)
30,000 Catholic Health Initiatives 0.65 2/22/2016 29,989
20,000 Catholic Health Initiatives 0.60 3/14/2016 19,986
30,000 Inova Health Systems Foundation 0.20 2/16/2016 29,998
40,000 Inova Health Systems Foundation 0.45 3/03/2016 39,984
30,000 Inova Health Systems Foundation 0.50 4/05/2016 29,973
40,036 Kaiser Foundation Hospital 0.48 3/07/2016 40,017
----------
189,947
----------
INTEGRATED OIL & GAS (1.2%)
25,000 Exxon Mobil Corp. 0.29 2/03/2016 25,000
20,000 Exxon Mobil Corp. 0.33 2/12/2016 19,998
20,000 Exxon Mobil Corp. 0.40 3/01/2016 19,993
----------
64,991
----------
OIL & GAS REFINING & MARKETING (0.1%)
5,000 Motiva Enterprises LLC 0.75 2/08/2016 4,999
----------
SOFT DRINKS (1.5%)
17,250 Coca-Cola Co.(a),(b) 0.28 2/17/2016 17,248
25,000 Coca-Cola Co.(a),(b) 0.34 2/25/2016 24,994
20,000 Coca-Cola Co.(a),(b) 0.42 3/24/2016 19,988
19,900 Coca-Cola Co.(a),(b) 0.48 4/25/2016 19,878
----------
82,108
----------
Total Commercial Paper (cost: $1,910,318) 1,910,318
----------
PUT BONDS (0.9%)
ELECTRIC UTILITIES (0.9%)
50,000 Mobile IDB (cost: $50,000) 0.65 6/01/2034 50,000
----------
================================================================================
12 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (36.2%)
AEROSPACE & DEFENSE (0.6%)
$ 9,595 Albertville IDB (LOC - JPMorgan Chase Bank, N.A.) 0.13% 3/01/2018 $ 9,595
23,060 GBG, LLC (LOC - Bank of New York Mellon)(a) 0.32 9/01/2027 23,060
----------
32,655
----------
AGRICULTURAL PRODUCTS (1.2%)
15,000 Indiana Finance Auth. 0.04 6/01/2041 15,000
10,045 Iowa Finance Auth. 0.04 6/01/2036 10,045
35,000 Iowa Finance Auth. 0.04 6/01/2039 35,000
2,730 Washington Economic Dev. Finance Auth.
(LOC - Bank of the West) 0.05 9/01/2032 2,730
----------
62,775
----------
AIRLINES (0.7%)
38,900 Chicago-O'Hare International Airport
(LOC - Bayerische Landesbank) 0.02 5/01/2035 38,900
----------
AIRPORT SERVICES (0.0%)
1,800 San Antonio Airport System
(LOC - Bank of America, N.A.) 0.20 4/01/2020 1,800
----------
AIRPORT/PORT (1.1%)
47,025 Broward County
(LIQ) (LOC - Deutsche Bank A.G.)(a) 0.15 10/01/2033 47,025
13,300 Denver City and County (LIQ)
(LOC - Deutsche Bank A.G.)(a) 0.15 11/15/2032 13,300
----------
60,325
----------
ALUMINUM (0.1%)
7,815 Hancock County (LOC - Wells Fargo Bank, N.A.) 0.21 4/01/2028 7,815
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.1%)
4,635 St. Charles Parish (LOC - Federal Home Loan
Bank of Atlanta) 0.45 9/01/2024 4,635
----------
ASSET-BACKED FINANCING (0.0%)
2,210 Capital Markets Access Co., LLC (LOC - Federal
Home Loan Bank of Atlanta) 0.41 8/01/2031 2,210
----------
AUTO PARTS & EQUIPMENT (0.2%)
1,600 Elkhart County (LOC - Fifth Third Bank) 0.14 12/01/2027 1,600
4,115 Illinois Finance Auth. (LOC - Federal Home Loan
Bank of Chicago) 0.52 7/01/2040 4,115
3,400 Savanna (LOC - Bank of America, N.A.) 0.08 5/01/2019 3,400
1,175 Tippecanoe County (LOC - Fifth Third Bank) 0.14 11/01/2025 1,175
----------
10,290
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
AUTOMOTIVE RETAIL (0.0%)
$ 765 Kenwood Lincoln-Mercury, Inc. (LOC - PNC
Bank, N.A.) 0.60% 3/01/2021 $ 765
----------
BUILDING PRODUCTS (1.0%)
2,465 Atchison (LOC - Key Bank, N.A.) 0.17 1/01/2033 2,465
3,945 Cornell Iron Works, Inc. (LOC - Bank of
America, N.A.) 0.62 4/01/2019 3,945
1,950 Delaware EDA (LOC - Key Bank, N.A.) 0.17 4/01/2023 1,950
3,200 Manhattan IDB (LOC - JPMorgan Chase Bank, N.A.) 0.32 4/01/2028 3,200
4,285 Moondance Enterprises, LP (LOC - PNC Bank, N.A.) 0.43 11/01/2020 4,285
750 Tazewell County IDA (LOC - PNC Bank, N.A.) 0.11 2/01/2017 750
28,750 Union County (LOC - SunTrust Bank) 0.40 10/01/2027 28,750
9,400 Warren County (LOC - JPMorgan Chase Bank, N.A.) 0.18 12/01/2031 9,400
----------
54,745
----------
COMMERCIAL PRINTING (0.1%)
1,465 Colorado Housing and Finance Auth.
(LOC - Wells Fargo Bank, N.A.) 0.20 5/01/2027 1,465
1,989 Fairway, LLC (LOC - Federal Home Loan
Bank of San Francisco) 0.43 12/01/2023 1,989
2,300 Summit County Port Auth. (LOC - Key Bank, N.A.) 0.17 7/01/2023 2,300
----------
5,754
----------
COMMUNITY SERVICE (0.3%)
16,010 Wisconsin Public Finance Auth.
(LOC - Fifth Third Bank) 0.09 2/01/2042 16,010
----------
CONSTRUCTION MATERIALS (0.2%)
1,855 Franklin IDB (LOC - Federal Home Loan
Bank of Chicago) 0.10 7/01/2032 1,855
10,000 Yavapai County IDA (LOC - Bank of Nova Scotia) 0.38 9/01/2035 10,000
----------
11,855
----------
DISTILLERS & VINTNERS (0.0%)
100 Kentucky Rural EDA (LOC - PNC Bank, N.A.) 0.14 10/01/2016 100
----------
DISTRIBUTORS (0.3%)
15,110 Bhavnani, LLC (LOC - U.S. Bank, N.A.) 0.38 5/01/2038 15,110
----------
DIVERSIFIED CHEMICALS (0.1%)
6,500 Port of Port Arthur Navigation District 0.06 4/01/2033 6,500
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (2.6%)
5,000 Fiore Capital, LLC (LOC - Wells Fargo Bank, N.A.) 0.28 8/01/2045 5,000
7,000 Fiore Capital, LLC (LOC - Wells Fargo Bank, N.A.) 0.28 8/01/2045 7,000
13,955 Kansas City Tax Financing Commission
(LOC - Key Bank, N.A.) 0.44 6/01/2024 13,955
================================================================================
14 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 58,400 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.08% 5/01/2042 $ 58,400
27,710 Paca-Pratt Associates, Inc. (LOC - Manufacturers &
Traders Trust Co.) 0.78 1/01/2038 27,710
13,288 Pinnacle Properties Dev. Group, LLC (LOC - Federal
Home Loan Bank of Cincinnati) 0.41 6/15/2041 13,288
1,880 Stice-Hill Holdings, LC (LOC - Hancock Bank) 1.50 12/01/2023 1,880
12,525 Stobro Co., LP (LOC - Federal Home Loan
Bank of Pittsburgh) 0.38 1/01/2032 12,525
----------
139,758
----------
EDUCATION (0.5%)
6,595 Colorado Educational and Cultural Facilities Auth.
(LOC - Fifth Third Bank) 0.03 1/01/2029 6,595
10,000 Massachusetts Dev. Finance Agency
(LOC - RBS Citizens, N.A.) 0.50 7/01/2043 10,000
5,000 Michigan State Finance Auth. (LOC - Bank of Montreal) 0.32 9/01/2050 5,000
7,670 Missouri Health and Educational Facilities Auth.
(LOC - Fifth Third Bank) 0.09 7/15/2037 7,670
----------
29,265
----------
EDUCATION SERVICES (0.6%)
6,426 Cornerstone Funding Corp. I (LOC - TD Bank, N.A.) 0.91 1/01/2025 6,426
5,170 Harvest Time Tabernacle, Inc. (LOC - Federal
Home Loan Bank of Dallas) 0.43 8/01/2037 5,170
3,570 Manhattan Christian College, Inc.
(LOC - Federal Home Loan Bank of Topeka) 0.43 5/01/2036 3,570
12,985 Saddleback Valley Community Church
(LOC - Federal Home Loan Bank of San Francisco) 0.41 11/01/2038 12,985
2,255 Summit Country Day School (LOC - U.S. Bank, N.A.) 0.70 2/01/2019 2,255
----------
30,406
----------
ELECTRIC UTILITIES (3.8%)
11,000 Appling County Dev. Auth. 0.18 9/01/2041 11,000
6,000 Dade County IDA 0.01 6/01/2021 6,000
38,300 Garfield County Industrial Auth. 0.05 1/01/2025 38,300
21,200 Indiana Dev. Finance Auth. 0.30 12/01/2038 21,200
15,000 Miami-Dade County IDA 0.02 2/01/2023 15,000
7,250 Mobile IDB 0.02 9/01/2031 7,250
20,000 Muskogee Industrial Trust 0.05 6/01/2027 20,000
30,000 St. Lucie County 0.02 5/01/2024 30,000
58,400 St. Lucie County 0.01 9/01/2028 58,400
----------
207,150
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRIC/GAS UTILITIES (0.2%)
$ 10,000 Central Plains Energy Project (LIQ)
(LOC - Deutsche Bank A.G.)(a) 0.26% 9/01/2037 $ 10,000
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
995 Colorado Housing and Finance Auth.
(LOC - Wells Fargo Bank, N.A.) 0.20 10/01/2032 995
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
4,785 Putnam County IDA (LOC - RBS Citizens, N.A.) 0.41 7/01/2032 4,785
----------
FOOD RETAIL (0.5%)
18,750 Altoona-Blair County Dev. Corp.
(LOC - PNC Bank, N.A.)(a) 0.38 4/01/2035 18,750
1,555 Food Supply, Inc. (LOC - SunTrust Bank) 0.42 5/01/2024 1,555
6,420 Saubels Market, Inc. (LOC - Fulton Bank) 1.00 5/01/2034 6,420
----------
26,725
----------
FOREST PRODUCTS (0.1%)
4,200 Rex Lumber, LLC (LOC - Federal Home Loan
Bank of Dallas) 0.41 2/01/2022 4,200
----------
GENERAL MERCHANDISE STORES (0.2%)
9,445 Marion EDA (LOC - Key Bank, N.A.) 0.48 2/01/2035 9,445
----------
GENERAL OBLIGATION (2.1%)
7,500 Bridgeview (LOC - Harris Bank, N.A.) 0.40 12/01/2038 7,500
7,500 Bridgeview (LOC - Harris Bank, N.A.) 0.40 12/01/2038 7,500
28,465 McHenry County (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.16 1/15/2026 28,465
5,550 Michigan Charter Township of Commerce
(LOC - Comerica Bank, N.A.) 0.39 10/01/2018 5,550
34,445 Michigan Charter Township of Commerce
(LOC - PNC Bank, N.A.) 0.39 10/01/2034 34,445
29,800 Will County Community High School District (LIQ)
(LOC - Deutsche Bank A.G.)(a) 0.19 1/01/2026 29,800
----------
113,260
----------
HEALTH CARE EQUIPMENT (0.2%)
1,440 Labcon North America (LOC - Bank of the West) 0.37 1/01/2040 1,440
8,110 Labcon North America (LOC - Bank of the West) 0.37 6/01/2044 8,110
----------
9,550
----------
HEALTH CARE FACILITIES (3.0%)
7,065 Alexandria IDA (LOC - Bank of America, N.A.) 0.41 7/01/2030 7,065
9,120 Bronson Lifestyle Improvement & Research Center
(LOC - Fifth Third Bank) 0.52 9/01/2030 9,120
1,920 Columbia County IDA (LOC - HSBC Bank USA) 0.41 7/01/2027 1,920
4,865 Crozer Keystone Health System (LOC - TD Bank, N.A.) 0.38 12/15/2021 4,865
================================================================================
16 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 480 District of Columbia (LOC - Manufacturers &
Traders Trust Co.) 0.78% 7/01/2032 $ 480
3,715 Dunn Nursing Home, Inc. (LOC - Federal Home
Loan Bank of Dallas) 0.41 2/01/2024 3,715
7,845 Genoa Medical Dev., LLC (LOC - Fifth Third Bank) 0.37 12/01/2045 7,845
1,695 HP LRHS Land, LLC (LOC - U.S. Bank, N.A.) 0.37 10/01/2030 1,695
4,730 IHA Capital Dev., LLC (LOC - Fifth Third Bank) 0.37 6/01/2053 4,730
3,640 Louisiana Public Facilities Auth.
(LOC - Capital One, N.A.) 0.50 7/01/2028 3,640
1,100 MBE Investment Co., LLC
(LOC - Comerica Bank, N.A.) 0.43 2/01/2051 1,100
3,275 MCE MOB IV, LP (LOC - PNC Bank, N.A.) 0.43 8/01/2022 3,275
3,370 Medical Center of Athens
(LOC - Federal Home Loan Bank of Atlanta) 0.48 9/01/2032 3,370
6,780 Medical Properties Investment Co.
(LOC - Fifth Third Bank) 0.37 11/01/2035 6,780
7,390 MediLucent MOB I, LP
(LOC - PNC Bank, N.A.) 0.43 8/01/2030 7,390
11,895 MMC Corp. (LOC - JPMorgan Chase Bank, N.A.) 0.50 11/01/2035 11,895
3,405 Onondaga County IDA (LOC - HSBC Bank USA) 0.41 1/01/2023 3,405
24,170 OSF Finance Co., LLC (LOC - PNC Bank, N.A.) 0.38 12/01/2037 24,170
2,960 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,960
3,805 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 3,805
6,565 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 6,565
4,575 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 4,575
2,125 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,125
2,515 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,515
2,495 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,495
22,860 Premier Senior Living, LLC
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 22,860
5,160 Sawmill Creek Lodge Co.
(LOC - Fifth Third Bank) 0.42 10/01/2026 5,160
2,500 Syracuse IDA (LOC - HSBC Bank USA) 0.41 1/01/2023 2,500
----------
162,020
----------
HEALTH CARE SERVICES (0.3%)
6,360 Central Ohio Medical Textiles
(LOC - PNC Bank, N.A.) 0.43 3/01/2023 6,360
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 6,000 Kaneville Road Joint Venture
(LOC - Federal Home Loan Bank of Chicago) 0.41% 11/01/2032 $ 6,000
5,910 Vold Vision Ventures, LLC
(LOC - Federal Home Loan Bank of Dallas) 0.43 10/01/2039 5,910
----------
18,270
----------
HOME FURNISHINGS (0.2%)
3,020 Caddo Parish IDB (LOC - Capital One, N.A.) 0.66 7/01/2024 3,020
4,000 Fulton County Dev. Auth.
(LOC - Wells Fargo Bank, N.A.) 0.35 6/01/2027 4,000
2,300 Jasper County IDA
(LOC - JPMorgan Chase Bank, N.A.) 0.24 8/01/2016 2,300
1,500 Michigan Strategic Fund Ltd.
(LOC - JPMorgan Chase Bank, N.A.) 0.11 9/01/2030 1,500
2,300 Walton County Industrial Building Auth.
(LOC - Wells Fargo Bank, N.A.) 0.35 10/01/2017 2,300
----------
13,120
----------
HOME IMPROVEMENT RETAIL (0.1%)
5,415 Brookhaven IDA (LOC - Capital One, N.A.) 0.55 1/01/2025 5,415
----------
HOSPITAL (1.3%)
3,170 Albany IDA (LOC - RBS Citizens, N.A.) 0.93 5/01/2035 3,170
1,730 Johnson City Health and Educational Facilities Board
(LOC - U.S. Bank, N.A.) 0.38 7/01/2033 1,730
10,035 Lee Memorial Health System (LIQ)
(LOC - Deutsche Bank A.G.)(a) 0.16 4/01/2037 10,035
22,800 Maryland Health and Higher Educational Facilities
Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.20 8/15/2042 22,800
24,805 Missouri Health and Educational Facilities Board
(LIQ) (LOC - Deutsche Bank A.G.)(a) 0.20 11/15/2048 24,805
7,730 Nassau Health Care Corp.
(LOC - JPMorgan Chase Bank, N.A.) 0.40 8/01/2022 7,730
----------
70,270
----------
HOTELS, RESORTS & CRUISE LINES (0.3%)
3,240 Connecticut Dev. Auth. (LOC - TD Bank, N.A.) 0.47 12/01/2028 3,240
1,700 Doghouse Properties, LLC
(LOC - Federal Home Loan Bank of Atlanta) 0.47 5/01/2027 1,700
7,940 Forward Corp. (LOC - Fifth Third Bank) 0.37 12/01/2030 7,940
2,461 Merger Hospitality, LLC (LOC - Fifth Third Bank) 0.42 4/01/2026 2,461
----------
15,341
----------
HOUSEHOLD APPLIANCES (0.0%)
1,250 Stark County (LOC - Key Bank, N.A.) 0.17 6/01/2018 1,250
----------
================================================================================
18 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES (0.0%)
$ 1,710 Schulte Corp. (LOC - Fifth Third Bank) 0.37% 9/01/2024 $ 1,710
----------
INDUSTRIAL GASES (0.1%)
4,000 Louisiana Public Facilities Auth. 0.01 12/01/2042 4,000
----------
INDUSTRIAL MACHINERY (0.2%)
2,000 Allegheny County IDA (LOC - PNC Bank, N.A.) 0.52 11/01/2027 2,000
3,040 Fulton County Dev. Auth.
(LOC - Federal Home Loan Bank of Atlanta) 0.09 5/01/2030 3,040
500 Henderson County (LOC - Wells Fargo Bank, N.A.) 0.08 11/01/2019 500
2,075 Lynchburg IDA (LOC - PNC Bank, N.A.) 0.11 3/01/2029 2,075
600 Michigan Strategic Fund Ltd. (LOC - Fifth Third Bank) 0.14 3/01/2023 600
1,230 Sheboygan Falls (LOC - U.S. Bank, N.A.) 0.54 1/01/2032 1,230
1,245 South Carolina Jobs EDA (LOC - Key Bank, N.A.) 0.17 4/01/2022 1,245
860 Trumbull County (LOC - Key Bank, N.A.) 0.17 4/01/2017 860
----------
11,550
----------
INTEGRATED OIL & GAS (0.4%)
20,000 Calhoun County Navigation IDA 0.03 1/01/2024 20,000
----------
LEISURE FACILITIES (0.5%)
4,630 Cattail Creek Country Club, Inc.
(LOC - Manufacturers & Traders Trust Co.) 0.78 3/01/2031 4,630
10,365 CEI Capital, LLC (LOC - Fifth Third Bank) 0.36 3/01/2033 10,365
9,400 Turfway Park, LLC (LOC - Fifth Third Bank) 0.50 7/01/2022 9,400
----------
24,395
----------
LEISURE PRODUCTS (0.1%)
5,450 Charter Lakes Capital, LLC
(LOC - U.S. Bank, N.A.) 0.35 10/01/2046 5,450
1,570 Rhode Island Industrial Facilities Corp.
(LOC - TD Bank, N.A.) 0.15 2/01/2021 1,570
----------
7,020
----------
LIFE & HEALTH INSURANCE (1.9%)
2,130 Christian Sendra Irrevocable Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 8/01/2035 2,130
2,150 Craig Moran Irrevocable Life Insurance Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 2,150
1,890 Frank Moran Irrevocable Life Insurance Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 1,890
6,460 Harry M. Rubin 2014 Insurance Trust
(LOC - Wells Fargo Bank, N.A.) 0.41 9/01/2034 6,460
2,450 Kevin Moran Irrevocable Life Insurance Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 2,450
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 9,825 KVR Insurance Trust
(LOC - Bank of Oklahoma, N.A.) 0.41% 6/01/2034 $ 9,825
5,305 Larry L. Henry 2013 Family Trust II
(LOC - Bank of Oklahoma, N.A.) 0.41 12/01/2035 5,305
3,950 Lavonia O. Frick Family Trust
(LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2028 3,950
13,355 Lavonne Johnson Life Insurance Trust
(LOC - Federal Home Loan Bank of Atlanta) 0.41 6/01/2031 13,355
8,870 Lynette J. Keane Insurance Trust
(LOC - Wells Fargo Bank, N.A.) 0.41 10/01/2033 8,870
3,405 Moran Enterprises Corp.
(LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 3,405
5,565 Raymon Lee Ince Irrevocable Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 7/01/2033 5,565
12,000 RBS Insurance Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 9/01/2035 12,000
9,470 Sendra Family Irrevocable Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 8/01/2035 9,470
2,130 Stacy A. Sendra Irrevocable Trust
(LOC - Bank of Oklahoma, N.A.) 0.41 8/01/2035 2,130
5,375 Sullivan Irrevocable Trust
(LOC - Wells Fargo Bank, N.A.) 0.41 2/01/2035 5,375
7,305 Tuttle Insurance Trust No. 2
(LOC - Bank of Oklahoma, N.A.) 0.41 12/01/2035 7,305
----------
101,635
----------
MOVIES & ENTERTAINMENT (0.3%)
14,110 Esplanade Theatres, LLC
(LOC - Federal Home Loan Bank of Dallas) 0.45 11/01/2042 14,110
2,500 Kenner Theatres, LLC
(LOC - Federal Home Loan Bank of Dallas) 0.46 2/01/2042 2,500
----------
16,610
----------
MULTIFAMILY HOUSING (1.7%)
8,190 Alabama Housing Finance Auth.
(LOC - U.S. Bank, N.A.) 0.03 4/01/2037 8,190
7,680 Florida Housing Finance Corp.
(LOC - SunTrust Bank) 0.25 4/01/2034 7,680
7,100 Florida Housing Finance Corp.
(LOC - SunTrust Bank) 0.25 6/01/2034 7,100
7,205 Gwinnett County Housing Auth.
(LOC - SunTrust Bank) 0.22 3/01/2041 7,205
10,000 Nebraska Investment Finance Auth.
(LOC - Citibank, N.A.) 0.04 10/01/2042 10,000
4,735 Nevada Housing Division (LOC - Citibank, N.A.) 0.02 10/01/2035 4,735
================================================================================
20 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 3,685 New York Housing Finance Agency
(LOC - Citibank, N.A.) 0.02% 5/01/2039 $ 3,685
24,150 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.01 5/01/2041 24,150
6,600 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.20 5/01/2041 6,600
10,000 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.02 5/01/2042 10,000
935 Vermont Housing Finance Agency
(LOC - Key Bank, N.A.) 0.17 1/01/2038 935
----------
90,280
----------
NURSING/CCRC (0.1%)
2,255 Berks County Municipal Auth.
(LOC - Citizens Bank of Pennsylvania) 0.61 5/15/2022 2,255
525 Roanoke County EDA
(LOC - Branch Banking & Trust Co.) 1.43 10/01/2028 525
----------
2,780
----------
OIL & GAS REFINING & MARKETING (0.1%)
3,000 Port of Port Arthur Navigation District 0.21 12/01/2039 3,000
----------
PACKAGED FOODS & MEAT (0.4%)
2,815 Brewster Dairy, Inc. (LOC - Bank of Montreal) 0.52 4/03/2023 2,815
2,200 Indiana Finance Auth.
(LOC - Bank of America, N.A.) 0.15 12/01/2027 2,200
2,055 Lancaster IDA (LOC - Fulton Bank) 1.00 6/01/2027 2,055
2,800 Michigan Strategic Fund Ltd. (LOC - AgriBank, FCB) 0.05 6/01/2024 2,800
7,500 Premier Mushrooms, Inc. (LOC - CoBank, ACB) 0.41 12/01/2037 7,500
2,660 St. Tammany Parish (LOC - Federal Home Loan
Bank of Dallas) 0.43 7/01/2022 2,660
----------
20,030
----------
PAPER PACKAGING (0.0%)
255 Washington Finance EDA (LOC - Wells Fargo
Bank, N.A.) 0.47 4/01/2033 255
----------
PAPER PRODUCTS (0.1%)
870 Jackson Paper Co. (LOC - Federal Home Loan
Bank of Atlanta) 0.47 4/01/2027 870
5,600 Willacoochee Dev. Auth. (LOC - Federal Home
Loan Bank of Atlanta) 0.11 5/01/2021 5,600
----------
6,470
----------
PHARMACEUTICALS (1.4%)
7,000 Montgomery County IDA
(LOC - Landesbank Hessen-Thuringen) 0.06 4/01/2022 7,000
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 20,000 New Hampshire Business Finance Auth. (LOC -
Landesbank Hessen-Thuringen) 0.06% 11/01/2020 $ 20,000
19,500 New Hampshire Business Finance Auth.
(LOC - Landesbank Hessen-Thuringen) 0.06 9/01/2025 19,500
30,000 New Hampshire Business Finance Auth.
(LOC - Landesbank Hessen-Thuringen) 0.06 4/01/2030 30,000
----------
76,500
----------
PUBLISHING (0.0%)
1,800 Washington Economic Dev. Finance Auth.
(LOC - U.S. Bank, N.A.) 0.15 1/01/2033 1,800
----------
REAL ESTATE OPERATING COMPANIES (4.0%)
1,120 AM Investment Partners, LLC
(LOC - Federal Home Loan Bank of Indianapolis) 0.43 6/01/2056 1,120
2,580 Beavercreek Enterprises, Inc. (LOC - PNC Bank, N.A.) 0.52 3/02/2020 2,580
2,525 Cain Capital Investments, LLC
(LOC - Branch Banking & Trust Co.) 0.50 10/01/2046 2,525
44,490 Carew Realty, Inc. (LOC - Fifth Third Bank) 0.37 5/01/2037 44,490
11,295 Delos, LLC (LOC - Wells Fargo Bank, N.A.) 0.45 3/01/2037 11,295
3,110 Dennis Wesley Co., Inc. (LOC - Federal Home Loan
Bank of Indianapolis) 0.41 6/15/2034 3,110
7,000 Desert Vistas, LP (LOC - Federal Home Loan
Bank of San Francisco) 0.39 9/01/2055 7,000
3,915 East Hempfield IDA (LOC - Fulton Bank) 0.65 10/15/2026 3,915
15,680 Elsinore Properties, LP (LOC - Fifth Third Bank) 0.37 2/01/2037 15,680
4,090 EMF, LLC (LOC - Comerica Bank, N.A.) 0.37 6/01/2042 4,090
4,000 Forsyth County (LOC - Fifth Third Bank) 0.12 1/01/2037 4,000
3,910 Herman & Kittle Capital, LLC (LOC - Federal Home
Loan Bank of Cincinnati) 0.41 2/01/2037 3,910
6,220 Herman & Kittle Capital, LLC (LOC - Federal Home
Loan Bank of Cincinnati) 0.41 7/01/2037 6,220
9,345 Housing Venture I (LOC - Federal Home Loan
Bank of San Francisco) 0.39 12/01/2055 9,345
995 ICON Finance, LLC (LOC - Fifth Third Bank) 0.42 5/15/2026 995
715 Indianapolis (LOC - RBS Citizens, N.A.) 0.50 11/01/2042 715
12,000 MB N4P3, LLC (LOC - Federal Home Loan
Bank of San Francisco) 0.39 2/01/2055 12,000
4,000 Michigan Equity Group, LLC (LOC - Fifth Third Bank) 0.37 4/01/2034 4,000
4,000 Michigan Equity Group, LLC (LOC - Fifth Third Bank) 0.37 12/01/2034 4,000
3,450 New York City Housing Dev. Corp. (LOC - Landesbank
Hessen-Thuringen) 0.33 12/01/2036 3,450
3,745 Partisan Property, Inc. (LOC - Wells Fargo
Bank, N.A.) 0.35 9/01/2044 3,745
================================================================================
22 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,800 Pennsylvania Economic Dev. Financing Auth.
(LOC - PNC Bank, N.A.) 0.43% 4/01/2035 $ 2,800
14,835 Pineview Estates, LC (LOC - Fifth Third Bank) 0.36 4/01/2038 14,835
1,030 Science & Tech Campus (LOC - Fifth Third Bank) 0.42 11/01/2020 1,030
16,200 Sugar Creek Finance Co., LLC
(LOC - Northern Trust Co.) 0.39 6/01/2042 16,200
31,245 Sunroad Centrum Apartments 23
(LOC - Comerica Bank, N.A.) 0.44 5/01/2055 31,245
3,565 Syracuse IDA (LOC - Key Bank, N.A.) 0.17 10/01/2039 3,565
----------
217,860
----------
REAL ESTATE TAX/FEE (0.2%)
3,200 Jasper, Morgan, Newton, & Walton County
(LOC - JPMorgan Chase Bank, N.A.) 0.42 12/01/2020 3,200
9,473 Traer Creek Metropolitan District (LOC - BNP Paribas) 0.42 10/01/2030 9,473
----------
12,673
----------
REGIONAL BANKS (0.0%)
2,250 Cobb County IDA (LOC - Federal Home Loan
Bank of Atlanta) 0.41 2/01/2030 2,250
----------
SINGLE FAMILY HOUSING (0.1%)
3,975 Montgomery County (LOC - PNC Bank, N.A.) 0.38 7/01/2039 3,975
----------
SOLID WASTE DISPOSAL (0.0%)
2,005 Marion County IDA (LOC - SunTrust Bank) 0.20 10/01/2026 2,005
----------
SPECIAL ASSESSMENT/TAX/FEE (0.1%)
3,000 Sheridan Redevelopment Agency (LOC - JPMorgan
Chase Bank, N.A.) 0.40 12/01/2029 3,000
----------
SPECIALTY STORES (0.6%)
31,000 Bass Pro Rossford Development Co., LLC
(LOC - Fifth Third Bank) 0.42 11/01/2027 31,000
2,550 Nextgen Automotive, LLC
(LOC - Fifth Third Bank) 0.37 4/01/2048 2,550
----------
33,550
----------
STEEL (1.6%)
2,500 Berkeley County 0.42 9/01/2028 2,500
11,000 Berkeley County 0.39 4/01/2031 11,000
522 Decatur IDB 0.42 8/01/2036 522
3,505 Klein Steel Services, Inc. (LOC - Manufacturers &
Traders Trust Co.)(a) 0.78 8/01/2025 3,505
2,500 Mississippi Business Finance Corp.
(LOC - Federal Home Loan Bank of Dallas) 0.35 7/01/2020 2,500
20,000 SSAB AB (LOC - Swedbank AB) 0.41 4/01/2034 20,000
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 15,000 SSAB AB (LOC - Credit Agricole Corp. Inv. Bank) 0.41% 5/01/2034 $ 15,000
15,000 SSAB AB (LOC - DNB Bank ASA) 0.41 6/01/2035 15,000
15,000 SSAB AB (LOC - NORDEA AB) 0.41 8/01/2035 15,000
----------
85,027
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.0%)
1,110 Alameda County IDA (LOC - Bank of the West) 0.37 12/01/2040 1,110
----------
WATER UTILITIES (0.1%)
4,000 Indiana Finance Auth. (LOC - Fifth Third Bank) 0.12 12/01/2028 4,000
930 Iowa Finance Auth. (LOC - Societe Generale) 0.42 11/01/2017 930
1,207 L3 Corp. (LOC - Fifth Third Bank) 0.42 10/01/2034 1,207
----------
6,137
----------
WATER/SEWER UTILITY (0.1%)
4,795 Hesperia Public Financing Auth.
(LOC - Bank of the West) 0.40 6/01/2026 4,795
----------
Total Variable-Rate Demand Notes (cost: $1,963,886) 1,963,886
----------
ADJUSTABLE-RATE NOTES (8.8%)
DIVERSIFIED BANKS (6.7%)
77,806 Bank of America Corp. 1.41 3/22/2016 77,856
21,230 Bank of America Corp. 0.88 10/14/2016 21,176
16,000 Bank of America Corp. 0.83 11/14/2016 16,002
60,698 Citigroup, Inc. 1.40 4/01/2016 60,730
57,021 Citigroup, Inc. 1.58 7/25/2016 57,124
16,000 Citigroup, Inc. 1.04 11/15/2016 16,015
68,073 JPMorgan Chase & Co. 1.03 2/26/2016 68,089
19,125 JPMorgan Chase & Co. 0.81 11/18/2016 19,123
29,604 Wells Fargo & Co. 1.15 7/20/2016 29,645
----------
365,760
----------
INVESTMENT BANKING & BROKERAGE (1.7%)
61,302 Goldman Sachs Group, Inc. 1.04 3/22/2016 61,301
31,196 Morgan Stanley 1.64 2/25/2016 31,215
----------
92,516
----------
REGIONAL BANKS (0.4%)
21,040 Fifth Third Bank 0.82 2/26/2016 21,041
----------
Total Adjustable-Rate Notes (cost: $479,317) 479,317
----------
================================================================================
24 | USAA MONEY MARKET FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (3.8%)
$ 45,000 Bank of America, N.A., 0.32%, acquired 1/29/2016 and
due on 2/01/2016 at $45,000 (collateralized by $44,959
of U.S. Treasury, 2.00%(c), due 11/30/2022;
market value $45,900) $ 45,000
55,000 Credit Agricole Corp. Inv. Bank, 0.33%, acquired 1/29/2016
and due on 2/01/2016 at $55,000 (collateralized by $55,144
of U.S. Treasury, 2.00%(c), due 2/15/2025; market value $56,102) 55,000
45,000 Credit Suisse First Boston, LLC, 0.34%, acquired 1/29/2016 and
due on 2/01/2016 at $45,000 (collateralized by $42,400 of
U.S. Treasury, 3.13%(c), due 8/15/2044; market value $45,905) 45,000
58,000 HSBC Bank USA, Inc., 0.30%, acquired 1/29/2016 and due on
2/01/2016 at $58,000 (collateralized by $58,700 of U.S.
Treasury, 1.25%(c), due 12/15/2018; market value $59,162) 58,000
----------
Total Repurchase Agreements (cost: $203,000) 203,000
----------
TOTAL INVESTMENTS (COST: $5,448,975) $5,448,975
==========
--------------------------------------------------------------------------------------------------------
($ 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
--------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $ 842,454 $- $ 842,454
Commercial Paper - 1,910,318 - 1,910,318
Put Bonds - 50,000 - 50,000
Variable-Rate Demand Notes - 1,963,886 - 1,963,886
Adjustable-Rate Notes - 479,317 - 479,317
Repurchase Agreements - 203,000 - 203,000
--------------------------------------------------------------------------------------------------------
Total $- $5,448,975 $- $5,448,975
--------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 January 31, 2016, for federal income tax purposes,
was approximately the same as 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 CATEGORIES AND DEFINITIONS
FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the
market price of a fixed-rate instrument generally varies inversely to the
movement of interest rates.
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing.
PUT BONDS - Provide the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the
effective maturity of the security.
================================================================================
26 | USAA MONEY MARKET FUND
================================================================================
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. The effective maturity of these instruments is deemed to be
less than 397 days in accordance with detailed regulatory requirements.
ADJUSTABLE-RATE NOTES - Similar to variable-rate demand notes in the fact
that the interest rate is adjusted periodically to reflect current market
conditions. These interest rates are adjusted at a given time, such as
monthly or quarterly. However, these securities do not offer the right to
sell the security at face value prior to maturity.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CSD Central School District
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
CREDIT ENHANCEMENTS - Adds 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 values of the securities.
The Fund's purchases consist of securities meeting the requirements to
qualify as "eligible securities" under the Securities and Exchange
Commission (SEC) rules applicable to money market funds. With respect to
quality, eligible securities generally are rated or subject to a guarantee
that is rated in one of the two highest categories for short-term
securities by at least two Nationally Recognized Statistical Rating
Organizations (NRSROs), or by one NRSRO if the security is rated by only
one NRSRO, or if unrated, determined by USAA Asset Management Company (the
Manager) to be of comparable quality. In addition, the Manager must
consider whether a particular investment presents minimal credit risk in
accordance with SEC guidelines applicable to money market funds.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from Deutsche
Bank A.G.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
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 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). 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) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
================================================================================
28 | USAA MONEY MARKET FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $5,448,975
Cash 313
Receivables:
Capital shares sold 8,608
USAA Asset Management Company (Note 4C) 144
Interest 3,842
Securities sold 66
----------
Total assets 5,461,948
----------
LIABILITIES
Payables:
Securities purchased 33,824
Capital shares redeemed 6,359
Dividends on capital shares 10
Accrued management fees 1,099
Accrued transfer agent's fees 918
Other accrued expenses and payables 204
----------
Total liabilities 42,414
----------
Net assets applicable to capital shares outstanding $5,419,534
==========
NET ASSETS CONSIST OF:
Paid-in capital $5,419,565
Overdistribution of net investment income (31)
----------
Net assets applicable to capital shares outstanding $5,419,534
==========
Capital shares outstanding, unlimited number of shares
authorized, no par value 5,420,087
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 8,738
-------
EXPENSES
Management fees 6,421
Administration and servicing fees 2,676
Transfer agent's fees 8,033
Custody and accounting fees 286
Postage 214
Shareholder reporting fees 97
Trustees' fees 13
Registration fees 53
Professional fees 115
Other 44
-------
Total expenses 17,952
Expenses reimbursed (9,461)
-------
Net expenses 8,491
-------
NET INVESTMENT INCOME 247
-------
Increase in net assets resulting from operations $ 247
=======
See accompanying notes to financial statements.
================================================================================
30 | USAA MONEY MARKET FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
--------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
--------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 247 $ 528
Net realized gain on investments - 28
-----------------------------
Increase in net assets resulting from operations 247 556
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (268) (528)
Net realized gains (1) (32)
-----------------------------
Distributions to shareholders (269) (560)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,623,836 3,405,162
Reinvested dividends 269 553
Cost of shares redeemed (1,493,801) (3,309,134)
-----------------------------
Increase in net assets from capital share transactions 130,304 96,581
-----------------------------
Net increase in net assets 130,282 96,577
NET ASSETS
Beginning of period 5,289,252 5,192,675
-----------------------------
End of period $ 5,419,534 $ 5,289,252
=============================
Overdistribution of net investment income:
End of period $ (31) $ (10)
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,623,836 3,405,162
Shares issued for dividends reinvested 269 553
Shares redeemed (1,493,801) (3,309,134)
-----------------------------
Increase in shares outstanding 130,304 96,581
=============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Money Market Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek the highest income consistent with preservation of capital and the
maintenance of 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
================================================================================
32 | USAA MONEY MARKET FUND
================================================================================
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 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
================================================================================
34 | USAA MONEY MARKET FUND
================================================================================
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 January 31, 2016,
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 January 31, 2016, custodian and other bank credits reduced the
Fund's expenses by less than $500.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 January 31, 2016, the Fund paid CAPCO facility
fees of $15,000, which represents 7.6% 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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.
================================================================================
36 | USAA MONEY MARKET FUND
================================================================================
At July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 0.24% of the Fund's average net assets. For the
six-month period ended January 31, 2016, the Fund incurred management fees,
paid or payable to the Manager, of $6,421,000.
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
January 31, 2016, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $2,676,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
For the six-month period ended January 31, 2016, the Fund reimbursed the
Manager $69,000 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 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 January 31, 2016, the Fund
incurred reimbursable expenses of $9,461,000, of which $144,000 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 January 31, 2016, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $8,033,000.
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 fee or other compensation for
these services.
(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.
================================================================================
38 | USAA MONEY MARKET FUND
================================================================================
(6) REGULATORY MATTERS
In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to
the rules that govern money market mutual funds under the 1940 Act to reform the
structure and operations of these funds. The amendments will require certain
money market funds to sell and redeem shares at prices based on their market
value (a floating net asset value). The amendments also will allow money market
funds to impose liquidity fees and suspend redemptions temporarily, and will
impose new requirements related to diversification, stress testing, and
disclosure. Management continues to evaluate the impact of these amendments. The
staggered compliance dates for the various amendments extend through October
2016.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 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 from
investment operations:
Net investment income(a) .00 .00 .00 .00 .00 .00
Net realized and
unrealized gain(a) .00 .00 .00 .00 .00 .00
-------------------------------------------------------------------------------------
Total from investment
operations(a) .00 .00 .00 .00 .00 .00
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00)
Realized capital gains (.00)(a) - (.00)(a) (.00)(a) - -
-------------------------------------------------------------------------------------
Total distributions(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 (%)*,(d) .01 .01 .01 .01 .03(b) .02
Net assets at end
of period (000) $5,419,534 $5,289,252 $5,192,675 $5,140,226 $4,879,905 $5,020,709
Ratios to average
net assets:**
Expenses (%)(c),(d) .32(e) .24 .22 .30 .34(b) .40
Expenses, excluding
reimbursements (%)(c) .67(e) .65 .63 .63 .65(b) .65
Net investment
income (%) .01(e) .01 .01 .01 .03 .01
* 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
iMoneyNet reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$5,322,155,000.
(a) Represents less than $0.01 per share.
(b) During the year ended July 31, 2012, SAS reimbursed the Fund $853,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratio by
0.02%. This decrease is excluded from the expense ratio in the Financial
Highlights table.
(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%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) The Manager 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.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA MONEY MARKET FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
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 | 41
================================================================================
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-----------------------------------------------------------------
Actual $1,000.00 $1,000.10 $1.61
Hypothetical
(5% return before expenses) 1,000.00 1,023.53 1.63
*Expenses are equal to the Fund's annualized expense ratio of 0.32%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 184 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 0.01% for the six-month period of August 1, 2015, through January 31,
2016.
================================================================================
42 | USAA MONEY MARKET 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)
=============================================================================
23428-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SMALL CAP STOCK FUND]
==============================================================
SEMIANNUAL REPORT
USAA SMALL CAP STOCK FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 26
Financial Statements 28
Notes to Financial Statements 31
EXPENSE EXAMPLE 46
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.
202734-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA SMALL CAP STOCK FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
companies with small market capitalizations. This 80% policy may be changed upon
at least 60 days' written notice to shareholders. Although the Fund will invest
primarily in U.S. securities, it may invest up to 20% of its total assets in
foreign securities including securities issued in emerging markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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
Wellington Management Company LLP Granahan Investment Management, Inc.
TIMOTHY J. McCORMACK, CFA GARY C. HATTON, CFA
SHAUN F. PEDERSEN JANE M. WHITE
JENNIFER M. PAWLOSKI
Cambiar Investors, LLC ANDREW L. BEJA, CFA
BRIAN M. BARISH, CFA
ANDREW P. BAUMBUSCH
JEFFREY H. SUSMAN
MARIA MENDELSBERG, CFA
ANNA (ANIA) A. ALDRICH, CFA
TIMOTHY A. BERANEK
COLIN M. DUNN, CFA
--------------------------------------------------------------------------------
o HOW DID THE SMALL-CAP MARKET PERFORM DURING THE REPORTING PERIOD?
For the reporting period ended January 31, 2016, concerns regarding the
possibility of a significant slowdown in China's economic growth dominated
headlines. Fears were intensified in early August 2015 when China
unexpectedly devalued its currency, the renminbi, triggering concerns
regarding global disinflationary trends and a weaker than anticipated global
growth backdrop. In September 2015, Chinese manufacturing activity fell to
its lowest level since 2009. Investor risk tolerance also appeared to
curtail due to the European Central Bank's downgrade of its Eurozone growth,
inflation outlook and the cut in Brazil's credit rating to below investment
grade. Global equities rallied in October 2015 amid increasing signs of
extended monetary policy accommodations by major central banks. After much
anticipation, on December 16, 2015, the Federal Reserve delivered its first
interest rate increase since 2006, approving a small increase in the federal
funds rate. The market initially reacted positively to the news, but
remained volatile
================================================================================
2 | USAA SMALL CAP STOCK FUND
================================================================================
through the end of the reporting period as the broad market S&P 500(R) Index
was down 4.96% in January 2016 alone.
o HOW DID THE USAA SMALL CAP STOCK FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the reporting period ended January 31, 2016, the Fund Shares and
Institutional Shares had total returns of -14.57% and -14.53%, respectively.
This compares to returns of -15.80% for the Russell 2000 Index (the Index),
-10.94% for the S&P SmallCap 600(R) Index, and -12.90% for the Lipper
Small-Cap Core Funds 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. Wellington Management Company LLP (Wellington Management),
Cambiar Investors, LLC (Cambiar), and Granahan Investment Management, Inc.
(GIMI) 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 WELLINGTON MANAGEMENT'S PORTION OF THE FUND PERFORM DURING THE
REPORTING PERIOD?
The Wellington Management portion of the Fund outperformed the Index during
the reporting period. Outperformance was driven entirely by security
selection, primarily within the health care, industrials, consumer staples,
and financial sectors. Weaker selection within the information technology
sector detracted from relative performance. Sector allocation also
detracted from the Fund's relative return due primarily to an overweight
position in the industrials sector and an underweight position in the
utilities sector. Top individual contributors
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
included MedAssets, Inc. (health care), Mistras Group, Inc. (industrials),
and Coherent, Inc. (information technology). Wellington Management
eliminated the Fund's position in MedAssets, Inc. during the reporting
period. Top detractors from relative performance included Scorpio Tankers,
Inc. (energy), Stage Stores, Inc. (consumer discretionary), and Belden, Inc.
(information technology).
o HOW DID CAMBIAR'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD?
For the reporting period ended January 31, 2016, the Cambiar portion of the
Fund underperformed the Index. This reporting period encapsulated a
tumultuous period for small-cap stocks as risk/reward skewed downwards,
high-yield spreads ticked higher, and reduced liquidity led to a
particularly difficult market for managers with a value bias, like Cambiar.
Slight outperformance from security selection within the material and
telecommunication sectors overshadowed by weaker selection within other
sectors, including technology and health care. Technology was the leading
detractor for the reporting period, which was attributable to negative stock
selection. Two of the most significant detractors in technology were
Lumentum Holdings* and Mentor Graphics. Poor selection in the health care
sector was another area of weakness during the reporting period, based
partly on Cambiar's ownership of AMAG Pharmaceuticals, Inc.*, which was the
largest detractor in the sector. The stock lost ground on news that the FDA
was delaying the approval of a drug in the company's development pipeline.
o HOW DID GIMI'S PORTION OF THE FUND PERFORM DURING THE PERIOD?
The GIMI growth portion of the Fund slightly underperformed the Index for
the reporting period. Of the top 10 winners during the reporting period,
seven were technology holdings, which came from the Core Growth and Special
Situation LifeCycle categories. On an attribution basis, stock selection was
strong in the technology (SuperMicro Computer, Inc., Perficient, Inc., and
Inphi Corp.) and materials sectors (Schweitzer-
================================================================================
4 | USAA SMALL CAP STOCK FUND
================================================================================
Manduit International, Inc., Comfort Systems USA, Inc.*, and Scotts
Miracle-Gro Co. "A"). GIMI's underweight and stock selection in the energy
sector also contributed positively to relative performance, while their
portfolio's significant overweight in technology boosted relative
attribution. On a sector basis, health care was by far the largest detractor
from the Fund returns, as seven of the 10 largest individual detractors were
from the sector (including Tetraphase Pharmaceuticals, Inc., Cardiovascular
Systems, Inc., and Esperion Therapeutics, Inc.), and all but one of the
seven were from the Pioneer Life Cycle category. Producer durables also
posted negative attribution, primarily due to three Special Situation
holdings (Power Solutions International Inc., Celadon Group, Inc., and
Kennametal, Inc.).
Thank you for allowing us to help you with your investment needs.
*AMAG Pharmaceuticals, Inc., Lumentum Holdings, and Comfort Systems USA,
Inc., were sold out of the Fund prior to January 31, 2016.
Small-cap investing is subject to the risk that small-cap companies may be
more vulnerable to adverse business or economic developments. Such
securities may be less liquid and more volatile. 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 United States. Foreign securities also
may be subject to foreign taxes. Investments made in emerging market
countries may be particularly volatile. Economies of emerging market
countries generally are less diverse and mature than more developed
countries and may have less stable political systems.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA SMALL CAP STOCK FUND SHARES (FUND SHARES)
(Ticker Symbol: USCAX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $520.5 Million $835.3 Million
Net Asset Value Per Share $13.91 $17.76
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-14.57% -8.93% 6.84% 4.63%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-5.31% 8.51% 6.03%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.16%
(includes acquired fund fees and expenses of 0.01%)
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 December 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.
================================================================================
6 | USAA SMALL CAP STOCK FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P SMALLCAP LIPPER SMALL-CAP USAA SMALL CAP
600 INDEX CORE FUNDS INDEX RUSSELL 2000 INDEX STOCK FUND SHARES
1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2006 9,925.09 9,933.89 9,972.47 9,979.05
3/31/2006 10,412.08 10,371.45 10,456.30 10,370.11
4/30/2006 10,411.13 10,449.39 10,454.60 10,453.91
5/31/2006 9,935.70 9,944.99 9,867.47 9,923.18
6/30/2006 9,937.57 9,877.41 9,930.91 10,000.00
7/31/2006 9,596.13 9,541.96 9,607.77 9,769.55
8/31/2006 9,761.38 9,730.74 9,892.23 9,930.17
9/30/2006 9,850.11 9,776.19 9,974.59 10,083.80
10/31/2006 10,337.84 10,249.15 10,548.90 10,572.63
11/30/2006 10,624.19 10,547.99 10,826.39 10,956.70
12/31/2006 10,622.61 10,565.04 10,862.65 10,944.21
1/31/2007 10,841.30 10,753.81 11,044.43 11,203.73
2/28/2007 10,782.46 10,777.99 10,956.79 11,225.97
3/31/2007 10,963.24 10,896.75 11,074.08 11,463.25
4/30/2007 11,207.62 11,207.72 11,273.00 11,782.08
5/31/2007 11,723.55 11,691.48 11,734.69 12,293.70
6/30/2007 11,531.56 11,573.19 11,563.03 12,100.92
7/31/2007 10,949.63 10,966.70 10,772.18 11,337.19
8/31/2007 11,154.86 11,009.22 11,016.34 11,500.32
9/30/2007 11,321.12 11,244.20 11,205.43 11,611.54
10/31/2007 11,531.73 11,516.10 11,526.92 11,848.81
11/30/2007 10,675.87 10,744.57 10,699.22 10,981.28
12/31/2007 10,591.11 10,768.18 10,692.55 10,857.54
1/31/2008 10,073.15 10,055.74 9,963.38 10,148.00
2/29/2008 9,762.93 9,863.20 9,594.07 9,760.23
3/31/2008 9,800.73 9,778.63 9,634.25 9,619.98
4/30/2008 10,194.07 10,251.42 10,037.64 10,115.00
5/31/2008 10,644.36 10,757.96 10,498.74 10,585.28
6/30/2008 9,840.20 10,010.57 9,690.47 9,867.49
7/31/2008 10,043.33 10,037.22 10,049.08 9,958.24
8/31/2008 10,462.84 10,268.55 10,412.29 10,181.01
9/30/2008 9,756.07 9,309.32 9,582.63 9,298.21
10/31/2008 7,790.50 7,324.51 7,589.16 7,458.37
11/30/2008 6,880.30 6,560.93 6,691.47 6,526.07
12/31/2008 7,300.06 6,936.07 7,079.85 6,938.67
1/31/2009 6,372.92 6,310.49 6,292.42 6,186.98
2/28/2009 5,609.81 5,635.39 5,527.74 5,550.94
3/31/2009 6,070.62 6,142.00 6,021.18 6,079.60
4/30/2009 7,130.35 7,112.00 6,951.95 6,880.85
5/31/2009 7,245.27 7,443.81 7,161.55 7,062.58
6/30/2009 7,349.23 7,507.11 7,266.74 7,145.18
7/31/2009 8,108.07 8,169.97 7,966.60 7,839.05
8/31/2009 8,293.60 8,420.65 8,195.04 8,062.07
9/30/2009 8,720.50 8,928.18 8,667.70 8,499.87
10/31/2009 8,223.76 8,437.00 8,079.21 8,095.12
11/30/2009 8,438.33 8,729.32 8,332.82 8,318.14
12/31/2009 9,166.68 9,328.84 9,003.56 8,888.11
1/31/2010 8,856.49 8,996.89 8,672.13 8,739.42
2/28/2010 9,237.03 9,402.33 9,062.77 9,036.79
3/31/2010 9,955.80 10,041.03 9,800.37 9,722.40
4/30/2010 10,538.04 10,543.51 10,355.02 10,168.46
5/31/2010 9,777.25 9,773.42 9,569.56 9,532.41
6/30/2010 9,086.25 9,133.81 8,827.97 8,888.11
7/31/2010 9,662.50 9,716.99 9,434.63 9,425.03
8/31/2010 8,941.22 9,141.16 8,736.10 8,764.20
9/30/2010 9,960.52 10,162.51 9,824.59 9,771.96
10/31/2010 10,384.35 10,529.26 10,226.63 10,184.98
11/30/2010 10,754.48 10,886.42 10,581.22 10,573.21
12/31/2010 11,578.24 11,726.99 11,421.45 11,333.85
1/31/2011 11,595.80 11,736.80 11,392.02 11,292.48
2/28/2011 12,106.86 12,318.66 12,016.78 11,780.58
3/31/2011 12,471.15 12,623.70 12,328.21 12,094.95
4/30/2011 12,795.28 12,932.29 12,653.74 12,516.87
5/31/2011 12,680.01 12,691.14 12,416.50 12,301.78
6/30/2011 12,450.70 12,451.33 12,130.23 12,094.95
7/31/2011 12,051.21 12,075.60 11,691.78 11,722.67
8/31/2011 11,126.57 11,145.85 10,674.57 10,729.93
9/30/2011 9,981.75 9,904.53 9,477.93 9,505.54
10/31/2011 11,478.60 11,355.74 10,912.49 11,002.93
11/30/2011 11,551.10 11,312.84 10,872.71 11,002.93
12/31/2011 11,695.85 11,280.53 10,944.53 11,090.23
1/31/2012 12,465.21 12,034.72 11,717.77 11,826.82
2/29/2012 12,728.89 12,400.15 11,998.21 12,066.83
3/31/2012 13,097.90 12,625.04 12,305.63 12,339.95
4/30/2012 12,932.62 12,491.75 12,115.54 12,124.76
5/31/2012 12,121.69 11,627.91 11,313.62 11,288.86
6/30/2012 12,628.81 11,984.85 11,878.17 11,801.99
7/31/2012 12,532.04 11,934.44 11,714.02 11,710.95
8/31/2012 13,006.86 12,328.08 12,104.65 12,000.62
9/30/2012 13,310.22 12,683.77 12,502.15 12,348.22
10/31/2012 13,040.00 12,541.36 12,230.92 12,091.66
11/30/2012 13,170.16 12,686.42 12,295.90 12,265.46
12/31/2012 13,605.24 13,078.32 12,733.95 12,736.84
1/31/2013 14,391.43 13,862.37 13,531.00 13,489.55
2/28/2013 14,594.00 14,019.74 13,680.26 13,667.16
3/31/2013 15,212.17 14,627.96 14,311.93 14,199.97
4/30/2013 15,171.73 14,550.11 14,259.34 13,971.62
5/31/2013 15,831.35 15,088.02 14,829.26 14,639.76
6/30/2013 15,808.26 14,967.80 14,753.40 14,589.02
7/31/2013 16,890.28 15,929.71 15,785.89 15,451.67
8/31/2013 16,478.79 15,453.18 15,284.49 15,003.43
9/30/2013 17,504.86 16,362.94 16,259.70 15,866.08
10/31/2013 18,136.36 16,883.39 16,668.57 16,449.64
11/30/2013 18,951.71 17,480.16 17,336.38 17,126.24
12/31/2013 19,226.00 17,802.90 17,677.56 17,533.14
1/31/2014 18,484.48 17,162.56 17,188.25 16,922.16
2/28/2014 19,308.27 17,944.97 17,998.01 17,588.68
3/31/2014 19,443.05 18,020.25 17,875.33 17,634.97
4/30/2014 18,900.38 17,564.98 17,182.11 16,940.68
5/31/2014 18,951.40 17,677.19 17,319.79 17,042.51
6/30/2014 19,844.91 18,484.24 18,241.32 17,746.05
7/31/2014 18,754.50 17,451.87 17,137.19 16,792.56
8/31/2014 19,560.00 18,217.24 17,986.95 17,496.11
9/30/2014 18,510.07 17,210.07 16,898.84 16,616.67
10/31/2014 19,822.07 18,151.23 18,012.80 17,486.85
11/30/2014 19,767.59 18,176.93 18,028.94 17,597.94
12/31/2014 20,332.49 18,531.70 18,542.77 18,001.24
1/31/2015 19,621.96 17,865.45 17,946.32 17,265.44
2/28/2015 20,805.05 18,932.70 19,011.73 18,560.87
3/31/2015 21,138.45 19,226.87 19,342.94 18,726.68
4/30/2015 20,646.92 18,856.17 18,849.63 18,436.51
5/31/2015 20,963.24 19,115.10 19,279.97 18,716.32
6/30/2015 21,178.97 19,204.10 19,424.35 18,944.32
7/31/2015 20,999.54 19,008.35 19,198.61 18,405.42
8/31/2015 19,912.44 18,014.56 17,992.15 17,379.44
9/30/2015 19,215.74 17,264.37 17,109.40 16,457.10
10/31/2015 20,387.07 18,277.30 18,073.35 17,534.89
11/30/2015 20,933.12 18,716.40 18,661.25 17,949.43
12/31/2015 19,931.41 17,748.62 17,724.27 17,046.18
1/31/2016 18,702.07 16,555.92 16,165.70 15,723.63
[END CHART]
Data from 1/31/06 through 1/31/16.
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 Small-Cap Core 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 Small Cap Stock Fund Shares to the following benchmarks:
o The unmanaged S&P SmallCap 600 Index is a market-value-weighted index
consisting of 600 domestic stocks chosen for market size, liquidity, and
industry group representation.
o The unmanaged Lipper Small-Cap Core Funds Index tracks the total return
performance of the 30 largest funds in the Lipper Small-Cap Core Funds
category.
o The unmanaged Russell 2000 Index measures the performance of the 2,000
smallest companies in the Russell 3000 Index, which represents approximately
10% of the total market capitalization of the Russell 3000 Index.
================================================================================
8 | USAA SMALL CAP STOCK FUND
================================================================================
USAA SMALL CAP STOCK FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UISCX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $692.5 Million $676.5 Million
Net Asset Value Per Share $14.01 $17.89
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-14.53% -8.76% 7.14% 6.57%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-5.16% 8.79% 7.81%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.00%
(includes acquired fund fees and expenses of 0.01%)
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 December 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 SMALL CAP
S&P SMALLCAP LIPPER SMALL-CAP STOCK FUND
600 INDEX CORE FUNDS INDEX INSTITUTIONAL SHARES RUSSELL 2000 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,417.70 10,230.47 10,198.35 10,361.44
9/30/2008 9,713.98 9,274.80 9,314.05 9,535.84
10/31/2008 7,756.89 7,297.35 7,471.07 7,552.10
11/30/2008 6,850.62 6,536.60 6,537.19 6,658.79
12/31/2008 7,268.57 6,910.35 6,952.86 7,045.27
1/31/2009 6,345.43 6,287.09 6,197.84 6,261.69
2/28/2009 5,585.61 5,614.49 5,558.97 5,500.74
3/31/2009 6,044.43 6,119.22 6,098.28 5,991.78
4/30/2009 7,099.59 7,085.63 6,903.08 6,918.00
5/31/2009 7,214.01 7,416.20 7,093.91 7,125.92
6/30/2009 7,317.52 7,479.27 7,168.59 7,231.25
7/31/2009 8,073.09 8,139.67 7,882.13 7,927.69
8/31/2009 8,257.82 8,389.42 8,106.14 8,155.02
9/30/2009 8,682.88 8,895.07 8,545.88 8,625.37
10/31/2009 8,188.28 8,405.72 8,139.33 8,039.75
11/30/2009 8,401.93 8,696.95 8,371.65 8,292.13
12/31/2009 9,127.13 9,294.25 8,944.14 8,959.59
1/31/2010 8,818.28 8,963.52 8,794.79 8,629.78
2/28/2010 9,197.18 9,367.46 9,101.78 9,018.51
3/31/2010 9,912.84 10,003.80 9,790.43 9,752.52
4/30/2010 10,492.57 10,504.41 10,246.76 10,304.45
5/31/2010 9,735.06 9,737.17 9,607.90 9,522.83
6/30/2010 9,047.05 9,099.93 8,969.03 8,784.87
7/31/2010 9,620.82 9,680.95 9,508.33 9,388.55
8/31/2010 8,902.64 9,107.26 8,852.87 8,693.45
9/30/2010 9,917.55 10,124.83 9,865.10 9,776.62
10/31/2010 10,339.55 10,490.22 10,288.25 10,176.69
11/30/2010 10,708.09 10,846.05 10,678.21 10,529.55
12/31/2010 11,528.28 11,683.51 11,458.87 11,365.68
1/31/2011 11,545.77 11,693.27 11,417.17 11,336.40
2/28/2011 12,054.63 12,272.98 11,917.56 11,958.10
3/31/2011 12,417.35 12,576.89 12,234.47 12,268.01
4/30/2011 12,740.08 12,884.33 12,659.80 12,591.96
5/31/2011 12,625.30 12,644.08 12,451.30 12,355.87
6/30/2011 12,396.98 12,405.16 12,242.81 12,071.00
7/31/2011 11,999.22 12,030.82 11,867.52 11,634.69
8/31/2011 11,078.56 11,104.52 10,866.74 10,622.44
9/30/2011 9,938.69 9,867.80 9,632.45 9,431.65
10/31/2011 11,429.08 11,313.64 11,158.63 10,859.20
11/30/2011 11,501.26 11,270.90 11,158.63 10,819.62
12/31/2011 11,645.40 11,238.70 11,245.92 10,891.09
1/31/2012 12,411.43 11,990.09 11,999.56 11,660.56
2/29/2012 12,673.97 12,354.17 12,242.40 11,939.62
3/31/2012 13,041.39 12,578.22 12,527.10 12,245.54
4/30/2012 12,876.83 12,445.43 12,309.39 12,056.39
5/31/2012 12,069.39 11,584.79 11,463.64 11,258.38
6/30/2012 12,574.33 11,940.41 12,024.68 11,820.17
7/31/2012 12,477.98 11,890.18 11,924.20 11,656.83
8/31/2012 12,950.74 12,282.37 12,225.65 12,045.55
9/30/2012 13,252.80 12,636.74 12,585.72 12,441.10
10/31/2012 12,983.74 12,494.86 12,326.13 12,171.20
11/30/2012 13,113.34 12,639.38 12,510.36 12,235.86
12/31/2012 13,546.54 13,029.83 12,989.56 12,671.77
1/31/2013 14,329.34 13,810.97 13,755.17 13,464.93
2/28/2013 14,531.04 13,967.75 13,935.81 13,613.46
3/31/2013 15,146.54 14,573.72 14,486.37 14,242.05
4/30/2013 15,106.28 14,496.16 14,262.70 14,189.71
5/31/2013 15,763.05 15,032.07 14,942.29 14,756.85
6/30/2013 15,740.06 14,912.30 14,890.68 14,681.36
7/31/2013 16,817.41 15,870.64 15,776.72 15,708.81
8/31/2013 16,407.70 15,395.88 15,320.79 15,209.86
9/30/2013 17,429.34 16,302.27 16,206.84 16,180.30
10/31/2013 18,058.11 16,820.79 16,800.40 16,587.18
11/30/2013 18,869.94 17,415.35 17,497.19 17,251.73
12/31/2013 19,143.05 17,736.89 17,920.25 17,591.24
1/31/2014 18,404.73 17,098.92 17,299.06 17,104.32
2/28/2014 19,224.97 17,878.44 17,976.72 17,910.12
3/31/2014 19,359.16 17,953.44 18,023.78 17,788.04
4/30/2014 18,818.84 17,499.85 17,317.89 17,098.21
5/31/2014 18,869.64 17,611.64 17,421.42 17,235.21
6/30/2014 19,759.29 18,415.70 18,146.13 18,152.25
7/31/2014 18,673.58 17,387.15 17,167.30 17,053.51
8/31/2014 19,475.61 18,149.69 17,892.01 17,899.12
9/30/2014 18,430.21 17,146.26 16,997.88 16,816.32
10/31/2014 19,736.55 18,083.93 17,892.01 17,924.84
11/30/2014 19,682.30 18,109.53 18,004.95 17,940.91
12/31/2014 20,244.76 18,462.99 18,416.04 18,452.22
1/31/2015 19,537.30 17,799.21 17,667.58 17,858.69
2/28/2015 20,715.28 18,862.50 18,995.82 18,918.89
3/31/2015 21,047.24 19,155.58 19,164.48 19,248.49
4/30/2015 20,557.84 18,786.26 18,869.32 18,757.60
5/31/2015 20,872.79 19,044.22 19,164.48 19,185.83
6/30/2015 21,087.60 19,132.90 19,406.94 19,329.51
7/31/2015 20,908.93 18,937.87 18,858.78 19,104.86
8/31/2015 19,826.53 17,947.77 17,794.08 17,904.29
9/30/2015 19,132.84 17,200.36 16,866.43 17,025.86
10/31/2015 20,299.12 18,209.53 17,962.75 17,985.10
11/30/2015 20,842.80 18,647.00 18,394.95 18,570.13
12/31/2015 19,845.42 17,682.81 17,465.64 17,637.72
1/31/2016 18,621.38 16,494.53 16,119.48 16,086.76
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Small Cap Stock Fund Institutional Shares to the Fund's benchmarks listed
above (see page 8 for benchmark definitions).
*The performance of the S&P SmallCap 600 Index, Lipper Small-Cap Core Funds
Index, and Russell 2000 Index is calculated from the end of the month, July 31,
2008, while the inception date of the Institutional Shares is August 1, 2008.
There may be a slight variation of performance numbers because of this
difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Small-Cap Core Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
10 | USAA SMALL CAP STOCK FUND
================================================================================
o TOP 10 HOLDINGS - 1/31/16 o
(% of Net Assets)
Diebold, Inc. ............................................................ 1.4%
RSP Permian, Inc. ........................................................ 1.4%
Haemonetics Corp. ........................................................ 1.4%
G & K Services, Inc. "A" ................................................. 1.2%
DSW, Inc. "A" ............................................................ 1.2%
Albany International Corp. "A" ........................................... 1.1%
Mueller Industries, Inc. ................................................. 1.0%
Webster Financial Corp. .................................................. 1.0%
DiamondRock Hospitality Co. .............................................. 0.9%
Microsemi Corp. .......................................................... 0.9%
o ASSET ALLOCATION - 1/31/16 o
[PIE CHART OF ASSET ALLOCATION]
INDUSTRIALS 21.2%
INFORMATION TECHNOLOGY 18.7%
FINANCIALS 17.3%
CONSUMER DISCRETIONARY 11.2%
HEALTH CARE 10.7%
MATERIALS 4.0%
ENERGY 3.3%
CONSUMER STAPLES 2.9%
UTILITIES 2.6%
TELECOMMUNICATION SERVICES 1.4%
MONEY MARKET INSTRUMENTS 5.6%
[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 12-25.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
EQUITY SECURITIES (93.3%)
COMMON STOCKS (93.3%)
CONSUMER DISCRETIONARY (11.2%)
------------------------------
APPAREL RETAIL (3.4%)
720,375 Ascena Retail Group, Inc.* $ 5,316
224,064 Cato Corp. "A" 9,037
583,800 DSW, Inc. "A" 14,017
141,000 Genesco, Inc.* 9,326
458,810 Stage Stores, Inc. 3,808
----------
41,504
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.1%)
20,780 Cherokee, Inc.* 340
6,640 Oxford Industries, Inc. 464
----------
804
----------
AUTO PARTS & EQUIPMENT (0.3%)
27,060 Fox Factory Holding Corp.* 400
3,939 Gentherm, Inc.* 158
81,600 Horizon Global Corp.* 779
254,200 Modine Manufacturing Co.* 1,632
----------
2,969
----------
AUTOMOTIVE RETAIL (1.6%)
227,745 CST Brands, Inc. 8,823
85,300 Group 1 Automotive, Inc. 4,576
17,300 Lithia Motors, Inc. "A" 1,325
299,000 Sonic Automotive, Inc. "A" 5,119
----------
19,843
----------
BROADCASTING (0.9%)
15,100 Nexstar Broadcasting Group, Inc. "A" 683
299,000 Sinclair Broadcast Group, Inc. "A" 9,867
----------
10,550
----------
CABLE & SATELLITE (0.7%)
20,300 Cable One, Inc. 8,729
----------
================================================================================
12 | USAA SMALL CAP STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
CASINOS & GAMING (0.2%)
83,400 Boyd Gaming Corp.* $ 1,486
3,752 Churchill Downs, Inc. 518
----------
2,004
----------
CONSUMER ELECTRONICS (0.0%)
112,664 Skullcandy, Inc.* 358
----------
EDUCATION SERVICES (0.2%)
101,866 2U, Inc.* 2,057
----------
FOOTWEAR (0.1%)
37,760 Crocs, Inc.* 348
12,079 Deckers Outdoor Corp.* 597
----------
945
----------
GENERAL MERCHANDISE STORES (0.7%)
539,590 Fred's, Inc. "A" 8,903
----------
HOTELS, RESORTS & CRUISE LINES (0.5%)
563,115 La Quinta Holdings, Inc.* 6,386
----------
HOUSEHOLD APPLIANCES (0.7%)
85,570 Helen of Troy Ltd.* 7,647
82,040 SodaStream International Ltd.* 1,139
----------
8,786
----------
LEISURE FACILITIES (0.1%)
48,500 ClubCorp Holdings, Inc. 580
30,400 International Speedway Corp. "A" 1,038
----------
1,618
----------
LEISURE PRODUCTS (0.1%)
9,724 Brunswick Corp. 388
41,950 Callaway Golf Co. 365
37,063 Escalade, Inc. 448
61,525 Performance Sports Group Ltd.* 440
----------
1,641
----------
MOVIES & ENTERTAINMENT (0.2%)
57,319 IMAX Corp.* 1,780
----------
RESTAURANTS (0.7%)
4,791 BJ's Restaurants, Inc.* 206
91,860 Brinker International, Inc. 4,569
8,660 Buffalo Wild Wings, Inc.* 1,319
6,000 Dave & Buster's Entertainment* 218
27,050 Del Frisco's Restaurant Group, Inc.* 428
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
10,065 Fiesta Restaurant Group, Inc.* $ 366
74,100 Kona Grill, Inc.* 1,205
----------
8,311
----------
SPECIALIZED CONSUMER SERVICES (0.6%)
301,000 Sotheby's 7,070
----------
SPECIALTY STORES (0.1%)
14,052 Five Below, Inc.* 495
63,540 Sportsman's Warehouse Holdings, Inc.* 833
----------
1,328
----------
Total Consumer Discretionary 135,586
----------
CONSUMER STAPLES (2.9%)
-----------------------
DISTILLERS & VINTNERS (0.6%)
1,862,195 C&C Group plc(a) 7,250
----------
FOOD RETAIL (0.0%)
21,490 Natural Grocers by Vitamin Cottage, Inc.* 387
----------
HOUSEHOLD PRODUCTS (0.7%)
260,000 Energizer Holdings, Inc. 8,331
----------
HYPERMARKETS & SUPER CENTERS (0.0%)
6,000 PriceSmart, Inc. 459
----------
PACKAGED FOODS & MEAT (1.5%)
309,585 Cranswick plc(a) 9,243
90,530 Freshpet, Inc.* 538
54,225 Landec Corp.* 652
131,680 Post Holdings, Inc.* 7,703
----------
18,136
----------
PERSONAL PRODUCTS (0.1%)
22,500 Inter Parfums, Inc. 604
----------
Total Consumer Staples 35,167
----------
ENERGY (3.3%)
-------------
OIL & GAS EQUIPMENT & SERVICES (0.9%)
8,400 Core Laboratories N.V. 827
255,800 Enservco Corp.* 110
243,389 Era Group, Inc.* 2,234
131,779 SEACOR Holdings, Inc.* 6,063
13,670 Superior Energy Services, Inc. 141
299,342 Tesco Corp. 2,035
----------
11,410
----------
================================================================================
14 | USAA SMALL CAP STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (1.4%)
9,200 Diamondback Energy, Inc.* $ 695
713,120 RSP Permian, Inc.* 16,794
----------
17,489
----------
OIL & GAS STORAGE & TRANSPORTATION (1.0%)
402,270 Dorian LPG Ltd.* 4,256
1,185,220 Scorpio Tankers, Inc. 7,230
----------
11,486
----------
Total Energy 40,385
----------
FINANCIALS (17.3%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
14,720 Affiliated Managers Group, Inc.* 1,975
17,347 Financial Engines, Inc. 468
257,886 Harris & Harris Group, Inc.* 451
143,988 Safeguard Scientifics, Inc.* 1,872
278,797 Solar Capital Ltd. 4,522
----------
9,288
----------
CONSUMER FINANCE (0.1%)
30,511 PRA Group, Inc.* 908
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
68,900 BGC Partners, Inc. "A" 630
----------
LIFE & HEALTH INSURANCE (0.7%)
197,480 Primerica, Inc. 8,889
----------
PROPERTY & CASUALTY INSURANCE (1.1%)
56,260 AMERISAFE, Inc. 2,870
19,000 James River Group Holdings 644
188,180 ProAssurance Corp. 9,432
50,154 State National Companies, Inc. 494
----------
13,440
----------
REGIONAL BANKS (8.6%)
546,000 BBCN Bancorp, Inc. 8,299
56,200 Customers Bancorp, Inc.* 1,411
265,522 First Busey Corp. 4,894
596,346 First Midwest Bancorp, Inc. 10,394
655,650 First Niagara Financial Group, Inc. 6,419
283,559 Flushing Financial Corp. 6,238
270,136 Great Western Bancorp, Inc. 7,056
282,010 Hancock Holding Co. 6,757
447,300 International Bancshares Corp. 10,373
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
282,240 MB Financial, Inc. $ 8,783
76,177 Opus Bank 2,513
34,000 Pacific Premier Bancorp, Inc.* 698
18,800 PrivateBancorp, Inc. 708
643,000 TCF Financial Corp. 7,722
9,100 Texas Capital Bancshares, Inc.* 325
657,000 Umpqua Holdings Corp. 9,513
375,070 Webster Financial Corp. 12,441
----------
104,544
----------
REINSURANCE (0.6%)
661,000 Third Point Reinsurance Ltd.* 7,701
----------
REITs - HOTEL & RESORT (1.3%)
1,348,384 DiamondRock Hospitality Co. 11,192
456,990 Summit Hotel Properties, Inc. 4,638
----------
15,830
----------
REITs - INDUSTRIAL (0.2%)
147,100 STAG Industrial, Inc. 2,490
----------
REITs - OFFICE (0.3%)
187,830 Corporate Office Properties Trust 4,189
----------
REITs - RESIDENTIAL (1.3%)
370,000 Colony Starwood Homes 7,962
197,136 Education Realty Trust, Inc. 7,704
----------
15,666
----------
REITs - SPECIALIZED (0.1%)
27,349 QTS Realty Trust, Inc. "A" 1,264
----------
SPECIALIZED FINANCE (1.3%)
480,000 Aircastle Ltd. 8,241
165,970 Atlas Air Worldwide Holdings, Inc.* 6,096
10,500 MarketAxess Holdings, Inc. 1,220
----------
15,557
----------
THRIFTS & MORTGAGE FINANCE (0.8%)
7,700 LendingTree, Inc.* 568
737,480 Northwest Bancshares, Inc. 9,270
----------
9,838
----------
Total Financials 210,234
----------
HEALTH CARE (10.7%)
-------------------
BIOTECHNOLOGY (0.9%)
50,680 Acceleron Pharma, Inc.* 1,556
32,940 Alkermes plc* 1,054
================================================================================
16 | USAA SMALL CAP STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
61,700 Cepheid, Inc.* $ 1,817
49,000 Enanta Pharmaceuticals, Inc.* 1,259
35,280 Esperion Therapeutics, Inc.* 525
24,280 Ligand Pharmaceuticals, Inc.* 2,427
22,450 PTC Therapeutics, Inc.* 535
32,316 Sage Therapeutics, Inc.* 1,085
9,067 Trevena, Inc.* 66
29,573 Zafgen, Inc.* 197
----------
10,521
----------
HEALTH CARE EQUIPMENT (1.5%)
27,540 ABIOMED, Inc.* 2,350
81,900 AtriCure, Inc.* 1,432
67,300 Cardiovascular Systems, Inc.* 569
54,010 CONMED Corp. 1,995
82,912 Cutera, Inc.* 932
82,856 Cynosure, Inc. "A"* 2,999
13,500 DexCom, Inc.* 962
26,765 Inogen, Inc.* 890
84,501 LeMaitre Vascular, Inc. 1,234
213,330 Rockwell Medical, Inc.* 1,335
162,669 Syneron Medical Ltd.* 1,132
92,099 Zeltiq Aesthetics, Inc.* 2,138
----------
17,968
----------
HEALTH CARE FACILITIES (0.4%)
18,100 Acadia Healthcare Co., Inc.* 1,104
56,930 AmSurg Corp.* 4,167
----------
5,271
----------
HEALTH CARE SERVICES (0.5%)
111,898 CorVel Corp.* 5,105
34,700 ExamWorks Group, Inc.* 953
----------
6,058
----------
HEALTH CARE SUPPLIES (2.8%)
518,820 Haemonetics Corp.* 16,416
275,000 Halyard Health, Inc.* 6,820
39,912 ICU Medical, Inc.* 3,842
82,382 LDR Holding Corp.* 1,513
120,900 Spectranetics Corp.* 1,457
52,088 Vascular Solutions, Inc.* 1,425
47,700 West Pharmaceutical Services, Inc. 2,729
----------
34,202
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY (1.4%)
687,376 Allscripts Healthcare Solutions, Inc.* $ 9,472
85,240 Evolent Health, Inc.* 841
15,976 Medidata Solutions, Inc.* 683
512,780 Quality Systems, Inc. 6,723
----------
17,719
----------
LIFE SCIENCES TOOLS & SERVICES (1.1%)
14,550 Bio-Rad Laboratories, Inc. "A"* 1,857
122,800 Charles River Laboratories International, Inc.* 9,116
235,452 Harvard Bioscience, Inc.* 699
282,306 NeoGenomics, Inc.* 1,925
----------
13,597
----------
MANAGED HEALTH CARE (0.7%)
145,000 Magellan Health, Inc.* 8,265
----------
PHARMACEUTICALS (1.4%)
271,770 AcelRx Pharmaceuticals, Inc.* 981
48,490 Akorn, Inc.* 1,260
66,500 Cempra, Inc.* 1,146
772,423 Durect Corp.* 927
51,625 Intersect ENT, Inc.* 920
65,575 Lannett Co., Inc.* 1,673
233,400 Nektar Therapeutics* 3,184
9,600 Pacira Pharmaceuticals, Inc.* 570
42,660 Paratek Pharmaceuticals, Inc.* 624
147,310 Phibro Animal Health Corp. "A" 4,942
65,791 Tetraphase Pharmaceuticals, Inc.* 358
----------
16,585
----------
Total Health Care 130,186
----------
INDUSTRIALS (21.2%)
-------------------
AEROSPACE & DEFENSE (1.2%)
253,138 Cubic Corp. 10,115
53,315 Taser International, Inc.* 821
125,800 Triumph Group, Inc. 3,208
----------
14,144
----------
AIR FREIGHT & LOGISTICS (0.3%)
37,500 Echo Global Logistics, Inc.* 825
66,830 Forward Air Corp. 2,885
----------
3,710
----------
================================================================================
18 | USAA SMALL CAP STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
AIRLINES (0.2%)
53,950 Hawaiian Holdings, Inc.* $ 1,899
13,800 Spirit Airlines, Inc.* 577
----------
2,476
----------
BUILDING PRODUCTS (0.7%)
41,460 Apogee Enterprises, Inc. 1,649
1,839,029 Tyman plc(a) 6,918
----------
8,567
----------
CONSTRUCTION & ENGINEERING (0.6%)
323,940 Primoris Services Corp. 6,605
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
141,877 Douglas Dynamics, Inc. 2,818
----------
DIVERSIFIED SUPPORT SERVICES (2.0%)
230,660 G & K Services, Inc. "A" 14,850
162,361 Matthews International Corp. "A" 8,103
60,350 Mobile Mini, Inc. 1,564
----------
24,517
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.6%)
174,000 EnerSys 8,427
287,000 Generac Holdings, Inc.* 8,156
146,000 Regal-Beloit Corp. 8,207
428,220 Thermon Group Holdings, Inc.* 7,203
----------
31,993
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.8%)
32,064 Hudson Technologies, Inc.* 95
402,077 SP Plus Corp.* 9,027
----------
9,122
----------
HEAVY ELECTRICAL EQUIPMENT (0.6%)
317,737 Babcock & Wilcox Enterprises, Inc.* 6,561
83,091 Power Solutions International, Inc.* 993
----------
7,554
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
2,989 WageWorks, Inc.* 134
----------
INDUSTRIAL MACHINERY (5.1%)
384,319 Albany International Corp. "A" 13,036
123,820 CIRCOR International, Inc. 4,394
225,787 ESCO Technologies, Inc. 7,774
62,200 John Bean Technologies Corp. 2,850
76,229 Kennametal, Inc. 1,349
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
107,000 Kornit Digital, Ltd.* $ 1,226
394,196 Luxfer Holdings plc ADR 3,918
493,960 Mueller Industries, Inc. 12,571
14,800 Proto Labs, Inc.* 814
36,214 RBC Bearings, Inc.* 2,149
42,349 Tennant Co. 2,292
528,984 TriMas Corp.* 9,146
----------
61,519
----------
OFFICE SERVICES & SUPPLIES (1.6%)
989,390 ACCO Brands Corp.* 6,006
323,980 Essendant, Inc. 9,674
320,070 Steelcase, Inc. "A" 4,084
----------
19,764
----------
RAILROADS (0.1%)
23,600 Genesee & Wyoming, Inc. "A"* 1,170
----------
RESEARCH & CONSULTING SERVICES (2.4%)
69,900 Advisory Board Co.* 3,199
72,725 CEB, Inc. 4,289
272,510 FTI Consulting, Inc.* 9,236
90,950 Huron Consulting Group, Inc.* 5,103
329,002 Mistras Group, Inc.* 7,432
----------
29,259
----------
SECURITY & ALARM SERVICES (0.7%)
270,690 Brink's Co. 7,958
----------
TRADING COMPANIES & DISTRIBUTORS (1.9%)
230,000 Beacon Roofing Supply, Inc.* 9,315
17,087 DXP Enterprises, Inc.* 268
204,120 GATX Corp. 8,365
70,013 Kaman Corp. 2,789
80,210 Rush Enterprises, Inc. "A"* 1,532
162,620 Titan Machinery, Inc.* 1,381
----------
23,650
----------
TRUCKING (0.2%)
237,744 Celadon Group, Inc. 1,888
----------
Total Industrials 256,848
----------
INFORMATION TECHNOLOGY (18.7%)
------------------------------
APPLICATION SOFTWARE (2.7%)
69,423 BroadSoft, Inc.* 2,375
60,800 Cadence Design Systems, Inc.* 1,189
================================================================================
20 | USAA SMALL CAP STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
5,700 Callidus Software, Inc.* $ 88
7,715 Digimarc Corp.* 276
33,900 Ebix, Inc. 1,157
22,339 Guidewire Software, Inc.* 1,230
23,400 Hubspot, Inc.* 950
380,000 Mentor Graphics Corp. 6,604
8,070 Paycom Software, Inc.* 243
25,082 Paylocity Holding Corp.* 781
91,528 PROS Holdings, Inc.* 1,124
28,276 PTC, Inc.* 837
56,450 Qlik Technologies, Inc.* 1,413
51,200 Synchronoss Technologies, Inc.* 1,569
874,823 TiVo, Inc.* 6,981
10,550 Tyler Technologies, Inc.* 1,657
23,952 Ultimate Software Group, Inc.* 4,207
----------
32,681
----------
COMMUNICATIONS EQUIPMENT (0.7%)
334,690 Aerohive Networks, Inc.* 1,570
72,794 Finisar Corp.* 924
11,000 Infinera Corp.* 169
173,615 RADWARE Ltd.* 2,320
269,963 Ruckus Wireless, Inc.* 2,270
170,540 ShoreTel, Inc.* 1,400
----------
8,653
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.7%)
284,000 Cardtronics, Inc.* 8,750
63,867 Euronet Worldwide, Inc.* 5,094
454,785 EVERTEC, Inc. 6,249
26,316 WNS Holdings Ltd. ADR* 755
----------
20,848
----------
ELECTRONIC COMPONENTS (1.0%)
236,150 Belden, Inc. 10,088
125,785 InvenSense, Inc.* 1,033
21,900 Rogers Corp.* 1,040
----------
12,161
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.8%)
100,480 Coherent, Inc.* 7,764
13,722 FEI Co. 994
22,249 OSI Systems, Inc.* 1,220
----------
9,978
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.4%)
278,830 CTS Corp. $ 4,392
9,780 IPG Photonics Corp.* 790
----------
5,182
----------
INTERNET SOFTWARE & SERVICES (1.2%)
33,852 Constant Contact, Inc.* 1,070
16,894 CoStar Group, Inc.* 2,963
51,360 Demandware, Inc.* 2,179
89,100 GTT Communications, Inc.* 1,327
144,910 LivePerson, Inc.* 820
97,100 Pandora Media, Inc.* 944
19,200 Shopify, Inc. "A"* 446
65,371 SPS Commerce, Inc.* 4,267
10,030 Wix.Com Ltd.* 205
----------
14,221
----------
IT CONSULTING & OTHER SERVICES (1.2%)
16,500 EPAM Systems, Inc.* 1,236
234,789 Forrester Research, Inc. 7,506
201,050 Perficient, Inc.* 3,830
31,463 Virtusa Corp.* 1,407
----------
13,979
----------
SEMICONDUCTOR EQUIPMENT (0.6%)
287,472 Brooks Automation, Inc. 2,740
93,865 Rudolph Technologies, Inc.* 1,202
140,998 Teradyne, Inc. 2,740
----------
6,682
----------
SEMICONDUCTORS (3.7%)
86,613 Ceva, Inc.* 2,005
56,196 Inphi Corp.* 1,559
123,200 Intersil Corp. "A" 1,602
1,309,000 Lattice Semiconductor Corp.* 6,362
59,993 Mellanox Technologies Ltd.* 2,727
337,090 Microsemi Corp.* 10,686
18,739 Monolithic Power Systems, Inc. 1,172
15,250 Power Integrations, Inc. 719
692,000 Rambus, Inc.* 8,470
29,442 Silicon Laboratories, Inc.* 1,342
113,000 Synaptics, Inc.* 8,284
----------
44,928
----------
================================================================================
22 | USAA SMALL CAP STOCK FUND
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (2.2%)
142,700 Allot Communications Ltd.* $ 712
480,630 AVG Technologies N.V.* 9,069
42,100 Fleetmatics Group plc* 1,828
139,566 Gigamon, Inc.* 3,650
31,580 Imperva, Inc.* 1,628
207,383 Infoblox, Inc.* 3,347
30,574 Proofpoint, Inc.* 1,540
93,700 Qualys, Inc.* 2,435
33,750 Rapid7, Inc.* 442
31,600 Red Hat, Inc.* 2,214
24,960 Rubicon Project, Inc.* 337
----------
27,202
----------
TECHNOLOGY DISTRIBUTORS (0.7%)
257,820 ScanSource, Inc.* 8,090
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.8%)
607,430 Diebold, Inc. 16,838
42,434 Nimble Storage, Inc.* 279
178,500 Super Micro Computer, Inc.* 5,316
----------
22,436
----------
Total Information Technology 227,038
----------
MATERIALS (4.0%)
----------------
COMMODITY CHEMICALS (0.7%)
231,000 Cabot Corp. 9,319
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
9,253 Scotts Miracle-Gro Co. "A" 635
----------
FOREST PRODUCTS (0.6%)
127,340 Deltic Timber Corp. 6,993
----------
METAL & GLASS CONTAINERS (0.5%)
220,460 Greif, Inc. "A" 5,827
----------
PAPER PRODUCTS (1.1%)
390,000 KapStone Paper & Packaging Corp. 5,764
177,632 Schweitzer-Mauduit International, Inc. 7,461
----------
13,225
----------
SPECIALTY CHEMICALS (1.0%)
25,509 Quaker Chemical Corp. 1,913
174,854 Sensient Technologies Corp. 10,434
----------
12,347
----------
Total Materials 48,346
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
----------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (1.4%)
---------------------------------
ALTERNATIVE CARRIERS (0.7%)
234,155 Cogent Communications Holdings, Inc. $ 7,823
31,100 Inteliquent, Inc. 534
21,000 Vonage Holdings Corp.* 108
----------
8,465
----------
WIRELESS TELECOMMUNICATION SERVICES (0.7%)
348,400 Telephone & Data Systems, Inc. 8,080
----------
Total Telecommunication Services 16,545
----------
UTILITIES (2.6%)
----------------
ELECTRIC UTILITIES (0.7%)
224,000 Portland General Electric Co. 8,707
----------
GAS UTILITIES (1.9%)
138,810 Laclede Group, Inc. 8,876
150,320 New Jersey Resources Corp. 5,294
120,770 WGL Holdings, Inc. 8,066
----------
22,236
----------
Total Utilities 30,943
----------
Total Common Stocks (cost: $1,085,750) 1,131,278
----------
RIGHTS (0.0%)
HEALTH CARE (0.0%)
------------------
BIOTECHNOLOGY (0.0%)
73,000 Prosensa Holdings N.V., acquired 1/15/2015; cost $0*(b),(c) 72
----------
PHARMACEUTICALS (0.0%)
133,709 NuPathe, Inc., acquired 2/19/2014; cost $80*(b),(c) 80
----------
Total Health Care 152
----------
Total Rights (cost: $80) 152
----------
Total Equity Securities (cost: $1,085,830) 1,131,430
----------
MONEY MARKET INSTRUMENTS (5.6%)
MONEY MARKET FUNDS (5.6%)
67,913,039 State Street Institutional Liquid Reserves
Fund Premier Class, 0.36%(d) (cost: $67,913) 67,913
----------
TOTAL INVESTMENTS (cost: $1,153,743) $1,199,343
==========
================================================================================
24 | USAA SMALL CAP STOCK FUND
================================================================================
---------------------------------------------------------------------------------------------------------
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 $1,107,867 $23,411 $ - $1,131,278
Rights - - 152 152
Money Market Instruments:
Money Market Funds 67,913 - - 67,913
---------------------------------------------------------------------------------------------------------
Total $1,175,780 $23,411 $152 $1,199,343
---------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
RIGHTS
---------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $152
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 -
---------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $152
---------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, common stocks with a
fair value of $19,109,000 were transferred from Level 1 to Level 2. Due to an
assessment of events at the end of the current reporting period, these
securities had adjustments to their foreign market closing prices to reflect
changes in value that occurred after the close of foreign markets and prior to
the close of the U.S. securities markets. 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 | 25
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 5.0% at January 31, 2016.
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 $23,411,000, which represented 1.9% of the
Fund's net assets, were classified as Level 2 at January 31, 2016, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
================================================================================
26 | USAA SMALL CAP STOCK FUND
================================================================================
(b) Security deemed illiquid by 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 January 31, 2016, was $152,000, which represented
less than 0.1% of the Fund's net assets.
(c) Security was fair valued at January 31, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $152,000, which represented less than
0.1% of the Fund's net assets.
(d) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,153,743) $1,199,343
Cash 3,934
Cash denominated in foreign currencies (identified cost of $50) 49
Receivables:
Capital shares sold 12,287
Dividends and interest 249
Securities sold 8,729
----------
Total assets 1,224,591
----------
LIABILITIES
Payables:
Securities purchased 9,612
Capital shares redeemed 956
Unrealized depreciation on foreign currency contracts held, at value 2
Accrued management fees 767
Accrued transfer agent's fees 112
Other accrued expenses and payables 144
----------
Total liabilities 11,593
----------
Net assets applicable to capital shares outstanding $1,212,998
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,174,221
Accumulated overdistribution of net investment income (2,935)
Accumulated net realized loss on investments (3,887)
Net unrealized appreciation of investments 45,600
Net unrealized depreciation of foreign currency translations (1)
----------
Net assets applicable to capital shares outstanding $1,212,998
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $520,458/37,415 shares outstanding) $ 13.91
==========
Institutional Shares (net assets of $692,540/49,435 shares outstanding) $ 14.01
==========
See accompanying notes to financial statements.
================================================================================
28 | USAA SMALL CAP STOCK FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $8) $ 8,573
Interest 50
---------
Total income 8,623
---------
EXPENSES
Management fees 5,009
Administration and servicing fees:
Fund Shares 581
Institutional Shares 280
Transfer agent's fees:
Fund Shares 841
Institutional Shares 280
Custody and accounting fees:
Fund Shares 69
Institutional Shares 48
Postage:
Fund Shares 34
Institutional Shares 30
Shareholder reporting fees:
Fund Shares 15
Institutional Shares 9
Trustees' fees 13
Registration fees:
Fund Shares 25
Institutional Shares 33
Professional fees 59
Other 12
---------
Total expenses 7,338
Expenses paid indirectly:
Fund Shares (9)
Institutional Shares (12)
---------
Net expenses 7,317
---------
NET INVESTMENT INCOME 1,306
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 20,611
Foreign currency transactions (5)
Change in net unrealized appreciation/(depreciation) of:
Investments (229,392)
Foreign currency translations (1)
---------
Net realized and unrealized loss (208,787)
---------
Decrease in net assets resulting from operations $(207,481)
=========
See accompanying notes to financial statements
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
--------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,306 $ 1,978
Net realized gain on investments 20,611 96,759
Net realized loss on foreign currency transactions (5) (9)
Change in net unrealized appreciation/(depreciation) of:
Investments (229,392) 31,901
Foreign currency translations (1) 2
---------------------------
Increase (decrease) in net assets resulting from operations (207,481) 130,631
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (2,353) (1,091)
Institutional Shares (2,311) (1,768)
---------------------------
Total distributions of net investment income (4,664) (2,859)
---------------------------
Net realized gains:
Fund Shares (62,875) (78,944)
Institutional Shares (43,424) (67,334)
---------------------------
Total distributions of net realized gains (106,299) (146,278)
---------------------------
Distributions to shareholders (110,963) (149,137)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (125,291) 136,242
Institutional Shares 144,987 22,347
---------------------------
Total net increase in net assets from capital
share transactions 19,696 158,589
---------------------------
Net increase (decrease) in net assets (298,748) 140,083
NET ASSETS
Beginning of period 1,511,746 1,371,663
===========================
End of period $1,212,998 $1,511,746
===========================
Accumulated undistributed (overdistribution of) net
investment income:
End of period $ (2,935) $ 423
===========================
See accompanying notes to financial statements.
================================================================================
30 | USAA SMALL CAP STOCK FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Small Cap Stock Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek long-term growth of capital.
The Fund consists of two classes of shares: Small Cap Stock Fund Shares (Fund
Shares) and Small Cap Stock Fund Institutional Shares (Institutional Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and bank trusts, as
well as other persons or legal entities that the Fund may approve from time to
time, or for purchase by a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
USAA fund participating in a fund-of-funds investment strategy (USAA
fund-of-funds).
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), 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
================================================================================
32 | USAA SMALL CAP STOCK FUND
================================================================================
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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes. Level 2 securities
================================================================================
34 | USAA SMALL CAP STOCK FUND
================================================================================
include certain common stocks, which are valued based on methods discussed
in Note 1A2.
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.
The valuation of securities falling in the Level 3 category are primarily
supported by using inputs such as the last quoted price of the discounted
underlying security. 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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 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,
================================================================================
36 | USAA SMALL CAP STOCK FUND
================================================================================
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31, 2016,
brokerage commission recapture credits reduced the expenses of the Fund
Shares and Institutional Shares by $9,000 and $12,000, respectively. For the
six-month period ended January 31, 2016, there were no custodian and other
bank credits.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 January 31, 2016, the Fund paid CAPCO facility
fees of $4,000, 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$283,160,000 and $381,815,000, respectively.
================================================================================
38 | USAA SMALL CAP STOCK FUND
================================================================================
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $183,442,000 and $137,842,000, respectively, resulting in net
unrealized appreciation of $45,600,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------
FUND SHARES:
Shares sold 3,905 $ 62,268 10,405 $ 186,545
Shares issued from
reinvested dividends 4,205 64,677 4,676 79,175
Shares redeemed (17,712) (252,236) (7,199) (129,478)
-----------------------------------------------------
Net increase (decrease) from
capital share transactions (9,602) $(125,291) 7,882 $ 136,242
=====================================================
INSTITUTIONAL SHARES:
Shares sold 16,576 $ 233,762 7,682 $ 139,379
Shares issued from
reinvested dividends 2,952 45,726 4,048 69,079
Shares redeemed (7,913) (134,501) (10,195) (186,111)
-----------------------------------------------------
Net increase from
capital share transactions 11,615 $ 144,987 1,535 $ 22,347
=====================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(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 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 for
the fiscal year.
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 Small-Cap Core Funds Index. The Lipper
Small-Cap Core Funds Index tracks the total return performance of the 30
largest funds in the Lipper Small-Cap Core 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.
================================================================================
40 | USAA SMALL CAP STOCK FUND
================================================================================
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Small-Cap Core Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $5,009,000. For the
six-month period ended January 31, 2016, the Fund did not incur any
performance adjustment.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory
Agreements with Wellington Management Company LLP (Wellington Management),
Cambiar Investors (Cambiar), and Granahan Investment Management, Inc.
(GIMI), under which Wellington Management, Cambiar, and GIMI 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 Wellington Management a subadvisory fee in
the annual amount of 0.70% of the Fund's average net assets for the first
$300 million in assets that Wellington Management manages, plus 0.65% of the
Fund's average net assets over $300 million that Wellington Management
manages. For the six-month period ended January 31, 2016, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to
Wellington Management of $1,955,000.
The Manager (not the Fund) pays Cambiar a subadvisory fee in the annual
amount of 0.67% of the Fund's average net assets for the first $300 million
in assets that Cambiar manages, plus 0.65% of the Fund's
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
average net assets over $300 million that Cambiar manages. For the six-month
period ended January 31, 2016, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to Cambiar of $1,552,000.
The Manager (not the Fund) pays GIMI a subadvisory fee in the annual amount
of 0.55% of the Fund's average net assets for the first $300 million in
assets that GIMI manages, plus 0.52% of the Fund's average net assets over
$300 million that GIMI manages. For the six-month period ended January 31,
2016, the Manager incurred subadvisory fees with respect to the Fund, paid
or payable to GIMI of $798,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares, and 0.10% of average net
assets of the Institutional Shares. For the six-month period ended January
31, 2016, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $581,000 and
$280,000, 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 January 31, 2016, 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.
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 based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to
certain intermediaries for the administration and servicing of accounts held
with such intermediaries. Transfer agent's fees for Institutional Shares are
paid monthly based on a fee accrued daily at
================================================================================
42 | USAA SMALL CAP STOCK FUND
================================================================================
an annualized rate of 0.10% of the Institutional Shares' average net assets,
plus out-of-pocket expenses. For the six-month period ended January 31,
2016, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $841,000 and $280,000, respectively.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fees or other compensation for these
services.
(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 January 31, 2016, 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 0.0*
USAA Target Retirement 2020 0.7
USAA Target Retirement 2030 2.3
USAA Target Retirement 2040 3.5
USAA Target Retirement 2050 2.0
USAA Target Retirement 2060 0.1
*Represents less than 0.1%
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 | 43
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.77 $ 18.14 $ 18.27 $ 14.15 $ 14.17 $ 11.41
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income (loss) .00(a) .02 (.01) .05 .02 .02
Net realized and
unrealized gain (loss) (2.46) 1.63 1.62 4.39 (.03) 2.76
------------------------------------------------------------------------------
Total from investment
operations (2.46) 1.65 1.61 4.44 (.01) 2.78
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.05) (.02) - (.04) (.01) (.02)
Realized capital gains (1.35) (2.00) (1.74) (.28) - -
------------------------------------------------------------------------------
Total distributions (1.40) (2.02) (1.74) (.32) (.01) (.02)
------------------------------------------------------------------------------
Net asset value at
end of period $ 13.91 $ 17.77 $ 18.14 $ 18.27 $ 14.15 $ 14.17
==============================================================================
Total return (%)* (14.57) 9.67 8.68 31.94 (.10) 24.38
Net assets at
end of period (000) $520,458 $835,256 $709,753 $645,220 $751,742 $700,636
Ratios to average
net assets:**
Expenses (%)(b) 1.17(d) 1.15 1.14 1.25 1.28(c) 1.26(c)
Net investment
income (loss) (%) .13(d) .06 (.03) .03 .16 .15
Portfolio turnover (%) 22 45 45 55 84(e) 41
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$768,768,000.
(a) Represents less than $0.01 per share.
(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%)(+) (.01%) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2011, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.40% of the Fund Shares' average net
assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
================================================================================
44 | USAA SMALL CAP STOCK FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.89 $ 18.24 $ 18.34 $ 14.24 $ 14.23 $ 11.46
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .04 .05 .03 .04(a) .06 .06
Net realized and
unrealized gain (loss) (2.50) 1.65 1.61 4.46(a) .00(b) 2.78
-------------------------------------------------------------------------------
Total from investment
operations (2.46) 1.70 1.64 4.50(a) .06 2.84
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.07) (.05) - (.12) (.05) (.07)
Realized capital gains (1.35) (2.00) (1.74) (.28) - -
-------------------------------------------------------------------------------
Total distributions (1.42) (2.05) (1.74) (.40) (.05) (.07)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 14.01 $ 17.89 $ 18.24 $ 18.34 $ 14.24 $ 14.23
===============================================================================
Total return (%)* (14.53) 9.85 8.81 32.31 .48 24.81
Net assets at
end of period (000) $692,540 $676,490 $661,910 $601,624 $190,828 $137,441
Ratios to average
net assets:**
Expenses (%)(e) 1.01(d) .99 .99 1.00 .99 .88(c)
Net investment
income (%) .28(d) .22 .12 .23 .47 .51
Portfolio turnover (%) 22 45 45 55 84(f) 41
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$557,508,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.91% of the Institutional
Shares' average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) 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:
(.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(f) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2015, through
January 31, 2016.
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
================================================================================
46 | USAA SMALL CAP STOCK 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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 854.30 $5.45
Hypothetical
(5% return before expenses) 1,000.00 1,019.25 5.94
INSTITUTIONAL SHARES
Actual 1,000.00 854.70 4.66
Hypothetical
(5% return before expenses) 1,000.00 1,020.11 5.08
*Expenses are equal to the annualized expense ratio of 1.17% for Fund Shares
and 1.00% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/366 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of (14.57)% for Fund Shares and (14.53)% for Institutional Shares for the
six-month period of August 1, 2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 47
================================================================================
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)
=============================================================================
40053-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SHORT-TERM BOND FUND]
===============================================================
SEMIANNUAL REPORT
USAA SHORT-TERM BOND FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2016
===============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT]
HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016.
In addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that
you have crafted. An investment plan, based on your objectives, time horizon,
and risk tolerance, can help you stay focused on your future. It also can keep
you from getting distracted by short-term changes in market sentiment.
Furthermore, if you have cash reserves, you may find opportunities in the
coming months to put them to work. We tend to view volatility, not as a period
of crisis, but rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued
investment in our family of mutual funds. We look forward to continuing to help
you with your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 20
Notes to Portfolio of Investments 44
Financial Statements 50
Notes to Financial Statements 53
EXPENSE EXAMPLE 69
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.
202728-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA SHORT-TERM BOND FUND (THE FUND) SEEKS HIGH CURRENT INCOME CONSISTENT
WITH PRESERVATION OF PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in a broad range of
investment-grade debt securities that have a dollar-weighted average portfolio
maturity of three years or less. The debt securities in which the Fund may
invest include, among others, obligations of U.S., state, and local
governments, their agencies and instrumentalities; mortgage-and asset-backed
securities; corporate debt securities; repurchase agreements; and other
securities believed to have debt-like characteristics. Although the Fund will
invest primarily in investment grade securities, the Fund also may invest up to
10% of its net assets in below investment-grade securities, which are sometimes
referred to as high-yield or "junk" bonds. The Fund's 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
USAA Asset Management Company
R. MATTHEW FREUND, CFA
JULIANNE BASS, CFA
BRIAN W. SMITH, CFA, CPA
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Longer-term interest rates fell during the reporting period ended January
31, 2016, pushed lower by economic uncertainty. China was at the epicenter
of concern, as the country's slowing pace of growth threatened to hinder the
broader global economy. Investors also worried about dropping oil and
commodity prices, which are widely considered to be evidence of global
economic weakness. In the United States, economic data was mixed during the
reporting period, with slower-than-expected growth in the fourth quarter of
2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell
from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from
2.85% to 2.74%, during the reporting period. These lower yields tend to
reflect changing expectations about the U.S. economy.
Shorter-term interest rates, which are more correlated to action by the
Federal Reserve (the Fed), rose during the reporting period in anticipation
of an interest rate increase. In December 2015, the Fed lifted the target
federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it
intended to proceed gradually with interest rate increases based on the
performance of the U.S. economy. In January 2016, the Fed chose not to
raise interest rates amid increased uncertainty about financial and
economic conditions.
In this environment, the U.S. Treasury yield curve experienced a "bear
flattening." In a bear flattening, short-term interest rates increase faster
================================================================================
2 | USAA SHORT-TERM BOND FUND
================================================================================
o 10-YEAR U.S. TREASURY YIELDS o
[CHART OF 10-YEAR U.S. TREASURY YIELDS]
DATE YIELD
7/31/2015 2.18%
8/3/2015 2.15
8/4/2015 2.22
8/5/2015 2.27
8/6/2015 2.22
8/7/2015 2.16
8/10/2015 2.23
8/11/2015 2.14
8/12/2015 2.15
8/13/2015 2.19
8/14/2015 2.20
8/17/2015 2.17
8/18/2015 2.19
8/19/2015 2.13
8/20/2015 2.07
8/21/2015 2.04
8/24/2015 2.00
8/25/2015 2.07
8/26/2015 2.18
8/27/2015 2.18
8/28/2015 2.18
8/31/2015 2.22
9/1/2015 2.15
9/2/2015 2.18
9/3/2015 2.16
9/4/2015 2.12
9/7/2015 2.12
9/8/2015 2.18
9/9/2015 2.20
9/10/2015 2.22
9/11/2015 2.19
9/14/2015 2.18
9/15/2015 2.29
9/16/2015 2.29
9/17/2015 2.19
9/18/2015 2.13
9/21/2015 2.20
9/22/2015 2.13
9/23/2015 2.15
9/24/2015 2.13
9/25/2015 2.16
9/28/2015 2.09
9/29/2015 2.05
9/30/2015 2.04
10/1/2015 2.04
10/2/2015 1.99
10/5/2015 2.06
10/6/2015 2.03
10/7/2015 2.07
10/8/2015 2.10
10/9/2015 2.09
10/12/2015 2.09
10/13/2015 2.04
10/14/2015 1.97
10/15/2015 2.02
10/16/2015 2.03
10/19/2015 2.02
10/20/2015 2.07
10/21/2015 2.02
10/22/2015 2.03
10/23/2015 2.09
10/26/2015 2.06
10/27/2015 2.04
10/28/2015 2.10
10/29/2015 2.17
10/30/2015 2.14
11/2/2015 2.17
11/3/2015 2.21
11/4/2015 2.23
11/5/2015 2.23
11/6/2015 2.33
11/9/2015 2.34
11/10/2015 2.34
11/11/2015 2.33
11/12/2015 2.31
11/13/2015 2.27
11/16/2015 2.27
11/17/2015 2.27
11/18/2015 2.27
11/19/2015 2.25
11/20/2015 2.26
11/23/2015 2.24
11/24/2015 2.24
11/25/2015 2.23
11/26/2015 2.23
11/27/2015 2.22
11/30/2015 2.21
12/1/2015 2.14
12/2/2015 2.18
12/3/2015 2.31
12/4/2015 2.27
12/7/2015 2.23
12/8/2015 2.22
12/9/2015 2.22
12/10/2015 2.23
12/11/2015 2.13
12/14/2015 2.22
12/15/2015 2.27
12/16/2015 2.30
12/17/2015 2.22
12/18/2015 2.20
12/21/2015 2.19
12/22/2015 2.24
12/23/2015 2.25
12/24/2015 2.24
12/25/2015 2.24
12/28/2015 2.23
12/29/2015 2.31
12/30/2015 2.29
12/31/2015 2.27
1/1/2016 2.27
1/4/2016 2.24
1/5/2016 2.24
1/6/2016 2.17
1/7/2016 2.15
1/8/2016 2.12
1/11/2016 2.18
1/12/2016 2.10
1/13/2016 2.09
1/14/2016 2.09
1/15/2016 2.03
1/18/2016 2.03
1/19/2016 2.06
1/20/2016 1.98
1/21/2016 2.03
1/22/2016 2.05
1/25/2016 2.00
1/26/2016 1.99
1/27/2016 2.00
1/28/2016 1.98
1/29/2016 1.92
[END CHART]
Source: Bloomberg Finance L.P.
than longer-term interest rates (though during the reporting period,
longer-term interest rates actually trended down), thereby creating a
flatter yield curve. This generally indicates that investor sentiment is
becoming more "bearish."
As longer-term interest rates fell, the prices of longer-maturity securities
edged up (bond prices and yields move in opposite directions). Credit
spreads widened across the credit spectrum, with single A, BBB, and
below investment-grade "high-yield" spreads widening 19 basis points, 58
basis points, and 221 basis points, respectively. A basis point is 1/100th
of a percent. Spreads (yield differentials versus U.S. Treasury securities
of comparable maturity) are generally considered an indication of risk; the
wider the spread, the greater the risk.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
o U.S. TREASURY YIELD CURVE o
[CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD
--------------------------------- (CHANGE IN
MATURITY 7/01/15 1/31/16 BASIS POINTS)
1M 0.008 0.221 21.4
3M 0.018 0.313 29.5
6M 0.114 0.428 31.3
1Y 0.273 0.451 17.9
2Y 0.69 0.776 8.5
3Y 1.064 0.968 -9.7
5Y 1.706 1.329 -37.7
7Y 2.146 1.668 -47.7
10Y 2.423 1.922 -50.1
30Y 3.202 2.744 -45.8
[END CHART]
Source: Bloomberg Finance L.P.
o HOW DID THE USAA SHORT-TERM BOND 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 January 31, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had total returns of
-0.37%, -0.43%, and -0.48%, respectively. This compares to returns of 0.39%
for the Barclays 1-3 Year Government/Credit Index*, 0.30% for
Refer to page 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*As of December 1, 2015, the Barclays 1-3 Year Credit Index replaces the
Barclays 1-3 Government/Credit Index as the Fund's broad-based securities
market index as it more closely represents the securities held by the Fund.
================================================================================
4 | USAA SHORT-TERM BOND FUND
================================================================================
the Barclays 1-3 Year Credit Index (the Index), and -0.17% for the Lipper
Short Investment Grade Debt Funds Index. At the same time, the Fund Shares,
Institutional Shares, and Adviser Shares provided a one-year dividend yield
of 1.68%, 1.79%, and 1.45%, respectively, compared to 1.47% for the Lipper
Short Investment Grade Debt Funds Average.
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 WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus on generating an attractive yield with an acceptable
level of price volatility. During the reporting period, the Fund's 30-day
SEC yield continued to trend up. In addition, we sought to manage the
portfolio's sensitivity to interest rates by maintaining a neutral duration
position relative to the Lipper peer group (duration is a measure of a
portfolio's interest-rate sensitivity).
The Fund was negatively affected by its allocations to and security
selection among oil and gas exploration and production bonds as well as
metals and mining bonds. Many of these securities were hindered by the
continued drop in oil and commodity prices during the reporting period.
Although we reduced some of these holdings, we believe that over the
long-term the Fund's positions in these industries will generate attractive
total returns. The Fund also was hampered by its overweight in corporate
bonds, which underperformed as credit spreads widened. On the positive side,
the Fund benefited from its investments in municipal bonds and commercial
mortgage-backed securities.
During the reporting period, we continued to seek relative values across the
fixed-income market. Our team of analysts help us evaluate each potential
investment, rather than on the basis of thematic trends. We seek ideas where
our fundamental understanding of the credit risk is different than the
market, building the Fund bond-by-bond through fundamental bottom-up
analysis. Due to uncertain times, we continued
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
to emphasize liquidity in the Fund. Our liquidity strategy helps to prevent
the Fund from being a forced seller due to investment outflows.
Our analysts continue to analyze and monitor every holding in the Fund. We
are committed to building a portfolio diversified among multiple asset
classes and across a large number of issuers. To minimize the Fund's
exposure to potential surprises, we limit the positions we take in any one
issuer.
Thank you for allowing us to help you with your investment needs.
Diversification is a technique to help reduce risk and does not guarantee a
profit or prevent a loss. 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 Mortgage-backed securities
have prepayment, credit, interest rate, and extension 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.
================================================================================
6 | USAA SHORT-TERM BOND FUND
================================================================================
INVESTMENT OVERVIEW
USAA SHORT-TERM BOND FUND SHARES (FUND SHARES)
(Ticker Symbol: USSBX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $1.4 Billion $1.8 Billion
Net Asset Value Per Share $9.04 $9.15
Dollar-Weighted Average
Portfolio Maturity(+) 2.2 Years 2.3 Years
(+)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 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-0.37% -0.09% 1.82% 3.51%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.01% 1.84% 3.51%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
2.15% 0.62%
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 December 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 | 7
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
JANUARY 31, 2016
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 3.51% = 3.27% + 0.24%
5 YEARS 1.82% = 2.14% + -0.32%
1 YEAR -0.09% = 1.65% + -1.74%
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 ONE-YEAR PERIODS ENDED
JANUARY 31, 2007 - JANUARY 31, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
CHANGE IN SHARE
TOTAL RETURN DIVIDEND RETURN PRICE
1/31/2007 4.68% 4.45% 0.23%
1/31/2008 6.28% 4.81% 1.47%
1/31/2009 -2.39% 4.51% -6.90%
1/31/2010 14.35% 5.14% 9.21%
1/31/2011 3.87% 3.21% 0.66%
1/31/2012 2.79% 2.90% -0.11%
1/31/2013 3.57% 2.47% 1.10%
1/31/2014 1.44% 1.98% -0.54%
1/31/2015 1.43% 1.71% -0.28%
1/31/2016 -0.09% 1.65% -1.74%
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 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 SHORT-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS
BARCLAYS 1-3 YEAR LIPPER SHORT
1-3 YEAR USAA SHORT-TERM GOVERNMENT/ INVESTMENT GRADE
CREDIT INDEX* BOND FUND SHARES CREDIT INDEX FUNDS INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,016.09 10,021.84 10,011.80 10,021.76
3/31/2006 10,028.16 10,037.21 10,023.93 10,029.61
4/30/2006 10,064.93 10,071.62 10,057.75 10,061.16
5/31/2006 10,079.25 10,085.11 10,071.68 10,076.89
6/30/2006 10,100.30 10,112.45 10,091.35 10,092.46
7/31/2006 10,184.31 10,192.92 10,169.30 10,168.16
8/31/2006 10,267.02 10,264.38 10,245.23 10,242.18
9/30/2006 10,326.90 10,327.07 10,300.00 10,297.95
10/31/2006 10,373.40 10,374.73 10,343.39 10,344.29
11/30/2006 10,437.49 10,450.01 10,400.07 10,405.31
12/31/2006 10,445.26 10,442.41 10,405.07 10,412.47
1/31/2007 10,472.39 10,467.97 10,429.10 10,439.19
2/28/2007 10,568.10 10,577.02 10,513.86 10,525.03
3/31/2007 10,608.61 10,604.52 10,554.81 10,562.85
4/30/2007 10,650.53 10,644.54 10,593.62 10,604.03
5/31/2007 10,634.53 10,625.26 10,585.43 10,589.99
6/30/2007 10,678.88 10,656.16 10,629.99 10,618.50
7/31/2007 10,745.31 10,708.96 10,713.05 10,682.16
8/31/2007 10,790.59 10,766.93 10,800.36 10,695.24
9/30/2007 10,875.36 10,841.41 10,880.22 10,785.40
10/31/2007 10,936.45 10,884.13 10,929.46 10,810.05
11/30/2007 11,041.99 11,016.56 11,083.98 10,908.80
12/31/2007 11,067.72 11,045.15 11,116.20 10,912.02
1/31/2008 11,272.24 11,125.46 11,309.75 11,046.65
2/29/2008 11,357.10 11,120.91 11,410.78 11,066.14
3/31/2008 11,295.54 11,107.77 11,419.29 10,928.68
4/30/2008 11,281.79 11,099.97 11,353.89 10,928.13
5/31/2008 11,281.51 11,156.06 11,325.71 10,920.73
6/30/2008 11,283.94 11,159.40 11,346.44 10,899.67
7/31/2008 11,291.61 11,165.05 11,378.98 10,830.47
8/31/2008 11,356.26 11,184.83 11,432.05 10,868.24
9/30/2008 10,925.22 11,075.67 11,364.10 10,629.31
10/31/2008 10,772.07 10,790.07 11,388.45 10,422.94
11/30/2008 10,902.40 10,739.48 11,524.78 10,256.18
12/31/2008 11,101.31 10,761.97 11,668.99 10,408.94
1/31/2009 11,305.18 10,861.41 11,700.47 10,512.50
2/28/2009 11,213.58 10,922.85 11,680.26 10,539.03
3/31/2009 11,245.39 11,072.22 11,735.35 10,530.38
4/30/2009 11,498.57 11,239.22 11,801.81 10,663.86
5/31/2009 11,731.54 11,509.78 11,882.53 10,848.31
6/30/2009 11,862.15 11,638.87 11,902.74 10,931.56
7/31/2009 12,017.27 11,850.04 11,959.31 11,075.22
8/31/2009 12,138.15 11,989.03 12,022.91 11,206.16
9/30/2009 12,227.97 12,116.41 12,068.96 11,304.90
10/31/2009 12,304.13 12,209.73 12,107.45 11,430.53
11/30/2009 12,410.51 12,311.11 12,185.72 11,459.51
12/31/2009 12,387.96 12,273.99 12,115.32 11,476.88
1/31/2010 12,500.70 12,418.45 12,208.48 11,592.86
2/28/2010 12,535.69 12,456.84 12,236.24 11,620.70
3/31/2010 12,570.12 12,479.02 12,222.95 11,656.89
4/30/2010 12,624.30 12,558.21 12,259.74 11,752.74
5/31/2010 12,586.59 12,575.77 12,290.05 11,734.49
6/30/2010 12,654.98 12,649.42 12,351.52 11,803.13
7/31/2010 12,770.25 12,739.17 12,402.56 11,893.17
8/31/2010 12,819.46 12,798.71 12,431.17 11,959.90
9/30/2010 12,885.99 12,845.31 12,462.97 12,000.36
10/31/2010 12,939.97 12,890.30 12,498.49 12,051.73
11/30/2010 12,907.32 12,879.59 12,471.58 12,015.41
12/31/2010 12,902.55 12,856.96 12,454.57 11,998.86
1/31/2011 12,950.36 12,899.18 12,481.05 12,030.69
2/28/2011 12,973.65 12,916.77 12,478.81 12,062.36
3/31/2011 12,976.93 12,920.20 12,477.01 12,065.61
4/30/2011 13,065.25 13,008.57 12,538.47 12,139.35
5/31/2011 13,117.92 13,051.22 12,584.20 12,190.52
6/30/2011 13,114.93 13,055.00 12,585.90 12,172.92
7/31/2011 13,169.19 13,101.22 12,623.76 12,233.73
8/31/2011 13,135.04 13,090.14 12,647.05 12,171.77
9/30/2011 13,081.62 13,081.04 12,621.85 12,151.92
10/31/2011 13,159.18 13,138.22 12,649.50 12,183.13
11/30/2011 13,099.68 13,141.12 12,640.67 12,141.26
12/31/2011 13,128.59 13,173.71 12,653.01 12,183.34
1/31/2012 13,256.30 13,259.44 12,697.88 12,291.02
2/29/2012 13,310.75 13,305.23 12,697.57 12,335.95
3/31/2012 13,335.17 13,321.82 12,698.74 12,357.45
4/30/2012 13,359.97 13,379.59 12,724.26 12,401.26
5/31/2012 13,337.79 13,378.14 12,722.03 12,396.55
6/30/2012 13,373.16 13,421.98 12,726.92 12,427.97
7/31/2012 13,461.39 13,522.25 12,769.46 12,513.54
8/31/2012 13,508.07 13,566.22 12,780.94 12,555.75
9/30/2012 13,554.85 13,619.11 12,792.96 12,607.43
10/31/2012 13,587.23 13,674.52 12,795.40 12,633.71
11/30/2012 13,593.87 13,701.38 12,805.40 12,652.06
12/31/2012 13,612.77 13,710.96 12,812.74 12,665.77
1/31/2013 13,631.67 13,733.37 12,818.37 12,677.32
2/28/2013 13,657.77 13,774.09 12,832.62 12,704.94
3/31/2013 13,669.93 13,812.94 12,837.84 12,717.58
4/30/2013 13,708.01 13,867.12 12,856.76 12,757.69
5/31/2013 13,692.48 13,800.14 12,839.32 12,713.33
6/30/2013 13,645.79 13,688.54 12,821.78 12,618.80
7/31/2013 13,698.66 13,739.87 12,849.21 12,658.85
8/31/2013 13,692.67 13,717.63 12,838.26 12,638.49
9/30/2013 13,744.13 13,783.56 12,872.72 12,693.89
10/31/2013 13,791.00 13,850.46 12,894.31 12,743.87
11/30/2013 13,824.22 13,874.14 12,911.85 12,768.45
12/31/2013 13,810.28 13,850.33 12,895.26 12,752.16
1/31/2014 13,848.07 13,931.47 12,920.25 12,795.72
2/28/2014 13,881.01 13,967.77 12,937.16 12,830.90
3/31/2014 13,875.30 13,959.22 12,925.15 12,817.38
4/30/2014 13,906.92 14,010.69 12,946.10 12,852.79
5/31/2014 13,947.06 14,059.74 12,973.53 12,891.11
6/30/2014 13,941.07 14,064.67 12,967.47 12,899.15
7/31/2014 13,937.80 14,053.46 12,958.86 12,881.64
8/31/2014 13,967.08 14,087.89 12,982.36 12,899.60
9/30/2014 13,947.62 14,061.12 12,972.15 12,885.77
10/31/2014 13,985.61 14,095.96 13,008.95 12,910.07
11/30/2014 14,006.38 14,115.51 13,028.09 12,922.68
12/31/2014 13,964.28 14,079.98 12,994.38 12,878.89
1/31/2015 14,036.88 14,130.49 13,062.23 12,933.26
2/28/2015 14,033.51 14,134.50 13,040.75 12,943.23
3/31/2015 14,062.52 14,169.19 13,070.52 12,969.63
4/30/2015 14,086.84 14,173.36 13,081.47 12,987.94
5/31/2015 14,101.16 14,193.72 13,092.22 12,999.09
6/30/2015 14,078.61 14,167.80 13,088.17 12,978.88
7/31/2015 14,087.59 14,170.28 13,096.04 12,986.25
8/31/2015 14,070.00 14,143.38 13,087.54 12,964.39
9/30/2015 14,112.38 14,162.87 13,126.57 12,973.63
10/31/2015 14,125.76 14,166.64 13,122.21 12,988.05
11/30/2015 14,111.82 14,139.74 13,096.36 12,973.47
12/31/2015 14,083.47 14,081.47 13,079.35 12,935.95
1/31/2016 14,129.69 14,117.85 13,147.41 12,964.69
[END CHART]
Data from 1/31/06 through 1/31/16.
See next page for benchmark definitions.
*As of December 1, 2015, the Barclays 1-3 Year Credit Index replaced the
Barclays 1-3 Government/Credit Index as the Fund's broad-based securities
market index as it more closely represents the securities held in the Fund.
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 Short Investment Grade Funds Index reflects the fees and
expenses of the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
The graph on page 9 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Short-Term Bond Fund Shares to the following benchmarks:
o The unmanaged broad-based Barclays 1-3 Year Credit Index measures the
performance of investment grade corporate debt and sovereign, supranational,
local authority, and non-U.S. agency bonds that have a remaining maturity of
at least one year and less than three years.
o The unmanaged broad-based Barclays 1-3 Year Government/Credit Index is made
up of government, agency, corporate, and noncorporate bonds with maturities
longer than one year and shorter than three years.
o The unmanaged Lipper Short Investment Grade Debt Funds Index tracks the
total return performance of the 30 largest funds in the Lipper Short
Investment Grade Debt Funds category.
================================================================================
10 | USAA SHORT-TERM BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER SHORT
USAA SHORT-TERM INVESTMENT GRADE
BOND FUND DEBT FUNDS
SHARES AVERAGE
1/31/2007 4.35% 4.13%
1/31/2008 4.60 4.44
1/31/2009 4.92 4.56
1/31/2010 4.45 2.97
1/31/2011 3.14 2.27
1/31/2012 2.86 1.96
1/31/2013 2.40 1.67
1/31/2014 1.97 1.29
1/31/2015 1.70 1.33
1/31/2016 1.68 1.47
[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 net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data
for periods ending 1/31/07 through 1/31/16.
The Lipper Short Investment Grade Debt Funds Average is the average performance
level of all short-term investment-grade debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
USAA SHORT-TERM BOND FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UISBX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $2.6 Billion $2.2 Billion
Net Asset Value Per Share $9.03 $9.15
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-0.43% -0.10% 1.95% 3.35%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
0.23% 1.99% 3.37%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15***
--------------------------------------------------------------------------------
2.24% 0.50%
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.
**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 December 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).
================================================================================
12 | USAA SHORT-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS
USAA SHORT-TERM BARCLAYS LIPPER SHORT 1-3 YEAR
BOND FUND 1-3 YEAR INVESTMENT GOVERNMENT/
INSTITUTIONAL CREDIT GRADE FUNDS CREDIT
SHARES INDEX* INDEX INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,016.15 10,057.26 10,034.87 10,046.64
9/30/2008 9,920.78 9,675.52 9,814.26 9,986.92
10/31/2008 9,667.70 9,539.88 9,623.72 10,008.32
11/30/2008 9,624.67 9,655.31 9,469.75 10,128.13
12/31/2008 9,647.65 9,831.47 9,610.79 10,254.86
1/31/2009 9,739.52 10,012.02 9,706.41 10,282.52
2/28/2009 9,797.00 9,930.90 9,730.91 10,264.77
3/31/2009 9,933.58 9,959.07 9,722.92 10,313.18
4/30/2009 10,085.90 10,183.29 9,846.16 10,371.59
5/31/2009 10,331.34 10,389.60 10,016.47 10,442.52
6/30/2009 10,449.65 10,505.27 10,093.33 10,460.28
7/31/2009 10,642.83 10,642.65 10,225.98 10,510.00
8/31/2009 10,769.72 10,749.71 10,346.88 10,565.89
9/30/2009 10,886.42 10,829.25 10,438.05 10,606.36
10/31/2009 10,972.54 10,896.70 10,554.05 10,640.19
11/30/2009 11,065.83 10,990.91 10,580.81 10,708.97
12/31/2009 11,033.88 10,970.94 10,596.84 10,647.10
1/31/2010 11,165.85 11,070.79 10,703.93 10,728.97
2/28/2010 11,202.39 11,101.78 10,729.64 10,753.37
3/31/2010 11,224.49 11,132.27 10,763.05 10,741.68
4/30/2010 11,297.84 11,180.24 10,851.55 10,774.02
5/31/2010 11,315.70 11,146.85 10,834.70 10,800.66
6/30/2010 11,384.53 11,207.42 10,898.07 10,854.67
7/31/2010 11,468.19 11,309.50 10,981.22 10,899.53
8/31/2010 11,523.95 11,353.09 11,042.82 10,924.67
9/30/2010 11,568.04 11,412.00 11,080.18 10,952.62
10/31/2010 11,610.74 11,459.81 11,127.61 10,983.83
11/30/2010 11,603.20 11,430.89 11,094.07 10,960.19
12/31/2010 11,585.16 11,426.67 11,078.79 10,945.24
1/31/2011 11,625.70 11,469.01 11,108.19 10,968.51
2/28/2011 11,643.82 11,489.64 11,137.42 10,966.54
3/31/2011 11,649.41 11,492.54 11,140.42 10,964.96
4/30/2011 11,731.38 11,570.76 11,208.51 11,018.97
5/31/2011 11,772.03 11,617.41 11,255.76 11,059.16
6/30/2011 11,777.76 11,614.76 11,239.51 11,060.66
7/31/2011 11,821.76 11,662.82 11,295.66 11,093.93
8/31/2011 11,814.16 11,632.57 11,238.45 11,114.39
9/30/2011 11,807.49 11,585.26 11,220.12 11,092.25
10/31/2011 11,860.50 11,653.95 11,248.94 11,116.54
11/30/2011 11,864.57 11,601.25 11,210.28 11,108.79
12/31/2011 11,895.71 11,626.86 11,249.13 11,119.63
1/31/2012 11,974.68 11,739.96 11,348.55 11,159.07
2/29/2012 12,017.53 11,788.18 11,390.04 11,158.79
3/31/2012 12,034.17 11,809.81 11,409.89 11,159.82
4/30/2012 12,087.64 11,831.77 11,450.34 11,182.25
5/31/2012 12,087.70 11,812.13 11,445.99 11,180.28
6/30/2012 12,128.70 11,843.45 11,475.00 11,184.58
7/31/2012 12,220.10 11,921.58 11,554.01 11,221.96
8/31/2012 12,261.40 11,962.93 11,592.99 11,232.06
9/30/2012 12,310.61 12,004.36 11,640.70 11,242.62
10/31/2012 12,349.14 12,033.03 11,664.96 11,244.77
11/30/2012 12,389.34 12,038.91 11,681.91 11,253.55
12/31/2012 12,399.89 12,055.65 11,694.57 11,260.00
1/31/2013 12,408.73 12,072.39 11,705.23 11,264.95
2/28/2013 12,460.39 12,095.50 11,730.74 11,277.48
3/31/2013 12,483.69 12,106.28 11,742.41 11,282.06
4/30/2013 12,534.21 12,140.00 11,779.44 11,298.69
5/31/2013 12,488.56 12,126.24 11,738.49 11,283.37
6/30/2013 12,389.25 12,084.90 11,651.21 11,267.94
7/31/2013 12,423.80 12,131.71 11,688.18 11,292.06
8/31/2013 12,418.70 12,126.41 11,669.38 11,282.43
9/30/2013 12,479.88 12,171.98 11,720.54 11,312.71
10/31/2013 12,528.45 12,213.50 11,766.68 11,331.68
11/30/2013 12,565.08 12,242.91 11,789.38 11,347.10
12/31/2013 12,545.25 12,230.56 11,774.34 11,332.52
1/31/2014 12,620.28 12,264.04 11,814.56 11,354.49
2/28/2014 12,654.49 12,293.21 11,847.04 11,369.35
3/31/2014 12,648.23 12,288.15 11,834.56 11,358.79
4/30/2014 12,696.28 12,316.16 11,867.25 11,377.20
5/31/2014 12,728.35 12,351.70 11,902.63 11,401.31
6/30/2014 12,747.90 12,346.40 11,910.06 11,395.98
7/31/2014 12,738.78 12,343.50 11,893.89 11,388.41
8/31/2014 12,771.43 12,369.43 11,910.47 11,409.07
9/30/2014 12,748.54 12,352.20 11,897.70 11,400.09
10/31/2014 12,781.53 12,385.84 11,920.14 11,432.43
11/30/2014 12,786.48 12,404.24 11,931.79 11,449.25
12/31/2014 12,755.39 12,366.95 11,891.35 11,419.63
1/31/2015 12,816.54 12,431.25 11,941.55 11,479.25
2/28/2015 12,821.19 12,428.26 11,950.75 11,460.38
3/31/2015 12,853.75 12,453.95 11,975.13 11,486.54
4/30/2015 12,858.47 12,475.49 11,992.04 11,496.17
5/31/2015 12,877.92 12,488.17 12,002.33 11,505.61
6/30/2015 12,855.39 12,468.20 11,983.67 11,502.06
7/31/2015 12,859.16 12,476.16 11,990.48 11,508.97
8/31/2015 12,835.94 12,460.58 11,970.29 11,501.50
9/30/2015 12,854.78 12,498.12 11,978.83 11,535.79
10/31/2015 12,845.32 12,509.96 11,992.14 11,531.96
11/30/2015 12,836.18 12,497.62 11,978.67 11,509.25
12/31/2015 12,784.45 12,472.51 11,944.03 11,494.30
1/31/2016 12,804.35 12,513.44 11,970.57 11,554.11
[END CHART]
Data from 7/31/08 through 1/31/16.**
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Short-Term Bond Fund Institutional Shares to the Fund's benchmarks
listed above (see page 10 for benchmark definitions).
*As of December 1, 2015, the Barclays 1-3 Year Credit Index replaced the
Barclays 1-3 Government/Credit Index as the Fund's broad-based securities
market index as it more closely represents the securities held in the Fund.
**The performance of the Barclays 1-3 Year Credit Index, Lipper Short
Investment Grade Debt Funds Index, and the Barclays 1-3 Year Government/Credit
Index is calculated from the end of the month, July 31, 2008, while the
inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares.
Indexes are unmanaged, and you cannot invest directly in an index. The return
information for the indexes does not reflect the deduction of any fees,
expenses, or taxes, except that the Lipper Short Investment Grade Funds Index
reflects the fees and expenses of the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA SHORT-TERM LIPPER SHORT
BOND FUND INVESTMENT GRADE
INSTITUTIONAL FUNDS INDEX
SHARES AVERAGE
1/31/2010 4.71% 2.97%
1/31/2011 3.38 2.27
1/31/2012 3.07 1.96
1/31/2013 2.56 1.67
1/31/2014 2.12 1.29
1/31/2015 1.82 1.33
1/31/2016 1.79 1.47
[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 net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data
for periods ending 1/31/10 through 1/31/16.
The Lipper Short Investment Grade Debt Funds Average is the average performance
level of all short-term investment-grade debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
14 | USAA SHORT-TERM BOND FUND
================================================================================
USAA SHORT-TERM BOND FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UASBX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $16.4 Million $13.3 Million
Net Asset Value Per Share $9.04 $9.15
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-0.48% -0.32% 1.55% 1.63%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-0.22% 1.59% 1.62%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15 ***
--------------------------------------------------------------------------------
1.90% 0.85%
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 December 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 | 15
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS
BARCLAYS USAA SHORT-TERM LIPPER SHORT 1-3 YEAR
1-3 YEAR BOND FUND INVESTMENT GOVERNMENT/
CREDIT ADVISER GRADE FUNDS CREDIT
INDEX* SHARES INDEX INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,038.54 10,043.84 10,056.10 10,023.07
9/30/2010 10,090.63 10,078.03 10,090.12 10,048.70
10/31/2010 10,132.90 10,121.71 10,133.32 10,077.34
11/30/2010 10,107.33 10,099.91 10,102.77 10,055.65
12/31/2010 10,103.60 10,079.47 10,088.86 10,041.93
1/31/2011 10,141.04 10,121.33 10,115.63 10,063.28
2/28/2011 10,159.28 10,122.02 10,142.25 10,061.48
3/31/2011 10,161.84 10,133.37 10,144.98 10,060.02
4/30/2011 10,231.00 10,189.21 10,206.99 10,109.58
5/31/2011 10,272.25 10,231.41 10,250.01 10,146.45
6/30/2011 10,269.91 10,221.09 10,235.21 10,147.82
7/31/2011 10,312.40 10,255.10 10,286.34 10,178.35
8/31/2011 10,285.66 10,244.10 10,234.25 10,197.13
9/30/2011 10,243.83 10,234.67 10,217.56 10,176.81
10/31/2011 10,304.56 10,277.32 10,243.80 10,199.10
11/30/2011 10,257.97 10,277.40 10,208.59 10,191.98
12/31/2011 10,280.60 10,300.58 10,243.98 10,201.93
1/31/2012 10,380.61 10,365.62 10,334.52 10,238.11
2/29/2012 10,423.25 10,399.25 10,372.29 10,237.86
3/31/2012 10,442.37 10,409.85 10,390.37 10,238.80
4/30/2012 10,461.79 10,452.76 10,427.21 10,259.38
5/31/2012 10,444.42 10,449.18 10,423.25 10,257.58
6/30/2012 10,472.12 10,480.97 10,449.67 10,261.52
7/31/2012 10,541.21 10,556.68 10,521.62 10,295.82
8/31/2012 10,577.77 10,588.18 10,557.11 10,305.08
9/30/2012 10,614.40 10,627.20 10,600.56 10,314.77
10/31/2012 10,639.75 10,656.49 10,622.65 10,316.74
11/30/2012 10,644.95 10,686.78 10,638.09 10,324.80
12/31/2012 10,659.75 10,692.26 10,649.62 10,330.72
1/31/2013 10,674.55 10,696.32 10,659.32 10,335.26
2/28/2013 10,694.99 10,737.32 10,682.55 10,346.75
3/31/2013 10,704.52 10,753.48 10,693.18 10,350.96
4/30/2013 10,734.34 10,804.75 10,726.90 10,366.22
5/31/2013 10,722.17 10,750.05 10,689.60 10,352.16
6/30/2013 10,685.61 10,661.01 10,610.13 10,338.01
7/31/2013 10,727.01 10,698.83 10,643.80 10,360.13
8/31/2013 10,722.32 10,678.99 10,626.67 10,351.30
9/30/2013 10,762.62 10,727.93 10,673.26 10,379.08
10/31/2013 10,799.32 10,777.68 10,715.28 10,396.49
11/30/2013 10,825.33 10,793.63 10,735.95 10,410.63
12/31/2013 10,814.41 10,772.78 10,722.25 10,397.26
1/31/2014 10,844.01 10,833.67 10,758.88 10,417.41
2/28/2014 10,869.80 10,860.85 10,788.46 10,431.04
3/31/2014 10,865.33 10,853.51 10,777.09 10,421.35
4/30/2014 10,890.10 10,892.83 10,806.86 10,438.24
5/31/2014 10,921.53 10,930.19 10,839.08 10,460.37
6/30/2014 10,916.84 10,931.61 10,845.85 10,455.48
7/31/2014 10,914.27 10,920.23 10,831.12 10,448.53
8/31/2014 10,937.21 10,944.56 10,846.22 10,467.48
9/30/2014 10,921.97 10,921.61 10,834.59 10,459.25
10/31/2014 10,951.71 10,946.49 10,855.03 10,488.92
11/30/2014 10,967.98 10,959.41 10,865.63 10,504.35
12/31/2014 10,935.01 10,929.46 10,828.81 10,477.17
1/31/2015 10,991.86 10,966.55 10,874.52 10,531.88
2/28/2015 10,989.22 10,968.08 10,882.90 10,514.56
3/31/2015 11,011.94 10,993.22 10,905.10 10,538.57
4/30/2015 11,030.98 10,994.56 10,920.50 10,547.40
5/31/2015 11,042.19 11,008.43 10,929.88 10,556.06
6/30/2015 11,024.54 10,985.56 10,912.88 10,552.80
7/31/2015 11,031.57 10,985.01 10,919.08 10,559.14
8/31/2015 11,017.80 10,961.71 10,900.70 10,552.28
9/30/2015 11,050.99 10,974.47 10,908.47 10,583.75
10/31/2015 11,061.46 10,975.57 10,920.60 10,580.24
11/30/2015 11,050.55 10,952.93 10,908.33 10,559.40
12/31/2015 11,028.35 10,905.88 10,876.78 10,545.68
1/31/2016 11,064.54 10,931.74 10,900.95 10,600.56
[END CHART]
Data from 7/31/10 through 1/31/16.**
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Short-Term Bond Fund Adviser Shares to the Fund's benchmarks listed
above (see page 10 for benchmark definitions).
*As of December 1, 2015, the Barclays 1-3 Year Credit Index replaced the
Barclays 1-3 Government/Credit Index as the Fund's broad-based securities
market index as it more closely represents the securities held in the Fund.
**The performance of the Barclays 1-3 Year Credit Index, Lipper Short
Investment Grade Debt Funds Index, and the Barclays 1-3 Year Government/Credit
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.
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 Short Investment Grade Debt Funds Index reflects the fees and
expenses of the underlying funds included in the index.
================================================================================
16 | USAA SHORT-TERM BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA SHORT-TERM LIPPER SHORT
BOND FUND INVESTMENT GRADE
ADVISER FUNDS INDEX
SHARES AVERAGE
1/31/2012 2.60% 1.96%
1/31/2013 2.14 1.67
1/31/2014 1.71 1.29
1/31/2015 1.50 1.33
1/31/2016 1.45 1.47
[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 net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data
for periods ending 1/31/12 through 1/31/16.
The Lipper Short Investment Grade Debt Funds Average is the average performance
level of all short-term investment-grade debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 21.0%
AA 10.3%
A 21.1%
BBB 41.5%
BELOW INVESTMENT-GRADE 4.8%
UNRATED 1.3%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 20-43.
================================================================================
18 | USAA SHORT-TERM BOND FUND
================================================================================
o ASSET ALLOCATION - 1/31/16 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 43.3%
EURODOLLAR AND YANKEE OBLIGATIONS 15.0%
ASSET-BACKED SECURITIES 9.9%
U.S. TREASURY SECURITIES 8.5%
MONEY MARKET INSTRUMENTS 8.1%
COMMERCIAL MORTGAGE SECURITIES 6.2%
MUNICIPAL BONDS 5.7%
U.S. GOVERNMENT AGENCY ISSUES 2.0%
EXCHANGE-TRADED FUNDS* 0.9%
PREFERRED STOCKS 0.1%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[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 | 19
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (43.3%)
CONSUMER DISCRETIONARY (3.1%)
-----------------------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
$ 584 PVH Corp.(a) 3.25% 2/13/2020 $ 588
----------
AUTOMOBILE MANUFACTURERS (0.5%)
5,000 Ford Motor Credit Co., LLC 1.70 5/09/2016 5,008
10,000 Ford Motor Credit Co., LLC 1.68 9/08/2017 9,898
5,000 Ford Motor Credit Co., LLC 2.38 1/16/2018 4,995
----------
19,901
----------
CABLE & SATELLITE (0.9%)
18,000 CCO Safari II, LLC(b) 3.58 7/23/2020 18,116
1,850 CSC Holdings, LLC(a) 2.18 4/17/2018 1,843
15,000 NBCUniversal Enterprise(b) 1.31(c) 4/15/2018 14,988
----------
34,947
----------
CASINOS & GAMING (0.3%)
9,849 Las Vegas Sands Corp.(a) 3.25 12/19/2020 9,809
----------
CATALOG RETAIL (0.1%)
3,000 QVC, Inc. 3.13 4/01/2019 2,977
----------
COMPUTER & ELECTRONICS RETAIL (0.1%)
2,816 Best Buy Co., Inc. 3.75 3/15/2016 2,821
----------
GENERAL MERCHANDISE STORES (0.0%)
1,384 Dollar Tree, Inc.(a) 3.50 7/06/2022 1,382
----------
HOME FURNISHINGS (0.0%)
493 Tempur Sealy International, Inc.(a) 3.50 3/18/2020 492
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
5,450 Carnival Corp. 1.20 2/05/2016 5,450
----------
HOUSEHOLD APPLIANCES (0.2%)
7,000 Whirlpool Corp. 1.35 3/01/2017 6,978
----------
MOVIES & ENTERTAINMENT (0.1%)
4,788 Regal Cinemas Corp.(a) 3.80 4/01/2022 4,790
----------
RESTAURANTS (0.3%)
12,868 ARAMARK Services, Inc.(a) 3.25 9/07/2019 12,848
----------
================================================================================
20 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.5%)
$ 1,985 PetSmart, Inc.(a) 4.25% 3/11/2022 $ 1,927
10,000 Staples, Inc. 2.75 1/12/2018 9,971
7,000 Staples, Inc.(a),(d) 3.50 4/07/2021 6,961
----------
18,859
----------
Total Consumer Discretionary 121,842
----------
CONSUMER STAPLES (2.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
5,000 Cargill, Inc.(b) 1.90 3/01/2017 5,036
----------
DRUG RETAIL (0.9%)
20,000 CVS Health Corp. 1.90 7/20/2018 20,094
7,000 Walgreens Boots Alliance, Inc. 1.75 11/17/2017 6,985
8,000 Walgreens Boots Alliance, Inc. 2.70 11/18/2019 8,074
----------
35,153
----------
HOUSEHOLD PRODUCTS (0.3%)
10,000 Church & Dwight Co., Inc. 2.45 12/15/2019 10,093
----------
PACKAGED FOODS & MEAT (0.9%)
7,000 JM Smucker Co. 1.75 3/15/2018 7,007
5,000 JM Smucker Co. 2.50 3/15/2020 5,031
5,000 Kraft Foods Group, Inc. 2.25 6/05/2017 5,045
15,000 Kraft Heinz Foods Co.(b) 2.00 7/02/2018 14,996
5,000 Mead Johnson Nutrition Co. 3.00 11/15/2020 5,081
----------
37,160
----------
SOFT DRINKS (0.0%)
1,000 Coca-Cola Co. 1.80 9/01/2016 1,006
----------
TOBACCO (0.4%)
5,000 Reynolds American, Inc. 2.30 8/21/2017 5,053
10,000 Reynolds American, Inc. 2.30 6/12/2018 10,102
----------
15,155
----------
Total Consumer Staples 103,603
----------
ENERGY (6.7%)
-------------
INTEGRATED OIL & GAS (0.4%)
15,000 ConocoPhillips Co. 1.50 5/15/2018 14,377
----------
OIL & GAS DRILLING (0.4%)
5,000 Nabors Industries, Inc. 2.35 9/15/2016 4,932
4,000 Noble Holding International Ltd. 2.50 3/15/2017 3,521
5,000 Noble Holding International Ltd. 4.00 3/16/2018 3,990
5,000 Transocean, Inc. 5.80 12/15/2016 4,869
----------
17,312
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (1.0%)
$ 20,000 Schlumberger Holdings Corp.(b) 1.90% 12/21/2017 $ 19,939
11,593 Weatherford International Ltd. 5.50 2/15/2016 11,612
5,000 Weatherford International Ltd. 6.00 3/15/2018 4,125
3,215 Weatherford International Ltd. 5.13 9/15/2020 2,307
----------
37,983
----------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
15,000 EQT Corp. 6.50 4/01/2018 15,696
3,400 Murphy Oil Corp. 2.50 12/01/2017 2,857
7,000 Southwestern Energy Co. 3.30 1/23/2018 5,546
6,950 Southwestern Energy Co. 4.05 1/23/2020 4,700
----------
28,799
----------
OIL & GAS REFINING & MARKETING (0.1%)
5,000 Phillips 66 2.95 5/01/2017 5,073
----------
OIL & GAS STORAGE & TRANSPORTATION (4.1%)
5,000 Boardwalk Pipelines, LLC 5.50 2/01/2017 4,960
5,040 Boardwalk Pipelines, LLC 5.75 9/15/2019 5,123
5,000 Columbia Pipeline Group, Inc.(b) 2.45 6/01/2018 4,856
10,000 Columbia Pipeline Group, Inc.(b) 3.30 6/01/2020 9,491
7,150 Copano Energy, LLC 7.13 4/01/2021 7,045
5,000 DCP Midstream, LLC(b) 5.35 3/15/2020 4,098
5,000 DCP Midstream, LLC(b) 4.75 9/30/2021 3,590
2,000 Enbridge Energy Partners, LP 9.88 3/01/2019 2,217
11,400 Enbridge Energy Partners, LP 8.05 10/01/2077 8,065
5,000 Energy Transfer Partners, LP 2.50 6/15/2018 4,578
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,082
5,000 Energy Transfer Partners, LP 4.15 10/01/2020 4,430
12,000 Energy Transfer Partners, LP 3.35(c) 11/01/2066 7,080
1,025 Enterprise Products Operating, LLC 3.20 2/01/2016 1,025
10,000 Enterprise Products Operating, LLC 1.65 5/07/2018 9,727
7,000 Enterprise Products Operating, LLC 2.55 10/15/2019 6,704
10,000 Enterprise Products Operating, LLC 7.03 1/15/2068 10,025
5,000 Gulfstream Natural Gas System, LLC(b) 6.95 6/01/2016 5,080
3,218 Kern River Funding Corp.(b) 4.89 4/30/2018 3,353
5,000 Kinder Morgan Energy Partners, LP 3.50 3/01/2016 5,008
5,000 Kinder Morgan, Inc. 2.00 12/01/2017 4,825
4,000 NGPL PipeCo, LLC(b) 7.12 12/15/2017 3,780
16,968 NuStar Logistics, LP 8.15 4/15/2018 16,713
5,000 ONEOK Partners, LP 3.80 3/15/2020 4,619
10,000 Plains All American Pipeline, LP 2.60 12/15/2019 8,947
12,000 Sabine Pass LNG, LP 7.50 11/30/2016 12,405
================================================================================
22 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 5,000 Spectra Energy Partners, LP 2.95% 6/15/2016 $ 5,017
1,000 Tennessee Gas Pipeline Co., LLC 8.00 2/01/2016 1,000
----------
164,843
----------
Total Energy 268,387
----------
FINANCIALS (14.8%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
8,765 Ares Capital Corp. 5.75 2/01/2016 8,765
10,000 FS Investment Corp. 4.00 7/15/2019 10,114
5,000 State Street Corp. 1.35 5/15/2018 4,978
----------
23,857
----------
CONSUMER FINANCE (0.5%)
5,000 Capital One, N.A. 1.50 9/05/2017 4,976
5,000 Discover Bank 3.10 6/04/2020 5,029
10,000 Synchrony Financial 2.60 1/15/2019 9,992
----------
19,997
----------
DIVERSIFIED BANKS (1.4%)
7,000 Bank of America, N.A. 6.10 6/15/2017 7,403
10,000 Citigroup, Inc. 1.55 8/14/2017 9,999
5,000 Citigroup, Inc. 1.85 11/24/2017 5,000
10,000 Comerica Bank 2.50 6/02/2020 10,014
2,000 JPMorgan Chase & Co. 1.03(c) 2/26/2016 2,000
5,000 JPMorgan Chase & Co. 1.35 2/15/2017 5,000
17,350 U.S. Bancorp 3.44 2/01/2016 17,350
----------
56,766
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
5,000 Goldman Sachs Group, Inc. 3.63 2/07/2016 5,001
----------
LIFE & HEALTH INSURANCE (1.7%)
5,000 MetLife Global Funding I(b) 3.65 6/14/2018 5,215
10,000 New York Life Global Funding(b) 1.30 10/30/2017 9,997
20,000 New York Life Global Funding(b) 1.30 4/27/2018 19,901
11,800 Protective Life Corp. 6.40 1/15/2018 12,715
5,000 Reliance Standard Life Global Funding II(b) 2.15 10/15/2018 4,997
16,400 TIAA Asset Management Finance, LLC(b) 2.95 11/01/2019 16,352
----------
69,177
----------
MULTI-LINE INSURANCE (0.3%)
2,545 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 1,966
9,000 MassMutual Global Funding, LLC(b) 2.10 8/02/2018 9,082
----------
11,048
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%)
$ 4,201 AWAS Finance Luxembourg 2012 S.A.(a) 3.50% 7/16/2018 $ 4,201
7,000 Countrywide Financial Corp. 6.25 5/15/2016 7,100
3,959 Receipts on Corporate Securities Trust 6.50 8/01/2017 4,131
----------
15,432
----------
PROPERTY & CASUALTY INSURANCE (2.0%)
12,000 Allstate Corp. 6.13 5/15/2067 11,880
22,016 Chubb Corp. 6.38 3/29/2067 20,673
12,420 Oil Insurance Ltd.(b) 3.59(c) -(e) 11,054
15,080 Progressive Corp. 6.70 6/15/2067 15,080
21,596 Sirius International Group(b) 6.38 3/20/2017 22,277
----------
80,964
----------
REGIONAL BANKS (4.2%)
8,000 Allfirst Preferred Capital Trust 2.12(c) 7/15/2029 6,620
13,000 Associated Banc-Corp. 2.75 11/15/2019 13,065
2,000 BB&T Corp. 3.95 4/29/2016 2,016
8,000 BB&T Corp. 1.37(c) 6/15/2018 8,009
10,000 Compass Bank 1.85 9/29/2017 9,951
4,000 Compass Bank 6.40 10/01/2017 4,227
5,000 Compass Bank 2.75 9/29/2019 4,983
5,000 Cullen/Frost Bankers, Inc. 0.89(c) 2/15/2017 4,972
3,000 Fifth Third Bancorp 0.99(c) 12/20/2016 2,988
3,806 Fifth Third Bancorp 4.50 6/01/2018 4,017
5,000 First Niagara Financial Group, Inc. 6.75 3/19/2020 5,747
15,000 First Republic Bank 2.38 6/17/2019 15,030
5,247 First Tennessee Bank, N.A. 5.65 4/01/2016 5,275
8,500 Fulton Financial Corp. 5.75 5/01/2017 8,838
10,000 Huntington National Bank 1.35 8/02/2016 10,000
5,000 Huntington National Bank 1.38 4/24/2017 4,988
5,000 Manufacturers & Traders Trust Co. 1.25 1/30/2017 5,003
10,000 MUFG Americas Holdings Corp. 2.25 2/10/2020 9,914
5,000 MUFG Union Bank, N.A. 2.13 6/16/2017 5,043
5,000 MUFG Union Bank, N.A. 2.63 9/26/2018 5,077
9,500 People's United Financial, Inc. 3.65 12/06/2022 9,391
10,000 Regions Bank of Birmingham 2.25 9/14/2018 10,018
10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,853
----------
165,025
----------
REINSURANCE (0.0%)
1,250 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 1,315
----------
REITs - DIVERSIFIED (0.2%)
8,333 ARC Properties Operating Partnership, LP(a) 2.33 6/30/2018 8,083
----------
================================================================================
24 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
REITs - HEALTH CARE (0.4%)
$ 2,000 HCP, Inc. 6.30% 9/15/2016 $ 2,058
5,000 Health Care REIT, Inc. 3.63 3/15/2016 5,014
2,505 Health Care REIT, Inc. 4.13 4/01/2019 2,627
2,950 Nationwide Health Properties, Inc. 6.90 10/01/2037 3,782
3,000 Ventas Realty, LP 4.00 4/30/2019 3,150
----------
16,631
----------
REITs - HOTEL & RESORT (0.2%)
8,080 Hospitality Properties Trust 5.63 3/15/2017 8,336
----------
REITs - INDUSTRIAL (0.2%)
7,300 First Industrial, LP 5.95 5/15/2017 7,654
----------
REITs - OFFICE (1.0%)
7,000 BioMed Realty, LP 3.85 4/15/2016 7,038
9,000 Boston Properties, LP 3.70 11/15/2018 9,371
4,000 Equity Commonwealth 6.25 8/15/2016 4,006
3,700 Equity Commonwealth 6.25 6/15/2017 3,822
7,000 Mack-Cali Realty, LP 2.50 12/15/2017 7,022
7,680 Reckson Operating Partnership, LP 6.00 3/31/2016 7,732
----------
38,991
----------
REITs - RESIDENTIAL (0.6%)
11,664 AvalonBay Communities, Inc. 5.70 3/15/2017 12,180
2,780 ERP Operating, LP 5.38 8/01/2016 2,838
8,425 Essex Portfolio, LP 5.50 3/15/2017 8,770
----------
23,788
----------
REITs - RETAIL (0.3%)
11,355 Realty Income Corp. 2.00 1/31/2018 11,402
----------
REITs - SPECIALIZED (0.4%)
10,000 American Tower Corp. 3.40 2/15/2019 10,253
3,980 Communications Sales & Leasing, Inc.(a) 5.00 10/24/2022 3,742
----------
13,995
----------
SPECIALIZED FINANCE (0.1%)
5,000 McGraw Hill Financial, Inc. 2.50 8/15/2018 5,025
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
8,600 Chittenden Corp. 1.05(c) 2/14/2017 8,532
----------
Total Financials 591,019
----------
HEALTH CARE (2.4%)
------------------
BIOTECHNOLOGY (0.6%)
5,000 AbbVie, Inc. 1.75 11/06/2017 4,996
10,000 AbbVie, Inc. 1.80 5/14/2018 9,976
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 8,000 Baxalta, Inc.(b) 2.00% 6/22/2018 $ 7,907
----------
22,879
----------
HEALTH CARE EQUIPMENT (0.4%)
10,000 Becton Dickinson and Co. 1.45 5/15/2017 9,992
5,000 Medtronic, Inc. 2.50 3/15/2020 5,081
----------
15,073
----------
HEALTH CARE SERVICES (0.1%)
5,000 Express Scripts Holding Co. 2.65 2/15/2017 5,052
----------
PHARMACEUTICALS (1.3%)
5,000 Actavis Funding SCS 2.35 3/12/2018 5,025
5,000 Actavis Funding SCS 3.00 3/12/2020 5,074
10,000 Mallinckrodt International Finance S.A. 3.50 4/15/2018 9,500
7,000 Mylan N.V.(b) 3.00 12/15/2018 7,019
5,970 Valeant Pharmaceuticals International, Inc.(a) 3.50 2/13/2019 5,755
853 Valeant Pharmaceuticals International, Inc.(a) 3.75 12/11/2019 823
8,667 Zoetis, Inc. 1.15 2/01/2016 8,667
11,278 Zoetis, Inc. 1.88 2/01/2018 11,205
----------
53,068
----------
Total Health Care 96,072
----------
INDUSTRIALS (4.8%)
------------------
AEROSPACE & DEFENSE (0.3%)
5,000 L-3 Communications Corp. 3.95 11/15/2016 5,070
3,477 TransDigm, Inc.(a) 3.75 2/28/2020 3,406
5,000 United Technologies Corp. 1.80 6/01/2017 5,046
----------
13,522
----------
AIR FREIGHT & LOGISTICS (0.3%)
10,000 FedEx Corp. 2.30 2/01/2020 10,074
711 FedEx Corp. Pass-Through Trust(b) 2.63 1/15/2018 718
2,368 FedEx Corp. Pass-Through Trust 6.85 7/15/2020 2,525
----------
13,317
----------
AIRLINES (1.8%)
462 America West Airlines, Inc. Pass-Through Trust 7.12 7/02/2018 477
6,361 American Airlines 2014-1 Pass-Through Trust 4.38 4/01/2024 6,274
5,000 American Airlines 2015-2 Pass-Through Trust 4.40 3/22/2025 4,919
14,800 Aviation Capital Group Corp.(b) 3.88 9/27/2016 14,962
2,745 Continental Airlines 1998-1 Pass-Through Trust 6.65 3/15/2019 2,798
11,461 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 11,820
970 United Airlines, Inc. Pass-Through Trust 9.75 7/15/2018 1,029
4,548 United Airlines, Inc. Pass-Through Trust 5.38 2/15/2023 4,622
================================================================================
26 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 1,570 United Airlines, Inc. Pass-Through Trust 4.63% 3/03/2024 $ 1,580
4,115 US Airways Group, Inc. Pass-Through Trust 8.50 10/22/2018 4,285
6,550 US Airways Group, Inc. Pass-Through Trust 5.38 5/15/2023 6,607
1,098 US Airways Group, Inc. Pass-Through Trust (INS) 7.08 9/20/2022 1,173
4,900 US Airways, Inc.(a) 3.00 11/23/2016 4,902
4,900 US Airways, Inc.(a) 3.50 5/23/2019 4,862
----------
70,310
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%)
3,000 CNH Industrial Capital, LLC 3.63 4/15/2018 2,925
4,583 CNH Industrial Capital, LLC 3.38 7/15/2019 4,239
9,850 Terex Corp.(a) 3.50 8/13/2021 9,752
----------
16,916
----------
RAILROADS (0.3%)
10,000 TTX Co.(b) 5.40 2/15/2016 10,016
----------
TRADING COMPANIES & DISTRIBUTORS (0.6%)
10,000 International Lease Finance Corp. 2.46(c) 6/15/2016 9,950
13,000 International Lease Finance Corp.(b) 7.13 9/01/2018 14,105
----------
24,055
----------
TRUCKING (1.1%)
5,000 ERAC USA Finance, LLC(b) 1.40 4/15/2016 5,002
5,000 ERAC USA Finance, LLC(b) 2.75 3/15/2017 5,054
3,000 ERAC USA Finance, LLC(b) 6.38 10/15/2017 3,213
10,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 2.50 3/15/2016 10,002
4,970 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 3.38 3/15/2018 5,058
14,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 2.88 7/17/2018 14,196
----------
42,525
----------
Total Industrials 190,661
----------
INFORMATION TECHNOLOGY (1.4%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.2%)
5,000 Harris Corp. 2.70 4/27/2020 4,971
2,500 QUALCOMM, Inc. 2.25 5/20/2020 2,509
----------
7,480
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
10,000 Total System Services, Inc. 2.38 6/01/2018 9,956
6,650 Xerox Corp. 6.40 3/15/2016 6,689
3,000 Xerox Corp. 2.95 3/15/2017 3,006
----------
19,651
----------
ELECTRONIC COMPONENTS (0.1%)
5,000 Amphenol Corp. 2.55 1/30/2019 5,035
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
$ 3,000 FLIR Systems, Inc.(f) 3.75% 9/01/2016 $ 3,038
----------
ELECTRONIC MANUFACTURING SERVICES (0.4%)
16,892 Molex Electronics Technologies, LLC(b) 2.88 4/15/2020 16,786
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
5,000 Tech Data Corp. 3.75 9/21/2017 5,135
----------
Total Information Technology 57,125
----------
MATERIALS (0.8%)
----------------
ALUMINUM (0.1%)
5,046 Alcoa, Inc. 6.75 7/15/2018 5,256
----------
CONSTRUCTION MATERIALS (0.2%)
10,000 Martin Marietta Materials, Inc. 1.70(c) 6/30/2017 9,940
----------
DIVERSIFIED METALS & MINING (0.3%)
3,000 Freeport-McMoRan, Inc. 2.30 11/14/2017 2,081
7,625 Freeport-McMoRan, Inc.(a) 2.43 5/31/2018 5,871
5,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 2,338
----------
10,290
----------
SPECIALTY CHEMICALS (0.2%)
6,000 Albemarle Corp. 3.00 12/01/2019 5,962
----------
Total Materials 31,448
----------
TELECOMMUNICATION SERVICES (1.9%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.5%)
500 AT&T, Inc. 0.74(c) 2/12/2016 500
25,000 AT&T, Inc. 2.45 6/30/2020 24,748
5,000 Centel Capital Corp. 9.00 10/15/2019 5,786
3,600 CenturyLink, Inc. 6.45 6/15/2021 3,526
2,500 Frontier Communications Corp.(b) 8.88 9/15/2020 2,519
12,344 Verizon Communications, Inc. 2.50 9/15/2016 12,443
10,000 Verizon Communications, Inc. 1.35 6/09/2017 9,991
----------
59,513
----------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
11,250 CC Holdings GS V, LLC / Crown Castle GS III Corp 2.38 12/15/2017 11,307
4,770 Grain Spectrum Funding, LLC(b) 4.00 10/10/2018 4,872
16,179
----------
Total Telecommunication Services 75,692
----------
================================================================================
28 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
UTILITIES (4.8%)
----------------
ELECTRIC UTILITIES (3.0%)
$ 1,000 Baltimore Gas and Electric Co. 5.90% 10/01/2016 $ 1,032
8,000 Duke Energy Corp. 2.10 6/15/2018 8,031
1,000 Duke Energy Indiana, Inc. 6.05 6/15/2016 1,019
6,700 Entergy Corp. 4.70 1/15/2017 6,847
10,000 Eversource Energy 1.60 1/15/2018 9,966
15,000 Exelon Corp. 1.55 6/09/2017 14,970
7,000 FirstEnergy Corp. 2.75 3/15/2018 7,047
12,000 IPALCO Enterprises, Inc. 5.00 5/01/2018 12,600
7,000 IPALCO Enterprises, Inc. 3.45 7/15/2020 6,948
10,000 NextEra Energy Capital Holding, Inc. 1.59 6/01/2017 9,985
10,000 NextEra Energy Capital Holding, Inc. 2.06 9/01/2017 10,046
7,000 Otter Tail Corp. 9.00 12/15/2016 7,363
9,000 PPL Energy Supply, LLC 6.20 5/15/2016 9,022
1,000 Public Service Co. of Oklahoma 6.15 8/01/2016 1,024
1,863 Tri-State Generation & Transmission Association
Pass-Through Trust(b) 6.04 1/31/2018 1,930
10,000 Xcel Energy, Inc. 1.20 6/01/2017 9,960
----------
117,790
----------
GAS UTILITIES (0.2%)
2,000 AGL Capital Corp. 6.38 7/15/2016 2,047
545 Alliance Pipeline, LP(b) 7.00 12/31/2019 593
5,000 SourceGas, LLC(b) 5.90 4/01/2017 5,197
----------
7,837
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.9%)
7,975 Exelon Generation Co., LLC 4.00 10/01/2020 7,989
9,730 NRG Energy, Inc.(a) 2.75 7/02/2018 9,566
10,000 Southern Power Co. 1.50 6/01/2018 9,873
10,000 Southern Power Co. 2.38 6/01/2020 9,814
----------
37,242
----------
MULTI-UTILITIES (0.7%)
10,000 Black Hills Corp. 2.50 1/11/2019 9,955
11,100 Integrys Holding, Inc. 6.11 12/01/2066 8,104
10,000 Sempra Energy 2.40 3/15/2020 9,772
----------
27,831
----------
Total Utilities 190,700
----------
Total Corporate Obligations (cost: $1,763,559) 1,726,549
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (15.0%)
CONSUMER DISCRETIONARY (1.0%)
-----------------------------
AUTOMOBILE MANUFACTURERS (1.0%)
$ 5,000 Daimler Finance, N.A., LLC(b) 1.88% 1/11/2018 $ 4,986
10,000 Hyundai Capital America(b) 1.88 8/09/2016 10,035
2,000 Hyundai Capital America(b) 1.45 2/06/2017 1,996
7,800 Hyundai Capital Services, Inc.(b) 1.33(c) 3/18/2017 7,783
13,235 Nissan Motor Acceptance Corp.(b) 0.97(c) 3/03/2017 13,208
----------
38,008
----------
Total Consumer Discretionary 38,008
----------
CONSUMER STAPLES (1.1%)
-----------------------
BREWERS (0.4%)
5,000 SABMiller Holdings, Inc.(b) 2.45 1/15/2017 5,042
9,530 SABMiller Holdings, Inc.(b) 2.20 8/01/2018 9,589
----------
14,631
----------
DISTILLERS & VINTNERS (0.1%)
5,000 Pernod Ricard S.A.(b) 2.95 1/15/2017 5,052
----------
TOBACCO (0.6%)
5,000 B.A.T. International Finance plc(b) 2.13 6/07/2017 5,044
7,000 Imperial Tobacco Finance plc(b) 2.05 7/20/2018 7,013
10,000 Imperial Tobacco Finance plc(b) 2.95 7/21/2020 10,143
----------
22,200
----------
Total Consumer Staples 41,883
----------
ENERGY (1.6%)
-------------
INTEGRATED OIL & GAS (1.1%)
8,000 BP Capital Markets plc 1.63 8/17/2017 7,991
12,820 Origin Energy Finance Ltd.(b) 3.50 10/09/2018 12,003
10,000 Petrobras Global Finance B.V. 2.00 5/20/2016 9,938
15,000 Shell International Finance B.V. 1.13 8/21/2017 14,939
----------
44,871
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
7,000 Canadian Natural Resources Ltd. 0.98(c) 3/30/2016 6,969
----------
OIL & GAS STORAGE & TRANSPORTATION (0.3%)
7,500 Enbridge, Inc. 0.87(c) 6/02/2017 7,151
6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 5,895
----------
13,046
----------
Total Energy 64,886
----------
================================================================================
30 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
FINANCIALS (7.4%)
-----------------
DIVERSIFIED BANKS (4.7%)
$ 5,000 Abbey National Treasury Services plc 2.35% 9/10/2019 $ 5,038
5,000 ANZ New Zealand International Ltd.(b) 2.60 9/23/2019 5,055
5,000 ANZ New Zealand International Ltd.(b) 2.85 8/06/2020 5,115
4,000 Banco Santander Chile(b) 1.52(c) 4/11/2017 3,980
10,000 Bank of Montreal 1.40 4/10/2018 9,955
7,500 Barclays Bank plc(b) 2.25 5/10/2017 7,606
5,000 BPCE S.A. 1.63 2/10/2017 5,003
2,000 Commonwealth Bank of Australia(b) 2.25 3/16/2017 2,024
5,000 DNB Bank ASA(b) 3.20 4/03/2017 5,100
5,000 Lloyds Bank plc 4.20 3/28/2017 5,163
7,000 National Australia Bank of New York 2.75 3/09/2017 7,125
10,000 Nordea Bank AB(b) 4.88 5/13/2021 10,831
16,000 Rabobank Nederland 1.01(c) 3/18/2016 16,003
5,000 Rabobank Nederland 3.38 1/19/2017 5,105
10,000 Royal Bank of Canada 0.85 3/08/2016 10,003
10,010 Royal Bank of Scotland Group plc 9.50(c) 3/16/2022 10,676
10,000 Santander Bank, N.A. 2.00 1/12/2018 9,925
14,350 Santander Bank, N.A. 8.75 5/30/2018 16,247
19,000 Standard Chartered Bank(b) 6.40 9/26/2017 20,249
5,000 Standard Chartered plc(b) 2.25 4/17/2020 4,962
5,000 Svenska Handelsbanken AB 2.88 4/04/2017 5,094
10,000 Swedbank AB(b) 1.75 3/12/2018 10,028
8,000 Toronto-Dominion Bank 1.40 4/30/2018 7,976
----------
188,263
----------
DIVERSIFIED CAPITAL MARKETS (0.3%)
10,000 UBS Group Funding Ltd.(b) 2.95 9/24/2020 9,963
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.5%)
16,756 Brookfield Asset Management, Inc. 5.80 4/25/2017 17,364
----------
MULTI-LINE INSURANCE (0.5%)
21,000 ZFS Finance USA Trust II(b) 6.45 12/15/2065 21,131
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%)
7,000 ING Bank N.V.(b) 3.75 3/07/2017 7,175
6,378 ING Bank N.V. 4.13 11/21/2023 6,486
2,000 ING Capital Funding Trust III 4.21(c) -(e) 1,977
----------
15,638
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
12,000 QBE Insurance Group Ltd.(b) 2.40 5/01/2018 12,031
17,000 Suncorp-Metway Ltd.(b) 1.70 3/28/2017 17,052
----------
29,083
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
REITs - RETAIL (0.3%)
$ 5,000 Scentre Group Trust(b) 2.38% 4/28/2021 $ 4,913
7,000 WEA Finance, LLC(b) 1.75 9/15/2017 6,966
----------
11,879
----------
Total Financials 293,321
----------
INDUSTRIALS (1.8%)
------------------
AIRLINES (0.8%)
10,000 Air Canada Pass-Through Trust(b) 5.00 9/15/2020 9,225
11,827 British Airways Pass-Through Trust plc(b) 5.63 12/20/2021 12,167
11,702 Virgin Australia Trust(b) 5.00 4/23/2025 12,068
----------
33,460
----------
INDUSTRIAL CONGLOMERATES (0.3%)
5,000 Hutchison Whampoa International Ltd.(b) 3.50 1/13/2017 5,088
6,600 Hutchison Whampoa International Ltd.(b) 2.00 11/08/2017 6,646
----------
11,734
----------
MARINE (0.2%)
10,000 A.P. Moeller-Maersk A/S(b) 2.55 9/22/2019 9,957
----------
RAILROADS (0.3%)
10,000 Asciano Finance(b) 5.00 4/07/2018 10,305
----------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
8,000 AerCap Ireland Capital Ltd. 2.75 5/15/2017 7,880
----------
Total Industrials 73,336
----------
MATERIALS (1.9%)
----------------
CONSTRUCTION MATERIALS (0.1%)
5,000 Holcim US Finance Sarl & Cie SCS(b) 6.00 12/30/2019 5,583
----------
DIVERSIFIED METALS & MINING (1.4%)
10,000 Anglo American Capital plc(b) 1.57(c) 4/15/2016 9,923
5,000 Anglo American Capital plc(b) 2.63 9/27/2017 4,375
5,000 Anglo American Capital plc(b) 3.63 5/14/2020 3,334
10,000 Glencore Finance Canada Ltd.(b) 2.70 10/25/2017 8,978
10,000 Glencore Funding, LLC(b) 1.70 5/27/2016 9,825
17,000 Rio Tinto Finance USA plc 1.37(c) 6/17/2016 16,963
1,746 Teck Resources Ltd.(f) 3.15 1/15/2017 1,650
----------
55,048
----------
GOLD (0.2%)
10,000 Barrick Gold Corp. 2.50 5/01/2018 9,508
----------
================================================================================
32 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
STEEL (0.2%)
$ 4,000 ArcelorMittal 5.50% 2/25/2017 $ 3,930
4,500 ArcelorMittal 5.13 6/01/2020 3,645
----------
7,575
----------
Total Materials 77,714
----------
TELECOMMUNICATION SERVICES (0.0%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.0%)
225 Vodafone Group plc 0.75(c) 2/19/2016 225
----------
UTILITIES (0.2%)
----------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
10,000 TransAlta Corp. 1.90 6/03/2017 9,383
----------
Total Eurodollar and Yankee Obligations (cost: $604,182) 598,756
----------
ASSET-BACKED SECURITIES (9.9%)
FINANCIALS (9.9%)
-----------------
ASSET-BACKED FINANCING (9.9%)
2,462 Access Group, Inc. 0.88(c) 4/25/2029 2,429
420 ACS Pass-Through Trust(b) 0.72(c) 6/14/2037 405
1,995 American Credit Acceptance Receivables Trust(b) 1.43 8/12/2019 1,988
697 AmeriCredit Automobile Receivables Trust 1.31 11/08/2017 697
7,500 AmeriCredit Automobile Receivables Trust 1.93 8/08/2018 7,517
2,400 AmeriCredit Automobile Receivables Trust 1.57 1/08/2019 2,401
7,500 AmeriCredit Automobile Receivables Trust(b) 6.53 1/08/2019 7,509
6,000 AmeriCredit Automobile Receivables Trust 2.09 2/08/2019 6,023
6,681 ARL First, LLC(b) 2.18(c) 12/15/2042 6,673
1,000 Avis Budget Rental Car Funding, LLC(b) 5.94 3/20/2017 1,004
8,100 Avis Budget Rental Car Funding, LLC(b) 3.68 11/20/2017 8,133
12,000 Avis Budget Rental Car Funding, LLC(b) 2.62 9/20/2019 11,872
17,000 Babson CLO Ltd.(b) 1.60(c) 5/15/2023 16,995
5,000 Bank of The West Auto Trust(b) 1.65 3/16/2020 4,994
10,000 Bank of The West Auto Trust(b) 1.66 9/15/2020 9,963
4,200 California Republic Auto Receivables Trust 2.30 12/16/2019 4,185
9,425 California Republic Auto Receivables Trust 2.57 11/16/2020 9,383
9,662 Capital One Multi-asset Execution Trust 0.71(c) 1/15/2019 9,661
923 CenterPoint Energy Transition Bond Co. III, LLC 4.19 2/01/2020 938
7,474 CIT Education Loan Trust(b) 0.90(c) 6/25/2042 6,230
15,000 CIT Equipment Collateral(b) 1.50 10/21/2019 14,973
819 CNH Equipment Trust 0.48 8/15/2017 818
6,000 CNH Equipment Trust 1.27 11/16/2020 5,993
5,500 CNH Equipment Trust 2.14 8/15/2022 5,506
2,455 College Loan Corp. Trust 1.11(c) 1/15/2037 2,134
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 5,322 Collegiate Funding Services Education Loan Trust 0.92%(c) 3/28/2035 $ 4,839
3,600 Credit Acceptance Auto Loan Trust(b) 1.83 4/15/2021 3,600
13,000 Credit Acceptance Auto Loan Trust(b) 1.55 10/15/2021 12,971
4,000 Credit Acceptance Auto Loan Trust(b) 2.29 4/15/2022 4,003
5,000 Credit Acceptance Auto Loan Trust(b) 2.67 9/15/2022 5,028
5,000 Drive Auto Receivables Trust "B"(b) 2.28 6/17/2019 5,007
5,000 Drive Auto Receivables Trust "B"(b) 2.23 9/16/2019 4,996
7,500 Dryden Senior Loan Fund(b) 2.12(c) 4/15/2027 7,419
4,561 Element Rail Leasing I, LLC(b) 2.30 4/19/2044 4,536
10,000 Enterprise Fleet Financing, LLC(b) 1.59 2/22/2021 9,974
460 Exeter Automobile Receivables Trust(b) 1.29 5/15/2018 460
5,402 Exeter Automobile Receivables Trust(b) 3.09 7/16/2018 5,409
396 Exeter Automobile Receivables Trust(b) 1.06 8/15/2018 396
1,000 Exeter Automobile Receivables Trust(b) 2.42 1/15/2019 1,001
2,623 First Investors Auto Owner Trust(b) 0.86 8/15/2018 2,620
8,750 First Investors Auto Owner Trust(b) 3.04 8/15/2018 8,808
5,000 First Investors Auto Owner Trust(b) 2.26 3/15/2019 5,023
5,000 First Investors Auto Owner Trust(b) 1.49 6/15/2020 4,989
2,161 GE Equipment Midticket, LLC 0.64 4/24/2017 2,159
3,282 Hertz Vehicle Financing, LLC(b) 3.74 2/25/2017 3,289
10,000 Hertz Vehicle Financing, LLC(b) 1.86 8/25/2017 9,975
10,500 Hertz Vehicle Financing, LLC(b) 2.96 9/25/2019 10,524
3,000 Huntington Auto Trust "C" 2.15 6/15/2021 2,999
3,594 Iowa Student Loan Liquidity Corp. 0.95(c) 9/25/2037 3,110
15,000 Marine Park CLO Ltd.(b) 1.64(c) 10/12/2023 14,957
10,000 MMAF Equipment Finance, LLC(b) 1.93 7/16/2021 10,090
1,606 Nelnet Student Loan Trust 0.87(c) 9/22/2037 1,448
2,076 Prestige Auto Receivables Trust(b) 0.97 3/15/2018 2,073
5,000 Prestige Auto Receivables Trust(b) 1.52 4/15/2020 4,991
6,000 Prestige Auto Receivables Trust "B"(b) 1.74 5/15/2019 6,001
3,025 Santander Drive Auto Receivables Trust 1.95 3/15/2019 3,033
8,000 Santander Drive Auto Receivables Trust 1.45 5/15/2019 7,997
4,500 Santander Drive Auto Receivables Trust 2.73 10/15/2019 4,552
5,000 SBA Tower Trust(b) 2.90 10/15/2044 5,025
5,577 SLC Student Loan Trust 0.92(c) 7/15/2036 5,407
8,000 SLC Student Loan Trust 1.07(c) 7/15/2036 6,908
6,278 SLM Student Loan Trust 1.00(c) 1/27/2025 6,030
1,091 SLM Student Loan Trust 1.17(c) 10/25/2038 949
5,000 Suntrust Auto Receivables Trust "B"(b) 2.20 2/15/2021 5,069
8,000 Suntrust Auto Receivables Trust "C"(b) 2.50 4/15/2021 8,157
5,000 TCF Auto Receivables Owner Trust(b) 2.55 4/15/2021 5,049
7,500 TCF Auto Receivables Owner Trust "B"(b) 2.49 4/15/2021 7,473
5,213 Trinity Rail Leasing, LP(b) 2.27 1/15/2043 5,148
8,425 Trip Rail Master Funding, LLC(b) 2.86 4/15/2044 8,573
================================================================================
34 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 1,260 Westlake Automobile Receivables Trust(b) 2.24% 4/15/2020 $ 1,254
5,150 Westlake Automobile Receivables Trust(b) 2.45 1/15/2021 5,116
----------
396,859
----------
Total Financials 396,859
----------
Total Asset-Backed Securities (cost: $398,028) 396,859
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
3,986 Sequoia Mortgage Trust(b) (cost: $4,046) 3.00(c) 5/25/2043 3,986
----------
COMMERCIAL MORTGAGE SECURITIES (6.2%)
FINANCIALS (6.2%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (4.5%)
640 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 640
593 Banc of America Commercial Mortgage, Inc. 4.73 7/10/2043 593
5,000 Banc of America Commercial Mortgage, Inc. 5.36 10/10/2045 5,062
6,917 Banc of America Commercial Mortgage, Inc. 5.63 7/10/2046 6,966
2,400 Banc of America Commercial Mortgage, Inc. 5.68 7/10/2046 2,442
10,000 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 10,767
10,000 Barclays Commercial Mortgage Securities, LLC(b) 2.03 2/15/2028 9,778
129 Chase Commercial Mortgage Securities Corp.(b) 6.56 5/18/2030 129
4,640 Citigroup Commercial Mortgage Trust 1.39 7/10/2047 4,616
2,000 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 2,011
20,000 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 19,927
1,399 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 1,402
4,300 Commercial Mortgage Trust(b) 2.02 2/13/2032 4,241
2,330 Credit Suisse Commercial Mortgage Trust 6.01 6/15/2038 2,332
3,889 Credit Suisse Commercial Mortgage Trust 5.38 2/15/2040 3,964
7,445 DB-UBS Mortgage Trust (f) 3.64 8/10/2044 7,469
1,107 DB-UBS Mortgage Trust(b) 3.74 11/10/2046 1,109
8,090 Greenwich Capital Commercial Funding Corp. 6.05 7/10/2038 8,115
4,843 GS Mortgage Securities Corp. II 2.54 1/10/2045 4,867
10,000 GS Mortgage Securities Corp. II 2.32 5/10/2045 10,064
6,446 GS Mortgage Securities Trust 1.21 7/10/2046 6,425
588 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.12 7/15/2041 589
1,238 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.81 6/12/2043 1,239
76 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.52 5/12/2045 76
1,650 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(b) 4.11 7/15/2046 1,726
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 11,653 LB Commercial Mortgage Trust 6.10% 7/15/2044 $ 12,221
5,000 LB-UBS Commercial Mortgage Trust 5.35 11/15/2038 5,075
4,000 LB-UBS Commercial Mortgage Trust 5.41 9/15/2039 4,072
3,776 LB-UBS Commercial Mortgage Trust 5.42 2/15/2040 3,826
6,000 LB-UBS Commercial Mortgage Trust 5.46 2/15/2040 6,171
6,320 Morgan Stanley Capital I, Inc. 5.57 12/15/2044 6,602
3,095 Morgan Stanley Capital I, Inc. 5.27 10/12/2052 3,095
2,914 Morgan Stanley Dean Witter Capital I, Inc.(b) 5.25 12/17/2043 2,911
7,676 UBS-Barclays Commercial Mortgage Trust 2.73 8/10/2049 7,828
843 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 854
4,752 Wachovia Bank Commercial Mortgage Trust 5.31 11/15/2048 4,812
5,000 Wachovia Bank Commercial Mortgage Trust 5.90 6/15/2049 5,132
237 WF-RBS Commercial Mortgage Trust(b),(f) 3.24 3/15/2044 237
----------
179,385
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.7%)
71,035 Commercial Mortgage Trust, acquired
8/09/2012-8/27/2012; cost $9,125(g) 1.99 8/15/2045 5,929
71,165 Commercial Mortgage Trust, acquired
11/06/2012; cost $9,540(g) 2.09 10/15/2045 6,116
39,420 Fannie Mae(+) 4.21 12/25/2017 1,989
87,842 Fannie Mae(+) 2.24 12/25/2019 3,668
80,583 Fannie Mae(+) 0.87 5/25/2022 3,147
82,961 Fannie Mae(+) 0.72 8/25/2022 2,596
25,035 Freddie Mac(+) 1.70 4/25/2017 303
62,854 Freddie Mac(+) 3.27 1/25/2019 4,266
37,909 Freddie Mac(+) 1.90 5/25/2019 1,855
102,340 Freddie Mac(+) 1.82 7/25/2019 4,956
57,895 Freddie Mac(+) 1.48 11/25/2019 2,356
72,494 Freddie Mac(+) 1.43 8/25/2022 4,951
38,498 GS Mortgage Securities Corp. II, acquired
5/18/2012; cost $5,882(g) 2.70 5/10/2045 3,427
30,794 GS Mortgage Securities Trust, acquired
11/16/2012; cost $4,750(g) 2.48 11/10/2045 2,967
33,099 J.P. Morgan Chase Commercial Mortgage Securities
Corp., acquired 9/28/2012; cost $4,518(g) 2.20 10/15/2045 2,813
36,192 Morgan Stanley-BAML Trust, acquired
10/05/2012; cost $4,702(b),(g) 2.23 11/15/2045 2,735
59,365 UBS Commercial Mortgage Trust, acquired
5/01/2012; cost $8,987(b),(g) 2.36 5/10/2045 5,887
33,067 UBS-Barclays Commercial Mortgage Trust, acquired
9/14/2012; cost $4,712(b),(g) 2.25 8/10/2049 3,034
================================================================================
36 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 34,112 WF Commercial Mortgage Trust, acquired
9/21/2012; cost $4,732(b),(g) 2.22% 10/15/2045 $ 2,954
----------
65,949
----------
Total Financials 245,334
----------
Total Commercial Mortgage Securities (cost: $239,190) 245,334
----------
U.S. GOVERNMENT AGENCY ISSUES (2.0%)(h)
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
7,275 Fannie Mae(+) 1.25 9/25/2027 7,116
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.7%)
5,883 Fannie Mae(+) 2.50 4/01/2027 6,054
16,933 Fannie Mae(+) 2.50 5/01/2027 17,425
8,097 Fannie Mae(+) 2.50 8/01/2027 8,331
10,563 Fannie Mae(+) 2.50 8/01/2027 10,870
317 Fannie Mae(+) 4.50 5/01/2023 337
164 Fannie Mae(+) 4.50 2/01/2024 173
135 Fannie Mae(+) 5.00 12/01/2021 140
389 Fannie Mae(+) 5.00 6/01/2023 418
139 Fannie Mae(+) 5.00 9/01/2023 149
540 Fannie Mae(+) 5.00 2/01/2024 583
341 Fannie Mae(+) 5.50 12/01/2020 362
396 Fannie Mae(+) 5.50 2/01/2023 435
1,105 Fannie Mae(+) 5.50 6/01/2023 1,216
279 Fannie Mae(+) 5.50 9/01/2023 308
1,031 Fannie Mae(+) 5.50 6/01/2024 1,132
524 Fannie Mae(+) 6.00 10/01/2022 577
612 Fannie Mae(+) 6.00 1/01/2023 680
998 Fannie Mae(+) 6.00 1/01/2023 1,105
533 Fannie Mae(+) 6.00 7/01/2023 581
2,791 Freddie Mac(+) 1.56 10/25/2018 2,801
6,249 Freddie Mac(+) 1.78 10/25/2020 6,314
1,244 Freddie Mac(+) 2.29(c) 4/01/2035 1,293
8,000 Freddie Mac(+) 2.72 6/25/2022 8,258
256 Freddie Mac(+) 5.00 5/01/2020 270
352 Freddie Mac(+) 5.00 9/01/2020 371
49 Freddie Mac(+) 5.50 11/01/2018 50
504 Freddie Mac(+) 5.50 4/01/2021 541
----------
70,774
----------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.1%)
3,000 Private Export Funding Corp. (NBGA) 1.38 2/15/2017 3,013
----------
Total U.S. Government Agency Issues (cost: $79,580) 80,903
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (8.5%)
NOTES (8.5%)
$ 5,000 0.50%, 3/31/2017 $ 4,990
20,000 0.88%, 1/15/2018 20,029
20,000 1.00%, 3/15/2018 20,076
40,000 1.25%, 10/31/2018 40,329
25,000 1.25%, 1/31/2019 25,191
10,000 1.13%, 5/31/2019 10,022
10,000 1.25%, 1/31/2020 10,018
20,000 1.38%, 2/29/2020 20,125
80,000 1.38%, 3/31/2020 80,466
65,000 1.38%, 9/30/2020 65,213
25,000 1.63%, 11/30/2020 25,364
15,000 1.88%, 11/30/2021 15,311
----------
337,134
----------
Total U.S. Treasury Securities (cost: $335,421) 337,134
----------
MUNICIPAL BONDS (5.7%)
AIRPORT/PORT (0.1%)
2,000 Chicago Midway Airport 1.80% 1/01/2017 2,017
150 Cleveland Airport System (INS) 5.24 1/01/2017 155
2,000 Port of Corpus Christi Auth. of Nueces County 1.24 12/01/2017 2,004
----------
4,176
----------
APPROPRIATED DEBT (0.2%)
1,500 Jacksonville 1.16 10/01/2016 1,507
2,500 Jacksonville 1.41 10/01/2017 2,519
4,000 Jacksonville 1.70 10/01/2018 4,054
----------
8,080
----------
COMMUNITY SERVICE (0.0%)
1,650 Art Institute of Chicago 2.48 3/01/2019 1,675
----------
EDUCATION (1.4%)
29,600 New Jersey EDA (INS)(i) 1.00 2/15/2016 29,592
10,000 New Jersey EDA 2.42 6/15/2018 10,045
12,500 New Jersey EDA 4.45 6/15/2020 12,727
1,000 Pennsylvania Public School Building Auth. 1.97 12/01/2017 1,017
2,640 Pennsylvania Public School Building Auth. 2.41 12/01/2018 2,701
----------
56,082
----------
ELECTRIC UTILITIES (1.3%)
16,530 Appling County Dev. Auth 2.40 1/01/2038(j) 16,951
5,000 Beaver County IDA 4.75 8/01/2033(j) 5,353
13,310 Beaver County IDA 2.50 12/01/2041(j) 13,375
================================================================================
38 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 2,000 Burke County Dev. Auth. 1.38% 10/01/2032(j) $ 2,012
10,000 Missouri Environmental Improvement and
Energy Resources Auth. 2.88 5/01/2038(j) 10,277
5,000 West Virginia EDA 2.25 1/01/2041(j) 5,027
----------
52,995
----------
ELECTRIC/GAS UTILITIES (0.3%)
6,265 Long Island Power Auth. 2.36 9/01/2018 6,334
3,680 Piedmont Municipal Power Agency 4.34 1/01/2017 3,759
----------
10,093
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.7%)
3,000 Bucks County IDA 1.38 12/01/2022(j) 3,006
20,000 California Pollution Control Financing Auth.(b) 0.60 8/01/2023 20,000
800 Mississippi Business Finance Corp. 1.38 3/01/2027(j) 802
2,000 South Carolina Jobs EDA 1.88 11/01/2016 2,020
----------
25,828
----------
GENERAL OBLIGATION (0.5%)
9,615 City & County of Honolulu 1.26 11/01/2017 9,680
3,700 City of West Haven 1.69 3/15/2016 3,702
3,000 City of West Haven 2.70 3/15/2018 3,026
3,000 San Bernardino CCD 2.14 8/01/2018 3,058
----------
19,466
----------
MULTI-UTILITIES (0.1%)
5,000 New York Energy Research and Dev. Auth. 2.38 7/01/2026(j) 5,097
----------
MUNICIPAL FINANCE (0.2%)
1,389 Kentucky Asset 3.17 4/01/2018 1,414
5,000 Pennsylvania IDA(b) 2.97 7/01/2021 5,001
----------
6,415
----------
NURSING/CCRC (0.0%)
115 Waco Health Facilities Dev. Corp. (INS)(ETM) 5.27 2/01/2016 115
----------
SALES TAX (0.0%)
1,500 Arizona School Facilities Board 1.47 9/01/2017 1,505
----------
SEMICONDUCTORS (0.1%)
1,600 Sandoval County 0.88 6/01/2016 1,602
1,000 Sandoval County 1.95 6/01/2018 1,012
----------
2,614
----------
SPECIAL ASSESSMENT/TAX/FEE (0.7%)
2,870 Channahon 4.00 1/01/2020 2,890
10,000 JobsOhio Beverage System 1.57 1/01/2017 10,072
5,000 New Jersey Transportation Trust Fund Auth. 1.76 12/15/2018 4,983
10,000 New York MTA (ETM) 1.47 7/01/2018 10,117
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$ 80 San Francisco City & County Redevelopment
Agency (ETM) 5.62% 8/01/2016 $ 82
40 San Francisco City & County Redevelopment Agency 5.62 8/01/2016 41
----------
28,185
----------
WATER/SEWER UTILITY (0.1%)
665 Chicago Wastewater Transmission 2.59 1/01/2018 664
535 Chicago Wastewater Transmission 3.38 1/01/2019 536
500 Chicago Wastewater Transmission 3.73 1/01/2020 501
2,520 Chicago Wastewater Transmission 4.31 1/01/2021 2,527
----------
4,228
----------
Total Municipal Bonds (cost: $223,969) 226,554
----------
-----------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (0.9%)
458,200 Vanguard Short-Term Corporate Bond ETF (cost: $36,491) 36,267
----------
EQUITY SECURITIES (0.1%)
PREFERRED STOCKS (0.1%)
FINANCIALS (0.1%)
-----------------
DIVERSIFIED BANKS (0.1%)
200,000 Citigroup Capital XIII, 7.88% 5,128
----------
Total Equity Securities (cost: $5,470) 5,128
----------
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
-----------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (8.1%)
COMMERCIAL PAPER (7.3%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
BROADCASTING (0.4%)
$ 15,000 Discovery Communications, LLC(b),(k) 1.15 2/12/2016 14,994
----------
ENERGY (4.3%)
-------------
OIL & GAS DRILLING (0.3%)
9,289 Nabors Industries, Inc.(b),(k) 1.00 2/05/2016 9,288
5,000 Nabors Industries, Inc.(b),(k) 1.05 2/17/2016 4,997
----------
14,285
----------
================================================================================
40 | USAA SHORT-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (2.4%)
$ 7,105 Anadarko Petroleum Corp.(b),(k) 1.00% 2/04/2016 $ 7,104
30,000 Anadarko Petroleum Corp.(b),(k) 1.00 2/12/2016 29,991
20,049 Canadian Natural Resources Ltd.(b),(k) 0.90 2/09/2016 20,045
3,000 Encana Corp.(b),(k) 1.15 2/04/2016 3,000
15,000 Encana Corp.(b),(k) 1.25 2/09/2016 14,996
10,000 Encana Corp.(b),(k) 1.20 2/11/2016 9,997
10,000 Encana Corp.(b),(k) 1.20 2/12/2016 9,996
----------
95,129
----------
OIL & GAS STORAGE & TRANSPORTATION (1.6%)
10,000 Enterprise Products Operating, LLC(b),(k) 0.83 2/22/2016 9,995
20,000 Spectra Energy Partners, LP(b),(k) 0.75 2/03/2016 19,999
8,932 Spectra Energy Partners, LP(b),(k) 0.85 2/23/2016 8,928
25,000 Enbridge Energy Partners, LP(b),(k) 1.25 2/16/2016 24,987
----------
63,909
----------
Total Energy 173,323
----------
INDUSTRIALS (0.9%)
------------------
INDUSTRIAL MACHINERY (0.9%)
21,000 Pentair Finance S.A.(b),(k) 1.10 2/02/2016 20,999
10,000 Pentair Finance S.A.(b),(k) 1.20 2/09/2016 9,997
5,000 Pentair Finance S.A.(b),(k) 1.17 2/11/2016 4,999
----------
35,995
----------
Total Industrials 35,995
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
ELECTRONIC COMPONENTS (0.1%)
2,000 Amphenol Corp.(b),(k) 0.78 2/04/2016 2,000
----------
MATERIALS (0.7%)
----------------
SPECIALTY CHEMICALS (0.7%)
10,000 Albemarle Corp.(b),(k) 1.25 2/03/2016 9,999
5,801 Albemarle Corp.(b),(k) 1.25 2/05/2016 5,800
14,341 Albemarle Corp.(b),(k) 1.25 2/08/2016 14,338
----------
30,137
----------
Total Materials 30,137
----------
UTILITIES (0.9%)
----------------
ELECTRIC UTILITIES (0.8%)
27,482 Duke Energy Corp.(b),(k) 0.80 2/10/2016 27,477
3,554 Duke Energy Corp.(b),(k) 0.80 2/11/2016 3,553
----------
31,030
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (0.1%)
$ 3,966 Ameren Corp. 0.75% 2/24/2016 $ 3,964
----------
Total Utilities 34,994
----------
Total Commercial Paper 291,443
----------
VARIABLE-RATE DEMAND NOTES (0.7%)
INDUSTRIALS (0.6%)
------------------
AIRPORT SERVICES (0.1%)
2,465 Metropolitan Nashville Airport Auth.
(LOC - Regions Bank) 2.12 4/01/2030 2,465
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.5%)
20,000 Pennsylvania Economic Dev. Financing Auth. 0.55 8/01/2045 20,000
----------
Total Industrials 22,465
----------
MATERIALS (0.1%)
----------------
STEEL (0.1%)
5,000 Illinois Finance Auth. (LOC - UniCredit Bank A.G.) 2.25 2/01/2037 5,000
----------
Total Variable-Rate Demand Notes 27,465
----------
-----------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.1%)
3,095,978 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(l) 3,096
----------
Total Money Market Instruments (cost: $322,004) 322,004
----------
TOTAL INVESTMENTS (COST: $4,011,940) $3,979,474
==========
================================================================================
42 | USAA SHORT-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------
($ 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
-------------------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $1,726,549 $- $1,726,549
Eurodollar and Yankee Obligations - 598,756 - 598,756
Asset-Backed Securities - 396,859 - 396,859
Collateralized Mortgage Obligations - 3,986 - 3,986
Commercial Mortgage Securities - 245,334 - 245,334
U.S. Government Agency Issues - 80,903 - 80,903
U.S. Treasury Securities 337,134 - - 337,134
Municipal Bonds - 226,554 - 226,554
Exchange-Traded Funds 36,267 - - 36,267
Equity Securities:
Preferred Stocks - 5,128 - 5,128
Money Market Instruments:
Commercial Paper - 291,443 - 291,443
Variable-Rate Demand Notes - 27,465 - 27,465
Money Market Funds 3,096 - - 3,096
-------------------------------------------------------------------------------------------------------------------------
Total $376,497 $3,602,977 $- $3,979,474
-------------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
ASSET-BACKED
SECURITIES
---------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $ 14,981
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (14,981)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
---------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $ -
---------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, asset-backed
securities with a fair value of $14,981,000 were transferred from Level 3 to
Level 2 as a result of these securities being priced during the period by the
Fund's pricing service. 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 | 43
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 16.1% of net assets at January 31,
2016.
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,
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
================================================================================
44 | USAA SHORT-TERM BOND FUND
================================================================================
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.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from period
to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment penalties.
This serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
conditions. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CCD Community College District
CLO Collateralized Loan Obligation
EDA Economic Development Authority
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
MTA Metropolitan Transportation Authority
REIT Real estate investment trust
CREDIT ENHANCEMENTS - Add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by one of the following:
AMBAC Assurance Corp., MBIA Insurance Corp., 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.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments are guaranteed by a nonbank
guarantee agreement from the Export-Import Bank of the United
States.
================================================================================
46 | USAA SHORT-TERM BOND FUND
================================================================================
o SPECIFIC NOTES
(a) Senior loan (loan) - is not registered under the Securities Act of 1933.
The loan contains certain restrictions on resale and cannot be sold
publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the senior loan facility. The
interest rate is adjusted periodically, and the rate disclosed
represents the current rate at January 31, 2016. The weighted average
life of the loan is likely to be shorter than the stated final maturity
date due to mandatory or optional prepayments. Security deemed liquid by
USAA Asset Management Company (the Manager), under liquidity guidelines
approved by the USAA Mutual Funds Trust's Board of Trustees (the Board),
unless otherwise noted as illiquid.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
(c) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at January
31, 2016.
(d) At January 31, 2016, the aggregate market value of securities purchased
on a delayed delivery basis was $6,961,000.
(e) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(f) At January 31, 2016, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(g) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2016, was $35,862,000, which represented 0.9% of the Fund's
net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 47
================================================================================
(h) 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.
(i) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(j) Put bond - provides the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the
effective maturity of the security.
(k) 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
================================================================================
48 | USAA SHORT-TERM BOND FUND
================================================================================
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.
(l) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 49
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $4,011,940) $3,979,474
Cash 187
Receivables:
Capital shares sold 2,386
Dividends and interest 25,594
Securities sold 704
----------
Total assets 4,008,345
----------
LIABILITIES
Payables:
Securities purchased 6,945
Capital shares redeemed 10,831
Dividends on capital shares 210
Variation margin on futures contracts 2
Accrued management fees 883
Accrued transfer agent's fees 166
Other accrued expenses and payables 196
----------
Total liabilities 19,233
----------
Net assets applicable to capital shares outstanding $3,989,112
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,022,534
Overdistribution of net investment income (7)
Accumulated net realized loss on investments (949)
Net unrealized depreciation of investments (32,466)
----------
Net assets applicable to capital shares outstanding $3,989,112
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,391,395/153,974 shares outstanding) $ 9.04
==========
Institutional Shares (net assets of $2,581,328/285,772 shares outstanding) $ 9.03
==========
Adviser Shares (net assets of $16,389/1,814 shares outstanding) $ 9.04
==========
See accompanying notes to financial statements.
================================================================================
50 | USAA SHORT-TERM BOND FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 398
Interest income 46,061
--------
Total income 46,459
--------
EXPENSES
Management fees 5,486
Administration and servicing fees:
Fund Shares 1,350
Institutional Shares 1,127
Adviser Shares 12
Transfer agent's fees:
Fund Shares 1,415
Institutional Shares 1,127
Adviser Shares 6
Distribution and service fees (Note 6D):
Adviser Shares 20
Custody and accounting fees:
Fund Shares 116
Institutional Shares 137
Adviser Shares 1
Postage:
Fund Shares 60
Institutional Shares 34
Shareholder reporting fees:
Fund Shares 24
Institutional Shares 7
Trustees' fees 13
Registration fees:
Fund Shares 71
Institutional Shares 90
Adviser Shares 8
Professional fees 92
Other 29
--------
Total expenses 11,225
--------
NET INVESTMENT INCOME 35,234
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments (592)
Long-term capital gain distributions from other investment companies 27
Change in net unrealized appreciation/(depreciation) (51,699)
--------
Net realized and unrealized loss (52,264)
--------
Decrease in net assets resulting from operations $(17,030)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 51
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
-----------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
-----------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 35,234 $ 66,134
Net realized gain (loss) on investments (592) 832
Net realized gain on long-term capital gain distributions from
other investment companies 27 -
Net realized loss on futures transactions - (1,219)
Change in net unrealized appreciation/(depreciation) of:
Investments (51,699) (31,394)
Futures contracts - (49)
--------------------------
Increase (decrease) in net assets resulting from operations (17,030) 34,304
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (14,988) (28,728)
Institutional Shares (20,085) (37,207)
Adviser Shares (116) (205)
--------------------------
Total distributions of net investment income (35,189) (66,140)
--------------------------
Net realized gains:
Fund Shares - (848)
Institutional Shares - (1,033)
Adviser Shares - (7)
--------------------------
Total distributions of net realized gains - (1,888)
--------------------------
Distributions to shareholders (35,189) (68,028)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (408,745) 156,175
Institutional Shares 371,786 278,763
Adviser Shares 3,293 374
--------------------------
Total net increase (decrease) in net assets from
capital share transactions (33,666) 435,312
--------------------------
Capital contribution from USAA Transfer Agency Company:
Fund Shares - 1
--------------------------
Net increase (decrease) in net assets (85,885) 401,589
NET ASSETS
Beginning of period 4,074,997 3,673,408
--------------------------
End of period $3,989,112 $4,074,997
==========================
Overdistribution of net investment income:
End of period $ (7) $ (52)
==========================
See accompanying notes to financial statements.
================================================================================
52 | USAA SHORT-TERM BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Short-Term Bond Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek high current income consistent with preservation of
principal.
The Fund consists of three classes of shares: Short-Term Bond Fund Shares (Fund
Shares), Short-Term Bond Fund Institutional Shares (Institutional Shares), and
Short-Term Bond 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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
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54 | USAA SHORT-TERM BOND FUND
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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.
2. 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.
3. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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.
4. 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.
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. 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. 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
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56 | USAA SHORT-TERM BOND FUND
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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 1A3. Additionally, certain bonds, are valued based on methods discussed
in Note 1A1, and commercial paper 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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. 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 January 31, 2016, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $6,945,000.
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 January 31, 2016, 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.
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58 | USAA SHORT-TERM BOND FUND
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H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 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 January 31, 2016, the Fund paid CAPCO facility
fees of $12,000, which represents 5.8% 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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 July 31, 2015, the Fund had net capital loss carryforwards of $436,000, 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.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$495,504,000 and $719,193,000, respectively.
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $24,179,000 and $56,645,000, respectively, resulting in net
unrealized depreciation of $32,466,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, 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
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60 | USAA SHORT-TERM BOND FUND
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------
FUND SHARES:
Shares sold 22,849 $ 207,765 69,188 $ 636,443
Shares issued from
reinvested dividends 1,566 14,224 3,103 28,536
Shares redeemed (69,714) (630,734) (55,335) (508,804)
--------------------------------------------------
Net increase (decrease) from
capital share transactions (45,299) $(408,745) 16,956 $ 156,175
==================================================
INSTITUTIONAL SHARES:
Shares sold 66,845 $ 604,702 68,153 $ 626,637
Shares issued from
reinvested dividends 2,181 19,799 3,884 35,703
Shares redeemed (27,823) (252,715) (41,724) (383,577)
--------------------------------------------------
Net increase from capital
share transactions 41,203 $ 371,786 30,313 $ 278,763
==================================================
ADVISER SHARES:
Shares sold 638 $ 5,820 517 $ 4,766
Shares issued from
reinvested dividends 9 77 14 130
Shares redeemed (287) (2,604) (492) (4,522)
--------------------------------------------------
Net increase from capital
share transactions 360 $ 3,293 39 $ 374
==================================================
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
the day-to-day investment of a portion of the Fund's assets. For the
six-month period ended January 31, 2016, 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 0.24% 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 Short Investment Grade Funds Index. The Lipper
Short Investment Grade Funds Index tracks the total return performance of
the 30 largest funds in the Lipper Short Investment Grade Debt 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)
------------------------------------------------------------------
+/- 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 of the share class 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 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 Short Investment Grade Funds Index over that period,
even if the class had overall negative returns during the performance
period.
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62 | USAA SHORT-TERM BOND FUND
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For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $5,486,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $228,000 and $375,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.03% and 0.03%,
respectively. The Adviser Shares had no performance adjustment during the
six-month period ended January 31, 2016.
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 January 31, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,350,000, $1,127,000, and $12,000, 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 January 31, 2016, the Fund reimbursed the Manager
$53,000 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 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 January 31, 2016, the Fund Shares,
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NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
Institutional Shares and Adviser Shares incurred transfer agent's fees, paid
or payable to SAS, of $1,415,000, $1,127,000, and $6,000, 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 January 31, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $20,000.
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 fee or other compensation for these
services.
(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
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31, 2016, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
USAA Cornerstone Conservative 0.3
USAA Target Retirement Income 2.1
USAA Target Retirement 2020 1.9
USAA Target Retirement 2030 0.6
USAA Target Retirement 2040 0.0*
USAA Target Retirement 2060 0.0*
*Represents less than 0.1%
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64 | USAA SHORT-TERM BOND FUND
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The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2016, USAA and its affiliates owned 542,000 Adviser Shares, which represents
29.9% of the Adviser Shares and 0.1% 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.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2016, 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 Intermediate-Term Bond USAA Short-Term Bond $14,461,000 $572,000
USAA Income USAA Short-Term Bond 10,070,000 79,000
USAA High Income USAA Short-Term Bond 13,823,000 278,000
USAA Cornerstone Moderately
Aggressive USAA Short-Term Bond 20,356,000 (15,000)
USAA Cornerstone Aggressive USAA Short-Term Bond 1,187,000 (1,000)
USAA Cornerstone Moderately
Conservative USAA Short-Term Bond 3,273,000 (2,000)
USAA Cornerstone Moderate USAA Short-Term Bond 11,675,000 (9,000)
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20 $ 9.21
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .15 .17 .20 .25 .27
Net realized and
unrealized gain (loss) (.11) (.08) .04 (.05) .04 (.01)
-------------------------------------------------------------------------------------
Total from investment
operations (.03) .07 .21 .15 .29 .26
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.15) (.17) (.20) (.25) (.27)
Realized capital gains - (.00)(a) - (.00)(a) - -
-------------------------------------------------------------------------------------
Total distributions (.08) (.15) (.17) (.20) (.25) (.27)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.04 $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20
=====================================================================================
Total return (%)* (.37) .83 2.28 1.61 3.21 2.85
Net assets at end
of period (000) $1,391,395 $1,823,922 $1,683,052 $1,657,261 $2,246,096 $1,978,161
Ratios to average
net assets:**
Expenses (%)(b) .61(c) .62 .63 .64 .63 .62
Net investment
income (%) 1.67(c) 1.65 1.83 2.14 2.73 2.92
Portfolio turnover (%) 13 31 28 25 36 26
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$1,787,479,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
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66 | USAA SHORT-TERM BOND FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.15 $ 9.23 $ 9.18 $ 9.24 $ 9.20 $ 9.21
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .16 .18 .21 .26 .29
Net realized and
unrealized gain (loss) (.12) (.08) .05 (.06) .04 (.01)
-----------------------------------------------------------------------------------
Total from investment
operations (.04) .08 .23 .15 .30 .28
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.16) (.18) (.21) (.26) (.29)
Realized capital gains - (.00)(a) - (.00)(a) - -
-----------------------------------------------------------------------------------
Total distributions (.08) (.16) (.18) (.21) (.26) (.29)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 9.03 $ 9.15 $ 9.23 $ 9.18 $ 9.24 $ 9.20
===================================================================================
Total return (%)* (.43) .95 2.54 1.66 3.37 3.09
Net assets at end
of period (000) $2,581,328 $2,237,771 $1,977,300 $1,697,847 $369,557 $118,103
Ratios to average
net assets:**
Expenses (%)(b) .50(d) .50 .49 .48 .49 .39(c)
Net investment
income (%) 1.78(d) 1.76 1.96 2.24 2.82 3.15
Portfolio turnover (%) 13 31 28 25 36 26
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$2,243,660,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.41% of the Institutional
Shares' average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
(9) 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
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
------------------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20 $ 9.21
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .13 .15 .17 .23 .24
Net realized and
unrealized gain (loss) (.11) (.08) .04 (.05) .04 (.01)
---------------------------------------------------------------------------------
Total from investment
operations (.04) .05 .19 .12 .27 .23
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (.07) (.13) (.15) (.17) (.23) (.24)
Realized capital gains - (.00)(a) - (.00)(a) - -
---------------------------------------------------------------------------------
Total distributions (.07) (.13) (.15) (.17) (.23) (.24)
---------------------------------------------------------------------------------
Net asset value at
end of period $ 9.04 $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20
=================================================================================
Total return (%)* (.48) .59 2.07 1.35 2.94 2.55
Net assets at
end of period (000) $ 16,389 $13,304 $13,056 $9,872 $6,992 $5,583
Ratios to average
net assets:**
Expenses (%)(b) .84(c) .85(d) .84 .90 .90 .90(c)
Expenses, excluding
reimbursements (%)(b) .84(c) .85 .84 1.01 1.11 1.65(c)
Net investment income (%) 1.45(c) 1.41 1.62 1.85 2.46 2.64(c)
Portfolio turnover (%) 13 31 28 25 36 26
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$15,914,000.
*** Adviser Shares commenced operations on August 1, 2010.
(a) Represents less than $0.01 per share.
(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 as follows:
- - (.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.
(d) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
================================================================================
68 | USAA SHORT-TERM BOND FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
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 | 69
================================================================================
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 AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 996.30 $3.06
Hypothetical
(5% return before expenses) 1,000.00 1,022.07 3.10
INSTITUTIONAL SHARES
Actual 1,000.00 995.70 2.51
Hypothetical
(5% return before expenses) 1,000.00 1,022.62 2.54
ADVISER SHARES
Actual 1,000.00 995.20 4.21
Hypothetical
(5% return before expenses) 1,000.00 1,020.91 4.27
*Expenses are equal to the annualized expense ratio of 0.61% for Fund Shares,
0.50% for Institutional Shares, and 0.84% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 (0.37)% for Fund Shares, (0.43)% for Institutional
Shares, and (0.48)% for Adviser Shares for the six-month period of August 1,
2015, through January 31, 2016.
================================================================================
70 | USAA SHORT-TERM BOND 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)
=============================================================================
23426-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SCIENCE & TECHNOLOGY FUND]
==============================================================
SEMIANNUAL REPORT
USAA SCIENCE & TECHNOLOGY FUND
FUND SHARES o ADVISER SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO [PHOTO OF BROOKS ENGLEHARDT]
MAKE HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk.
From all of us here at USAA Investments, thank you for your continued investment
in our family of mutual funds. We look forward to continuing to help you with
your investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 19
Financial Statements 21
Notes to Financial Statements 24
EXPENSE EXAMPLE 40
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.
202726-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA SCIENCE & TECHNOLOGY FUND (THE FUND) SEEKS LONG-TERM CAPITAL
APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
companies expected to benefit from the development and use of scientific and
technological advances and improvements. This 80% policy may be changed upon at
least 60 days' written notice to shareholders. The Fund may invest up to 50% of
its assets in foreign securities purchased in either foreign or U.S. markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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
Wellington Management Company LLP
ROBERT L. DERESIEWICZ ANITA M. KILLIAN, CFA
JOHN F. AVERILL, CFA MICHAEL T. MASDEA
BRUCE L. GLAZER
--------------------------------------------------------------------------------
o PLEASE CHARACTERIZE THE PERFORMANCE OF THE MARKET OVER THE REPORTING PERIOD.
For the reporting period ended January 31, 2016, concerns regarding the
possibility of a significant slowdown in China's economic growth dominated
headlines. Fears intensified in early August 2015 when China unexpectedly
devalued its currency, the renminbi, triggering concerns regarding global
disinflationary trends and a weaker than anticipated global growth backdrop.
In September 2015, Chinese manufacturing activity fell to its lowest level
since 2009. Investor risk tolerance also appeared to curtail due to the
European Central Bank's downgrade of its Eurozone growth, inflation outlook
and the cut in Brazil's credit rating to below investment grade. Global
equities rallied in October 2015 amid increasing signs of extended monetary
policy accommodations by major central banks. After much anticipation, on
December 16, 2015, the Federal Reserve delivered its first interest rate
increase since 2006, approving a small increase in the federal funds rate.
The market initially reacted positively to the news, but remained volatile
through the end of the reporting period as the S&P 500(R) Index (the Index)
was down 4.96% in January 2016 alone.
Seven of the 10 sectors within the Index posted negative returns for the
reporting period. Materials, energy, financials, and health care were the
bottom-performing sectors, while telecommunication services, utilities,
and consumer staples led the Index.
================================================================================
2 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
o HOW DID THE USAA SCIENCE & TECHNOLOGY FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
reporting period ended January 31, 2016, the Fund Shares and Adviser Shares
had total returns of -9.02% and -9.15%, respectively. This compares to
returns of -6.77% for the Index, -3.39% for the S&P North American
Technology Sector Index, -12.30% for the S&P 500(R) Health Care Sector
Index, and -9.17% for the Lipper Science & Technology Funds 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.
Wellington Management Company LLP (Wellington Management) is the subadviser
to the Fund. The subadviser provides day-to-day discretionary management for
the Fund's assets.
o HOW DID THE FUND'S TECHNOLOGY PORTION PERFORM DURING THE REPORTING PERIOD?
The technology portion of the Fund underperformed its benchmark, the S&P
North American Technology Sector Index. Security selection drove relative
underperformance, primarily due to unfavorable stock selection in
semiconductors & semiconductor equipment, technology hardware, and
communications equipment. Partially offsetting these negative results was
strong selection within internet software & services sector. Industry
allocation also detracted from relative performance as an underweight to
software and an overweight to the poor-performing communications equipment
industry detracted from results. The largest individual detractors included
out-of-benchmark positions in GoPro, Inc. "A" (consumer durables & apparel)
and Siltronic AG (semiconductors & semiconductor equipment), as well as
Nimble Storage, Inc. (technology hardware & equipment). The managers
eliminated the positions in GoPro,
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
Inc. "A" and Nimble Storage, Inc., prior to the end of the reporting period.
Top contributors to relative performance included Heartland Payment Systems,
Inc. (software & services), Apple, Inc. (technology hardware & equipment),
and a lack of holdings in the benchmark constituent IBM Corp.
o HOW DID THE FUND'S HEALTH CARE PORTION PERFORM DURING THE REPORTING PERIOD?
The health care portion of the Fund underperformed its benchmark, the S&P
Health Care Sector Index, over the reporting period. Sector allocation was
the largest detractor from relative Fund performance, driven primarily by
overweight allocations to underperforming biopharmaceutical small- and
mid-cap companies. Partially offsetting these negative results from sector
allocation was strong security selection in both areas. The largest
individual detractors from performance included an underweight to Johnson &
Johnson, and overweights in the biopharmaceutical companies Alkermes plc and
Tetraphase Pharmaceutical, Inc. The top individual contributors were the
biopharmaceutical companies Shionogi & Co. Ltd. and Bristol-Myers Squibb
Co., as well as the Fund's lack of holdings in Valeant Pharmaceuticals
International Inc.
Thank you for allowing us to help you with your investment needs.
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 United
States. Foreign securities also may be subject to foreign taxes. Investments
made in emerging market countries may be particularly volatile. Economies of
emerging market countries generally are less diverse and mature than more
developed countries and may have less stable political systems.
================================================================================
4 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
INVESTMENT OVERVIEW
USAA SCIENCE & TECHNOLOGY FUND SHARES (FUND SHARES)
(Ticker Symbol: USSCX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $824.9 Million $853.8 Million
Net Asset Value Per Share $19.70 $23.07
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-9.02% 2.33% 14.47% 8.50%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
11.01% 17.16% 10.12%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.18%
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 December 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 | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P 500 S&P NORTH AMERICAN USAA SCIENCE & LIPPER SCIENCE &
HEALTH CARE SECTOR TECHNOLOGY SECTOR TECHNOLOGY FUND TECHNOLOGY FUNDS S&P 500
INDEX INDEX SHARES INDEX INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,093.65 9,846.16 9,752.21 9,835.83 10,027.14
3/31/2006 9,977.30 10,067.76 9,911.50 10,080.88 10,151.95
4/30/2006 9,664.07 10,001.79 10,000.00 10,079.45 10,288.27
5/31/2006 9,476.69 9,267.40 9,389.38 9,316.25 9,992.16
6/30/2006 9,479.66 9,139.53 9,212.39 9,146.17 10,005.70
7/31/2006 10,000.71 8,748.68 8,991.15 8,705.60 10,067.42
8/31/2006 10,300.86 9,433.16 9,460.18 9,190.73 10,306.96
9/30/2006 10,448.15 9,811.69 9,699.12 9,488.69 10,572.57
10/31/2006 10,499.77 10,204.50 9,946.90 9,741.40 10,917.09
11/30/2006 10,468.48 10,573.60 10,238.94 10,159.51 11,124.68
12/31/2006 10,595.80 10,508.19 10,247.79 10,054.61 11,280.74
1/31/2007 10,923.66 10,679.40 10,345.13 10,216.44 11,451.34
2/28/2007 10,676.34 10,460.74 10,247.79 10,142.46 11,227.37
3/31/2007 10,705.03 10,508.65 10,292.04 10,198.21 11,352.94
4/30/2007 11,473.88 11,035.01 10,743.36 10,547.90 11,855.83
5/31/2007 11,650.72 11,510.12 11,292.04 10,956.80 12,269.54
6/30/2007 11,239.07 11,601.22 11,292.04 11,094.37 12,065.70
7/31/2007 10,751.86 11,520.31 11,123.89 11,084.15 11,691.60
8/31/2007 11,025.43 11,853.51 11,389.38 11,317.00 11,866.86
9/30/2007 11,356.80 12,344.98 11,858.41 11,910.11 12,310.67
10/31/2007 11,577.85 13,170.04 12,283.19 12,635.14 12,506.49
11/30/2007 11,708.06 12,137.98 11,530.97 11,682.67 11,983.64
12/31/2007 11,353.49 12,287.98 11,433.63 11,739.30 11,900.50
1/31/2008 10,806.90 10,732.29 10,300.88 10,218.74 11,186.69
2/29/2008 10,562.98 10,365.14 9,938.05 9,966.73 10,823.28
3/31/2008 10,045.67 10,459.41 9,769.91 9,899.34 10,776.55
4/30/2008 10,199.33 11,220.22 10,566.37 10,657.34 11,301.40
5/31/2008 10,405.55 11,930.43 11,088.50 11,256.56 11,447.78
6/30/2008 9,921.36 10,794.14 10,283.19 10,270.54 10,482.69
7/31/2008 10,423.25 10,721.79 10,097.35 10,058.30 10,394.57
8/31/2008 10,635.77 10,954.00 10,265.49 10,246.33 10,544.93
9/30/2008 9,970.19 9,442.01 8,831.86 8,743.72 9,605.30
10/31/2008 8,804.18 7,709.62 6,982.30 7,162.25 7,992.11
11/30/2008 8,205.04 6,841.25 6,238.94 6,336.38 7,418.64
12/31/2008 8,763.75 6,963.25 6,486.73 6,562.52 7,497.57
1/31/2009 8,654.82 6,811.91 6,318.58 6,416.09 6,865.63
2/28/2009 7,573.31 6,520.71 5,823.01 6,166.99 6,134.59
3/31/2009 8,062.92 7,292.87 6,486.73 6,848.81 6,671.95
4/30/2009 8,003.34 8,277.32 7,123.89 7,696.73 7,310.52
5/31/2009 8,552.60 8,810.12 7,460.18 8,018.99 7,719.42
6/30/2009 8,778.94 8,789.84 7,690.27 8,173.24 7,734.73
7/31/2009 9,297.24 9,587.29 8,336.28 8,843.17 8,319.77
8/31/2009 9,516.39 9,823.03 8,575.22 9,062.10 8,620.15
9/30/2009 9,615.86 10,273.34 8,982.30 9,610.15 8,941.81
10/31/2009 9,401.63 10,187.68 8,690.27 9,284.39 8,775.70
11/30/2009 10,276.46 10,719.39 9,247.79 9,741.91 9,302.09
12/31/2009 10,490.10 11,363.12 9,778.76 10,362.20 9,481.77
1/31/2010 10,541.70 10,424.71 9,185.84 9,624.91 9,140.67
2/28/2010 10,570.80 10,876.67 9,477.88 10,014.84 9,423.83
3/31/2010 10,847.15 11,636.79 10,088.50 10,703.56 9,992.51
4/30/2010 10,431.43 11,837.08 10,176.99 10,942.95 10,150.27
5/31/2010 9,730.08 10,894.73 9,415.93 10,193.78 9,339.76
6/30/2010 9,568.00 10,181.96 8,893.81 9,582.98 8,850.84
7/31/2010 9,696.82 10,952.50 9,424.78 10,189.10 9,470.96
8/31/2010 9,552.55 10,225.17 8,938.05 9,670.25 9,043.40
9/30/2010 10,415.25 11,520.64 10,106.19 10,910.12 9,850.47
10/31/2010 10,636.98 12,237.73 10,513.27 11,528.32 10,225.27
11/30/2010 10,331.38 12,178.91 10,504.42 11,580.01 10,226.59
12/31/2010 10,794.34 12,800.92 11,106.19 12,212.05 10,910.04
1/31/2011 10,848.72 13,300.78 11,504.42 12,625.87 11,168.63
2/28/2011 11,189.03 13,610.97 11,876.11 13,071.56 11,551.25
3/31/2011 11,401.05 13,346.81 11,876.11 12,972.61 11,555.85
4/30/2011 12,143.99 13,759.08 12,398.23 13,441.69 11,898.08
5/31/2011 12,437.91 13,539.19 12,415.93 13,256.95 11,763.40
6/30/2011 12,298.49 13,187.80 12,115.04 12,822.60 11,567.31
7/31/2011 11,822.88 13,173.12 11,734.51 12,459.74 11,332.09
8/31/2011 11,577.62 12,343.59 10,929.20 11,525.58 10,716.51
9/30/2011 11,066.14 11,786.11 10,380.53 10,770.82 9,963.16
10/31/2011 11,702.76 13,182.37 11,469.03 12,106.33 11,052.06
11/30/2011 11,823.78 12,925.39 11,212.39 11,778.88 11,027.63
12/31/2011 12,168.82 12,688.85 11,044.25 11,502.53 11,140.44
1/31/2012 12,546.19 13,686.83 11,752.21 12,466.38 11,639.70
2/29/2012 12,707.81 14,504.64 12,362.83 13,276.95 12,143.03
3/31/2012 13,271.51 15,170.96 12,982.30 13,865.93 12,542.64
4/30/2012 13,242.76 14,969.24 12,946.90 13,491.07 12,463.91
5/31/2012 12,765.50 13,666.88 12,026.55 12,299.12 11,714.82
6/30/2012 13,503.43 14,105.93 12,548.67 12,690.59 12,197.50
7/31/2012 13,646.51 14,128.40 12,601.77 12,593.21 12,366.91
8/31/2012 13,788.43 14,752.69 13,044.25 13,175.77 12,645.45
9/30/2012 14,335.18 14,937.67 13,336.28 13,409.38 12,972.23
10/31/2012 14,291.09 14,082.22 12,539.82 12,613.42 12,732.71
11/30/2012 14,374.46 14,392.40 12,946.90 12,930.95 12,806.57
12/31/2012 14,345.51 14,621.93 13,044.25 13,172.93 12,923.30
1/31/2013 15,418.05 15,228.99 13,858.41 13,735.99 13,592.66
2/28/2013 15,616.11 15,356.08 14,017.70 13,775.42 13,777.18
3/31/2013 16,614.16 15,780.60 14,460.18 14,129.27 14,293.87
4/30/2013 17,095.54 15,859.95 14,557.52 14,020.12 14,569.26
5/31/2013 17,376.15 16,596.05 15,008.85 14,673.54 14,910.06
6/30/2013 17,251.28 16,173.22 14,743.36 14,503.02 14,709.84
7/31/2013 18,508.81 16,916.14 15,734.51 15,481.86 15,458.34
8/31/2013 17,862.71 16,749.22 15,548.67 15,415.18 15,010.64
9/30/2013 18,427.44 17,457.79 16,690.27 16,333.93 15,481.36
10/31/2013 19,221.81 18,159.13 17,053.10 16,667.96 16,193.01
11/30/2013 20,126.96 18,839.76 17,699.12 17,164.41 16,686.47
12/31/2013 20,293.25 19,677.09 18,411.39 18,019.59 17,108.91
1/31/2014 20,482.90 19,287.10 18,939.62 17,945.79 16,517.38
2/28/2014 21,747.45 20,252.96 20,149.76 18,968.93 17,272.95
3/31/2014 21,472.25 20,052.26 19,294.98 18,461.85 17,418.14
4/30/2014 21,365.55 19,749.43 18,805.16 17,770.95 17,546.90
5/31/2014 21,960.50 20,463.87 19,573.51 18,381.32 17,958.80
6/30/2014 22,441.34 21,055.95 20,380.27 19,157.04 18,329.78
7/31/2014 22,473.54 21,126.29 20,130.55 18,869.83 18,077.00
8/31/2014 23,564.60 22,004.71 21,004.54 19,647.94 18,800.17
9/30/2014 23,665.51 21,673.43 20,610.77 19,255.28 18,536.52
10/31/2014 24,932.40 21,943.45 21,263.86 19,672.53 18,989.28
11/30/2014 25,773.82 22,929.95 22,272.31 20,325.04 19,499.99
12/31/2014 25,434.85 22,684.19 22,083.36 20,228.07 19,450.87
1/31/2015 25,746.65 21,866.35 22,094.13 19,710.62 18,866.97
2/28/2015 26,859.80 23,698.61 23,419.13 21,258.17 19,951.28
3/31/2015 27,095.89 23,021.22 23,311.41 20,947.72 19,635.76
4/30/2015 26,732.65 23,593.13 23,451.45 21,039.30 19,824.13
5/31/2015 27,943.95 24,081.72 24,431.73 21,722.11 20,079.05
6/30/2015 27,865.89 23,205.44 24,043.93 21,041.94 19,690.36
7/31/2015 28,647.29 24,127.11 24,851.85 21,324.19 20,102.90
8/31/2015 26,389.58 22,824.19 23,203.68 19,981.69 18,890.01
9/30/2015 24,893.20 22,556.08 22,288.03 19,473.33 18,422.61
10/31/2015 26,822.72 25,068.83 24,453.28 21,255.95 19,976.63
11/30/2015 26,712.23 25,393.45 24,722.59 21,657.47 20,036.04
12/31/2015 27,187.50 24,931.57 24,514.15 21,194.07 19,720.03
1/31/2016 25,122.79 23,310.11 22,609.02 19,369.00 18,741.45
[END CHART]
Data from 1/31/06 through 1/31/16.
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 Science & Technology Funds Index reflects the fees and expenses
of the underlying funds included in the index.
================================================================================
6 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
The graph on page 6 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Science & Technology Fund Shares to the following
benchmarks:
o The unmanaged S&P 500 Health Care Sector Index comprises U.S. traded stocks
that are members of either the S&P Total Market Index (TMI) or the S&P/TSX
Composite Index, and are classified within the health care sector of the
Global Industry Classification System (GICS(R)).
o The unmanaged S&P North American Technology Sector Index provides investors
with a benchmark that represents U.S. securities classified under the
GICS(R) technology sector and internet retail sub-industry.
o The unmanaged Lipper Science & Technology Funds Index tracks the total
return performance of the 30 largest funds in the Lipper Science &
Technology Funds category.
o The unmanaged, broad-based composite S&P 500 Index represents the weighted
average performance of a group of 500 widely held, publicly traded stocks.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA SCIENCE & TECHNOLOGY FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: USTCX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $115.6 Million $122.0 Million
Net Asset Value Per Share $19.40 $22.77
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
-9.15% 2.01% 14.20% 16.59%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
10.74% 16.89% 18.64%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.42%
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 December 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.
================================================================================
8 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P 500 HEALTH USAA SCIENCE & S&P NORTH AMERICAN LIPPER SCIENCE
CARE SECTOR TECHNOLOGY TECHNOLOGY SECTOR S&P 500 & TECHNOLOGY
INDEX ADVISER SHARES INDEX INDEX FUNDS INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,851.22 9,308.12 9,335.92 9,548.56 9,490.77
9/30/2010 10,740.89 10,525.83 10,518.72 10,400.72 10,707.64
10/31/2010 10,969.56 10,950.18 11,173.45 10,796.45 11,314.36
11/30/2010 10,654.40 10,940.96 11,119.75 10,797.84 11,365.09
12/31/2010 11,131.83 11,568.27 11,687.66 11,519.47 11,985.40
1/31/2011 11,187.91 11,974.17 12,144.05 11,792.50 12,391.54
2/28/2011 11,538.86 12,361.62 12,427.26 12,196.50 12,828.96
3/31/2011 11,757.51 12,352.40 12,186.08 12,201.36 12,731.84
4/30/2011 12,523.68 12,896.68 12,562.49 12,562.70 13,192.22
5/31/2011 12,826.79 12,905.90 12,361.73 12,420.50 13,010.91
6/30/2011 12,683.01 12,592.25 12,040.90 12,213.46 12,584.62
7/31/2011 12,192.53 12,195.57 12,027.50 11,965.10 12,228.49
8/31/2011 11,939.61 11,346.86 11,270.11 11,315.13 11,311.67
9/30/2011 11,412.13 10,784.13 10,761.11 10,519.69 10,570.92
10/31/2011 12,068.66 11,909.59 12,035.94 11,669.42 11,881.64
11/30/2011 12,193.46 11,642.07 11,801.31 11,643.64 11,560.27
12/31/2011 12,549.29 11,466.79 11,585.35 11,762.74 11,289.04
1/31/2012 12,938.46 12,195.57 12,496.54 12,289.89 12,235.01
2/29/2012 13,105.13 12,822.88 13,243.22 12,821.33 13,030.53
3/31/2012 13,686.45 13,468.63 13,851.59 13,243.27 13,608.59
4/30/2012 13,656.80 13,431.73 13,667.41 13,160.15 13,240.68
5/31/2012 13,164.63 12,472.32 12,478.32 12,369.21 12,070.86
6/30/2012 13,925.62 13,007.38 12,879.19 12,878.85 12,455.06
7/31/2012 14,073.18 13,062.73 12,899.70 13,057.72 12,359.49
8/31/2012 14,219.53 13,514.76 13,469.70 13,351.82 12,931.24
9/30/2012 14,783.38 13,819.19 13,638.59 13,696.85 13,160.52
10/31/2012 14,737.91 12,998.15 12,857.54 13,443.95 12,379.33
11/30/2012 14,823.89 13,404.06 13,140.74 13,521.94 12,690.96
12/31/2012 14,794.03 13,505.54 13,350.31 13,645.19 12,928.45
1/31/2013 15,900.10 14,354.24 13,904.58 14,351.94 13,481.06
2/28/2013 16,104.36 14,511.07 14,020.62 14,546.77 13,519.76
3/31/2013 17,133.61 14,972.32 14,408.21 15,092.32 13,867.05
4/30/2013 17,630.04 15,073.80 14,480.66 15,383.10 13,759.92
5/31/2013 17,919.43 15,535.06 15,152.75 15,742.94 14,401.21
6/30/2013 17,790.65 15,249.08 14,766.69 15,531.53 14,233.85
7/31/2013 19,087.50 16,273.06 15,445.00 16,321.84 15,194.53
8/31/2013 18,421.20 16,088.56 15,292.60 15,849.13 15,129.09
9/30/2013 19,003.58 17,260.15 15,939.55 16,346.15 16,030.79
10/31/2013 19,822.79 17,638.38 16,579.89 17,097.55 16,358.62
11/30/2013 20,756.24 18,293.36 17,201.33 17,618.58 16,845.85
12/31/2013 20,927.74 19,024.76 17,965.84 18,064.61 17,685.16
1/31/2014 21,123.31 19,564.89 17,609.77 17,440.04 17,612.73
2/28/2014 22,427.40 20,815.20 18,491.63 18,237.82 18,616.88
3/31/2014 22,143.60 19,934.98 18,308.38 18,391.12 18,119.21
4/30/2014 22,033.56 19,424.86 18,031.89 18,527.07 17,441.13
5/31/2014 22,647.11 20,225.06 18,684.20 18,961.97 18,040.17
6/30/2014 23,142.99 21,055.26 19,224.79 19,353.68 18,801.50
7/31/2014 23,176.20 20,785.19 19,289.01 19,086.78 18,519.63
8/31/2014 24,301.37 21,685.41 20,091.04 19,850.34 19,283.29
9/30/2014 24,405.44 21,275.31 19,788.56 19,571.97 18,897.92
10/31/2014 25,711.94 21,955.48 20,035.10 20,050.02 19,307.42
11/30/2014 26,579.66 22,995.74 20,935.80 20,589.26 19,947.83
12/31/2014 26,230.10 22,792.97 20,711.42 20,537.39 19,852.66
1/31/2015 26,551.65 22,804.21 19,964.71 19,920.87 19,344.80
2/28/2015 27,699.59 24,153.57 21,637.62 21,065.76 20,863.64
3/31/2015 27,943.07 24,052.37 21,019.14 20,732.61 20,558.95
4/30/2015 27,568.47 24,187.31 21,541.31 20,931.50 20,648.83
5/31/2015 28,817.64 25,188.08 21,987.41 21,200.67 21,318.97
6/30/2015 28,737.14 24,772.03 21,187.34 20,790.26 20,651.42
7/31/2015 29,542.98 25,604.14 22,028.86 21,225.85 20,928.44
8/31/2015 27,214.68 23,906.19 20,839.25 19,945.21 19,610.85
9/30/2015 25,671.51 22,961.64 20,594.45 19,451.70 19,111.92
10/31/2015 27,661.36 25,188.08 22,888.68 21,092.53 20,861.46
11/30/2015 27,547.41 25,446.71 23,185.06 21,155.25 21,255.53
12/31/2015 28,037.54 25,240.36 22,763.35 20,821.59 20,800.73
1/31/2016 25,908.27 23,261.90 21,282.91 19,788.34 19,009.53
[END CHART]
Data from 7/31/10 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Science & Technology Fund Adviser Shares to the Fund's benchmarks listed
above (see page 7 for benchmark definitions).
*The performance of the S&P 500 Health Care Sector Index, S&P North American
Technology Sector Index, S&P 500 Index, and the Lipper Science & Technology
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.
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 Science & Technology Funds Index reflects the fees and expenses
of the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o TOP 10 HOLDINGS* - 1/31/16 o
(% of Net Assets)
Alphabet, Inc. "A" ........................................................ 8.6%
Facebook, Inc. "A" ........................................................ 6.3%
Microsoft Corp. ........................................................... 5.9%
Amazon.com, Inc. .......................................................... 4.4%
Visa, Inc. "A" ............................................................ 3.9%
Apple, Inc. ............................................................... 3.8%
Accenture plc "A" ......................................................... 1.9%
Cognizant Technology Solutions Corp. "A" .................................. 1.5%
Allergan plc .............................................................. 1.5%
Genpact Ltd. .............................................................. 1.5%
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 65.3%
HEALTH CARE 24.0%
CONSUMER DISCRETIONARY 6.3%
INDUSTRIALS 3.2%
CONSUMER STAPLES 0.3%
MONEY MARKET INSTRUMENTS 1.0%
[END CHART]
*Does not include money market instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 11-18.
================================================================================
10 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.1%)
COMMON STOCKS (98.1%)
CONSUMER DISCRETIONARY (6.3%)
-----------------------------
CONSUMER ELECTRONICS (0.3%)
118,900 Sony Corp.(a) $ 2,845
--------
INTERNET RETAIL (6.0%)
71,041 Amazon.com, Inc.* 41,701
56,476 Expedia, Inc. 5,706
8,654 Priceline Group, Inc.* 9,216
--------
56,623
--------
Total Consumer Discretionary 59,468
--------
CONSUMER STAPLES (0.3%)
-----------------------
DRUG RETAIL (0.3%)
19,380 CVS Health Corp. 1,872
12,013 Walgreens Boots Alliance, Inc. 958
--------
2,830
--------
Total Consumer Staples 2,830
--------
HEALTH CARE (24.0%)
-------------------
BIOTECHNOLOGY (4.8%)
18,550 Acorda Therapeutics, Inc.* 683
16,221 Alder BioPharmaceuticals, Inc.* 392
87,690 Alkermes plc* 2,807
26,700 Alnylam Pharmaceuticals, Inc.* 1,841
30,955 Anacor Pharmaceuticals, Inc.* 2,326
349,620 Arena Pharmaceuticals, Inc.* 528
115,116 BioCryst Pharmaceuticals, Inc.* 802
4,412 Biogen, Inc.* 1,205
55,020 Cepheid, Inc.* 1,620
1,800 Chiasma, Inc.* 19
81,744 Dicerna Pharmaceuticals, Inc.* 536
36,576 Five Prime Therapeutics, Inc.* 1,315
56,024 Galapagos N.V.* 2,792
104,018 Gilead Sciences, Inc. 8,633
59,694 GlycoMimetics, Inc.* 281
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
38,211 Incyte Corp.* $ 2,696
24,349 Innate Pharma S.A.*(a) 325
65,760 Ironwood Pharmaceuticals, Inc.* 607
22,750 Nivalis Therapeutics, Inc.* 107
85,070 Otonomy, Inc.* 1,269
31,370 Portola Pharmaceuticals, Inc.* 1,036
16,290 PTC Therapeutics, Inc.* 388
14,361 Regeneron Pharmaceuticals, Inc.* 6,033
69,510 Regulus Therapeutics, Inc.* 402
134,530 Rigel Pharmaceuticals, Inc.* 370
11,916 Seattle Genetics, Inc.* 393
29,520 T2 Biosystems, Inc.* 262
53,088 TESARO, Inc.* 1,834
60,363 Trevena, Inc.* 439
23,972 Vertex Pharmaceuticals, Inc.* 2,175
51,800 Voyager Therapeutics, Inc.* 553
--------
44,669
--------
HEALTH CARE DISTRIBUTORS (0.9%)
47,380 Cardinal Health, Inc. 3,855
30,840 McKesson Corp. 4,965
--------
8,820
--------
HEALTH CARE EQUIPMENT (5.1%)
128,860 Abbott Laboratories 4,877
78,790 AtriCure, Inc.* 1,377
99,896 Baxter International, Inc. 3,656
27,521 Becton, Dickinson & Co. 4,001
322,960 Boston Scientific Corp.* 5,662
83,120 ConforMIS, Inc.* 914
37,810 EndoChoice Holdings, Inc.* 227
129,351 Globus Medical, Inc. "A"* 3,227
15,050 HeartWare International, Inc.* 604
21,528 Invuity, Inc.* 165
96,520 K2M Group Holdings, Inc.* 1,372
149,459 Medtronic plc 11,347
64,057 St. Jude Medical, Inc. 3,386
37,910 Stryker Corp. 3,759
13,531 Teleflex, Inc. 1,836
103,895 TriVascular Technologies, Inc.* 583
9,314 Zimmer Biomet Holdings, Inc. 925
--------
47,918
--------
HEALTH CARE FACILITIES (0.8%)
19,310 Acadia Healthcare Co., Inc.* 1,178
198,357 Georgia Healthcare Group plc*(a),(b) 492
================================================================================
12 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
52,920 HCA Holdings, Inc.* $ 3,682
9,020 LifePoint Health, Inc.* 630
14,330 Universal Health Services, Inc. "B" 1,614
--------
7,596
--------
HEALTH CARE SERVICES (0.5%)
82,950 Envision Healthcare Holdings, Inc.* 1,833
50,382 Team Health Holdings, Inc.* 2,059
57,934 Teladoc, Inc.* 941
--------
4,833
--------
HEALTH CARE SUPPLIES (0.1%)
15,057 DENTSPLY International, Inc. 887
33,160 Endologix, Inc.* 236
--------
1,123
--------
HEALTH CARE TECHNOLOGY (1.8%)
68,105 Allscripts Healthcare Solutions, Inc.* 938
12,050 athenahealth, Inc.* 1,709
51,786 Cerner Corp.* 3,004
37,059 Inovalon Holdings, Inc. "A"* 626
462,560 M3, Inc.(a) 10,625
--------
16,902
--------
LIFE SCIENCES TOOLS & SERVICES (1.0%)
46,910 Agilent Technologies, Inc. 1,766
15,170 Illumina, Inc.* 2,396
22,330 PRA Health Sciences, Inc.* 962
1,120 Quintiles Transnational Holdings, Inc.* 68
34,010 Thermo Fisher Scientific, Inc. 4,492
--------
9,684
--------
MANAGED HEALTH CARE (2.0%)
48,210 Aetna, Inc. 4,910
201,920 Qualicorp S.A. 681
100,740 UnitedHealth Group, Inc. 11,601
23,570 WellCare Health Plans, Inc.* 1,791
--------
18,983
--------
PHARMACEUTICALS (7.0%)
73,411 Aerie Pharmaceuticals, Inc.* 1,214
50,550 Allergan plc* 14,378
191,100 AstraZeneca plc ADR 6,157
201,800 Bristol-Myers Squibb Co. 12,544
48,480 Daiichi Sankyo Co., Ltd.(a) 1,013
28,300 Eisai Co., Ltd.(a) 1,708
52,500 Eli Lilly and Co. 4,153
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
39,460 Intersect ENT, Inc.* $ 704
12,620 Johnson & Johnson 1,318
61,655 Medicines Co.* 2,131
48,340 MediWound Ltd.* 327
57,670 Merck & Co., Inc. 2,922
107,180 Mylan N.V.* 5,647
52,600 MyoKardia, Inc.* 473
123,440 Nabriva Therapeutics AG ADR* 1,045
34,630 Ocular Therapeutix, Inc.* 212
8,210 Ono Pharmaceutical Co. Ltd.(a) 1,324
19,541 Revance Therapeutics, Inc.* 405
106,380 Shionogi & Co. Ltd.(a) 4,633
89,668 Tetraphase Pharmaceuticals, Inc.* 488
24,920 UCB S.A.(a) 2,135
85,057 XenoPort, Inc.* 423
--------
65,354
--------
Total Health Care 225,882
--------
INDUSTRIALS (3.1%)
------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.7%)
93,780 Nidec Corp.(a) 6,391
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.4%)
78,070 WageWorks, Inc.* 3,493
--------
RESEARCH & CONSULTING SERVICES (2.0%)
76,229 Equifax, Inc. 8,065
110,333 Huron Consulting Group, Inc.* 6,191
191,473 TransUnion* 4,737
--------
18,993
--------
Total Industrials 28,877
--------
INFORMATION TECHNOLOGY (64.4%)
------------------------------
APPLICATION SOFTWARE (1.0%)
14,815 Adobe Systems, Inc.* 1,320
117,641 Mobileye N.V.* 3,192
79,069 Workday, Inc. "A"* 4,982
--------
9,494
--------
COMMUNICATIONS EQUIPMENT (1.3%)
77,155 Arista Networks, Inc.* 4,632
284,311 CIENA Corp.* 5,052
347,297 Ruckus Wireless, Inc.* 2,921
--------
12,605
--------
================================================================================
14 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (13.0%)
43,808 Alliance Data Systems Corp.* $ 8,752
110,497 Automatic Data Processing, Inc. 9,181
114,289 Cardtronics, Inc.* 3,521
594,629 Genpact Ltd.* 14,224
208,225 Global Payments, Inc. 12,275
136,287 Heartland Payment Systems, Inc. 12,549
108,866 PayPal Holdings, Inc.* 3,935
94,119 Vantiv, Inc. "A"* 4,428
356,357 VeriFone Systems, Inc.* 8,335
488,552 Visa, Inc. "A" 36,392
88,544 WEX, Inc.* 6,429
471,100 Worldpay Group plc*(a) 2,110
--------
122,131
--------
ELECTRONIC COMPONENTS (2.9%)
223,300 Alps Electric Co. Ltd.(a) 4,410
91,380 Largan Precision Co. Ltd.(a) 6,653
43,290 Murata Manufacturing Co. Ltd.(a) 5,003
3,642,630 Sunny Optical Technology Group Co. Ltd.(a) 7,719
56,290 TDK Corp.(a) 3,086
--------
26,871
--------
HOME ENTERTAINMENT SOFTWARE (1.3%)
118,982 Electronic Arts, Inc.* 7,679
29,300 Nintendo Co., Ltd.(a) 4,127
--------
11,806
--------
INTERNET SOFTWARE & SERVICES (17.7%)
56,559 Alibaba Group Holding Ltd. ADR* 3,791
106,314 Alphabet, Inc. "A"* 80,942
16,055 Alphabet, Inc. "C"* 11,928
151,029 Dropbox, Inc., acquired 5/01/2012; cost $1,367*(c),(d),(e) 1,777
98,150 Everyday Health, Inc.* 452
525,556 Facebook, Inc. "A"* 58,973
440,565 Tencent Holdings Ltd.(a) 8,323
--------
166,186
--------
IT CONSULTING & OTHER SERVICES (4.3%)
165,808 Accenture plc "A" 17,499
228,507 Cognizant Technology Solutions Corp. "A"* 14,467
194,300 SCSK Corp.(a) 8,512
--------
40,478
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (3.2%)
539,462 Applied Materials, Inc. $ 9,521
65,844 ASML Holding N.V. 6,047
30,900 Disco Corp.(a) 2,928
71,013 Lam Research Corp. 5,098
64,354 MKS Instruments, Inc. 2,281
166,214 Siltronic AG*(a) 3,028
194,130 SunEdison Semiconductor Ltd.* 1,204
--------
30,107
--------
SEMICONDUCTORS (7.5%)
1,391,000 Advanced Semiconductor Engineering, Inc.(a) 1,490
89,371 Avago Technologies Ltd. 11,950
27,115 Cavium Networks, Inc.* 1,567
2,200,000 Inotera Memories, Inc.*(a) 1,901
229,501 Linear Technology Corp. 9,807
36,600 M/A-COM Technology Solutions Holdings, Inc.* 1,409
184,000 MediaTek, Inc.(a) 1,196
206,543 Microchip Technology, Inc. 9,255
78,178 NXP Semiconductors N.V.* 5,846
412,815 ON Semiconductor Corp.* 3,534
683,000 Powertech Technology, Inc.(a) 1,437
41,400 ROHM Co., Ltd.(a) 1,884
67,817 Silicon Motion Technology Corp. ADR 2,109
1,099,000 Siliconware Precision Industries Co., Ltd.(a) 1,699
109,298 Skyworks Solutions, Inc. 7,533
1,596,655 Taiwan Semiconductor Manufacturing Co. Ltd.(a) 6,813
1,006,000 Win Semiconductors Corp.(a) 1,599
--------
71,029
--------
SYSTEMS SOFTWARE (7.2%)
60,245 Fleetmatics Group plc* 2,615
1,007,291 Microsoft Corp. 55,492
151,193 ServiceNow, Inc.* 9,406
--------
67,513
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (5.0%)
366,335 Apple, Inc. 35,659
186,500 FUJIFILM Holdings Corp.(a) 7,200
263,960 Pure Storage, Inc. "A"* 3,434
94,942 Pure Storage, Inc. "B", acquired 4/16/2014; cost $1,493*(c),(d),(e) 1,235
--------
47,528
--------
Total Information Technology 605,748
--------
Total Common Stocks (cost: $768,373) 922,805
--------
================================================================================
16 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (1.0%)
INDUSTRIALS (0.1%)
------------------
INDUSTRIAL MACHINERY (0.1%)
37,837 Cloudera, Inc. "F", acquired 2/05/2014; cost $551*(c),(d),(e) $ 793
--------
INFORMATION TECHNOLOGY (0.9%)
-----------------------------
INTERNET SOFTWARE & SERVICES (0.7%)
133,140 Uber Technologies, Inc., acquired 6/05/2014; cost $2,065*(c),(d),(e) 6,494
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.2%)
151,427 Nutanix, Inc., acquired 8/25/2014; cost $2,029*(c),(d),(e) 1,932
--------
Total Information Technology 8,426
--------
Total Preferred Stocks (cost: $4,645) 9,219
--------
Total Equity Securities (cost: $773,018) 932,024
--------
MONEY MARKET INSTRUMENTS (1.0%)
MONEY MARKET FUNDS (1.0%)
9,531,436 State Street Institutional Liquid Reserves Fund Premier
Class, 0.36%(f) (cost: $9,531) 9,531
--------
TOTAL INVESTMENTS (COST: $782,549) $941,555
========
--------------------------------------------------------------------------------------------------------
($ 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 $807,184 $113,844 $ 1,777 $922,805
Preferred Stocks - - 9,219 9,219
Money Market Instruments:
Money Market Funds 9,531 - - 9,531
--------------------------------------------------------------------------------------------------------
Total $816,715 $113,844 $10,996 $941,555
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
--------------------------------------------------------------------------------------------------------
COMMON STOCKS PREFERRED STOCKS
--------------------------------------------------------------------------------------------------------
Balance as of July 31, 2015 $ 2,885 $10,575
Purchases - -
Sales - (1,493)
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation) of investments (1,108) 137
--------------------------------------------------------------------------------------------------------
Balance as of January 31, 2016 $ 1,777 $ 9,219
--------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, common stocks with a
fair value of $98,886,000 were transferred from Level 1 to Level 2. Due to an
assessment of events at the end of the current reporting period, these
securities had adjustments to their foreign market closing prices to reflect
changes in value that occurred after the close of foreign markets and prior to
the close of the U.S. securities markets. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
18 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 16.4% of net assets at January 31,
2016.
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 $112,609,000, which represented 12.0% of
the Fund's net assets, were classified as Level 2 at January 31, 2016,
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
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
January 31, 2016, was $12,231,000, which represented 1.3% of the Fund's
net assets.
(d) Security was fair valued at January 31, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $12,231,000, which represented 1.3% of
the Fund's net assets.
(e) Restricted security that is not registered under the Securities Act
of 1933.
(f) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
20 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $782,549) $941,555
Receivables:
Capital shares sold 1,316
Dividends and interest 171
Securities sold 11,601
Unrealized appreciation on foreign currency contracts held, at value 1
--------
Total assets 954,644
--------
LIABILITIES
Payables:
Securities purchased 12,777
Capital shares redeemed 618
Accrued management fees 631
Accrued transfer agent's fees 49
Other accrued expenses and payables 67
--------
Total liabilities 14,142
--------
Net assets applicable to capital shares outstanding $940,502
========
NET ASSETS CONSIST OF:
Paid-in capital $808,453
Accumulated undistributed net investment loss (2,697)
Accumulated net realized loss on investments (24,259)
Net unrealized appreciation of investments 159,006
Net unrealized depreciation of foreign currency translations (1)
--------
Net assets applicable to capital shares outstanding $940,502
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $824,882/41,876 shares outstanding) $ 19.70
========
Adviser Shares (net assets of $115,620/5,959 shares outstanding) $ 19.40
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $68) $ 4,376
Interest 18
--------
Total income 4,394
--------
EXPENSES
Management fees 3,773
Administration and servicing fees:
Fund Shares 633
Adviser Shares 90
Transfer agent's fees:
Fund Shares 719
Adviser Shares 93
Distribution and service fees (Note 6E):
Adviser Shares 150
Custody and accounting fees:
Fund Shares 90
Adviser Shares 12
Postage:
Fund Shares 36
Adviser Shares 2
Shareholder reporting fees:
Fund Shares 20
Adviser Shares 1
Trustees' fees 13
Registration fees:
Fund Shares 44
Adviser Shares 32
Professional fees 54
Other 8
--------
Total expenses 5,770
Expenses paid indirectly:
Fund Shares (7)
Adviser Shares (1)
--------
Net expenses 5,762
--------
NET INVESTMENT LOSS (1,368)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on:
Investments (21,490)
Foreign currency transactions (111)
Change in net unrealized appreciation/(depreciation) of:
Investments (69,995)
Foreign currency translations 4
--------
Net realized and unrealized loss (91,592)
--------
Decrease in net assets resulting from operations $(92,960)
========
See accompanying notes to financial statements.
================================================================================
22 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
--------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ (1,368) $ 4,043
Net realized gain (loss) on investments (21,490) 76,852
Net realized gain (loss) on foreign currency transactions (111) 350
Change in net unrealized appreciation/(depreciation) of:
Investments (69,995) 77,988
Foreign currency translations 4 (21)
---------------------
Increase (decrease) in net assets resulting from operations (92,960) 159,212
---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (9,864)
Adviser Shares - (804)
---------------------
Total distributions of net investment income - (10,668)
---------------------
Net realized gains:
Fund Shares (54,146) (63,661)
Adviser Shares (7,785) (4,386)
---------------------
Total distributions of net realized gains (61,931) (68,047)
---------------------
Distributions to shareholders (61,931) (78,715)
---------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 106,038 191,076
Adviser Shares 13,581 96,674
---------------------
Total net increase in net assets from capital share transactions 119,619 287,750
---------------------
Capital contribution from USAA Transfer Agency Company Fund Shares - 11
---------------------
Net increase (decrease) in net assets (35,272) 368,258
NET ASSETS
Beginning of period 975,774 607,516
---------------------
End of period $940,502 $975,774
=====================
Accumulated undistributed (overdistribution of) net investment income (loss):
End of period $ (2,697) $ (1,329)
=====================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Science & Technology Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek long-term capital appreciation.
The Fund consists of two classes of shares: Science & Technology Fund Shares
(Fund Shares) and Science & Technology 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 both classes. 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
================================================================================
24 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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
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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 has 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.
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. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service.
================================================================================
26 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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:
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
discussed in Note 1A2, and certain common stocks 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.
The valuation of securities falling in the Level 3 category are valued at
direct offering price. 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.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
The valuation methodology for certain level 3 securities changed during the
period. Securities that were previously valued based on last quoted price,
are now being fair valued using valuation models as a result of additional
data becoming available subsequent to the date of purchase.
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
================================================================================
28 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS
FAIR VALUE AT SIGNIFICANT
JANUARY 31, 2016 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $1,777 Market Revenue Multiple(a) 2.3x - 5.4x
Comparables Comparable Premium
Adjustment(a) 35%
Discount for lack
of marketability(b) 10%
Preferred Stocks $2,725 Market Revenue Multiple(a) 3.1x - 6.9x
Comparables Comparable Premium
Adjustments(a) 0%-5%
Discount for lack of
marketability(b) 10%
--------------------------------------------------------------------------------------------------------
(a) Represents amounts used when the reporting entity has determined that
market participants would use such multiples when pricing the security.
(b) Represents amounts used when the reporting entity has determined that
market participants would take into account these discounts when pricing
the security.
Increases in the earnings before interest depreciation and amortization
(EBITDA), revenue multiples, comparable premium adjustments, or earnings per
share will increase the value of the security while an increase in the
discount for lack of marketability will decrease the value of the security.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 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
================================================================================
30 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
the custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31, 2016,
brokerage commission recapture credits reduced the expenses of the Fund
Shares and Adviser Shares by $7,000 and $1,000, respectively. Additionally,
there were no custodian and other bank credits.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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 January 31, 2016, the Fund paid CAPCO facility
fees of $3,000, 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$402,839,000 and $329,686,000, respectively.
================================================================================
32 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
As of January 31, 2016, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $203,252,000 and $44,246,000, respectively, resulting in net
unrealized appreciation of $159,006,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------
FUND SHARES:
Shares sold 6,047 $130,554 10,176 $ 222,321
Shares issued from
reinvested dividends 2,467 52,725 3,446 71,880
Shares redeemed (3,646) (77,241) (4,751) (103,125)
--------------------------------------------
Net increase from capital
share transactions 4,868 $106,038 8,871 $ 191,076
============================================
ADVISER SHARES:
Shares sold 1,817 $ 38,478 5,722 $ 122,931
Shares issued from
reinvested dividends 332 6,995 190 3,923
Shares redeemed (1,548) (31,892) (1,415) (30,180)
--------------------------------------------
Net increase from capital
share transactions 601 $ 13,581 4,497 $ 96,674
============================================
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 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 Science & Technology Funds Index. The Lipper
Science & Technology Funds Index tracks the total return performance of the
30 largest funds within the Lipper Science & Technology 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.
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
================================================================================
34 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 Science & Technology Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $3,773,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$147,000 and $10,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.03% and 0.02%, respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Wellington Management Company LLP (Wellington
Management), under which Wellington Management 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 Wellington Management a subadvisory fee in
the annual amount of 0.45% of the Fund's average net assets for the first
$100 million in assets that Wellington Management manages, plus 0.35% of the
Fund's average net assets for assets over $100 million that Wellington
Management manages. For the six-month period ended January 31, 2016, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Wellington Management, of $1,741,000.
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 for both the Fund Shares and Adviser Shares.
For the six-month period ended January 31, 2016, the Fund Shares and Adviser
Shares incurred
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
administration and servicing fees, paid or payable to the Manager, of
$633,000 and $90,000, 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 January 31, 2016, 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. 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. For the six-month period
ended January 31, 2016, the Fund Shares and Adviser Shares incurred transfer
agent's fees, paid or payable to SAS, of $719,000 and $93,000, 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 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 January 31, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $150,000.
================================================================================
36 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 fees or other compensation for these
services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2016, USAA and its affiliates owned 483,000 Adviser Shares, which represents
8.1% of the Adviser Shares and 1.0% 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
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 23.07 $ 20.96 $ 17.78 $ 14.24 $ 13.26 $ 10.65
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.02) .27 (.09)(a) .03(b) (.02) (.01)(a)
Net realized and
unrealized gain (loss) (1.95) 4.35 4.86(a) 3.51 1.00 2.62(a)
-------------------------------------------------------------------------
Total from investment
operations (1.97) 4.62 4.77(a) 3.54 .98 2.61(a)
-------------------------------------------------------------------------
Less distributions from:
Net investment income - (.31) (.40) - - -
Realized capital gains (1.40) (2.20) (1.19) - - -
-------------------------------------------------------------------------
Total distributions (1.40) (2.51) (1.59) - - -
-------------------------------------------------------------------------
Net asset value at
end of period $ 19.70 $ 23.07 $ 20.96 $ 17.78 $ 14.24 $ 13.26
=========================================================================
Total return (%)* (9.02) 23.45 27.94 24.86 7.39 24.51
Net assets at end
of period (000) $824,882 $853,755 $589,615 $436,613 $354,495 $344,619
Ratios to average
net assets:**
Expenses (%)(c) 1.17(d) 1.18 1.24 1.34 1.38 1.36
Net investment
income (loss) (%) (.25)(d) .52 (.44) (.08) (.30) (.10)
Portfolio turnover (%) 35 73 91 93 77 109
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$839,611,000.
(a) Calculated using average shares.
(b) Reflected net investment income from investment operations per share,
whereas the Statement of Operations reflected a net investment loss for the
period. The difference in net investment income/loss from investment
operations was due to the fiscal year-end tax reclassification adjustment.
(c) 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:
(.01%) (.00%)(+) (.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.
================================================================================
38 | USAA SCIENCE & TECHNOLOGY 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
JANUARY 31, YEAR ENDED JULY 31, July 31,
--------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 22.77 $ 20.78 $ 17.64 $14.16 $13.22 $10.84
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.06) .13(a) (.12)(a) (.00)(b) (.05) (.06)(a)
Net realized and
unrealized gain (loss) (1.91) 4.39(a) 4.82(a) 3.48 .99 2.44(a)
--------------------------------------------------------------------------
Total from investment
operations (1.97) 4.52(a) 4.70(a) 3.48 .94 2.38(a)
--------------------------------------------------------------------------
Less distributions from:
Net investment income - (.33) (.37) - - -
Realized capital gains (1.40) (2.20) (1.19) - - -
--------------------------------------------------------------------------
Total distributions (1.40) (2.53) (1.56) - - -
--------------------------------------------------------------------------
Net asset value
at end of period $ 19.40 $ 22.77 $ 20.78 $17.64 $14.16 $13.22
==========================================================================
Total return (%)* (9.15) 23.18 27.73 24.58 7.11 21.96
Net assets at end of
period (000) $115,620 $122,019 $17,901 $8,815 $6,940 $6,465
Ratios to average
net assets:**
Expenses (%)(c) 1.42(d) 1.42 1.41(e) 1.56 1.63 1.65(d)
Expenses, excluding
reimbursements (%)(c) 1.42(d) 1.42 1.41 1.56 1.63 2.02(d)
Net investment
income (loss) (%) (.51)(d) .59 (.61) (.30) (.55) (.44)(d)
Portfolio turnover (%) 35 73 91 93 77 109
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$118,892,000.
*** Adviser Shares commenced operations on August 1, 2010.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(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 by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.65% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the
================================================================================
40 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 AUGUST 1, 2015-
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 909.80 $5.57
Hypothetical
(5% return before expenses) 1,000.00 1,019.30 5.89
ADVISER SHARES
Actual 1,000.00 908.50 6.81
Hypothetical
(5% return before expenses) 1,000.00 1,018.00 7.20
*Expenses are equal to the Fund's annualized expense ratio of 1.16% for Fund
Shares and 1.42% for Adviser Shares, which are net of any expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 184 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 (9.02)% for Fund
Shares and (9.15)% for Adviser Shares for the six-month period of August 1,
2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
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)
=============================================================================
31704-0316 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VALUE FUND]
==============================================================
SEMIANNUAL REPORT
USAA VALUE FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"DURING VOLATILE PERIODS, WHEN EMOTIONS
RUN HIGH, INVESTORS CAN BE TEMPTED TO [PHOTO OF BROOKS ENGLEHARDT]
MAKE HASTY DECISIONS."
--------------------------------------------------------------------------------
MARCH 2016
Uncertainty and pessimism--these emotions pervaded the financial markets when
the reporting period came to an end on January 31, 2016. The declines in the
global equity markets grabbed the lion's share of the headlines and turmoil was
widespread, encompassing commodities and corporate bonds. Investor anxiety
seemed to center on China, which experienced its slowest pace of growth in
nearly a quarter century and is expected, by many, to slow even more in 2016. In
addition, the price of oil, a measure of global economic growth expectations,
dropped during the reporting period, driven by lower-than-anticipated demand and
oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw
their prices tumble. At the same time, global trade appeared to be softening, as
a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a
28-year low.
In this environment, many global central banks continued their efforts to boost
economic growth, committing to lower-for-longer monetary policies and ongoing
stimulative measures. In contrast, the Federal Reserve (the Fed) raised
short-term interest rates a quarter-percent during December 2015. The following
month, Fed policymakers left interest rates unchanged, citing "global economic
and financial developments." Only days later, the U.S. Department of Commerce
revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter
of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second
quarter of 2015. Bond investors appeared to have anticipated this news as
longer-term interest rates had trended down.
Under these conditions, the increase in market volatility over the reporting
period should not be all that surprising. At USAA Investments, we believe the
financial markets are likely to be more volatile in 2016 than they were in 2015.
During volatile periods, when emotions run high, investors can be tempted to
make hasty decisions. Any investor who tries to respond to every twist and turn
in the market could end up tied in a knot.
================================================================================
================================================================================
That is why we encourage you to adhere to the long-term investment plan that you
have crafted. An investment plan, based on your objectives, time horizon, and
risk tolerance, can help you stay focused on your future. It also can keep you
from getting distracted by short-term changes in market sentiment. Furthermore,
if you have cash reserves, you may find opportunities in the coming months to
put them to work. We tend to view volatility, not as a period of crisis, but
rather, as a time of potential opportunity.
The stock market declines in January 2016 were certainly uncomfortable, but we
still believe U.S. equity valuations generally remain on the high side. Prices
often fall until their fundamental ratios, such as price-to-earnings, attract
attention from value-minded investors. In our opinion, the strength of the U.S.
dollar will likely result in some earnings disappointments. Many large U.S.
corporations rely on international markets for a significant portion of their
revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive.
Meanwhile, credit spreads (yield differentials between corporate bonds and U.S.
Treasuries of similar maturity) have widened. The widening spread began in the
energy sector as oil prices fell, but expanded thereafter to metals and mining,
shipping, and beyond. In our view, investors are pricing in the additional risk
of an earnings decline, which could impact bond issuers' ability to meet their
debt obligations.
Rest assured that in the months ahead, our team of portfolio managers will
continue working hard to stay abreast of changing market conditions as they
strive to meet your investment goals. Meanwhile, if you are uneasy about the
markets in general or are concerned about having too much exposure to specific
asset classes, please contact one of our financial advisors. They will review
your investment allocations and evaluate whether those allocations are properly
aligned with your long-term goals, time horizon, and tolerance for risk. From
all of us here at USAA Investments, thank you for your continued investment in
our family of mutual funds. We look forward to continuing to help you with your
investment needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers, and affiliates. o Financial
advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and
USAA Financial Advisors, Inc., a registered broker dealer.
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================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 21
Financial Statements 22
Notes to Financial Statements 25
EXPENSE EXAMPLE 40
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.
202729-0316
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA VALUE FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in equity securities of companies that are
considered to be undervalued. Although the Fund will invest primarily in U.S.
securities, it may invest up to 20% of its total assets in foreign securities
including securities issued in emerging markets.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. 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
Barrow, Hanley, Mewhinney & Strauss, LLC
MARK GIAMBRONE JAMES S. McCLURE, CFA
JEFF G. FAHRENBRUCH, CFA JOHN P. HARLOE, CFA
DAVID W. GANUCHEAU, CFA LEWIS ROPP
TIMOTHY J. CULLER, CFA CORY L. MARTIN
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Headlines out of China dominated the reporting period ended January 31,
2016, which ended with global equity markets generally lower. At the
beginning of the reporting period, investors monitored U.S. growth for
indications of the likely timing of changes in Federal Reserve (the Fed)
interest rate policy. Global deflation fears were eased to a degree by
ongoing European Central Bank and Bank of Japan efforts to support their
respective economic regions. A number of emerging-market economies remained
under duress due to the continued weakness in oil prices.
In mid-August 2015, the Chinese government, faced with slowing growth as it
attempted to engineer a restructuring of the country's economy, raised fears
of a global currency war as it devalued the renminbi. In response, global
equities and other risk assets dropped sharply. Uncertainty over China's
economy negatively affected global equity market sentiment into late
September 2015.
U.S. equities rebounded in October 2015 as worries over China eased
momentarily. U.S. employment numbers exceeded expectations, and markets
increasingly focused on the Fed's December 16, 2015, meeting as a likely
event for the first increase in the benchmark federal funds rate in almost a
decade. Markets experienced heightened volatility in November and December
2015 as oil prices dropped further, but U.S. stocks managed to hold on to
the bulk of their October 2015 gains.
================================================================================
2 | USAA VALUE FUND
================================================================================
The Fed's December 16, 2015, 25.0 basis point rate increase generally was
received as a positive sign with respect to the path of the U.S. economy,
and investors anticipated an incremental but fairly steady pace with respect
to future increases. However, the period of relatively optimistic sentiment
proved short-lived. A resumption of the slide in oil prices as 2016 opened
raised alarms that the global demand outlook had further deteriorated,
leading to substantial losses for global equities in January 2016.
o HOW DID THE USAA VALUE 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 January 31, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had total returns of
-10.94%, -10.91%, and -11.13%, respectively. This compares to returns of
-8.89% for the Russell 3000(R) Value Index (the Index) and -11.93% for the
Lipper Multi-Cap Value Funds 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.
Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS) is the subadviser to the
Fund. The subadviser provides day-to-day discretionary management for the
Fund's assets.
o WHAT WERE THE PRINCIPAL FACTORS IN THE FUND'S PERFORMANCE RELATIVE TO THE
INDEX DURING THE REPORTING PERIOD?
In broad terms, the Fund has been positioned for some time to benefit from
gradual economic improvement and an accompanying rise in market interest
rate levels. In this manner, selection within the financials sector, where
the Fund had a focus on lenders and an underweight to real estate investment
trusts (REITs) based on valuation concerns, was the leading
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
detractor from the Fund's performance relative to the benchmark. Selection
within the industrials sector and an underweight to utilities also
contributed to the underperformance on a relative basis. On the positive
side, selection within the information technology sector was the leading
contributor to performance on a relative basis, followed by an underweight
to energy and selection within the telecommunications services sector.
Within the financials sector, a leading individual detractor was the Fund's
position in American Express Co., which saw its shares suffer on flat
earnings driven largely by increased brand spending in the face of
heightened competition within the consumer finance space. The Fund has
maintained the position as American Express Co. has an exceptionally
powerful global franchise and BHMS believes earnings growth can be expected
to resume over time. Another straggler within the financials sector was
investment manager and custodian bank State Street Corp., whose stock is
highly sensitive to the stock market and interest rates. While State Street
Corp. has seen its fee-based business impacted negatively by lower financial
market levels, BHMS believes the company's shares are trading at a
substantially discounted valuation and has maintained the position. Within
the Fund's energy exposure, shares of liquefied natural gas shipping company
Golar LNG Ltd. declined significantly, as the company has seen its volumes
drop with competition from cheaper oil. BHMS believes the company remains
positioned to benefit over time from a preference for cleaner sources of
energy.
The leading positive contributor was the Fund's position in
telecommunications services giant Verizon Communications, Inc., which saw
its shares benefit from the company's stable business model against a
backdrop of heightened uncertainty. In a similar defensive vein, within the
consumer staples sector, Reynolds American, Inc. outperformed over the
reporting period. Both Verizon Communications, Inc. and Reynolds American,
Inc. continue to offer strong cash flow and attractive dividends. The Fund's
focus on valuation was rewarded as a position in chip industry pioneer
Fairchild Semiconductor International, Inc. rose on news of a proposed
acquisition.
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4 | USAA VALUE FUND
================================================================================
With markets on edge over faltering China's growth and the ripple effects
from weakness in oil and other commodities, the outlook appears to be for
the Fed to proceed even more incrementally in its normalization of
short-term rates, and for there to be little upward pressure on long-term
rates as well. While this scenario is not necessarily supportive of the
Fund's focus on valuation, BHMS remains steadfast in its commitment to not
overpay for utilities, REITs, and other dividend-oriented stocks. The Fund
will continue to focus on broad measures of valuation, including low payout
ratios and solid earnings prospects that together suggest the potential for
long-term growth in dividends.
Thank you for allowing us to help you with your investment needs.
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 United
States. Foreign securities also may be subject to foreign taxes. Investments
made in emerging market countries may be particularly volatile. Economies of
emerging market countries generally are less diverse and mature than more
developed countries and may have less stable political systems. o Investing
in REITs has some of the same risks associated with the direct ownership of
real estate.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA VALUE FUND SHARES (FUND SHARES)
(Ticker Symbol: UVALX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $733.2 Million $960.9 Million
Net Asset Value Per Share $17.31 $20.50
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS
-10.94% -5.85% 8.10% 5.43%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-3.49% 10.14% 6.39%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.09%
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 ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 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.
================================================================================
6 | USAA VALUE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA VALUE RUSSELL 3000 LIPPER MULTI-CAP
FUND SHARES VALUE INDEX VALUE FUNDS INDEX
1/31/2006 $10,000.00 $10,000.00 $10,000.00
2/28/2006 10,029.54 10,055.46 10,015.72
3/31/2006 10,192.02 10,223.18 10,180.17
4/30/2006 10,480.06 10,461.34 10,382.15
5/31/2006 10,192.02 10,181.74 10,114.81
6/30/2006 10,155.10 10,252.24 10,094.38
7/31/2006 10,177.25 10,464.85 10,126.32
8/31/2006 10,347.12 10,652.42 10,321.29
9/30/2006 10,576.07 10,854.91 10,553.57
10/31/2006 10,886.26 11,228.08 10,925.56
11/30/2006 11,129.99 11,490.24 11,153.08
12/31/2006 11,335.53 11,733.65 11,333.38
1/31/2007 11,525.85 11,886.04 11,525.81
2/28/2007 11,442.11 11,704.32 11,328.74
3/31/2007 11,655.27 11,881.66 11,425.16
4/30/2007 12,043.52 12,292.06 11,894.48
5/31/2007 12,530.75 12,736.11 12,349.16
6/30/2007 12,317.59 12,438.70 12,130.45
7/31/2007 11,731.40 11,822.39 11,567.84
8/31/2007 11,792.30 11,963.37 11,590.98
9/30/2007 12,051.14 12,345.27 11,897.17
10/31/2007 12,134.88 12,357.18 11,946.22
11/30/2007 11,693.33 11,727.49 11,340.68
12/31/2007 11,481.89 11,615.09 11,215.63
1/31/2008 11,061.63 11,148.97 10,672.04
2/29/2008 10,601.72 10,683.74 10,294.03
3/31/2008 10,205.25 10,622.16 10,088.71
4/30/2008 10,712.73 11,125.56 10,604.24
5/31/2008 10,966.48 11,138.78 10,794.31
6/30/2008 9,927.72 10,073.06 9,797.79
7/31/2008 9,872.21 10,079.06 9,689.74
8/31/2008 10,022.87 10,275.18 9,798.86
9/30/2008 9,229.92 9,542.92 8,891.56
10/31/2008 7,572.66 7,868.95 7,261.73
11/30/2008 7,009.67 7,276.34 6,779.17
12/31/2008 7,339.35 7,404.43 6,993.07
1/31/2009 6,779.78 6,536.25 6,392.58
2/28/2009 5,936.36 5,660.18 5,689.55
3/31/2009 6,455.38 6,145.63 6,184.74
4/30/2009 7,193.37 6,829.70 6,857.28
5/31/2009 7,525.88 7,229.03 7,266.90
6/30/2009 7,598.86 7,178.60 7,217.46
7/31/2009 8,377.40 7,784.80 7,809.25
8/31/2009 8,742.34 8,188.94 8,146.27
9/30/2009 8,977.53 8,512.79 8,473.92
10/31/2009 8,774.78 8,227.65 8,261.74
11/30/2009 9,326.25 8,675.60 8,629.00
12/31/2009 9,596.34 8,867.66 8,852.30
1/31/2010 9,399.33 8,617.42 8,609.29
2/28/2010 9,744.10 8,899.78 8,888.57
3/31/2010 10,326.94 9,492.42 9,399.57
4/30/2010 10,548.59 9,773.27 9,624.58
5/31/2010 9,694.85 8,967.98 8,822.68
6/30/2010 9,029.92 8,439.70 8,276.75
7/31/2010 9,703.06 9,013.51 8,844.12
8/31/2010 9,112.01 8,604.84 8,418.16
9/30/2010 10,031.42 9,291.98 9,148.31
10/31/2010 10,285.90 9,577.19 9,458.53
11/30/2010 10,343.36 9,549.84 9,416.76
12/31/2010 11,141.70 10,306.62 10,139.46
1/31/2011 11,489.88 10,521.11 10,365.57
2/28/2011 11,854.63 10,920.98 10,738.65
3/31/2011 11,945.82 10,973.21 10,844.66
4/30/2011 12,285.71 11,255.91 11,133.26
5/31/2011 12,161.36 11,130.15 10,973.72
6/30/2011 11,962.40 10,898.11 10,741.23
7/31/2011 11,390.40 10,536.74 10,362.74
8/31/2011 10,611.14 9,856.81 9,556.06
9/30/2011 9,715.83 9,085.47 8,645.94
10/31/2011 10,926.16 10,146.40 9,726.80
11/30/2011 10,942.74 10,096.36 9,663.05
12/31/2011 11,094.77 10,296.21 9,722.08
1/31/2012 11,573.14 10,708.87 10,275.39
2/29/2012 12,085.07 11,114.27 10,756.66
3/31/2012 12,462.73 11,444.94 11,004.26
4/30/2012 12,236.14 11,324.36 10,868.38
5/31/2012 11,413.68 10,658.10 10,086.84
6/30/2012 11,850.09 11,185.90 10,487.82
7/31/2012 11,934.01 11,284.23 10,530.96
8/31/2012 12,219.35 11,536.95 10,848.14
9/30/2012 12,513.09 11,906.56 11,144.18
10/31/2012 12,454.34 11,841.21 11,103.33
11/30/2012 12,504.69 11,839.37 11,148.83
12/31/2012 12,703.81 12,102.98 11,397.58
1/31/2013 13,385.43 12,884.63 12,129.59
2/28/2013 13,555.84 13,066.68 12,282.92
3/31/2013 14,135.22 13,586.36 12,802.08
4/30/2013 14,382.31 13,774.89 12,963.20
5/31/2013 14,919.09 14,132.77 13,394.08
6/30/2013 14,816.85 14,013.33 13,222.41
7/31/2013 15,651.84 14,781.21 13,958.90
8/31/2013 15,174.70 14,213.16 13,534.26
9/30/2013 15,745.56 14,605.68 13,994.42
10/31/2013 16,324.94 15,232.01 14,601.56
11/30/2013 16,912.85 15,670.46 15,010.25
12/31/2013 17,257.99 16,059.12 15,362.16
1/31/2014 16,593.54 15,484.72 14,832.18
2/28/2014 17,346.58 16,157.45 15,478.49
3/31/2014 17,638.94 16,528.31 15,740.47
4/30/2014 17,506.05 16,638.81 15,780.18
5/31/2014 17,771.83 16,871.78 16,070.83
6/30/2014 18,197.08 17,336.20 16,490.71
7/31/2014 17,718.67 16,979.89 16,108.95
8/31/2014 18,338.83 17,612.84 16,703.12
9/30/2014 17,851.56 17,185.21 16,189.11
10/31/2014 18,303.39 17,632.32 16,475.35
11/30/2014 18,657.76 17,958.66 16,807.41
12/31/2014 18,708.11 18,097.96 16,881.31
1/31/2015 18,011.43 17,372.13 16,327.59
2/28/2015 19,144.69 18,210.11 17,231.54
3/31/2015 18,958.91 18,005.21 17,092.30
4/30/2015 19,107.53 18,129.47 17,218.19
5/31/2015 19,404.78 18,342.09 17,426.56
6/30/2015 19,126.11 18,005.75 17,089.94
7/31/2015 19,042.51 18,037.21 17,108.76
8/31/2015 18,048.58 16,977.96 16,155.86
9/30/2015 17,379.77 16,459.35 15,533.04
10/31/2015 18,605.93 17,675.50 16,647.65
11/30/2015 18,652.37 17,777.47 16,671.21
12/31/2015 18,055.93 17,350.45 16,116.56
1/31/2016 16,958.65 16,432.93 15,067.44
[END CHART]
Data from 1/31/06 through 1/31/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Value Fund Shares to the following benchmarks:
o The unmanaged Russell 3000 Value Index measures the performance of those
Russell 3000 Index companies with lower price-to-book ratios and lower
forecasted growth values. The stocks in this index also are members of
either the unmanaged Russell 1000(R) Value or the unmanaged Russell 2000(R)
Value indexes.
o The unmanaged Lipper Multi-Cap Value Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Multi-Cap Value 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 Multi-Cap Value Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA VALUE FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIVAX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $456.0 Million $300.0 Million
Net Asset Value Per Share $17.29 $20.49
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-10.91% -5.76% 8.24% 7.68%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-3.35% 10.29% 8.69%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15 **
--------------------------------------------------------------------------------
0.98%
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 December 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).
================================================================================
8 | USAA VALUE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA VALUE FUND RUSSELL 3000 LIPPER MULTI-CAP
INSTITUTIONAL SHARES VALUE INDEX VALUE FUNDS INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,177.13 10,194.58 10,112.61
9/30/2008 9,371.98 9,468.06 9,176.26
10/31/2008 7,689.21 7,807.23 7,494.25
11/30/2008 7,117.55 7,219.27 6,996.23
12/31/2008 7,454.67 7,346.36 7,216.98
1/31/2009 6,885.67 6,484.98 6,597.26
2/28/2009 6,036.30 5,615.78 5,871.72
3/31/2009 6,555.82 6,097.43 6,382.76
4/30/2009 7,306.24 6,776.13 7,076.84
5/31/2009 7,644.34 7,172.32 7,499.57
6/30/2009 7,726.80 7,122.29 7,448.56
7/31/2009 8,518.44 7,723.74 8,059.30
8/31/2009 8,897.78 8,124.71 8,407.11
9/30/2009 9,136.92 8,446.01 8,745.24
10/31/2009 8,930.76 8,163.12 8,526.27
11/30/2009 9,499.76 8,607.55 8,905.29
12/31/2009 9,771.02 8,798.10 9,135.74
1/31/2010 9,570.25 8,549.82 8,884.95
2/28/2010 9,921.61 8,829.97 9,173.17
3/31/2010 10,515.56 9,417.97 9,700.54
4/30/2010 10,749.80 9,696.61 9,932.75
5/31/2010 9,871.41 8,897.64 9,105.17
6/30/2010 9,202.16 8,373.50 8,541.76
7/31/2010 9,888.14 8,942.80 9,127.30
8/31/2010 9,285.82 8,537.34 8,687.70
9/30/2010 10,231.13 9,219.10 9,441.23
10/31/2010 10,490.47 9,502.06 9,761.38
11/30/2010 10,557.39 9,474.94 9,718.28
12/31/2010 11,371.72 10,225.77 10,464.12
1/31/2011 11,727.35 10,438.58 10,697.46
2/28/2011 12,108.38 10,835.32 11,082.49
3/31/2011 12,201.53 10,887.14 11,191.90
4/30/2011 12,548.69 11,167.62 11,489.74
5/31/2011 12,421.68 11,042.85 11,325.09
6/30/2011 12,218.46 10,812.63 11,085.16
7/31/2011 11,642.68 10,454.09 10,694.55
8/31/2011 10,846.74 9,779.49 9,862.04
9/30/2011 9,932.26 9,014.21 8,922.77
10/31/2011 11,168.50 10,066.81 10,038.25
11/30/2011 11,185.44 10,017.17 9,972.45
12/31/2011 11,350.72 10,215.45 10,033.37
1/31/2012 11,840.49 10,624.87 10,604.40
2/29/2012 12,364.63 11,027.09 11,101.08
3/31/2012 12,751.30 11,355.17 11,356.60
4/30/2012 12,519.30 11,235.54 11,216.37
5/31/2012 11,685.82 10,574.51 10,409.81
6/30/2012 12,124.04 11,098.16 10,823.63
7/31/2012 12,218.56 11,195.72 10,868.15
8/31/2012 12,510.71 11,446.46 11,195.49
9/30/2012 12,811.44 11,813.17 11,501.00
10/31/2012 12,751.30 11,748.33 11,458.85
11/30/2012 12,802.85 11,746.51 11,505.80
12/31/2012 13,012.21 12,008.05 11,762.52
1/31/2013 13,711.32 12,783.57 12,517.96
2/28/2013 13,886.10 12,964.19 12,676.21
3/31/2013 14,480.35 13,479.79 13,211.98
4/30/2013 14,733.77 13,666.84 13,378.26
5/31/2013 15,293.06 14,021.92 13,822.94
6/30/2013 15,179.46 13,903.41 13,645.77
7/31/2013 16,044.61 14,665.28 14,405.84
8/31/2013 15,546.49 14,101.68 13,967.60
9/30/2013 16,140.74 14,491.12 14,442.51
10/31/2013 16,734.98 15,112.54 15,069.08
11/30/2013 17,337.97 15,547.54 15,490.86
12/31/2013 17,702.51 15,933.16 15,854.03
1/31/2014 17,011.50 15,363.26 15,307.09
2/28/2014 17,784.34 16,030.71 15,974.09
3/31/2014 18,093.47 16,398.67 16,244.46
4/30/2014 17,957.09 16,508.30 16,285.44
5/31/2014 18,229.86 16,739.45 16,585.39
6/30/2014 18,666.28 17,200.22 17,018.72
7/31/2014 18,184.40 16,846.71 16,624.74
8/31/2014 18,811.76 17,474.70 17,237.94
9/30/2014 18,320.78 17,050.41 16,707.46
10/31/2014 18,784.48 17,494.02 17,002.88
11/30/2014 19,148.17 17,817.80 17,345.56
12/31/2014 19,198.69 17,956.00 17,421.83
1/31/2015 18,492.23 17,235.87 16,850.38
2/28/2015 19,656.94 18,067.27 17,783.27
3/31/2015 19,466.00 17,863.98 17,639.58
4/30/2015 19,618.75 17,987.28 17,769.50
5/31/2015 19,933.80 18,198.22 17,984.54
6/30/2015 19,637.85 17,864.52 17,637.14
7/31/2015 19,561.47 17,895.73 17,656.56
8/31/2015 18,539.96 16,844.79 16,673.15
9/30/2015 17,852.59 16,330.25 16,030.39
10/31/2015 19,122.32 17,536.87 17,180.69
11/30/2015 19,160.50 17,638.03 17,205.00
12/31/2015 18,555.51 17,214.36 16,632.59
1/31/2016 17,426.66 16,304.04 15,549.88
[END CHART]
Data from 7/31/08 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Value Fund Institutional Shares to the Fund's benchmarks listed above (see
page 7 for benchmark definitions).
*The performance of the Russell 3000 Value Index and the Lipper Multi-Cap Value
Funds Index is calculated from the end of the month, July 31, 2008, while the
inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Multi-Cap Value Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA VALUE FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAVAX)
--------------------------------------------------------------------------------
1/31/16 7/31/15
--------------------------------------------------------------------------------
Net Assets $7.8 Million $9.3 Million
Net Asset Value Per Share $17.26 $20.43
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16
--------------------------------------------------------------------------------
7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-11.13% -6.12% 7.69% 9.83%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-3.71% 9.73% 11.29%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/15**
--------------------------------------------------------------------------------
1.34%
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 December 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.
================================================================================
10 | USAA VALUE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER MULTI-CAP USAA VALUE FUND
VALUE INDEX VALUE FUNDS INDEX ADVISER SHARES
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,546.60 9,518.37 9,188.07
9/30/2010 10,308.96 10,343.94 10,115.99
10/31/2010 10,625.37 10,694.71 10,364.54
11/30/2010 10,595.04 10,647.48 10,422.54
12/31/2010 11,434.64 11,464.64 11,223.33
1/31/2011 11,672.60 11,720.29 11,565.96
2/28/2011 12,116.24 12,142.13 11,933.66
3/31/2011 12,174.19 12,262.00 12,017.23
4/30/2011 12,487.83 12,588.32 12,351.51
5/31/2011 12,348.30 12,407.93 12,217.80
6/30/2011 12,090.87 12,145.05 12,017.23
7/31/2011 11,689.95 11,717.09 11,432.25
8/31/2011 10,935.60 10,804.98 10,655.06
9/30/2011 10,079.84 9,775.91 9,744.15
10/31/2011 11,256.88 10,998.04 10,955.91
11/30/2011 11,201.37 10,925.95 10,964.26
12/31/2011 11,423.10 10,992.71 11,111.07
1/31/2012 11,880.92 11,618.33 11,590.87
2/29/2012 12,330.68 12,162.50 12,095.92
3/31/2012 12,697.55 12,442.46 12,466.29
4/30/2012 12,563.77 12,288.82 12,239.02
5/31/2012 11,824.60 11,405.14 11,414.10
6/30/2012 12,410.16 11,858.52 11,843.39
7/31/2012 12,519.25 11,907.30 11,919.15
8/31/2012 12,799.63 12,265.94 12,196.93
9/30/2012 13,209.69 12,600.66 12,483.12
10/31/2012 13,137.19 12,554.48 12,424.20
11/30/2012 13,135.15 12,605.92 12,466.29
12/31/2012 13,427.61 12,887.18 12,666.85
1/31/2013 14,294.80 13,714.86 13,339.35
2/28/2013 14,496.78 13,888.23 13,509.60
3/31/2013 15,073.34 14,475.24 14,079.95
4/30/2013 15,282.50 14,657.41 14,318.30
5/31/2013 15,679.55 15,144.61 14,846.09
6/30/2013 15,547.04 14,950.50 14,735.42
7/31/2013 16,398.96 15,783.25 15,569.66
8/31/2013 15,768.74 15,303.11 15,084.44
9/30/2013 16,204.22 15,823.42 15,654.79
10/31/2013 16,899.10 16,509.90 16,216.63
11/30/2013 17,385.53 16,972.01 16,795.49
12/31/2013 17,816.73 17,369.90 17,142.69
1/31/2014 17,179.46 16,770.66 16,472.50
2/28/2014 17,925.82 17,501.45 17,213.23
3/31/2014 18,337.28 17,797.66 17,513.06
4/30/2014 18,459.87 17,842.56 17,371.96
5/31/2014 18,718.34 18,171.19 17,636.51
6/30/2014 19,233.58 18,645.95 18,059.79
7/31/2014 18,838.28 18,214.30 17,583.60
8/31/2014 19,540.51 18,886.13 18,192.06
9/30/2014 19,066.06 18,304.94 17,707.06
10/31/2014 19,562.11 18,628.59 18,147.97
11/30/2014 19,924.17 19,004.04 18,500.70
12/31/2014 20,078.71 19,087.61 18,538.90
1/31/2015 19,273.44 18,461.52 17,846.81
2/28/2015 20,203.14 19,483.61 18,972.61
3/31/2015 19,975.81 19,326.17 18,778.83
4/30/2015 20,113.68 19,468.51 18,917.25
5/31/2015 20,349.56 19,704.11 19,221.77
6/30/2015 19,976.41 19,323.50 18,935.70
7/31/2015 20,011.31 19,344.79 18,852.65
8/31/2015 18,836.14 18,267.35 17,856.03
9/30/2015 18,260.76 17,563.13 17,191.62
10/31/2015 19,610.02 18,823.41 18,400.48
11/30/2015 19,723.15 18,850.05 18,437.39
12/31/2015 19,249.39 18,222.91 17,851.30
1/31/2016 18,231.46 17,036.67 16,754.41
[END CHART]
Data from 7/31/10 through 1/31/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Value Fund Adviser Shares to the Fund's benchmarks listed above (see page 7
for benchmark definitions).
*The performance of the Russell 3000 Value Index and the Lipper Multi-Cap Value
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.
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 Multi-Cap Value Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o TOP 10 HOLDINGS* - 1/31/16 o
(% of Net Assets)
CRH plc ADR ............................................................... 2.3%
Medtronic plc ............................................................. 2.3%
Microsoft Corp. ........................................................... 2.2%
Wells Fargo & Co. ......................................................... 2.1%
Verizon Communications, Inc. .............................................. 2.1%
JPMorgan Chase & Co. ...................................................... 2.1%
Capital One Financial Corp. ............................................... 2.0%
Philip Morris International, Inc. ......................................... 1.9%
Pfizer, Inc. .............................................................. 1.9%
Johnson & Johnson ......................................................... 1.9%
o SECTOR ALLOCATION - 1/31/16 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 19.9%
INDUSTRIALS 15.8%
HEALTH CARE 15.8%
INFORMATION TECHNOLOGY 12.7%
CONSUMER DISCRETIONARY 10.8%
ENERGY 6.9%
MATERIALS 5.5%
CONSUMER STAPLES 4.6%
TELECOMMUNICATION SERVICES 2.7%
UTILITIES 1.7%
MONEY MARKET INSTRUMENTS 3.3%
[END CHART]
*Does not include money market instruments.
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 13-20.
================================================================================
12 | USAA VALUE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.4%)
COMMON STOCKS (96.4%)
CONSUMER DISCRETIONARY (10.8%)
------------------------------
APPAREL RETAIL (0.9%)
103,400 L Brands, Inc. $ 9,942
104,443 Tailored Brands, Inc. 1,432
----------
11,374
----------
APPAREL, ACCESSORIES & LUXURY GOODS (1.0%)
406,800 Hanesbrands, Inc. 12,436
----------
AUTO PARTS & EQUIPMENT (2.1%)
238,323 American Axle & Manufacturing Holdings, Inc.* 3,055
71,600 Delphi Automotive plc 4,650
472,496 Johnson Controls, Inc. 16,949
----------
24,654
----------
AUTOMOBILE MANUFACTURERS (0.9%)
952,404 Ford Motor Co. 11,372
----------
GENERAL MERCHANDISE STORES (1.0%)
157,143 Target Corp. 11,380
----------
HOME FURNISHINGS (0.6%)
110,800 Tempur Sealy International, Inc.* 6,686
----------
HOTELS, RESORTS & CRUISE LINES (2.4%)
201,927 Carnival Corp. 9,718
168,300 Norwegian Cruise Line Holdings Ltd.* 7,636
140,700 Royal Caribbean Cruises Ltd. 11,532
----------
28,886
----------
HOUSEHOLD APPLIANCES (1.0%)
91,847 Whirlpool Corp. 12,343
----------
LEISURE FACILITIES (0.4%)
268,500 SeaWorld Entertainment, Inc. 5,118
----------
PUBLISHING (0.1%)
21,400 Meredith Corp. 905
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.4%)
140,400 Vitamin Shoppe, Inc.* $ 4,272
----------
Total Consumer Discretionary 129,426
----------
CONSUMER STAPLES (4.6%)
-----------------------
TOBACCO (4.6%)
291,218 Altria Group, Inc. 17,796
254,587 Philip Morris International, Inc. 22,915
288,240 Reynolds American, Inc. 14,398
----------
55,109
----------
Total Consumer Staples 55,109
----------
ENERGY (6.9%)
-------------
INTEGRATED OIL & GAS (3.0%)
528,756 BP plc ADR 17,116
273,449 Occidental Petroleum Corp. 18,822
----------
35,938
----------
OIL & GAS EXPLORATION & PRODUCTION (1.8%)
356,366 ConocoPhillips 13,927
267,400 Memorial Resource Development Corp.* 4,254
154,400 RSP Permian, Inc.* 3,636
----------
21,817
----------
OIL & GAS REFINING & MARKETING (1.7%)
193,700 PBF Energy, Inc. "A" 6,778
168,677 Phillips 66 13,519
----------
20,297
----------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
239,000 Golar LNG Ltd. 4,450
----------
Total Energy 82,502
----------
FINANCIALS (19.9%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.6%)
63,000 Ameriprise Financial, Inc. 5,711
250,689 State Street Corp. 13,971
----------
19,682
----------
CONSUMER FINANCE (4.8%)
297,104 American Express Co. 15,895
363,835 Capital One Financial Corp. 23,875
164,500 Discover Financial Services 7,532
575,900 Navient Corp. 5,506
646,400 SLM Corp.* 4,137
----------
56,945
----------
================================================================================
14 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (6.7%)
1,043,366 Bank of America Corp. $ 14,753
362,253 Citigroup, Inc. 15,425
416,185 JPMorgan Chase & Co. 24,763
499,867 Wells Fargo & Co. 25,108
----------
80,049
----------
INSURANCE BROKERS (0.6%)
65,907 Willis Towers Watson plc 7,544
----------
MULTI-LINE INSURANCE (0.8%)
164,621 American International Group, Inc. 9,298
----------
REGIONAL BANKS (4.0%)
420,700 Fifth Third Bancorp 6,647
211,900 First Niagara Financial Group, Inc. 2,074
80,200 Hanmi Financial Corp. 1,740
343,900 People's United Financial, Inc. 4,942
238,439 PNC Financial Services Group, Inc. 20,661
104,900 Prosperity Bancshares, Inc. 4,448
124,200 Texas Capital Bancshares, Inc.* 4,434
327,400 Valley National Bancorp 2,881
----------
47,827
----------
REITs - HOTEL & RESORT (0.5%)
417,200 Host Hotels & Resorts, Inc. 5,778
----------
REITs - OFFICE (0.3%)
172,000 Corporate Office Properties Trust 3,836
----------
THRIFTS & MORTGAGE FINANCE (0.6%)
499,900 New York Community Bancorp, Inc. 7,739
----------
Total Financials 238,698
----------
HEALTH CARE (15.8%)
-------------------
HEALTH CARE DISTRIBUTORS (0.9%)
132,300 Cardinal Health, Inc. 10,765
----------
HEALTH CARE EQUIPMENT (2.9%)
357,679 Medtronic plc 27,155
144,500 St. Jude Medical, Inc. 7,638
----------
34,793
----------
HEALTH CARE FACILITIES (0.4%)
129,180 HealthSouth Corp. 4,623
----------
HEALTH CARE SUPPLIES (0.2%)
93,560 Haemonetics Corp.* 2,960
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MANAGED HEALTH CARE (3.2%)
71,353 Anthem, Inc. $ 9,311
88,500 Cigna Corp. 11,824
144,261 UnitedHealth Group, Inc. 16,613
----------
37,748
----------
PHARMACEUTICALS (8.2%)
213,302 Johnson & Johnson 22,277
324,429 Merck & Co., Inc. 16,439
733,375 Pfizer, Inc. 22,361
465,384 Sanofi ADR 19,379
278,451 Teva Pharmaceutical Industries Ltd. ADR 17,119
----------
97,575
----------
Total Health Care 188,464
----------
INDUSTRIALS (15.8%)
-------------------
AEROSPACE & DEFENSE (5.5%)
109,733 General Dynamics Corp. 14,679
137,535 Honeywell International, Inc. 14,194
83,044 Raytheon Co. 10,649
169,600 Spirit AeroSystems Holdings, Inc. "A"* 7,191
216,269 United Technologies Corp. 18,965
----------
65,678
----------
AGRICULTURAL & FARM MACHINERY (1.0%)
935,000 CNH Industrial N.V. 5,853
88,673 Deere & Co. 6,829
----------
12,682
----------
BUILDING PRODUCTS (2.0%)
146,525 Gibraltar Industries, Inc.* 3,112
240,600 Owens Corning, Inc. 11,113
163,900 Simpson Manufacturing Co., Inc. 5,348
114,500 Trex Co., Inc.* 4,301
----------
23,874
----------
CONSTRUCTION & ENGINEERING (1.4%)
183,221 Comfort Systems USA, Inc. 5,193
217,000 KBR, Inc. 3,094
251,800 Primoris Services Corp. 5,134
226,700 Tutor Perini Corp.* 2,995
----------
16,416
----------
================================================================================
16 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.7%)
101,100 Oshkosh Corp. $ 3,329
243,202 Terex Corp. 5,448
----------
8,777
----------
DIVERSIFIED SUPPORT SERVICES (0.3%)
142,630 Mobile Mini, Inc. 3,697
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.8%)
110,600 Eaton Corp. plc 5,586
100,100 Encore Wire Corp. 3,725
----------
9,311
----------
INDUSTRIAL MACHINERY (2.3%)
168,800 Barnes Group, Inc. 5,488
60,400 SPX Flow, Inc.* 1,440
201,188 Stanley Black & Decker, Inc. 18,980
38,900 Xylem, Inc. 1,398
----------
27,306
----------
RAILROADS (0.6%)
100,700 Norfolk Southern Corp. 7,099
----------
SECURITY & ALARM SERVICES (0.9%)
301,700 Tyco International plc 10,376
----------
TRUCKING (0.3%)
62,600 Ryder System, Inc. 3,328
----------
Total Industrials 188,544
----------
INFORMATION TECHNOLOGY (12.7%)
------------------------------
APPLICATION SOFTWARE (0.2%)
156,400 Mentor Graphics Corp. 2,718
----------
COMMUNICATIONS EQUIPMENT (1.3%)
329,519 QUALCOMM, Inc. 14,940
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
161,700 Total System Services, Inc. 6,494
----------
ELECTRONIC COMPONENTS (1.1%)
331,100 II-VI, Inc.* 6,887
561,640 Vishay Intertechnology, Inc. 6,436
----------
13,323
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
119,000 FARO Technologies, Inc.* 3,055
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.8%)
177,600 Mercury Systems, Inc.* $ 3,390
97,400 Park Electrochemical Corp. 1,586
141,300 Plexus Corp.* 4,939
----------
9,915
----------
SEMICONDUCTOR EQUIPMENT (0.9%)
435,100 Brooks Automation, Inc. 4,147
437,186 Photronics, Inc.* 5,220
300,000 Xcerra Corp.* 1,644
----------
11,011
----------
SEMICONDUCTORS (3.6%)
258,430 Diodes, Inc.* 4,944
398,324 Fairchild Semiconductor International, Inc.* 8,162
287,161 Intel Corp. 8,908
145,200 Microchip Technology, Inc. 6,506
269,423 Texas Instruments, Inc. 14,260
----------
42,780
----------
SYSTEMS SOFTWARE (4.0%)
483,521 Microsoft Corp. 26,637
591,266 Oracle Corp. 21,469
----------
48,106
----------
Total Information Technology 152,342
----------
MATERIALS (5.5%)
----------------
CONSTRUCTION MATERIALS (2.3%)
1,015,305 CRH plc ADR 27,332
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (1.0%)
210,500 FMC Corp. 7,519
61,731 Scotts Miracle-Gro Co. "A" 4,240
----------
11,759
----------
INDUSTRIAL GASES (1.7%)
161,165 Air Products & Chemicals, Inc. 20,421
----------
SPECIALTY CHEMICALS (0.5%)
190,700 Flotek Industries, Inc.* 1,274
184,000 PolyOne Corp. 4,979
----------
6,253
----------
Total Materials 65,765
----------
================================================================================
18 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (2.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.7%)
218,314 AT&T, Inc. $ 7,872
497,242 Verizon Communications, Inc. 24,847
----------
32,719
----------
Total Telecommunication Services 32,719
----------
UTILITIES (1.7%)
----------------
ELECTRIC UTILITIES (1.5%)
84,677 Entergy Corp. 5,977
86,200 Pinnacle West Capital Corp. 5,716
169,000 Xcel Energy, Inc. 6,459
----------
18,152
----------
MULTI-UTILITIES (0.2%)
144,800 CenterPoint Energy, Inc. 2,587
----------
Total Utilities 20,739
----------
Total Common Stocks 1,154,308
----------
Total Equity Securities (cost: $946,082) 1,154,308
----------
MONEY MARKET INSTRUMENTS (3.3%)
MONEY MARKET FUNDS (3.3%)
39,079,851 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a)
(cost: $39,080) 39,080
----------
TOTAL INVESTMENTS (COST: $985,162) $1,193,388
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
($ 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 $1,154,308 $- $- $1,154,308
Money Market Instruments:
Money Market Funds 39,080 - - 39,080
--------------------------------------------------------------------------------------------------------
Total $1,193,388 $- $- $1,193,388
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2015, through January 31, 2016, 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 VALUE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2016 (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 8.0% of net assets at January 31,
2016.
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) Rate represents the money market fund annualized seven-day yield at
January 31, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $985,162) $1,193,388
Receivables:
Capital shares sold 5,477
Dividends and interest 1,767
Securities sold 3,247
----------
Total assets 1,203,879
----------
LIABILITIES
Payables:
Securities purchased 5,429
Capital shares redeemed 508
Accrued management fees 756
Accrued transfer agent's fees 88
Other accrued expenses and payables 87
----------
Total liabilities 6,868
----------
Net assets applicable to capital shares outstanding $1,197,011
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 997,327
Accumulated undistributed net investment income 627
Accumulated net realized loss on investments (9,169)
Net unrealized appreciation of investments 208,226
----------
Net assets applicable to capital shares outstanding $1,197,011
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $733,210/42,368 shares outstanding) $ 17.31
==========
Institutional Shares (net assets of $456,014/26,373 shares outstanding) $ 17.29
==========
Adviser Shares (net assets of $7,787/451 shares outstanding) $ 17.26
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA VALUE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $35) $ 14,536
Interest 38
----------
Total income 14,574
----------
EXPENSES
Management fees 4,708
Administration and servicing fees:
Fund Shares 683
Institutional Shares 168
Adviser Shares 7
Transfer agent's fees:
Fund Shares 765
Institutional Shares 168
Distribution and service fees (Note 6E):
Adviser Shares 11
Custody and accounting fees:
Fund Shares 58
Institutional Shares 19
Adviser Shares 1
Postage:
Fund Shares 33
Shareholder reporting fees:
Fund Shares 18
Trustees' fees 13
Registration fees:
Fund Shares 24
Institutional Shares 10
Adviser Shares 8
Professional fees 59
Other 11
----------
Total expenses 6,764
Expenses paid indirectly:
Fund Shares (2)
Institutional Shares (1)
----------
Net expenses 6,761
----------
NET INVESTMENT INCOME 7,813
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (5,468)
Change in net unrealized appreciation/(depreciation) (145,315)
----------
Net realized and unrealized loss (150,783)
----------
Decrease in net assets resulting from operations $ (142,970)
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2016 (unaudited), and year ended
July 31, 2015
--------------------------------------------------------------------------------------------------------
1/31/2016 7/31/2015
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 7,813 $ 15,063
Net realized gain (loss) on investments (5,468) 61,814
Change in net unrealized appreciation/(depreciation) of investments (145,315) 21,398
------------------------
Increase (decrease) in net assets resulting from operations (142,970) 98,275
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (11,360) (11,218)
Institutional Shares (4,726) (6,208)
Adviser Shares (82) (92)
------------------------
Total distributions of net investment income (16,168) (17,518)
------------------------
Net realized gains:
Fund Shares (36,580) (31,237)
Institutional Shares (14,111) (15,427)
Adviser Shares (351) (322)
------------------------
Total distributions of net realized gains (51,042) (46,986)
------------------------
Distributions to shareholders (67,210) (64,504)
------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (71,417) 94,826
Institutional Shares 208,481 (41,701)
Adviser Shares (57) 192
------------------------
Total net increase in net assets from capital share transactions 137,007 53,317
------------------------
Net increase (decrease) in net assets (73,173) 87,088
NET ASSETS
Beginning of period 1,270,184 1,183,096
------------------------
End of period $1,197,011 $1,270,184
========================
Accumulated undistributed net investment income:
End of period $ 627 $ 8,982
========================
See accompanying notes to financial statements.
================================================================================
24 | USAA VALUE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2016 (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 Value Fund (the Fund), which is
classified as diversified under the 1940 Act. The Fund's investment objective
is to seek long-term growth of capital.
The Fund consists of three classes of shares: Value Fund Shares (Fund Shares),
Value Fund Institutional Shares (Institutional Shares), and Value 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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
official closing price on the exchange or primary market on which
================================================================================
26 | USAA VALUE FUND
================================================================================
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 has 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 | 27
================================================================================
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
================================================================================
28 | USAA VALUE FUND
================================================================================
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, 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. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended January 31, 2016, brokerage
commission recapture credits reduced the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
expenses of the Fund Shares, Institutional Shares, and Adviser Shares by
$2,000, $1,000, and less than $500, respectively. Additionally, 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 Funds based on their respective average net assets for
the period.
The Funds may request an optional increase of the committed loan agreement up to
$750 million. If the Funds increase the committed loan agreement above
================================================================================
30 | USAA VALUE FUND
================================================================================
the $500 million, the assessed facility fee by CAPCO will be increased to 10.0
basis points.
For the six-month period ended January 31, 2016, the Fund paid CAPCO facility
fees of $4,000, which represents 1.8% 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 January 31, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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 July 31, 2015, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2016, 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 January 31, 2016, were
$182,717,000 and $120,023,000, respectively.
As of January 31, 2016, 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 | 31
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2016, were $279,356,000 and $71,130,000, respectively, resulting in net
unrealized appreciation of $208,226,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2016 JULY 31, 2015
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------
FUND SHARES:
Shares sold 3,745 $ 71,044 9,354 $ 190,743
Shares issued from reinvested
dividends 2,535 47,490 2,065 41,980
Shares redeemed (10,776) (189,951) (6,755) (137,897)
----------------------------------------------
Net increase (decrease) from
capital share transactions (4,496) $ (71,417) 4,664 $ 94,826
==============================================
INSTITUTIONAL SHARES:
Shares sold 11,269 $ 199,992 6,490 $ 131,373
Shares issued from reinvested dividends 1,006 18,819 1,064 21,630
Shares redeemed (540) (10,330) (9,424) (194,704)
----------------------------------------------
Net increase (decrease) from
capital share transactions 11,735 $ 208,481 (1,870) $ (41,701)
==============================================
ADVISER SHARES:
Shares sold 2 $ 45 11 $ 211
Shares issued from reinvested dividends -* 4 -* 3
Shares redeemed (5) (106) (1) (22)
----------------------------------------------
Net increase (decrease) from
capital share transactions (3) $ (57) 10 $ 192
==============================================
*Represents less than 500 shares.
================================================================================
32 | USAA VALUE FUND
================================================================================
(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 day-to-day investment 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 Multi-Cap Value Funds Index. The Lipper
Multi-Cap Value Funds Index tracks the total return performance of the 30
largest funds within the Lipper Multi-Cap Value 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 Multi-Cap Value Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $4,708,000. For the
six-month period ended January 31, 2016, the Fund had no performance
adjustment.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS),
under which BHMS 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 BHMS a subadvisory fee based on the
aggregate average net assets that BHMS manages in the USAA Value Fund and
the USAA Growth & Income Fund combined, in the annual amount of 0.75% on the
first $15 million in assets, 0.55% on assets over $15 million and up to $25
million, 0.45% on assets over $25 million and up to $100 million, 0.35% on
assets over $100 million and up to $200 million, 0.25% on assets over $200
million and up to $1 billion, and 0.15% on assets over $1 billion. For the
six-month period ended January 31, 2016, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to BHMS, of $1,406,000.
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
================================================================================
34 | USAA VALUE FUND
================================================================================
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 January 31, 2016, the Fund Shares, Institutional Shares,
and Adviser Shares incurred administration and servicing fees, paid or
payable to the Manager, of $683,000, $168,000, 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 January 31, 2016, the Fund reimbursed the Manager
$16,000 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 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 January 31,
2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred
transfer agent's fees, paid or payable to SAS, of $765,000, $168,000, 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
charge or a contingent deferred sales charge. For the six-month period ended
January 31, 2016, the Adviser Shares incurred distribution and service
(12b-1) fees of $11,000.
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 fee or other compensation for these
services.
(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
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31, 2016, 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 1.1
USAA Target Retirement 2020 3.1
USAA Target Retirement 2030 7.3
USAA Target Retirement 2040 9.5
USAA Target Retirement 2050 5.1
USAA Target Retirement 2060 0.4
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2016, USAA and its affiliates owned 441,000 Adviser Shares, which represents
97.7% of the Adviser Shares and 0.6% 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.
================================================================================
36 | USAA VALUE FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 20.50 $ 20.00 $ 18.37 $ 14.22 $ 13.74 $ 11.82
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .20 .27 .21 .23 .14
Net realized and
unrealized gain (loss) (2.29) 1.28 2.11 4.17 .41 1.91
--------------------------------------------------------------------------
Total investment
operations (2.18) 1.48 2.38 4.38 .64 2.05
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.25) (.20) (.23) (.16) (.13)
Realized capital gains (.78) (.73) (.55) - - -
--------------------------------------------------------------------------
Total distributions (1.01) (.98) (.75) (.23) (.16) (.13)
--------------------------------------------------------------------------
Net asset value at
end of period $ 17.31 $ 20.50 $ 20.00 $ 18.37 $ 14.22 $ 13.74
==========================================================================
Total return (%)* (10.94) 7.47 13.21 31.15 4.77 17.39
Net assets at end
of period (000) $733,210 $960,925 $844,121 $633,228 $425,071 $585,536
Ratios to average
net assets:**
Expenses (%)(a) 1.11(c) 1.09 1.11(b) 1.15(b) 1.15(b) 1.15(b)
Expenses, excluding
reimbursements (%)(a) 1.11(c) 1.09 1.11 1.25 1.31 1.25
Net investment
income (%) 1.22(c) 1.06 1.55 1.40 1.48 1.10
Portfolio turnover (%) 10 30 20 26 20 22
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$903,927,000.
(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%)(+) (.01%) (.01%)
(+) Represents less than 0.01% of average net assets.
(b) Prior to December 1, 2013, the Manager had voluntarily agreed to limit
the annual expenses of the Fund Shares to 1.15% of the Fund Shares' average
net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 20.49 $ 20.00 $ 18.36 $ 14.22 $ 13.75 $ 11.82
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .12 .26(a) .29 .25 .21 .18
Net realized and
unrealized gain (loss) (2.29) 1.24(a) 2.11 4.15 .45 1.91
--------------------------------------------------------------------------
Total from investment
operations (2.17) 1.50(a) 2.40 4.40 .66 2.09
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.28) (.21) (.26) (.19) (.16)
Realized capital gains (.78) (.73) (.55) - - -
--------------------------------------------------------------------------
Total distributions (1.03) (1.01) (.76) (.26) (.19) (.16)
--------------------------------------------------------------------------
Net asset value at end of
period $ 17.29 $ 20.49 $ 20.00 $ 18.36 $ 14.22 $ 13.75
==========================================================================
Total return (%)* (10.91) 7.57 13.34 31.31 4.95 17.74
Net assets at
end of period (000) $456,014 $299,990 $330,114 $214,855 $171,322 $141,668
Ratios to average
net assets:**
Expenses (%)(b) .98(d) .98 1.00 1.01 1.00 .90(c)
Net investment income (%) 1.34(d) 1.23 1.59 1.54 1.61 1.35
Portfolio turnover (%) 10 30 20 26 20 22
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$334,584,000.
(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%)(+) (.01%) (.01%)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit
the annual expenses of the Institutional Shares to 0.91% of the
Institutional Shares' average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA VALUE 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
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
-------------------------------------------------------------------------
2016 2015 2014 2013 2012 2011***
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 20.43 $19.94 $18.29 $14.16 $13.68 $12.07
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .17 .25 .15 .13 .08(a)
Net realized and
unrealized gain (loss) (2.30) 1.26 2.08 4.15 .44 1.65(a)
-------------------------------------------------------------------------
Total from
investment operations (2.21) 1.43 2.33 4.30 .57 1.73(a)
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.21) (.13) (.17) (.09) (.12)
Realized capital gains (.78) (.73) (.55) - - -
-------------------------------------------------------------------------
Total distributions (.96) (.94) (.68) (.17) (.09) (.12)
-------------------------------------------------------------------------
Net asset value at
end of period $ 17.26 $20.43 $19.94 $18.29 $14.16 $13.68
=========================================================================
Total return (%)* (11.13) 7.22 12.94 30.63 4.26 14.32
Net assets at end
of period (000) $ 7,787 $9,269 $8,861 $8,237 $6,406 $6,161
Ratios to average
net assets:**
Expenses (%)(b) 1.38(c) 1.34 1.35(d) 1.57(d) 1.65(d) 1.65(c),(d)
Expenses, excluding
reimbursements (%)(b) 1.38(c) 1.34 1.35 1.57 1.66 2.00(c)
Net investment income (%) .96(c) .82 1.30 .99 .97 .58(c)
Portfolio turnover (%) 10 30 20 26 20 22
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2016, average net assets were
$8,607,000.
*** Adviser Shares commenced operations 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 as follows:
(.00%)(+) - (.01%) (.00%)(+) (.01%) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Prior to December 1, 2013, the Manager had voluntarily agreed to limit
the annual expenses of the Adviser Shares to 1.65% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
EXPENSE EXAMPLE
January 31, 2016 (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 August 1, 2015, through
January 31, 2016.
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
================================================================================
40 | USAA VALUE FUND
================================================================================
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 so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 -
AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016
------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 890.60 $5.28
Hypothetical
(5% return before expenses) 1,000.00 1,019.56 5.63
INSTITUTIONAL SHARES
Actual 1,000.00 890.90 4.66
Hypothetical
(5% return before expenses) 1,000.00 1,020.21 4.98
ADVISER SHARES
Actual 1,000.00 888.70 6.55
Hypothetical
(5% return before expenses) 1,000.00 1,018.20 7.00
*Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares,
0.98% for Institutional Shares, and 1.38% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 (10.94)% for Fund Shares, (10.91)% for Institutional
Shares, and (11.13)% for Adviser Shares for the six-month period of August 1,
2015, through January 31, 2016.
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
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)
=============================================================================
40847-0316 (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 January 31, 2016
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 03/22/2016
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 03/23/2016
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 03/22/2016
------------------------------
*Print the name and title of each signing officer under his or her signature.