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, 2017
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2017
[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, 2017
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PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
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MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
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At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 10
Notes to Portfolio of Investments 18
Financial Statements 19
Notes to Financial Statements 22
EXPENSE EXAMPLE 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
202720-0317
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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 tax 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?
As the reporting period began, uncertainty surrounding Federal Reserve (the
Fed) interest rate increases and the U.S. presidential election drove
volatility in U.S. stocks through August and September 2016. Chair Janet
Yellen's aggressive speech during the Fed's August 2016 meeting stirred
investor expectations for further interest rate increases. However, the
Fed's more reserved statement in September 2016 appeared to appease
investors, and spurred a brief rally through the second half of the month.
As the presidential election loomed, stock prices decreased through October
2016 despite strong growth figures and an above-average number of positive
earnings news. Global equities rebounded following the unexpected U.S.
presidential election results in November 2016. Equities surged over the
month as investors placed faith in Trump's proposals of fiscal stimulus and
deregulation. Emerging market equities, meanwhile, were hindered by the new
president's protectionist tone. Optimism surrounding Trump's proposals
bolstered the S&P 500(R) to a new record high in December 2016. With that
backdrop, the Fed announced an interest rate increase during the month of
December 2016, and indicated the possibility of pursuing three interest
rate increases during 2017. In January 2017, U.S. and global equities
rallied for the third consecutive month. The Dow Jones Industrial Average
managed to top 20,000 for the first time as hopes
*Effective December 31, 2016, Clark J. Winslow is no longer co-managing the
Fund.
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2 | USAA AGGRESSIVE GROWTH FUND
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surrounding the new president's tax reform, deregulation, and
infrastructure plans outweighed investor fears concerning further Fed
tightening and potential changes in tariff and trade policies.
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, 2017, the Fund Shares and
Institutional Shares had total returns of 2.90% and 2.97%, respectively.
This compares to returns of 4.28% for the Russell 1000(R) Growth Index (the
Index) and 3.63% 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 THE WELLINGTON MANAGEMENT'S PORTION OF THE FUND PERFORM DURING THE
REPORTING PERIOD?
The Wellington Management portion of the Fund underperformed its benchmark,
the Index, during the reporting period. Stock selection was the primary
detractor from relative performance, driven by weak selection within the
information technology, health care, and consumer staples sectors. Sector
allocation contributed to relative performance, as an overweight to
information technology and underweights to real estate and consumer staples
partially offset weak stock selection. Top
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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individual detractors during the reporting period included Bristol-Myers
Squibb Co. (health care) and QUALCOMM, Inc., (information technology), as
well as not holding benchmark constituent NVIDIA (information technology).
Top individual contributors to relative performance included non-benchmark
positions in Rio Tinto plc ADR (materials), CheckPoint Software
Technologies Ltd. (information technology), and Bank of America Corp.
o HOW DID WINSLOW CAPITAL'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
` Winslow Capital's portion of the Fund underperformed the benchmark. While
the portfolio's positioning was generally positive, an underweight position
within consumer staples, stock selection detracted from relative
performance. The two most challenged sectors in terms of relative
performance were industrials and health care. Within industrials, Nielsen
Holdings plc* (Nielsen) and Kansas City Southern* were poor performers,
with Nielsen reporting weaker earnings and Kansas City Southern challenged
by protectionist rhetoric as approximately 50% of its rail volume goes to
Mexico. Within the health care sector, Centene Corp.*, underperformed, as
the company faced reduced earnings expectations post-election in light of
the fact that its Medicaid businesses may weaken. Also within the health
care sector, holdings in Zimmer Biomet Holdings, Inc.*, underperformed as
the company achieved fewer merger synergies than expected.
Thank you for allowing us to help with your investment needs.
*Nielsen Holdings plc, Kansas City Southern, Centene Corp., and Zimmer
Biomet Holdings, Inc., were sold out of the Fund prior to January 31, 2017.
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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1/31/17 7/31/16
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Net Assets $1.2 Billion $1.2 Billion
Net Asset Value Per Share $38.36 $40.02
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
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7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
2.90% 12.55% 11.69% 5.84%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
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1 YEAR 5 YEARS 10 YEARS
0.72% 12.34% 5.87%
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EXPENSE RATIO AS OF 7/31/16**
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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.
**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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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INVESTMENT OVERVIEW | 5
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER LARGE-CAP
RUSSELL 1000 GROWTH FUNDS USAA AGGRESSIVE
GROWTH INDEX INDEX GROWTH FUND SHARES
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,812.08 9,774.27 9,644.00
3/31/2007 9,865.26 9,847.83 9,609.00
4/30/2007 10,329.76 10,247.63 9,887.00
5/31/2007 10,701.27 10,594.66 10,269.00
6/30/2007 10,541.63 10,494.74 10,168.00
7/31/2007 10,378.20 10,361.57 10,049.00
8/31/2007 10,543.58 10,532.32 10,258.00
9/30/2007 10,985.25 11,174.80 10,975.00
10/31/2007 11,359.12 11,674.17 11,627.00
11/30/2007 10,940.69 11,198.22 11,036.00
12/31/2007 10,901.12 11,208.00 10,976.00
1/31/2008 10,051.09 10,248.92 10,039.00
2/29/2008 9,851.46 10,035.41 9,688.00
3/31/2008 9,791.48 9,950.02 9,491.00
4/30/2008 10,305.54 10,563.17 10,091.00
5/31/2008 10,683.27 10,851.58 10,254.00
6/30/2008 9,913.84 10,053.23 9,491.00
7/31/2008 9,725.36 9,854.87 9,395.00
8/31/2008 9,830.07 9,881.17 9,314.00
9/30/2008 8,691.70 8,614.61 8,292.00
10/31/2008 7,161.45 7,110.09 7,065.00
11/30/2008 6,591.90 6,396.84 6,316.00
12/31/2008 6,711.04 6,568.67 6,422.00
1/31/2009 6,388.21 6,229.11 5,910.00
2/28/2009 5,907.63 5,822.80 5,516.00
3/31/2009 6,434.57 6,323.19 5,887.00
4/30/2009 7,052.33 6,993.15 6,474.00
5/31/2009 7,401.92 7,376.00 6,919.00
6/30/2009 7,484.73 7,378.90 6,758.00
7/31/2009 8,016.34 7,934.92 7,258.00
8/31/2009 8,182.60 8,091.46 7,462.00
9/30/2009 8,530.65 8,480.04 7,787.00
10/31/2009 8,415.10 8,312.26 7,646.00
11/30/2009 8,932.06 8,813.64 8,213.00
12/31/2009 9,208.14 9,097.55 8,258.00
1/31/2010 8,806.33 8,620.92 7,897.00
2/28/2010 9,108.97 8,926.74 8,123.00
3/31/2010 9,635.86 9,487.43 8,696.00
4/30/2010 9,743.53 9,585.01 8,825.00
5/31/2010 8,999.69 8,815.01 8,185.00
6/30/2010 8,504.12 8,307.68 7,627.00
7/31/2010 9,110.74 8,871.16 8,091.00
8/31/2010 8,685.36 8,435.66 7,674.00
9/30/2010 9,609.92 9,339.90 8,605.00
10/31/2010 10,068.89 9,830.40 9,013.00
11/30/2010 10,185.82 9,928.77 9,121.00
12/31/2010 10,746.87 10,473.57 9,688.00
1/31/2011 11,020.37 10,680.23 9,905.00
2/28/2011 11,381.03 10,969.22 10,228.00
3/31/2011 11,394.93 10,974.74 10,296.00
4/30/2011 11,776.53 11,307.52 10,625.00
5/31/2011 11,648.32 11,169.90 10,449.00
6/30/2011 11,481.26 11,022.03 10,290.00
7/31/2011 11,366.18 10,963.06 10,152.00
8/31/2011 10,766.33 10,225.97 9,456.00
9/30/2011 9,973.02 9,333.57 8,634.00
10/31/2011 11,067.45 10,453.80 9,761.00
11/30/2011 11,066.39 10,325.15 9,626.00
12/31/2011 11,030.80 10,169.37 9,447.00
1/31/2012 11,689.25 10,866.44 10,149.00
2/29/2012 12,248.28 11,506.42 10,672.00
3/31/2012 12,651.15 11,913.01 11,080.00
4/30/2012 12,631.61 11,825.44 10,927.00
5/31/2012 11,821.34 10,918.78 10,017.00
6/30/2012 12,142.33 11,160.62 10,290.00
7/31/2012 12,305.09 11,177.88 10,305.00
8/31/2012 12,636.15 11,597.68 10,672.00
9/30/2012 12,883.96 11,882.45 10,889.00
10/31/2012 12,507.92 11,469.35 10,405.00
11/30/2012 12,717.37 11,724.54 10,663.00
12/31/2012 12,713.86 11,788.13 10,640.00
1/31/2013 13,258.77 12,296.95 11,121.00
2/28/2013 13,423.75 12,362.65 11,196.00
3/31/2013 13,927.32 12,751.38 11,586.00
4/30/2013 14,222.95 12,916.66 11,726.00
5/31/2013 14,487.18 13,257.06 12,090.00
6/30/2013 14,214.56 12,988.45 11,879.00
7/31/2013 14,968.24 13,800.54 12,504.00
8/31/2013 14,711.70 13,634.65 12,273.00
9/30/2013 15,367.31 14,414.18 12,930.00
10/31/2013 16,047.09 15,018.71 13,466.00
11/30/2013 16,499.76 15,467.60 13,889.00
12/31/2013 16,971.08 15,962.36 14,303.00
1/31/2014 16,487.26 15,581.32 13,967.00
2/28/2014 17,335.90 16,475.00 14,695.00
3/31/2014 17,161.07 15,944.59 14,256.00
4/30/2014 17,161.77 15,667.33 13,945.00
5/31/2014 17,696.61 16,236.16 14,499.00
6/30/2014 18,041.49 16,633.85 14,788.00
7/31/2014 17,765.32 16,461.55 14,606.00
8/31/2014 18,579.29 17,144.72 15,235.00
9/30/2014 18,309.77 16,845.73 15,053.00
10/31/2014 18,792.26 17,338.21 15,506.00
11/30/2014 19,387.76 17,774.94 16,024.00
12/31/2014 19,185.78 17,612.38 15,835.00
1/31/2015 18,891.98 17,325.73 15,526.00
2/28/2015 20,151.24 18,418.42 16,537.00
3/31/2015 19,922.06 18,218.96 16,248.00
4/30/2015 20,021.83 18,214.87 16,200.00
5/31/2015 20,303.66 18,564.10 16,577.00
6/30/2015 19,945.97 18,390.53 16,389.00
7/31/2015 20,622.36 19,043.57 17,083.00
8/31/2015 19,369.99 17,791.75 16,011.00
9/30/2015 18,890.82 17,185.56 15,526.00
10/31/2015 20,517.43 18,683.65 16,915.00
11/30/2015 20,575.02 18,785.58 16,963.00
12/31/2015 20,273.08 18,600.74 16,785.00
1/31/2016 19,141.29 17,121.40 15,675.00
2/29/2016 19,133.12 16,849.15 15,397.00
3/31/2016 20,423.48 17,811.48 16,266.00
4/30/2016 20,236.99 17,795.96 16,142.00
5/31/2016 20,629.97 18,229.59 16,450.00
6/30/2016 20,548.95 17,870.00 16,378.00
7/31/2016 21,518.90 18,894.63 17,144.00
8/31/2016 21,411.99 18,873.79 17,054.00
9/30/2016 21,490.31 19,069.81 17,166.00
10/31/2016 20,985.66 18,631.99 16,746.00
11/30/2016 21,442.27 18,695.59 16,827.00
12/31/2016 21,707.70 18,701.39 16,906.00
1/31/2017 22,439.22 19,581.13 17,642.00
[END CHART]
Data from 1/31/07 through 1/31/17.
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 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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1/31/17 7/31/16
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Net Assets $89.3 Million $136.4 Million
Net Asset Value Per Share $38.73 $40.39
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
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7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
2.97% 12.68% 11.97% 8.16%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
0.81% 12.62% 7.69%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
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0.70%
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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
RUSSELL 1000 GROWTH FUNDS GROWTH 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 7,251.49 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 8,434.68 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 9,907.98 9,627.15 9,412.73
4/30/2010 10,018.69 9,726.17 9,552.65
5/31/2010 9,253.85 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 8,930.64 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 11,184.36 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 12,594.18 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 12,993.00 11,768.48 11,666.91
9/30/2012 13,247.80 12,057.45 11,909.64
10/31/2012 12,861.15 11,638.26 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 13,106.89 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 14,003.79 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 16,965.72 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 17,593.56 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 20,484.66 18,487.27 17,892.60
4/30/2015 20,587.24 18,483.12 17,839.97
5/31/2015 20,877.03 18,837.50 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 18,958.81 18,646.88
11/30/2015 21,156.05 19,062.23 18,703.89
12/31/2015 20,845.59 18,874.68 18,510.81
1/31/2016 19,681.84 17,373.55 17,288.31
2/29/2016 19,673.44 17,097.29 16,979.00
3/31/2016 21,000.24 18,073.79 17,944.00
4/30/2016 20,808.48 18,058.04 17,808.00
5/31/2016 21,212.56 18,498.06 18,145.00
6/30/2016 21,129.25 18,133.17 18,071.00
7/31/2016 22,126.59 19,172.89 18,918.00
8/31/2016 22,016.66 19,151.74 18,820.00
9/30/2016 22,097.20 19,350.65 18,946.00
10/31/2016 21,578.29 18,906.38 18,483.00
11/30/2016 22,047.80 18,970.93 18,572.00
12/31/2016 22,320.73 18,976.81 18,660.00
1/31/2017 23,072.91 19,869.50 19,480.00
[END CHART]
Data from 7/31/08 through 1/31/17.*
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* - 1/31/17 o
(% of Net Assets)
Apple, Inc. ............................................................... 4.8%
Microsoft Corp. ........................................................... 4.2%
Alphabet, Inc. "C" ........................................................ 4.1%
Amazon.com, Inc. .......................................................... 3.3%
Facebook, Inc. "A" ........................................................ 3.1%
Visa, Inc. "A" ............................................................ 3.0%
Comcast Corp. "A" ......................................................... 1.9%
Home Depot, Inc. .......................................................... 1.9%
MasterCard, Inc. "A" ...................................................... 1.8%
Priceline Group, Inc. ..................................................... 1.7%
o SECTOR ALLOCATION - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 44.5%
CONSUMER DISCRETIONARY 17.5%
HEALTH CARE 14.7%
INDUSTRIALS 8.9%
FINANCIALS 5.2%
ENERGY 3.6%
CONSUMER STAPLES 2.6%
MATERIALS 2.2%
REAL ESTATE 0.8%
[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 10-17.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (100.0%)
COMMON STOCKS (100.0%)
CONSUMER DISCRETIONARY (17.5%)
------------------------------
ADVERTISING (0.4%)
56,607 Omnicom Group, Inc. $ 4,848
----------
APPAREL RETAIL (0.5%)
34,042 Ross Stores, Inc. 2,250
52,896 TJX Companies, Inc. 3,963
----------
6,213
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.4%)
74,250 Lululemon Athletica, Inc.* 5,013
----------
AUTOMOTIVE RETAIL (0.6%)
31,204 O'Reilly Automotive, Inc.* 8,184
----------
BROADCASTING (0.8%)
123,953 Discovery Communications, Inc. "A"* 3,514
79,968 Scripps Networks Interactive "A" 6,090
----------
9,604
----------
CABLE & SATELLITE (2.1%)
10,111 Charter Communications, Inc. "A"* 3,275
322,454 Comcast Corp. "A" 24,320
----------
27,595
----------
CASINOS & GAMING (0.4%)
102,571 Las Vegas Sands Corp. 5,393
----------
FOOTWEAR (1.2%)
281,700 NIKE, Inc. "B" 14,902
----------
GENERAL MERCHANDISE STORES (0.9%)
38,771 Dollar General Corp. 2,862
104,500 Dollar Tree, Inc.* 8,066
----------
10,928
----------
HOME IMPROVEMENT RETAIL (1.9%)
173,856 Home Depot, Inc. 23,919
----------
================================================================================
10 | USAA AGGRESSIVE GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES (0.3%)
30,100 Hilton Worldwide Holdings, Inc. $ 1,733
26,820 Wyndham Worldwide Corp. 2,121
----------
3,854
----------
INTERNET RETAIL (6.6%)
51,086 Amazon.com, Inc.* 42,068
135,500 Ctrip.com International Ltd. ADR* 5,855
47,690 Expedia, Inc. 5,799
70,461 Netflix, Inc.* 9,914
13,631 Priceline Group, Inc.* 21,471
----------
85,107
----------
MOVIES & ENTERTAINMENT (0.7%)
57,684 Viacom, Inc. "B" 2,431
64,300 Walt Disney Co. 7,115
----------
9,546
----------
RESTAURANTS (0.7%)
170,350 Starbucks Corp. 9,407
----------
Total Consumer Discretionary 224,513
----------
CONSUMER STAPLES (2.6%)
-----------------------
HOUSEHOLD PRODUCTS (0.3%)
50,337 Colgate-Palmolive Co. 3,251
----------
HYPERMARKETS & SUPER CENTERS (0.7%)
54,350 Costco Wholesale Corp. 8,911
----------
PACKAGED FOODS & MEAT (0.5%)
100,265 BRF-Brasil Foods S.A. ADR 1,416
30,405 Hershey Co. 3,207
48,618 Mondelez International, Inc. "A" 2,153
----------
6,776
----------
SOFT DRINKS (1.1%)
141,485 PepsiCo, Inc. 14,683
----------
Total Consumer Staples 33,621
----------
ENERGY (3.6%)
-------------
INTEGRATED OIL & GAS (1.1%)
194,707 BP plc ADR 7,005
61,721 Chevron Corp. 6,873
----------
13,878
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (1.1%)
117,542 Baker Hughes, Inc. $ 7,414
91,578 Schlumberger Ltd. 7,666
----------
15,080
----------
OIL & GAS EXPLORATION & PRODUCTION (1.4%)
51,800 Diamondback Energy, Inc.* 5,448
69,456 Pioneer Natural Resources Co. 12,518
----------
17,966
----------
Total Energy 46,924
----------
FINANCIALS (5.2%)
-----------------
CONSUMER FINANCE (0.3%)
56,220 American Express Co. 4,294
----------
DIVERSIFIED BANKS (2.5%)
329,472 Bank of America Corp. 7,459
76,213 Citigroup, Inc. 4,255
157,460 JPMorgan Chase & Co. 13,326
127,200 Wells Fargo & Co. 7,165
----------
32,205
----------
FINANCIAL EXCHANGES & DATA (1.8%)
13,553 FactSet Research Systems, Inc. 2,345
245,622 Intercontinental Exchange, Inc. 14,335
55,600 Moody's Corp. 5,764
----------
22,444
----------
MULTI-LINE INSURANCE (0.6%)
113,392 American International Group, Inc. 7,287
----------
Total Financials 66,230
----------
HEALTH CARE (14.7%)
-------------------
BIOTECHNOLOGY (4.0%)
53,800 Alexion Pharmaceuticals, Inc.* 7,030
87,030 Amgen, Inc. 13,636
134,254 Celgene Corp.* 15,594
118,691 Gilead Sciences, Inc. 8,599
19,820 Regeneron Pharmaceuticals, Inc.* 7,121
----------
51,980
----------
HEALTH CARE DISTRIBUTORS (0.4%)
62,398 Cardinal Health, Inc. 4,677
----------
HEALTH CARE EQUIPMENT (3.6%)
25,482 Becton, Dickinson & Co. 4,518
312,200 Boston Scientific Corp.* 7,511
================================================================================
12 | USAA AGGRESSIVE GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
11,415 C.R. Bard, Inc. $ 2,709
145,803 Danaher Corp. 12,236
66,895 Edwards Lifesciences Corp.* 6,438
10,525 Intuitive Surgical, Inc.* 7,290
44,133 Medtronic plc 3,355
29,101 Varian Medical Systems, Inc.* 2,260
----------
46,317
----------
HEALTH CARE FACILITIES (0.3%)
48,965 HCA Holdings, Inc.* 3,931
----------
HEALTH CARE TECHNOLOGY (0.0%)
11,640 Varex Imaging Corp.* 335
----------
LIFE SCIENCES TOOLS & SERVICES (0.8%)
40,928 ICON plc* 3,441
44,900 Thermo Fisher Scientific, Inc. 6,842
----------
10,283
----------
MANAGED HEALTH CARE (2.2%)
63,336 Aetna, Inc. 7,512
22,125 Anthem, Inc. 3,411
102,950 UnitedHealth Group, Inc. 16,688
----------
27,611
----------
PHARMACEUTICALS (3.4%)
23,135 Allergan plc* 5,064
187,049 Bristol-Myers Squibb Co. 9,195
54,700 Eli Lilly & Co. 4,214
60,894 Johnson & Johnson 6,896
86,954 Merck & Co., Inc. 5,390
231,900 Zoetis, Inc. 12,741
----------
43,500
----------
Total Health Care 188,634
----------
INDUSTRIALS (8.9%)
------------------
AEROSPACE & DEFENSE (1.5%)
38,000 General Dynamics Corp. 6,881
7,700 Northrop Grumman Corp. 1,764
70,400 Raytheon Co. 10,149
----------
18,794
----------
AIR FREIGHT & LOGISTICS (0.4%)
73,493 C.H. Robinson Worldwide, Inc. 5,590
----------
AIRLINES (0.6%)
148,500 Southwest Airlines Co. 7,768
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (1.0%)
62,313 Caterpillar, Inc. $ 5,961
45,618 Cummins, Inc. 6,706
----------
12,667
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.7%)
63,535 Emerson Electric Co. 3,727
40,015 Rockwell Automation, Inc. 5,922
----------
9,649
----------
INDUSTRIAL CONGLOMERATES (1.4%)
151,850 Honeywell International, Inc. 17,967
----------
INDUSTRIAL MACHINERY (1.7%)
56,315 Dover Corp. 4,378
187,409 Fortive Corp. 10,366
51,613 Parker-Hannifin Corp. 7,594
----------
22,338
----------
RAILROADS (0.6%)
70,050 Union Pacific Corp. 7,466
----------
RESEARCH & CONSULTING SERVICES (1.0%)
168,455 Experian plc 3,240
187,596 IHS Markit Ltd.* 7,401
26,941 Verisk Analytics, Inc.* 2,226
----------
12,867
----------
Total Industrials 115,106
----------
INFORMATION TECHNOLOGY (44.5%)
------------------------------
APPLICATION SOFTWARE (3.6%)
81,200 Adobe Systems, Inc.* 9,207
84,711 Intuit, Inc. 10,045
139,500 Mobileye N.V.* 5,993
163,100 salesforce.com, Inc.* 12,901
120,500 Splunk, Inc.* 6,972
45,790 SS&C Technologies Holdings, Inc. 1,471
----------
46,589
----------
COMMUNICATIONS EQUIPMENT (0.9%)
172,553 Cisco Systems, Inc. 5,301
49,418 F5 Networks, Inc.* 6,623
----------
11,924
----------
DATA PROCESSING & OUTSOURCED SERVICES (10.2%)
16,869 Alliance Data Systems Corp. 3,853
30,550 Automatic Data Processing, Inc. 3,085
================================================================================
14 | USAA AGGRESSIVE GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
82,800 Fidelity National Information Services, Inc. $ 6,576
95,525 Fiserv, Inc.* 10,262
57,350 FleetCor Technologies, Inc.* 8,459
49,341 Global Payments, Inc. 3,813
61,544 Jack Henry & Associates, Inc. 5,525
218,821 MasterCard, Inc. "A" 23,267
93,018 Paychex, Inc. 5,608
416,103 PayPal Holdings, Inc.* 16,553
102,235 Vantiv, Inc. "A"* 6,363
461,430 Visa, Inc. "A" 38,165
----------
131,529
----------
HOME ENTERTAINMENT SOFTWARE (0.8%)
127,536 Electronic Arts, Inc.* 10,640
----------
INTERNET SOFTWARE & SERVICES (11.2%)
135,009 Alibaba Group Holding Ltd. ADR* 13,678
17,750 Alphabet, Inc. "A"* 14,559
66,993 Alphabet, Inc. "C"* 53,379
11,677 Baidu, Inc. ADR* 2,044
32,035 CoStar Group, Inc.* 6,474
261,239 eBay, Inc.* 8,315
301,385 Facebook, Inc. "A"* 39,277
21,424 GoDaddy, Inc. "A"* 766
228,187 Yandex N.V. "A"* 5,280
----------
143,772
----------
IT CONSULTING & OTHER SERVICES (0.6%)
57,842 Amdocs Ltd. 3,396
37,108 Gartner, Inc.* 3,687
----------
7,083
----------
SEMICONDUCTOR EQUIPMENT (0.8%)
283,473 Applied Materials, Inc. 9,709
----------
SEMICONDUCTORS (4.8%)
54,700 Broadcom Ltd. 10,913
47,777 Cirrus Logic, Inc.* 2,882
150,936 Linear Technology Corp. 9,529
192,198 Maxim Integrated Products, Inc. 8,549
300,600 Micron Technology, Inc.* 7,247
133,147 QUALCOMM, Inc. 7,114
144,295 Texas Instruments, Inc. 10,900
72,161 Xilinx, Inc. 4,200
----------
61,334
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (6.8%)
110,290 Check Point Software Technologies Ltd.* $ 10,893
837,932 Microsoft Corp. 54,172
376,711 Oracle Corp. 15,110
86,800 ServiceNow, Inc.* 7,866
----------
88,041
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (4.8%)
508,422 Apple, Inc. 61,697
----------
Total Information Technology 572,318
----------
MATERIALS (2.2%)
----------------
DIVERSIFIED METALS & MINING (0.7%)
205,204 Rio Tinto plc ADR 9,191
----------
SPECIALTY CHEMICALS (1.0%)
49,750 Ecolab, Inc. 5,976
23,931 Sherwin-Williams Co. 7,271
----------
13,247
----------
STEEL (0.5%)
99,549 Nucor Corp. 5,783
----------
Total Materials 28,221
----------
REAL ESTATE (0.8%)
------------------
REITs - SPECIALIZED (0.8%)
54,100 American Tower Corp. 5,600
22,155 Public Storage 4,763
----------
10,363
----------
Total Real Estate 10,363
----------
Total Common Stocks 1,285,930
----------
Total Equity Securities (cost: $918,297) 1,285,930
----------
MONEY MARKET INSTRUMENTS (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
4,227,348 State Street Institutional Treasury Money Market Fund Premier Class, 0.42%(a)
(cost: $4,227) 4,227
----------
TOTAL INVESTMENTS (COST: $922,524) $1,290,157
==========
================================================================================
16 | USAA AGGRESSIVE GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,285,930 $- $- $1,285,930
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 4,227 - - 4,227
--------------------------------------------------------------------------------------------------
Total $1,290,157 $- $- $1,290,157
--------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
18 | USAA AGGRESSIVE GROWTH FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $922,524) $1,290,157
Cash denominated in foreign currencies (identified cost of $22) 22
Receivables:
Capital shares sold 417
Dividends and interest 463
Securities sold 20,693
----------
Total assets 1,311,752
----------
LIABILITIES
Payables:
Securities purchased 19,349
Capital shares redeemed:
Affiliated transactions (Note 7) 2,658
Nonaffiliated transactions 914
Bank overdraft 1,571
Accrued management fees 504
Accrued transfer agent's fees 28
Other accrued expenses and payables 104
----------
Total liabilities 25,128
----------
Net assets applicable to capital shares outstanding $1,286,624
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 916,527
Overdistribution of net investment income (9,077)
Accumulated net realized gain on investments 11,541
Net unrealized appreciation of investments 367,633
----------
Net assets applicable to capital shares outstanding $1,286,624
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,197,348/31,211
capital shares outstanding, no par value) $ 38.36
==========
Institutional Shares (net assets of $89,276/2,305
capital shares outstanding, no par value) $ 38.73
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 7,845
Interest 10
-------
Total income 7,855
-------
EXPENSES
Management fees 3,007
Administration and servicing fees:
Fund Shares 893
Institutional Shares 62
Transfer agent's fees:
Fund Shares 931
Institutional Shares 62
Custody and accounting fees:
Fund Shares 106
Institutional Shares 11
Postage:
Fund Shares 49
Shareholder reporting fees:
Fund Shares 27
Trustees' fees 15
Registration fees:
Fund Shares 24
Institutional Shares 10
Professional fees 93
Other 17
-------
Total expenses 5,307
Expenses paid indirectly:
Fund Shares (16)
Institutional Shares (1)
-------
Net expenses 5,290
-------
NET INVESTMENT INCOME 2,565
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 36,301
Change in net unrealized appreciation/(depreciation) (2,210)
-------
Net realized and unrealized gain 34,091
-------
Increase in net assets resulting from operations $36,656
=======
See accompanying notes to financial statements.
================================================================================
20 | USAA AGGRESSIVE GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
---------------------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
---------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,565 $ 4,149
Net realized gain on investments 36,301 82,165
Net realized gain on foreign currency transactions - 2
Change in net unrealized appreciation/(depreciation)
of investments (2,210) (83,298)
--------------------------
Increase in net assets resulting from operations 36,656 3,018
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (10,460) (10,240)
Institutional Shares (1,182) (1,324)
--------------------------
Total distributions of net investment income (11,642) (11,564)
--------------------------
Net realized gains:
Fund Shares (70,679) (68,053)
Institutional Shares (7,273) (7,384)
--------------------------
Total distributions of net realized gains (77,952) (75,437)
--------------------------
Distributions to shareholders (89,594) (87,001)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 36,622 35,998
Institutional Shares (41,545) (18,398)
--------------------------
Total net increase (decrease) in net assets
from capital share transactions (4,923) 17,600
--------------------------
Net decrease in net assets (57,861) (66,383)
NET ASSETS
Beginning of period 1,344,485 1,410,868
--------------------------
End of period $1,286,624 $1,344,485
==========================
Overdistribution of net investment income:
End of period $ (9,077) $ -
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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' 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
================================================================================
22 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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. 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 | 23
================================================================================
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. Actively traded equity
securities listed on a domestic exchange generally are categorized in
Level 1 of the fair value hierarchy. Certain preferred and equity
securities traded in inactive markets generally are categorized in
Level 2 of the fair value hierarchy.
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
which occur on a fairly regular basis (such as U.S. market movements)
are significant. Such securities are categorized in Level 2 of the
fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of
================================================================================
24 | USAA AGGRESSIVE GROWTH FUND
================================================================================
each business day and are categorized in Level 1 of the fair value
hierarchy.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
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.
================================================================================
26 | USAA AGGRESSIVE GROWTH 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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the
exchange rate.
F. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31,
2017, brokerage commission recapture credits reduced the expenses of the
Fund Shares and Institutional Shares by $16,000 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $5,000, which represents 1.8% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
================================================================================
28 | USAA AGGRESSIVE GROWTH FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal 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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$365,965,000 and $449,689,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $375,620,000 and $7,987,000, respectively, resulting in net
unrealized appreciation of $367,633,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 YEAR ENDED
ENDED JANUARY 31, 2017 JULY 31, 2016
---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
FUND SHARES:
Shares sold 1,093 $ 42,575 2,862 $ 110,921
Shares issued from
reinvested dividends 2,145 80,148 1,931 77,371
Shares redeemed (2,215) (86,101) (3,928) (152,294)
--------------------------------------------------------
Net increase from capital
share transactions 1,023 $ 36,622 865 $ 35,998
========================================================
INSTITUTIONAL SHARES:
Shares sold 172 $ 6,788 438 $ 17,011
Shares issued from
reinvested dividends 224 8,455 215 8,708
Shares redeemed (1,467) (56,788) (1,077) (44,117)
--------------------------------------------------------
Net decrease from capital
share transactions (1,071) $(41,545) (424) $ (18,398)
========================================================
(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 is also responsible for
================================================================================
30 | USAA AGGRESSIVE GROWTH FUND
================================================================================
determining the asset allocation for 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, 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, 2017, 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' 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 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' 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 | 31
================================================================================
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $3,007,000. For the
six-month period ended January 31, 2017, the Fund Shares and Institutional
Shares did not incur any performance adjustment.
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, 2017, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Wellington Management, of
$1,096,000.
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, 2017, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to
Winslow Capital, of $1,020,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services,
================================================================================
32 | 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. For the six-month period ended January
31, 2017, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $893,000 and
$62,000, 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, 2017, the Fund reimbursed the
Manager $14,000 for these compliance and legal services. These expenses
are included in the professional fees on the Fund's Statement of Operations.
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,
2017, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $931,000 and $62,000, 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 funds
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
for the purpose of exercising management or control. As of January 31, 2017, the
Fund recorded a payable for capital shares redeemed of $2,658,000 for the USAA
fund-of-funds' redemptions of Institutional Shares. As of January 31, 2017, the
USAA fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.1
Cornerstone Equity 0.3
Target Retirement Income 0.1
Target Retirement 2020 0.5
Target Retirement 2030 1.9
Target Retirement 2040 2.6
Target Retirement 2050 1.3
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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
34 | USAA AGGRESSIVE GROWTH FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(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,
----------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 40.02 $ 42.55 $ 40.90 $ 38.44 $ 35.09 $ 34.57
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) .07 .33 .79 .79 .13 (.00)(a)
Net realized and
unrealized gain (loss) .99 (.20) 5.75 5.47 6.73 .52
----------------------------------------------------------------------------------------
Total from investment
operations 1.06 .13 6.54 6.26 6.86 .52
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.33) (.33) (.79) (.89) (.08) -
Realized capital gains (2.39) (2.33) (4.10) (2.91) (3.43) -
----------------------------------------------------------------------------------------
Total distributions (2.72) (2.66) (4.89) (3.80) (3.51) -
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 38.36 $ 40.02 $ 42.55 $ 40.90 $ 38.44 $ 35.09
========================================================================================
Total return (%)* 2.90 .36 16.96 16.82 21.34 1.50
Net assets at end of
period (000) $1,197,348 $1,208,124 $1,247,753 $1,093,796 $1,009,963 $878,246
Ratios to average
net assets:**
Expenses (%)(b) .82(c) .85 .88 .93 1.08 1.08
Net investment
income (loss) (%) .38(c) .30 .30 .17 .40 (.01)
Portfolio turnover (%) 28 70 55 68 67 55
* 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, 2017, average net assets were
$1,181,954,000.
(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%)(+) (.01%) (.01%)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
36 | USAA AGGRESSIVE GROWTH 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,
-------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 40.39 $ 42.92 $ 41.22 $ 38.67 $ 35.26 $ 34.60
-------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .10(a) .44 .21(a) 1.10 .30 .13
Net realized and
unrealized gain (loss) 1.00(a) (.24) 6.47(a) 5.29 6.73 .53
-------------------------------------------------------------------------------------
Total from investment
operations 1.10(a) .20 6.68(a) 6.39 7.03 .66
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.37) (.40) (.88) (.93) (.19) -
Realized capital gains (2.39) (2.33) (4.10) (2.91) (3.43) -
-------------------------------------------------------------------------------------
Total distributions (2.76) (2.73) (4.98) (3.84) (3.62) -
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 38.73 $ 40.39 $ 42.92 $ 41.22 $ 38.67 $ 35.26
=====================================================================================
Total return (%)* 2.97 .51 17.21 17.09 21.79 1.91
Net assets at end
of period (000) $89,276 $136,361 $163,115 $119,051 $165,058 $177,320
Ratios to average
net assets:**
Expenses (%)(b) .71(c) .70 .68 .68 .71 .68
Net investment income (%) .51(c) .45 .50 .43 .78 .37
Portfolio turnover (%) 28 70 55 68 67 55
* 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, 2017, average net assets were
$121,832,000.
(a) Calculated using average shares. For the six-month period ended
January 31, 2017, average shares were 3,041,000.
(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 as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.01%)
(+) 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 | 37
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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
================================================================================
38 | USAA AGGRESSIVE GROWTH 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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,029.00 $4.14
Hypothetical
(5% return before expenses) 1,000.00 1,021.12 4.13
INSTITUTIONAL SHARES
Actual 1,000.00 1,029.70 3.63
Hypothetical
(5% return before expenses) 1,000.00 1,021.63 3.62
*Expenses are equal to the annualized expense ratio of 0.82% 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/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 2.90% for Fund Shares and 2.97% for Institutional Shares for the six-month
period of August 1, 2016, through January 31, 2017.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT 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)
=============================================================================
23418-0317 (C)2017, 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, 2017
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 19
Financial Statements 20
Notes to Financial Statements 23
EXPENSE EXAMPLE 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
202723-0317
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CAPITAL GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in U.S. and foreign 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 tax 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 Investors, LLC QS Investors, LLC
--------------------------------------------------------------------------------
o PLEASE CHARACTERIZE THE PERFORMANCE OF GLOBAL STOCKS DURING THE REPORTING
PERIOD.
Global equities fell at the end of the third quarter of 2016 after several
major stock indexes rose to new highs. Global stocks then advanced during
the fourth quarter of 2016, due primarily to the market run-up in the United
States (U.S.) following the presidential election. Other major regions
posted negative returns for the fourth quarter of 2016, with the United
Kingdom (UK) generally lagging the furthest behind. Nevertheless, major
markets ended 2016 with solid economic prospects. December 2016 indicators
showed manufacturing gains in the U.S., the UK, Germany, Japan, and China.
Central banks remained generally accommodative. January 2017 brought modest
gains to global equities amid continued solid growth for manufacturing and
service industries across most of the larger markets. For the reporting
period, U.S. stocks slightly underperformed, while smaller markets generally
outperformed. Most developed countries posted positive returns for the
reporting period, led by Japan, where financials, materials, and information
technology companies were top performers.
================================================================================
2 | USAA CAPITAL GROWTH FUND
================================================================================
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, 2017, the Fund Shares and
Institutional Shares had total returns of 6.94% and 6.91%, respectively.
This compares to returns of 4.95% for the MSCI World Index (the Index) and
6.16% for the Lipper Global 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.
QS Investors, LLC 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 meaningfully to
relative performance, and was especially strong within the U.S., led by
selection in the information technology sector. Stock selection was also a
significant contributor in Continental Europe, led by financials (ex-bank)
stocks. Stock selection detracted in both the UK and Japan, primarily due to
results in the materials sector of the UK and within telecommunications and
industrials stocks in Japan. Stock selection added value in the smaller
regions of developed Asia (ex-Japan) and the commodity-sensitive countries
of Australia, New Zealand, & Canada. Region and sector allocation impacts
were neutral overall. The primary contributor to relative performance at the
stock level was NVIDIA Corp., a California-based technology company that
designs graphic
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
processing units for the gaming market. Alaska Air Group, Inc., a
non-benchmark holding, was also a top contributor. The Fund's position in
Teva Pharmaceutical Industries Ltd. ADR represented the largest detractor at
the security level as shares of generic drug companies generally plummeted
in early November 2016 on reports of an inquiry into drug price-fixing in
the industry. Holdings in Tyson Foods, Inc. also detracted as the market
reacted to leaked news of a government enforcement action against the
company.
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 CAPITAL GROWTH FUND
================================================================================
INVESTMENT OVERVIEW
USAA CAPITAL GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USCGX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $755.6 Million $721.4 Million
Net Asset Value Per Share $10.51 $9.97
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
6.94% 17.04% 11.66% 3.91%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
7.70% 12.56% 3.89%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
1.24%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA CAPITAL
MSCI WORLD GROWTH LIPPER GLOBAL
INDEX FUND SHARES FUNDS INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,947.96 9,943.00 9,899.16
3/31/2007 10,130.06 10,218.00 10,098.34
4/30/2007 10,576.82 10,540.00 10,484.50
5/31/2007 10,873.18 10,953.00 10,808.31
6/30/2007 10,789.31 10,861.00 10,792.59
7/31/2007 10,550.36 10,723.00 10,574.25
8/31/2007 10,542.36 10,700.00 10,556.45
9/30/2007 11,043.71 11,458.00 10,986.85
10/31/2007 11,382.43 11,998.00 11,361.32
11/30/2007 10,917.17 11,251.00 10,861.30
12/31/2007 10,776.32 11,104.00 10,761.62
1/31/2008 9,952.80 10,163.00 10,002.66
2/29/2008 9,895.20 10,176.00 9,913.40
3/31/2008 9,800.35 9,977.00 9,851.44
4/30/2008 10,315.44 10,522.00 10,282.74
5/31/2008 10,472.73 10,819.00 10,424.91
6/30/2008 9,637.45 10,089.00 9,562.79
7/31/2008 9,401.97 9,779.00 9,339.88
8/31/2008 9,269.90 9,396.00 9,237.19
9/30/2008 8,167.36 8,319.00 8,260.60
10/31/2008 6,618.82 6,685.00 6,776.27
11/30/2008 6,190.39 6,140.00 6,322.07
12/31/2008 6,389.00 6,276.00 6,588.77
1/31/2009 5,829.29 5,745.00 6,095.29
2/28/2009 5,232.61 5,202.00 5,576.13
3/31/2009 5,627.19 5,531.00 5,946.20
4/30/2009 6,258.45 5,910.00 6,506.63
5/31/2009 6,825.50 6,377.00 7,094.44
6/30/2009 6,794.71 6,326.00 7,080.42
7/31/2009 7,370.20 6,907.00 7,671.65
8/31/2009 7,674.26 7,109.00 7,976.62
9/30/2009 7,980.14 7,387.00 8,267.82
10/31/2009 7,838.16 7,235.00 8,097.62
11/30/2009 8,158.45 7,551.00 8,412.69
12/31/2009 8,304.95 7,729.00 8,635.39
1/31/2010 7,961.70 7,358.00 8,307.67
2/28/2010 8,073.94 7,486.00 8,423.44
3/31/2010 8,573.96 8,048.00 8,915.28
4/30/2010 8,575.16 7,984.00 8,949.70
5/31/2010 7,753.76 7,218.00 8,120.01
6/30/2010 7,487.92 6,924.00 7,877.33
7/31/2010 8,094.98 7,537.00 8,501.25
8/31/2010 7,792.76 7,218.00 8,175.20
9/30/2010 8,519.40 7,946.00 8,976.14
10/31/2010 8,836.96 8,317.00 9,335.38
11/30/2010 8,646.18 8,138.00 9,146.87
12/31/2010 9,281.89 8,666.00 9,791.58
1/31/2011 9,491.59 8,782.00 9,930.32
2/28/2011 9,823.91 9,053.00 10,248.18
3/31/2011 9,727.03 9,066.00 10,268.96
4/30/2011 10,140.26 9,414.00 10,653.33
5/31/2011 9,929.90 9,195.00 10,423.94
6/30/2011 9,772.81 9,079.00 10,225.88
7/31/2011 9,595.61 8,911.00 9,994.72
8/31/2011 8,919.53 8,137.00 9,191.47
9/30/2011 8,149.14 7,338.00 8,247.44
10/31/2011 8,992.07 8,125.00 9,106.65
11/30/2011 8,772.52 8,060.00 8,943.62
12/31/2011 8,767.64 7,981.00 8,816.46
1/31/2012 9,207.63 8,452.00 9,378.98
2/29/2012 9,657.41 8,792.00 9,844.39
3/31/2012 9,781.57 8,844.00 9,908.51
4/30/2012 9,670.49 8,753.00 9,734.01
5/31/2012 8,835.70 7,942.00 8,864.56
6/30/2012 9,285.93 8,334.00 9,259.16
7/31/2012 9,405.30 8,426.00 9,388.16
8/31/2012 9,643.74 8,635.00 9,552.56
9/30/2012 9,908.69 8,857.00 9,797.44
10/31/2012 9,841.73 8,766.00 9,789.42
11/30/2012 9,967.75 8,910.00 9,899.89
12/31/2012 10,155.21 9,117.00 10,219.17
1/31/2013 10,672.51 9,594.00 10,726.06
2/28/2013 10,690.13 9,674.00 10,703.64
3/31/2013 10,940.53 9,886.00 10,947.31
4/30/2013 11,285.06 10,245.00 11,258.86
5/31/2013 11,289.32 10,245.00 11,331.52
6/30/2013 11,011.15 10,032.00 11,081.92
7/31/2013 11,590.84 10,616.00 11,642.00
8/31/2013 11,344.12 10,258.00 11,398.28
9/30/2013 11,911.48 10,842.00 11,970.01
10/31/2013 12,377.73 11,386.00 12,388.22
11/30/2013 12,597.70 11,651.00 12,619.47
12/31/2013 12,864.27 11,769.00 12,847.74
1/31/2014 12,387.80 11,474.00 12,413.27
2/28/2014 13,007.94 12,010.00 13,019.69
3/31/2014 13,026.77 12,010.00 13,071.97
4/30/2014 13,160.25 12,010.00 13,135.09
5/31/2014 13,419.18 12,252.00 13,400.27
6/30/2014 13,659.23 12,520.00 13,632.79
7/31/2014 13,441.24 12,479.00 13,341.49
8/31/2014 13,737.42 12,814.00 13,646.67
9/30/2014 13,364.58 12,560.00 13,230.01
10/31/2014 13,451.03 12,694.00 13,318.65
11/30/2014 13,720.60 13,083.00 13,577.85
12/31/2014 13,499.35 12,995.00 13,343.70
1/31/2015 13,254.75 12,914.00 13,175.08
2/28/2015 14,031.33 13,648.00 13,902.23
3/31/2015 13,811.69 13,512.00 13,751.67
4/30/2015 14,135.61 13,771.00 14,033.82
5/31/2015 14,184.30 13,934.00 14,113.21
6/30/2015 13,854.48 13,635.00 13,821.99
7/31/2015 14,103.17 13,825.00 13,966.49
8/31/2015 13,169.90 12,954.00 13,059.52
9/30/2015 12,684.14 12,587.00 12,575.97
10/31/2015 13,689.28 13,553.00 13,475.40
11/30/2015 13,621.17 13,580.00 13,474.79
12/31/2015 13,381.74 13,391.00 13,189.57
1/31/2016 12,581.19 12,537.00 12,354.09
2/29/2016 12,487.56 12,386.00 12,179.74
3/31/2016 13,334.95 13,184.00 13,056.63
4/30/2016 13,545.95 13,198.00 13,263.57
5/31/2016 13,622.03 13,336.00 13,352.13
6/30/2016 13,469.40 13,074.00 13,146.53
7/31/2016 14,038.46 13,721.00 13,724.53
8/31/2016 14,050.12 13,803.00 13,808.56
9/30/2016 14,124.76 13,831.00 13,914.77
10/31/2016 13,851.40 13,707.00 13,700.07
11/30/2016 14,050.57 14,161.00 13,916.19
12/31/2016 14,386.78 14,422.00 14,197.73
1/31/2017 14,734.01 14,673.00 14,569.29
[END CHART]
Data from 1/31/07 through 1/31/17
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 funds within the Lipper Global Funds 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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $5.2 Million $4.9 Million
Net Asset Value Per Share $10.53 $9.98
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR SINCE INCEPTION 8/7/15
6.91% 17.25% 3.93%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 8/7/15
7.89% 2.89%
--------------------------------------------------------------------------------
EXPENSE RATIOS 7/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.48% AFTER REIMBURSEMENT 1.10%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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 are reported in the Fund's prospectus dated December 1,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through November 30, 2017, 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 the 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 November 30, 2017. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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 9,324.00 9,338.25 9,350.60
9/30/2015 9,069.00 8,993.82 9,004.38
10/31/2015 9,765.00 9,706.53 9,648.38
11/30/2015 9,784.00 9,658.23 9,647.94
12/31/2015 9,643.00 9,488.46 9,443.72
1/31/2016 9,028.00 8,920.82 8,845.52
2/29/2016 8,919.00 8,854.43 8,720.68
3/31/2016 9,505.00 9,455.28 9,348.54
4/30/2016 9,514.00 9,604.90 9,496.71
5/31/2016 9,614.00 9,658.84 9,560.11
6/30/2016 9,425.00 9,550.61 9,412.91
7/31/2016 9,901.00 9,954.11 9,826.76
8/31/2016 9,951.00 9,962.39 9,886.92
9/30/2016 9,981.00 10,015.30 9,962.96
10/31/2016 9,891.00 9,821.48 9,809.24
11/30/2016 10,219.00 9,962.70 9,963.98
12/31/2016 10,405.00 10,201.09 10,165.56
1/31/2017 10,586.00 10,447.30 10,431.60
[END CHART]
Data from 7/31/15 through 1/31/17.*
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* - 1/31/17 o
(% of Net Assets)
Apple, Inc. .............................................................. 2.7%
Altria Group, Inc. ....................................................... 1.6%
Alaska Air Group, Inc. ................................................... 1.5%
Fuji Heavy Industries Ltd. ............................................... 1.3%
United Therapeutics Corp. ................................................ 1.3%
Facebook, Inc. "A" ....................................................... 1.2%
Samsung Electronics Co. Ltd. ............................................. 1.2%
Tyson Foods, Inc. "A" .................................................... 1.2%
Boeing Co. ............................................................... 1.2%
Northrop Grumman Corp. ................................................... 1.2%
o SECTOR ALLOCATION - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 21.6%
INFORMATION TECHNOLOGY 15.1%
CONSUMER DISCRETIONARY 13.6%
HEALTH CARE 11.7%
INDUSTRIALS 11.1%
CONSUMER STAPLES 10.0%
ENERGY 6.8%
MATERIALS 4.3%
TELECOMMUNICATION SERVICES 2.8%
UTILITIES 1.5%
REAL ESTATE 0.7%
[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.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o COUNTRY ALLOCATION* - 1/31/17 o
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 61.6%
JAPAN 9.5%
FRANCE 4.0%
UNITED KINGDOM 4.0%
CANADA 3.8%
OTHER** 16.3%
[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, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.2%)
COMMON STOCKS (99.2%)
CONSUMER DISCRETIONARY (13.6%)
------------------------------
APPAREL RETAIL (1.2%)
48,600 Foot Locker, Inc. $ 3,331
73,500 TJX Companies, Inc. 5,507
--------
8,838
--------
AUTOMOBILE MANUFACTURERS (2.9%)
252,000 Fuji Heavy Industries Ltd. 10,132
146,600 Mazda Motor Corp. 2,166
255,000 Peugeot S.A.* 4,735
130,000 Suzuki Motor Corp. 5,030
--------
22,063
--------
AUTOMOTIVE RETAIL (0.8%)
23,800 O'Reilly Automotive, Inc.* 6,242
--------
BROADCASTING (0.8%)
90,400 CBS Corp. "B" 5,830
--------
CABLE & SATELLITE (1.4%)
85,600 Comcast Corp. "A" 6,456
920,000 Sirius XM Holdings, Inc. 4,342
--------
10,798
--------
DEPARTMENT STORES (0.4%)
100,200 Macy's, Inc. 2,960
--------
GENERAL MERCHANDISE STORES (0.5%)
63,000 Target Corp. 4,062
--------
HOME IMPROVEMENT RETAIL (2.5%)
57,900 Home Depot, Inc. 7,966
693,498 Kingfisher plc 2,933
116,900 Lowe's Companies, Inc. 8,543
--------
19,442
--------
HOMEBUILDING (1.0%)
110,200 Bellway plc 3,443
171,000 Persimmon plc 4,150
--------
7,593
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
HOUSEHOLD APPLIANCES (0.6%)
162,185 Electrolux AB "B" $ 4,311
--------
MOVIES & ENTERTAINMENT (1.1%)
67,840 Lions Gate Entertainment Corp. "B"* 1,817
47,000 Time Warner, Inc. 4,552
47,000 Viacom, Inc. "B" 1,981
--------
8,350
--------
RESTAURANTS (0.4%)
74,100 Brinker International, Inc. 3,298
--------
Total Consumer Discretionary 103,787
--------
CONSUMER STAPLES (10.0%)
------------------------
BREWERS (0.6%)
260,000 Kirin Holdings Co. Ltd. 4,256
--------
DRUG RETAIL (1.5%)
71,482 CVS Health Corp. 5,633
67,829 Walgreens Boots Alliance, Inc. 5,558
--------
11,191
--------
FOOD RETAIL (0.5%)
1,500,000 Tesco plc* 3,672
--------
HOUSEHOLD PRODUCTS (1.6%)
33,000 Clorox Co. 3,960
35,900 Kimberly-Clark Corp. 4,349
49,946 Reckitt Benckiser Group plc 4,275
--------
12,584
--------
HYPERMARKETS & SUPER CENTERS (0.4%)
42,000 Wal-Mart Stores, Inc. 2,803
--------
PACKAGED FOODS & MEAT (1.6%)
142,000 Ajinomoto Co. Inc. 2,803
147,100 Tyson Foods, Inc. "A" 9,236
--------
12,039
--------
SOFT DRINKS (1.5%)
63,000 Dr. Pepper Snapple Group, Inc. 5,745
58,100 PepsiCo, Inc. 6,030
--------
11,775
--------
TOBACCO (2.3%)
174,500 Altria Group, Inc. 12,421
154,053 Swedish Match AB 5,012
--------
17,433
--------
Total Consumer Staples 75,753
--------
================================================================================
12 | USAA CAPITAL GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
ENERGY (6.8%)
-------------
INTEGRATED OIL & GAS (2.6%)
251,000 Cenovus Energy, Inc. $ 3,426
5,108,000 China Petroleum and Chemical Corp. "H"(a) 4,087
74,636 Exxon Mobil Corp. 6,261
613,881 Gazprom PAO ADR 3,036
233,642 Repsol S.A. 3,445
--------
20,255
--------
OIL & GAS DRILLING (0.4%)
200,000 Transocean Ltd.* 2,794
--------
OIL & GAS EQUIPMENT & SERVICES (0.6%)
343,000 Subsea 7 S.A.* 4,662
--------
OIL & GAS EXPLORATION & PRODUCTION (0.8%)
105,200 Apache Corp. 6,293
--------
OIL & GAS REFINING & MARKETING (2.0%)
215,883 Neste Oyj 7,518
113,900 Valero Energy Corp. 7,490
--------
15,008
--------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
135,310 Enagas S.A. 3,316
--------
Total Energy 52,328
--------
FINANCIALS (21.6%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
144,000 Bank of New York Mellon Corp. 6,441
--------
CONSUMER FINANCE (1.1%)
91,932 Capital One Financial Corp. 8,034
--------
DIVERSIFIED BANKS (9.6%)
6,260,000 Agricultural Bank of China Ltd. "H"(a) 2,619
314,900 Bank of America Corp. 7,129
112,696 BNP Paribas S.A. 7,200
1,627,000 BOC Hong Kong Holdings Ltd.(a) 6,506
75,500 Canadian Imperial Bank of Commerce 6,429
5,021,000 China Construction Bank Corp. "H"(a) 3,733
130,955 Citigroup, Inc. 7,311
834,564 HSBC Holdings plc 7,101
6,758,000 Industrial & Commercial Bank of China Ltd. "H"(a) 4,138
85,223 JPMorgan Chase & Co. 7,213
134,200 National Bank of Canada 5,793
163,145 Societe Generale S.A. 7,970
--------
73,142
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.5%)
90,000 Morgan Stanley $ 3,824
--------
LIFE & HEALTH INSURANCE (2.5%)
357,600 Dai-Ichi Life Insurance Co., Ltd. 6,530
135,000 NN Group N.V. 4,770
187,000 Sun Life Financial, Inc. 7,381
--------
18,681
--------
MULTI-LINE INSURANCE (1.6%)
36,300 Allianz SE 6,144
230,000 AXA S.A. 5,641
--------
11,785
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.6%)
325,700 ORIX Corp. 4,924
--------
PROPERTY & CASUALTY INSURANCE (1.4%)
78,000 Allstate Corp. 5,867
113,300 Tokio Marine Holdings, Inc. 4,747
--------
10,614
--------
REGIONAL BANKS (1.6%)
233,445 Citizens Financial Group, Inc. 8,444
155,753 Fifth Third Bancorp 4,065
--------
12,509
--------
REINSURANCE (1.9%)
50,705 Hannover Rueck SE 5,564
21,724 Muenchener Rueckversicherungs-Gesellschaft AG 4,076
55,000 Swiss Re AG 5,119
--------
14,759
--------
Total Financials 164,713
--------
HEALTH CARE (11.7%)
-------------------
BIOTECHNOLOGY (4.1%)
16,435 Actelion Ltd. 4,268
35,500 Amgen, Inc. 5,562
23,047 Biogen, Inc.* 6,390
66,667 Gilead Sciences, Inc. 4,830
60,800 United Therapeutics Corp.* 9,949
--------
30,999
--------
HEALTH CARE DISTRIBUTORS (0.6%)
33,300 McKesson Corp. 4,634
--------
================================================================================
14 | USAA CAPITAL GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT (1.4%)
117,400 Baxter International, Inc. $ 5,625
56,218 Edwards Lifesciences Corp.* 5,410
--------
11,035
--------
HEALTH CARE SERVICES (0.7%)
72,800 Express Scripts Holding Co.* 5,014
--------
HEALTH CARE SUPPLIES (0.6%)
100,000 Hoya Corp. 4,359
--------
MANAGED HEALTH CARE (2.2%)
54,100 Aetna, Inc. 6,417
47,000 UnitedHealth Group, Inc. 7,618
19,300 WellCare Health Plans, Inc.* 2,809
--------
16,844
--------
PHARMACEUTICALS (2.1%)
73,400 Merck & Co., Inc. 4,550
134,756 Pfizer, Inc. 4,276
120,700 Teva Pharmaceutical Industries Ltd. ADR 4,035
45,689 UCB S.A. 3,143
--------
16,004
--------
Total Health Care 88,889
--------
INDUSTRIALS (11.1%)
-------------------
AEROSPACE & DEFENSE (5.0%)
56,500 Boeing Co. 9,233
35,500 Huntington Ingalls Industries, Inc. 6,886
39,797 Northrop Grumman Corp. 9,117
54,900 Raytheon Co. 7,914
73,232 Safran S.A. 4,957
--------
38,107
--------
AIRLINES (2.1%)
119,600 Alaska Air Group, Inc. 11,221
99,000 Delta Air Lines, Inc. 4,677
--------
15,898
--------
BUILDING PRODUCTS (0.4%)
54,142 Owens Corning, Inc. 2,991
--------
HEAVY ELECTRICAL EQUIPMENT (0.7%)
78,000 Vestas Wind Systems A/S 5,453
--------
INDUSTRIAL MACHINERY (0.8%)
48,800 Illinois Tool Works, Inc. 6,207
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
RAILROADS (1.6%)
85,200 Canadian National Railway Co. $ 5,922
36,700 Central Japan Railway Co. 5,938
--------
11,860
--------
RESEARCH & CONSULTING SERVICES (0.5%)
185,741 Experian plc 3,573
--------
Total Industrials 84,089
--------
INFORMATION TECHNOLOGY (15.1%)
------------------------------
APPLICATION SOFTWARE (0.9%)
44,500 Citrix Systems, Inc.* 4,058
150,000 Nuance Communications, Inc.* 2,379
--------
6,437
--------
COMMUNICATIONS EQUIPMENT (2.3%)
250,000 Cisco Systems, Inc. 7,680
203,800 Juniper Networks, Inc. 5,458
57,800 Motorola Solutions, Inc. 4,665
--------
17,803
--------
INTERNET SOFTWARE & SERVICES (3.5%)
10,914 Alphabet, Inc. "A"* 8,952
187,000 eBay, Inc.* 5,952
74,000 Facebook, Inc. "A"* 9,644
27,221 VeriSign, Inc.* 2,183
--------
26,731
--------
IT CONSULTING & OTHER SERVICES (1.0%)
62,892 Amdocs Ltd. 3,692
80,621 Cognizant Technology Solutions Corp. "A"* 4,240
--------
7,932
--------
SEMICONDUCTOR EQUIPMENT (0.7%)
153,000 Applied Materials, Inc. 5,240
--------
SEMICONDUCTORS (1.7%)
64,483 Intel Corp. 2,374
36,072 NVIDIA Corp. 3,939
76,189 QUALCOMM, Inc. 4,071
34,236 Texas Instruments, Inc. 2,586
--------
12,970
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (5.0%)
169,877 Apple, Inc. 20,615
300,000 HP, Inc. 4,515
92,000 NetApp, Inc. 3,525
================================================================================
16 | USAA CAPITAL GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
5,511 Samsung Electronics Co. Ltd. $ 9,356
--------
38,011
--------
Total Information Technology 115,124
--------
MATERIALS (4.3%)
----------------
DIVERSIFIED CHEMICALS (1.1%)
80,700 Dow Chemical Co. 4,812
700,000 Sumitomo Chemical Co. Ltd. 3,738
--------
8,550
--------
PAPER PACKAGING (2.7%)
71,280 Avery Dennison Corp. 5,205
118,400 International Paper Co. 6,701
93,800 Packaging Corp. of America 8,647
--------
20,553
--------
PAPER PRODUCTS (0.5%)
173,000 UPM-Kymmene Oyj 3,922
--------
Total Materials 33,025
--------
REAL ESTATE (0.7%)
------------------
REAL ESTATE DEVELOPMENT (0.3%)
1,512,000 Shimao Property Holdings Ltd.(a) 2,027
--------
REITs - RETAIL (0.4%)
44,409 Macerich Co. 3,051
--------
Total Real Estate 5,078
--------
TELECOMMUNICATION SERVICES (2.8%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.1%)
7,000,000 China Telecom Corp. Ltd. "H"(a) 3,341
117,600 Nippon Telegraph & Telephone Corp. 5,186
--------
8,527
--------
WIRELESS TELECOMMUNICATION SERVICES (1.7%)
209,900 KDDI Corp. 5,633
284,000 NTT DOCOMO, Inc. 6,808
--------
12,441
--------
Total Telecommunication Services 20,968
--------
UTILITIES (1.5%)
----------------
ELECTRIC UTILITIES (1.5%)
172,362 Endesa S.A. 3,543
100,000 Korea Electric Power Corp.* 3,653
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
1,347,600 Tenaga Nasional Berhad $ 4,077
--------
11,273
--------
Total Utilities 11,273
--------
Total Common Stocks 755,027
--------
Total Equity Securities (cost: $594,995) 755,027
--------
MONEY MARKET INSTRUMENTS (0.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.8%)
5,658,127 State Street Institutional Treasury Money Market Fund Premier Class, 0.42%(b)
(cost: $5,658) 5,658
--------
TOTAL INVESTMENTS (COST: $600,653) $760,685
========
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $728,576 $26,451 $- $755,027
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 5,658 - - 5,658
------------------------------------------------------------------------------------------------------------
Total $734,234 $26,451 $- $760,685
------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS TRANSFERS TRANSFERS
INTO (OUT OF) INTO (OUT OF) INTO (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------
Common Stocks(I) $(20,245) $20,245 $-
------------------------------------------------------------------------------------------------------------
Total $(20,245) $20,245 $-
------------------------------------------------------------------------------------------------------------
(I)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.
================================================================================
18 | USAA CAPITAL GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 37.6% of net assets at January 31,
2017.
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 $26,451,000 which represented 3.5% of the
Fund's net assets, were classified as Level 2 at January 31, 2017, 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, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $600,653) $760,685
Cash denominated in foreign currencies (identified cost of $88) 90
Receivables:
Capital shares sold 333
USAA Asset Management Company (Note 6D) 1
Dividends and interest 701
--------
Total assets 761,810
--------
LIABILITIES
Payables:
Capital shares redeemed 344
Unrealized depreciation on foreign currency contracts held, at value 1
Accrued management fees 508
Accrued transfer agent's fees 28
Other accrued expenses and payables 112
--------
Total liabilities 993
--------
Net assets applicable to capital shares outstanding $760,817
========
NET ASSETS CONSIST OF:
Paid-in capital $660,121
Overdistribution of net investment income (1,094)
Accumulated net realized loss on investments (58,233)
Net unrealized appreciation of investments 160,032
Net unrealized depreciation of foreign currency translations (9)
--------
Net assets applicable to capital shares outstanding $760,817
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $755,636/71,891
capital shares outstanding, no par value) $ 10.51
========
Institutional Shares (net assets of $5,181/492
capital shares outstanding, no par value) $ 10.53
========
See accompanying notes to financial statements.
================================================================================
20 | USAA CAPITAL GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $239) $ 7,780
Interest 8
-------
Total income 7,788
-------
EXPENSES
Management fees 2,918
Administration and servicing fees:
Fund Shares 551
Institutional Shares 2
Transfer agent's fees:
Fund Shares 794
Institutional Shares 2
Custody and accounting fees:
Fund Shares 84
Institutional Shares 1
Postage:
Fund Shares 52
Shareholder reporting fees:
Fund Shares 27
Trustees' fees 15
Registration fees:
Fund Shares 18
Institutional Shares 12
Professional fees 73
Other 9
-------
Total expenses 4,558
Expenses reimbursed:
Institutional Shares (9)
-------
Net expenses 4,549
-------
NET INVESTMENT INCOME 3,239
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 35,641
Foreign currency transactions (121)
Change in net unrealized appreciation/(depreciation) of:
Investments 10,533
Foreign currency translations 4
-------
Net realized and unrealized gain 46,057
-------
Increase in net assets resulting from operations $49,296
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
------------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,239 $ 9,907
Net realized gain on investments 35,641 7,077
Net realized loss on foreign currency transactions (121) (73)
Change in net unrealized appreciation/(depreciation) of:
Investments 10,533 (23,918)
Foreign currency translations 4 39
---------------------
Increase (decrease) in net assets resulting from operations 49,296 (6,968)
---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (10,724) (8,090)
Institutional Shares* (68) (57)
---------------------
Distributions to shareholders (10,792) (8,147)
---------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (3,953) (24,401)
Institutional Shares* 18 5,000
---------------------
Total net decrease in net assets from capital share transactions (3,935) (19,401)
---------------------
Net increase (decrease) in net assets 34,569 (34,516)
NET ASSETS
Beginning of period 726,248 760,764
---------------------
End of period $760,817 $726,248
=====================
Accumulated undistributed (overdistribution of) net investment income:
End of period $ (1,094) $ 6,459
=====================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
22 | USAA CAPITAL GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 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' 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).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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. 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
================================================================================
24 | USAA CAPITAL GROWTH FUND
================================================================================
average of the bid and asked prices generally is used. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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 which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are categorized
in Level 2 of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 and are categorized in Level 2 of the fair value
hierarchy.
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:
================================================================================
26 | USAA CAPITAL GROWTH FUND
================================================================================
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short-term securities are
amortized on a straight-line basis over the life of the respective
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - 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, 2017, there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out
================================================================================
28 | USAA CAPITAL 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.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $3,000, which represents 1.0% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal 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 income tax.
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, 2016, the Fund had pre-enactment capital loss carryforwards of
$90,603,000, and no post-enactment capital loss carryforward, 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, 2017, 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 basis 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, 2017, were
$149,421,000 and $157,900,000, respectively.
================================================================================
30 | USAA CAPITAL GROWTH FUND
================================================================================
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $182,119,000 and $22,087,000, respectively, resulting in net
unrealized appreciation of $160,032,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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, 2017 JULY 31, 2016
----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------
FUND SHARES:
Shares sold 3,662 $ 37,516 7,164 $ 68,136
Shares issued from reinvested dividends 1,019 10,651 832 8,028
Shares redeemed (5,113) (52,120) (10,565) (100,565)
-------------------------------------------------------
Net decrease from capital share transactions (432) $ (3,953) (2,569) $ (24,401)
=======================================================
INSTITUTIONAL SHARES (COMMENCED ON AUGUST 7, 2015):
Shares sold 2 $ 18 490 $ 5,000
Shares issued from reinvested dividends -* -* - -
Shares redeemed - - - -
-------------------------------------------------------
Net increase from capital share transactions 2 $ 18 490 $ 5,000
=======================================================
*Represents less than 500 shares or $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(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 is also responsible for determining the asset allocation for 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' performance over the performance
period to that of the Lipper Global Funds Index. The Lipper Global Funds
Index tracks the total return performance of funds within 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 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.
================================================================================
32 | USAA CAPITAL GROWTH FUND
================================================================================
Each class' 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $2,918,000, which
included a performance adjustment for the Fund Shares and the Institutional
Shares of $144,000 and less than $500, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.04% and 0.02%,
respectively.
B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into an Investment
Subadvisory Agreement with QS Investors LLC, (QS Investors), under which QS
Investors 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 Investors 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 Investors manages. For the
six-month period ended January 31, 2017, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to QS Investors, of $778,000.
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, 2017, the Fund Shares and Institutional Shares
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
incurred administration and servicing fees, paid or payable to the Manager,
of $551,000 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, 2017, the Fund reimbursed the Manager
$8,000 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 November 30, 2017, 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 terminated through November 30,
2017, 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, 2017, the Institutional Shares incurred reimbursable expenses of $9,000,
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,
2017, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $794,000 and $2,000, respectively.
================================================================================
34 | USAA CAPITAL GROWTH 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 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,
2017, USAA and its affiliates owned 490,000 Institutional Shares, which
represents 99.7% of the Institutional Shares outstanding and 0.7% of the Fund's
total outstanding shares.
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) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(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,
----------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
----------------------------------------------------------------------
Net asset value at
beginning of period $ 9.97 $ 10.16 $ 9.31 $ 8.00 $ 6.44 $ 6.91
----------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .05 .13 .12 .12 .10 .10
Net realized and
unrealized gain (loss) .64 (.21) .88 1.28 1.56 (.48)
----------------------------------------------------------------------
Total from investment operations .69 (.08) 1.00 1.40 1.66 (.38)
----------------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.11) (.15) (.09) (.10) (.09)
----------------------------------------------------------------------
Net asset value at end of period $ 10.51 $ 9.97 $ 10.16 $ 9.31 $ 8.00 $ 6.44
======================================================================
Total return (%)* 6.94 (.76) 10.79 17.55 26.00 (5.45)
Net assets at end of period (000) $755,636 $721,357 $760,764 $706,918 $642,927 $568,904
Ratios to average
net assets:**
Expenses (%)(a) 1.23(c) 1.24 1.23(b) 1.28 1.30 1.30
Expenses, excluding
reimbursements (%)(a) 1.23(c) 1.24 1.23 1.28 1.34 1.38
Net investment income (%) .88(c) 1.39 .95 1.41 1.40 1.43
Portfolio turnover (%) 21 24 38 36(d) 83 100
* 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, 2017, average net assets were
$728,611,000.
(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%)(+)
(+)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) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects overall decrease in purchases and sales of securities.
================================================================================
36 | USAA CAPITAL GROWTH 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 PERIOD ENDED
JANUARY 31, JULY 31,
---------------------------------
2017 2016***
---------------------------------
Net asset value at beginning of period $ 9.98 $10.20
---------------------------
Income (loss) from investment operations:
Net investment income .05 .14
Net realized and unrealized gain (loss) .64 (.24)
---------------------------
Total from investment operations .69 (.10)
---------------------------
Less distributions from:
Net investment income (.14) (.12)
---------------------------
Net asset value at end of period $10.53 $ 9.98
===========================
Total return (%)* 6.91 (.99)
Net assets at end of period (000) $5,181 $4,891
Ratios to average net assets:**
Expenses (%)(a) 1.10 1.10
Expenses, excluding reimbursements (%)(a) 1.48 1.48
Net investment income (%)(a) 1.00 1.57
Portfolio turnover (%) 21 24
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2017, average net assets were
$5,000,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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
================================================================================
38 | USAA CAPITAL GROWTH FUND
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,069.40 $6.42
Hypothetical
(5% return before expenses) 1,000.00 1,019.00 6.26
INSTITUTIONAL SHARES
Actual 1,000.00 1,069.10 5.74
Hypothetical
(5% return before expenses) 1,000.00 1,019.66 5.60
*Expenses are equal to the annualized expense ratio of 1.23% 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/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 6.94% for Fund Shares and 6.91% for Institutional Shares for the six-month
period of August 1, 2016, through January 31, 2017.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT 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)
=============================================================================
36843-0317 (C)2017, 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, 2017
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 24
Financial Statements 28
Notes to Financial Statements 31
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)2017, USAA. All rights reserved.
202738-0317
================================================================================
================================================================================
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 intends to invest primarily in equity securities, but may also invest
in bonds and money market instruments, as market conditions warrant. The Fund
expects its typical asset allocation to be approximately 70% equities and 30%
fixed-income securities. The implementation of the asset allocation may involve
the extensive use of equity and fixed-income exchange-traded funds (ETFs). The
Fund may invest in securities issued by domestic or foreign companies. The Fund
also may invest in fixed-income securities that are investment grade and below
investment grade, but limits its investments in below-investment-grade
securities to no more than 10% of its net assets.
The Fund's investments also may include real estate investment trusts,
investments that provide exposure to commodities (such as ETFs or natural
resources companies), and derivatives, including futures and options.
Derivatives may be utilized by the Fund to reduce its volatility over time, to
enhance returns, or to provide diversification.
The Fund's assets will not be directly invested in companies whose primary line
of business is the production of tobacco products or alcoholic beverages or in
companies primarily focused on gaming activities.
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 tax 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
ARNOLD J. ESPE, CFA LANCE HUMPHREY, CFA
WASIF A. LATIF JOHN P. TOOHEY, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The global financial markets experienced elevated volatility and a wide
dispersion in returns during the reporting period ended January 31, 2017.
The primary cause for the unusual investment backdrop was, of course,
Donald Trump's unexpected victory in the U.S. presidential election. Ahead
of the presidential vote, most market segments traded in a narrow range as
investors positioned for a continuation of the political environment that
had been in place throughout the Obama administration. As a result,
President Trump's surprising win fueled a sudden, and significant, change
in expectations. The markets quickly priced in a shift toward more
growth-oriented economic policies, including reduced regulation, lower
corporate tax rates, and higher infrastructure spending.
The sudden change in the outlook influenced performance across the
investment spectrum. Investment-grade bond yields surged, as prices fell,
reflecting concerns that the Federal Reserve (the Fed) would need to take a
more aggressive approach to raising interest rates in 2017. At the same
time, the improving outlook for growth enabled high-yield bonds to post a
healthy gain and outpace investment-grade issues by a substantial margin.
U.S. equities also powered higher on the news, with the most impressive
returns reserved for financials, cyclical stocks, and other
================================================================================
2 | USAA FIRST START GROWTH FUND
================================================================================
sectors seen as being in the best position to benefit from a Trump
presidency. Small-cap stocks performed particularly well due to their
larger domestic focus, delivering a return more than double that of large
caps.
Developed and emerging markets both finished with solid gains thanks to the
improving growth outlook and the general strengthening of investor
sentiment. However, both categories trailed the U.S. market due to the
impact of currency translation. The U.S. dollar surged in the aftermath of
the presidential election, which hindered foreign market returns for
U.S.-based investors.
o HOW DID THE USAA FIRST START GROWTH FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended January 31, 2017, the Fund had a total
return of 2.88%. This compares to total returns of 4.95% for the MSCI
All-Country World Index, 3.01% for the First Start Growth Composite Index,
and 3.28% for the Lipper Flexible Portfolio Funds Index.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The Fund's approach to asset allocation enabled it to generate a positive
return during the reporting period. We believe the Fund's favorable results
help illustrate the value of our broadly diversified approach. While news
events contributed to above-average market volatility and widely divergent
returns among the major asset classes, the Fund's diversification allowed
it to experience a "smoother ride" overall. In short, the impact of having
exposure across all of the major asset categories helped offset the
volatility of each individual group - an illustration of the potential
value in our broad-based approach.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
The Fund's portfolio of large-cap, blue-chip U.S. stocks generated positive
performance and participated in the broader rally during the reporting
period. We believe our emphasis on fundamentally sound, reasonably valued
large-cap companies remains a prudent long-term strategy.
The Fund's allocation to developed-market international equities also
contributed to absolute returns, although not to the extent of the domestic
portfolio. We see latitude for longer-term outperformance for the non-U.S.
markets based on the stimulative central bank policies in Europe and Japan,
together with foreign stocks' low valuations compared to the United States.
In addition, the weakness in global currencies--though a headwind to
investment returns in recent months--can benefit foreign companies by
making their products and services more competitive in the global
marketplace.
The Fund's position in emerging-market stocks also contributed to returns
during the reporting period. While concerns about Fed policy and the
possibility of increasing protectionism in the United States led to higher
volatility in recent months, we continue to believe the asset class offers
a compelling long-term opportunity on the basis of its attractive
valuations and the potential for superior earnings growth.
The Fund's actively managed bond portfolio posted a negative return. While
the Fund generated positive results from our investments in higher-yielding
corporate debt, the gains were offset by our weighting in longer-term U.S.
Treasuries. Still, we see multiple benefits from owning longer-term U.S.
Treasuries. In addition to offsetting the credit risk of our positions in
corporate bonds, they represent a potential hedge against a scenario of
weaker-than-expected economic growth. Additionally, we believe U.S.
Treasuries may be an attractive contrarian investment at a time in which
the asset class has been out of favor with investors.
The investment backdrop offers a mixed picture for investors at the close
of the reporting period. We believe that the U.S. economy
================================================================================
4 | USAA FIRST START GROWTH FUND
================================================================================
remains robust, and expectations for growth have improved in the wake of
the election. Although the Trump administration needs to follow through on
its promises in order to avoid disappointing the markets, the potential for
lower taxes, reduced regulation, and the increased infrastructure spending
all represent possible tailwinds. At the same time, potential sources of
volatility include global political uncertainty, questions about U.S. trade
policy, and the possibility that the Fed may begin to raise interest rates
more aggressively.
Our response to this uncertainty is to do what we have always done:
maintain diversification, stay focused on the long-term picture, and
emphasize undervalued asset classes. We believe this steady approach--
rather than one that tries to keep up with the day-to-day considerations
driving short-term market performance--is well suited to a highly uncertain
investment environment.
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.
o Exchange-Traded Funds (ETFs) are subject to risks similar to those of
stocks. Investment returns may fluctuate and are subject to market
volatility, so that an investor's shares, when redeemed or sold, may be
worth more or less than their original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA FIRST START GROWTH FUND (THE FUND)
(Ticker Symbol: UFSGX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $398.0 Million $389.5 Million
Net Asset Value Per Share $12.64 $12.65
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
2.88% 11.62% 7.66% 5.21%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
5.43% 8.27% 5.16%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.83% AFTER REIMBURSEMENT 1.44%
(includes acquired fund fees and expenses of 0.06%)
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, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 2017, 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 November 30, 2017. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
6 | USAA FIRST START GROWTH FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER FLEXIBLE
USAA FIRST START FIRST START GROWTH PORTFOLIO MSCI ALL-COUNTRY
GROWTH FUND COMPOSITE INDEX FUNDS INDEX WORLD INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,896.00 10,001.68 9,960.95 9,947.36
3/31/2007 9,972.00 10,123.20 10,054.47 10,146.97
4/30/2007 10,284.00 10,432.37 10,368.11 10,596.29
5/31/2007 10,483.00 10,642.26 10,601.42 10,912.29
6/30/2007 10,351.00 10,564.40 10,553.34 10,880.24
7/31/2007 10,142.00 10,423.74 10,446.53 10,714.10
8/31/2007 10,199.00 10,470.81 10,439.43 10,684.45
9/30/2007 10,483.00 10,849.05 10,850.91 11,258.02
10/31/2007 10,645.00 11,129.15 11,139.76 11,697.22
11/30/2007 10,322.00 10,814.90 10,876.06 11,180.05
12/31/2007 10,270.00 10,752.31 10,828.40 11,056.29
1/31/2008 9,769.00 10,256.97 10,476.45 10,150.72
2/29/2008 9,644.00 10,231.28 10,410.20 10,179.37
3/31/2008 9,528.00 10,154.82 10,271.74 10,030.07
4/30/2008 9,721.00 10,536.31 10,642.39 10,589.56
5/31/2008 9,894.00 10,658.69 10,810.95 10,755.14
6/30/2008 9,413.00 10,061.02 10,325.31 9,872.00
7/31/2008 9,307.00 9,909.74 10,130.05 9,615.64
8/31/2008 9,355.00 9,865.66 10,095.42 9,408.38
9/30/2008 8,671.00 9,021.88 9,149.62 8,232.51
10/31/2008 7,447.00 7,676.64 7,742.59 6,601.24
11/30/2008 6,937.00 7,338.89 7,306.43 6,167.56
12/31/2008 7,095.00 7,602.42 7,577.85 6,391.08
1/31/2009 6,676.00 7,137.56 7,256.27 5,845.04
2/28/2009 6,227.00 6,625.50 6,766.77 5,272.74
3/31/2009 6,566.00 7,035.23 7,215.12 5,707.06
4/30/2009 7,215.00 7,652.32 7,792.95 6,380.75
5/31/2009 7,804.00 8,143.07 8,289.20 7,016.52
6/30/2009 8,003.00 8,145.87 8,153.15 6,977.18
7/31/2009 8,433.00 8,673.17 8,816.69 7,591.37
8/31/2009 8,762.00 8,938.49 9,031.51 7,862.87
9/30/2009 9,211.00 9,259.89 9,414.46 8,223.60
10/31/2009 9,231.00 9,150.05 9,267.55 8,096.52
11/30/2009 9,450.00 9,472.05 9,662.88 8,429.51
12/31/2009 9,695.00 9,612.45 9,788.12 8,604.07
1/31/2010 9,643.00 9,383.31 9,532.25 8,232.23
2/28/2010 9,818.00 9,530.15 9,697.35 8,337.10
3/31/2010 10,210.00 9,963.28 10,170.74 8,873.45
4/30/2010 10,293.00 10,078.64 10,325.63 8,888.38
5/31/2010 9,870.00 9,459.99 9,731.80 8,045.71
6/30/2010 9,550.00 9,251.25 9,415.09 7,797.84
7/31/2010 10,035.00 9,790.27 9,920.91 8,432.34
8/31/2010 9,757.00 9,565.20 9,684.86 8,137.56
9/30/2010 10,489.00 10,214.56 10,300.47 8,916.04
10/31/2010 10,788.00 10,500.81 10,639.93 9,238.28
11/30/2010 10,736.00 10,396.20 10,631.69 9,032.73
12/31/2010 11,224.00 10,907.31 11,051.80 9,694.18
1/31/2011 11,372.00 11,042.49 11,282.70 9,846.31
2/28/2011 11,731.00 11,295.39 11,510.50 10,133.03
3/31/2011 11,900.00 11,317.43 11,562.82 10,122.91
4/30/2011 12,248.00 11,660.67 11,890.80 10,537.06
5/31/2011 12,121.00 11,550.60 11,787.67 10,310.56
6/30/2011 11,963.00 11,396.01 11,616.00 10,148.10
7/31/2011 11,773.00 11,315.22 11,522.34 9,982.88
8/31/2011 11,055.00 10,806.86 11,018.04 9,253.64
9/30/2011 10,337.00 10,109.40 10,278.19 8,379.98
10/31/2011 11,129.00 10,905.04 11,132.11 9,277.83
11/30/2011 11,023.00 10,721.57 10,961.86 9,000.11
12/31/2011 10,971.00 10,758.41 10,923.93 8,981.92
1/31/2012 11,490.00 11,226.88 11,427.41 9,504.19
2/29/2012 11,879.00 11,603.47 11,787.21 9,982.38
3/31/2012 12,019.00 11,689.93 11,896.05 10,048.65
4/30/2012 11,943.00 11,653.28 11,867.44 9,933.77
5/31/2012 11,284.00 11,003.26 11,235.61 9,043.13
6/30/2012 11,641.00 11,368.38 11,551.74 9,489.76
7/31/2012 11,749.00 11,518.79 11,693.59 9,619.67
8/31/2012 11,998.00 11,711.15 11,934.13 9,828.83
9/30/2012 12,289.00 11,963.76 12,192.85 10,138.40
10/31/2012 12,300.00 11,893.76 12,108.73 10,070.83
11/30/2012 12,397.00 11,993.97 12,214.80 10,199.61
12/31/2012 12,605.00 12,168.65 12,381.36 10,430.64
1/31/2013 13,047.00 12,563.21 12,761.71 10,911.16
2/28/2013 13,102.00 12,609.31 12,774.74 10,909.46
3/31/2013 13,377.00 12,828.58 12,987.76 11,108.93
4/30/2013 13,653.00 13,086.19 13,167.08 11,426.29
5/31/2013 13,664.00 13,048.86 13,161.27 11,394.94
6/30/2013 13,355.00 12,749.60 12,858.85 11,061.88
7/31/2013 13,852.00 13,196.48 13,328.29 11,591.44
8/31/2013 13,532.00 12,973.60 13,116.28 11,349.94
9/30/2013 13,940.00 13,450.22 13,577.15 11,936.18
10/31/2013 14,359.00 13,853.43 13,960.58 12,415.92
11/30/2013 14,613.00 13,992.47 14,093.40 12,591.76
12/31/2013 14,822.00 14,164.05 14,306.10 12,808.99
1/31/2014 14,426.00 13,884.45 14,065.40 12,296.62
2/28/2014 14,981.00 14,389.02 14,598.17 12,890.64
3/31/2014 15,105.00 14,426.55 14,584.84 12,947.96
4/30/2014 15,253.00 14,524.28 14,607.10 13,071.22
5/31/2014 15,547.00 14,774.35 14,898.62 13,349.23
6/30/2014 15,740.00 15,006.42 15,163.54 13,600.57
7/31/2014 15,536.00 14,820.90 14,939.94 13,435.62
8/31/2014 15,898.00 15,141.00 15,246.45 13,732.42
9/30/2014 15,581.00 14,750.51 14,884.79 13,287.10
10/31/2014 15,785.00 14,925.66 14,976.18 13,380.65
11/30/2014 16,000.00 15,109.96 15,109.10 13,604.46
12/31/2014 15,845.00 14,950.99 14,923.37 13,341.94
1/31/2015 15,712.00 14,865.96 14,906.97 13,133.35
2/28/2015 16,295.00 15,404.14 15,318.61 13,864.50
3/31/2015 16,186.00 15,284.13 15,143.71 13,649.67
4/30/2015 16,258.00 15,524.97 15,326.52 14,045.71
5/31/2015 16,319.00 15,545.64 15,359.29 14,027.38
6/30/2015 15,991.00 15,270.97 15,074.67 13,697.15
7/31/2015 16,149.00 15,363.92 15,152.59 13,816.10
8/31/2015 15,323.00 14,658.00 14,529.16 12,868.99
9/30/2015 14,983.00 14,327.60 14,165.43 12,402.76
10/31/2015 15,833.00 15,084.75 14,850.03 13,376.19
11/30/2015 15,797.00 15,009.88 14,771.91 13,265.74
12/31/2015 15,478.00 14,798.60 14,546.53 13,026.50
1/31/2016 14,891.00 14,222.93 14,002.38 12,240.86
2/29/2016 14,788.00 14,205.86 13,998.09 12,156.66
3/31/2016 15,503.00 15,001.39 14,681.78 13,057.56
4/30/2016 15,593.00 15,190.41 14,883.93 13,250.31
5/31/2016 15,670.00 15,248.13 14,927.88 13,267.01
6/30/2016 15,657.00 15,292.35 14,968.48 13,186.70
7/31/2016 16,155.00 15,777.12 15,417.54 13,754.96
8/31/2016 16,206.00 15,807.10 15,458.82 13,801.24
9/30/2016 16,282.00 15,882.97 15,552.72 13,885.80
10/31/2016 16,065.00 15,630.43 15,347.83 13,650.10
11/30/2016 16,091.00 15,700.77 15,406.49 13,753.83
12/31/2016 16,318.00 15,955.12 15,587.45 14,050.95
1/31/2017 16,621.00 16,252.24 15,923.19 14,435.17
[END CHART]
Data from 1/31/07 to 1/31/17.
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
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) Gross (40%), the MSCI ACWI ex USA IMI
(27%) Net, the Bloomberg Barclays U.S. Universal Index (28%), the Bloomberg
Commodity Index Total Return Index (1.5%), the MSCI U.S. Real Estate
Investment Trust (REIT) Index Gross (1.5%), and the Bloomberg Barclays U.S.
Treasury - Bills (1-3M) (2%).
o The unmanaged Lipper Flexible Portfolio Funds Index tracks the total
return performance of 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* - 1/31/17 o
(% of Net Assets)
Vanguard FTSE Developed Markets ETF** ................................... 7.5%
iShares Core MSCI EAFE ETF** ............................................ 5.0%
iShares MSCI EAFE ETF** ................................................. 4.6%
iShares Core MSCI Emerging Markets ETF** ................................ 4.5%
U.S. Treasury Bond, 3.13%, 8/15/2044 .................................... 2.4%
Freddie Mac, 3.00%, 6/01/2046 ........................................... 2.1%
iShares Currency Hedged MSCI EAFE ETF** ................................. 2.0%
Freddie Mac, 3.50%, 4/01/2046 ........................................... 1.9%
Alphabet, Inc. "A" ...................................................... 1.3%
Schwab Fundamental International Large Co. Index ETF** .................. 1.3%
*Does not include money market instruments.
**The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to invest
in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
You will find a complete list of securities that the Fund owns on pages 11-23.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION - 1/31/17 o
[PIE CHART OF ASSET ALLOCATION]
COMMON STOCKS 35.1%
EXCHANGE-TRADED FUNDS* 34.5%
U.S. TREASURY SECURITIES 7.9%
MONEY MARKET INSTRUMENTS 7.3%
CORPORATE OBLIGATIONS 5.9%
U.S. GOVERNMENT AGENCY ISSUES 4.7%
COMMERCIAL MORTGAGE SECURITIES 1.6%
PREFERRED STOCKS 1.1%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 0.4%
EURODOLLAR AND YANKEE OBLIGATIONS 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.2%
ASSET-BACKED SECURITIES 0.1%
[END CHART]
*The Fund may rely on certain Securities and Exchange Commission exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund 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, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (71.1%)
COMMON STOCKS (35.1%)
CONSUMER DISCRETIONARY (3.6%)
-----------------------------
ADVERTISING (0.2%)
8,250 Omnicom Group, Inc. $ 707
--------
APPAREL RETAIL (0.4%)
23,650 TJX Companies, Inc. 1,772
--------
AUTO PARTS & EQUIPMENT (0.5%)
41,950 Magna International, Inc. 1,816
--------
BROADCASTING (0.2%)
10,450 CBS Corp. "B" 674
--------
GENERAL MERCHANDISE STORES (0.1%)
8,600 Target Corp. 554
--------
HOME IMPROVEMENT RETAIL (0.6%)
17,000 Home Depot, Inc. 2,339
--------
HOMEBUILDING (0.2%)
22,080 CalAtlantic Group, Inc. 770
--------
HOTELS, RESORTS & CRUISE LINES (0.3%)
14,300 Norwegian Cruise Line Holdings Ltd.* 672
5,200 Royal Caribbean Cruises Ltd. 487
--------
1,159
--------
INTERNET RETAIL (0.7%)
3,300 Amazon.com, Inc.* 2,717
--------
MOVIES & ENTERTAINMENT (0.1%)
4,350 Time Warner, Inc. 421
--------
SPECIALTY STORES (0.3%)
4,900 Ulta Salon, Cosmetics & Fragrance, Inc.* 1,334
--------
Total Consumer Discretionary 14,263
--------
CONSUMER STAPLES (3.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.3%)
18,250 Bunge Ltd. 1,263
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
DRUG RETAIL (0.8%)
15,510 CVS Health Corp. $ 1,222
22,930 Walgreens Boots Alliance, Inc. 1,879
--------
3,101
--------
FOOD RETAIL (0.1%)
14,140 Kroger Co. 480
--------
HOUSEHOLD PRODUCTS (0.4%)
19,210 Procter & Gamble Co. 1,683
--------
HYPERMARKETS & SUPER CENTERS (0.6%)
33,800 Wal-Mart Stores, Inc. 2,256
--------
PACKAGED FOODS & MEAT (0.5%)
31,400 Blue Buffalo Pet Products, Inc.* 761
12,700 Kraft Heinz Co. 1,134
--------
1,895
--------
SOFT DRINKS (0.7%)
16,700 Coca-Cola Co. 694
22,100 PepsiCo, Inc. 2,294
--------
2,988
--------
Total Consumer Staples 13,666
--------
ENERGY (2.7%)
-------------
INTEGRATED OIL & GAS (0.8%)
5,350 Chevron Corp. 596
38,090 Occidental Petroleum Corp. 2,581
--------
3,177
--------
OIL & GAS DRILLING (0.0%)
200 Patterson-UTI Energy, Inc. 6
--------
OIL & GAS EQUIPMENT & SERVICES (0.4%)
13,450 Halliburton Co. 761
10,800 Schlumberger Ltd. 904
--------
1,665
--------
OIL & GAS EXPLORATION & PRODUCTION (1.5%)
72,620 Antero Resources Corp.* 1,773
17,900 Cabot Oil & Gas Corp. 384
1,250 Cimarex Energy Co. 169
46,270 ConocoPhillips 2,256
12,500 EOG Resources, Inc. 1,270
--------
5,852
--------
Total Energy 10,700
--------
================================================================================
12 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (5.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
42,520 Bank of New York Mellon Corp. $ 1,902
--------
CONSUMER FINANCE (0.8%)
93,000 Synchrony Financial 3,331
--------
DIVERSIFIED BANKS (2.5%)
174,320 Bank of America Corp. 3,946
16,280 Citigroup, Inc. 909
35,850 JPMorgan Chase & Co. 3,034
37,600 U.S. Bancorp 1,980
--------
9,869
--------
PROPERTY & CASUALTY INSURANCE (1.3%)
18,400 Allstate Corp. 1,384
12,400 Chubb Ltd. 1,630
28,900 Progressive Corp. 1,082
30,500 XL Group Ltd. 1,146
--------
5,242
--------
REGIONAL BANKS (0.7%)
84,730 KeyCorp 1,523
9,700 PNC Financial Services Group, Inc. 1,168
--------
2,691
--------
SPECIALIZED FINANCE (0.1%)
3,100 CME Group, Inc. 376
--------
Total Financials 23,411
--------
HEALTH CARE (4.4%)
------------------
BIOTECHNOLOGY (1.1%)
40,800 AbbVie, Inc. 2,493
3,200 Amgen, Inc. 501
900 Biogen, Inc.* 250
17,430 Gilead Sciences, Inc. 1,263
--------
4,507
--------
HEALTH CARE EQUIPMENT (0.9%)
26,010 Hologic, Inc.* 1,054
36,080 Medtronic plc 2,743
--------
3,797
--------
LIFE SCIENCES TOOLS & SERVICES (0.5%)
12,500 Thermo Fisher Scientific, Inc. 1,905
--------
MANAGED HEALTH CARE (0.7%)
16,200 UnitedHealth Group, Inc. 2,626
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (1.2%)
4,080 Allergan plc* $ 893
19,150 Johnson & Johnson 2,169
20,660 Merck & Co., Inc. 1,281
14,720 Pfizer, Inc. 467
--------
4,810
--------
Total Health Care 17,645
--------
INDUSTRIALS (3.7%)
------------------
AEROSPACE & DEFENSE (1.1%)
4,130 Boeing Co. 675
700 Lockheed Martin Corp. 176
29,500 Spirit AeroSystems Holdings, Inc. "A" 1,771
16,500 United Technologies Corp. 1,810
--------
4,432
--------
AIR FREIGHT & LOGISTICS (0.4%)
9,000 FedEx Corp. 1,702
--------
AIRLINES (0.4%)
29,830 Southwest Airlines Co. 1,560
--------
BUILDING PRODUCTS (0.1%)
12,750 Masco Corp. 420
--------
CONSTRUCTION & ENGINEERING (0.3%)
28,960 AECOM* 1,069
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
9,900 Wabtec Corp. 858
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
6,000 Eaton Corp. plc 425
--------
INDUSTRIAL CONGLOMERATES (0.9%)
7,720 Carlisle Companies, Inc. 843
83,846 General Electric Co. 2,490
--------
3,333
--------
RAILROADS (0.2%)
9,130 Kansas City Southern 784
--------
Total Industrials 14,583
--------
INFORMATION TECHNOLOGY (8.5%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.5%)
72,100 Cisco Systems, Inc. 2,215
--------
================================================================================
14 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (1.1%)
7,540 MasterCard, Inc. "A" $ 802
42,500 Visa, Inc. "A" 3,515
--------
4,317
--------
INTERNET SOFTWARE & SERVICES (1.6%)
6,590 Alphabet, Inc. "A"* 5,405
8,080 Facebook, Inc. "A"* 1,053
--------
6,458
--------
SEMICONDUCTOR EQUIPMENT (0.6%)
24,150 Applied Materials, Inc. 827
13,160 Lam Research Corp. 1,512
--------
2,339
--------
SEMICONDUCTORS (0.9%)
2,500 Broadcom Ltd. 499
29,030 Maxim Integrated Products, Inc. 1,291
3,800 NXP Semiconductors N.V.* 372
15,050 QUALCOMM, Inc. 804
6,750 Texas Instruments, Inc. 510
--------
3,476
--------
SYSTEMS SOFTWARE (2.0%)
80,350 Microsoft Corp. 5,195
65,700 Oracle Corp. 2,635
--------
7,830
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.8%)
38,960 Apple, Inc. 4,728
57,680 HP, Inc. 868
19,300 Western Digital Corp. 1,538
--------
7,134
--------
Total Information Technology 33,769
--------
MATERIALS (0.7%)
----------------
DIVERSIFIED CHEMICALS (0.3%)
21,400 Dow Chemical Co. 1,276
--------
GOLD (0.1%)
19,672 Hycroft Mining Corp.*(a),(b) 4
7,800 Newmont Mining Corp. 283
--------
287
--------
PAPER PACKAGING (0.2%)
10,350 Packaging Corp. of America 954
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS (0.1%)
2,850 Ecolab, Inc. $ 343
--------
Total Materials 2,860
--------
REAL ESTATE (0.3%)
------------------
REITs - OFFICE (0.1%)
3,140 Boston Properties, Inc. 411
--------
REITs - RETAIL (0.1%)
2,600 Simon Property Group, Inc. 478
--------
REITs - SPECIALIZED (0.1%)
1,050 Public Storage 226
--------
Total Real Estate 1,115
--------
TELECOMMUNICATION SERVICES (0.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
51,900 AT&T, Inc. 2,188
--------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
32,500 Vodafone Group plc ADR 809
--------
Total Telecommunication Services 2,997
--------
UTILITIES (1.2%)
----------------
ELECTRIC UTILITIES (1.1%)
19,250 American Electric Power Co., Inc. 1,233
10,000 Duke Energy Corp. 785
14,950 Edison International 1,090
10,450 NextEra Energy, Inc. 1,293
--------
4,401
--------
MULTI-UTILITIES (0.1%)
3,100 Sempra Energy 317
--------
Total Utilities 4,718
--------
Total Common Stocks (cost: $114,927) 139,727
--------
PREFERRED STOCKS (1.1%)
CONSUMER STAPLES (0.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.6%)
40,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 1,143
10,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(c) 1,052
--------
2,195
--------
Total Consumer Staples 2,195
--------
================================================================================
16 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENERGY (0.1%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
800 Chesapeake Energy Corp., 5.75%, perpetual(c) $ 514
--------
FINANCIALS (0.3%)
-----------------
LIFE & HEALTH INSURANCE (0.2%)
28,000 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 628
--------
REGIONAL BANKS (0.1%)
500 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 515
--------
REINSURANCE (0.0%)
500 American Overseas Group Ltd., 4.52%, non-cumulative*(a),(b) 100
--------
Total Financials 1,243
--------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
20,000 Qwest Corp., 6.50% 493
--------
Total Preferred Stocks (cost: $4,677) 4,445
--------
EXCHANGE-TRADED FUNDS (34.5%)
DOMESTIC EXCHANGE-TRADED FUNDS (3.0%)
50,000 PowerShares S&P MidCap Low Volatility Portfolio 2,053
50,000 PowerShares S&P SmallCap Low Volatility Portfolio 2,127
15,000 Vanguard Mid-Cap ETF 2,033
39,000 Vanguard REIT ETF 3,212
20,000 Vanguard Small-Cap Value ETF 2,436
--------
Total Domestic Exchange-Traded Funds 11,861
--------
FIXED-INCOME EXCHANGE-TRADED FUNDS (3.1%)
20,000 iShares iBoxx $ High Yield Corporate Bond ETF 1,747
20,000 iShares iBoxx Investment Grade Corporate Bond ETF 2,347
50,000 Vanguard Short-Term Corporate Bond ETF 3,981
50,000 Vanguard Total Bond Market ETF 4,047
--------
Total Fixed-Income Exchange-Traded Funds 12,122
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (28.4%)
356,000 iShares Core MSCI EAFE ETF 19,737
393,824 iShares Core MSCI Emerging Markets ETF 17,817
302,000 iShares Currency Hedged MSCI EAFE ETF 7,924
16,000 iShares Edge MSCI Minimum Volatility EAFE ETF 1,011
305,771 iShares MSCI EAFE ETF 18,233
155,000 PowerShares FTSE RAFI Emerging Markets Portfolio 3,015
205,300 Schwab Fundamental International Large Co. Index ETF 5,323
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
785,000 Vanguard FTSE Developed Markets ETF $ 29,736
125,000 Vanguard FTSE Emerging Markets ETF 4,730
20,334 WisdomTree Emerging Markets SmallCap Dividend Fund 846
68,000 WisdomTree Europe Hedged Equity Fund 3,905
36,637 WisdomTree India Earnings Fund 785
--------
Total International Exchange-Traded Funds 113,062
--------
Total Exchange-Traded Funds (cost: $132,653) 137,045
--------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (0.4%)
EXCHANGE-TRADED FUNDS (0.4%)
25,000 United States Commodity Index Fund 1,006
25,000 VanEck Vectors Gold Miners ETF 598
--------
Total Exchange-Traded Funds 1,604
--------
Total Precious Metals and Commodity-Related Securities (cost: $1,678) 1,604
--------
Total Equity Securities (cost: $253,935) 282,821
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
BONDS (20.7%)
CORPORATE OBLIGATIONS (5.9%)
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
$ 300 BI-LO, LLC & BI-LO Finance Corp.(c) 9.25% 2/15/2019 249
--------
ENERGY (1.0%)
-------------
OIL & GAS DRILLING (0.0%)
782 Schahin II Finance Co. SPV Ltd.(c),(i) 5.88 9/25/2023 98
--------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
500 Newfield Exploration Co. 5.38 1/01/2026 520
--------
OIL & GAS STORAGE & TRANSPORTATION (0.8%)
1,000 Enbridge Energy Partners, LP 8.05 10/01/2077 975
1,000 Energy Transfer Partners, LP 4.05(d) 11/01/2066 856
1,000 Enterprise Products Operating, LLC 7.00(d) 6/01/2067 910
500 Enterprise TE Partners 7.00(d) 6/01/2067 455
--------
3,196
--------
Total Energy 3,814
--------
================================================================================
18 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (3.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.3%)
$ 350 Ares Capital Corp. 3.63% 1/19/2022 $ 343
900 Prospect Capital Corp. 5.00 7/15/2019 926
--------
1,269
--------
LIFE & HEALTH INSURANCE (0.7%)
800 Lincoln National Corp. 3.26(d) 5/17/2066 686
200 Lincoln National Corp. 6.05(d) 4/20/2067 167
1,000 Prudential Financial, Inc. 5.63 6/15/2043 1,055
1,000 StanCorp Financial Group, Inc. 6.90(d) 6/01/2067 832
--------
2,740
--------
MULTI-LINE INSURANCE (0.5%)
1,000 Glen Meadow Pass-Through Trust(c) 6.51(d) 2/12/2067 855
1,000 Nationwide Mutual Insurance Co.(c) 3.25(d) 12/15/2024 987
--------
1,842
--------
PROPERTY & CASUALTY INSURANCE (1.5%)
1,000 Allstate Corp. 5.75 8/15/2053 1,056
1,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 1,053
1,000 HSB Group, Inc. 1.93(d) 7/15/2027 762
750 Ironshore Holdings, Inc.(c) 8.50 5/15/2020 869
1,000 Oil Insurance Ltd.(c) 3.98(d) -(h) 848
500 Progressive Corp. 6.70(d) 6/15/2067 496
1,000 Travelers Companies, Inc. 6.25(d) 3/15/2067 1,000
--------
6,084
--------
REGIONAL BANKS (0.8%)
500 Compass Bank 3.88 4/10/2025 480
1,000 Cullen/Frost Capital Trust II 2.48(d) 3/01/2034 869
1,000 Manufacturers & Traders Trust Co. 1.57(d) 12/01/2021 982
1,000 SunTrust Capital I 1.57(d) 5/15/2027 873
--------
3,204
--------
REINSURANCE (0.1%)
500 Alterra USA Holdings Ltd.(c) 7.20 4/14/2017 505
--------
Total Financials 15,644
--------
HEALTH CARE (0.1%)
------------------
HEALTH CARE FACILITIES (0.1%)
300 Community Health Systems, Inc. 6.88 2/01/2022 220
400 HCA, Inc. 4.50 2/15/2027 395
--------
615
--------
Total Health Care 615
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
REAL ESTATE (0.1%)
------------------
REAL ESTATE DEVELOPMENT (0.1%)
$ 300 Crescent Communities, LLC & Crescent Ventures, Inc.(c) 8.88% 10/15/2021 $ 313
--------
UTILITIES (0.7%)
---------------
ELECTRIC UTILITIES (0.5%)
983 NextEra Energy Capital Holdings, Inc. 6.65(d) 6/15/2067 866
1,000 PPL Capital Funding, Inc. 6.70(d) 3/30/2067 925
--------
1,791
--------
MULTI-UTILITIES (0.2%)
975 WEC Energy Group, Inc. 6.25(d) 5/15/2067 880
--------
Total Utilities 2,671
--------
Total Corporate Obligations (cost: $22,783) 23,306
--------
EURODOLLAR AND YANKEE OBLIGATIONS (0.3%)
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
250 QBE Capital Funding III Ltd.(c) 7.25 5/24/2041 276
--------
MATERIALS (0.2%)
----------------
COMMODITY CHEMICALS (0.2%)
1,000 Braskem Finance Ltd. 6.45 2/03/2024 1,075
--------
Total Eurodollar and Yankee Obligations (cost: $1,263) 1,351
--------
ASSET-BACKED SECURITIES (0.1%)
FINANCIALS (0.1%)
-----------------
ASSET-BACKED FINANCING (0.1%)
150 Avis Budget Rental Car Funding AESOP, LLC(c) 3.75 7/20/2020 149
200 Navient Student Loan Trust 2.27(d) 8/25/2050 186
--------
335
--------
Total Financials 335
--------
Total Asset-Backed Securities (cost: $322) 335
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
FINANCIALS (0.2%)
-----------------
821 Structured Asset Mortgage Investments, Inc. (cost: $779) 1.27(d) 7/19/2035 759
--------
================================================================================
20 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (1.6%)
FINANCIALS (1.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.5%)
$ 500 Banc of America Commercial Mortgage, Inc. 6.28% 2/10/2051 $ 500
1,000 Bear Stearns Commercial Mortgage Securities, Inc.(c) 5.66 9/11/2041 975
124 Commercial Mortgage Trust 5.38 12/10/2046 124
900 FREMF Mortgage Trust(c) 3.00 8/25/2045 923
700 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 682
275 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 276
77 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 79
250 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 259
1,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.93 4/17/2045 788
610 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.37 5/15/2047 610
24 Merrill Lynch Mortgage Trust 5.60 7/12/2038 24
119 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 119
500 ML-CFC Commercial Mortgage Trust 5.89 8/12/2049 502
--------
5,861
--------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.1%)
3,242 CSAIL Commercial Mortgage Trust(a) 1.00 1/15/2049 373
2,804 UBS Commercial Mortgage Trust(a),(c) 2.00 5/10/2045 247
--------
620
--------
Total Financials 6,481
--------
Total Commercial Mortgage Securities (cost: $6,580) 6,481
--------
U.S. GOVERNMENT AGENCY ISSUES (4.7%)(e)
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
1,000 Freddie Mac(+) 3.51 4/25/2030 1,029
--------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (4.5%)
1,830 Freddie Mac(+) 3.00 4/01/2046 1,812
8,608 Freddie Mac(+) 3.00 6/01/2046 8,522
7,377 Freddie Mac(+) 3.50 4/01/2046 7,543
--------
17,877
--------
Total U.S. Government Agency Issues (cost: $19,449) 18,906
--------
U.S. TREASURY SECURITIES (7.9%)
BONDS (4.4%)
9,500 3.13%, 8/15/2044 9,635
4,300 3.15%, 8/15/2044 (STRIPS Principal)(f) 1,817
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,000 3.00%, 11/15/2044 $ 1,979
4,200 3.00%, 5/15/2045 4,153
--------
17,584
--------
NOTES (3.5%)
1,970 1.63%, 8/15/2022 1,928
390 1.63%, 11/15/2022 380
5,000 1.63%, 4/30/2023 4,842
1,000 2.75%, 11/15/2023 1,033
800 2.38%, 8/15/2024 804
1,000 2.25%, 11/15/2024 994
4,000 1.63%, 2/15/2026 3,736
--------
13,717
--------
Total U.S. Treasury Securities (cost: $31,326) 31,301
--------
Total Bonds (cost: $82,502) 82,439
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (7.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (7.3%)
29,132,905 State Street Institutional Treasury Money Market Fund Premier
Class, 0.42%(g) (cost: $29,133) 29,133
--------
TOTAL INVESTMENTS (COST: $365,570) $394,393
========
================================================================================
22 | USAA FIRST START GROWTH FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $139,723 $ - $ 4 $139,727
Preferred Stocks - 4,345 100 4,445
Exchange-Traded Funds 137,045 - - 137,045
Precious Metals and
Commodity-Related Securities 1,604 - - 1,604
Bonds:
Corporate Obligations - 23,306 - 23,306
Eurodollar and Yankee Obligations - 1,351 - 1,351
Asset-Backed Securities - 335 - 335
Collateralized Mortgage Obligations - 759 - 759
Commercial Mortgage Securities - 6,481 - 6,481
U.S. Government Agency Issues - 18,906 - 18,906
U.S. Treasury Securities 29,484 1,817 - 31,301
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 29,133 - - 29,133
-----------------------------------------------------------------------------------------------------------------
Total $336,989 $57,300 $104 $394,393
-----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-----------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-----------------------------------------------------------------------------------------------------------------
($ IN 000s) COMMON STOCKS PREFERRED STOCKS
-----------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2016 $ 15 $125
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 (11) (25)
-----------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2017 $ 4 $100
-----------------------------------------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 29.9% of net assets at
January 31, 2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments that are issued by foreign
issuers in the U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
================================================================================
24 | USAA FIRST START GROWTH FUND
================================================================================
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
REIT Real estate investment trust
STRIPS Separate trading of registered interest and principal of securities
o SPECIFIC NOTES
(a) Security deemed illiquid by the USAA Asset Management Company (the
Manager), under liquidity guidelines approved by the USAA Mutual Funds
Trust's Board of Trustees (the Board). The aggregate market value of
these securities at January 31, 2017, was $724,000, which represented
0.2% of the Fund's net assets.
(b) Security was fair valued at January 31, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $104,000, which represented less than
0.1% 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) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2017.
(e) 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.
================================================================================
26 | USAA FIRST START GROWTH FUND
================================================================================
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.
(f) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(g) Rate represents the money market fund annualized seven-day yield at
January 31, 2017.
(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, 2017, the issuer was in default with respect to
interest and/or principal payments.
* 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, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $365,570) $394,393
Cash 139
Receivables:
Capital shares sold 200
USAA Asset Management Company (Note 5C) 196
Dividends and interest 923
Securities sold 3,731
--------
Total assets 399,582
--------
LIABILITIES
Payables:
Securities purchased 902
Capital shares redeemed 255
Accrued management fees 253
Accrued transfer agent's fees 54
Other accrued expenses and payables 134
--------
Total liabilities 1,598
--------
Net assets applicable to capital shares outstanding $397,984
========
NET ASSETS CONSIST OF:
Paid-in capital $365,766
Overdistribution of net investment income (729)
Accumulated net realized gain on investments 4,124
Net unrealized appreciation of investments 28,823
--------
Net assets applicable to capital shares outstanding $397,984
========
Capital shares outstanding, no par value 31,488
========
Net asset value, redemption price, and offering price per share $ 12.64
========
See accompanying notes to financial statements.
================================================================================
28 | USAA FIRST START GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $10) $ 3,400
Interest 1,846
-------
Total income 5,246
-------
EXPENSES
Management fees 1,478
Administration and servicing fees 296
Transfer agent's fees 1,036
Custody and accounting fees 73
Postage 69
Shareholder reporting fees 43
Trustees' fees 15
Registration fees 18
Professional fees 85
Other 111
-------
Total expenses 3,224
Expenses reimbursed (521)
-------
Net expenses 2,703
-------
NET INVESTMENT INCOME 2,543
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on:
Investments 7,360
Long-term capital gain distributions from
other investment companies 7
Change in net unrealized appreciation/(depreciation) 1,177
-------
Net realized and unrealized gain 8,544
-------
Increase in net assets resulting from operations $11,087
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,543 $ 6,033
Net realized gain on investments 7,360 3,402
Net realized gain on long-term capital gain
distributions from other investment companies 7 -
Change in net unrealized appreciation/(depreciation) of
investments 1,177 (8,341)
--------------------------
Increase in net assets resulting from operations 11,087 1,094
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (6,055) (5,667)
Net realized gains (5,358) (12,398)
--------------------------
Distributions to shareholders (11,413) (18,065)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 35,634 78,507
Reinvested dividends 11,357 17,963
Cost of shares redeemed (38,180) (68,384)
--------------------------
Increase in net assets from capital share transactions 8,811 28,086
--------------------------
Net increase in net assets 8,485 11,115
NET ASSETS
Beginning of period 389,499 378,384
--------------------------
End of period $397,984 $389,499
==========================
Accumulated (overdistribution of) net investment income:
End of period $ (729) $ 2,783
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,822 6,396
Shares issued for dividends reinvested 907 1,456
Shares redeemed (3,021) (5,551)
--------------------------
Increase in shares outstanding 708 2,301
==========================
See accompanying notes to financial statements.
================================================================================
30 | USAA FIRST START GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 and is authorized to issue
an unlimited number of shares. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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. 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. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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 and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
================================================================================
32 | USAA FIRST START GROWTH FUND
================================================================================
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 which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are categorized
in Level 2 of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
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. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
6. Repurchase agreements are valued at cost.
7. Futures are valued at the settlement 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 settlement price on the prior trading
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
date if it is within the spread between the closing bid and asked
prices closest to the last reported sale price.
8. Options are valued by a pricing service at the National Best
Bid/Offer (NBBO) composite price, which is derived from the best
available bid and asked prices in all participating options exchanges
determined to most closely reflect market value of the options at the
time of computation of the Fund's NAV.
9. 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.
================================================================================
34 | USAA FIRST START GROWTH FUND
================================================================================
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 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 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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. 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.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities
do not earn interest, are subject to market fluctuation, and may increase
or decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's
custodian and other banks utilized by the Fund for cash management
purposes, realized credits, if any, generated from cash balances in the
Fund's bank accounts may be used to directly reduce the Fund's expenses.
For the six-month period ended January 31, 2017, there were no custodian
and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
================================================================================
36 | USAA FIRST START GROWTH FUND
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that may affect the reported
amounts in the financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability (including usage of the facility by other funds of the
Trust), 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),
plus 100.0 basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $1,000, which represents 0.5% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$88,527,000 and $96,511,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $35,584,000 and $6,761,000, respectively, resulting in net unrealized
appreciation of $28,823,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund
and for directly managing the day-to-day investment of a portion of the
Fund's assets, subject to the authority of and supervision by the Board.
The Manager is authorized to select (with approval of the Board and without
shareholder approval) one or more
================================================================================
38 | USAA FIRST START GROWTH FUND
================================================================================
subadvisers to manage the day-to-day investment of a portion of the Fund's
assets. For the six-month period ended January 31, 2017, the Fund had no
subadviser(s).
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.75% of the Fund's average net assets.
The performance adjustment is calculated 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 funds within 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
For the six-month period ended January 31, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $1,478,000. For the
six-month period ended January 31, 2017, the Fund did not incur any
performance adjustment.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
January 31, 2017, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $296,000.
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, 2017, the Fund reimbursed the
Manager $4,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through November 30, 2017, 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 November 30, 2017, 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, 2017, the Fund
incurred reimbursable expenses of $521,000, of which $196,000 was
receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of
these fees to certain intermediaries for the administration and servicing
of accounts that are held with such intermediaries. For the
================================================================================
40 | USAA FIRST START GROWTH FUND
================================================================================
six-month period ended January 31, 2017, the Fund incurred transfer agent's
fees, paid or payable to SAS, of $1,036,000.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December, 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(8) 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,
-----------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.65 $ 13.29 $ 13.72 $ 12.56 $ 10.87 $ 11.15
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) .08 .20 .18 .20 .23 .24
Net realized and
unrealized gain (loss) .27 (.22) .35 1.31 1.69 (.28)
-----------------------------------------------------------------------------------------
Total from investment
operations .35 (.02) .53 1.51 1.92 (.04)
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.19) (.18) (.23) (.23) (.24)
Realized capital gains (.17) (.43) (.78) (.12) - -
-----------------------------------------------------------------------------------------
Total distributions (.36) (.62) (.96) (.35) (.23) (.24)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.64 $ 12.65 $ 13.29 $ 13.72 $ 12.56 $ 10.87
=========================================================================================
Total return (%)* 2.88 .04 3.95 12.16 17.90 (.20)
Net assets at end of
period (000) $397,984 $389,499 $378,384 $340,974 $278,214 $222,427
Ratios to average
net assets:**
Expenses (%)(a) 1.37(d) 1.38 1.38 1.38 1.38 1.38
Expenses, excluding
reimbursements (%)(a) 1.64(d) 1.77 1.75 1.74 1.79 1.90
Net investment
income (%) 1.29(d) 1.64 1.45 1.53 2.01 2.26
Portfolio turnover (%) 25(b) 101(c) 62 64 70 85
* 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, 2017, average net assets were
$390,662,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Reflects decreased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(c) Reflects increased trading activity due to termination of subadviser(s)
and changes to asset allocation strategies.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
42 | USAA FIRST START GROWTH FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
-------------------------------------------------------------
Actual $1,000.00 $1,028.80 $7.01
Hypothetical
(5% return before expenses) 1,000.00 1,018.30 6.97
*Expenses are equal to the Fund's annualized expense ratio of 1.37%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 184 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 2.88% for the six-month period of August 1,
2016, through January 31, 2017.
================================================================================
44 | USAA FIRST START 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)
=============================================================================
31703-0317 (C)2017, 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, 2017
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 17
Financial Statements 18
Notes to Financial Statements 21
EXPENSE EXAMPLE 36
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)2017, USAA. All rights reserved.
202722-0317
================================================================================
================================================================================
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 tax 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
ANDY ENG, CFA
--------------------------------------------------------------------------------
o PLEASE DISCUSS THE MARKET CONDITIONS DURING THE REPORTING PERIOD.
Initially the reporting period showed little movement among stocks; however,
by September 2016, the equity markets began to experience volatility.
Speculation over a potential Federal Reserve (the Fed) interest rate hike
initially led to a decline, but the market experienced strong gains over the
second half of the reporting period, driven by continued economic
improvement and the November 8, 2016 U.S. elections. The results of the
elections led to speculation around stronger economic growth going forward
with the Republicans winning the presidential election as well as
maintaining majorities in both houses of Congress.
The strongest gains for the reporting period were concentrated in financials
and cyclical areas, which were seen as being in the best position to benefit
from elevated stimulus and growth, including energy, materials, and
industrials. Health care stocks lagged the broader market, likely due to
ongoing headlines surrounding drug pricing and post-election uncertainty
regarding the future of the Affordable Care Act. Interest-rate-sensitive
sectors such as real estate and utilities also underperformed as investors
began to anticipate potential interest rate increases by the Fed. For the
reporting period ended January 31, 2017, all broad-based U.S. stock indexes
finished comfortably in double-digit positive territory.
================================================================================
2 | USAA GROWTH FUND
================================================================================
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, 2017, the Fund Shares and
Institutional Shares had total returns of 3.45% and 3.51%, respectively.
This compares to returns of 4.28% for the Russell 1000(R) Growth Index (the
Index) and 3.63% 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 a positive return but
underperformed the Index during the reporting period. Through its
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 industrials, consumer discretionary, and
financials sectors as well as Loomis Sayles' allocation to the information
technology, financials, health care, and energy sectors contributed
positively to relative performance. Stock selection in the health care,
information technology, consumer staples, and energy sectors as well as
Loomis Sayles' allocation to the consumer staples, industrials, and
consumer discretionary sectors detracted from relative return.
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
Top individual contributors included Alibaba Group Holding Ltd. ADR
(Alibaba), Autodesk, Inc., and Deere & Co. Alibaba reported results above
expectations that included revenue growth in excess of 50%. The company
continues to benefit from increasing mobile users, active buyers, and
improving monetization of its user base. The largest detractors included
Novo Nordisk A/S ADR (Novo Nordisk), Monster Beverage Corp., and Danone ADR.
Novo Nordisk reported solid growth during the reporting period. However,
management issued lower-than-expected guidance. Loomis Sayles continues to
believe that Novo Nordisk's competitive advantages remain intact and that
the shares offer an attractive risk/reward opportunity.
o HOW DID RENAISSANCE'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
Renaissance's portion of the portfolio outperformed the Index over the
reporting period, primarily due to strong stock selection. Renaissance has
had a bias toward economically-sensitive issues, which proved advantageous
as U.S. economic data continues to trend positively, with upside surprises.
The majority of the outperformance was the result of Renaissance's holdings
in the financials and industrial sectors. Within financials, several of
their holdings benefited from the outcome of the presidential election as
the yield curve steepened on prospects for higher interest rates. In
addition, a more favorable regulatory and corporate tax outlook boosted
investor sentiment regarding financial stocks. These potential changes could
lead to higher returns in one of the most regulated and highly taxed
sectors. Within industrials, Renaissance's holdings performed well based on
the prospects for infrastructure stimulus as well as the sector's historical
sensitivity to improving economic growth. Conversely, holdings in consumer
discretionary weighed on returns. Within consumer discretionary, Dollar
General Corp. was the largest detractor as the company was negatively
impacted by a combination of food price deflation and reduced government
================================================================================
4 | USAA GROWTH FUND
================================================================================
benefits for its core customers. The negative effect on performance was
intensified by strong returns for Internet retail stocks where Renaissance
remains underrepresented due to high valuations. Sector allocation was
positive, as underweight positions within consumer staples and real estate
contributed to returns.
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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USAAX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.2 Billion $1.1 Billion
Net Asset Value Per Share $25.11 $25.53
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
3.45% 16.92% 14.88% 6.93%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
6.41% 15.59% 7.02%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
1.11%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income
and realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
6 | USAA GROWTH FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER LARGE-CAP
RUSSELL 1000 GROWTH FUNDS USAA GROWTH
GROWTH INDEX INDEX FUND SHARES
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,812.08 9,774.27 9,644.00
3/31/2007 9,865.26 9,847.83 9,778.00
4/30/2007 10,329.76 10,247.63 10,057.00
5/31/2007 10,701.27 10,594.66 10,444.00
6/30/2007 10,541.63 10,494.74 10,314.00
7/31/2007 10,378.20 10,361.57 10,180.00
8/31/2007 10,543.58 10,532.32 10,364.00
9/30/2007 10,985.25 11,174.80 11,076.00
10/31/2007 11,359.12 11,674.17 11,749.00
11/30/2007 10,940.69 11,198.22 11,228.00
12/31/2007 10,901.12 11,208.00 11,514.00
1/31/2008 10,051.09 10,248.92 10,085.00
2/29/2008 9,851.46 10,035.41 9,863.00
3/31/2008 9,791.48 9,950.02 9,869.00
4/30/2008 10,305.54 10,563.17 10,472.00
5/31/2008 10,683.27 10,851.58 10,765.00
6/30/2008 9,913.84 10,053.23 10,072.00
7/31/2008 9,725.36 9,854.87 9,748.00
8/31/2008 9,830.07 9,881.17 9,653.00
9/30/2008 8,691.70 8,614.61 8,326.00
10/31/2008 7,161.45 7,110.09 6,884.00
11/30/2008 6,591.90 6,396.84 6,236.00
12/31/2008 6,711.04 6,568.67 6,308.00
1/31/2009 6,388.21 6,229.11 6,085.00
2/28/2009 5,907.63 5,822.80 5,659.00
3/31/2009 6,434.57 6,323.19 6,060.00
4/30/2009 7,052.33 6,993.15 6,455.00
5/31/2009 7,401.92 7,376.00 6,716.00
6/30/2009 7,484.73 7,378.90 6,709.00
7/31/2009 8,016.34 7,934.92 7,079.00
8/31/2009 8,182.60 8,091.46 7,199.00
9/30/2009 8,530.65 8,480.04 7,537.00
10/31/2009 8,415.10 8,312.26 7,359.00
11/30/2009 8,932.06 8,813.64 7,785.00
12/31/2009 9,208.14 9,097.55 8,066.00
1/31/2010 8,806.33 8,620.92 7,576.00
2/28/2010 9,108.97 8,926.74 7,939.00
3/31/2010 9,635.86 9,487.43 8,442.00
4/30/2010 9,743.53 9,585.01 8,519.00
5/31/2010 8,999.69 8,815.01 7,882.00
6/30/2010 8,504.12 8,307.68 7,442.00
7/31/2010 9,110.74 8,871.16 7,977.00
8/31/2010 8,685.36 8,435.66 7,474.00
9/30/2010 9,609.92 9,339.90 8,404.00
10/31/2010 10,068.89 9,830.40 8,831.00
11/30/2010 10,185.82 9,928.77 8,933.00
12/31/2010 10,746.87 10,473.57 9,378.00
1/31/2011 11,020.37 10,680.23 9,467.00
2/28/2011 11,381.03 10,969.22 9,658.00
3/31/2011 11,394.93 10,974.74 9,735.00
4/30/2011 11,776.53 11,307.52 10,104.00
5/31/2011 11,648.32 11,169.90 10,009.00
6/30/2011 11,481.26 11,022.03 9,843.00
7/31/2011 11,366.18 10,963.06 9,626.00
8/31/2011 10,766.33 10,225.97 9,001.00
9/30/2011 9,973.02 9,333.57 8,358.00
10/31/2011 11,067.45 10,453.80 9,390.00
11/30/2011 11,066.39 10,325.15 9,276.00
12/31/2011 11,030.80 10,169.37 9,190.00
1/31/2012 11,689.25 10,866.44 9,772.00
2/29/2012 12,248.28 11,506.42 10,149.00
3/31/2012 12,651.15 11,913.01 10,475.00
4/30/2012 12,631.61 11,825.44 10,392.00
5/31/2012 11,821.34 10,918.78 9,638.00
6/30/2012 12,142.33 11,160.62 9,938.00
7/31/2012 12,305.09 11,177.88 10,047.00
8/31/2012 12,636.15 11,597.68 10,399.00
9/30/2012 12,883.96 11,882.45 10,648.00
10/31/2012 12,507.92 11,469.35 10,386.00
11/30/2012 12,717.37 11,724.54 10,744.00
12/31/2012 12,713.86 11,788.13 10,838.00
1/31/2013 13,258.77 12,296.95 11,512.00
2/28/2013 13,423.75 12,362.65 11,621.00
3/31/2013 13,927.32 12,751.38 11,890.00
4/30/2013 14,222.95 12,916.66 12,045.00
5/31/2013 14,487.18 13,257.06 12,436.00
6/30/2013 14,214.56 12,988.45 12,237.00
7/31/2013 14,968.24 13,800.54 12,873.00
8/31/2013 14,711.70 13,634.65 12,584.00
9/30/2013 15,367.31 14,414.18 13,187.00
10/31/2013 16,047.09 15,018.71 13,746.00
11/30/2013 16,499.76 15,467.60 14,157.00
12/31/2013 16,971.08 15,962.36 14,699.00
1/31/2014 16,487.26 15,581.32 14,317.00
2/28/2014 17,335.90 16,475.00 15,022.00
3/31/2014 17,161.07 15,944.59 14,919.00
4/30/2014 17,161.77 15,667.33 14,796.00
5/31/2014 17,696.61 16,236.16 15,275.00
6/30/2014 18,041.49 16,633.85 15,579.00
7/31/2014 17,765.32 16,461.55 15,281.00
8/31/2014 18,579.29 17,144.72 15,967.00
9/30/2014 18,309.77 16,845.73 15,760.00
10/31/2014 18,792.26 17,338.21 16,193.00
11/30/2014 19,387.76 17,774.94 16,957.00
12/31/2014 19,185.78 17,612.38 16,875.00
1/31/2015 18,891.98 17,325.73 16,500.00
2/28/2015 20,151.24 18,418.42 17,575.00
3/31/2015 19,922.06 18,218.96 17,339.00
4/30/2015 20,021.83 18,214.87 17,346.00
5/31/2015 20,303.66 18,564.10 17,623.00
6/30/2015 19,945.97 18,390.53 17,235.00
7/31/2015 20,622.36 19,043.57 17,956.00
8/31/2015 19,369.99 17,791.75 16,833.00
9/30/2015 18,890.82 17,185.56 16,480.00
10/31/2015 20,517.43 18,683.65 17,949.00
11/30/2015 20,575.02 18,785.58 18,053.00
12/31/2015 20,273.08 18,600.74 17,825.00
1/31/2016 19,141.29 17,121.40 16,722.00
2/29/2016 19,133.12 16,849.15 16,611.00
3/31/2016 20,423.48 17,811.48 17,736.00
4/30/2016 20,236.99 17,795.96 17,714.00
5/31/2016 20,629.97 18,229.59 18,150.00
6/30/2016 20,548.95 17,870.00 17,906.00
7/31/2016 21,518.90 18,894.63 18,898.00
8/31/2016 21,411.99 18,873.79 19,024.00
9/30/2016 21,490.31 19,069.81 19,150.00
10/31/2016 20,985.66 18,631.99 18,676.00
11/30/2016 21,442.27 18,695.59 18,942.00
12/31/2016 21,707.70 18,701.39 18,966.00
1/31/2017 22,439.22 19,581.13 19,550.00
[END CHART]
Data from 1/31/07 through 1/31/17.
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 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.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA GROWTH FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIGRX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.0 Billion $1.0 Billion
Net Asset Value Per Share $25.05 $25.48
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
3.51% 17.01% 14.93% 8.70%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
6.51% 15.64% 8.40%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
1.02%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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 FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA GROWTH FUND LIPPER LARGE-CAP
RUSSELL 1000 INSTITUTIONAL GROWTH FUNDS
GROWTH INDEX SHARES INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,107.67 9,980.30 10,026.70
9/30/2008 8,937.16 8,608.01 8,741.47
10/31/2008 7,363.69 7,117.53 7,214.80
11/30/2008 6,778.06 6,447.80 6,491.05
12/31/2008 6,900.56 6,520.15 6,665.41
1/31/2009 6,568.61 6,289.64 6,320.85
2/28/2009 6,074.46 5,854.96 5,908.55
3/31/2009 6,616.28 6,269.88 6,416.31
4/30/2009 7,251.49 6,671.63 7,096.14
5/31/2009 7,610.95 6,941.65 7,484.63
6/30/2009 7,696.10 6,941.65 7,487.57
7/31/2009 8,242.73 7,323.64 8,051.78
8/31/2009 8,413.67 7,448.78 8,210.62
9/30/2009 8,771.55 7,797.83 8,604.93
10/31/2009 8,652.74 7,613.43 8,434.68
11/30/2009 9,184.30 8,054.69 8,943.43
12/31/2009 9,468.18 8,348.25 9,231.53
1/31/2010 9,055.02 7,840.09 8,747.88
2/28/2010 9,366.21 8,216.26 9,058.20
3/31/2010 9,907.98 8,744.21 9,627.15
4/30/2010 10,018.69 8,823.41 9,726.17
5/31/2010 9,253.85 8,163.47 8,944.83
6/30/2010 8,744.28 7,701.51 8,430.03
7/31/2010 9,368.02 8,262.46 9,001.80
8/31/2010 8,930.64 7,741.10 8,559.89
9/30/2010 9,881.30 8,704.62 9,477.45
10/31/2010 10,353.23 9,153.38 9,975.17
11/30/2010 10,473.47 9,258.97 10,075.00
12/31/2010 11,050.36 9,716.04 10,627.81
1/31/2011 11,331.58 9,815.11 10,837.52
2/28/2011 11,702.43 10,013.27 11,130.76
3/31/2011 11,716.72 10,092.53 11,136.36
4/30/2011 12,109.10 10,475.62 11,474.04
5/31/2011 11,977.27 10,376.54 11,334.40
6/30/2011 11,805.49 10,204.81 11,184.36
7/31/2011 11,687.16 9,980.24 11,124.51
8/31/2011 11,070.37 9,339.55 10,376.57
9/30/2011 10,254.66 8,672.44 9,471.02
10/31/2011 11,380.00 9,742.46 10,607.76
11/30/2011 11,378.90 9,623.57 10,477.21
12/31/2011 11,342.31 9,534.56 10,319.13
1/31/2012 12,019.35 10,138.35 11,026.47
2/29/2012 12,594.18 10,529.81 11,675.87
3/31/2012 13,008.42 10,868.20 12,088.46
4/30/2012 12,988.33 10,781.94 11,999.59
5/31/2012 12,155.17 10,005.64 11,079.58
6/30/2012 12,485.22 10,310.86 11,324.98
7/31/2012 12,652.59 10,423.65 11,342.50
8/31/2012 12,993.00 10,788.58 11,768.48
9/30/2012 13,247.80 11,053.98 12,057.45
10/31/2012 12,861.15 10,775.31 11,638.26
11/30/2012 13,076.51 11,153.51 11,897.21
12/31/2012 13,072.90 11,249.13 11,961.73
1/31/2013 13,633.19 11,950.11 12,478.05
2/28/2013 13,802.84 12,063.60 12,544.72
3/31/2013 14,320.63 12,337.32 12,939.17
4/30/2013 14,624.61 12,504.22 13,106.89
5/31/2013 14,896.29 12,904.79 13,452.29
6/30/2013 14,615.98 12,697.83 13,179.73
7/31/2013 15,390.94 13,365.43 14,003.79
8/31/2013 15,127.16 13,065.01 13,835.45
9/30/2013 15,801.28 13,685.88 14,626.46
10/31/2013 16,500.26 14,266.70 15,239.89
11/30/2013 16,965.72 14,693.96 15,695.40
12/31/2013 17,450.34 15,253.33 16,197.44
1/31/2014 16,952.86 14,863.08 15,810.78
2/28/2014 17,825.47 15,589.75 16,717.63
3/31/2014 17,645.70 15,482.09 16,179.41
4/30/2014 17,646.42 15,360.98 15,898.07
5/31/2014 18,196.36 15,852.16 16,475.27
6/30/2014 18,550.98 16,168.39 16,878.82
7/31/2014 18,267.01 15,858.89 16,703.98
8/31/2014 19,103.97 16,572.10 17,397.21
9/30/2014 18,826.84 16,356.79 17,093.82
10/31/2014 19,322.96 16,807.59 17,593.56
11/30/2014 19,935.27 17,594.82 18,036.71
12/31/2014 19,727.58 17,512.60 17,871.76
1/31/2015 19,425.49 17,130.49 17,580.88
2/28/2015 20,720.31 18,240.79 18,689.66
3/31/2015 20,484.66 17,995.66 18,487.27
4/30/2015 20,587.24 18,010.08 18,483.12
5/31/2015 20,877.03 18,298.47 18,837.50
6/30/2015 20,509.25 17,894.72 18,661.37
7/31/2015 21,204.73 18,644.55 19,324.03
8/31/2015 19,917.00 17,476.56 18,053.77
9/30/2015 19,424.29 17,116.07 17,438.65
10/31/2015 21,096.84 18,644.55 18,958.81
11/30/2015 21,156.05 18,752.70 19,062.23
12/31/2015 20,845.59 18,514.45 18,874.68
1/31/2016 19,681.84 17,373.66 17,373.55
2/29/2016 19,673.44 17,266.00 17,097.29
3/31/2016 21,000.24 18,430.00 18,073.79
4/30/2016 20,808.48 18,407.00 18,058.04
5/31/2016 21,212.56 18,869.00 18,498.06
6/30/2016 21,129.25 18,607.00 18,133.17
7/31/2016 22,126.59 19,640.00 19,172.89
8/31/2016 22,016.66 19,771.00 19,151.74
9/30/2016 22,097.20 19,910.00 19,350.65
10/31/2016 21,578.29 19,416.00 18,906.38
11/30/2016 22,047.80 19,694.00 18,970.93
12/31/2016 22,320.73 19,720.00 18,976.81
1/31/2017 23,072.91 20,329.00 19,869.50
[END CHART]
Data from 7/31/08 through 1/31/17.*
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 7 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.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o TOP 10 HOLDINGS* - 1/31/17 o
(% of Net Assets)
Facebook, Inc. "A" ....................................................... 4.8%
Amazon.com, Inc. ......................................................... 4.5%
Oracle Corp. ............................................................. 3.3%
Alibaba Group Holding Ltd. ADR ........................................... 3.2%
Cisco Systems, Inc. ...................................................... 3.0%
Visa, Inc. "A" ........................................................... 3.0%
Microsoft Corp. .......................................................... 2.5%
Alphabet, Inc. "A" ....................................................... 2.5%
United Parcel Service, Inc. "B" .......................................... 2.3%
QUALCOMM, Inc. ........................................................... 2.2%
</TABLE
o SECTOR ALLOCATION - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 37.9%
HEALTH CARE 16.6%
CONSUMER DISCRETIONARY 14.6%
INDUSTRIALS 11.5%
CONSUMER STAPLES 9.3%
FINANCIALS 6.6%
ENERGY 1.6%
MATERIALS 0.8%
[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 11-16.
================================================================================
10 | USAA GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.9%)
COMMON STOCKS (98.9%)
CONSUMER DISCRETIONARY (14.6%)
------------------------------
ADVERTISING (0.7%)
701,844 Interpublic Group of Companies, Inc. $ 16,514
----------
APPAREL RETAIL (1.4%)
222,025 Foot Locker, Inc. 15,218
229,192 Ross Stores, Inc. 15,152
----------
30,370
----------
AUTOMOTIVE RETAIL (1.3%)
19,307 AutoZone, Inc.* 13,997
54,889 O'Reilly Automotive, Inc.* 14,396
----------
28,393
----------
BROADCASTING (1.4%)
527,733 Discovery Communications, Inc. "A"* 14,961
218,489 Scripps Networks Interactive "A" 16,640
----------
31,601
----------
GENERAL MERCHANDISE STORES (0.6%)
177,295 Dollar General Corp. 13,088
----------
HOME IMPROVEMENT RETAIL (0.7%)
114,646 Home Depot, Inc. 15,773
----------
HOTELS, RESORTS & CRUISE LINES (0.7%)
275,307 Carnival Corp. 15,247
----------
INTERNET RETAIL (4.5%)
120,643 Amazon.com, Inc.* 99,347
----------
RESTAURANTS (2.6%)
210,887 Darden Restaurants, Inc. 15,454
569,146 Yum China Holdings, Inc.* 15,640
389,993 Yum! Brands, Inc. 25,556
----------
56,650
----------
SPECIALTY STORES (0.7%)
294,267 Dick's Sporting Goods, Inc. 15,184
----------
Total Consumer Discretionary 322,167
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (9.3%)
-----------------------
DRUG RETAIL (0.7%)
184,256 CVS Health Corp. $ 14,521
----------
FOOD RETAIL (0.5%)
318,999 Kroger Co. 10,833
----------
HOUSEHOLD PRODUCTS (2.1%)
530,735 Procter & Gamble Co. 46,492
----------
PACKAGED FOODS & MEAT (1.9%)
3,328,562 Danone ADR 41,774
----------
SOFT DRINKS (4.1%)
1,061,097 Coca-Cola Co. 44,110
1,106,243 Monster Beverage Corp.* 47,126
----------
91,236
----------
Total Consumer Staples 204,856
----------
ENERGY (1.6%)
-------------
OIL & GAS EQUIPMENT & SERVICES (1.6%)
419,102 Schlumberger Ltd. 35,083
----------
FINANCIALS (6.6%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (2.4%)
810,300 SEI Investments Co. 39,307
199,522 T. Rowe Price Group, Inc. 13,456
----------
52,763
----------
CONSUMER FINANCE (1.5%)
436,043 American Express Co. 33,305
----------
FINANCIAL EXCHANGES & DATA (1.1%)
140,012 FactSet Research Systems, Inc. 24,229
----------
INVESTMENT BANKING & BROKERAGE (0.8%)
448,208 Charles Schwab Corp. 18,484
----------
LIFE & HEALTH INSURANCE (0.8%)
169,194 Prudential Financial, Inc. 17,784
----------
Total Financials 146,565
----------
HEALTH CARE (16.6%)
-------------------
BIOTECHNOLOGY (5.4%)
266,850 Amgen, Inc. 41,810
54,900 Biogen, Inc.* 15,220
128,342 Celgene Corp.* 14,907
================================================================================
12 | USAA GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
148,644 Gilead Sciences, Inc. $ 10,769
98,212 Regeneron Pharmaceuticals, Inc.* 35,287
----------
117,993
----------
HEALTH CARE DISTRIBUTORS (1.3%)
172,267 Cardinal Health, Inc. 12,913
105,641 McKesson Corp. 14,700
----------
27,613
----------
HEALTH CARE EQUIPMENT (2.0%)
407,871 Hologic, Inc.* 16,531
352,107 Varian Medical Systems, Inc.* 27,341
----------
43,872
----------
HEALTH CARE SERVICES (0.5%)
174,023 Express Scripts Holding Co.* 11,987
----------
HEALTH CARE TECHNOLOGY (1.6%)
560,904 Cerner Corp.* 30,126
140,843 Varex Imaging Corp.* 4,049
----------
34,175
----------
MANAGED HEALTH CARE (1.9%)
125,074 Aetna, Inc. 14,835
92,895 Anthem, Inc. 14,319
93,924 Cigna Corp. 13,734
----------
42,888
----------
PHARMACEUTICALS (3.9%)
306,242 Merck & Co., Inc. 18,984
367,047 Novartis AG ADR 27,132
1,115,772 Novo Nordisk A/S ADR 40,358
----------
86,474
----------
Total Health Care 365,002
----------
INDUSTRIALS (11.5%)
-------------------
AEROSPACE & DEFENSE (0.8%)
110,072 Boeing Co. 17,988
----------
AGRICULTURAL & FARM MACHINERY (1.6%)
332,965 Deere & Co. 35,644
----------
AIR FREIGHT & LOGISTICS (4.1%)
778,086 Expeditors International of Washington, Inc. 40,523
466,358 United Parcel Service, Inc. "B" 50,893
----------
91,416
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
AIRLINES (1.5%)
171,730 Alaska Air Group, Inc. $ 16,111
308,081 Southwest Airlines Co. 16,116
----------
32,227
----------
BUILDING PRODUCTS (0.6%)
388,523 Masco Corp. 12,802
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.7%)
103,811 Cummins, Inc. 15,261
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.9%)
126,181 Rockwell Automation, Inc. 18,674
----------
INDUSTRIAL MACHINERY (1.3%)
117,164 Illinois Tool Works, Inc. 14,903
116,524 Stanley Black & Decker, Inc. 14,449
----------
29,352
----------
Total Industrials 253,364
----------
INFORMATION TECHNOLOGY (37.9%)
------------------------------
APPLICATION SOFTWARE (3.3%)
516,444 Autodesk, Inc.* 42,008
161,215 Citrix Systems, Inc.* 14,701
243,903 Synopsys, Inc.* 15,339
----------
72,048
----------
COMMUNICATIONS EQUIPMENT (4.3%)
2,192,822 Cisco Systems, Inc. 67,363
111,899 F5 Networks, Inc.* 14,998
475,956 Juniper Networks, Inc. 12,746
----------
95,107
----------
DATA PROCESSING & OUTSOURCED SERVICES (4.4%)
126,345 Automatic Data Processing, Inc. 12,759
326,733 Total System Services, Inc. 16,559
805,910 Visa, Inc. "A" 66,657
----------
95,975
----------
HOME ENTERTAINMENT SOFTWARE (0.7%)
197,366 Electronic Arts, Inc.* 16,466
----------
INTERNET SOFTWARE & SERVICES (12.4%)
693,639 Alibaba Group Holding Ltd. ADR* 70,272
66,255 Alphabet, Inc. "A"* 54,342
54,142 Alphabet, Inc. "C"* 43,140
817,593 Facebook, Inc. "A"* 106,549
----------
274,303
----------
================================================================================
14 | USAA GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (1.5%)
466,899 Applied Materials, Inc. $ 15,991
153,678 Lam Research Corp. 17,652
----------
33,643
----------
SEMICONDUCTORS (4.0%)
87,509 Analog Devices, Inc. 6,558
906,001 QUALCOMM, Inc. 48,408
190,402 Skyworks Solutions, Inc. 17,467
219,802 Texas Instruments, Inc. 16,604
----------
89,037
----------
SYSTEMS SOFTWARE (5.8%)
859,492 Microsoft Corp. 55,566
1,814,335 Oracle Corp. 72,773
----------
128,339
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.5%)
126,550 Apple, Inc. 15,357
209,176 Western Digital Corp. 16,678
----------
32,035
----------
Total Information Technology 836,953
----------
MATERIALS (0.8%)
----------------
DIVERSIFIED CHEMICALS (0.8%)
287,625 Dow Chemical Co. 17,151
----------
Total Common Stocks 2,181,141
----------
Total Equity Securities (cost: $1,448,487) 2,181,141
----------
MONEY MARKET INSTRUMENTS (1.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.2%)
25,968,475 State Street Institutional Treasury Money Market Fund
Premier Class, 0.42%(a) (cost: $25,969) 25,969
----------
TOTAL INVESTMENTS (COST: $1,474,456) $2,207,110
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
Assets LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $2,181,141 $- $- $2,181,141
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 25,969 - - 25,969
--------------------------------------------------------------------------------------------------------
Total $2,207,110 $- $- $2,207,110
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
16 | USAA GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 8.1% of net assets at January 31,
2017.
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, 2017.
* 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, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,474,456) $2,207,110
Receivables:
Capital shares sold 1,563
Dividends and interest 1,828
----------
Total assets 2,210,501
----------
LIABILITIES
Payables:
Capital shares redeemed 2,972
Accrued management fees 1,467
Accrued transfer agent's fees 32
Other accrued expenses and payables 110
----------
Total liabilities 4,581
----------
Net assets applicable to capital shares outstanding $2,205,920
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,461,961
Overdistribution of net investment income (1,947)
Accumulated net realized gain on investments 13,252
Net unrealized appreciation of investments 732,654
----------
Net assets applicable to capital shares outstanding $2,205,920
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,183,729/47,144
capital shares outstanding, no par value) $ 25.11
==========
Institutional Shares (net assets of $1,022,191/40,807
capital shares outstanding, no par value) $ 25.05
==========
See accompanying notes to financial statements.
================================================================================
18 | USAA GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $58) $15,053
Interest 45
-------
Total income 15,098
-------
EXPENSES
Management fees 8,528
Administration and servicing fees:
Fund Shares 868
Institutional Shares 505
Transfer agent's fees:
Fund Shares 710
Institutional Shares 505
Custody and accounting fees:
Fund Shares 65
Institutional Shares 55
Postage:
Fund Shares 42
Institutional Shares 28
Shareholder reporting fees:
Fund Shares 20
Institutional Shares 3
Trustees' fees 15
Registration fees:
Fund Shares 25
Institutional Shares 28
Professional fees 78
Other 23
-------
Total expenses 11,498
-------
NET INVESTMENT INCOME 3,600
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 57,969
Change in net unrealized appreciation/(depreciation) 12,695
-------
Net realized and unrealized gain 70,664
-------
Increase in net assets resulting from operations $74,264
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,600 $ 8,261
Net realized gain on investments 57,969 70,249
Change in net unrealized appreciation/(depreciation)
of investments 12,695 29,853
---------------------------
Increase in net assets resulting from operations 74,264 108,363
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (2,473) (5,576)
Institutional Shares (3,074) (4,245)
---------------------------
Total distributions of net investment income (5,547) (9,821)
---------------------------
Net realized gains:
Fund Shares (54,978) (75,647)
Institutional Shares (47,809) (49,069)
---------------------------
Total distributions of net realized gains (102,787) (124,716)
---------------------------
Distributions to shareholders (108,334) (134,537)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 58,451 (82,394)
Institutional Shares 25,835 136,201
---------------------------
Total net increase in net assets from
capital share transactions 84,286 53,807
---------------------------
Net increase in net assets 50,216 27,633
NET ASSETS
Beginning of period 2,155,704 2,128,071
---------------------------
End of period $2,205,920 $2,155,704
===========================
Overdistribution of net investment income:
End of period $ (1,947) $ -
===========================
See accompanying notes to financial statements.
================================================================================
20 | USAA GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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' 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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. 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
================================================================================
22 | USAA GROWTH FUND
================================================================================
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. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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 which occur on a fairly regular basis
(such as U.S. market movements) are significant. Such securities are
categorized in Level 2 of the fair value hierarchy.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 and are categorized in Level 1 of the fair value hierarchy.
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.
================================================================================
24 | USAA GROWTH FUND
================================================================================
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short-term securities are
amortized on a straight-line basis over the life of the respective
securities.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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, 2017, the Fund did not receive any brokerage commission recapture
credits. 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, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 basis points of
================================================================================
26 | USAA GROWTH FUND
================================================================================
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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $8,000, which represents 2.9% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal 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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$211,306,000 and $240,639,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $755,303,000 and $22,649,000, respectively, resulting in net
unrealized appreciation of $732,654,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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, 2017 JULY 31, 2016
---------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 3,470 $ 87,809 6,712 $ 161,971
Shares issued from reinvested
dividends 2,281 56,615 3,266 80,214
Shares redeemed (3,394) (85,973) (13,904) (324,579)
---------------------------------------------------
Net increase (decrease) from capital
share transactions 2,357 $ 58,451 (3,926) $ (82,394)
===================================================
INSTITUTIONAL SHARES:
Shares sold 2,486 $ 62,731 11,804 $ 269,544
Shares issued from reinvested
dividends 2,053 50,879 2,175 53,304
Shares redeemed (3,460) (87,775) (7,737) (186,647)
---------------------------------------------------
Net increase from capital share
transactions 1,079 $ 25,835 6,242 $ 136,201
===================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this
================================================================================
28 | USAA GROWTH FUND
================================================================================
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 is also responsible for determining the asset allocation for 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' 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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
Each class' 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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $8,528,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $230,000 and $168,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.04% and 0.03%,
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, 2017, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Loomis Sayles, of $1,360,000.
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, 2017, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Renaissance, of $804,000.
================================================================================
30 | USAA GROWTH FUND
================================================================================
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, 2017, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $868,000 and
$505,000, 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, 2017, the Fund reimbursed the Manager
$24,000 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, 2017, the Fund Shares and
Institutional Shares incurred transfer agent's fees, paid or payable to SAS,
of $710,000 and $505,000, 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, 2017, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
Cornerstone Conservative 0.1
Cornerstone Equity 0.4
Target Retirement Income 0.3
Target Retirement 2020 0.9
Target Retirement 2030 2.5
Target Retirement 2040 3.1
Target Retirement 2050 1.8
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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
32 | USAA GROWTH FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(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,
------------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 25.53 $ 25.91 $ 23.62 $ 20.05 $ 15.71 $ 15.10
------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .03 .10 .28 .11 .13 .06
Net realized and
unrealized gain .83 1.19 3.73 3.63 4.28 .59
------------------------------------------------------------------------------------------
Total from investment
operations .86 1.29 4.01 3.74 4.41 .65
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.05) (.11) (.28) (.17) (.07) (.04)
Realized capital gains (1.23) (1.56) (1.44) - - -
------------------------------------------------------------------------------------------
Total distributions (1.28) (1.67) (1.72) (.17) (.07) (.04)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 25.11 $ 25.53 $ 25.91 $ 23.62 $ 20.05 $ 15.71
==========================================================================================
Total return (%)* 3.45 5.25 17.50 18.71 28.13 4.37
Net assets at
end of period (000) $1,183,729 $1,143,344 $1,262,075 $1,101,533 $796,024 $1,035,999
Ratios to average
net assets:**
Expenses (%)(a) 1.10(c) 1.11 1.08(b) 1.00 1.00 1.00
Expenses, excluding
reimbursements (%)(a) 1.10(c) 1.11 1.11 1.12 1.19 1.17
Net investment
income (%) .29(c) .36 .25 .39 .51 .42
Portfolio turnover (%) 10 18 31 31 28 43
* 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, 2017, average net assets were
$1,149,178,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.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 1.00% of the Fund Shares' average
net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
34 | USAA GROWTH 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,
------------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 25.48 $ 25.86 $ 23.57 $ 20.02 $ 15.71 $ 15.11
------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .05 .15 .30 .10 .10(a) .06
Net realized and
unrealized gain .83 1.16 3.72 3.62 4.32(a) .60
------------------------------------------------------------------------------------------
Total from
investment operations .88 1.31 4.02 3.72 4.42(a) .66
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.13) (.29) (.17) (.11) (.06)
Realized capital gains (1.23) (1.56) (1.44) - - -
------------------------------------------------------------------------------------------
Total distributions (1.31) (1.69) (1.73) (.17) (.11) (.06)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 25.05 $ 25.48 $ 25.86 $ 23.57 $ 20.02 $ 15.71
==========================================================================================
Total return (%)* 3.51 5.34 17.57 18.66 28.22 4.44
Net assets at end of
period (000) $1,022,191 $1,012,360 $865,996 $717,579 $664,513 $233,849
Ratios to average
net assets:**
Expenses (%)(b) 1.02(c) 1.02 1.01 1.00 .99 .95
Expenses, excluding
reimbursements (%)(b) 1.02(c) 1.02 1.01 1.00 .99 .95
Net investment
income (%) .38(c) .47 .31 .39 .53 .46
Portfolio turnover (%) 10 18 31 31 28 43
* 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, 2017, average net assets were
$1,002,082,000.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Institutional Shares
before reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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
================================================================================
36 | USAA GROWTH 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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,034.50 $5.64
Hypothetical
(5% return before expenses) 1,000.00 1,019.66 5.60
INSTITUTIONAL SHARES
Actual 1,000.00 1,035.10 5.23
Hypothetical
(5% return before expenses) 1,000.00 1,020.06 5.19
*Expenses are equal to the annualized expense ratio of 1.10% for Fund Shares
and 1.02% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 3.45% for Fund Shares and 3.51% for Institutional Shares for the six-month
period of August 1, 2016, through January 31, 2017.
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
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)
=============================================================================
23420-0317 (C)2017, 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, 2017
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 20
Financial Statements 21
Notes to Financial Statements 25
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)2017, USAA. All rights reserved.
202739-0317
================================================================================
================================================================================
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 tax 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.
Initially the reporting period showed little movement among stocks;
however, by September 2016 the equity markets began to experience
volatility. Speculation over a potential Federal Reserve (the Fed) interest
rate hike initially led to a decline, but the market experienced strong
gains over the second half of the reporting period, driven by continued
economic improvement and the November 8, 2016 U.S. elections. The results
of the elections led to speculation around stronger economic growth going
forward with the Republicans winning the presidential election as well as
maintaining majorities in both houses of Congress.
The strongest gains for the reporting period were concentrated in
financials and cyclical areas, which were seen as being in the best
position to benefit from elevated stimulus and growth, including energy,
materials, and industrials. Health care stocks lagged behind the broader
market, likely due to ongoing headlines surrounding drug pricing and
post-election uncertainty regarding the future of the Affordable Care Act.
Interest-rate-sensitive sectors such as real estate and utilities also
underperformed as investors began to anticipate potential interest rate
increases by the Fed. For the reporting period ended January 31, 2017, all
broad-based U.S. stock indexes finished comfortably in double-digit
positive territory.
================================================================================
2 | USAA GROWTH & INCOME FUND
================================================================================
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, 2017, the Fund
Shares, Institutional Shares, and Adviser Shares had total returns of
11.47%, 11.52%, and 11.28%, respectively. This compares to returns of 6.61%
for the Russell 3000(R) Index (the Index) and 6.79% for the Lipper
Multi-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 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' PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD?
The BHMS portion of the Fund outperformed its benchmark for the reporting
period. Returns for the Fund versus the Index during the reporting period
were supported by a lack of exposure to "bond substitute" areas of the
market including utilities and real estate investment trusts (REITs), as
well as by an underweight to consumer staples. Positioning within
materials added to relative performance as cyclical areas of the market
benefited post-election. Overweight exposure to financials was a positive
contributor, as the sector led performance for the reporting period. The
Fund's health care position detracted from performance.
Specific holdings that contributed to performance included a number of
financial services companies, including student loan provider and servicer
SLM Corp., discount broker E*Trade Financial Corp., and banking services
conglomerate PNC Financial Services Group, Inc.
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
Energy company Fairmount Santrol Holdings, Inc., industrials company Spirit
AeroSystems Holdings, Inc. "A", and Royal Caribbean Cruises Ltd., within
consumer discretionary all saw their shares benefit from increased optimism
about the economy. Conversely, the most significant detractors included
drug giant Teva Pharmaceutical Industries Ltd. ADR, pharmaceutical chain
CVS Health Corp., and pharmacy benefits manager Express Scripts Holding Co.
o HOW DID THE MANAGER'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
For the reporting period, the Manager's portion of the Fund outperformed
the Index. This performance was in contrast to the prior reporting period,
which saw the portfolio trail the Index. The important message from these
two different time periods is that by staying true to our philosophy and
maintaining a disciplined process, the portfolio outperformed over the
combined reporting periods. Periods of volatility and shifts in market
leadership are not uncommon. The good news is that they usually create
excellent opportunities for disciplined investors.
Outperformance over the reporting period was broad as each of the
portfolio's sectors had positive returns. The biggest contributors to
performance were the Fund's consumer discretionary holdings such as cruise
lines. The performance of industrials was paced by railroads, and within
information technology there was solid performance from internet and social
media holdings. Materials holdings lagged by matching the performance of
the benchmark's holdings.
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.
================================================================================
4 | USAA GROWTH & INCOME FUND
================================================================================
INVESTMENT OVERVIEW
USAA GROWTH & INCOME FUND SHARES (FUND SHARES)
(Ticker Symbol: USGRX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.5 Billion $1.4 Billion
Net Asset Value Per Share $22.51 $20.39
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
11.47% 23.94% 12.88% 6.09%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
11.86% 13.60% 6.13%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
0.95%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER MULTI-CAP USAA GROWTH & INCOME
INDEX CORE FUNDS INDEX FUND SHARES
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,835.96 9,868.19 9,828.00
3/31/2007 9,938.33 9,972.21 9,995.00
4/30/2007 10,335.34 10,360.04 10,323.00
5/31/2007 10,711.98 10,747.92 10,823.00
6/30/2007 10,511.37 10,654.85 10,715.00
7/31/2007 10,152.90 10,313.96 10,360.00
8/31/2007 10,298.64 10,380.56 10,452.00
9/30/2007 10,674.10 10,742.34 10,834.00
10/31/2007 10,869.90 10,958.83 11,183.00
11/30/2007 10,380.55 10,466.39 10,710.00
12/31/2007 10,317.74 10,370.90 10,637.00
1/31/2008 9,692.36 9,788.47 9,898.00
2/29/2008 9,391.32 9,530.56 9,544.00
3/31/2008 9,335.68 9,396.44 9,407.00
4/30/2008 9,802.55 9,868.71 9,948.00
5/31/2008 10,003.37 10,110.58 10,202.00
6/30/2008 9,177.88 9,304.48 9,414.00
7/31/2008 9,104.68 9,168.32 9,246.00
8/31/2008 9,246.09 9,255.83 9,321.00
9/30/2008 8,376.73 8,223.80 8,343.00
10/31/2008 6,891.04 6,670.27 6,764.00
11/30/2008 6,347.06 6,088.16 6,134.00
12/31/2008 6,468.49 6,279.78 6,227.00
1/31/2009 5,925.65 5,835.68 5,764.00
2/28/2009 5,304.91 5,295.85 5,244.00
3/31/2009 5,769.58 5,723.53 5,686.00
4/30/2009 6,376.74 6,464.84 6,327.00
5/31/2009 6,716.98 6,863.52 6,667.00
6/30/2009 6,739.87 6,857.36 6,607.00
7/31/2009 7,264.47 7,426.19 7,142.00
8/31/2009 7,524.04 7,679.33 7,387.00
9/30/2009 7,839.27 8,027.66 7,743.00
10/31/2009 7,637.65 7,792.95 7,566.00
11/30/2009 8,071.65 8,218.12 8,007.00
12/31/2009 8,301.67 8,496.59 8,237.00
1/31/2010 8,002.41 8,183.95 7,915.00
2/28/2010 8,273.71 8,459.61 8,218.00
3/31/2010 8,795.17 8,980.00 8,726.00
4/30/2010 8,984.98 9,154.77 8,877.00
5/31/2010 8,275.19 8,434.36 8,144.00
6/30/2010 7,799.47 8,013.95 7,652.00
7/31/2010 8,340.92 8,532.33 8,266.00
8/31/2010 7,948.29 8,151.52 7,804.00
9/30/2010 8,698.74 8,895.32 8,603.00
10/31/2010 9,038.67 9,271.39 8,939.00
11/30/2010 9,090.85 9,305.44 8,952.00
12/31/2010 9,707.11 9,909.48 9,549.00
1/31/2011 9,919.13 10,146.73 9,753.00
2/28/2011 10,280.26 10,496.22 10,032.00
3/31/2011 10,326.63 10,542.06 10,020.00
4/30/2011 10,634.00 10,850.16 10,364.00
5/31/2011 10,512.67 10,699.94 10,236.00
6/30/2011 10,323.87 10,510.94 10,038.00
7/31/2011 10,087.45 10,263.81 9,713.00
8/31/2011 9,482.26 9,534.00 9,088.00
9/30/2011 8,746.47 8,720.57 8,336.00
10/31/2011 9,753.13 9,684.60 9,358.00
11/30/2011 9,726.77 9,627.67 9,281.00
12/31/2011 9,806.72 9,631.24 9,308.00
1/31/2012 10,301.59 10,158.52 9,853.00
2/29/2012 10,737.38 10,598.03 10,282.00
3/31/2012 11,068.59 10,848.85 10,550.00
4/30/2012 10,996.00 10,744.98 10,370.00
5/31/2012 10,316.24 10,008.86 9,555.00
6/30/2012 10,720.27 10,347.39 9,857.00
7/31/2012 10,826.46 10,441.74 9,934.00
8/31/2012 11,096.67 10,715.74 10,281.00
9/30/2012 11,388.07 10,999.41 10,529.00
10/31/2012 11,191.64 10,865.04 10,329.00
11/30/2012 11,278.30 11,002.27 10,374.00
12/31/2012 11,416.52 11,186.78 10,471.00
1/31/2013 12,042.95 11,822.42 11,041.00
2/28/2013 12,202.55 11,935.46 11,112.00
3/31/2013 12,680.73 12,387.77 11,467.00
4/30/2013 12,888.30 12,539.17 11,642.00
5/31/2013 13,192.34 12,857.57 12,037.00
6/30/2013 13,021.23 12,665.55 11,871.00
7/31/2013 13,734.90 13,373.40 12,606.00
8/31/2013 13,351.48 13,019.96 12,261.00
9/30/2013 13,847.83 13,545.33 12,732.00
10/31/2013 14,436.06 14,068.54 13,351.00
11/30/2013 14,855.00 14,445.13 13,833.00
12/31/2013 15,246.92 14,831.20 14,231.00
1/31/2014 14,765.21 14,369.30 13,742.00
2/28/2014 15,465.62 15,046.79 14,361.00
3/31/2014 15,547.71 15,077.10 14,408.00
4/30/2014 15,566.57 15,027.51 14,376.00
5/31/2014 15,906.25 15,367.09 14,756.00
6/30/2014 16,305.21 15,758.83 15,093.00
7/31/2014 15,983.55 15,428.21 14,850.00
8/31/2014 16,654.14 16,020.65 15,494.00
9/30/2014 16,306.99 15,626.88 15,251.00
10/31/2014 16,755.65 15,990.26 15,462.00
11/30/2014 17,161.70 16,322.19 15,817.00
12/31/2014 17,161.51 16,323.11 15,827.00
1/31/2015 16,683.88 15,881.48 15,239.00
2/28/2015 17,649.89 16,793.62 16,177.00
3/31/2015 17,470.46 16,675.49 15,944.00
4/30/2015 17,549.48 16,737.38 16,131.00
5/31/2015 17,792.22 16,987.60 16,496.00
6/30/2015 17,494.55 16,699.72 16,237.00
7/31/2015 17,787.15 16,856.52 16,447.00
8/31/2015 16,713.35 15,879.86 15,423.00
9/30/2015 16,226.32 15,332.65 14,896.00
10/31/2015 17,507.96 16,432.33 16,094.00
11/30/2015 17,605.02 16,527.72 16,169.00
12/31/2015 17,243.67 16,083.56 15,743.00
1/31/2016 16,270.69 15,123.04 14,571.00
2/29/2016 16,265.45 15,144.00 14,492.00
3/31/2016 17,410.64 16,245.67 15,478.00
4/30/2016 17,518.54 16,406.22 15,597.00
5/31/2016 17,831.95 16,694.26 15,883.00
6/30/2016 17,868.62 16,599.50 15,462.00
7/31/2016 18,577.77 17,261.55 16,201.00
8/31/2016 18,625.16 17,360.82 16,447.00
9/30/2016 18,654.44 17,394.14 16,588.00
10/31/2016 18,250.84 17,004.67 16,413.00
11/30/2016 19,067.60 17,781.37 17,376.00
12/31/2016 19,439.67 18,056.99 17,609.00
1/31/2017 19,805.56 18,433.46 18,059.00
[END CHART]
Data from 1/31/07 through 1/31/17.
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 funds within 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.
================================================================================
6 | USAA GROWTH & INCOME FUND
================================================================================
USAA GROWTH & INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIGIX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $126.1 Million $117.5 Million
Net Asset Value Per Share $22.50 $20.38
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR SINCE INCEPTION 8/07/15
11.52% 24.07% 6.29%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 8/07/15
11.97% 4.74%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.87% AFTER REIMBURSEMENT 0.85%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 2017, 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. 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 November 30, 2017. 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 Institutional
Shares is lower than 0.85%, the Institutional Shares 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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
RUSSELL 3000 GROWTH & INCOME FUND LIPPER MULTI-CAP
INDEX INSTITUTIONAL SHARES CORE FUNDS INDEX
7/31/2015 $10,000.00 $10,000.00 $10,000.00
8/31/2015 9,396.30 9,335.00 9,420.60
9/30/2015 9,122.50 9,016.00 9,095.97
10/31/2015 9,843.04 9,742.00 9,748.35
11/30/2015 9,897.61 9,787.00 9,804.94
12/31/2015 9,694.45 9,526.00 9,541.45
1/31/2016 9,147.44 8,821.00 8,971.62
2/29/2016 9,144.50 8,773.00 8,984.06
3/31/2016 9,788.32 9,370.00 9,637.62
4/30/2016 9,848.99 9,443.00 9,732.86
5/31/2016 10,025.19 9,621.00 9,903.74
6/30/2016 10,045.80 9,366.00 9,847.52
7/31/2016 10,444.49 9,813.00 10,240.28
8/31/2016 10,471.13 9,963.00 10,299.17
9/30/2016 10,487.59 10,051.00 10,318.94
10/31/2016 10,260.69 9,944.00 10,087.89
11/30/2016 10,719.88 10,529.00 10,548.66
12/31/2016 10,929.05 10,667.00 10,712.17
1/31/2017 11,134.76 10,944.00 10,935.50
[END CHART]
Data from 7/31/15 through 1/31/17.*
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 6 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, 2015, while the
inception date of the Institutional Shares is August 7, 2015. There may be a
slight variation of performance numbers because of this difference.
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.
================================================================================
8 | USAA GROWTH & INCOME FUND
================================================================================
USAA GROWTH & INCOME FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: USGIX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $9.2 Million $8.3 Million
Net Asset Value Per Share $22.44 $20.32
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
11.28% 23.59% 12.54% 12.06%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
11.62% 13.27% 11.80%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.28% AFTER REIMBURSEMENT 1.20%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 2017, 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 November 30, 2017.
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 Adviser Shares is lower than 1.20%,
the Adviser Shares 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER MULTI-CAP USAA GROWTH & INCOME
INDEX CORE FUNDS INDEX FUND ADVISER SHARES
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,529.27 9,553.69 9,243.00
9/30/2010 10,429.00 10,425.42 10,182.00
10/31/2010 10,836.53 10,866.19 10,572.00
11/30/2010 10,899.09 10,906.09 10,595.00
12/31/2010 11,637.93 11,614.04 11,295.00
1/31/2011 11,892.12 11,892.10 11,536.00
2/28/2011 12,325.09 12,301.71 11,859.00
3/31/2011 12,380.68 12,355.43 11,843.00
4/30/2011 12,749.19 12,716.53 12,249.00
5/31/2011 12,603.72 12,540.46 12,091.00
6/30/2011 12,377.37 12,318.96 11,856.00
7/31/2011 12,093.93 12,029.32 11,465.00
8/31/2011 11,368.35 11,173.96 10,726.00
9/30/2011 10,486.22 10,220.62 9,836.00
10/31/2011 11,693.11 11,350.48 11,036.00
11/30/2011 11,661.50 11,283.76 10,945.00
12/31/2011 11,757.35 11,287.94 10,973.00
1/31/2012 12,350.66 11,905.91 11,615.00
2/29/2012 12,873.13 12,421.03 12,115.00
3/31/2012 13,270.23 12,714.99 12,431.00
4/30/2012 13,183.19 12,593.26 12,212.00
5/31/2012 12,368.22 11,730.51 11,258.00
6/30/2012 12,852.62 12,127.27 11,605.00
7/31/2012 12,979.93 12,237.85 11,696.00
8/31/2012 13,303.88 12,558.98 12,098.00
9/30/2012 13,653.24 12,891.45 12,390.00
10/31/2012 13,417.74 12,733.97 12,154.00
11/30/2012 13,521.65 12,894.80 12,200.00
12/31/2012 13,687.36 13,111.05 12,300.00
1/31/2013 14,438.39 13,856.03 12,963.00
2/28/2013 14,629.74 13,988.51 13,047.00
3/31/2013 15,203.03 14,518.63 13,461.00
4/30/2013 15,451.88 14,696.07 13,660.00
5/31/2013 15,816.40 15,069.24 14,125.00
6/30/2013 15,611.26 14,844.19 13,925.00
7/31/2013 16,466.88 15,673.79 14,781.00
8/31/2013 16,007.19 15,259.56 14,376.00
9/30/2013 16,602.28 15,875.30 14,918.00
10/31/2013 17,307.51 16,488.51 15,644.00
11/30/2013 17,809.78 16,929.88 16,203.00
12/31/2013 18,279.66 17,382.35 16,665.00
1/31/2014 17,702.14 16,841.00 16,090.00
2/28/2014 18,541.86 17,635.03 16,810.00
3/31/2014 18,640.27 17,670.56 16,868.00
4/30/2014 18,662.89 17,612.44 16,822.00
5/31/2014 19,070.13 18,010.42 17,268.00
6/30/2014 19,548.45 18,469.56 17,661.00
7/31/2014 19,162.81 18,082.06 17,369.00
8/31/2014 19,966.78 18,776.40 18,108.00
9/30/2014 19,550.58 18,314.90 17,831.00
10/31/2014 20,088.48 18,740.79 18,070.00
11/30/2014 20,575.30 19,129.81 18,479.00
12/31/2014 20,575.07 19,130.90 18,481.00
1/31/2015 20,002.43 18,613.30 17,784.00
2/28/2015 21,160.59 19,682.34 18,882.00
3/31/2015 20,945.48 19,543.88 18,608.00
4/30/2015 21,040.22 19,616.42 18,818.00
5/31/2015 21,331.23 19,909.68 19,237.00
6/30/2015 20,974.35 19,572.28 18,938.00
7/31/2015 21,325.16 19,756.06 19,174.00
8/31/2015 20,037.77 18,611.39 17,977.00
9/30/2015 19,453.87 17,970.06 17,358.00
10/31/2015 20,990.44 19,258.90 18,749.00
11/30/2015 21,106.80 19,370.70 18,828.00
12/31/2015 20,673.57 18,850.14 18,328.00
1/31/2016 19,507.06 17,724.39 16,968.00
2/29/2016 19,500.78 17,748.96 16,876.00
3/31/2016 20,873.75 19,040.13 18,019.00
4/30/2016 21,003.12 19,228.30 18,149.00
5/31/2016 21,378.87 19,565.89 18,483.00
6/30/2016 21,422.83 19,454.83 17,992.00
7/31/2016 22,273.04 20,230.76 18,845.00
8/31/2016 22,329.85 20,347.11 19,123.00
9/30/2016 22,364.96 20,386.16 19,290.00
10/31/2016 21,881.08 19,929.69 19,076.00
11/30/2016 22,860.30 20,839.99 20,190.00
12/31/2016 23,306.38 21,163.02 20,457.00
1/31/2017 23,745.05 21,604.25 20,971.00
[END CHART]
Data from 7/31/10 through 1/31/17.*
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 6 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.
================================================================================
10 | USAA GROWTH & INCOME FUND
================================================================================
o TOP 10 HOLDINGS* - 1/31/17 o
(% of Net Assets)
Norwegian Cruise Line Holdings Ltd. ..................................... 2.3%
Royal Caribbean Cruises Ltd. ............................................ 2.1%
Canadian Pacific Railway Ltd. ........................................... 2.0%
Facebook, Inc. "A" ...................................................... 1.9%
Microsoft Corp. ......................................................... 1.9%
Amazon.com, Inc. ........................................................ 1.7%
Bank of America Corp. ................................................... 1.7%
Alphabet, Inc. "A" ...................................................... 1.6%
Spirit AeroSystems Holdings, Inc. "A" ................................... 1.5%
Apple, Inc. ............................................................. 1.5%
o SECTOR ALLOCATION - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 20.0%
INFORMATION TECHNOLOGY 16.5%
CONSUMER DISCRETIONARY 16.0%
INDUSTRIALS 14.7%
HEALTH CARE 10.8%
ENERGY 8.3%
CONSUMER STAPLES 6.4%
MATERIALS 4.1%
TELECOMMUNICATION SERVICES 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 12-19.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.8%)
COMMON STOCKS (97.8%)
CONSUMER DISCRETIONARY (16.0%)
------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.5%)
332,400 Hanesbrands, Inc. $ 7,881
----------
AUTO PARTS & EQUIPMENT (0.6%)
150,630 Delphi Automotive plc 10,553
----------
CABLE & SATELLITE (0.8%)
171,100 Comcast Corp. "A" 12,904
----------
CASINOS & GAMING (2.5%)
341,610 Las Vegas Sands Corp. 17,962
779,900 MGM Resorts International* 22,461
----------
40,423
----------
HOME IMPROVEMENT RETAIL (1.0%)
115,890 Home Depot, Inc. 15,944
----------
HOMEBUILDING (0.9%)
245,000 CalAtlantic Group, Inc. 8,543
3,291 NVR, Inc.* 6,115
----------
14,658
----------
HOTELS, RESORTS & CRUISE LINES (5.3%)
184,300 Carnival Corp. 10,206
91,700 Hilton Worldwide Holdings, Inc. 5,280
792,400 Norwegian Cruise Line Holdings Ltd.* 37,243
357,300 Royal Caribbean Cruises Ltd. 33,454
----------
86,183
----------
HOUSEWARES & SPECIALTIES (0.4%)
138,000 Newell Rubbermaid, Inc. 6,532
----------
INTERNET RETAIL (1.7%)
34,810 Amazon.com, Inc.* 28,665
----------
LEISURE FACILITIES (0.3%)
304,500 SeaWorld Entertainment, Inc. 5,515
----------
================================================================================
12 | USAA GROWTH & INCOME FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (1.3%)
307,500 Twenty-First Century Fox, Inc. "A" $ 9,650
103,600 Walt Disney Co. 11,463
----------
21,113
----------
SPECIALTY STORES (0.7%)
96,590 Tiffany & Co. 7,604
16,000 Ulta Salon, Cosmetics & Fragrance, Inc.* 4,356
----------
11,960
----------
Total Consumer Discretionary 262,331
----------
CONSUMER STAPLES (6.4%)
-----------------------
DRUG RETAIL (1.5%)
192,775 CVS Health Corp. 15,193
115,860 Walgreens Boots Alliance, Inc. 9,493
----------
24,686
----------
FOOD RETAIL (0.6%)
305,000 Kroger Co. 10,358
----------
HOUSEHOLD PRODUCTS (0.4%)
83,215 Procter & Gamble Co. 7,290
----------
HYPERMARKETS & SUPER CENTERS (0.5%)
125,000 Wal-Mart Stores, Inc. 8,342
----------
PACKAGED FOODS & MEAT (1.1%)
125,000 Blue Buffalo Pet Products, Inc.* 3,031
162,500 Kraft Heinz Co. 14,510
----------
17,541
----------
SOFT DRINKS (0.8%)
224,700 Coca-Cola European Partners plc 7,759
48,700 PepsiCo, Inc. 5,054
----------
12,813
----------
TOBACCO (1.5%)
141,400 Altria Group, Inc. 10,065
77,700 Philip Morris International, Inc. 7,469
107,626 Reynolds American, Inc. 6,472
----------
24,006
----------
Total Consumer Staples 105,036
----------
ENERGY (8.3%)
-------------
INTEGRATED OIL & GAS (1.8%)
272,300 BP plc ADR 9,797
93,300 Chevron Corp. 10,389
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
137,200 Occidental Petroleum Corp. $ 9,298
----------
29,484
----------
OIL & GAS DRILLING (0.4%)
200,000 Patterson-UTI Energy, Inc. 5,608
----------
OIL & GAS EQUIPMENT & SERVICES (1.3%)
592,200 Fairmount Santrol Holdings, Inc.* 7,414
252,650 Halliburton Co. 14,293
----------
21,707
----------
OIL & GAS EXPLORATION & PRODUCTION (4.3%)
380,000 Antero Resources Corp.* 9,276
151,540 Cimarex Energy Co. 20,490
213,300 ConocoPhillips 10,400
195,000 EOG Resources, Inc. 19,808
176,600 Hess Corp. 9,568
55,488 Kosmos Energy Ltd.* 363
----------
69,905
----------
OIL & GAS REFINING & MARKETING (0.5%)
107,700 Phillips 66 8,791
----------
Total Energy 135,495
----------
FINANCIALS (20.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (2.9%)
176,640 Ameriprise Financial, Inc. 19,831
252,500 Bank of New York Mellon Corp. 11,294
236,400 Invesco Ltd. 6,837
120,800 State Street Corp. 9,205
----------
47,167
----------
CONSUMER FINANCE (2.8%)
139,700 American Express Co. 10,670
104,900 Capital One Financial Corp. 9,167
130,800 Discover Financial Services 9,062
491,520 Navient Corp. 7,393
759,920 SLM Corp.* 9,028
----------
45,320
----------
DIVERSIFIED BANKS (4.5%)
1,222,526 Bank of America Corp. 27,678
257,550 Citigroup, Inc. 14,379
172,985 JPMorgan Chase & Co. 14,640
100,000 U.S. Bancorp 5,265
================================================================================
14 | USAA GROWTH & INCOME FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
210,135 Wells Fargo & Co. $ 11,837
----------
73,799
----------
INSURANCE BROKERS (0.3%)
44,600 Willis Towers Watson plc 5,581
----------
INVESTMENT BANKING & BROKERAGE (2.6%)
397,900 Charles Schwab Corp. 16,409
208,047 E*Trade Financial Corp.* 7,791
430,700 Morgan Stanley 18,301
----------
42,501
----------
MULTI-LINE INSURANCE (0.6%)
154,955 American International Group, Inc. 9,957
----------
MULTI-SECTOR HOLDINGS (0.6%)
58,400 Berkshire Hathaway, Inc. "B"* 9,586
----------
PROPERTY & CASUALTY INSURANCE (2.3%)
100,000 Allstate Corp. 7,521
184,900 FNF Group 6,538
612,600 XL Group Ltd. 23,015
----------
37,074
----------
REGIONAL BANKS (1.6%)
948,400 KeyCorp 17,043
83,450 PNC Financial Services Group, Inc. 10,052
----------
27,095
----------
SPECIALIZED FINANCE (1.3%)
177,070 CME Group, Inc. 21,440
----------
THRIFTS & MORTGAGE FINANCE (0.5%)
578,700 New York Community Bancorp, Inc. 8,790
----------
Total Financials 328,310
----------
HEALTH CARE (10.8%)
-------------------
BIOTECHNOLOGY (0.8%)
58,280 Amgen, Inc. 9,131
15,284 Biogen, Inc.* 4,238
----------
13,369
----------
HEALTH CARE DISTRIBUTORS (0.6%)
130,400 Cardinal Health, Inc. 9,775
----------
HEALTH CARE EQUIPMENT (2.5%)
60,000 Danaher Corp. 5,035
536,000 Hologic, Inc.* 21,724
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
128,800 Medtronic plc $ 9,791
70,000 NuVasive, Inc.* 4,954
----------
41,504
----------
HEALTH CARE SERVICES (0.6%)
132,700 Express Scripts Holding Co.* 9,140
----------
MANAGED HEALTH CARE (2.4%)
66,628 Anthem, Inc. 10,270
59,360 Cigna Corp. 8,680
128,200 UnitedHealth Group, Inc. 20,781
----------
39,731
----------
PHARMACEUTICALS (3.9%)
50,615 Allergan plc* 11,079
57,300 Bayer AG ADR 6,378
146,780 Johnson & Johnson 16,623
105,775 Merck & Co., Inc. 6,557
306,082 Pfizer, Inc. 9,712
147,400 Sanofi ADR 6,011
198,757 Teva Pharmaceutical Industries Ltd. ADR 6,645
----------
63,005
----------
Total Health Care 176,524
----------
INDUSTRIALS (14.7%)
-------------------
AEROSPACE & DEFENSE (3.5%)
65,360 Boeing Co. 10,681
35,800 General Dynamics Corp. 6,483
422,500 Spirit AeroSystems Holdings, Inc. "A" 25,371
20,000 TransDigm Group, Inc. 4,328
90,105 United Technologies Corp. 9,882
----------
56,745
----------
AGRICULTURAL & FARM MACHINERY (0.4%)
66,000 Deere & Co. 7,065
----------
AIR FREIGHT & LOGISTICS (0.7%)
62,055 FedEx Corp. 11,735
----------
AIRLINES (2.2%)
287,625 Southwest Airlines Co. 15,046
293,380 United Continental Holdings, Inc.* 20,674
----------
35,720
----------
================================================================================
16 | USAA GROWTH & INCOME FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS (1.7%)
411,075 Johnson Controls International plc $ 18,079
169,400 Owens Corning, Inc. 9,359
----------
27,438
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.7%)
186,700 Republic Services, Inc. 10,713
----------
INDUSTRIAL CONGLOMERATES (1.2%)
165,556 General Electric Co. 4,917
119,430 Honeywell International, Inc. 14,131
----------
19,048
----------
INDUSTRIAL MACHINERY (1.3%)
100,000 Illinois Tool Works, Inc. 12,720
75,200 Stanley Black & Decker, Inc. 9,325
----------
22,045
----------
RAILROADS (2.6%)
218,500 Canadian Pacific Railway Ltd. 33,024
120,790 Kansas City Southern 10,377
----------
43,401
----------
RESEARCH & CONSULTING SERVICES (0.4%)
162,600 Nielsen Holdings plc 6,652
----------
Total Industrials 240,562
----------
INFORMATION TECHNOLOGY (16.5%)
------------------------------
APPLICATION SOFTWARE (1.4%)
122,200 Adobe Systems, Inc.* 13,855
90,000 Citrix Systems, Inc.* 8,207
----------
22,062
----------
COMMUNICATIONS EQUIPMENT (0.3%)
200,000 Juniper Networks, Inc. 5,356
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.0%)
195,960 Visa, Inc. "A" 16,208
----------
INTERNET SOFTWARE & SERVICES (3.5%)
31,416 Alphabet, Inc. "A"* 25,767
245,100 Facebook, Inc. "A"* 31,942
----------
57,709
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (1.7%)
524,500 Applied Materials, Inc. $ 17,964
55,000 Lam Research Corp. 6,317
125,750 Versum Materials, Inc.* 3,515
----------
27,796
----------
SEMICONDUCTORS (4.1%)
106,672 Broadcom Ltd. 21,281
100,000 Intel Corp. 3,682
143,200 Microchip Technology, Inc. 9,644
175,245 NXP Semiconductors N.V.* 17,148
129,900 QUALCOMM, Inc. 6,941
119,100 Texas Instruments, Inc. 8,997
----------
67,693
----------
SYSTEMS SOFTWARE (3.0%)
489,835 Microsoft Corp. 31,668
430,865 Oracle Corp. 17,282
----------
48,950
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.5%)
198,850 Apple, Inc. 24,130
----------
Total Information Technology 269,904
----------
MATERIALS (4.1%)
----------------
COMMODITY CHEMICALS (0.4%)
73,500 LyondellBasell Industries N.V. "A" 6,855
----------
CONSTRUCTION MATERIALS (1.6%)
189,400 CRH plc ADR 6,538
156,190 Vulcan Materials Co. 20,044
----------
26,582
----------
DIVERSIFIED CHEMICALS (0.6%)
129,800 E.I. du Pont de Nemours & Co. 9,800
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.4%)
112,800 FMC Corp. 6,786
----------
INDUSTRIAL GASES (0.6%)
65,300 Air Products & Chemicals, Inc. 9,126
----------
SPECIALTY CHEMICALS (0.5%)
89,000 Celanese Corp. "A" 7,512
----------
Total Materials 66,661
----------
================================================================================
18 | USAA GROWTH & INCOME FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (1.0%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
143,940 Verizon Communications, Inc. $ 7,055
----------
WIRELESS TELECOMMUNICATION SERVICES (0.6%)
142,500 T-Mobile US, Inc.* 8,873
----------
Total Telecommunication Services 15,928
----------
Total Common Stocks 1,600,751
----------
Total Equity Securities (cost: $1,152,875) 1,600,751
----------
MONEY MARKET INSTRUMENTS (2.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.0%)
32,914,458 State Street Institutional Treasury Money Market Fund Premier Class,
0.42%(a) (cost: $32,915) 32,915
----------
TOTAL INVESTMENTS (COST: $1,185,790) $1,633,666
==========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,600,751 $- $- $1,600,751
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 32,915 - - 32,915
--------------------------------------------------------------------------------------------------------
Total $1,633,666 $- $- $1,633,666
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 9.0% of net assets at January 31,
2017.
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, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
20 | USAA GROWTH & INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,185,790) $1,633,666
Receivables:
Capital shares sold 786
USAA Asset Management Company (Note 6D) 4
Dividends and interest 695
Securities sold 5,994
----------
Total assets 1,641,145
----------
LIABILITIES
Payables:
Securities purchased 1,265
Capital shares redeemed 1,397
Accrued management fees 833
Accrued transfer agent's fees 29
Other accrued expenses and payables 133
----------
Total liabilities 3,657
----------
Net assets applicable to capital shares outstanding $1,637,488
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,185,303
Overdistribution of net investment income (340)
Accumulated net realized gain on investments 4,649
Net unrealized appreciation of investments 447,876
----------
Net assets applicable to capital shares outstanding $1,637,488
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,502,142/66,725
capital shares outstanding, no par value) $ 22.51
==========
Institutional Shares (net assets of $126,119/5,606
capital shares outstanding, no par value) $ 22.50
==========
Adviser Shares (net assets of $9,227/411 capital
shares outstanding, no par value) $ 22.44
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $44) $ 16,242
Interest 52
--------
Total income 16,294
--------
EXPENSES
Management fees 4,701
Administration and servicing fees:
Fund Shares 1,078
Institutional Shares 60
Adviser Shares 6
Transfer agent's fees:
Fund Shares 916
Institutional Shares 60
Adviser Shares 1
Distribution and service fees (Note 6F):
Adviser Shares 11
Custody and accounting fees:
Fund Shares 95
Institutional Shares 8
Adviser Shares 1
Postage:
Fund Shares 62
Shareholder reporting fees:
Fund Shares 30
Trustees' fees 15
Registration fees:
Fund Shares 20
Institutional Shares 13
Adviser Shares 9
Professional fees 75
Other 19
--------
Total expenses 7,180
Expenses reimbursed:
Institutional Shares (1)
Adviser Shares (3)
--------
Net expenses 7,176
--------
NET INVESTMENT INCOME 9,118
--------
================================================================================
22 | USAA GROWTH & INCOME FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments $ 23,367
Foreign currency transactions 1
Change in net unrealized appreciation/(depreciation) 137,462
--------
Net realized and unrealized gain 160,830
--------
Increase in net assets resulting from operations $169,948
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 9,118 $ 11,506
Net realized gain (loss) on investments 23,367 (8,668)
Net realized gain (loss) on foreign currency transactions 1 (1)
Change in net unrealized appreciation/
(depreciation) of investments 137,462 (29,157)
-----------------------------
Increase (decrease) in net assets resulting from operations 169,948 (26,320)
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (9,299) (10,160)
Institutional Shares* (822) (447)
Adviser Shares (39) (40)
-----------------------------
Total distributions of net investment income (10,160) (10,647)
-----------------------------
Net realized gains:
Fund Shares (4,824) (79,462)
Institutional Shares* (401) (252)
Adviser Shares (30) (461)
-----------------------------
Total distributions of net realized gains (5,255) (80,175)
-----------------------------
Distributions to shareholders (15,415) (90,822)
-----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (19,991) (74,137)
Institutional Shares* (3,480) 105,318
Adviser Shares 22 (86)
-----------------------------
Total net increase (decrease) in net assets from capital
share transactions (23,449) 31,095
-----------------------------
Net increase (decrease) in net assets 131,084 (86,047)
NET ASSETS
Beginning of period 1,506,404 1,592,451
-----------------------------
End of period $1,637,488 $1,506,404
=============================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (340) $ 702
=============================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
24 | USAA GROWTH & INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 Institutional Shares (Institutional Shares), and
Growth & 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' relative net assets. Each class has exclusive voting rights
on matters related solely to that class and separate voting rights on matters
that relate to all classes. The Institutional Shares are available for
investment through a USAA discretionary managed account program and certain
advisory programs sponsored by financial intermediaries, such as brokerage
firms, investment advisors, financial planners, third-party administrators, and
insurance companies. Institutional Shares also are available to institutional
investors, which include retirement plans, endowments, foundations, and bank
trusts, as well as other persons or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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
official closing price on the exchange or primary market on which
================================================================================
26 | USAA GROWTH & INCOME FUND
================================================================================
they trade. Securities traded primarily on foreign securities exchanges
or markets are valued at the last quoted sales price, or the most
recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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 which occur on
a fairly regular basis (such as U.S. market
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
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. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
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
================================================================================
28 | USAA GROWTH & INCOME FUND
================================================================================
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.
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 taxable
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short-term securities are
amortized on a straight-line basis over the life of the respective
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.
================================================================================
30 | USAA GROWTH & INCOME FUND
================================================================================
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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended January 31, 2017, the Fund
did not receive any brokerage commission recapture credits. Additionally,
there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $6,000, which represents 2.1% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
32 | USAA GROWTH & INCOME FUND
================================================================================
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 income tax.
At July 31, 2016, the Fund had net capital loss carryforwards of $8,839,000, 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, 2017, 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 basis 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, 2017, were
$201,346,000 and $250,720,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $465,899,000 and $18,023,000, respectively, resulting in net
unrealized appreciation of $447,876,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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 | 33
================================================================================
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, 2017 JULY 31, 2016
-----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
FUND SHARES:
Shares sold 2,382 $ 51,172 5,393 $ 107,149
Shares issued from
reinvested dividends 634 13,890 4,391 88,309
Shares redeemed (3,992) (85,053) (14,051) (269,595)
----------------------------------------------------------
Net decrease from
capital share transactions (976) $(19,991) (4,267) $ (74,137)
==========================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 538 $ 11,356 6,232 $ 114,348
Shares issued from
reinvested dividends 56 1,223 21 410
Shares redeemed (754) (16,059) (487) (9,440)
----------------------------------------------------------
Net increase (decrease) from
capital share transactions (160) $ (3,480) 5,766 $ 105,318
==========================================================
ADVISER SHARES:
Shares sold 2 $ 42 4 $ 91
Shares issued from
reinvested dividends -* 2 1 19
Shares redeemed (1) (22) (10) (196)
----------------------------------------------------------
Net increase (decrease) from
capital share transactions 1 $ 22 (5) $ (86)
==========================================================
*Represents less than 500 shares or $500.
(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
================================================================================
34 | USAA GROWTH & INCOME FUND
================================================================================
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 is also responsible for determining the asset allocation for 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' 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 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 periods prior to August 7, 2015. The following table is utilized to
determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Each class' 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $4,701,000, which
included a less than 0.01% performance adjustment for the Institutional
Shares of $3,000. For the six-month period ended January 31, 2017, the Fund
Shares and Adviser Shares did not incur any 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 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, 2017, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to BHMS, of $670,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services,
================================================================================
36 | USAA GROWTH & INCOME FUND
================================================================================
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, 2017, the Fund Shares, Institutional
Shares, and Adviser Shares incurred administration and servicing fees, paid
or payable to the Manager, of $1,078,000, $60,000, 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, 2017, 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. EXPENSE LIMITATION - The Manager agreed, through November 30, 2017, 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 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 November 30, 2017,
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, 2017, the Institutional Shares and Adviser Shares incurred reimbursable
expenses of $1,000 and $3,000, respectively, of which $4,000 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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, 2017, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $916,000, $60,000, 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
(IMCO), the distributor, for distribution and shareholder services. IMCO
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, 2017, the Adviser Shares incurred
distribution and service (12b-1) fees of $11,000.
G. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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,
2017, USAA and its affiliates owned 398,000 Adviser Shares, which represents
96.7% of the Adviser Shares outstanding, and 0.5% of the Fund's total
outstanding shares.
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 GROWTH & INCOME FUND
================================================================================
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(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,
-------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 20.39 $ 22.00 $ 22.63 $ 19.39 $ 15.44 $ 15.24
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .12 .15 .17 .21 .18 .14
Net realized and
unrealized gain (loss) 2.21 (.51) 2.14 3.24 3.95 .20
-------------------------------------------------------------------------------------
Total from investment
operations 2.33 (.36) 2.31 3.45 4.13 .34
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.14) (.18) (.21) (.18) (.14)
Realized capital gains (.07) (1.11) (2.76) - - -
-------------------------------------------------------------------------------------
Total distributions (.21) (1.25) (2.94) (.21) (.18) (.14)
-------------------------------------------------------------------------------------
Net asset value
at end of period $ 22.51 $ 20.39 $ 22.00 $ 22.63 $ 19.39 $ 15.44
=====================================================================================
Total return (%)* 11.47 (1.49) 10.70 17.86 26.90 2.28
Net assets at
end of period (000) $1,502,142 $1,380,560 $1,583,353 $1,514,795 $1,418,296 $1,152,540
Ratios to average
net assets:**
Expenses (%)(a) .92(d) .95 .93 .94 .96 1.01
Net investment income (%) 1.16(d) .78 .66 .97 1.04 .93
Portfolio turnover (%) 13 22 35 61(c) 112(b) 51
* 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, 2017, average net assets were
$1,425,646,000.
(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 follow:
- - - (.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
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JANUARY 31, JULY 31,
---------------------------------
2017 2016***
---------------------------------
Net asset value at beginning of period $ 20.38 $ 22.10
------------------------------
Income (loss) from investment operations:
Net investment income 0.12 .16
Net realized and unrealized gain (loss) 2.22 (.60)
------------------------------
Total from investment operations 2.34 (.44)
------------------------------
Less distributions from:
Net investment income (.15) (.17)
Realized capital gains (.07) (1.11)
------------------------------
Total distributions (.22) (1.28)
------------------------------
Net asset value at end of period $ 22.50 $ 20.38
==============================
Total return (%)* 11.52 (1.87)
Net assets at end of period (000) $126,119 $117,512
Ratios to average net assets:**
Expenses (%)(a) .85 .85
Expenses, excluding reimbursements (%)(a) .85 .87
Net investment income (%)(a) 1.24 .83
Portfolio turnover (%) 13 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, 2017, average net assets were
$119,555,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
-----------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------------
Net asset value at beginning
of period $20.32 $21.93 $22.56 $19.34 $15.42 $15.22
---------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .09 .10 .10 .15 .12 .10
Net realized and
unrealized gain (loss) 2.20 (.50) 2.14 3.23 3.93 .20
---------------------------------------------------------------------------------
Total from investment
operations 2.29 (.40) 2.24 3.38 4.05 .30
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.10) (.11) (.16) (.13) (.10)
Realized capital gains (.07) (1.11) (2.76) - - -
---------------------------------------------------------------------------------
Total distributions (.17) (1.21) (2.87) (.16) (.13) (.10)
---------------------------------------------------------------------------------
Net asset value at end of
period $22.44 $20.32 $21.93 $22.56 $19.34 $15.42
=================================================================================
Total return (%)* 11.28 (1.72) 10.40 17.51 26.37 2.02
Net assets at end
of period (000) $9,227 $8,332 $9,098 $9,305 $7,919 $6,223
Ratios to average net assets:**
Expenses (%)(a) 1.20(e) 1.20 1.22(d) 1.22 1.30 1.30
Expenses, excluding
reimbursements (%)(a) 1.26(e) 1.28 1.27 1.22 1.39 1.43
Net investment income (%) .88(e) .53 .37 .70 .70 .64
Portfolio turnover (%) 13 22 35 61(c) 112(b) 51
* 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, 2017, average net assets were
$8,717,000.
(a) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follow:
- - - (.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) 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.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
42 | USAA GROWTH & INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,114.70 $4.90
Hypothetical
(5% return before expenses) 1,000.00 1,020.57 4.69
INSTITUTIONAL SHARES
Actual 1,000.00 1,115.20 4.53
Hypothetical
(5% return before expenses) 1,000.00 1,020.92 4.33
ADVISER SHARES
Actual 1,000.00 1,112.80 6.39
Hypothetical
(5% return before expenses) 1,000.00 1,019.16 6.11
*Expenses are equal to the annualized expense ratio of 0.92% for Fund Shares,
0.85% 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/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of 11.47% for Fund Shares, 11.52% for Institutional
Shares, and 11.28% for Adviser Shares for the six-month period of August 1,
2016, through January 31, 2017.
================================================================================
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)
=============================================================================
23432-0317 (C)2017, 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 o R6 SHARES
JANUARY 31, 2017
========================================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 18
Notes to Portfolio of Investments 43
Financial Statements 48
Notes to Financial Statements 52
EXPENSE EXAMPLE 74
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
202741-0317
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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.
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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.
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
JULIANNE BASS, CFA KURT DAUM, JD*
JOHN SPEAR, CFA*
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o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
During the first half of the reporting period ended January 31, 2017,
high-yield bonds recorded gains, benefiting from investors' search for
yield and the narrowing of high-yield credit spreads. (Spreads are
generally considered an indication of risk; the narrower the spread, the
lower the risk.) High-yield bonds briefly retreated following the
Republican sweep in the November 8, 2016 U.S. presidential election when
U.S. Treasury yields rose amid volatility in crude oil prices. The
Republican sweep appeared to release "animal spirits," a term used by
economist John Maynard Keynes to describe emotional mindsets. These "animal
spirits" drove up U.S. Treasury yields and pushed down U.S. Treasury
prices, which move in the opposite direction of yields. They also fueled a
strong rally in the stock market. High-yield bonds resumed their upward
trend by mid-November 2016 on a stronger outlook for economic growth based
on Republican-led fiscal policy, lower taxes, and less regulation, though
at the end of the reporting period, it remained unclear what policies would
actually be proposed and/or implemented. High-yield bond prices were also
supported by an agreement by the Organization of the Petroleum Exporting
Countries (OPEC) to cut production, which led crude oil prices to rise. For
the reporting period overall, the high-yield corporate bond market
generated solid positive returns and was also the best-performing
fixed-income market segment for 2016.
*Effective November 4, 2016, John Spear and Kurt Daum began co-managing
the Fund.
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2 | USAA HIGH INCOME FUND
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High-yield credit spreads (yield differentials between high-yield corporate
bonds and U.S. Treasury securities of comparable maturity) narrowed
significantly during the reporting period. Credit spreads based on the
Bloomberg Barclays U.S. Corporate High Yield Index began the period at 540
basis points and ended the reporting period at 388 basis points. (A basis
point is 1/100(th) of a percent.)
o BLOOMBERG BARCLAYS U.S. CORPORATE HIGH YIELD INDEX o
[CHART OF BLOOMBERG BARCLAYS U.S. CORPORATE HIGH YIELD INDEX]
AVERAGE OPTION
DATE ADJUSTED SPREAD
1/4/2016 6.74
1/5/2016 6.68
1/6/2016 6.76
1/7/2016 6.89
1/8/2016 6.91
1/11/2016 6.95
1/12/2016 7.03
1/13/2016 7.13
1/14/2016 7.23
1/15/2016 7.55
1/19/2016 7.53
1/20/2016 7.90
1/21/2016 7.76
1/22/2016 7.50
1/25/2016 7.46
1/26/2016 7.44
1/27/2016 7.40
1/28/2016 7.37
1/29/2016 7.34
2/1/2016 7.36
2/2/2016 7.58
2/3/2016 7.66
2/4/2016 7.62
2/5/2016 7.68
2/8/2016 8.07
2/9/2016 8.15
2/10/2016 8.09
2/11/2016 8.39
2/12/2016 8.20
2/16/2016 8.06
2/17/2016 7.82
2/18/2016 7.77
2/19/2016 7.81
2/22/2016 7.69
2/23/2016 7.70
2/24/2016 7.78
2/25/2016 7.68
2/26/2016 7.42
2/29/2016 7.26
3/1/2016 7.03
3/2/2016 6.90
3/3/2016 6.88
3/4/2016 6.69
3/7/2016 6.64
3/8/2016 6.73
3/9/2016 6.76
3/10/2016 6.66
3/11/2016 6.42
3/14/2016 6.38
3/15/2016 6.46
3/16/2016 6.53
3/17/2016 6.41
3/18/2016 6.29
3/21/2016 6.24
3/22/2016 6.28
3/23/2016 6.38
3/24/2016 6.51
3/28/2016 6.56
3/29/2016 6.68
3/30/2016 6.56
3/31/2016 6.56
4/1/2016 6.56
4/4/2016 6.55
4/5/2016 6.63
4/6/2016 6.53
4/7/2016 6.60
4/8/2016 6.51
4/11/2016 6.48
4/12/2016 6.38
4/13/2016 6.22
4/14/2016 6.12
4/15/2016 6.16
4/18/2016 6.17
4/19/2016 6.03
4/20/2016 5.89
4/21/2016 5.86
4/22/2016 5.87
4/25/2016 5.91
4/26/2016 5.86
4/27/2016 5.87
4/28/2016 5.82
4/29/2016 5.77
5/2/2016 5.75
5/3/2016 5.91
5/4/2016 5.98
5/5/2016 6.00
5/6/2016 6.08
5/9/2016 6.11
5/10/2016 6.04
5/11/2016 6.00
5/12/2016 5.95
5/13/2016 5.99
5/16/2016 5.91
5/17/2016 5.87
5/18/2016 5.77
5/19/2016 5.88
5/20/2016 5.81
5/23/2016 5.79
5/24/2016 5.71
5/25/2016 5.63
5/26/2016 5.67
5/27/2016 5.67
5/31/2016 5.66
6/1/2016 5.69
6/2/2016 5.69
6/3/2016 5.78
6/6/2016 5.69
6/7/2016 5.61
6/8/2016 5.53
6/9/2016 5.55
6/10/2016 5.64
6/13/2016 5.71
6/14/2016 5.83
6/15/2016 5.87
6/16/2016 5.98
6/17/2016 5.90
6/20/2016 5.72
6/21/2016 5.69
6/22/2016 5.68
6/23/2016 5.57
6/24/2016 5.87
6/27/2016 6.16
6/28/2016 6.16
6/29/2016 6.02
6/30/2016 5.94
7/1/2016 5.85
7/5/2016 5.90
7/6/2016 5.85
7/7/2016 5.77
7/8/2016 5.64
7/11/2016 5.43
7/12/2016 5.25
7/13/2016 5.32
7/14/2016 5.25
7/15/2016 5.20
7/18/2016 5.23
7/19/2016 5.25
7/20/2016 5.21
7/21/2016 5.21
7/22/2016 5.20
7/25/2016 5.17
7/26/2016 5.21
7/27/2016 5.30
7/28/2016 5.33
7/29/2016 5.40
8/1/2016 5.41
8/2/2016 5.45
8/3/2016 5.45
8/4/2016 5.43
8/5/2016 5.28
8/8/2016 5.23
8/9/2016 5.19
8/10/2016 5.17
8/11/2016 5.09
8/12/2016 5.12
8/15/2016 5.06
8/16/2016 4.99
8/17/2016 4.97
8/18/2016 5.00
8/19/2016 4.95
8/22/2016 4.97
8/23/2016 4.95
8/24/2016 4.95
8/25/2016 4.91
8/26/2016 4.86
8/29/2016 4.89
8/30/2016 4.89
8/31/2016 4.90
9/1/2016 4.89
9/2/2016 4.88
9/6/2016 4.84
9/7/2016 4.82
9/8/2016 4.67
9/9/2016 4.79
9/12/2016 4.91
9/13/2016 4.98
9/14/2016 5.01
9/15/2016 5.00
9/16/2016 5.02
9/19/2016 4.99
9/20/2016 4.99
9/21/2016 4.97
9/22/2016 4.86
9/23/2016 4.87
9/26/2016 4.92
9/27/2016 4.95
9/28/2016 4.91
9/29/2016 4.87
9/30/2016 4.80
10/3/2016 4.75
10/4/2016 4.68
10/5/2016 4.65
10/6/2016 4.65
10/7/2016 4.66
10/11/2016 4.64
10/12/2016 4.63
10/13/2016 4.71
10/14/2016 4.65
10/17/2016 4.67
10/18/2016 4.65
10/19/2016 4.59
10/20/2016 4.56
10/21/2016 4.58
10/24/2016 4.54
10/25/2016 4.53
10/26/2016 4.57
10/27/2016 4.60
10/28/2016 4.67
10/31/2016 4.77
11/1/2016 4.92
11/2/2016 4.99
11/3/2016 5.00
11/4/2016 5.05
11/7/2016 4.89
11/8/2016 4.86
11/9/2016 4.79
11/10/2016 4.83
11/14/2016 4.98
11/15/2016 4.84
11/16/2016 4.83
11/17/2016 4.76
11/18/2016 4.74
11/21/2016 4.69
11/22/2016 4.63
11/23/2016 4.60
11/25/2016 4.59
11/28/2016 4.60
11/29/2016 4.63
11/30/2016 4.55
12/1/2016 4.48
12/2/2016 4.50
12/5/2016 4.45
12/6/2016 4.37
12/7/2016 4.30
12/8/2016 4.25
12/9/2016 4.17
12/12/2016 4.13
12/13/2016 4.08
12/14/2016 4.01
12/15/2016 4.03
12/16/2016 4.05
12/19/2016 4.07
12/20/2016 4.04
12/21/2016 4.03
12/22/2016 4.04
12/23/2016 4.04
12/27/2016 3.97
12/28/2016 4.00
12/29/2016 4.04
12/30/2016 4.09
1/3/2017 3.98
1/4/2017 3.87
1/5/2017 3.91
1/6/2017 3.83
1/9/2017 3.88
1/10/2017 3.88
1/11/2017 3.89
1/12/2017 3.91
1/13/2017 3.89
1/17/2017 3.93
1/18/2017 3.89
1/19/2017 3.86
1/20/2017 3.87
1/23/2017 3.95
1/24/2017 3.87
1/25/2017 3.8
1/26/2017 3.81
1/27/2017 3.82
1/30/2017 3.83
1/31/2017 3.88
[END CHART]
As U.S. Treasury prices fell and stocks rallied after November 8, 2016,
high-yield bonds started to resume their long-term relationship with these
two asset classes, outperforming 10-year U.S. Treasury securities and
underperforming the S&P 500(R) Index. (High-yield bonds had outperformed
stocks and higher-quality bonds during the first half of the reporting
period.) Historically, high-yield securities tend to perform between stocks
and high-quality bonds, with generally less volatility, which can provide
long-term investors with a significant diversification advantage.
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MANAGERS' COMMENTARY ON THE FUND | 3
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Default expectations were low at the end of the reporting period. According
to J.P. Morgan, the U.S. high-yield default rate was 1.64% at the end of
January 2017 (or, 0.70% when commodity-related high-yield bonds are
excluded).
o SIX-MONTH COMPARATIVE RETURNS o
[CHART OF SIX-MONTH COMPARATIVE RETURNS]
USAA HIGH CITI U.S. TREASURY
INCOME FUND S&P 500 INDEX 10-YEAR INDEX
7/29/2016 0.00% 0.00% 0.00%
8/1/2016 0.00 -0.13 -0.36
8/2/2016 -0.13 -0.76 -0.71
8/3/2016 -0.13 -0.42 -0.75
8/4/2016 0.25 -0.37 -0.38
8/5/2016 0.51 0.49 -1.10
8/8/2016 0.76 0.41 -1.10
8/9/2016 1.14 0.45 -0.76
8/10/2016 1.27 0.20 -0.43
8/11/2016 1.27 0.69 -1.09
8/12/2016 1.39 0.61 -0.59
8/15/2016 1.65 0.90 -0.94
8/16/2016 1.65 0.37 -1.13
8/17/2016 1.77 0.58 -0.96
8/18/2016 1.90 0.81 -0.77
8/19/2016 1.90 0.67 -1.17
8/22/2016 1.90 0.62 -0.79
8/23/2016 2.03 0.82 -0.91
8/24/2016 2.15 0.30 -0.91
8/25/2016 2.03 0.16 -1.06
8/26/2016 2.15 0.00 -1.55
8/29/2016 2.17 0.54 -0.97
8/30/2016 2.30 0.36 -0.98
8/31/2016 2.30 0.14 -0.95
9/1/2016 2.30 0.14 -0.99
9/2/2016 2.43 0.56 -1.24
9/5/2016 2.68 0.87 -1.23
9/6/2016 2.68 0.87 -0.72
9/7/2016 2.81 0.88 -0.69
9/8/2016 2.81 0.66 -1.37
9/9/2016 2.43 -1.81 -1.88
9/12/2016 2.30 -0.37 -1.87
9/13/2016 1.92 -1.81 -2.41
9/14/2016 2.05 -1.86 -2.00
9/15/2016 2.05 -0.86 -2.12
9/16/2016 2.05 -1.23 -2.12
9/19/2016 2.17 -1.23 -2.06
9/20/2016 2.17 -1.20 -1.96
9/21/2016 2.30 -0.12 -1.78
9/22/2016 2.94 0.53 -1.44
9/23/2016 2.94 -0.04 -1.33
9/26/2016 2.81 -0.89 -1.06
9/27/2016 2.68 -0.25 -0.76
9/28/2016 2.81 0.30 -0.84
9/29/2016 3.07 -0.63 -0.74
9/30/2016 3.19 0.16 -1.17
10/3/2016 3.19 -0.15 -1.33
10/4/2016 3.32 -0.64 -1.86
10/5/2016 3.32 -0.17 -2.16
10/6/2016 3.32 -0.12 -2.39
10/7/2016 3.45 -0.44 -2.30
10/10/2016 3.45 0.02 -2.28
10/11/2016 3.45 -1.23 -2.53
10/12/2016 3.45 -1.11 -2.68
10/13/2016 3.32 -1.41 -2.32
10/14/2016 3.58 -1.39 -2.80
10/17/2016 3.58 -1.69 -2.55
10/18/2016 3.96 -1.08 -2.39
10/19/2016 4.22 -0.85 -2.42
10/20/2016 4.34 -0.98 -2.37
10/21/2016 4.34 -0.99 -2.28
10/24/2016 4.47 -0.52 -2.49
10/25/2016 4.47 -0.89 -2.44
10/26/2016 4.22 -1.06 -2.70
10/27/2016 4.07 -1.35 -3.16
10/28/2016 3.82 -1.66 -3.19
10/31/2016 3.56 -1.67 -3.07
11/1/2016 3.30 -2.33 -2.96
11/2/2016 2.92 -2.96 -2.75
11/3/2016 2.79 -3.35 -2.87
11/4/2016 2.79 -3.51 -2.62
11/7/2016 3.17 -1.37 -2.98
11/8/2016 3.17 -0.95 -3.29
11/9/2016 2.92 0.16 -5.04
11/10/2016 2.66 0.36 -5.56
11/11/2016 2.53 0.22 -5.55
11/14/2016 1.89 0.23 -6.50
11/15/2016 2.40 1.00 -6.66
11/16/2016 2.40 0.87 -6.51
11/17/2016 2.53 1.35 -6.95
11/18/2016 2.40 1.12 -7.43
11/21/2016 2.66 1.88 -7.42
11/22/2016 2.92 2.10 -7.27
11/23/2016 2.92 2.19 -7.57
11/24/2016 2.92 2.19 -7.56
11/25/2016 2.92 2.59 -7.67
11/28/2016 3.04 2.06 -7.22
11/29/2016 3.04 2.22 -7.05
11/30/2016 3.04 1.97 -7.55
12/1/2016 3.04 1.62 -8.17
12/2/2016 3.30 1.66 -7.76
12/5/2016 3.43 2.26 -7.72
12/6/2016 3.69 2.61 -7.76
12/7/2016 4.21 3.98 -7.38
12/8/2016 4.21 4.22 -7.72
12/9/2016 4.46 4.84 -8.31
12/12/2016 4.59 4.73 -8.43
12/13/2016 4.74 5.43 -8.42
12/14/2016 4.61 4.58 -8.76
12/15/2016 4.35 4.99 -9.22
12/16/2016 4.35 4.81 -9.36
12/19/2016 4.48 5.02 -8.88
12/20/2016 4.48 5.42 -9.08
12/21/2016 4.61 5.16 -8.90
12/22/2016 4.61 4.98 -8.95
12/23/2016 4.87 5.11 -8.83
12/27/2016 4.87 5.35 -9.00
12/28/2016 4.87 4.49 -8.57
12/29/2016 5.00 4.46 -8.29
12/30/2016 5.00 3.98 -7.91
1/3/2017 5.26 4.87 -8.06
1/4/2017 5.65 5.49 -8.08
1/5/2017 5.91 5.41 -7.36
1/6/2017 6.04 5.81 -7.76
1/9/2017 6.04 5.44 -7.41
1/10/2017 6.17 5.44 -7.44
1/11/2017 6.04 5.75 -7.34
1/12/2017 6.17 5.52 -7.26
1/13/2017 6.30 5.72 -7.42
1/16/2017 6.30 5.72 -7.41
1/17/2017 6.30 5.41 -6.97
1/18/2017 6.30 5.61 -7.47
1/19/2017 6.17 5.23 -8.02
1/20/2017 6.30 5.59 -8.06
1/23/2017 6.30 5.31 -7.52
1/24/2017 6.43 6.00 -8.08
1/25/2017 6.56 6.85 -8.52
1/26/2017 6.56 6.77 -8.38
1/27/2017 6.64 6.69 -8.15
1/30/2017 6.51 6.05 -8.17
1/31/2017 6.53 5.96 -7.86
[END CHART]
Source: Bloomberg L.P.
o HOW DID THE USAA HIGH INCOME FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has four share classes: Fund Shares, Institutional Shares,
Adviser Shares, and R6 Shares. For the reporting period ended January 31,
2017, the Fund Shares, Institutional Shares, and Adviser Shares had total
returns of 6.53%, 6.45%, and 6.36%, respectively. This compares to returns
of 6.09% for the Bloomberg Barclays U.S. High Yield 2% Issuer Capped Bond
Index* (the Index) and 6.26% for the
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indexes. Thus, the Fund's
benchmark is now called the Bloomberg Barclays U.S. Corporate High Yield 2%
Issuer Capped Bond Index.
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4 | USAA HIGH INCOME FUND
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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 5.74%, 5.83%, and 5.43%, respectively, compared to 5.17% for the Lipper
High Yield Bond Funds Index Average. The R6 Shares commenced operations on
December 1, 2016, and from that time through January 31, 2017, had a total
return of 3.40%.
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 adhere to our disciplined
investment process, building the portfolio bond-by-bond. We look for
opportunities where our fundamental understanding of the credit risk is
different than the market, working with our team of analysts to evaluate
each potential investment individually, rather than on the basis of
thematic trends. In keeping with our 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.
Relative to the Index, the Fund benefited during the reporting period
from its position in corporate bonds, especially in basic industry (metals
and mining names); communications (wireless and cable companies); consumer
cyclical (automakers); capital goods (aerospace and defense firms); and
energy (independent companies). Positions in energy and insurance hybrid
securities also added to returns. The Fund's gains were limited by its
allocations to commercial mortgage-backed securities and preferred stock,
which are not represented in the Index. In addition, the Fund's performance
was hampered by its allocation to cash, which
Refer to page 9 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
we maintain as part of our liquidity strategy. Our liquidity strategy
helps to prevent the Fund from being forced to sell its securities in the
event of investment outflows.
During the reporting period, we continued to seek relative value
opportunities within the high-yield bond market while continuing to
maintain a diversified, liquid portfolio. We selectively added to the
Fund's positions in the health care and retailing sectors. We also found
attractive opportunities among floating-rate bank loans. 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.
================================================================================
6 | USAA HIGH INCOME FUND
================================================================================
INVESTMENT OVERVIEW
USAA HIGH INCOME FUND SHARES (FUND SHARES)
(Ticker Symbol: USHYX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.2 Billion $1.1 Billion
Net Asset Value Per Share $8.17 $7.90
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
6.53% 22.20% 6.81% 6.70%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
17.91% 7.13% 6.65%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIOS AS OF 7/31/16***
--------------------------------------------------------------------------------
5.22% 0.84%
(Includes acquired fund fees and expenses of 0.02%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
U.S. HIGH YIELD USAA HIGH LIPPER HIGH
2% ISSUER CAPPED INCOME FUND YIELD BOND
BOND INDEX SHARES FUNDS INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 10,146.06 10,148.00 10,129.67
3/31/2007 10,163.30 10,173.00 10,161.88
4/30/2007 10,295.84 10,311.00 10,302.21
5/31/2007 10,367.18 10,371.00 10,390.01
6/30/2007 10,179.19 10,249.00 10,221.20
7/31/2007 9,825.20 9,985.00 9,889.85
8/31/2007 9,972.28 10,077.00 9,985.22
9/30/2007 10,220.10 10,252.00 10,225.90
10/31/2007 10,289.08 10,293.00 10,313.96
11/30/2007 10,072.35 10,061.00 10,094.73
12/31/2007 10,110.90 10,037.00 10,104.66
1/31/2008 9,956.39 9,808.00 9,898.76
2/29/2008 9,833.32 9,700.00 9,765.42
3/31/2008 9,810.33 9,638.00 9,750.62
4/30/2008 10,213.68 9,873.00 10,116.06
5/31/2008 10,254.93 9,945.00 10,168.22
6/30/2008 10,001.69 9,712.00 9,900.60
7/31/2008 9,876.26 9,582.00 9,772.17
8/31/2008 9,906.35 9,605.00 9,785.76
9/30/2008 9,145.96 8,941.00 9,055.17
10/31/2008 7,674.21 7,759.00 7,595.60
11/30/2008 7,001.05 7,127.00 6,945.14
12/31/2008 7,494.00 7,218.00 7,190.08
1/31/2009 7,993.04 7,483.00 7,503.80
2/28/2009 7,776.31 7,276.00 7,330.19
3/31/2009 7,989.65 7,337.00 7,438.76
4/30/2009 8,931.94 7,986.00 8,160.66
5/31/2009 9,531.05 8,690.00 8,635.13
6/30/2009 9,811.34 9,070.00 8,925.74
7/31/2009 10,399.97 9,610.00 9,491.30
8/31/2009 10,599.79 9,875.00 9,650.30
9/30/2009 11,204.99 10,466.00 10,154.85
10/31/2009 11,408.19 10,708.00 10,304.67
11/30/2009 11,520.10 10,848.00 10,435.98
12/31/2009 11,897.76 11,130.00 10,748.53
1/31/2010 12,053.28 11,384.00 10,884.75
2/28/2010 12,068.84 11,433.00 10,901.17
3/31/2010 12,434.66 11,835.00 11,247.63
4/30/2010 12,731.18 12,129.00 11,492.17
5/31/2010 12,275.42 11,640.00 11,066.76
6/30/2010 12,426.89 11,755.00 11,154.55
7/31/2010 12,863.71 12,123.00 11,553.09
8/31/2010 12,867.77 12,173.00 11,546.17
9/30/2010 13,248.47 12,524.00 11,897.75
10/31/2010 13,587.25 12,857.00 12,228.45
11/30/2010 13,432.06 12,781.00 12,105.34
12/31/2010 13,674.81 13,038.00 12,351.22
1/31/2011 13,977.08 13,289.00 12,609.12
2/28/2011 14,161.00 13,551.00 12,812.29
3/31/2011 14,207.32 13,629.00 12,838.63
4/30/2011 14,426.75 13,878.00 13,040.04
5/31/2011 14,497.41 13,950.00 13,068.84
6/30/2011 14,356.43 13,755.00 12,923.84
7/31/2011 14,522.09 13,855.00 13,031.17
8/31/2011 13,938.53 13,223.00 12,445.45
9/30/2011 13,480.07 12,780.00 12,005.66
10/31/2011 14,289.14 13,325.00 12,705.55
11/30/2011 13,980.80 13,080.00 12,419.38
12/31/2011 14,353.38 13,367.00 12,703.20
1/31/2012 14,788.86 13,762.00 13,126.06
2/29/2012 15,140.48 14,080.00 13,429.65
3/31/2012 15,121.21 14,142.00 13,432.29
4/30/2012 15,276.74 14,237.00 13,551.63
5/31/2012 15,073.20 14,035.00 13,331.12
6/30/2012 15,391.35 14,265.00 13,581.57
7/31/2012 15,684.15 14,547.00 13,830.10
8/31/2012 15,867.74 14,806.00 14,005.10
9/30/2012 16,088.51 15,036.00 14,198.98
10/31/2012 16,230.18 15,260.00 14,321.50
11/30/2012 16,360.01 15,309.00 14,436.12
12/31/2012 16,617.64 15,577.00 14,664.31
1/31/2013 16,840.45 15,877.00 14,877.18
2/28/2013 16,925.99 16,012.00 14,955.61
3/31/2013 17,098.42 16,214.00 15,111.75
4/30/2013 17,407.44 16,492.00 15,396.00
5/31/2013 17,306.69 16,500.00 15,309.05
6/30/2013 16,852.96 16,078.00 14,910.48
7/31/2013 17,172.13 16,350.00 15,203.30
8/31/2013 17,067.99 16,229.00 15,095.35
9/30/2013 17,237.38 16,364.00 15,255.94
10/31/2013 17,668.12 16,714.00 15,624.65
11/30/2013 17,757.38 16,791.00 15,689.59
12/31/2013 17,853.74 16,897.00 15,783.88
1/31/2014 17,978.83 17,085.00 15,882.76
2/28/2014 18,341.62 17,381.00 16,195.26
3/31/2014 18,385.23 17,484.00 16,242.22
4/30/2014 18,501.54 17,632.00 16,323.73
5/31/2014 18,670.93 17,824.00 16,475.87
6/30/2014 18,827.47 18,009.00 16,616.36
7/31/2014 18,577.27 17,878.00 16,401.72
8/31/2014 18,872.43 18,053.00 16,620.03
9/30/2014 18,476.86 17,794.00 16,299.91
10/31/2014 18,695.95 17,880.00 16,479.89
11/30/2014 18,560.71 17,809.00 16,382.11
12/31/2014 18,292.59 17,493.00 16,136.91
1/31/2015 18,412.96 17,537.00 16,224.70
2/28/2015 18,856.54 17,824.00 16,601.52
3/31/2015 18,753.42 17,718.00 16,535.33
4/30/2015 18,980.29 17,908.00 16,728.87
5/31/2015 19,037.77 17,918.00 16,799.43
6/30/2015 18,754.78 17,633.00 16,551.94
7/31/2015 18,645.91 17,446.00 16,495.00
8/31/2015 18,319.30 17,073.00 16,203.73
9/30/2015 17,848.67 16,693.00 15,768.19
10/31/2015 18,337.90 16,992.00 16,142.22
11/30/2015 17,933.19 16,576.00 15,776.43
12/31/2015 17,481.49 15,996.00 15,351.99
1/31/2016 17,200.53 15,656.00 15,088.01
2/29/2016 17,298.91 15,788.00 15,106.48
3/31/2016 18,067.76 16,423.00 15,679.73
4/30/2016 18,775.06 17,071.00 16,178.87
5/31/2016 18,891.03 17,216.00 16,280.79
6/30/2016 19,065.15 17,488.00 16,397.11
7/31/2016 19,580.42 17,960.00 16,797.97
8/31/2016 19,990.20 18,373.00 17,150.58
9/30/2016 20,123.41 18,536.00 17,258.10
10/31/2016 20,201.17 18,602.00 17,302.92
11/30/2016 20,105.15 18,509.00 17,268.88
12/31/2016 20,476.05 18,861.00 17,584.27
1/31/2017 20,773.24 19,132.00 17,850.19
[END CHART]
Data from 1/31/07 through 1/31/17.
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 High Yield Bond Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
8 | USAA HIGH INCOME FUND
================================================================================
The graph on page 8 illustrates the comparison of a $10,000 hypothetical
investment in the USAA High Income Fund Shares to the following benchmarks:
o The unmanaged Bloomberg 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 Lipper High Yield Bond Funds Index tracks the total return
performance of the funds within the Lipper High Yield Funds category.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA HIGH INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIHIX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $996.4 Million $991.0 Million
Net Asset Value Per Share $8.16 $7.90
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
6.45% 22.34% 6.96% 8.67%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
17.90% 7.28% 8.58%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIOS AS OF 7/31/16***
--------------------------------------------------------------------------------
5.35% 0.73%
(Includes acquired fund fees and expenses of 0.02%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to time, or
for purchase by a USAA fund participating in a fund-of-funds investment strategy
(USAA fund-of-funds).
================================================================================
10 | USAA HIGH INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
U.S. HIGH YIELD USAA HIGH LIPPER HIGH
2% ISSUER CAPPED INCOME FUND YIELD BOND
BOND INDEX INSTITUTIONAL SHARES FUNDS INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,030.47 10,026.02 10,013.91
9/30/2008 9,260.55 9,335.20 9,266.29
10/31/2008 7,770.36 8,103.33 7,772.69
11/30/2008 7,088.77 7,445.43 7,107.07
12/31/2008 7,587.89 7,543.33 7,357.71
1/31/2009 8,093.18 7,823.87 7,678.75
2/28/2009 7,873.75 7,609.28 7,501.09
3/31/2009 8,089.76 7,676.57 7,612.19
4/30/2009 9,043.85 8,357.89 8,350.92
5/31/2009 9,650.47 9,096.76 8,836.46
6/30/2009 9,934.27 9,497.08 9,133.83
7/31/2009 10,530.28 10,065.93 9,712.59
8/31/2009 10,732.60 10,345.72 9,875.29
9/30/2009 11,345.38 10,968.20 10,391.60
10/31/2009 11,551.13 11,223.91 10,544.91
11/30/2009 11,664.44 11,372.72 10,679.29
12/31/2009 12,046.83 11,671.04 10,999.13
1/31/2010 12,204.31 11,939.80 11,138.53
2/28/2010 12,220.05 11,993.82 11,155.32
3/31/2010 12,590.46 12,402.89 11,509.86
4/30/2010 12,890.69 12,729.23 11,760.10
5/31/2010 12,429.22 12,219.38 11,324.77
6/30/2010 12,582.59 12,327.95 11,414.61
7/31/2010 13,024.89 12,733.43 11,822.45
8/31/2010 13,029.00 12,772.39 11,815.36
9/30/2010 13,414.47 13,143.99 12,175.14
10/31/2010 13,757.49 13,512.55 12,513.55
11/30/2010 13,600.36 13,435.99 12,387.57
12/31/2010 13,846.15 13,709.37 12,639.18
1/31/2011 14,152.20 13,976.04 12,903.10
2/28/2011 14,338.43 14,254.25 13,111.00
3/31/2011 14,385.33 14,339.23 13,137.96
4/30/2011 14,607.51 14,587.46 13,344.06
5/31/2011 14,679.06 14,665.36 13,373.53
6/30/2011 14,536.30 14,463.99 13,225.15
7/31/2011 14,704.05 14,588.71 13,334.98
8/31/2011 14,113.18 13,926.64 12,735.61
9/30/2011 13,648.97 13,445.71 12,285.56
10/31/2011 14,468.18 14,021.53 13,001.78
11/30/2011 14,155.97 13,766.01 12,708.93
12/31/2011 14,533.22 14,070.91 12,999.37
1/31/2012 14,974.15 14,488.88 13,432.08
2/29/2012 15,330.18 14,844.97 13,742.76
3/31/2012 15,310.67 14,912.45 13,745.45
4/30/2012 15,468.15 15,014.83 13,867.58
5/31/2012 15,262.06 14,804.97 13,641.93
6/30/2012 15,584.20 15,050.08 13,898.22
7/31/2012 15,880.66 15,349.07 14,152.54
8/31/2012 16,066.55 15,606.31 14,331.62
9/30/2012 16,290.10 15,869.23 14,530.02
10/31/2012 16,433.54 16,093.89 14,655.40
11/30/2012 16,564.99 16,168.58 14,772.69
12/31/2012 16,825.85 16,455.70 15,006.20
1/31/2013 17,051.45 16,774.76 15,224.03
2/28/2013 17,138.06 16,920.46 15,304.29
3/31/2013 17,312.66 17,116.97 15,464.07
4/30/2013 17,625.55 17,432.33 15,754.95
5/31/2013 17,523.54 17,442.77 15,665.98
6/30/2013 17,064.12 16,998.05 15,258.11
7/31/2013 17,387.29 17,267.67 15,557.76
8/31/2013 17,281.85 17,161.63 15,447.29
9/30/2013 17,453.36 17,286.37 15,611.62
10/31/2013 17,889.49 17,679.02 15,988.93
11/30/2013 17,979.87 17,762.06 16,055.39
12/31/2013 18,077.44 17,875.99 16,151.88
1/31/2014 18,204.10 18,056.69 16,253.06
2/28/2014 18,571.43 18,391.93 16,572.84
3/31/2014 18,615.59 18,481.69 16,620.90
4/30/2014 18,733.35 18,639.83 16,704.31
5/31/2014 18,904.86 18,865.99 16,859.99
6/30/2014 19,063.37 19,041.80 17,003.77
7/31/2014 18,810.04 18,926.50 16,784.12
8/31/2014 19,108.90 19,113.39 17,007.52
9/30/2014 18,708.36 18,818.71 16,679.93
10/31/2014 18,930.20 18,911.20 16,864.11
11/30/2014 18,793.26 18,837.81 16,764.05
12/31/2014 18,521.79 18,527.14 16,513.13
1/31/2015 18,643.66 18,552.88 16,602.97
2/28/2015 19,092.81 18,857.73 16,988.57
3/31/2015 18,988.39 18,747.30 16,920.84
4/30/2015 19,218.10 18,950.57 17,118.89
5/31/2015 19,276.30 18,962.08 17,191.10
6/30/2015 18,989.76 18,662.32 16,937.84
7/31/2015 18,879.53 18,487.09 16,879.57
8/31/2015 18,548.83 18,094.12 16,581.51
9/30/2015 18,072.30 17,670.94 16,135.81
10/31/2015 18,567.66 17,989.11 16,518.57
11/30/2015 18,157.89 17,574.72 16,144.25
12/31/2015 17,700.52 16,957.56 15,709.92
1/31/2016 17,416.04 16,577.53 15,439.78
2/29/2016 17,515.66 16,719.00 15,458.68
3/31/2016 18,294.14 17,394.00 16,045.30
4/30/2016 19,010.30 18,084.00 16,556.07
5/31/2016 19,127.73 18,263.00 16,660.37
6/30/2016 19,304.03 18,527.00 16,779.40
7/31/2016 19,825.75 19,053.00 17,189.60
8/31/2016 20,240.66 19,469.00 17,550.44
9/30/2016 20,375.54 19,643.00 17,660.47
10/31/2016 20,454.28 19,714.00 17,706.33
11/30/2016 20,357.06 19,642.00 17,671.49
12/31/2016 20,732.60 19,993.00 17,994.24
1/31/2017 21,033.51 20,281.00 18,266.36
[END CHART]
Data from 7/31/08 through 1/31/17.*
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 9 for benchmark definitions).
*The performance of the Bloomberg Barclays U.S. High Yield 2% Issuer Capped Bond
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.
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
USAA HIGH INCOME FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UHYOX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $9.5 Million $9.2 Million
Net Asset Value Per Share $8.19 $7.92
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
6.36% 21.94% 6.57% 7.01%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
117.49% 6.88% 6.87%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17
--------------------------------------------------------------------------------
UNSUBSIDIZED 4.89% SUBSIDIZED 5.05%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/16***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.21% AFTER REIMBURSEMENT 1.07%
(Includes acquired fund fees and expenses of 0.02%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 2017, 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 1.05% 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 November 30, 2017. If
the total annual operating expense ratio of the Adviser Shares is lower than
1.05%, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
12 | USAA HIGH INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
U.S. HIGH YIELD USAA HIGH LIPPER HIGH
2% ISSUER CAPPED INCOME FUND YIELD BOND
BOND INDEX ADVISER SHARES FUNDS INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,003.15 10,030.71 9,994.01
9/30/2010 10,299.10 10,316.99 10,298.32
10/31/2010 10,562.46 10,588.61 10,584.57
11/30/2010 10,441.82 10,524.02 10,478.01
12/31/2010 10,630.54 10,732.48 10,690.83
1/31/2011 10,865.51 10,937.44 10,914.07
2/28/2011 11,008.49 11,150.86 11,089.92
3/31/2011 11,044.50 11,212.33 11,112.73
4/30/2011 11,215.08 11,402.05 11,287.05
5/31/2011 11,270.01 11,458.62 11,311.98
6/30/2011 11,160.41 11,296.48 11,186.48
7/31/2011 11,289.19 11,389.73 11,279.38
8/31/2011 10,835.55 10,867.67 10,772.40
9/30/2011 10,479.14 10,488.62 10,391.73
10/31/2011 11,108.10 10,935.08 10,997.54
11/30/2011 10,868.40 10,744.35 10,749.83
12/31/2011 11,158.04 10,977.63 10,995.50
1/31/2012 11,496.57 11,300.22 11,361.51
2/29/2012 11,769.92 11,573.59 11,624.29
3/31/2012 11,754.93 11,622.25 11,626.57
4/30/2012 11,875.84 11,698.18 11,729.87
5/31/2012 11,717.61 11,530.79 11,539.01
6/30/2012 11,964.94 11,703.61 11,755.79
7/31/2012 12,192.55 11,932.28 11,970.91
8/31/2012 12,335.27 12,142.34 12,122.38
9/30/2012 12,506.90 12,342.50 12,290.20
10/31/2012 12,617.03 12,510.75 12,396.25
11/30/2012 12,717.95 12,549.54 12,495.46
12/31/2012 12,918.23 12,766.88 12,692.97
1/31/2013 13,091.44 13,025.23 12,877.23
2/28/2013 13,157.94 13,118.86 12,945.12
3/31/2013 13,291.98 13,281.44 13,080.26
4/30/2013 13,532.21 13,506.02 13,326.31
5/31/2013 13,453.89 13,523.71 13,251.04
6/30/2013 13,101.16 13,160.55 12,906.05
7/31/2013 13,349.28 13,379.59 13,159.51
8/31/2013 13,268.33 13,293.36 13,066.07
9/30/2013 13,400.01 13,385.58 13,205.07
10/31/2013 13,734.85 13,684.01 13,524.21
11/30/2013 13,804.24 13,743.82 13,580.43
12/31/2013 13,879.15 13,826.14 13,662.04
1/31/2014 13,976.40 13,961.33 13,747.62
2/28/2014 14,258.42 14,216.55 14,018.12
3/31/2014 14,292.32 14,282.69 14,058.77
4/30/2014 14,382.74 14,417.38 14,129.32
5/31/2014 14,514.42 14,570.63 14,261.00
6/30/2014 14,636.11 14,716.84 14,382.61
7/31/2014 14,441.61 14,604.62 14,196.82
8/31/2014 14,671.06 14,744.01 14,385.78
9/30/2014 14,363.55 14,528.89 14,108.70
10/31/2014 14,533.87 14,595.51 14,264.48
11/30/2014 14,428.73 14,535.31 14,179.85
12/31/2014 14,220.31 14,290.31 13,967.61
1/31/2015 14,313.87 14,307.20 14,043.60
2/28/2015 14,658.71 14,538.26 14,369.76
3/31/2015 14,578.55 14,449.25 14,312.47
4/30/2015 14,754.91 14,601.30 14,479.99
5/31/2015 14,799.59 14,605.55 14,541.07
6/30/2015 14,579.60 14,370.85 14,326.85
7/31/2015 14,494.97 14,231.58 14,277.56
8/31/2015 14,241.07 13,925.14 14,025.45
9/30/2015 13,875.21 13,612.80 13,648.46
10/31/2015 14,255.53 13,835.00 13,972.21
11/30/2015 13,940.92 13,510.92 13,655.59
12/31/2015 13,589.77 13,034.07 13,288.21
1/31/2016 13,371.36 12,736.51 13,059.72
2/29/2016 13,447.84 12,841.00 13,075.71
3/31/2016 14,045.52 13,353.00 13,571.89
4/30/2016 14,595.37 13,893.00 14,003.93
5/31/2016 14,685.52 14,007.00 14,092.15
6/30/2016 14,820.88 14,205.00 14,192.83
7/31/2016 15,221.44 14,602.00 14,539.80
8/31/2016 15,539.99 14,932.00 14,845.01
9/30/2016 15,643.55 15,060.00 14,938.08
10/31/2016 15,704.00 15,110.00 14,976.87
11/30/2016 15,629.35 15,031.00 14,947.41
12/31/2016 15,917.68 15,313.00 15,220.40
1/31/2017 16,148.71 15,531.00 15,450.58
[END CHART]
Data from 7/31/10 through 1/31/17.*
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 9 for benchmark definitions).
*The performance of the Bloomberg Barclays U.S. High Yield 2% Issuer Capped Bond
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.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
USAA HIGH INCOME FUND R6 SHARES* (R6 SHARES)
(Ticker Symbol: URHIX)
--------------------------------------------------------------------------------
1/31/17
--------------------------------------------------------------------------------
Net Assets $5.1 Million
Net Asset Value Per Share $8.17
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
3.40%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
1.92%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17
--------------------------------------------------------------------------------
UNSUBSIDIZED 5.37% SUBSIDIZED 5.45%
--------------------------------------------------------------------------------
EXPENSE RATIOS***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.73% AFTER REIMBURSEMENT 0.67%
(Includes acquired fund fees and expenses of 0.02%)
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 R6 Shares commenced operations on December 1, 2016.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***Calculated as prescribed by the Securities and Exchange Commission.
****The expense ratios are reported in the Funds prospectus dated December 1,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through November 30, 2017, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the R6 Shares (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.65% of the R6 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
November 30, 2017. If the total annual operating expense ratio of the R6 Shares
is lower than 0.65%, the R6 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
14 | USAA HIGH INCOME FUND
==============================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
USAA HIGH INCOME LIPPER HIGH YIELD U.S. HIGH YIELD 2%
FUND R6 SHARES BOND FUNDS INDEX ISSUER CAPPED BOND INDEX
12/1/2016 $10,000.00 $10,000.00 $10,000.00
12/31/2016 10,192.00 10,182.64 10,184.48
1/31/2017 10,340.00 10,336.63 10,332.30
[END CHART]
Data from 11/30/16 through 1/31/17.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA High Income Fund R6 Shares to the Fund's benchmarks listed above (see page
9 for benchmark definitions).
*The performance of the Bloomberg Barclays U.S. High Yield 2% Issuer Capped Bond
Index and the Lipper High Yield Bond Funds Index is calculated from the end of
the month, November 30, 2016, while the inception date of the R6 Shares is
December 1, 2016. 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.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
o TOP 10 HOLDINGS* - 1/31/17 o
(% of Net Assets)
SPDR Bloomberg Barclays
High Yield Bond ETF** ................................................. 3.2%
iShares iBoxx $ High Yield
Corporate Bond ETF** .................................................. 2.0%
NuStar Logistics, LP, 7.63% ............................................. 1.6%
CSC Holdings, LLC, 10.88% ............................................... 1.4%
Valeant Pharmaceuticals
International, Inc., 6.13% ............................................ 1.1%
Sprint Corp., 7.63% ..................................................... 1.0%
Sprint Corp., 7.25% ..................................................... 1.0%
Dairy Farmers of America, Inc., 7.88%,
cumulative redeemable, perpetual ...................................... 1.0%
Clear Channel Worldwide Holdings, Inc., 7.63% ........................... 0.9%
Frontier Communications Corp., 11.00% ................................... 0.9%
You will find a complete list of securities that the Fund owns on pages 18-42.
*Does not include money market instruments.
**The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to invest
in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
================================================================================
16 | USAA HIGH INCOME FUND
================================================================================
o SECTOR ALLOCATION* - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
ENERGY 15.9%
FINANCIALS 13.7%
CONSUMER DISCRETIONARY 12.0%
MATERIALS 11.8%
TELECOMMUNICATION SERVICES 9.4%
INDUSTRIALS 8.5%
HEALTH CARE 6.4%
UTILITIES 4.8%
INFORMATION TECHNOLOGY 3.4%
CONSUMER STAPLES 3.2%
REAL ESTATE 1.6%
[END CHART]
*Does not include money market instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (87.6%)
CORPORATE OBLIGATIONS (63.4%)
CONSUMER DISCRETIONARY (10.6%)
------------------------------
ADVERTISING (1.2%)
$ 1,000 Acosta, Inc.(a) 7.75% 10/01/2022 $ 883
1,000 Advantage Sales & Marketing, Inc.(b) 7.50 7/25/2022 976
5,000 Checkout Holding Corp.(b) 7.75 4/11/2022 3,450
21,000 Clear Channel Worldwide Holdings, Inc. 7.63 3/15/2020 20,527
----------
25,836
----------
APPAREL RETAIL (0.8%)
10,000 L Brands, Inc. 6.95 3/01/2033 9,775
2,500 L Brands, Inc. 6.75 7/01/2036 2,425
2,362 L Brands, Inc. 7.60 7/15/2037 2,397
3,000 The Men's Wearhouse, Inc. 7.00 7/01/2022 2,828
----------
17,425
----------
AUTO PARTS & EQUIPMENT (0.2%)
1,500 Midas Intermediate Holdco II, LLC & Midas
Intermediate Holdco II Finance, Inc.(a) 7.88 10/01/2022 1,549
3,000 TI Group Automotive Systems, LLC(a) 8.75 7/15/2023 3,240
----------
4,789
----------
BROADCASTING (0.3%)
2,240 iHeartCommunications, Inc.(b) 7.53 1/30/2019 1,867
4,310 iHeartCommunications, Inc.(b) 8.28 7/30/2019 3,610
----------
5,477
----------
CABLE & SATELLITE (3.1%)
5,000 Cablevision Systems Corp. 8.00 4/15/2020 5,539
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp. 6.63 1/31/2022 5,181
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp. 5.75 1/15/2024 5,263
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp.(a) 5.75 2/15/2026 5,311
5,500 CCO Holdings, LLC & CCO Holdings Capital Corp.(a) 5.50 5/01/2026 5,775
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp.(a),(c) 5.13 5/01/2027 5,100
5,000 CSC Holdings, LLC(a) 10.13 1/15/2023 5,809
25,000 CSC Holdings, LLC(a) 10.88 10/15/2025 29,812
----------
67,790
----------
================================================================================
18 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
CASINOS & GAMING (1.7%)
$ 9,700 Caesar's Entertainment Resort Properties, LLC(b) 7.00% 10/11/2020 $ 9,813
2,000 Eldorado Resorts, Inc. 7.00 8/01/2023 2,140
7,500 Golden Nugget, Inc.(a) 8.50 12/01/2021 8,081
2,472 Inn of the Mountain Gods Resort & Casino(a) 9.25 11/30/2020 2,274
2,000 Isle of Capri Casinos 8.88 6/15/2020 2,088
7,000 MGM Resorts International 8.63 2/01/2019 7,805
2,000 Scientific Games International, Inc.(a) 7.00 1/01/2022 2,147
3,000 Scientific Games International, Inc. 10.00 12/01/2022 3,089
----------
37,437
----------
DEPARTMENT STORES (0.5%)
3,000 J.C. Penney Co., Inc. 5.65 6/01/2020 2,970
3,000 Neiman Marcus Group Ltd.(a) 8.00 10/15/2021 1,868
7,929 Neiman Marcus Group Ltd., LLC(b) 4.25 10/25/2020 6,593
----------
11,431
----------
HOME FURNISHINGS (0.1%)
3,000 Serta Simmons Holdings LLC(b) 9.00 11/08/2024 3,046
----------
HOMEBUILDING (0.5%)
2,000 Beazer Homes USA, Inc.(a) 8.75 3/15/2022 2,180
5,000 KB Home 7.63 5/15/2023 5,375
3,000 M/I Homes, Inc. 6.75 1/15/2021 3,154
----------
10,709
----------
HOTELS, RESORTS & CRUISE LINES (0.3%)
3,000 Diamond Resorts Intl, Inc.(a) 7.75 9/01/2023 3,120
3,000 Royal Caribbean Cruises Ltd. 5.25 11/15/2022 3,255
----------
6,375
----------
LEISURE FACILITIES (0.2%)
3,000 Clubcorp Club Operations(a) 8.25 12/15/2023 3,322
----------
MOVIES & ENTERTAINMENT (0.3%)
3,000 AMC Entertainment Holdings, Inc.(a) 5.88 11/15/2026 3,067
3,000 National Cinemedia, LLC 5.75 8/15/2026 3,068
----------
6,135
----------
PUBLISHING (0.1%)
2,978 Cengage Learning Acquisitions, Inc.(b) 5.25 6/07/2023 2,778
----------
RESTAURANTS (0.2%)
4,000 NPC International, Inc. & NPC Operating Co., Inc. 10.50 1/15/2020 4,125
----------
SPECIALIZED CONSUMER SERVICES (0.2%)
4,876 Weight Watchers International, Inc.(b) 4.19 4/02/2020 4,356
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.9%)
$ 3,000 Argos Merger Sub, Inc.(a) 7.13% 3/15/2023 $ 2,955
7,000 Guitar Center, Inc.(a) 6.50 4/15/2019 6,317
2,000 Guitar Center, Inc.(a) 9.63 4/15/2020 1,460
9,476 Toys R Us Property Co. I, LLC(b) 6.00 8/21/2019 9,255
----------
19,987
----------
Total Consumer Discretionary 231,018
----------
CONSUMER STAPLES (0.8%)
-----------------------
DRUG RETAIL (0.1%)
2,000 Rite Aid Corp.(a) 6.13 4/01/2023 2,090
----------
FOOD RETAIL (0.5%)
3,000 Albertsons Cos., LLC & Safeway, Inc. & New
Albertson's, Inc. & Albertson's, LLC(a) 6.63 6/15/2024 3,134
10,000 BI-LO, LLC & BI-LO Finance Corp.(a) 9.25 2/15/2019 8,298
----------
11,432
----------
PACKAGED FOODS & MEAT (0.2%)
3,000 Post Holdings, Inc.(a) 8.00 7/15/2025 3,390
----------
Total Consumer Staples 16,912
----------
ENERGY (12.2%)
--------------
COAL & CONSUMABLE FUELS (0.1%)
5,000 Peabody Energy Corp.(d) 6.00 11/15/2018 2,075
----------
OIL & GAS DRILLING (0.8%)
3,000 Nabors Industries, Inc.(a) 5.50 1/15/2023 3,150
10,000 Noble Holding International Ltd. 7.20 4/01/2025 9,950
1,000 Paragon Offshore plc(a),(d) 7.25 8/15/2024 175
5,212 Schahin II Finance Co. SPV Ltd.(a),(d) 5.88 9/25/2023 652
3,000 Transocean, Inc.(e) 8.13 12/15/2021 3,120
----------
17,047
----------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
3,000 Archrock Partners, LP & Archrock Partners Finance Corp. 6.00 4/01/2021 2,985
2,000 Brand Energy & Infrastructure Service, Inc.(a) 8.50 12/01/2021 2,085
1,500 CSI Compressco, LP & CSI Compressco Finance, Inc. 7.25 8/15/2022 1,447
5,880 Weatherford Bermuda 5.13 9/15/2020 5,645
----------
12,162
----------
OIL & GAS EXPLORATION & PRODUCTION (3.6%)
1,500 Approach Resources, Inc. 7.00 6/15/2021 1,388
6,000 Bill Barrett Corp. 7.00 10/15/2022 5,985
3,000 BreitBurn Energy Partners, LP(d) 7.88 4/15/2022 2,224
6,162 California Resources Corp.(a) 8.00 12/15/2022 5,500
================================================================================
20 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,297 California Resources Corp. 6.00% 11/15/2024 $ 1,728
1,887 Chesapeake Energy Corp.(a) 8.00 12/15/2022 2,021
3,000 Chesapeake Energy Corp.(b) 8.50 8/23/2021 3,291
2,000 Comstock Resources, Inc.(f) 10.00 3/15/2020 2,113
5,000 Denbury Resources, Inc. 4.63 7/15/2023 4,019
4,000 Devon Energy Corp. 5.85 12/15/2025 4,597
3,000 EP Energy, LLC & Everest Acquisition Finance, Inc. 7.75 9/01/2022 2,715
3,000 EV Energy Partners, LP & EV Energy Finance Corp.(g) 8.00 4/15/2019 2,370
3,000 Fieldwood Energy, LLC(b) 8.38 9/30/2020 2,381
1,950 Halcon Resources Corp.(a),(d) 12.00 2/15/2022 2,213
2,000 Murphy Oil Corp. 6.88 8/15/2024 2,150
5,000 Newfield Exploration Co. 5.38 1/01/2026 5,200
1,000 Northern Oil and Gas, Inc. 8.00 6/01/2020 885
500 Northern Oil and Gas, Inc. 8.00 6/01/2020 430
2,000 PDC Energy, Inc. 7.75 10/15/2022 2,133
4,200 Quicksilver Resources, Inc.(b),(d) 7.00 6/21/2019 110
3,000 Resolute Energy Corp. 8.50 5/01/2020 3,075
4,408 Rex Energy Corp., 8.00%, 10/01/2017 1.00(h) 10/01/2020 2,512
1,000 RSP Permian, Inc.(a) 5.25 1/15/2025 1,025
7,000 Sandridge Energy, Inc.(i) 7.50 2/15/2023 --
3,000 Southwestern Energy Co. 4.10 3/15/2022 2,798
7,000 Southwestern Energy Co. 6.70 1/23/2025 7,052
2,000 Swift Energy Co.(d),(i) 7.88 3/01/2022 --
1,000 Triangle USA Petroleum Corp.(a),(d) 6.75 7/15/2022 290
3,000 Ultra Petroleum Corp.(a),(d) 6.13 10/01/2024 2,828
3,000 Wildhorse Resource Development Corp.(a) 6.88 2/01/2025 2,996
2,500 WPX Energy, Inc. 8.25 8/01/2023 2,856
----------
78,885
----------
OIL & GAS REFINING & MARKETING (0.9%)
5,000 Cheniere Corpus Christi Holdings, LLC(a) 5.88 3/31/2025 5,306
4,000 CITGO Petroleum Corp.(a) 6.25 8/15/2022 4,160
5,000 Northern Tier Energy, LLC & Northern Tier Finance Corp. 7.13 11/15/2020 5,219
5,000 PBF Holding Co., LLC/ PBF Finance Corp. 7.00 11/15/2023 5,112
----------
19,797
----------
OIL & GAS STORAGE & TRANSPORTATION (6.3%)
5,000 Blue Racer Midstream, LLC & Blue Racer Finance Corp.(a) 6.13 11/15/2022 5,150
10,000 Boardwalk Pipelines, LP 4.95 12/15/2024 10,455
2,000 Cheniere Corpus Christi Holdings, LLC(a) 7.00 6/30/2024 2,243
1,500 Crestwood Midstream Partners, LP 6.00 12/15/2020 1,553
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 15,000 DCP Midstream, LLC(a) 5.85% 5/21/2043 $ 13,537
2,500 Energy Transfer Equity, LP 7.50 10/15/2020 2,819
5,000 Energy Transfer Partners, LP 3.90(j) 11/01/2066 4,281
12,915 Enterprise Products Operating, LLC 7.00(j) 6/01/2067 11,753
9,000 Enterprise Products Operating, LLC 7.03 1/15/2068 9,404
3,000 Enterprise TE Partners 7.00(j) 6/01/2067 2,730
3,000 Holly Energy Partners, LP(a) 6.00 8/01/2024 3,157
5,061 Kinder Morgan, Inc. 7.80 8/01/2031 6,352
5,000 Martin Midstream Partners,
LP & Martin Midstream Finance Corp. 7.25 2/15/2021 5,075
5,000 NGL Energy Partners, LP & NGL Energy Finance Corp.(a) 7.50 11/01/2023 5,287
12,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 12,420
3,000 NGPL PipeCo, LLC(a) 9.63 6/01/2019 3,146
5,000 Sabine Pass Liquefaction, LLC(a) 5.88 6/30/2026 5,562
5,000 Southern Union Co. 3.90(j) 11/01/2066 4,244
2,000 Sunoco LP & Sunoco Finance Corp. 5.50 8/01/2020 2,048
2,000 Sunoco LP & Sunoco Finance Corp. 6.38 4/01/2023 2,063
3,000 Targa Resources Partners, LP 5.25 5/01/2023 3,090
6,000 Tesoro Logistics, LP & Tesoro Logistics Finance Corp. 6.13 10/15/2021 6,292
3,000 Transcontinental Gas Pipe Line Company, LLC 7.85 2/01/2026 3,851
10,000 Williams Companies, Inc. 4.55 6/24/2024 10,175
----------
136,687
----------
Total Energy 266,653
----------
FINANCIALS (8.2%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,296
----------
CONSUMER FINANCE (1.4%)
5,000 Ally Financial, Inc. 5.75 11/20/2025 5,094
5,000 Credit Acceptance Corp. 6.13 2/15/2021 5,100
4,000 Navient Corp. 6.63 7/26/2021 4,080
15,000 Navient Corp. 7.25 1/25/2022 15,487
1,000 Navient Corp. 6.13 3/25/2024 951
----------
30,712
----------
INVESTMENT BANKING & BROKERAGE (0.2%)
1,000 Lehman Brothers Holdings, Inc.(d) 5.75 4/25/2011 61
1,500 Lehman Brothers Treasury Co. B.V.(d) 6.88 12/29/2010 135
3,980 Russell Investments(b) 6.75 6/01/2023 4,045
----------
4,241
----------
================================================================================
22 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (1.5%)
$ 3,000 American Equity Investment Life Holding Co. 6.63% 7/15/2021 $ 3,157
3,000 Forethought Financial Group(a) 8.63 4/15/2021 3,339
5,000 Lincoln National Corp. 3.26(j) 5/17/2066 4,288
2,000 MetLife, Inc. 10.75 8/01/2069 3,100
10,000 Prudential Financial, Inc. 5.20 3/15/2044 10,100
10,000 StanCorp Financial Group, Inc. 6.90(j) 6/01/2067 8,325
----------
32,309
----------
MULTI-LINE INSURANCE (0.5%)
14,000 Genworth Holdings, Inc. 2.91(j) 11/15/2066 5,355
8,000 Glen Meadow Pass-Through Trust(a) 6.51(j) 2/12/2067 6,840
----------
12,195
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
3,000 Icahn Enterprises(a) 6.25 2/01/2022 3,030
----------
PROPERTY & CASUALTY INSURANCE (1.1%)
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,532
3,780 Hanover Insurance Group, Inc. 8.21 2/03/2027 4,411
5,400 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 6,260
2,000 Zenith National Insurance Capital Trust I(a) 8.55 8/01/2028 1,955
----------
23,158
----------
REGIONAL BANKS (1.3%)
5,000 Banc of California, Inc. 5.25 4/15/2025 4,909
5,000 Bank of the Ozarks, Inc. 5.50 7/01/2026 5,231
5,000 First Midwest Bancorp, Inc. 5.88 9/29/2026 5,186
10,409 Regions Bank 6.45 6/26/2037 11,753
1,790 Regions Financial Corp. 7.38 12/10/2037 2,217
----------
29,296
----------
REITs - MORTGAGE (0.1%)
2,000 Starwood Property Trust, Inc.(a) 5.00 12/15/2021 2,038
----------
SPECIALIZED FINANCE (0.5%)
10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 10,107
----------
THRIFTS & MORTGAGE FINANCE (1.0%)
4,000 Ocwen Loan Servicing, LLC(a) 8.38 11/15/2022 4,080
5,000 PHH Corp. 6.38 8/15/2021 5,075
8,031 Walter Investment Management Corp.(b) 4.75 12/18/2020 7,739
5,000 Walter Investment Management Corp. 7.88 12/15/2021 4,125
----------
21,019
----------
Total Financials 178,401
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE (6.1%)
------------------
HEALTH CARE EQUIPMENT (0.4%)
$ 4,000 Teleflex, Inc. 4.88% 6/01/2026 $ 3,990
5,000 Universal Hospital Services, Inc. 7.63 8/15/2020 4,987
----------
8,977
----------
HEALTH CARE FACILITIES (3.1%)
18,000 Community Health Systems, Inc. 6.88 2/01/2022 13,185
6,000 HCA, Inc. 5.25 4/15/2025 6,330
16,500 HCA, Inc. 5.88 2/15/2026 17,201
2,000 HealthSouth Corp. 5.75 9/15/2025 2,015
5,000 Kindred Healthcare, Inc. 6.38 4/15/2022 4,363
11,000 RegionalCare Hospital Partners Holdings, Inc.(a) 8.25 5/01/2023 11,412
14,000 Tenet Healthcare Corp. 6.75 6/15/2023 13,265
----------
67,771
----------
HEALTH CARE SERVICES (0.1%)
3,000 DaVita HealthCare Partners, Inc. 5.13 7/15/2024 2,968
----------
HEALTH CARE SUPPLIES (0.2%)
2,930 DJO Finance, LLC & DJO Finance Corp.(a) 8.13 6/15/2021 2,549
2,000 Halyard Health, Inc. 6.25 10/15/2022 2,075
----------
4,624
----------
HEALTH CARE TECHNOLOGY (0.1%)
2,050 Press Ganey Holdings, Inc.(b) 8.25 10/21/2024 2,094
----------
MANAGED HEALTH CARE (0.2%)
1,500 Centene Corp. 5.63 2/15/2021 1,578
1,500 Centene Corp. 6.13 2/15/2024 1,598
----------
3,176
----------
PHARMACEUTICALS (2.0%)
13,000 Endo Finance, LLC & Endo Ltd.(a) 6.00 7/15/2023 11,148
9,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 7,470
3,000 Valeant Pharmaceuticals Co.(a) 5.88 5/15/2023 2,299
31,000 Valeant Pharmaceuticals International, Inc.(a) 6.13 4/15/2025 23,327
----------
44,244
----------
Total Health Care 133,854
----------
INDUSTRIALS (6.5%)
------------------
AEROSPACE & DEFENSE (0.8%)
3,000 Arconic, Inc. 5.13 10/01/2024 3,127
3,000 Constellis Holdings, LLC & Constellis Finance Corp.(a) 9.75 5/15/2020 3,210
================================================================================
24 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 15,000 Textron Financial Corp.(a) 6.00%(j) 2/15/2067 $ 11,175
----------
17,512
----------
AIRLINES (2.3%)
5,000 American Airlines 4.95 8/15/2026 5,087
4,035 American Airlines, Inc. Pass-Through Trust 5.63 1/15/2021 4,219
5,000 Continental Airlines, Inc. Pass-Through Trust 6.13 4/29/2018 5,214
2,130 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 2,234
16,797 Hawaiian Airlines Pass-Through Trust 4.95 7/15/2023 16,650
4,521 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 4,595
5,000 US Airways Group, Inc. Pass-Through Trust 5.45 6/03/2018 5,119
1,997 US Airways Group, Inc. Pass-Through Trust(g) 9.75 4/22/2020 2,235
3,967 Virgin Australia Holdings Ltd. Pass-Through Trust(a) 7.13 10/23/2018 4,046
----------
49,399
----------
COMMERCIAL PRINTING (0.1%)
3,000 R.R. Donnelley & Sons Co. 6.00 4/01/2024 2,865
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
5,000 Navistar International Corp. 8.25 11/01/2021 5,075
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
5,079 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 4,800
----------
INDUSTRIAL CONGLOMERATES (0.3%)
5,921 General Electric Co. - -(k) 6,165
----------
INDUSTRIAL MACHINERY (0.5%)
1,000 Grinding Media, Inc./ MC Grinding Media Canada(a) 7.38 12/15/2023 1,059
9,000 Xerium Technologies, Inc.(a) 9.50 8/15/2021 9,090
----------
10,149
----------
MARINE (0.1%)
4,000 Navios Maritime Holdings, Inc. & Navios
Maritime Finance II U.S., Inc.(a) 7.38 1/15/2022 2,762
----------
SECURITY & ALARM SERVICES (0.2%)
3,000 Prime Security Services Borrower, LLC & Prime
Finance, Inc.(a) 9.25 5/15/2023 3,259
----------
TRADING COMPANIES & DISTRIBUTORS (1.4%)
3,000 Ahern Rentals, Inc.(a) 7.38 5/15/2023 2,820
3,000 Herc Rentals, Inc.(a) 7.75 6/01/2024 3,263
2,954 ILFC E-Capital Trust I(a) 4.67(j) 12/21/2065 2,601
16,362 ILFC E-Capital Trust II(a) 4.92(j) 12/21/2065 14,930
4,000 United Rentals North America, Inc. 5.50 5/15/2027 4,040
3,000 United Rentals North America, Inc. 5.50 7/15/2025 3,124
----------
30,778
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
TRUCKING (0.4%)
$ 3,000 Avis Budget Car Finance, Inc.(a) 5.13% 6/01/2022 $ 2,929
6,544 YRC Worldwide, Inc.(b) 8.00 2/13/2019 6,573
----------
9,502
----------
Total Industrials 142,266
----------
INFORMATION TECHNOLOGY (3.1%)
-----------------------------
APPLICATION SOFTWARE (0.6%)
4,000 Informatica, LLC(a) 7.13 7/15/2023 3,870
9,925 Solera, LLC(b) 5.75 3/03/2023 10,047
----------
13,917
----------
COMMUNICATIONS EQUIPMENT (0.3%)
4,500 Avaya, Inc.(a),(d) 7.00 4/01/2019 3,746
3,000 CommScope Technologies Finance, LLC(a) 6.00 6/15/2025 3,212
----------
6,958
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
5,000 First Data Corp.(a) 5.38 8/15/2023 5,162
6,000 First Data Corp.(a) 7.00 12/01/2023 6,378
1,000 Kronos, Inc.(b) 9.25 11/01/2024 1,037
----------
12,577
----------
SEMICONDUCTORS (0.3%)
1,000 Micron Technology, Inc.(a) 7.50 9/15/2023 1,113
4,500 Micron Technology, Inc.(a) 5.63 1/15/2026 4,529
----------
5,642
----------
SYSTEMS SOFTWARE (0.8%)
3,741 BMC Software Finance, Inc.(b) 5.00 9/10/2020 3,737
2,000 BMC Software Finance, Inc.(a) 8.13 7/15/2021 1,940
6,000 Sophia, LP & Sophia Finance, Inc.(a) 9.00 9/30/2023 6,390
1,985 Veritas Bermuda Ltd.(b) 6.63 1/27/2023 1,889
3,000 Veritas US, Inc. & Veritas Bermuda Ltd.(a) 10.50 2/01/2024 2,790
----------
16,746
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.5%)
5,000 Diamond 1 Finance Corp. & Diamond 2 Finance Corp.(a) 5.88 6/15/2021 5,276
5,000 Western Digital Corp. 10.50 4/01/2024 5,900
----------
11,176
----------
Total Information Technology 67,016
----------
MATERIALS (3.7%)
----------------
ALUMINUM (0.1%)
1,000 Alcoa Nederland Holding Co.(a) 6.75 9/30/2024 1,084
----------
================================================================================
26 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COMMODITY CHEMICALS (0.5%)
$ 500 Hexion 2(a),(c) 10.38% 2/01/2022 $ 513
5,000 Hexion U.S. Finance Corp. 8.88 2/01/2018 5,015
5,000 Hexion U.S. Finance Corp. 6.63 4/15/2020 4,687
----------
10,215
----------
DIVERSIFIED METALS & MINING (1.3%)
5,000 Compass Minerals International, Inc.(a) 4.88 7/15/2024 4,900
7,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 6,580
20,000 Freeport-McMoRan, Inc. 5.45 3/15/2043 17,300
----------
28,780
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
3,000 CVR Partners LP & CVR Nitrogen Finance Corp.(a) 9.25 6/15/2023 3,206
----------
METAL & GLASS CONTAINERS (0.1%)
3,000 BWAY Holding Co.(a) 9.13 8/15/2021 3,240
----------
PAPER PACKAGING (0.4%)
250 Flex Acquisition Co., Inc.(a) 6.88 1/15/2025 255
7,000 Sealed Air Corp.(a) 6.88 7/15/2033 7,385
----------
7,640
----------
SPECIALTY CHEMICALS (0.1%)
2,000 Kraton Polymers, LLC & Kraton Polymers Capital Corp. 10.50 4/15/2023 2,285
----------
STEEL (1.1%)
10,456 Allegheny Ludlum Corp. 6.95 12/15/2025 9,776
8,000 Cliffs Natural Resources, Inc.(a) 8.25 3/31/2020 8,700
2,042 Fortescue Metals Group Ltd.(b) 3.75 6/30/2019 2,058
3,000 Zekelman Industries, Inc.(a) 9.88 6/15/2023 3,398
----------
23,932
----------
Total Materials 80,382
----------
REAL ESTATE (0.7%)
------------------
REAL ESTATE DEVELOPMENT (0.2%)
4,000 Crescent Communities, LLC & Crescent Ventures, Inc.(a) 8.88 10/15/2021 4,170
----------
REITs - DIVERSIFIED (0.0%)
1,000 Communications Sales & Leasing, Inc.(a) 7.13 12/15/2024 1,020
----------
REITs - HEALTH CARE (0.3%)
3,000 Care Capital Properties, LP(a) 5.13 8/15/2026 2,906
4,000 Sabra Health Care, LP & Sabra Capital Corp. 5.50 2/01/2021 4,150
----------
7,056
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
REITs - SPECIALIZED (0.2%)
$ 1,000 Communications Sales & Leasing, Inc.(a) 6.00% 4/15/2023 $ 1,052
2,000 Communications Sales & Leasing, Inc. 8.25 10/15/2023 2,180
----------
3,232
----------
Total Real Estate 15,478
----------
TELECOMMUNICATION SERVICES (8.0%)
---------------------------------
ALTERNATIVE CARRIERS (0.7%)
5,000 Cogent Communications Finance, Inc.(a) 5.63 4/15/2021 5,113
5,000 Level 3 Financing, Inc. 6.13 1/15/2021 5,175
500 Zayo Group, LLC Zayo Capital, Inc.(a) 5.75 1/15/2027 513
5,000 Zayo Group, LLC & Zayo Capital, Inc. 6.38 5/15/2025 5,309
----------
16,110
----------
INTEGRATED TELECOMMUNICATION SERVICES (3.7%)
10,000 CenturyLink, Inc. 5.80 3/15/2022 10,322
5,000 CenturyLink, Inc. 6.75 12/01/2023 5,162
5,000 Cincinnati Bell, Inc.(a) 7.00 7/15/2024 5,294
5,000 Frontier Communications Corp. 10.50 9/15/2022 5,228
20,000 Frontier Communications Corp. 11.00 9/15/2025 20,300
9,000 Frontier Communications Corp. 9.00 8/15/2031 7,805
10,000 Verizon Communications, Inc. 4.50 9/15/2020 10,683
13,000 Windstream Corp. 7.50 6/01/2022 12,642
3,000 Windstream Corp. 6.38 8/01/2023 2,700
----------
80,136
----------
WIRELESS TELECOMMUNICATION SERVICES (3.6%)
12,000 Sprint Corp. 7.00 8/15/2020 12,870
20,000 Sprint Corp. 7.25 9/15/2021 21,480
20,000 Sprint Corp. 7.63 2/15/2025 21,488
10,000 T-Mobile USA, Inc. 6.50 1/15/2024 10,801
10,000 T-Mobile USA, Inc. 6.00 4/15/2024 10,650
----------
77,289
----------
Total Telecommunication Services 173,535
----------
UTILITIES (3.5%)
----------------
ELECTRIC UTILITIES (0.7%)
25 FPL Energy National Wind Portfolio, LLC(a) 6.13 3/25/2019 25
2,000 NextEra Energy Capital Holdings, Inc. 3.07(j) 10/01/2066 1,725
2,000 NextEra Energy Capital Holdings, Inc. 6.65(j) 6/15/2067 1,763
2,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 2,017
10,000 PPL Capital Funding, Inc. 6.70(j) 3/30/2067 9,250
----------
14,780
----------
================================================================================
28 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
GAS UTILITIES (0.2%)
$ 4,000 Southern Star Central Corp.(a) 5.13% 7/15/2022 $ 4,100
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (2.4%)
7,000 AES Corp. 7.38 7/01/2021 7,910
10,000 Calpine Corp. 5.75 1/15/2025 9,825
4,000 DPL, Inc. 6.75 10/01/2019 4,100
5,000 Dynegy, Inc. 7.38 11/01/2022 4,962
5,000 Dynegy, Inc. 5.88 6/01/2023 4,575
2,000 Dynegy, Inc. (a) 8.00 1/15/2025 1,930
15,000 Genon Energy, Inc. 9.88 10/15/2020 11,175
3,000 NRG Energy, Inc. (a) 7.25 5/15/2026 3,154
5,000 Talen Energy Supply, LLC 6.50 6/01/2025 4,063
----------
51,694
----------
MULTI-UTILITIES (0.2%)
6,000 Puget Sound Energy, Inc. 6.97 6/01/2067 5,295
----------
Total Utilities 75,869
----------
Total Corporate Obligations (cost: $1,349,479) 1,381,384
----------
CONVERTIBLE SECURITIES (0.2%)
ENERGY (0.2%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
3,000 Comstock Resources, Inc.(f) 7.75 4/01/2019 3,041
904 Sandridge Energy, Inc. 0.00(l) 10/04/2020 993
----------
4,034
----------
Total Energy 4,034
----------
MATERIALS (0.0%)
----------------
GOLD (0.0%)
541 Hycroft Mining Corp.(f),(i),(m) 15.00(s) 10/22/2020 790
----------
Total Convertible Securities (cost: $5,862) 4,824
----------
EURODOLLAR AND YANKEE OBLIGATIONS (16.0%)
CONSUMER DISCRETIONARY (1.0%)
-----------------------------
CABLE & SATELLITE (0.7%)
4,000 Altice Financing S.A. 7.50 5/15/2026 4,230
2,000 Altice Luxembourg S.A.(a) 7.75 5/15/2022 2,127
7,000 Altice Luxembourg S.A.(a) 7.63 2/15/2025 7,429
----------
13,786
----------
HOMEBUILDING (0.2%)
3,000 Brookfield Residential Properties, Inc.(a) 6.38 5/15/2025 3,045
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,750 Mattamy Group Corp.(a) 6.88% 12/15/2023 $ 1,811
----------
4,856
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
2,000 Silversea Cruise Finance(a) 7.25 2/01/2025 2,066
----------
Total Consumer Discretionary 20,708
----------
CONSUMER STAPLES (0.5%)
-----------------------
HOUSEHOLD PRODUCTS (0.2%)
3,500 Kronos Acquisition Holdings, Inc.(a) 9.00 8/15/2023 3,552
----------
PACKAGED FOODS & MEAT (0.3%)
1,000 JBS Investments GmbH(a) 7.25 4/03/2024 1,054
3,000 JBS USA, LLC & JBS USA Finance, Inc.(a) 5.88 7/15/2024 3,113
3,000 Minerva Luxembourg S.A. 7.75 1/31/2023 3,202
----------
7,369
----------
Total Consumer Staples 10,921
----------
ENERGY (1.4%)
-------------
INTEGRATED OIL & GAS (0.8%)
5,000 Petrobras Global Finance 8.38 5/23/2021 5,587
2,000 Petrobras Global Finance Co. 6.13 1/17/2022 2,068
10,000 Petroleos Mexicanos Co.(a) 6.50 3/13/2027 10,297
----------
17,952
----------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
13,000 TransCanada Trust 5.63 5/20/2075 13,358
----------
Total Energy 31,310
----------
FINANCIALS (1.3%)
-----------------
DIVERSIFIED BANKS (0.4%)
5,000 Royal Bank of Scotland Group plc 7.64 -(k) 4,675
5,000 Royal Bank of Scotland Group plc 9.50(j) 3/16/2022 5,054
----------
9,729
----------
FINANCIAL EXCHANGES & DATA (0.0%)
200 Camelot Finance S.A.(a) 7.88 10/15/2024 212
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
2,000 ING Capital Funding Trust III 4.60(j) -(k) 1,988
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
10,000 QBE Capital Funding III Ltd.(a) 6.50(j) -(k) 11,037
4,000 XLIT Ltd. -(j),(k) 10/29/2049 3,380
----------
14,417
----------
================================================================================
30 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
SPECIALIZED FINANCE (0.1%)
$ 2,000 Park Aerospace Holdings Co.(a),(c) 5.50% 2/15/2024 $ 2,057
----------
Total Financials 28,403
----------
INDUSTRIALS (1.9%)
------------------
AEROSPACE & DEFENSE (0.6%)
12,000 Bombardier, Inc.(a) 7.50 3/15/2025 12,090
----------
AIRLINES (1.2%)
2,500 Air Canada Pass-Through Trust(a) 6.63 5/15/2018 2,597
5,000 Air Canada Pass-Through Trust(a) 5.00 3/15/2020 4,981
9,234 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 9,431
4,632 Latam Air Pass-Through Trust 4.50 8/15/2025 4,532
5,000 Norwegian Air Pass-Through Trust(a) 7.50 5/10/2025 5,022
----------
26,563
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
3,000 Ashtead Capital, Inc.(a) 6.50 7/15/2022 3,153
----------
Total Industrials 41,806
----------
MATERIALS (7.6%)
----------------
COMMODITY CHEMICALS (0.5%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 10,753
----------
CONSTRUCTION MATERIALS (0.5%)
1,000 CEMEX Finance, LLC(a) 9.38 10/12/2022 1,091
9,500 CEMEX SAB de C.V.(a) 7.75 4/16/2026 10,581
----------
11,672
----------
DIVERSIFIED METALS & MINING (2.4%)
5,000 First Quantum Minerals Ltd.(a) 7.25 5/15/2022 5,125
10,000 Glencore Funding, LLC(a) 4.13 5/30/2023 10,265
1,000 Imperial Metals Corp.(a) 7.00 3/15/2019 955
13,000 Teck Resources Ltd. 4.75 1/15/2022 13,390
13,000 Teck Resources Ltd. 6.13 10/01/2035 13,357
5,000 Vedanta Resources plc(a) 8.25 6/07/2021 5,458
3,000 Vedanta Resources plc(a) 6.38 7/30/2022 3,012
----------
51,562
----------
GOLD (2.1%)
10,750 Alamos Gold, Inc.(a) 7.75 4/01/2020 11,234
10,000 Eldorado Gold Corp.(a) 6.13 12/15/2020 10,275
10,000 Kinross Gold Corp. 5.95 3/15/2024 10,542
10,000 New Gold, Inc.(a) 6.25 11/15/2022 10,075
3,552 St. Barbara Ltd.(a) 8.88 4/15/2018 3,661
----------
45,787
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
METAL & GLASS CONTAINERS (0.6%)
$ 2,000 Ardagh Packaging Finance plc & Ardagh MP
Holdings USA, Inc.(a) 6.25% 1/31/2019 $ 2,044
500 Ardagh Packaging Finance plc & Ardagh MP
Holdings USA, Inc.(a) 6.00 6/30/2021 517
5,500 Ardagh Packaging Finance plc & Ardagh MP
Holdings USA, Inc.(a) 7.25 5/15/2024 5,912
2,000 Ardagh Packaging Finance plc & Ardagh MP
Holdings USA, Inc.(a) 6.00 2/15/2025 2,018
3,250 Reynolds Group Issuer, Inc. & Reynolds Group
Issuer, LLC & Reynolds Group Issuer Lu(a) 7.00 7/15/2024 3,469
----------
13,960
----------
PAPER PACKAGING (0.3%)
6,200 Smurfit Kappa Treasury Funding Ltd. 7.50 11/20/2025 7,270
----------
PRECIOUS METALS & MINERALS (0.3%)
5,000 Fresnillo plc (a) 5.50 11/13/2023 5,319
----------
STEEL (0.9%)
18,000 ArcelorMittal 8.00 10/15/2039 20,115
----------
Total Materials 166,438
----------
TELECOMMUNICATION SERVICES (1.0%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
3,000 Intelsat Jackson Holdings S.A. 7.25 10/15/2020 2,370
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
10,000 Numericable Group S.A.(a) 7.38 5/01/2026 10,300
----------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
2,000 Altice Finco S.A.(a) 7.63 2/15/2025 2,075
5,000 Digicel Ltd.(a) 6.00 4/15/2021 4,687
3,000 Digicel Ltd.(a) 6.75 3/01/2023 2,803
----------
9,565
----------
Total Telecommunication Services 22,235
----------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (0.9%)
10,000 Electricite De France S.A.(a) 5.25 -(k) 9,556
8,975 Enel S.p.A.(a) 8.75 9/24/2073 10,254
----------
19,810
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.4%)
7,000 AES Gener S.A.(a) 8.38 12/18/2073 7,475
----------
Total Utilities 27,285
----------
Total Eurodollar and Yankee Obligations (cost: $316,442) 349,106
----------
================================================================================
32 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
FINANCIALS (0.2%)
-----------------
$ 5,964 Countrywide Home Loans 1.73%(j) 2/25/2035 $ 1,876
1,931 Wells Fargo Mortgage-Backed Securities Trust 3.00(j) 4/25/2035 1,830
----------
Total Financials 3,706
----------
Total Collateralized Mortgage Obligations (cost: $3,760) 3,706
----------
COMMERCIAL MORTGAGE SECURITIES (2.3%)
FINANCIALS (2.3%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (2.3%)
156 Banc of America Commercial Mortgage, Inc.(a) 4.66 12/10/2042 147
5,000 Banc of America Commercial Mortgage, Inc. 6.28 2/10/2051 5,002
8,610 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 8,398
5,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.57 1/12/2045 4,768
2,997 Citigroup Commercial Mortgage Trust 6.00 12/10/2049 2,069
13,027 Credit Suisse Commercial Mortgage Pass-
Through Trust 0.96 2/15/2040 12,288
5,000 FHLMC Multifamily Structured Pass-
Through Certificates 3.15 11/25/2025 5,132
4,000 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 3,898
310 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 316
3,481 Merrill Lynch Mortgage Trust 5.05 8/12/2039 3,453
4,000 Morgan Stanley Capital I Trust 5.46 3/12/2044 3,638
----------
49,109
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
396 Credit Suisse First Boston Corp.(m) 1.86 5/17/2040 6
----------
Total Financials 49,115
----------
Total Commercial Mortgage Securities (cost: $50,802) 49,115
----------
U.S. TREASURY SECURITIES (0.0%)
NOTES (0.0%)
550 2.00%, 2/15/2025(n) (cost: $542) 535
----------
MUNICIPAL BONDS (0.3%)
CASINOS & GAMING (0.0%)
5,245 Mashantucket (Western) Pequot Tribe (f) 7.35 7/01/2026 839
----------
EDUCATION (0.1%)
2,500 New Jersey EDA 5.71 6/15/2030 2,522
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
GENERAL OBLIGATION (0.2%)
$ 1,500 Atlantic City 7.00% 3/01/2028 $ 1,564
2,000 Chicago(c) 7.05 1/01/2029 2,041
----------
3,605
----------
Total Municipal Bonds (cost: $9,159) 6,966
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (5.2%)
498,550 iShares iBoxx $ High Yield Corporate Bond ETF 43,543
1,888,700 SPDR Bloomberg Barclays High Yield Bond ETF 69,712
----------
Total Exchange-Traded Funds (cost: $111,555) 113,255
----------
Total Bonds (cost: $1,847,601) 1,908,891
----------
EQUITY SECURITIES (8.6%)
COMMON STOCKS (3.2%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
10,001 Lear Corp. 1,421
----------
CABLE & SATELLITE (0.1%)
38,950 Comcast Corp. "A" 2,937
----------
CASINOS & GAMING (0.0%)
13,500 Las Vegas Sands Corp. 710
----------
GENERAL MERCHANDISE STORES (0.0%)
15,215 Target Corp. 981
----------
HOME FURNISHINGS (0.1%)
27,070 Tempur Sealy International, Inc.* 1,164
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
25,400 Hyatt Hotels Corp. "A"* 1,390
----------
Total Consumer Discretionary 8,603
----------
CONSUMER STAPLES (0.1%)
-----------------------
DRUG RETAIL (0.1%)
18,400 CVS Health Corp. 1,450
----------
HOUSEHOLD PRODUCTS (0.0%)
11,242 Kimberly-Clark Corp. 1,362
----------
Total Consumer Staples 2,812
----------
================================================================================
34 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENERGY (0.4%)
-------------
INTEGRATED OIL & GAS (0.1%)
8,522 Chevron Corp. $ 949
32,263 Royal Dutch Shell plc ADR "A" 1,755
----------
2,704
----------
OIL & GAS EQUIPMENT & SERVICES (0.2%)
98,146 Basic Energy Services, Inc.* 4,011
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
2,772 Sabine Oil + Gas Holdings, Inc.*(m) 107
54,226 Sandridge Energy, Inc.* 1,112
4,816 Swift Energy Co.* 149
22,883 Thunderbird Resources Equity, Inc.*(i),(m) 25
----------
1,393
----------
Total Energy 8,108
----------
FINANCIALS (0.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
202,000 Prospect Capital Corp. 1,701
----------
CONSUMER FINANCE (0.0%)
13,639 Synchrony Financial 489
----------
DIVERSIFIED BANKS (0.1%)
18,507 JPMorgan Chase & Co. 1,566
----------
LIFE & HEALTH INSURANCE (0.1%)
21,952 MetLife, Inc. 1,194
----------
REGIONAL BANKS (0.2%)
27,800 BB&T Corp. 1,284
111,918 KeyCorp 2,011
109,207 Regions Financial Corp. 1,574
----------
4,869
----------
REITs - MORTGAGE (0.2%)
73,721 Annaly Capital Management, Inc. 753
129,100 MFA Financial, Inc. 1,019
180,900 Two Harbors Investment Corp. 1,586
----------
3,358
----------
SPECIALIZED FINANCE (0.1%)
24,700 CME Group, Inc. 2,991
----------
Total Financials 16,168
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.3%)
------------------
BIOTECHNOLOGY (0.1%)
22,300 AbbVie, Inc. $ 1,363
----------
HEALTH CARE EQUIPMENT (0.0%)
3,407 Diagnostic Services Holdings, Inc.*(i),(m) 129
----------
PHARMACEUTICALS (0.2%)
16,562 Johnson & Johnson 1,876
30,900 Merck & Co., Inc. 1,915
14,607 Novartis AG ADR 1,080
----------
4,871
----------
Total Health Care 6,363
----------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.1%)
23,000 United Continental Holdings, Inc.* 1,621
----------
COMMERCIAL PRINTING (0.0%)
235 Quad Graphics, Inc. 6
----------
INDUSTRIAL CONGLOMERATES (0.0%)
35,316 General Electric Co. 1,049
----------
Total Industrials 2,676
----------
INFORMATION TECHNOLOGY (0.3%)
-----------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
13,899 Automatic Data Processing, Inc. 1,404
----------
SEMICONDUCTORS (0.1%)
42,500 Intel Corp. 1,565
18,500 QUALCOMM, Inc. 988
----------
2,553
----------
SYSTEMS SOFTWARE (0.1%)
33,200 Microsoft Corp. 2,146
----------
Total Information Technology 6,103
----------
MATERIALS (0.5%)
----------------
COMMODITY CHEMICALS (0.1%)
19,215 LyondellBasell Industries N.V. "A" 1,792
----------
CONSTRUCTION MATERIALS (0.0%)
596 CB Paracelsus Healthcare*(i) -
----------
GOLD (0.2%)
245,000 Alamos Gold, Inc. "A" 1,837
107,726 AuRico Metals, Inc.* 95
================================================================================
36 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
56,750 Goldcorp, Inc. $ 918
33,650 Newmont Mining Corp. 1,221
----------
4,071
----------
PAPER PRODUCTS (0.1%)
54,650 Clearwater Paper Corp.* 3,438
534 Resolute Forest Products* 3
----------
3,441
----------
SPECIALTY CHEMICALS (0.1%)
172,882 MPM Holdings, Inc.* 1,703
----------
Total Materials 11,007
----------
REAL ESTATE (0.1%)
------------------
REITs - SPECIALIZED (0.1%)
17,000 Crown Castle International Corp. 1,493
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
50,503 AT&T, Inc. 2,130
63,000 CenturyLink, Inc.(g) 1,629
28,650 Verizon Communications, Inc.(e) 1,404
----------
5,163
----------
Total Telecommunication Services 5,163
----------
Total Common Stocks (cost: $68,543) 68,496
----------
PREFERRED STOCKS (5.4%)
CONSUMER STAPLES (1.8%)
-----------------------
AGRICULTURAL PRODUCTS (1.8%)
400,000 CHS, Inc., 7.10%, cumulative redeemable, perpetual 10,973
200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 5,716
200,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(a) 21,031
----------
37,720
----------
Total Consumer Staples 37,720
----------
ENERGY (1.7%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
3,800 Chesapeake Energy Corp., 5.75%, perpetual(a) 2,441
----------
OIL & GAS STORAGE & TRANSPORTATION (1.6%)
1,327,328 NuStar Logistics, LP, 7.63% 34,501
----------
Total Energy 36,942
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (0.9%)
-----------------
DIVERSIFIED BANKS (0.4%)
36,000 ING Groep N.V., 7.20%, perpetual $ 931
8,000 US Bancorp, 3.50%, perpetual(e) 7,160
----------
8,091
----------
LIFE & HEALTH INSURANCE (0.3%)
274,059 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(g) 6,149
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 3,000 Catlin Insurance Co. Ltd., 4.00%, perpetual(a) 2,685
----------
REGIONAL BANKS (0.1%)
1,515 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 1,561
----------
REINSURANCE (0.0%)
3,000 American Overseas Group Ltd., 4.52%, non-cumulative*(i),(m) 600
----------
THRIFTS & MORTGAGE FINANCE (0.0%)
20,000 Freddie Mac, 6.02%, perpetual*(o) 141
80,000 Freddie Mac, 8.38%, perpetual*(o) 713
----------
854
----------
Total Financials 19,940
----------
REAL ESTATE (0.8%)
------------------
REITs - INDUSTRIAL (0.5%)
185,741 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual(e) 11,661
----------
REITs - RESIDENTIAL (0.3%)
100,000 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual(e) 6,319
----------
Total Real Estate 17,980
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
200,000 Qwest Corp., 6.50% 4,935
----------
Total Preferred Stocks (cost: $116,032) 117,517
----------
WARRANTS (0.0%)
ENERGY (0.0%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.0%)
5,500 Comstock Resources, Inc.* 70
1,565 Sabine Oil & Gas Holdings, Inc.*(m) 9
8,791 Sabine Oil & Gas, LLC*(m) 62
13,764 Sandridge Energy, Inc.* 27
================================================================================
38 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
5,795 Sandridge Energy, Inc.* $ 18
----------
186
----------
Total Energy 186
----------
Total Warrants (cost: $0) 186
----------
Total Equity Securities (cost: $184,575) 186,199
----------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.3%)
COMMERCIAL PAPER (3.3%)
ENERGY (0.8%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
$ 10,800 Canadian Natural Resources, Ltd. (a),(p) 1.14% 2/06/2017 10,798
----------
OIL & GAS REFINING & MARKETING (0.3%)
6,538 Motiva Enterprises, LLC 1.10 2/01/2017 6,538
----------
Total Energy 17,336
----------
INDUSTRIALS (0.6%)
------------------
INDUSTRIAL MACHINERY (0.6%)
2,624 Pentair Finance S.A. (a),(p) 1.15 2/03/2017 2,624
5,700 Pentair Finance S.A. (a),(p) 1.50 2/06/2017 5,699
5,000 Pentair Finance S.A. (a),(p) 1.45 2/07/2017 4,999
----------
13,322
----------
Total Industrials 13,322
----------
TELECOMMUNICATION SERVICES (0.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.7%)
14,399 Bell Canada (a),(p) 1.02 2/10/2017 14,395
----------
UTILITIES (1.2%)
----------------
ELECTRIC UTILITIES (0.7%)
14,925 Eversource Energy (a),(p) 0.84 2/02/2017 14,925
----------
MULTI-UTILITIES (0.5%)
11,155 Centerpoint Energy (a),(p) 0.87 2/01/2017 11,155
----------
Total Utilities 26,080
----------
Total Commercial Paper 71,133
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
40,612 State Street Institutional Treasury Money Market Fund
Premier Class, 0.42%(q) $ 40
----------
Total Money Market Instruments (cost: $71,173) 71,173
----------
TOTAL INVESTMENTS (COST: $2,103,349) $2,166,263
==========
-----------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION CONTRACT (DEPRECIATION)
CONTRACTS DATE VALUE (000) (000)
-----------------------------------------------------------------------------------------------------------------------
FUTURES(r)
SHORT FUTURES
EQUITY CONTRACTS
(400) Russell 2000 Mini 3/17/2017 $(27,190) $ 543
--------- -----------
TOTAL FUTURES $(27,190) $ 543
========= ===========
================================================================================
40 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $1,379,429 $1,955 $1,381,384
Convertible Securities - 4,034 790 4,824
Eurodollar and Yankee Obligations - 349,106 - 349,106
Collateralized Mortgage Obligations - 3,706 - 3,706
Commercial Mortgage Securities - 49,115 - 49,115
U.S. Treasury Securities 535 - - 535
Municipal Bonds - 6,966 - 6,966
Exchange-Traded Funds 113,255 - - 113,255
Equity Securities:
Common Stocks 68,235 107 154 68,496
Preferred Stocks - 116,917 600 117,517
Warrants 115 71 - 186
Money Market Instruments:
Commercial Paper - 71,133 - 71,133
Government & U.S. Treasury
Money Market Funds 40 - - 40
Futures(1) 543 - - 543
-----------------------------------------------------------------------------------------------------------------------
Total $182,723 $1,980,584 $3,499 $2,166,806
-----------------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation (depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic classifications. Reconciliation of Investments in which significant
unobservable Inputs (Level 3) were used in determining value:
--------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------------------------------------------
EURODOLLAR
CORPORATE CONVERTIBLE AND YANKEE COMMON PREFERRED
($ IN 000s) OBLIGATIONS SECURITIES OBLIGATIONS STOCKS STOCKS
--------------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2016 $1,950 $ - $ 4,931 $ 861 $ 750
Purchases - 38 - - -
Sales - - - (254) -
Transfers into Level 3 - 804 - - -
Transfers out of Level 3 - - (4,931) - -
Net realized gain (loss) on investments 1 2 - (1,382) -
Change in net unrealized appreciation/
(depreciation) of investments 4 (54) - 929 (150)
--------------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2017 $1,955 $ 790 $ - $ 154 $ 600
--------------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS TRANSFERS TRANSFERS
INTO (OUT OF) INTO (OUT OF) INTO (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------------------------------------------
Convertible Securities(I) $- $ (804) $ 804
Eurodollar and Yankee Obligations(II) $- $4,931 $(4,931)
--------------------------------------------------------------------------------------------------------------------
Total $- $4,127 $(4,127)
--------------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 2 to Level 3 due to single broker quote.
(II) Transferred from Level 3 to Level 2 as result of the securities no longer
single broker quoted.
--------------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
--------------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
JANUARY 31, 2017 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(s) INPUT(s) RANGE
--------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $154 Market Revenue .2x - 0.4x
Comparables Multiple(a)
EBITDA 0.9x - 3.7x
Multiple(a)
Discount for lack
of marketability(b) 25%
Last Transaction Transaction
Price Price(a) $1.10
BONDS:
Convertible Securities $790 Market Average $52.00
Comparables Value Per
Recoverable
Ounce(a)
Comparable
Discount
Adjustment(b) 50%
--------------------------------------------------------------------------------------------------------------------
(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.
**Quantitative Information table includes certain Level 3 securities using
valuation models.
Increases in the earnings before interest, taxes, depreciation, and amortization
(EBITDA), revenue multiples, transaction prices, 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.
================================================================================
42 | USAA HIGH INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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, 2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments that are issued by foreign
issuers in the U.S. capital markets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 43
================================================================================
or fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
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.
WARRANTS - entitle the holder to buy a proportionate amount of common stock
at a specified price for a stated period.
================================================================================
44 | 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.
EDA Economic Development Authority
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 loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at January 31, 2017. 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, 2017, the aggregate market value of securities
purchased on a delayed-delivery basis was $9,711,000, of which all were
when-issued securities.
(d) At January 31, 2017, the issuer was in default with respect to interest
and/or principal payments.
(e) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at January 31, 2017.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
(f) Pay-in-kind (PIK) - security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments in
additional securities in lieu of cash.
(g) At January 31, 2017, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(h) Stepped-coupon security that increases its coupon at the specified
date and rate shown in the security's description.
(i) Security was fair valued at January 31, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The
total value of all such securities was $1,544,000, which represented
0.1% of the Fund's net assets.
(j) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2017.
(k) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(l) Coupon is contingent upon conversion to common stock.
(m) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at January 31, 2017, was $1,728,000, which represented 0.1% of the
Fund's net assets.
(n) Securities and cash with a value of $632,000 are segregated as
collateral for initial margin requirements on open futures contracts.
(o) Securities issued by government-sponsored enterprises are supported
only by the right of the government-sponsored enterprise to borrow from
the U.S. Treasury, the discretionary authority of the U.S. government
to purchase the government-sponsored enterprises' obligations, or by
the credit of the issuing agency, instrumentality, or corporation, and
are neither issued nor guaranteed by the U.S. Treasury.
================================================================================
46 | USAA HIGH INCOME FUND
================================================================================
(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(a)(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(a)(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, 2017.
(r) The contract value of futures purchased and/or sold as a percentage
of net assets is 1.2%.
(s) All of the coupon is payable-in-kind (PIK).
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 47
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,103,349) $2,166,263
Cash 123
Receivables:
Capital shares sold 1,716
USAA Asset Management Company (Note 6C) 7
Dividends and interest 29,323
Securities sold 6,891
Variation margin on futures contracts 544
----------
Total assets 2,204,867
----------
LIABILITIES
Payables:
Securities purchased 22,998
Capital shares redeemed 2,662
Accrued management fees 931
Accrued transfer agent's fees 65
Other accrued expenses and payables 149
----------
Total liabilities 26,805
----------
Net assets applicable to capital shares outstanding $2,178,062
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,192,151
Accumulated undistributed net investment income 1,802
Accumulated net realized loss on investments and futures transactions (79,348)
Net unrealized appreciation of investments and futures contracts 63,457
----------
Net assets applicable to capital shares outstanding $2,178,062
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,167,066/142,831 capital shares
outstanding, no par value) $ 8.17
==========
Institutional Shares (net assets of $996,392/122,057
capital shares outstanding, no par value) $ 8.16
==========
Adviser Shares (net assets of $9,486/1,159 capital shares
outstanding, no par value) $ 8.19
==========
R6 Shares (net assets of $5,118/627 capital shares
outstanding, no par value) $ 8.17
==========
See accompanying notes to financial statements.
================================================================================
48 | USAA HIGH INCOME FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $10) $ 7,957
Interest (net of foreign taxes withheld of $2) 65,475
---------
Total income 73,432
---------
EXPENSES
Management fees 5,463
Administration and servicing fees:
Fund Shares 857
Institutional Shares 510
Adviser Shares 7
Transfer agent's fees:
Fund Shares 907
Institutional Shares 510
Adviser Shares 3
Distribution and service fees (Note 6E):
Adviser Shares 12
Custody and accounting fees:
Fund Shares 97
Institutional Shares 85
Adviser Shares 1
Postage:
Fund Shares 33
Institutional Shares 60
Shareholder reporting fees:
Fund Shares 21
Institutional Shares 8
Trustees' fees 15
Registration fees:
Fund Shares 15
Institutional Shares 18
Adviser Shares 10
R6 Shares* 4
Professional fees 117
Other 24
---------
Total expenses 8,777
Expenses reimbursed:
Adviser Shares (4)
R6 Shares* (3)
---------
Net expenses 8,770
---------
NET INVESTMENT INCOME 64,662
---------
================================================================================
FINANCIAL STATEMENTS | 49
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions $ 2,293
Affiliated transactions (Note 8) 2,695
Futures transactions (4,665)
Change in net unrealized appreciation/(depreciation) of:
Investments 69,337
Futures contracts 1,700
--------
Net realized and unrealized gain 71,360
--------
Increase in net assets resulting from operations $136,022
========
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
50 | USAA HIGH INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
---------------------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
---------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 64,662 $ 125,804
Net realized gain (loss) on investments 4,988 (67,356)
Net realized loss on futures transactions (4,665) (83)
Change in net unrealized appreciation/(depreciation) of:
Investments 69,337 (4,395)
Futures contracts 1,700 (1,431)
--------------------------
Increase in net assets resulting from operations 136,022 52,539
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (33,609) (68,996)
Institutional Shares (30,399) (56,275)
Adviser Shares (262) (546)
R6 Shares* (50) -
--------------------------
Distributions to shareholders (64,320) (125,817)
--------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 24,351 (159,989)
Institutional Shares (28,226) 195,713
Adviser Shares (9) (2,865)
R6 Shares* 5,000 -
--------------------------
Total net increase in net assets from
capital share transactions 1,116 32,859
--------------------------
Net increase (decrease) in net assets 72,818 (40,419)
NET ASSETS
Beginning of period 2,105,244 2,145,663
--------------------------
End of period $2,178,062 $2,105,244
==========================
Accumulated undistributed net investment income:
End of period $ 1,802 $ 1,460
==========================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 51
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 four classes of shares: High Income Fund Shares (Fund
Shares), High Income Fund Institutional Shares (Institutional Shares), High
Income Fund Adviser Shares (Adviser Shares), and effective December 1, 2016, a
new share class designated High Income Fund R6 Shares (R6 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' 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
================================================================================
52 | USAA HIGH INCOME FUND
================================================================================
administrators, and insurance companies. Institutional Shares also are available
to institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services. The R6 Shares are available for
investment by participants in employer-sponsored retirement plans where a
financial intermediary provides retirement recordkeeping services to plan
participants and to endowment funds and foundations.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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 yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general
market conditions. Generally, debt securities are categorized in
Level 2 of the fair value hierarchy; however, to the extent the
valuations include significant unobservable inputs, the securities
would be categorized in Level 3.
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. 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. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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.
================================================================================
54 | USAA HIGH INCOME FUND
================================================================================
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 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 which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are
categorized in Level 2 of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value
hierarchy.
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 settlement 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 settlement 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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.
================================================================================
56 | USAA HIGH INCOME FUND
================================================================================
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 discounted price derived from the use of inputs such as 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.
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.
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
transaction. The Fund's derivative agreements held at January 31, 2017, did
not include master netting provisions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
----------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
----------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $543** - $-
appreciation of
investments and
futures contracts
----------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2017, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended January 31, 2017.
** Includes cumulative appreciation/ (depreciation) of futures as reported
on the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
================================================================================
58 | USAA HIGH INCOME FUND
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JANUARY 31, 2017 (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) $(4,665) $1,700
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities 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. 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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, 2017, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $13,000,000; of which all were
when-issued securities. Also included in these amounts is $2,500,000, for
securities which were sold prior to January 31, 2017.
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, 2017, there were no custodian and other bank credits.
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, 2017 (and for the period from December 1, 2016, to January 31,
2017, for the R6 Shares), the Fund Shares charged redemption fees of
$17,000, while the Institutional Shares and Adviser Shares charged
redemption fees of less than $500. The R6 Shares did not charge any
redemption fees.
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.
================================================================================
60 | USAA HIGH INCOME FUND
================================================================================
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, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $8,000, which represents 2.9% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 income tax.
At July 31, 2016, the Fund had net capital loss carryforwards of $79,717,000,
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, 2017, 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 basis 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, 2017, were
$236,512,000 and $282,781,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $147,942,000 and $85,028,000, respectively, resulting in net
unrealized appreciation of $62,914,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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
================================================================================
62 | USAA HIGH INCOME 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, 2017 JULY 31, 2016
------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 14,094 $ 113,716 26,160 $ 198,415
Shares issued from reinvested dividends 3,844 30,974 8,472 63,818
Shares redeemed* (14,945) (120,339) (56,631) (422,222)
------------------------------------------------
Net increase (decrease) from capital share transactions 2,993 $ 24,351 (21,999) $(159,989)
================================================
INSTITUTIONAL SHARES:
Shares sold 7,707 $ 62,054 52,373 $ 386,026
Shares issued from reinvested dividends 3,641 29,316 7,254 54,483
Shares redeemed* (14,807) (119,596) (33,460) (244,796)
------------------------------------------------
Net increase (decrease) from capital share transactions (3,459) $ (28,226) 26,167 $ 195,713
================================================
ADVISER SHARES:
Shares sold 54 $ 435 104 $ 810
Shares issued from reinvested dividends 13 108 32 241
Shares redeemed* (68) (552) (509) (3,916)
------------------------------------------------
Net decrease from capital share transactions (1) $ (9) (373) $ (2,865)
================================================
R6 SHARES (COMMENCED ON DECEMBER 1, 2016):
Shares sold 627 $ 5,000 - $ -
Shares issued from reinvested dividends - - - -
Shares redeemed* - - - -
------------------------------------------------
Net increase from capital share transactions 627 $ 5,000 - $ -
================================================
* Net of redemption fees, if any.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
(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, 2017, 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' 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 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 performance
period for the R6 Shares commenced on December 1, 2016, and includes the
performance of the Fund Shares for the periods prior to December 1, 2016.
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.
================================================================================
64 | USAA HIGH INCOME FUND
================================================================================
Each class' 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 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, 2017 (and for the period from
December 1, 2016, to January 31, 2017, for the R6 Shares), the Fund incurred
total management fees, paid or payable to the Manager, of $5,463,000, which
included a performance adjustment for the Institutional Shares and Adviser
Shares of $28,000 and $(1,000), respectively. For the Institutional Shares
and Adviser Shares, the performance adjustments were 0.01%, and (0.03)%,
respectively. For the six-month period ended January 31, 2017 (and for the
period from December 1, 2016, to January 31, 2017, for the R6 Shares), the
Fund Shares and R6 Shares did not incur any performance adjustment.
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, 0.10%
of average net assets of the Institutional Shares, and 0.05% of average net
assets of the R6 Shares. For the six-month period ended January 31, 2017
(and for the period from December 1, 2016, to January 31,2017, for the R6
Shares), the Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $857,000, $510,000, $7,000, and less than $500, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
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, 2017, the Fund reimbursed the Manager
$24,000 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 November 30, 2017, to limit
the total annual operating expenses of the Adviser Shares to 1.05% and the
R6 Shares to 0.65% of its average net assets, excluding extraordinary
expenses and before reductions of any expenses paid indirectly, and to
reimburse the Adviser Shares and R6 Shares for all expenses in excess of
that amount. This expense limitation arrangement may not be changed or
terminated through November 30, 2017, 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, 2017 (and for the period from December 1,
2016, to January 31, 2017, for the R6 Shares), the Adviser Shares and R6
Shares incurred reimbursable expenses of $4,000 and $3,000, respectively, of
which $7,000 was receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund 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 and R6 Shares are paid monthly based
on a fee accrued daily at an annualized rate of 0.10% of the Institutional
Shares' and 0.01% of the R6 Shares' average net assets, plus out-of-pocket
expenses. For the six-month period ended January 31, 2017 (and for the
period from December 1, 2016, to January 31, 2017, for the R6 Shares), the
Fund Shares, Institutional Shares, Adviser Shares, and R6 Shares incurred
transfer agent's fees,
================================================================================
66 | USAA HIGH INCOME FUND
================================================================================
paid or payable to SAS, of $907,000, $510,000, $3,000, 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
(IMCO), the distributor, for distribution and shareholder services. IMCO
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, 2017, the Adviser Shares incurred
distribution and service (12b-1) fees of $12,000.
F. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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, 2017, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
Cornerstone Conservative 0.5
Target Retirement Income 0.7
Target Retirement 2020 1.3
Target Retirement 2030 3.0
Target Retirement 2040 2.4
Target Retirement 2050 1.1
Target Retirement 2060 0.1
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2017, USAA and its affiliates owned 617,000 Adviser Shares and 627,000 R6
Shares, which represents 53.3% of the Adviser Shares outstanding, 100.0% of the
R6 Shares outstanding, and 0.5% of the Fund's total outstanding shares.
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, 2017, 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
--------------------------------------------------------------------------------
High Income Intermediate-Term Bond $16,075,000 $1,044,000
High Income Income 24,236,000 1,651,000
Income High Income 4,019,000 (981,000)
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
68 | USAA HIGH INCOME FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
(10) 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,
--------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 7.90 $ 8.17 $ 8.91 $ 8.79 $ 8.42 $ 8.60
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .48 .47 .50 .55 .57
Net realized and
unrealized gain (loss) .27 (.28) (.68) .29 .46 (.18)
--------------------------------------------------------------------------------------
Total from investment
operations .51 .20 (.21) .79 1.01 .39
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.47) (.47) (.51) (.53) (.57)
Realized capital gains - - (.06) (.16) (.11) -
--------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.53) (.67) (.64) (.57)
--------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(b) .00(b) .00(b) .00(b) - -
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.17 $ 7.90 $ 8.17 $ 8.91 $ 8.79 $ 8.42
======================================================================================
Total return (%)* 6.53 2.95 (2.42) 9.35 12.39 4.99
Net assets at
end of period (000) $1,167,066 $1,105,081 $1,322,058 $1,521,633 $1,250,728 $1,464,070
Ratios to average
net assets:**
Expenses (%)(a) .85(c) .82 .89 .89 .94 .95
Net investment income (%) 5.90(c) 6.22 5.46 5.71 6.15 6.96
Portfolio turnover (%) 12 36 16 21 47 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, 2017, average net assets were
$1,134,629,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
70 | USAA HIGH INCOME FUND
================================================================================
(10) 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,
------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 7.90 $ 8.16 $ 8.91 $ 8.78 $ 8.41 $ 8.60
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .48 .48 .52 .54 .58
Net realized and
unrealized gain (loss) .26 (.26) (.69) .29 .49 (.18)
------------------------------------------------------------------------------------
Total from investment
operations .50 .22 (.21) .81 1.03 .40
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.48) (.48) (.52) (.55) (.59)
Realized capital gains - - (.06) (.16) (.11) -
------------------------------------------------------------------------------------
Total distributions (.24) (.48) (.54) (.68) (.66) (.59)
------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(b) .00(b) .00(b) - - -
------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.16 $ 7.90 $ 8.16 $ 8.91 $ 8.78 $ 8.41
====================================================================================
Total return (%)* 6.45 3.19 (2.44) 9.61 12.63 5.09
Net assets at end
of period (000) $996,392 $990,980 $811,060 $757,419 $764,558 $264,540
Ratios to average
net assets:**
Expenses (%)(a) .75(c) .71 .80 .76 .76 .76
Net investment income (%) 6.00(c) 6.32 5.55 5.87 6.22 7.09
Portfolio turnover (%) 12 36 16 21 47 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, 2017, average net assets were
$1,011,659,000.
(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 as follows:
- - - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 7.92 $ 8.18 $ 8.92 $ 8.79 $ 8.42 $ 8.60
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .44 .45 .49 .52 .55
Net realized and
unrealized gain (loss) .27 (.25) (.69) .27 .47 (.19)
----------------------------------------------------------------------------------
Total from investment
operations .50 .19 (.24) .76 .99 .36
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.45) (.45) (.48) (.51) (.55)
Realized capital gains - - (.06) (.16) (.11) -
----------------------------------------------------------------------------------
Total distributions (.23) (.45) (.51) (.64) (.62) (.55)
----------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(b) .00(b) .01 .01 .00(b) .01
----------------------------------------------------------------------------------
Net asset value at end
of period $ 8.19 $ 7.92 $ 8.18 $ 8.92 $ 8.79 $ 8.42
==================================================================================
Total return (%)* 6.36 2.73 (2.67) 9.16 12.13 4.76
Net assets at end
of period (000) $9,486 $9,183 $12,545 $9,218 $7,108 $5,711
Ratios to average
net assets:**
Expenses (%)(a) 1.12(d) 1.15 1.16(c) 1.19 1.20 1.20
Expenses, excluding
reimbursements (%)(a) 1.20(d) 1.19 1.21 1.19 1.34 1.45
Net investment income (%) 5.64(d) 5.88 5.19 5.41 5.85 6.71
Portfolio turnover (%) 12 36 16 21 47 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, 2017, average net assets were
$9,292,000.
(a) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) 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.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
72 | USAA HIGH INCOME FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JANUARY 31,
------------
2017***
------------
Net asset value at beginning of period $ 7.98
------
Income from investment operations:
Net investment income .08
Net realized and unrealized gain .19
------
Total from investment operations .27
------
Less distributions from:
Net investment income (.08)
------
Net asset value at end of period $ 8.17
======
Total return (%)* 3.40
Net assets at end of period (000) $5,118
Ratios to average net assets:**
Expenses (%)(a) .65
Expenses, excluding reimbursements (%)(a) 1.07
Net investment income (%)(a) 5.93
Portfolio turnover (%) 12
* 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, 2017, average net assets were $5,080,000
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017, for Fund Shares, Institutional Shares, and Adviser Shares and
the period of December 1, 2016, through January 31, 2017, for R6 Shares.
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
================================================================================
74 | USAA HIGH INCOME FUND
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,065.30 $4.42
Hypothetical
(5% return before expenses) 1,000.00 1,020.92 4.33
INSTITUTIONAL SHARES
Actual 1,000.00 1,064.50 3.90
Hypothetical
(5% return before expenses) 1,000.00 1,021.42 3.82
ADVISER SHARES
Actual 1,000.00 1,063.60 5.83
Hypothetical
(5% return before expenses) 1,000.00 1,019.56 5.70
R6 SHARES**
Actual 1,000.00 1,034.00 1.10
Hypothetical
(5% return before expenses) 1,000.00 1007.27 1.09
* Expenses are equal to the annualized expense ratio of 0.85% for Fund Shares,
0.75% for Institutional Shares, 1.12% for Adviser Shares, and 0.65% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days for Fund Shares, Institutional Shares, and Adviser Shares (to
reflect the one-half-year period) or 61 days/365 days for R6 Shares (to
reflect the current period beginning with the R6 Shares' inception date).
The Fund's actual ending account values are based on its actual total
returns of 6.53% for Fund Shares, 6.45% for Institutional Shares, and 6.36%
for Adviser Shares, for the six-month period of August 1, 2016, through
January 31, 2017, and 3.40% for R6 Shares for the period of
December 1, 2016, through January 31, 2017.
** R6 Shares commenced operations on December 1, 2016.
================================================================================
EXPENSE EXAMPLE | 75
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
40051-0317 (C)2017, 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 o R6 SHARES
JANUARY 31, 2017
========================================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
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TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 21
Notes to Portfolio of Investments 57
Financial Statements 63
Notes to Financial Statements 67
EXPENSE EXAMPLE 89
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)2017, USAA. All rights reserved.
202376-0317
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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 tax 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
JULIANNE BASS, CFA JOHN SPEAR, CFA*
BRIAN W. SMITH, CFA, CPA KURT DAUM, JD*
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The first part of the reporting period was relatively uneventful, with
investors focused mainly on mixed U.S. economic data and the timing of a
potential Federal Reserve (the Fed) interest rate increase. In early
November 2016, however, the market environment changed. U.S. Treasury
securities sold off as interest rates increased. (Bond prices and interest
rates move in opposite directions.) At the same time, U.S. stocks rallied.
The upward trend in stocks and the sell-off in the U.S. Treasury market
were driven by the Republican sweep in the November 8, 2016 U.S. elections,
which appeared to release "animal spirits." "Animal spirits" is a term used
by economist John Maynard Keynes to describe emotional mindsets. Investors
seemed pleased by a stronger outlook for economic growth based on the
potential for Republican-led fiscal policy, lower taxes, and less
regulation, though at the end of the reporting period, it remained unclear
what policies would actually be proposed and/or implemented. An increase in
inflation expectations also contributed to the rise in interest rates.
Inflation seemed likely to increase after the Organization of the Petroleum
Exporting Countries (OPEC) agreed to cut production, leading crude oil
prices to rise. However, economic data remained contradictory, with
better-than-expected third-quarter U.S. Gross Domestic Product results
giving way to weaker-than-expected fourth-quarter numbers. In December
2016, the Fed raised the federal funds target rate by 0.25% to a range
between 0.50% and 0.75%. Policymakers suggested that three interest rate
increases could take place
*Effective November 4, 2016, John Spear and Kurt Daum began co-managing the
Fund.
================================================================================
2 | USAA INCOME FUND
================================================================================
during 2017 and said they eventually plan to address the size of their
balance sheet. During the reporting period, lower-rated credits
outperformed higher-rated credits. Notably, while most fixed income sectors
generated negative returns during the reporting period, high-yield bonds
recorded solid gains. Most spread sectors, such as corporate bonds, taxable
municipal bonds, and commercial mortgage-backed securities, performed
better than U.S. Treasuries.
U.S. Treasury yields across all maturities ended the reporting period
higher than they began. Shorter-duration securities outperformed
longer-duration securities. The yield on the bellwether 10-year U.S.
Treasury rose from 1.46% on July 29, 2016 and finished the period at 2.45%.
Credit spreads (yield differentials between corporate bonds and U.S.
Treasury securities of comparable maturity) tightened, continuing a trend
that began in February 2016. Credit spreads based on the Bloomberg Barclays
U.S. Aggregate Bond Index* narrowed 22 basis points from
o 10-YEAR U.S. TREASURY YIELD o
[CHART OF 10-YEAR U.S. TREASURY YIELD]
YIELD
IN PERCENT
2/1/2016 1.95%
2/2/2016 1.84
2/3/2016 1.89
2/4/2016 1.84
2/5/2016 1.84
2/8/2016 1.75
2/9/2016 1.73
2/10/2016 1.67
2/11/2016 1.66
2/12/2016 1.75
2/15/2016 1.75
2/16/2016 1.77
2/17/2016 1.82
2/18/2016 1.74
2/19/2016 1.74
2/22/2016 1.75
2/23/2016 1.72
2/24/2016 1.75
2/25/2016 1.72
2/26/2016 1.76
2/29/2016 1.73
3/1/2016 1.82
3/2/2016 1.84
3/3/2016 1.83
3/4/2016 1.87
3/7/2016 1.91
3/8/2016 1.83
3/9/2016 1.88
3/10/2016 1.93
3/11/2016 1.98
3/14/2016 1.96
3/15/2016 1.97
3/16/2016 1.91
3/17/2016 1.90
3/18/2016 1.87
3/21/2016 1.92
3/22/2016 1.94
3/23/2016 1.88
3/24/2016 1.90
3/25/2016 1.90
3/28/2016 1.89
3/29/2016 1.80
3/30/2016 1.82
3/31/2016 1.77
4/1/2016 1.77
4/4/2016 1.76
4/5/2016 1.72
4/6/2016 1.75
4/7/2016 1.69
4/8/2016 1.72
4/11/2016 1.73
4/12/2016 1.78
4/13/2016 1.76
4/14/2016 1.79
4/15/2016 1.75
4/18/2016 1.77
4/19/2016 1.79
4/20/2016 1.85
4/21/2016 1.86
4/22/2016 1.89
4/25/2016 1.91
4/26/2016 1.93
4/27/2016 1.85
4/28/2016 1.82
4/29/2016 1.83
5/2/2016 1.87
5/3/2016 1.80
5/4/2016 1.78
5/5/2016 1.75
5/6/2016 1.78
5/9/2016 1.75
5/10/2016 1.76
5/11/2016 1.74
5/12/2016 1.75
5/13/2016 1.70
5/16/2016 1.75
5/17/2016 1.77
5/18/2016 1.85
5/19/2016 1.85
5/20/2016 1.84
5/23/2016 1.84
5/24/2016 1.86
5/25/2016 1.87
5/26/2016 1.83
5/27/2016 1.85
5/30/2016 1.85
5/31/2016 1.85
6/1/2016 1.84
6/2/2016 1.80
6/3/2016 1.70
6/6/2016 1.74
6/7/2016 1.72
6/8/2016 1.70
6/9/2016 1.69
6/10/2016 1.64
6/13/2016 1.61
6/14/2016 1.61
6/15/2016 1.57
6/16/2016 1.58
6/17/2016 1.61
6/20/2016 1.69
6/21/2016 1.71
6/22/2016 1.69
6/23/2016 1.75
6/24/2016 1.56
6/27/2016 1.44
6/28/2016 1.47
6/29/2016 1.52
6/30/2016 1.47
7/1/2016 1.44
7/4/2016 1.44
7/5/2016 1.38
7/6/2016 1.37
7/7/2016 1.39
7/8/2016 1.36
7/11/2016 1.43
7/12/2016 1.51
7/13/2016 1.47
7/14/2016 1.54
7/15/2016 1.55
7/18/2016 1.58
7/19/2016 1.55
7/20/2016 1.58
7/21/2016 1.56
7/22/2016 1.57
7/25/2016 1.57
7/26/2016 1.56
7/27/2016 1.50
7/28/2016 1.50
7/29/2016 1.45
8/1/2016 1.52
8/2/2016 1.56
8/3/2016 1.54
8/4/2016 1.50
8/5/2016 1.59
8/8/2016 1.59
8/9/2016 1.55
8/10/2016 1.51
8/11/2016 1.56
8/12/2016 1.51
8/15/2016 1.56
8/16/2016 1.57
8/17/2016 1.55
8/18/2016 1.54
8/19/2016 1.58
8/22/2016 1.54
8/23/2016 1.55
8/24/2016 1.56
8/25/2016 1.57
8/26/2016 1.63
8/29/2016 1.56
8/30/2016 1.57
8/31/2016 1.58
9/1/2016 1.57
9/2/2016 1.60
9/5/2016 1.60
9/6/2016 1.53
9/7/2016 1.54
9/8/2016 1.60
9/9/2016 1.67
9/12/2016 1.66
9/13/2016 1.73
9/14/2016 1.70
9/15/2016 1.69
9/16/2016 1.69
9/19/2016 1.71
9/20/2016 1.69
9/21/2016 1.65
9/22/2016 1.62
9/23/2016 1.62
9/26/2016 1.58
9/27/2016 1.56
9/28/2016 1.57
9/29/2016 1.56
9/30/2016 1.59
10/3/2016 1.62
10/4/2016 1.69
10/5/2016 1.70
10/6/2016 1.74
10/7/2016 1.72
10/10/2016 1.72
10/11/2016 1.76
10/12/2016 1.77
10/13/2016 1.74
10/14/2016 1.80
10/17/2016 1.77
10/18/2016 1.74
10/19/2016 1.74
10/20/2016 1.76
10/21/2016 1.73
10/24/2016 1.76
10/25/2016 1.76
10/26/2016 1.79
10/27/2016 1.85
10/28/2016 1.85
10/31/2016 1.83
11/1/2016 1.83
11/2/2016 1.80
11/3/2016 1.81
11/4/2016 1.78
11/7/2016 1.83
11/8/2016 1.85
11/9/2016 2.06
11/10/2016 2.15
11/11/2016 2.15
11/14/2016 2.26
11/15/2016 2.22
11/16/2016 2.22
11/17/2016 2.30
11/18/2016 2.35
11/21/2016 2.32
11/22/2016 2.31
11/23/2016 2.35
11/24/2016 2.35
11/25/2016 2.36
11/28/2016 2.31
11/29/2016 2.29
11/30/2016 2.38
12/1/2016 2.45
12/2/2016 2.38
12/5/2016 2.39
12/6/2016 2.39
12/7/2016 2.34
12/8/2016 2.41
12/9/2016 2.47
12/12/2016 2.47
12/13/2016 2.47
12/14/2016 2.57
12/15/2016 2.60
12/16/2016 2.59
12/19/2016 2.54
12/20/2016 2.56
12/21/2016 2.53
12/22/2016 2.55
12/23/2016 2.54
12/26/2016 2.54
12/27/2016 2.56
12/28/2016 2.51
12/29/2016 2.48
12/30/2016 2.44
1/2/2017 2.44
1/3/2017 2.44
1/4/2017 2.44
1/5/2017 2.34
1/6/2017 2.42
1/9/2017 2.36
1/10/2017 2.38
1/11/2017 2.37
1/12/2017 2.36
1/13/2017 2.40
1/16/2017 2.40
1/17/2017 2.33
1/18/2017 2.43
1/19/2017 2.47
1/20/2017 2.47
1/23/2017 2.40
1/24/2017 2.47
1/25/2017 2.51
1/26/2017 2.50
1/27/2017 2.48
1/30/2017 2.49
1/31/2017 2.45
[END CHART]
Source: Bloomberg Finance L.P.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indexes. Thus, the
Fund's benchmark is now called the Bloomberg Barclays U.S. Aggregate Bond
Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
1.38% on July 29, 2016 to 1.16% on January 31, 2017. (A basis point is
1/100th of a percent.) Spreads are generally considered an indication of
risk; the narrower the spread, the lower the risk.
o HOW DID THE USAA INCOME FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD?
The Fund has four share classes: Fund Shares, Institutional Shares, Adviser
Shares, and R6 Shares. For the reporting period ended January 31, 2017, the
Fund Shares, Institutional Shares, and Adviser Shares had total returns of
-1.80%, -1.77%, and -1.87%, respectively. This compares to returns of
-2.95% for the Bloomberg Barclays U.S. Aggregate Bond Index (the Index)
and -3.00% for the Lipper A Rated Bond Funds Index. At the same time, the
Fund Shares, Institutional Shares, and Adviser Shares provided a one-year
dividend yield of 3.53%, 3.55%, and 3.26%, respectively, compared to 2.77%
for the Lipper A
o BLOOMBERG BARCLAYS U.S. AGGREGATE CREDIT INDEX o
[CHART OF BLOOMBERG BARCLAYS U.S. AGGREGATE CREDIT INDEX]
AVERAGE OPTION
ADJUSTED SPREAD
1/4/2016 1.57
1/5/2016 1.56
1/6/2016 1.57
1/7/2016 1.60
1/8/2016 1.60
1/11/2016 1.60
1/12/2016 1.62
1/13/2016 1.64
1/14/2016 1.67
1/15/2016 1.70
1/19/2016 1.72
1/20/2016 1.78
1/21/2016 1.80
1/22/2016 1.77
1/25/2016 1.78
1/26/2016 1.79
1/27/2016 1.80
1/28/2016 1.81
1/29/2016 1.81
2/1/2016 1.83
2/2/2016 1.86
2/3/2016 1.87
2/4/2016 1.87
2/5/2016 1.87
2/8/2016 1.91
2/9/2016 1.95
2/10/2016 1.95
2/11/2016 2.00
2/12/2016 2.00
2/16/2016 1.95
2/17/2016 1.94
2/18/2016 1.92
2/19/2016 1.92
2/22/2016 1.89
2/23/2016 1.88
2/24/2016 1.89
2/25/2016 1.88
2/26/2016 1.85
2/29/2016 1.84
3/1/2016 1.80
3/2/2016 1.77
3/3/2016 1.76
3/4/2016 1.74
3/7/2016 1.72
3/8/2016 1.72
3/9/2016 1.71
3/10/2016 1.68
3/11/2016 1.64
3/14/2016 1.60
3/15/2016 1.60
3/16/2016 1.60
3/17/2016 1.59
3/18/2016 1.58
3/21/2016 1.56
3/22/2016 1.54
3/23/2016 1.54
3/24/2016 1.55
3/28/2016 1.55
3/29/2016 1.56
3/30/2016 1.55
3/31/2016 1.54
4/1/2016 1.55
4/4/2016 1.54
4/5/2016 1.55
4/6/2016 1.54
4/7/2016 1.54
4/8/2016 1.54
4/11/2016 1.54
4/12/2016 1.52
4/13/2016 1.51
4/14/2016 1.49
4/15/2016 1.49
4/18/2016 1.48
4/19/2016 1.46
4/20/2016 1.43
4/21/2016 1.41
4/22/2016 1.40
4/25/2016 1.39
4/26/2016 1.38
4/27/2016 1.38
4/28/2016 1.38
4/29/2016 1.39
5/2/2016 1.39
5/3/2016 1.40
5/4/2016 1.42
5/5/2016 1.43
5/6/2016 1.43
5/9/2016 1.44
5/10/2016 1.44
5/11/2016 1.44
5/12/2016 1.44
5/13/2016 1.44
5/16/2016 1.43
5/17/2016 1.43
5/18/2016 1.43
5/19/2016 1.43
5/20/2016 1.44
5/23/2016 1.44
5/24/2016 1.44
5/25/2016 1.42
5/26/2016 1.41
5/27/2016 1.41
5/31/2016 1.41
6/1/2016 1.41
6/2/2016 1.42
6/3/2016 1.43
6/6/2016 1.42
6/7/2016 1.42
6/8/2016 1.41
6/9/2016 1.41
6/10/2016 1.43
6/13/2016 1.45
6/14/2016 1.48
6/15/2016 1.48
6/16/2016 1.48
6/17/2016 1.48
6/20/2016 1.44
6/21/2016 1.43
6/22/2016 1.43
6/23/2016 1.40
6/24/2016 1.50
6/27/2016 1.51
6/28/2016 1.50
6/29/2016 1.48
6/30/2016 1.47
7/1/2016 1.46
7/5/2016 1.46
7/6/2016 1.46
7/7/2016 1.44
7/8/2016 1.43
7/11/2016 1.41
7/12/2016 1.38
7/13/2016 1.37
7/14/2016 1.36
7/15/2016 1.36
7/18/2016 1.35
7/19/2016 1.35
7/20/2016 1.35
7/21/2016 1.34
7/22/2016 1.34
7/25/2016 1.34
7/26/2016 1.35
7/27/2016 1.36
7/28/2016 1.37
7/29/2016 1.38
8/1/2016 1.39
8/2/2016 1.39
8/3/2016 1.40
8/4/2016 1.39
8/5/2016 1.37
8/8/2016 1.35
8/9/2016 1.35
8/10/2016 1.35
8/11/2016 1.34
8/12/2016 1.33
8/15/2016 1.32
8/16/2016 1.31
8/17/2016 1.31
8/18/2016 1.31
8/19/2016 1.30
8/22/2016 1.30
8/23/2016 1.29
8/24/2016 1.29
8/25/2016 1.29
8/26/2016 1.28
8/29/2016 1.28
8/30/2016 1.28
8/31/2016 1.29
9/1/2016 1.30
9/2/2016 1.30
9/6/2016 1.30
9/7/2016 1.30
9/8/2016 1.30
9/9/2016 1.31
9/12/2016 1.33
9/13/2016 1.33
9/14/2016 1.34
9/15/2016 1.33
9/16/2016 1.33
9/19/2016 1.32
9/20/2016 1.32
9/21/2016 1.32
9/22/2016 1.30
9/23/2016 1.31
9/26/2016 1.32
9/27/2016 1.31
9/28/2016 1.30
9/29/2016 1.31
9/30/2016 1.31
10/3/2016 1.30
10/4/2016 1.30
10/5/2016 1.29
10/6/2016 1.27
10/7/2016 1.27
10/11/2016 1.26
10/12/2016 1.25
10/13/2016 1.25
10/14/2016 1.24
10/17/2016 1.24
10/18/2016 1.23
10/19/2016 1.23
10/20/2016 1.23
10/21/2016 1.23
10/24/2016 1.23
10/25/2016 1.23
10/26/2016 1.24
10/27/2016 1.24
10/28/2016 1.25
10/31/2016 1.25
11/1/2016 1.27
11/2/2016 1.28
11/3/2016 1.28
11/4/2016 1.29
11/7/2016 1.27
11/8/2016 1.26
11/9/2016 1.25
11/10/2016 1.24
11/14/2016 1.25
11/15/2016 1.23
11/16/2016 1.23
11/17/2016 1.23
11/18/2016 1.25
11/21/2016 1.24
11/22/2016 1.24
11/23/2016 1.24
11/25/2016 1.25
11/28/2016 1.24
11/29/2016 1.24
11/30/2016 1.23
12/1/2016 1.23
12/2/2016 1.24
12/5/2016 1.23
12/6/2016 1.22
12/7/2016 1.22
12/8/2016 1.22
12/9/2016 1.21
12/12/2016 1.21
12/13/2016 1.19
12/14/2016 1.19
12/15/2016 1.20
12/16/2016 1.19
12/19/2016 1.19
12/20/2016 1.18
12/21/2016 1.18
12/22/2016 1.18
12/23/2016 1.18
12/27/2016 1.17
12/28/2016 1.18
12/29/2016 1.18
12/30/2016 1.18
1/3/2017 1.17
1/4/2017 1.16
1/5/2017 1.17
1/6/2017 1.17
1/9/2017 1.17
1/10/2017 1.17
1/11/2017 1.18
1/12/2017 1.17
1/13/2017 1.17
1/17/2017 1.17
1/18/2017 1.17
1/19/2017 1.17
1/20/2017 1.17
1/23/2017 1.17
1/24/2017 1.16
1/25/2017 1.15
1/26/2017 1.15
1/27/2017 1.15
1/30/2017 1.15
1/31/2017 1.16
[END CHART]
Refer to page 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
4 | USAA INCOME FUND
================================================================================
Rated Bond Funds Index. The R6 Shares commenced operations on December 1,
2016, and from that time through January 31, 2017, had a total return of
1.40%.
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 adhere to our disciplined
investment process, building the Fund's portfolio bond-by-bond. We look for
opportunities where our fundamental understanding of the credit risk is
different than the market, working with our team of analysts to evaluate
each potential investment individually, rather than on the basis of
thematic trends. In keeping with our approach, we did not try to anticipate
interest rate movements during the reporting period. We sought to manage
the portfolio's sensitivity to interest rates by maintaining a neutral
duration position relative to the Lipper peer group and Bloomberg Barclays
U.S. Aggregate Bond Index. (Duration is a measure of a portfolio's interest
rate sensitivity.) During the reporting period, the Fund's SEC yield
continued to trend up.
Relative to the Index, the Fund benefited during the reporting period from
its position in corporate bonds, especially in midstream energy, basic
industry, and financial institutions. Selection of bank corporate bonds, as
well as energy and insurance hybrid securities, also bolstered relative
performance. In addition, the Fund's portfolio benefited from its
underweight positions in mortgage-backed securities and U.S. Treasury
securities, both of which lagged the Index. Because times were uncertain,
we continued to emphasize liquidity in the portfolio. Our liquidity
strategy helps to prevent the Fund from being forced to sell its securities
in the event of investment outflows. During the reporting period, we
continued to seek relative values across the fixed income market, finding
attractive opportunities within corporate credit and among floating-rate
bank loans.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
Our analysts continued to analyze and monitor every holding in the
portfolio. 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 tend to 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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $3.4 Billion $3.4 Billion
Net Asset Value Per Share $12.92 $13.40
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
-1.80% 5.77% 3.32% 5.09%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
5.84% 3.43% 5.03%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
3.09% 0.51%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
JANUARY 31, 2017
-----------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
-----------------------------------------------------------------------------------
10 YEARS 5.09% = 4.38% + 0.71%
5 YEARS 3.32% = 3.70% + -0.38%
1 YEAR 5.77% = 3.64% + 2.13%
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, 2008-JANUARY 31, 2017
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
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%
1/31/2017 5.77% 3.64% 2.13%
[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
1/31/2008 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
1/31/2017 3.53 2.78
[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 1/31/08 through 1/31/17.
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]
BLOOMBERG
USAA INCOME LIPPER A RATED BARCLAYS U.S.
FUND SHARES BOND FUNDS INDEX AGGREGATE BOND INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 10,162.00 10,168.32 10,154.20
3/31/2007 10,152.00 10,147.15 10,154.51
4/30/2007 10,184.00 10,200.51 10,209.27
5/31/2007 10,092.00 10,120.72 10,131.89
6/30/2007 10,052.00 10,073.94 10,101.92
7/31/2007 10,130.00 10,128.89 10,186.19
8/31/2007 10,241.00 10,206.55 10,311.03
9/30/2007 10,307.00 10,288.69 10,389.26
10/31/2007 10,386.00 10,365.46 10,482.58
11/30/2007 10,522.00 10,485.57 10,671.09
12/31/2007 10,500.00 10,460.00 10,701.06
1/31/2008 10,675.00 10,593.29 10,880.82
2/29/2008 10,666.00 10,564.27 10,895.92
3/31/2008 10,676.00 10,512.29 10,933.10
4/30/2008 10,691.00 10,551.14 10,910.25
5/31/2008 10,663.00 10,481.33 10,830.25
6/30/2008 10,623.00 10,444.61 10,821.50
7/31/2008 10,573.00 10,362.83 10,812.67
8/31/2008 10,647.00 10,392.07 10,915.29
9/30/2008 10,345.00 10,043.23 10,768.68
10/31/2008 9,776.00 9,513.91 10,514.49
11/30/2008 9,772.00 9,613.14 10,856.74
12/31/2008 9,971.00 9,968.81 11,261.79
1/31/2009 9,965.00 9,941.41 11,162.43
2/28/2009 9,950.00 9,823.73 11,120.29
3/31/2009 10,104.00 9,940.58 11,274.88
4/30/2009 10,338.00 10,138.74 11,328.78
5/31/2009 10,745.00 10,410.86 11,410.96
6/30/2009 10,942.00 10,593.33 11,475.86
7/31/2009 11,247.00 10,912.76 11,660.96
8/31/2009 11,516.00 11,045.13 11,781.70
9/30/2009 11,730.00 11,317.83 11,905.47
10/31/2009 11,837.00 11,409.60 11,964.25
11/30/2009 11,995.00 11,544.47 12,119.15
12/31/2009 11,939.00 11,436.83 11,929.71
1/31/2010 12,161.00 11,624.85 12,111.94
2/28/2010 12,214.00 11,658.48 12,157.17
3/31/2010 12,255.00 11,702.46 12,142.23
4/30/2010 12,417.00 11,872.52 12,268.62
5/31/2010 12,420.00 11,873.19 12,371.86
6/30/2010 12,564.00 12,069.70 12,565.87
7/31/2010 12,710.00 12,225.41 12,699.93
8/31/2010 12,913.00 12,440.76 12,863.35
9/30/2010 13,001.00 12,478.74 12,877.06
10/31/2010 13,082.00 12,501.75 12,922.91
11/30/2010 13,026.00 12,421.01 12,848.63
12/31/2010 12,913.00 12,328.11 12,710.08
1/31/2011 12,959.00 12,341.74 12,724.87
2/28/2011 13,020.00 12,427.55 12,756.70
3/31/2011 13,058.00 12,432.06 12,763.75
4/30/2011 13,213.00 12,613.44 12,925.77
5/31/2011 13,358.00 12,769.85 13,094.46
6/30/2011 13,328.00 12,678.30 13,056.12
7/31/2011 13,516.00 12,899.97 13,263.29
8/31/2011 13,602.00 12,971.88 13,457.07
9/30/2011 13,595.00 13,039.25 13,554.97
10/31/2011 13,679.00 13,150.23 13,569.53
11/30/2011 13,652.00 13,043.31 13,557.75
12/31/2011 13,800.00 13,222.73 13,706.76
1/31/2012 13,949.00 13,431.03 13,827.12
2/29/2012 14,003.00 13,486.49 13,823.94
3/31/2012 13,991.00 13,397.06 13,748.20
4/30/2012 14,138.00 13,565.74 13,900.62
5/31/2012 14,229.00 13,702.81 14,026.39
6/30/2012 14,249.00 13,728.00 14,031.89
7/31/2012 14,441.00 14,034.06 14,225.44
8/31/2012 14,507.00 14,066.25 14,234.73
9/30/2012 14,602.00 14,097.02 14,254.33
10/31/2012 14,711.00 14,195.61 14,282.36
11/30/2012 14,776.00 14,216.97 14,304.90
12/31/2012 14,766.00 14,186.03 14,284.53
1/31/2013 14,767.00 14,095.82 14,184.62
2/28/2013 14,875.00 14,193.34 14,255.72
3/31/2013 14,918.00 14,205.79 14,267.10
4/30/2013 15,103.00 14,460.78 14,411.47
5/31/2013 14,886.00 14,099.07 14,154.34
6/30/2013 14,562.00 13,708.78 13,935.39
7/31/2013 14,629.00 13,755.31 13,954.44
8/31/2013 14,538.00 13,636.80 13,883.11
9/30/2013 14,661.00 13,753.45 14,014.54
10/31/2013 14,819.00 13,953.03 14,127.85
11/30/2013 14,803.00 13,896.00 14,074.95
12/31/2013 14,739.00 13,839.87 13,995.42
1/31/2014 14,964.00 14,174.20 14,202.20
2/28/2014 15,077.00 14,322.12 14,277.71
3/31/2014 15,087.00 14,358.83 14,253.40
4/30/2014 15,237.00 14,526.81 14,373.67
5/31/2014 15,408.00 14,731.54 14,537.32
6/30/2014 15,458.00 14,772.63 14,544.83
7/31/2014 15,423.00 14,763.54 14,508.36
8/31/2014 15,570.00 14,995.52 14,668.52
9/30/2014 15,460.00 14,805.54 14,568.92
10/31/2014 15,574.00 14,968.84 14,712.12
11/30/2014 15,637.00 15,099.94 14,816.50
12/31/2014 15,607.00 15,167.19 14,830.39
1/31/2015 15,896.00 15,683.19 15,141.34
2/28/2015 15,818.00 15,393.52 14,998.99
3/31/2015 15,863.00 15,447.92 15,068.62
4/30/2015 15,826.00 15,328.08 15,014.56
5/31/2015 15,797.00 15,217.53 14,978.39
6/30/2015 15,586.00 14,968.77 14,815.05
7/31/2015 15,647.00 15,110.68 14,918.06
8/31/2015 15,543.00 14,989.19 14,896.61
9/30/2015 15,586.00 15,083.74 14,997.37
10/31/2015 15,643.00 15,155.91 14,999.92
11/30/2015 15,578.00 15,106.23 14,960.27
12/31/2015 15,434.00 14,989.12 14,911.94
1/31/2016 15,527.00 15,123.82 15,117.10
2/29/2016 15,608.00 15,250.49 15,224.37
3/31/2016 15,903.00 15,577.64 15,364.01
4/30/2016 16,119.00 15,740.52 15,423.02
5/31/2016 16,151.00 15,754.88 15,426.97
6/30/2016 16,508.00 16,111.59 15,704.16
7/31/2016 16,724.00 16,333.53 15,803.45
8/31/2016 16,774.00 16,354.36 15,785.41
9/30/2016 16,785.00 16,315.22 15,776.11
10/31/2016 16,665.00 16,143.70 15,655.45
11/30/2016 16,248.00 15,713.97 15,285.17
12/31/2016 16,336.00 15,779.97 15,306.70
1/31/2017 16,422.00 15,843.58 15,336.75
[END CHART]
Data from 1/31/07 through 1/31/17.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Shares to the following benchmarks:
o The unmanaged Lipper A Rated Bond Funds Index tracks the total return
performance of funds within the Lipper Corporate Debt Funds A Rated
category.
o The unmanaged Bloomberg 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.
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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $3.3 Billion $3.1 Billion
Net Asset Value Per Share $12.91 $13.39
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-1.77% 5.87% 3.40% 5.45%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
5.86% 3.53% 5.44%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
3.16% 0.44%
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, 2016, 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 net investment income and realized capital gain
distributions, including reinvested distributions, or redemptions of shares.
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]
USAA INCOME FUND LIPPER CORPORATE DEBT
INSTITUTIONAL SHARES FUNDS 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
1/31/2017 3.55 2.78
[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 1/31/17.
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]
BLOOMBERG
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 10,055.00 10,028.22 10,094.91
9/30/2008 9,773.00 9,691.59 9,959.32
10/31/2008 9,238.00 9,180.80 9,724.23
11/30/2008 9,237.00 9,276.56 10,040.76
12/31/2008 9,428.00 9,619.78 10,415.37
1/31/2009 9,416.00 9,593.33 10,323.47
2/28/2009 9,412.00 9,479.78 10,284.50
3/31/2009 9,561.00 9,592.54 10,427.47
4/30/2009 9,784.00 9,783.75 10,477.33
5/31/2009 10,171.00 10,046.35 10,553.32
6/30/2009 10,361.00 10,222.43 10,613.35
7/31/2009 10,652.00 10,530.67 10,784.54
8/31/2009 10,900.00 10,658.41 10,896.20
9/30/2009 11,105.00 10,921.56 11,010.67
10/31/2009 11,217.00 11,010.12 11,065.03
11/30/2009 11,370.00 11,140.26 11,208.29
12/31/2009 11,310.00 11,036.39 11,033.08
1/31/2010 11,531.00 11,217.83 11,201.62
2/28/2010 11,575.00 11,250.28 11,243.46
3/31/2010 11,625.00 11,292.72 11,229.63
4/30/2010 11,781.00 11,456.83 11,346.53
5/31/2010 11,786.00 11,457.48 11,442.01
6/30/2010 11,915.00 11,647.11 11,621.43
7/31/2010 12,066.00 11,797.36 11,745.42
8/31/2010 12,261.00 12,005.17 11,896.56
9/30/2010 12,347.00 12,041.82 11,909.23
10/31/2010 12,426.00 12,064.03 11,951.64
11/30/2010 12,366.00 11,986.12 11,882.95
12/31/2010 12,261.00 11,896.47 11,754.80
1/31/2011 12,317.00 11,909.62 11,768.49
2/28/2011 12,377.00 11,992.42 11,797.92
3/31/2011 12,406.00 11,996.78 11,804.44
4/30/2011 12,556.00 12,171.81 11,954.29
5/31/2011 12,706.00 12,322.75 12,110.29
6/30/2011 12,669.00 12,234.39 12,074.84
7/31/2011 12,850.00 12,448.30 12,266.44
8/31/2011 12,945.00 12,517.70 12,445.65
9/30/2011 12,939.00 12,582.71 12,536.19
10/31/2011 13,011.00 12,689.80 12,549.66
11/30/2011 12,996.00 12,586.63 12,538.77
12/31/2011 13,128.00 12,759.76 12,676.58
1/31/2012 13,281.00 12,960.77 12,787.89
2/29/2012 13,334.00 13,014.29 12,784.95
3/31/2012 13,315.00 12,927.99 12,714.90
4/30/2012 13,455.00 13,090.77 12,855.86
5/31/2012 13,543.00 13,223.03 12,972.19
6/30/2012 13,574.00 13,247.35 12,977.27
7/31/2012 13,748.00 13,542.69 13,156.27
8/31/2012 13,811.00 13,573.75 13,164.87
9/30/2012 13,902.00 13,603.45 13,182.99
10/31/2012 14,009.00 13,698.58 13,208.92
11/30/2012 14,073.00 13,719.19 13,229.76
12/31/2012 14,075.00 13,689.34 13,210.92
1/31/2013 14,068.00 13,602.29 13,118.52
2/28/2013 14,172.00 13,696.39 13,184.28
3/31/2013 14,224.00 13,708.41 13,194.81
4/30/2013 14,392.00 13,954.47 13,328.32
5/31/2013 14,196.00 13,605.42 13,090.52
6/30/2013 13,877.00 13,228.80 12,888.02
7/31/2013 13,943.00 13,273.70 12,905.64
8/31/2013 13,858.00 13,159.34 12,839.68
9/30/2013 13,977.00 13,271.90 12,961.23
10/31/2013 14,130.00 13,464.49 13,066.02
11/30/2013 14,117.00 13,409.46 13,017.10
12/31/2013 14,068.00 13,355.30 12,943.54
1/31/2014 14,273.00 13,677.92 13,134.78
2/28/2014 14,382.00 13,820.66 13,204.62
3/31/2014 14,393.00 13,856.09 13,182.13
4/30/2014 14,538.00 14,018.19 13,293.37
5/31/2014 14,701.00 14,215.75 13,444.71
6/30/2014 14,749.00 14,255.40 13,451.66
7/31/2014 14,729.00 14,246.63 13,417.93
8/31/2014 14,868.00 14,470.49 13,566.05
9/30/2014 14,763.00 14,287.16 13,473.94
10/31/2014 14,862.00 14,444.74 13,606.38
11/30/2014 14,934.00 14,571.25 13,702.91
12/31/2014 14,907.00 14,636.15 13,715.75
1/31/2015 15,176.00 15,134.08 14,003.34
2/28/2015 15,103.00 14,854.55 13,871.69
3/31/2015 15,145.00 14,907.04 13,936.08
4/30/2015 15,121.00 14,791.40 13,886.08
5/31/2015 15,080.00 14,684.73 13,852.63
6/30/2015 14,891.00 14,444.67 13,701.57
7/31/2015 14,951.00 14,581.61 13,796.84
8/31/2015 14,840.00 14,464.37 13,776.99
9/30/2015 14,882.00 14,555.62 13,870.18
10/31/2015 14,950.00 14,625.26 13,872.55
11/30/2015 14,888.00 14,577.32 13,835.87
12/31/2015 14,751.00 14,464.31 13,791.18
1/31/2016 14,828.00 14,594.30 13,980.92
2/29/2016 14,915.00 14,716.52 14,080.12
3/31/2016 15,199.00 15,032.22 14,209.27
4/30/2016 15,407.00 15,189.41 14,263.85
5/31/2016 15,433.00 15,203.26 14,267.50
6/30/2016 15,776.00 15,547.47 14,523.86
7/31/2016 15,981.00 15,761.65 14,615.68
8/31/2016 16,031.00 15,781.75 14,598.99
9/30/2016 16,042.00 15,743.98 14,590.40
10/31/2016 15,928.00 15,578.47 14,478.80
11/30/2016 15,531.00 15,163.78 14,136.35
12/31/2016 15,615.00 15,227.47 14,156.26
1/31/2017 15,698.00 15,288.86 14,184.05
[END CHART]
Data from 7/31/08 through 1/31/17.*
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 Bloomberg
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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $140.1 Million $171.5 Million
Net Asset Value Per Share $12.89 $13.36
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-1.87% 5.57% 3.02% 3.74%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
5.55% 3.15% 3.70%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
2.95% 0.77%
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
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
1/31/2017 3.26 2.78
[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 1/31/17.
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]
BLOOMBERG
LIPPER A RATED USAA INCOME FUND BARCLAYS U.S.
BOND 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 10,162.00 10,128.68
9/30/2010 10,207.22 10,236.00 10,139.47
10/31/2010 10,226.04 10,298.00 10,175.57
11/30/2010 10,160.00 10,243.00 10,117.09
12/31/2010 10,084.01 10,152.00 10,007.99
1/31/2011 10,095.16 10,187.00 10,019.64
2/28/2011 10,165.35 10,233.00 10,044.70
3/31/2011 10,169.04 10,261.00 10,050.25
4/30/2011 10,317.40 10,373.00 10,177.83
5/31/2011 10,445.34 10,494.00 10,310.65
6/30/2011 10,370.45 10,459.00 10,280.46
7/31/2011 10,551.77 10,605.00 10,443.59
8/31/2011 10,610.59 10,679.00 10,596.17
9/30/2011 10,665.70 10,670.00 10,673.26
10/31/2011 10,756.47 10,726.00 10,684.72
11/30/2011 10,669.02 10,710.00 10,675.45
12/31/2011 10,815.78 10,815.00 10,792.78
1/31/2012 10,986.16 10,938.00 10,887.55
2/29/2012 11,031.53 10,978.00 10,885.05
3/31/2012 10,958.38 10,958.00 10,825.41
4/30/2012 11,096.35 11,071.00 10,945.43
5/31/2012 11,208.47 11,139.00 11,044.46
6/30/2012 11,229.08 11,161.00 11,048.79
7/31/2012 11,479.42 11,300.00 11,201.19
8/31/2012 11,505.75 11,348.00 11,208.51
9/30/2012 11,530.92 11,420.00 11,223.94
10/31/2012 11,611.57 11,502.00 11,246.01
11/30/2012 11,629.03 11,550.00 11,263.76
12/31/2012 11,603.73 11,539.00 11,247.72
1/31/2013 11,529.94 11,538.00 11,169.05
2/28/2013 11,609.71 11,619.00 11,225.03
3/31/2013 11,619.89 11,650.00 11,234.00
4/30/2013 11,828.47 11,792.00 11,347.67
5/31/2013 11,532.59 11,619.00 11,145.21
6/30/2013 11,213.36 11,362.00 10,972.81
7/31/2013 11,251.41 11,412.00 10,987.81
8/31/2013 11,154.47 11,339.00 10,931.64
9/30/2013 11,249.89 11,433.00 11,035.13
10/31/2013 11,413.14 11,554.00 11,124.35
11/30/2013 11,366.49 11,540.00 11,082.70
12/31/2013 11,320.58 11,486.00 11,020.07
1/31/2014 11,594.05 11,651.00 11,182.90
2/28/2014 11,715.05 11,746.00 11,242.35
3/31/2014 11,745.08 11,751.00 11,223.21
4/30/2014 11,882.48 11,857.00 11,317.91
5/31/2014 12,049.94 11,989.00 11,446.77
6/30/2014 12,083.55 12,025.00 11,452.69
7/31/2014 12,076.11 11,995.00 11,423.96
8/31/2014 12,265.87 12,108.00 11,550.08
9/30/2014 12,110.47 12,021.00 11,471.65
10/31/2014 12,244.04 12,108.00 11,584.41
11/30/2014 12,351.28 12,155.00 11,666.59
12/31/2014 12,406.29 12,129.00 11,677.53
1/31/2015 12,828.36 12,351.00 11,922.38
2/28/2015 12,591.42 12,279.00 11,810.29
3/31/2015 12,635.91 12,320.00 11,865.12
4/30/2015 12,537.89 12,289.00 11,822.55
5/31/2015 12,447.47 12,255.00 11,794.07
6/30/2015 12,243.99 12,098.00 11,665.46
7/31/2015 12,360.06 12,143.00 11,746.57
8/31/2015 12,260.69 12,050.00 11,729.67
9/30/2015 12,338.03 12,090.00 11,809.01
10/31/2015 12,397.06 12,133.00 11,811.02
11/30/2015 12,356.42 12,080.00 11,779.80
12/31/2015 12,260.63 11,965.00 11,741.75
1/31/2016 12,370.81 12,024.00 11,903.29
2/29/2016 12,474.42 12,094.00 11,987.75
3/31/2016 12,742.02 12,321.00 12,097.71
4/30/2016 12,875.26 12,486.00 12,144.18
5/31/2016 12,887.00 12,507.00 12,147.29
6/30/2016 13,178.77 12,771.00 12,365.55
7/31/2016 13,360.31 12,936.00 12,443.73
8/31/2016 13,377.36 12,981.00 12,429.52
9/30/2016 13,345.34 12,977.00 12,422.20
10/31/2016 13,205.04 12,880.00 12,327.19
11/30/2016 12,853.53 12,564.00 12,035.63
12/31/2016 12,907.52 12,629.00 12,052.58
1/31/2017 12,959.56 12,694.00 12,076.24
[END CHART]
Data from 7/31/10 through 1/31/17.*
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 Bloomberg
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
================================================================================
USAA INCOME FUND R6 SHARES (R6 SHARES)*
(Ticker Symbol: URIFX)
--------------------------------------------------------------------------------
1/31/17
--------------------------------------------------------------------------------
Net Assets $5.0 Million
Net Asset Value Per Share $12.92
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/17
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
1.40%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/16
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
0.86%
--------------------------------------------------------------------------------
30-DAY SEC YIELDS*** AS OF 1/31/17
--------------------------------------------------------------------------------
UNSUBSIDIZED 3.16% SUBSIDIZED 3.20%
--------------------------------------------------------------------------------
EXPENSE RATIOS****
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.43% AFTER REIMBURSEMENT 0.39%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*The R6 Shares commenced operations on December 1, 2016.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***Calculated as prescribed by the Securities and Exchange Commission.
****The expense ratios are reported in the Fund's prospectus dated December 1,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through November 30, 2017, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the R6 Shares (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.39% of the R6 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
November 30, 2017. If the total annual operating expense ratio of the R6 Shares
is lower than 0.39%, the R6 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG
USAA INCOME FUND LIPPER A RATED BARCLAYS U.S.
R6 SHARES BOND FUNDS INDEX AGGREGATE BOND INDEX
12/1/2016 $10,000.00 $10,000.00 $10,000.00
12/31/2016 10,086.00 10,042.01 10,014.09
1/31/2017 10,140.00 10,082.49 10,033.75
[END CHART]
Data from 11/30/16 through 1/31/17.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund R6 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 Bloomberg
Barclays U.S. Aggregate Bond Index is calculated from the end of the month,
November 30, 2016, while the inception date of the R6 Shares is December 1,
2016. 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.
================================================================================
18 | USAA INCOME FUND
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 20.6%
AA 13.0%
A 28.0%
BBB 29.5%
BELOW INVESTMENT-GRADE 7.2%
UNRATED 1.7%
[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 21-56.
================================================================================
INVESTMENT OVERVIEW | 19
================================================================================
o TOP 10 HOLDINGS* - 1/31/17 o
(% of Net Assets)
COUPON RATE % MATURITY DATE % OF NET ASSETS
-----------------------------------------------------------
U.S. Treasury Notes ...................... 2.00 2/15/2025 1.1
U.S. Treasury Inflation-Indexed Notes .... 2.38 1/15/2025 1.0
U.S. Treasury Bonds ...................... 2.50 2/15/2045 0.9
U.S. Treasury Notes ...................... 2.63 11/15/2020 0.8
U.S. Treasury Bonds ...................... 2.50 2/15/2046 0.8
U.S. Treasury Notes ...................... 3.63 2/15/2020 0.8
U.S. Treasury Notes ...................... 3.50 5/15/2020 0.7
U.S. Treasury Notes ...................... 1.63 2/15/2026 0.7
U.S. Treasury Bonds ...................... 2.75 8/15/2042 0.5
U.S. Treasury Bonds ...................... 3.88 8/15/2040 0.5
o ASSET ALLOCATION** - 1/31/17 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 49.4%
EURODOLLAR AND YANKEE OBLIGATIONS 16.3%
U.S. TREASURY SECURITIES 11.0%
MUNICIPAL BONDS 8.1%
COMMERCIAL MORTGAGE SECURITIES 4.6%
U.S. GOVERNMENT AGENCY ISSUES 2.6%
ASSET-BACKED SECURITIES 2.0%
MONEY MARKET INSTRUMENTS 2.0%
PREFERRED STOCKS 1.3%
COLLATERALIZED LOAN OBLIGATIONS 1.0%
COMMON STOCKS 0.8%
FOREIGN GOVERNMENT OBLIGATIONS 0.4%
[END CHART]
*Does not include futures and money market instruments.
**Excludes futures.
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
20 | USAA INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
BONDS (95.4%)
CORPORATE OBLIGATIONS (49.4%)
CONSUMER DISCRETIONARY (2.6%)
-----------------------------
APPAREL RETAIL (0.2%)
$ 10,000 L Brands, Inc. 5.63% 2/15/2022 $ 10,516
5,000 Mens Wearhouse, Inc.(a) 5.00 6/18/2021 4,787
----------
15,303
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
1,499 Hanesbrands, Inc.(a) 3.28 4/29/2022 1,513
----------
AUTOMOBILE MANUFACTURERS (0.1%)
10,000 Ford Motor Co. 4.35 12/08/2026 10,048
----------
AUTOMOTIVE RETAIL (0.3%)
15,048 Advance Auto Parts, Inc. 4.50 12/01/2023 15,913
5,000 CST Brands, Inc. 5.00 5/01/2023 5,206
----------
21,119
----------
CABLE & SATELLITE (1.0%)
5,000 CCO Holdings, LLC & CCO Holdings Capital Corp.(b) 5.75 2/15/2026 5,311
20,000 Charter Communications Operating, LLC 6.38 10/23/2035 22,614
2,461 CSC Holdings, LLC(a) 3.77 10/11/2024 2,487
3,000 CSC Holdings, LLC(b) 5.50 4/15/2027 3,052
10,000 NBCUniversal Enterprise, Inc.(b) 1.97 4/15/2019 10,022
10,000 NBCUniversal Media, LLC(c) 5.15 4/30/2020 10,948
5,000 Sirius XM Radio, Inc.(b) 5.38 7/15/2026 5,094
10,000 Time Warner Cable, Inc. 6.75 7/01/2018 10,649
----------
70,177
----------
CASINOS & GAMING (0.1%)
3,000 International Game Technology 7.50 6/15/2019 3,332
----------
DEPARTMENT STORES (0.0%)
1,975 J.C. Penney Corp., Inc.(a) 5.25 6/23/2023 1,976
----------
HOME FURNISHINGS (0.0%)
2,500 Serta Simmons Bedding, LLC(a) 4.50 11/08/2023 2,501
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
HOMEBUILDING (0.2%)
$ 5,000 Lennar Corp. 4.50% 11/15/2019 $ 5,212
5,000 Lennar Corp. 4.13 1/15/2022 5,061
4,000 Lennar Corp. 4.88 12/15/2023 4,090
----------
14,363
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
5,000 Hyatt Hotels Corp. 3.38 7/15/2023 4,999
----------
HOUSEWARES & SPECIALTIES (0.1%)
7,500 Newell Brands, Inc. 3.85 4/01/2023 7,742
----------
INTERNET RETAIL (0.1%)
4,000 QVC, Inc. 3.13 4/01/2019 4,065
----------
MOVIES & ENTERTAINMENT (0.1%)
1,105 Metropolitan Opera Association, Inc. 1.79 10/01/2017 1,108
2,235 Metropolitan Opera Association, Inc. 2.14 10/01/2018 2,244
2,285 Metropolitan Opera Association, Inc. 2.39 10/01/2019 2,299
----------
5,651
----------
PUBLISHING (0.1%)
3,483 McGraw-Hill Global Education Intermediate
Holdings, LLC(a) 5.00 5/04/2022 3,318
----------
RESTAURANTS (0.1%)
3,755 1011778 B.C. Unlimited Liability Co.(a) 3.75 12/10/2021 3,795
----------
SPECIALTY STORES (0.1%)
7,688 Harbor Freight Tools USA, Inc.(a) 3.78 8/19/2023 7,743
----------
Total Consumer Discretionary 177,645
----------
CONSUMER STAPLES (2.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
4,000 Bunge Ltd. Finance Corp 8.50 6/15/2019 4,574
2,000 Bunge Ltd. Finance Corp. 3.25 8/15/2026 1,919
----------
6,493
----------
DRUG RETAIL (0.4%)
6,948 CVS Pass-Through Trust 6.04 12/10/2028 7,846
4,168 CVS Pass-Through Trust(b) 7.51 1/10/2032 5,089
4,356 CVS Pass-Through Trust(b) 5.93 1/10/2034 4,962
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 10,129
----------
28,026
----------
FOOD RETAIL (0.1%)
1,990 Albertsons, LLC(a) 4.25 12/21/2022 2,008
4,132 Albertsons, LLC(a) 4.75 6/22/2023 4,165
----------
6,173
----------
================================================================================
22 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.2%)
$ 4,925 Energizer Holdings, Inc.(a) 3.31% 6/30/2022 $ 4,959
10,000 SC Johnson & Son, Inc.(b) 4.35 9/30/2044 10,084
----------
15,043
----------
HYPERMARKETS & SUPER CENTERS (0.3%)
20,000 Costco Wholesale Corp. 1.70 12/15/2019 20,026
----------
PACKAGED FOODS & MEAT (1.0%)
10,000 Flowers Foods, Inc. 3.50 10/01/2026 9,576
10,000 J.M. Smucker Co. 3.50 10/15/2021 10,385
5,000 J.M. Smucker Co. 4.25 3/15/2035 5,070
3,000 JBS USA, LLC(a),(d) 3.25 10/30/2022 3,012
10,000 Kraft Heinz Foods Co. 3.50 6/06/2022 10,188
13,899 Kraft Heinz Foods Co.(b) 4.88 2/15/2025 14,885
10,000 Kraft Heinz Foods Co. 3.95 7/15/2025 10,122
3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,591
----------
66,829
----------
SOFT DRINKS (0.1%)
5,000 PepsiCo, Inc. 4.25 10/22/2044 5,150
----------
TOBACCO (0.2%)
5,000 Reynolds American, Inc. 2.30 8/21/2017 5,023
10,000 Reynolds American, Inc. 4.00 6/12/2022 10,460
----------
15,483
----------
Total Consumer Staples 163,223
----------
ENERGY (7.8%)
-------------
INTEGRATED OIL & GAS (0.4%)
15,000 Chevron Corp. 2.95 5/16/2026 14,712
10,000 Occidental Petroleum Corp. 3.40 4/15/2026 10,011
5,000 Occidental Petroleum Corp. 3.00 2/15/2027 4,828
----------
29,551
----------
OIL & GAS DRILLING (0.5%)
3,000 Nabors Industries, Inc. 9.25 1/15/2019 3,407
7,000 Nabors Industries, Inc. 4.63 9/15/2021 7,175
10,000 Noble Holding International Ltd. 4.90 8/01/2020 10,038
5,000 Noble Holding International Ltd. 7.20 4/01/2025 4,975
5,000 Rowan Companies, Inc. 7.88 8/01/2019 5,475
5,000 Rowan Companies, Inc. 4.88 6/01/2022 4,781
----------
35,851
----------
OIL & GAS EQUIPMENT & SERVICES (0.6%)
20,000 Halliburton Co. 3.80 11/15/2025 20,379
10,000 Schlumberger Holdings Corp.(b) 4.00 12/21/2025 10,465
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Weatherford Bermuda 9.63% 3/01/2019 $ 5,400
5,000 Weatherford Bermuda 4.50 4/15/2022 4,475
----------
40,719
----------
OIL & GAS EXPLORATION & PRODUCTION (1.4%)
1,232 California Resources Corp.(b) 8.00 12/15/2022 1,100
7,575 Chesapeake Energy Corp.(b) 8.00 12/15/2022 8,115
10,000 ConocoPhillips Co. 4.95 3/15/2026 11,005
10,000 ConocoPhillips Co. 4.15 11/15/2034 9,903
15,000 EOG Resources, Inc. 3.90 4/01/2035 14,529
4,000 EQT Corp. 8.13 6/01/2019 4,502
7,500 Hess Corp. 4.30 4/01/2027 7,528
6,730 Newfield Exploration Co. 5.63 7/01/2024 7,117
5,000 Newfield Exploration Co. 5.38 1/01/2026 5,200
5,000 Noble Energy, Inc. 8.25 3/01/2019 5,603
5,000 QEP Resources, Inc. 6.88 3/01/2021 5,312
10,000 Southwestern Energy Co. 5.80 1/23/2020 10,375
2,000 Southwestern Energy Co. 6.70 1/23/2025 2,015
----------
92,304
----------
OIL & GAS REFINING & MARKETING (0.6%)
14,000 EnLink Midstream Partners, LP 4.15 6/01/2025 13,782
5,000 EnLink Midstream Partners, LP 4.85 7/15/2026 5,153
10,000 Marathon Petroleum Corp. 4.75 9/15/2044 8,946
10,000 Phillips 66 4.65 11/15/2034 10,501
5,000 Valero Energy Corp. 9.38 3/15/2019 5,745
----------
44,127
----------
OIL & GAS STORAGE & TRANSPORTATION (4.3%)
15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 15,682
10,000 Boardwalk Pipelines, LP 4.45 7/15/2027 10,016
10,000 Buckeye Partners, LP 2.65 11/15/2018 10,075
10,000 Buckeye Partners, LP 5.60 10/15/2044 10,245
15,000 Columbia Pipeline Group Co. 4.50 6/01/2025 15,860
15,000 DCP Midstream, LLC(b) 5.85 5/21/2043 13,538
9,307 Enable Oklahoma Intrastate Transmission, LLC(b) 6.25 3/15/2020 9,918
4,000 Enbridge Energy Partners, LP 8.05 10/01/2077 3,900
3,000 Energy Transfer Partners, LP 9.00 4/15/2019 3,418
7,000 Energy Transfer Partners, LP 5.20 2/01/2022 7,562
5,000 Energy Transfer Partners, LP 4.75 1/15/2026 5,208
17,010 Energy Transfer Partners, LP 3.90(e) 11/01/2066 14,565
5,000 Enterprise Products Operating, LLC 3.90 2/15/2024 5,161
9,250 Enterprise Products Operating, LLC 7.03 1/15/2068 9,665
6,437 EQT Midstream Partners, LP 4.00 8/01/2024 6,398
11,000 EQT Midstream Partners, LP 4.13 12/01/2026 10,841
================================================================================
24 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 Florida Gas Transmission Co.(b) 5.45% 7/15/2020 $ 10,762
7,500 MPLX, LP 4.00 2/15/2025 7,446
5,000 NGPL PipeCo, LLC(b) 7.12 12/15/2017 5,175
10,000 NuStar Logistics, LP 8.15 4/15/2018 10,700
5,000 ONEOK Partners, LP 8.63 3/01/2019 5,626
10,000 ONEOK Partners, LP 4.90 3/15/2025 10,765
5,000 ONEOK, Inc. 4.25 2/01/2022 5,125
3,000 Plains All American Pipeline, LP 8.75 5/01/2019 3,404
3,000 Plains All American Pipeline, LP 3.85 10/15/2023 3,027
5,000 Questar Pipeline Co. 5.83 2/01/2018 5,188
7,000 Regency Energy Partners 4.50 11/01/2023 7,267
7,000 Sabine Pass Liquefaction, LLC 5.63 2/01/2021 7,595
5,000 Spectra Energy Partners, LP 3.38 10/15/2026 4,811
4,000 Targa Resources Partners, LP 5.00 1/15/2018 4,080
1,000 Targa Resources Partners, LP 4.13 11/15/2019 1,020
10,000 TC PipeLines, LP 4.65 6/15/2021 10,530
3,000 Transcontinental Gas Pipe Line Company, LLC 7.85 2/01/2026 3,851
10,000 Western Gas Partners, LP 5.38 6/01/2021 10,835
6,250 Western Gas Partners, LP 4.65 7/01/2026 6,502
15,000 Williams Companies, Inc. 4.55 6/24/2024 15,262
----------
291,023
----------
Total Energy 533,575
----------
FINANCIALS (13.3%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.7%)
10,000 Ares Capital Corp. 4.88 11/30/2018 10,452
10,000 Bank of New York Mellon 1.30 1/25/2018 10,002
5,000 Main Street Capital Corp. 4.50 12/01/2019 5,024
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,296
15,000 State Street Corp. 1.96(e) 6/01/2077 13,252
----------
49,026
----------
CONSUMER FINANCE (0.4%)
5,000 Capital One Bank USA, N.A. 3.38 2/15/2023 5,008
5,000 Capital One Financial Corp.(c) 4.75 7/15/2021 5,418
10,000 Capital One Financial Corp. 3.75 4/24/2024 10,164
5,000 Discover Bank 3.10 6/04/2020 5,072
----------
25,662
----------
DIVERSIFIED BANKS (1.2%)
3,000 Bank of America Corp. 8.00 -(f) 3,106
9,000 Bank of America Corp. 4.00 4/01/2024 9,254
10,000 Bank of America Corp. 4.20 8/26/2024 10,175
5,000 Bank of America Corp. 3.95 4/21/2025 4,969
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Bank of America, N.A. 6.10% 6/15/2017 $ 5,084
20,000 Citigroup, Inc. 4.40 6/10/2025 20,298
5,000 Citigroup, Inc. 4.45 9/29/2027 5,081
5,000 JPMorgan Chase & Co. 4.25 10/01/2027 5,097
2,610 JPMorgan Chase Bank, N.A. 6.00 10/01/2017 2,687
16,800 USB Realty Corp.(b) 2.17(e) -(f) 14,196
----------
79,947
----------
FINANCIAL EXCHANGES & DATA (0.1%)
10,000 S&P Global, Inc. 4.00 6/15/2025 10,312
----------
INVESTMENT BANKING & BROKERAGE (0.2%)
10,000 Morgan Stanley 4.88 11/01/2022 10,737
----------
LIFE & HEALTH INSURANCE (1.8%)
10,000 Forethought Financial Group(b) 8.63 4/15/2021 11,131
20,000 Jackson National Life Global(b) 3.25 1/30/2024 20,136
10,000 Lincoln National Corp. 4.20 3/15/2022 10,550
15,000 Lincoln National Corp. 3.26(e) 5/17/2066 12,863
10,000 MetLife, Inc. 4.13 8/13/2042 9,794
4,000 Ohio National Financial Services, Inc.(b) 6.38 4/30/2020 4,414
5,000 Ohio National Financial Services, Inc.(b) 6.63 5/01/2031 5,840
10,000 Primerica, Inc. 4.75 7/15/2022 10,723
10,000 Prudential Financial, Inc. 5.63 6/15/2043 10,550
17,050 StanCorp Financial Group, Inc. 5.00 8/15/2022 17,787
6,625 StanCorp Financial Group, Inc. 6.90(e) 6/01/2067 5,515
5,000 TIAA Asset Management Finance Co., LLC(b) 4.13 11/01/2024 5,093
----------
124,396
----------
MULTI-LINE INSURANCE (1.5%)
10,000 American International Group, Inc. 3.88 1/15/2035 9,347
11,500 Genworth Holdings, Inc. 2.91(e) 11/15/2066 4,399
14,000 Glen Meadow Pass-Through Trust(b) 6.51(e) 2/12/2067 11,970
20,500 Kemper Corp. 4.35 2/15/2025 20,218
10,000 Loews Corp. 2.63 5/15/2023 9,804
5,000 Loews Corp. 3.75 4/01/2026 5,083
10,000 MassMutual Global Funding II(b) 3.60 4/09/2024 10,212
29,505 Nationwide Mutual Insurance Co.(b) 3.25(e) 12/15/2024 29,118
----------
100,151
----------
MULTI-SECTOR HOLDINGS (0.2%)
10,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 10,000
5,000 Lubrizol Corp. 8.88 2/01/2019 5,703
----------
15,703
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
5,000 Icahn Enterprises, LP 3.50 3/15/2017 5,001
----------
================================================================================
26 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (1.7%)
$ 5,000 Allstate Corp. 5.75% 8/15/2053 $ 5,278
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,531
18,050 Chubb Corp. 6.38(e) 3/29/2067 17,653
15,000 Chubb INA Holdings, Inc. 3.35 5/15/2024 15,268
10,000 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 11,593
19,300 Oil Insurance Ltd.(b) 3.98(e) -(f) 16,357
6,000 Old Republic International Corp. 3.88 8/26/2026 5,813
10,000 ProAssurance Corp. 5.30 11/15/2023 10,940
14,538 Progressive Corp. 6.70(e) 6/15/2067 14,429
5,000 Travelers Companies, Inc. 6.25(e) 3/15/2067 5,000
----------
112,862
----------
REGIONAL BANKS (4.8%)
5,000 AmSouth Bancorp. 6.75 11/01/2025 5,737
15,000 Banc of California, Inc. 5.25 4/15/2025 14,725
5,000 Bank of the Ozarks, Inc. 5.50 7/01/2026 5,231
5,000 BankUnited, Inc. 4.88 11/17/2025 4,986
10,000 Citizens Bank, N.A. 2.45 12/04/2019 10,058
15,000 Citizens Financial Group, Inc.(b) 4.15 9/28/2022 15,281
5,500 Citizens Financial Group, Inc. 3.75 7/01/2024 5,359
8,000 CoBiz Financial, Inc. 5.63 6/25/2030 8,416
20,000 Compass Bank 3.88 4/10/2025 19,183
10,000 Cullen/Frost Capital Trust II 2.48(e) 3/01/2034 8,694
10,000 Eagle Bancorp, Inc. 5.00 8/01/2026 10,197
5,000 Fifth Third Bancorp 2.30 3/01/2019 5,041
10,000 Fifth Third Bank 3.85 3/15/2026 10,060
3,500 First Maryland Capital Trust I 2.02(e) 1/15/2027 3,163
10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,846
10,000 First Republic Bank 2.38 6/17/2019 9,993
10,000 FirstMerit Bank, N.A. 4.27 11/25/2026 10,155
10,000 Fulton Financial Corp. 4.50 11/15/2024 9,944
5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 4,964
10,000 Huntington Bancshares, Inc. 4.35 2/04/2023 10,388
20,000 Key Bank, N.A. 3.40 5/20/2026 19,418
5,000 LegacyTexas Financial Group 5.50 12/01/2025 4,976
20,000 MUFG Americas Holdings Corp. 3.00 2/10/2025 19,259
10,000 MUFG Union Bank, N.A. 2.25 5/06/2019 10,018
22,685 People's United Financial, Inc. 3.65 12/06/2022 22,898
7,000 PNC Bank, N.A. 4.20 11/01/2025 7,425
10,000 PNC Financial Services 2.85 11/09/2022 9,991
10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,929
5,000 Sterling National Bank 5.25 4/01/2026 5,056
6,021 Susquehanna Bancshares, Inc. 5.38 8/15/2022 6,710
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 TCF National Bank 6.25% 6/08/2022 $ 10,958
10,000 Union Bankshares Corp. 5.00 12/15/2026 10,294
5,000 Webster Financial Corp. 4.38 2/15/2024 4,967
----------
325,320
----------
REINSURANCE (0.2%)
10,000 Alterra Finance, LLC 6.25 9/30/2020 11,149
2,000 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 2,019
----------
13,168
----------
SPECIALIZED FINANCE (0.1%)
10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 10,107
----------
THRIFTS & MORTGAGE FINANCE (0.3%)
3,250 Chittenden Corp. 1.59(e) 2/14/2017 3,250
10,000 EverBank Financial Corp. 5.75 7/02/2025 10,195
10,000 Flagstar Bancorp, Inc. 6.13 7/15/2021 10,679
----------
24,124
----------
Total Financials 906,516
----------
HEALTH CARE (2.3%)
------------------
BIOTECHNOLOGY (0.4%)
5,000 AbbVie, Inc. 3.20 11/06/2022 5,018
10,000 AbbVie, Inc. 3.60 5/14/2025 9,859
15,000 Baxalta, Inc. 4.00 6/23/2025 15,088
----------
29,965
----------
HEALTH CARE EQUIPMENT (0.4%)
10,000 Covidien International Finance S.A. 2.95 6/15/2023 9,891
10,000 CR Bard, Inc. 3.00 5/15/2026 9,632
10,000 Medtronic, Inc. 4.38 3/15/2035 10,480
----------
30,003
----------
HEALTH CARE FACILITIES (0.5%)
5,000 HCA, Inc. 5.00 3/15/2024 5,218
15,000 HCA, Inc. 5.25 4/15/2025 15,825
2,500 HCA, Inc. 4.50 2/15/2027 2,472
7,000 Premier Health Partners 2.91 11/15/2026 6,444
2,000 Tenet Healthcare Corp. 4.50 4/01/2021 2,020
----------
31,979
----------
HEALTH CARE SERVICES (0.2%)
15,000 Express Scripts Holding Co. 3.40 3/01/2027 14,010
----------
MANAGED HEALTH CARE (0.1%)
5,000 UnitedHealth Group, Inc. 3.10 3/15/2026 4,928
----------
================================================================================
28 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (0.7%)
$ 15,000 Actavis Funding SCS 3.80% 3/15/2025 $ 14,999
20,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 16,600
5,000 Mylan N.V.(b) 3.75 12/15/2020 5,065
5,000 Mylan N.V.(b) 3.95 6/15/2026 4,733
5,000 Valeant Pharmaceuticals International, Inc.(b) 6.75 8/15/2021 4,250
----------
45,647
----------
Total Health Care 156,532
----------
INDUSTRIALS (5.5%)
------------------
AEROSPACE & DEFENSE (0.5%)
15,000 Arconic, Inc. 5.13 10/01/2024 15,635
10,000 Lockheed Martin Corp. 3.60 3/01/2035 9,558
10,000 Raytheon Co. 4.20 12/15/2044 10,387
----------
35,580
----------
AIR FREIGHT & LOGISTICS (0.1%)
10,000 FedEx Corp. 3.90 2/01/2035 9,599
----------
AIRLINES (1.8%)
4,497 American Airlines, Inc. Pass-Through Trust(b) 7.00 7/31/2019 4,709
8,854 American Airlines, Inc. Pass-Through Trust 3.70 4/01/2028 8,887
9,764 American Airlines, Inc. Pass-Through Trust 4.00 3/22/2029 9,995
5,000 American Airlines, Inc. Pass-Through Trust 4.00 8/15/2030 5,044
307 Continental Airlines, Inc. Pass-Through Trust 7.88 1/02/2020 319
2,177 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 2,264
8,277 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 8,569
4,236 Continental Airlines, Inc. Pass-Through Trust 4.00 4/29/2026 4,326
8,427 Delta Air Lines Pass-Through Trust 3.88 1/30/2029 8,680
14,611 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 7/15/2027 14,776
14,491 Spirit Airlines, Inc. Pass-Through Trust 4.10 10/01/2029 14,726
7,000 United Airlines, Inc. Pass-Through Trust 3.70 6/01/2024 7,044
4,511 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,663
18,846 United Airlines, Inc. Pass-Through Trust 3.75 3/03/2028 19,129
3,225 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,583
8,391 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 8,548
----------
125,262
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%)
10,000 Caterpillar Financial Services Corp. 1.25 11/06/2017 9,997
4,912 Terex Corp.(a) 3.75 8/13/2021 4,912
10,000 Wabtec Corp.(b) 3.45 11/15/2026 9,673
----------
24,582
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.4%)
$ 15,000 Eaton Corp. 2.75% 11/02/2022 $ 14,982
10,000 Hubbell, Inc. 3.35 3/01/2026 9,918
----------
24,900
----------
INDUSTRIAL CONGLOMERATES (0.3%)
15,000 General Electric Capital Corp./LJ VP Holdings, LLC(b) 3.80 6/18/2019 15,658
5,921 General Electric Co. 5.00 -(f) 6,165
----------
21,823
----------
INDUSTRIAL MACHINERY (0.4%)
10,000 CNH Industrial Capital, LLC 3.88 7/16/2018 10,200
6,500 CNH Industrial Capital, LLC 3.38 7/15/2019 6,597
5,000 Hillenbrand, Inc.(g) 5.50 7/15/2020 5,374
1,500 Ingersoll-Rand Co. 9.00 8/15/2021 1,838
5,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 5,274
----------
29,283
----------
RAILROADS (1.1%)
8,000 Burlington Northern Santa Fe, LLC 3.75 4/01/2024 8,401
10,000 Burlington Northern Santa Fe, LLC 3.65 9/01/2025 10,419
7,000 Burlington Northern Santa Fe, LLC 3.90 8/01/2046 6,813
7,000 Kansas City Southern Co. 3.13 6/01/2026 6,667
5,000 TTX Co.(b) 4.15 1/15/2024 5,238
10,000 TTX Co.(b) 3.60 1/15/2025 10,106
5,000 Union Pacific Corp. 7.88 1/15/2019 5,557
10,000 Union Pacific Corp. 3.38 2/01/2035 9,544
10,000 Union Pacific Corp. 4.25 4/15/2043 10,313
----------
73,058
----------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
10,000 ILFC E-Capital Trust I(b) 4.67(e) 12/21/2065 8,806
5,000 International Lease Finance Corp.(b) 7.13 9/01/2018 5,391
4,000 United Rentals North America, Inc. 6.13 6/15/2023 4,240
----------
18,437
----------
TRUCKING (0.2%)
5,000 J.B. Hunt Transport Services, Inc. 3.85 3/15/2024 5,098
5,000 Ryder System, Inc. 3.45 11/15/2021 5,138
----------
10,236
----------
Total Industrials 372,760
----------
INFORMATION TECHNOLOGY (2.1%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
5,963 Solera, LLC(a),(d) 5.75 3/03/2023 6,036
----------
================================================================================
30 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.3%)
$ 5,000 Cisco Systems, Inc. 2.90% 3/04/2021 $ 5,132
10,000 Cisco Systems, Inc. 2.60 2/28/2023 9,941
3,000 CommScope, Inc.(b) 4.38 6/15/2020 3,090
----------
18,163
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
5,000 Total System Services, Inc. 4.80 4/01/2026 5,368
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
10,000 Molex Electronic Technologies, LLC(b) 3.90 4/15/2025 9,950
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
7,500 Activision Blizzard, Inc.(b) 3.40 9/15/2026 7,174
----------
INTERNET SOFTWARE & SERVICES (0.1%)
4,250 Verisign, Inc. 5.25 4/01/2025 4,412
----------
IT CONSULTING & OTHER SERVICES (0.1%)
5,000 IBM Corp. 7.63 10/15/2018 5,504
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
10,000 Applied Materials, Inc. 5.10 10/01/2035 11,238
----------
SEMICONDUCTORS (0.3%)
5,000 Analog Devices, Inc. 4.50 12/05/2036 4,973
5,000 Broadcom Ltd. / Broadcom Cayman, LP(b) 3.63 1/15/2024 5,014
10,000 QUALCOMM, Inc. 4.65 5/20/2035 10,306
----------
20,293
----------
SYSTEMS SOFTWARE (0.6%)
10,000 Microsoft Corp.(d) 3.30 2/06/2027 10,015
20,000 Microsoft Corp. 4.20 11/03/2035 20,687
10,000 Microsoft Corp. 3.45 8/08/2036 9,314
----------
40,016
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.1%)
7,500 Diamond 1 Finance Corp. / Diamond 2
Finance Corp.(b) 4.42 6/15/2021 7,813
3,000 Western Digital Corp. 7.38 4/01/2023 3,308
----------
11,121
----------
Total Information Technology 139,275
----------
MATERIALS (2.4%)
----------------
COMMODITY CHEMICALS (0.3%)
10,000 Chevron Phillips Chemical Co.(b) 3.40 12/01/2026 9,990
10,000 Westlake Chemical Corp.(b) 3.60 8/15/2026 9,728
----------
19,718
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (0.0%)
$ 3,000 Eagle Materials, Inc. 4.50% 8/01/2026 $ 3,001
----------
DIVERSIFIED CHEMICALS (0.6%)
7,500 CF Industries, Inc.(b) 4.50 12/01/2026 7,510
20,000 Dow Chemical Co. 4.25 10/01/2034 20,028
10,000 E.I. du Pont de Nemours & Co. 2.80 2/15/2023 9,905
----------
37,443
----------
DIVERSIFIED METALS & MINING (0.2%)
5,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 4,988
5,000 Freeport-McMoRan, Inc. 4.00 11/14/2021 4,900
----------
9,888
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
5,000 Monsanto Co. 3.38 7/15/2024 5,027
5,000 Monsanto Co. 3.95 4/15/2045 4,571
----------
9,598
----------
METAL & GLASS CONTAINERS (0.4%)
4,000 Ball Corp. 4.38 12/15/2020 4,218
3,000 Ball Corp. 5.00 3/15/2022 3,161
5,000 Ball Corp. 5.25 7/01/2025 5,275
5,000 Crown Americas, LLC/Crown Americas
Capital Corp.(b) 4.25 9/30/2026 4,787
3,883 Greif, Inc. 6.75 2/01/2017 3,883
8,806 Reynolds Group Holdings, Inc.(a) 4.25 2/05/2023 8,845
----------
30,169
----------
PAPER PACKAGING (0.3%)
2,000 Graphic Packaging International, Inc. 4.13 8/15/2024 1,950
5,000 International Paper Co. 3.80 1/15/2026 5,076
7,500 International Paper Co. 3.00 2/15/2027 7,055
5,000 Sealed Air Corp.(b) 6.88 7/15/2033 5,275
----------
19,356
----------
SPECIALTY CHEMICALS (0.2%)
15,000 RPM International, Inc. 6.13 10/15/2019 16,387
----------
STEEL (0.3%)
5,000 Allegheny Ludlum Corp. 6.95 12/15/2025 4,675
5,000 Allegheny Technologies, Inc. 9.38 6/01/2019 5,538
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 9,900
----------
20,113
----------
Total Materials 165,673
----------
================================================================================
32 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
REAL ESTATE (3.2%)
------------------
REITs - DIVERSIFIED (0.4%)
$ 6,000 Spirit Realty Capital, Inc.(b) 4.45% 9/15/2026 $ 5,762
10,000 VEREIT Operating Partnership, LP 3.00 2/06/2019 10,032
15,000 Washington REIT 3.95 10/15/2022 15,120
----------
30,914
----------
REITs - HEALTH CARE (0.4%)
4,000 Care Capital Properties, LP(b) 5.13 8/15/2026 3,874
4,901 MPT Operating Partnership, LP / MPT
Finance Corp. 5.25 8/01/2026 4,828
10,000 Ventas Realty, LP 4.00 4/30/2019 10,379
10,000 Welltower, Inc. 6.13 4/15/2020 11,115
----------
30,196
----------
REITs - HOTEL & RESORT (0.1%)
5,000 Hospitality Property Trust 4.95 2/15/2027 4,994
----------
REITs - INDUSTRIAL (0.1%)
5,000 ProLogis, LP 7.38 10/30/2019 5,676
----------
REITs - OFFICE (0.7%)
5,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 5,298
5,000 Alexandria Real Estate Equities, Inc. 4.50 7/30/2029 5,058
8,034 Boston Properties, LP(g) 3.70 11/15/2018 8,262
10,000 Boston Properties, LP 5.88 10/15/2019 10,894
10,000 Boston Properties, LP 3.85 2/01/2023 10,336
7,500 Columbia Property Trust Operating Partnership, LP 3.65 8/15/2026 7,169
----------
47,017
----------
REITs - RESIDENTIAL (0.4%)
5,000 AvalonBay Communities, Inc. 3.63 10/01/2020 5,202
5,000 AvalonBay Communities, Inc. 3.45 6/01/2025 5,036
9,000 ERP Operating, LP 2.85 11/01/2026 8,472
7,000 UDR, Inc. 4.63 1/10/2022 7,483
----------
26,193
----------
REITs - RETAIL (0.7%)
3,000 Federal Realty Investment Trust 5.90 4/01/2020 3,319
7,000 Federal Realty Investment Trust 3.00 8/01/2022 7,043
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,779
5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,099
5,000 Realty Income Corp. 4.13 10/15/2026 5,146
6,000 Realty Income Corp. 3.00 1/15/2027 5,682
2,000 Regency Centers, LP 6.00 6/15/2020 2,206
10,000 Simon Property Group, LP 4.13 12/01/2021 10,664
----------
48,938
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - SPECIALIZED (0.4%)
$ 4,433 Communications Sales & Leasing, Inc.(a) 4.50% 10/24/2022 $ 4,495
10,000 Crown Castle International Corp. 5.25 1/15/2023 10,900
4,000 EPR Properties 7.75 7/15/2020 4,553
5,000 EPR Properties 4.75 12/15/2026 4,971
----------
24,919
----------
Total Real Estate 218,847
----------
TELECOMMUNICATION SERVICES (1.9%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.6%)
25,000 AT&T, Inc. 4.50 5/15/2035 23,575
10,000 AT&T, Inc.(d) 5.25 3/01/2037 9,953
10,000 Centel Capital Corp. 9.00 10/15/2019 11,400
10,000 CenturyLink, Inc. 5.80 3/15/2022 10,322
2,000 CenturyLink, Inc. 6.75 12/01/2023 2,065
10,000 Frontier Communications Corp. 11.00 9/15/2025 10,150
8,909 Frontier Communications Corp. 7.88 1/15/2027 7,550
5,000 Qwest Corp.(c) 6.75 12/01/2021 5,509
15,000 Verizon Communications, Inc. 4.50 9/15/2020 16,024
10,000 Verizon Communications, Inc. 4.40 11/01/2034 9,562
5,000 Verizon Communications, Inc. 4.13 8/15/2046 4,323
----------
110,433
----------
WIRELESS TELECOMMUNICATION SERVICES (0.3%)
4,774 Grain Spectrum Funding II(b) 3.29 10/10/2034 4,872
11,000 Sprint Spectrum Co., LLC/Sprint Spectrum Co. II,
LLC/Sprint Spectrum Co.(b) 3.36 3/20/2023 11,041
4,000 T-Mobile USA, Inc. 6.63 11/15/2020 4,105
----------
20,018
----------
Total Telecommunication Services 130,451
----------
UTILITIES (5.9%)
----------------
ELECTRIC UTILITIES (3.4%)
5,000 Atlantic City Electric Co. 3.38 9/01/2024 4,945
10,000 Cleco Corporate Holdings, LLC(b) 3.74 5/01/2026 9,891
5,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 5,590
5,000 Delmarva Power & Light Co. 4.15 5/15/2045 5,084
7,000 Duke Energy Carolinas 3.88 3/15/2046 6,851
10,000 Duke Energy Indiana, LLC 3.75 5/15/2046 9,478
10,000 Duke Energy Progress, Inc. 4.15 12/01/2044 10,120
3,500 Duquesne Light Holdings, Inc.(b) 5.90 12/01/2021 3,915
4,000 Entergy Arkansas, Inc. 3.05 6/01/2023 4,012
7,000 Entergy Louisiana, LLC 4.95 1/15/2045 7,198
================================================================================
34 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 Entergy Texas, Inc. 2.55% 6/01/2021 $ 9,994
508 FPL Energy American Wind, LLC(b) 6.64 6/20/2023 523
5,000 Georgia Power Co. 3.25 4/01/2026 5,025
3,168 Mississippi Power Co. 4.25 3/15/2042 2,789
10,000 Monongahela Power Co.(b) 4.10 4/15/2024 10,494
5,000 Nevada Power Co. 7.13 3/15/2019 5,543
4,000 NextEra Energy Capital Holdings, Inc. 6.65(e) 6/15/2067 3,526
5,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 5,043
5,000 Oglethorpe Power Corp. 6.10 3/15/2019 5,419
5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 4,771
15,000 Pacific Gas & Electric Co. 2.95 3/01/2026 14,700
26,130 PPL Capital Funding, Inc. 6.70(e) 3/30/2067 24,170
10,000 Public Service Electric 3.80 3/01/2046 9,854
5,000 South Carolina Electric & Gas Co. 5.30 5/15/2033 5,728
5,000 South Carolina Electric & Gas Co. 4.10 6/15/2046 4,947
10,000 Southern California Edison Co. 6.25 -(f) 11,040
10,000 Southern Co. 3.25 7/01/2026 9,692
390 Tri-State Generation & Transmission Association
Pass-Through Trust(b) 6.04 1/31/2018 403
10,000 Tri-State Generation & Transmission Association, Inc. 4.70 11/01/2044 10,367
10,000 Tri-State Generation & Transmission Association, Inc. 4.25 6/01/2046 9,663
10,000 Xcel Energy, Inc. 3.30 6/01/2025 10,012
----------
230,787
----------
GAS UTILITIES (0.6%)
4,000 Atmos Energy Corp. 8.50 3/15/2019 4,532
10,000 Atmos Energy Corp. 4.13 10/15/2044 10,062
10,000 National Fuel Gas Co. 4.90 12/01/2021 10,625
10,000 National Fuel Gas Co. 5.20 7/15/2025 10,389
7,000 Southern Co. Gas Capital 3.25 6/15/2026 6,863
----------
42,471
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
816 AES Corp. 3.93(e) 6/01/2019 819
5,000 AES Corp. 4.88 5/15/2023 5,000
10,000 AES Corp. 5.50 4/15/2025 10,175
4,925 Calpine Corp.(a) 3.75 1/15/2024 4,957
----------
20,951
----------
MULTI-UTILITIES (1.4%)
5,000 Ameren Illinois Co. 9.75 11/15/2018 5,690
15,000 Berkshire Hathaway Energy Co. 4.50 2/01/2045 15,652
5,000 Black Hills Corp. 5.88 7/15/2020 5,475
10,000 Black Hills Corp. 4.25 11/30/2023 10,529
15,000 Northern States Power Co. 4.00 8/15/2045 15,032
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 20,000 Northern States Power Co. 3.60% 5/15/2046 $ 18,849
5,000 Northwestern Corp. 6.34 4/01/2019 5,438
5,000 Puget Sound Energy, Inc. 6.97 6/01/2067 4,413
15,000 WEC Energy Group, Inc. 6.25(e) 5/15/2067 13,538
----------
94,616
----------
WATER UTILITIES (0.2%)
10,000 Aquarion Co., Inc.(b) 4.00 8/15/2024 10,047
----------
Total Utilities 398,872
----------
Total Corporate Obligations (cost: $3,313,612) 3,363,369
----------
EURODOLLAR AND YANKEE OBLIGATIONS (16.3%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.3%)
10,000 American Honda Finance Corp.(b) 7.63 10/01/2018 10,978
5,000 Daimler Finance, N.A., LLC(b) 1.88 1/11/2018 5,013
5,000 Daimler Finance, N.A., LLC(b) 2.25 7/31/2019 5,007
----------
20,998
----------
PUBLISHING (0.1%)
10,000 Pearson Funding Four plc(b) 3.75 5/08/2022 9,778
----------
Total Consumer Discretionary 30,776
----------
CONSUMER STAPLES (1.2%)
-----------------------
BREWERS (0.3%)
20,000 Anheuser-Busch InBev S.A./N.V. 4.70 2/01/2036 21,002
----------
DISTILLERS & VINTNERS (0.2%)
10,000 Pernod Ricard S.A.(b) 4.25 7/15/2022 10,507
----------
PACKAGED FOODS & MEAT (0.1%)
4,000 Kerry Group Financial Services(b) 3.20 4/09/2023 3,921
2,500 Smithfield Foods, Inc.(b),(d) 4.25 2/01/2027 2,531
----------
6,452
----------
TOBACCO (0.6%)
20,000 BAT International Finance plc(b) 3.95 6/15/2025 20,447
20,000 Imperial Brands Finance plc(b) 4.25 7/21/2025 20,622
----------
41,069
----------
Total Consumer Staples 79,030
----------
ENERGY (1.1%)
-------------
INTEGRATED OIL & GAS (0.7%)
10,000 BP Capital Markets plc 1.63 8/17/2017 10,009
10,000 BP Capital Markets plc 3.72 11/28/2028 10,088
================================================================================
36 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 4,000 Husky Energy, Inc. 7.25% 12/15/2019 $ 4,548
6,000 Petrobras Global Finance Co. 6.13 1/17/2022 6,204
6,000 Petroleos Mexicanos Co.(b) 5.38 3/13/2022 6,124
10,000 Shell International Finance B.V. 3.63 8/21/2042 9,108
----------
46,081
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
3,500 Repsol Oil & Gas Canada, Inc. 7.75 6/01/2019 3,825
10,000 Woodside Finance Ltd.(b) 8.75 3/01/2019 11,270
----------
15,095
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 6,016
12,124 TransCanada PipeLines Ltd. 6.35(e) 5/15/2067 11,184
----------
17,200
----------
Total Energy 78,376
----------
FINANCIALS (5.8%)
-----------------
DIVERSIFIED BANKS (4.7%)
15,000 ABN AMRO Bank N.V.(b) 4.75 7/28/2025 15,331
10,000 ABN AMRO Bank N.V.(b) 4.80 4/18/2026 10,273
10,000 Australia & New Zealand Banking Group Ltd.(b) 4.40 5/19/2026 10,133
4,000 Banco Santander Chile(b) 1.91(e) 4/11/2017 3,996
10,000 Bank of Nova Scotia 4.50 12/16/2025 10,357
5,000 Barclays Bank plc(b) 6.05 12/04/2017 5,158
10,000 BBVA Bancomer S.A. Texas Agency(b) 4.38 4/10/2024 10,047
5,000 BNP Paribas S.A.(b) 7.20 -(f) 5,431
5,000 BNP Paribas S.A.(b) 4.38 9/28/2025 5,010
10,000 BNP Paribas S.A.(b) 4.38 5/12/2026 10,000
3,828 Canadian Imperial Bank of Commerce(b) 7.26 4/10/2032 4,497
5,000 Caribbean Development Bank(b) 4.38 11/09/2027 5,155
10,000 Cooperatieve Rabobank U.A. 3.88 2/08/2022 10,501
16,903 Cooperatieve Rabobank U.A. 3.95 11/09/2022 17,318
10,000 Credit Suisse Group Funding Ltd. 4.55 4/17/2026 10,294
15,000 DNB Bank ASA(b) 3.20 4/03/2017 15,050
5,000 HBOS plc(b) 6.75 5/21/2018 5,280
15,000 HSBC Bank plc 1.63(e) -(f) 11,536
10,000 HSBC Holdings plc 3.90 5/25/2026 10,013
5,000 HSBC Holdings plc 4.38 11/23/2026 5,037
25,000 Lloyds Banking Group plc 3.75 1/11/2027 24,626
5,000 National Australia Bank Ltd. 3.00 1/20/2023 5,014
11,000 Nordea Bank AB(b) 4.88 5/13/2021 11,790
20,000 Royal Bank of Canada 4.65 1/27/2026 21,088
5,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 5,281
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 7,000 Royal Bank of Scotland Group plc 3.88% 9/12/2023 $ 6,813
5,000 Royal Bank of Scotland Group plc 4.80 4/05/2026 5,015
5,000 Santander UK Group Holdings plc 3.57 1/10/2023 5,025
10,000 Santander UK plc(b) 5.00 11/07/2023 10,373
5,000 Santander UK plc 4.00 3/13/2024 5,190
4,355 Standard Chartered Bank(b) 6.40 9/26/2017 4,474
10,000 Swedbank AB(b) 1.75 3/12/2018 10,009
7,500 Swedbank AB(b) 2.65 3/10/2021 7,521
10,000 Toronto-Dominion Bank 3.63 9/15/2031 9,740
10,000 Westpac Banking Corp. 4.32 11/23/2031 10,003
----------
322,379
----------
LIFE & HEALTH INSURANCE (0.1%)
6,000 Great-West Life & Annuity Insurance Capital, LP(b) 3.45(e) 5/16/2046 5,310
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%)
15,000 ING Bank N.V.(b) 3.75 3/07/2017 15,036
5,500 ING Bank N.V. 4.13 11/21/2023 5,595
5,000 ING Capital Funding Trust III 4.60(e) -(f) 4,969
----------
25,600
----------
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(e) -(f) 4,225
5,000 XLIT Ltd. 4.45 3/31/2025 5,005
----------
31,305
----------
THRIFTS & MORTGAGE FINANCE (0.1%)
10,000 Nationwide Building Society(b) 4.00 9/14/2026 9,538
----------
Total Financials 394,132
----------
GOVERNMENT (0.2%)
-----------------
FOREIGN GOVERNMENT (0.2%)
10,000 Italy Government International Bond 5.38 6/15/2033 10,899
----------
HEALTH CARE (0.3%)
------------------
PHARMACEUTICALS (0.3%)
10,000 GlaxoSmithKline Capital, Inc. 4.20 3/18/2043 10,229
15,000 Teva Pharmaceuticals Finance 3.15 10/01/2026 13,626
----------
23,855
----------
Total Health Care 23,855
----------
INDUSTRIALS (3.4%)
------------------
AGRICULTURAL & FARM MACHINERY (0.2%)
15,000 CNH Industrial N.V. 4.50 8/15/2023 15,047
----------
================================================================================
38 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
AIRLINES (1.3%)
$ 4,561 Air Canada Pass-Through Trust(b) 5.38% 11/15/2022 $ 4,658
21,864 Air Canada Pass-Through Trust(b) 4.13 11/15/2026 22,383
9,602 Air Canada Pass-Through Trust(b) 3.60 9/15/2028 9,518
5,855 Air Canada Pass-Through Trust(b) 3.75 6/15/2029 5,921
17,784 British Airways Pass-Through Trust(b) 4.63 12/20/2025 18,896
9,054 Turkish Airlines Pass-Through Trust(b) 4.20 9/15/2028 8,902
2,349 Virgin Australia Trust(b) 6.00 4/23/2022 2,384
5,705 Virgin Australia Trust(b) 5.00 4/23/2025 5,969
10,000 WestJet Airlines Ltd.(b) 3.50 6/16/2021 10,018
----------
88,649
----------
AIRPORT SERVICES (0.5%)
10,000 Heathrow Funding Ltd.(b) 4.88 7/15/2023 10,740
15,000 Sydney Airport Finance Co. Proprietary Ltd.(b) 3.90 3/22/2023 15,431
10,000 Sydney Airport Finance Co. Proprietary Ltd. 3.63 4/28/2026 9,873
----------
36,044
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
5,500 Brambles USA, Inc.(b) 4.13 10/23/2025 5,612
----------
INDUSTRIAL CONGLOMERATES (1.0%)
7,500 CK Hutchison International 16 Ltd.(b) 2.75 10/03/2026 6,980
10,000 Hutchison Whampoa International Ltd.(b) 2.00 11/08/2017 10,025
5,000 Hutchison Whampoa International Ltd.(b) 4.63 1/13/2022 5,385
10,000 Hutchison Whampoa International Ltd.(b) 3.63 10/31/2024 10,061
20,000 Siemens Financieringsmaatschappij N.V.(b) 3.25 5/27/2025 20,020
12,250 Smiths Group plc(b) 3.63 10/12/2022 12,228
----------
64,699
----------
RAILROADS (0.2%)
12,000 Canadian National Railway Co. 2.75 3/01/2026 11,762
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
7,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 7,360
----------
Total Industrials 229,173
----------
INFORMATION TECHNOLOGY (0.0%)
-----------------------------
SEMICONDUCTORS (0.0%)
1,064 NXP B.V.(a) 3.24 12/07/2020 1,070
----------
MATERIALS (2.2%)
----------------
COMMODITY CHEMICALS (0.2%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 10,753
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (0.2%)
$ 3,000 CEMEX, S.A.B. de C.V.(b) 6.50% 12/10/2019 $ 3,180
10,000 Holcim US Finance Sarl & Cie SCS(b) 6.00 12/30/2019 10,992
----------
14,172
----------
DIVERSIFIED CHEMICALS (0.0%)
2,505 Cytec Industries, Inc. 8.95 7/01/2017 2,565
----------
DIVERSIFIED METALS & MINING (0.5%)
5,000 Anglo American Capital plc(b) 2.63 9/27/2017 5,009
5,000 Anglo American Capital plc(b) 4.88 5/14/2025 5,087
10,000 Glencore Funding, LLC(b) 2.50 1/15/2019 10,084
5,000 Glencore Funding, LLC(b) 4.13 5/30/2023 5,133
5,000 Rio Tinto Finance (USA) Ltd. 9.00 5/01/2019 5,757
----------
31,070
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
10,000 Potash Corp. of Saskatchewan, Inc. 3.00 4/01/2025 9,477
2,000 Yara International ASA(b) 7.88 6/11/2019 2,232
----------
11,709
----------
GOLD (0.4%)
15,000 Goldcorp, Inc. 3.70 3/15/2023 15,197
10,000 Kinross Gold Corp. 5.95 3/15/2024 10,543
----------
25,740
----------
METAL & GLASS CONTAINERS (0.1%)
7,500 CCL Industries, Inc.(b) 3.25 10/01/2026 7,137
2,500 Reynolds Group Holdings Ltd.(b) 5.13 7/15/2023 2,560
----------
9,697
----------
PAPER PRODUCTS (0.1%)
5,000 Amcor Finance USA, Inc.(b) 3.63 4/28/2026 4,922
----------
PRECIOUS METALS & MINERALS (0.2%)
10,000 Fresnillo plc(b) 5.50 11/13/2023 10,638
----------
SPECIALTY CHEMICALS (0.1%)
10,000 Air Liquide Finance S.A.(b) 3.50 9/27/2046 9,276
----------
STEEL (0.2%)
10,000 ArcelorMittal 7.25 2/25/2022 11,325
5,000 Vale Overseas Ltd. 4.38 1/11/2022 5,056
----------
16,381
----------
Total Materials 146,923
----------
REAL ESTATE (0.6%)
------------------
REITs - RESIDENTIAL (0.1%)
5,000 Vonovia Finance B.V.(b) 3.20 10/02/2017 5,037
----------
================================================================================
40 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(h) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - RETAIL (0.5%)
$ 5,000 Scentre Group Trust(b) 2.38% 4/28/2021 $ 4,930
10,000 Scentre Group Trust(b) 3.25 10/28/2025 9,720
20,000 WEA Finance, LLC / Westfield UK & Europe
Finance plc(b) 3.75 9/17/2024 20,285
----------
34,935
----------
Total Real Estate 39,972
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
15,000 Deutsche Telekom International Finance B.V.(b) 3.60 1/19/2027 14,851
----------
UTILITIES (0.9%)
----------------
ELECTRIC UTILITIES (0.8%)
5,000 Comision Federal de Electricidad(b) 4.75 2/23/2027 4,832
5,000 EDP Finance B.V.(b) 5.25 1/14/2021 5,331
25,000 Electricite De France S.A.(b) 5.25 -(f) 23,891
6,000 Emera US Finance, LP 3.55 6/15/2026 5,893
10,000 Fortis, Inc.(b) 3.06 10/04/2026 9,366
3,500 Transelec S.A.(b) 3.88 1/12/2029 3,344
----------
52,657
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
10,200 Transalta Corp. 6.90 5/15/2018 10,621
----------
Total Utilities 63,278
----------
Total Eurodollar and Yankee Obligations (cost: $1,091,590) 1,112,335
----------
FOREIGN GOVERNMENT OBLIGATIONS (0.4%)
CAD15,000 Province of Alberta 2.55 12/15/2022 11,890
CAD20,000 Province of Ontario 2.85 6/02/2023 16,074
----------
Total Foreign Government Obligations (cost: $34,600) 27,964
----------
ASSET-BACKED SECURITIES (2.0%)
FINANCIALS (1.6%)
-----------------
ASSET-BACKED FINANCING (1.6%)
514 Access Group, Inc. 1.30(e) 4/25/2029 511
2,252 ARL First, LLC(b) 2.52(e) 12/15/2042 2,190
2,000 Avis Budget Rental Car Funding AESOP, LLC(b) 4.42 9/20/2019 2,021
3,000 Avis Budget Rental Car Funding AESOP, LLC(b) 3.52 2/20/2020 2,979
6,713 CIT Education Loan Trust(b) 1.30(e) 6/25/2042 5,927
8,500 CIT Equipment Collateral(b) 2.15 2/20/2020 8,505
2,000 Citibank Credit Card Issuance Trust 5.35 2/07/2020 2,080
5,000 Credit Acceptance Auto Loan Trust(b) 2.29 4/15/2022 5,012
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 3,000 Credit Acceptance Auto Loan Trust(b) 3.30% 7/17/2023 $ 2,998
1,218 Drive Auto Receivables Trust(b) 2.28 6/17/2019 1,219
7,000 Element Rail Leasing I, LLC(b) 3.67 4/19/2044 6,838
1,838 Exeter Automobile Receivables Trust(b) 2.42 1/15/2019 1,840
2,773 Exeter Automobile Receivables Trust(b) 2.17 5/15/2019 2,777
1,378 First Investors Auto Owner Trust(b) 2.26 3/15/2019 1,378
20,000 Louisiana Environmental Facilities and
Community Dev. 3.24 8/01/2028 20,427
10,000 MMAF Equipment Finance, LLC(b) 2.49 2/19/2036 10,000
3,000 Navient Student Loan Trust 2.27(e) 8/25/2050 2,781
1,088 Nelnet Student Loan Trust 1.28(e) 9/22/2035 939
5,000 SBA Tower Trust(b) 2.90 10/15/2044 5,038
6,453 SLM Student Loan Trust 1.27(e) 1/25/2041 5,741
2,437 SLM Student Loan Trust 1.59(e) 10/25/2065 2,217
3,750 TCF Auto Receivables Owner Trust(b) 2.89 7/15/2021 3,767
10,000 Trip Rail Master Funding, LLC(b) 4.09 4/15/2044 9,504
3,384 Westlake Automobile Receivables Trust(b) 2.24 4/15/2020 3,389
2,000 Westlake Automobile Receivables Trust(b) 2.45 1/15/2021 2,012
----------
112,090
----------
Total Financials 112,090
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
10,000 Crown Castle Towers, LLC(b) 3.22 5/15/2042 10,121
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24 1/01/2031 14,967
----------
Total Asset-Backed Securities (cost: $136,534) 137,178
----------
COLLATERALIZED LOAN OBLIGATIONS (1.0%)
FINANCIALS (1.0%)
-----------------
3,500 American Money Management Corp.(b) 2.38(e) 10/15/2028 3,528
10,000 Babson Ltd.(b) 2.41(e) 10/17/2026 9,993
7,500 Dryden Senior Loan Fund(b) 2.52(e) 4/15/2027 7,518
4,000 Dryden Senior Loan Fund(b) 3.03(e) 7/20/2029 4,024
5,000 Loomis Sayles Ltd.(b) 2.55(e) 10/15/2027 5,002
10,000 Oaktree EIF Ltd.(b) 3.09 10/20/2027 10,025
10,000 Race Point Ltd.(b) 2.48(e) 7/25/2028 10,031
6,500 Teachers Insurance and Annuity Association of
America(b) 2.73(e) 7/20/2028 6,519
9,750 Trinitas Ltd. 2.74(e) 10/25/2028 9,787
----------
Total Financials 66,427
----------
Total Collateralized Loan Obligations (cost: $66,237) 66,427
----------
================================================================================
42 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (4.6%)
FINANCIALS (4.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (3.9%)
$ 896 Banc of America Commercial Mortgage, Inc. 5.00% 11/10/2042 $ 895
5,000 Banc of America Commercial Mortgage, Inc. 5.00 7/10/2044 3,659
10,000 Citigroup Commercial Mortgage Trust 3.36 7/10/2047 10,237
2,500 Citigroup Commercial Mortgage Trust 3.62 7/10/2047 2,603
4,000 Citigroup Commercial Mortgage Trust 3.86 7/10/2047 4,143
8,600 Commercial Mortgage Trust 3.25 10/15/2045 8,762
5,925 Commercial Mortgage Trust(b) 3.42 10/15/2045 6,088
6,000 Commercial Mortgage Trust 2.77 12/10/2045 6,037
4,000 Commercial Mortgage Trust 3.61 6/10/2046 4,185
7,500 Commercial Mortgage Trust 4.08 8/10/2047 7,820
10,000 Commercial Mortgage Trust 3.90 7/10/2050 10,504
12,000 Freddie Mac(+) 2.85 3/25/2026 11,916
20,000 Freddie Mac(+) 2.65 8/25/2026 19,596
2,500 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 2,505
2,363 GMAC Commercial Mortgage Securities, Inc. 5.29 11/10/2045 2,361
6,000 GS Mortgage Securities Corp. II 3.21 5/10/2045 6,121
5,000 GS Mortgage Securities Corp. II 3.38 5/10/2045 5,202
5,000 GS Mortgage Securities Trust 3.28 2/10/2046 5,075
5,000 GS Mortgage Securities Trust(b) 3.68 2/10/2046 5,127
5,000 GS Mortgage Securities Trust 4.24 8/10/2046 5,425
6,000 GS Mortgage Securities Trust 3.76 7/10/2048 6,283
15,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(b) 5.00 11/15/2043 16,140
5,697 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.82 5/15/2045 6,119
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.27 6/15/2045 10,666
6,782 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 6,779
9,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 4.44 2/15/2047 9,692
2,750 Morgan Stanley Capital I, Inc.(b) 5.20 6/15/2044 2,964
3,000 Morgan Stanley Capital I, Inc. 3.77 3/15/2045 3,142
7,000 Morgan Stanley Capital I, Inc. 4.00 5/15/2048 7,304
9,375 UBS Commercial Mortgage Trust 4.17 5/10/2045 10,002
15,000 UBS Commercial Mortgage Trust 4.82 5/10/2045 16,463
2,313 UBS-Barclays Commercial Mortgage Trust(b) 4.18 5/10/2063 2,447
1,500 WF-RBS Commercial Mortgage Trust(b),(c) 5.00 6/15/2044 1,644
5,000 WF-RBS Commercial Mortgage Trust 3.35 5/15/2045 5,098
10,000 WF-RBS Commercial Mortgage Trust 4.09 6/15/2045 10,585
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 WF-RBS Commercial Mortgage Trust 3.24% 12/15/2045 $ 5,075
20,000 WF-RBS Commercial Mortgage Trust 3.65 12/15/2046 21,063
----------
269,727
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.7%)
39,452 Commercial Mortgage Trust Pass-Through
Certificates(i) 2.00 5/15/2045 3,036
70,039 Commercial Mortgage Trust Pass-Through
Certificates(i) 1.00 10/15/2045 4,816
68,157 Freddie Mac(+) 1.55 10/25/2018 1,510
66,959 Freddie Mac(+) 1.00 3/25/2019 1,770
59,387 Freddie Mac(+) 1.00 1/25/2022 3,266
94,080 Freddie Mac(+) 1.00 5/25/2022 5,836
71,777 Freddie Mac(+) 1.00 6/25/2022 4,657
69,917 Freddie Mac(+) 1.00 10/25/2022 2,851
95,573 Freddie Mac(+) 1.00 11/25/2022 4,590
32,856 GS Mortgage Securities Corp. II(i) 2.37 5/10/2045 2,506
190,667 GS Mortgage Securities Trust(b),(i) 0.21 5/03/2032 3,717
53,318 UBS Commercial Mortgage Trust(b),(i) 2.00 5/10/2045 4,695
33,409 WF Commercial Mortgage Trust(b),(i) 2.00 10/15/2045 2,313
----------
45,563
----------
Total Financials 315,290
----------
Total Commercial Mortgage Securities (cost: $306,164) 315,290
----------
U.S. GOVERNMENT AGENCY ISSUES (2.6%)(j)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (2.3%)
11,250 Fannie Mae(+) 2.15 1/25/2023 11,065
11,089 Fannie Mae(+) 2.50 2/01/2028 11,216
2,032 Fannie Mae(+) 5.00 6/01/2033 2,226
511 Fannie Mae(+) 5.50 7/01/2021 540
2,384 Fannie Mae(+) 5.50 9/01/2035 2,700
1,194 Fannie Mae(+) 5.50 10/01/2035 1,340
328 Fannie Mae(+) 5.50 1/01/2036 367
1,162 Fannie Mae(+) 5.50 4/01/2036 1,298
1,076 Fannie Mae(+) 5.50 2/01/2037 1,197
1,112 Fannie Mae(+) 5.50 3/01/2037 1,247
608 Fannie Mae(+) 5.50 11/01/2037 678
1,609 Fannie Mae(+) 5.50 5/01/2038 1,796
1,134 Fannie Mae(+) 6.00 5/01/2036 1,281
834 Fannie Mae(+) 6.00 6/01/2036 944
1,285 Fannie Mae(+) 6.00 8/01/2037 1,470
287 Fannie Mae(+) 6.50 4/01/2031 326
5 Fannie Mae(+) 6.50 7/01/2031 6
515 Fannie Mae(+) 6.50 3/01/2032 594
================================================================================
44 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 13 Fannie Mae(+) 7.00% 10/01/2022 $ 14
7 Fannie Mae(+) 7.00 3/01/2023 7
3,500 Freddie Mac(+) 1.60 8/15/2051 3,398
10,000 Freddie Mac(+) 2.59 5/25/2026 9,675
17,000 Freddie Mac(+) 2.77 5/25/2025 16,774
15,000 Freddie Mac(+) 2.81 1/25/2025 15,073
7,000 Freddie Mac(+) 3.00 12/25/2025 7,089
8,000 Freddie Mac(+) 3.01 7/25/2025 8,136
10,000 Freddie Mac(+) 3.02 1/25/2025 10,211
12,046 Freddie Mac(+) 3.50 5/01/2042 12,375
15,500 Freddie Mac(+) 3.51 4/25/2030 15,955
217 Freddie Mac(+) 5.00 6/01/2020 222
704 Freddie Mac(+) 5.00 1/01/2021 746
889 Freddie Mac(+) 5.50 11/01/2020 940
272 Freddie Mac(+) 5.50 12/01/2020 285
973 Freddie Mac(+) 5.50 12/01/2035 1,097
697 Freddie Mac(+) 5.50 4/01/2036 783
3,530 Government National Mortgage Assn. I 5.00 8/15/2033 3,955
97 Government National Mortgage Assn. I 6.00 8/15/2028 110
48 Government National Mortgage Assn. I 6.00 9/15/2028 54
124 Government National Mortgage Assn. I 6.00 9/15/2028 140
1,550 Government National Mortgage Assn. I 6.00 9/15/2028 1,793
271 Government National Mortgage Assn. I 6.00 10/15/2028 314
29 Government National Mortgage Assn. I 6.00 1/15/2029 34
208 Government National Mortgage Assn. I 6.00 1/15/2029 236
135 Government National Mortgage Assn. I 6.00 1/15/2029 153
265 Government National Mortgage Assn. I 6.00 1/15/2033 306
14 Government National Mortgage Assn. I 6.50 6/15/2023 16
161 Government National Mortgage Assn. I 6.50 7/15/2023 183
6 Government National Mortgage Assn. I 6.50 7/15/2023 7
26 Government National Mortgage Assn. I 6.50 9/15/2023 30
158 Government National Mortgage Assn. I 6.50 10/15/2023 180
114 Government National Mortgage Assn. I 6.50 10/15/2023 130
21 Government National Mortgage Assn. I 6.50 10/15/2023 24
118 Government National Mortgage Assn. I 6.50 12/15/2023 134
230 Government National Mortgage Assn. I 6.50 12/15/2023 262
44 Government National Mortgage Assn. I 6.50 1/15/2024 50
85 Government National Mortgage Assn. I 6.50 2/15/2024 97
56 Government National Mortgage Assn. I 6.50 4/15/2026 64
283 Government National Mortgage Assn. I 6.50 5/15/2028 326
476 Government National Mortgage Assn. I 6.50 10/15/2031 542
33 Government National Mortgage Assn. I 7.00 5/15/2023 36
24 Government National Mortgage Assn. I 7.00 5/15/2023 24
45 Government National Mortgage Assn. I 7.00 5/15/2023 49
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 16 Government National Mortgage Assn. I 7.00% 5/15/2023 $ 17
95 Government National Mortgage Assn. I 7.00 6/15/2023 102
88 Government National Mortgage Assn. I 7.00 6/15/2023 94
43 Government National Mortgage Assn. I 7.00 8/15/2023 44
18 Government National Mortgage Assn. I 7.00 8/15/2023 19
72 Government National Mortgage Assn. I 7.00 8/15/2023 77
13 Government National Mortgage Assn. I 7.00 8/15/2023 14
57 Government National Mortgage Assn. I 7.00 9/15/2023 60
16 Government National Mortgage Assn. I 7.00 1/15/2026 17
25 Government National Mortgage Assn. I 7.00 3/15/2026 27
10 Government National Mortgage Assn. I 7.00 3/15/2026 11
185 Government National Mortgage Assn. I 7.00 10/15/2027 213
158 Government National Mortgage Assn. I 7.00 6/15/2029 174
324 Government National Mortgage Assn. I 7.00 6/15/2029 360
20 Government National Mortgage Assn. I 7.00 7/15/2029 20
229 Government National Mortgage Assn. I 7.00 8/15/2031 261
83 Government National Mortgage Assn. I 7.00 7/15/2032 89
79 Government National Mortgage Assn. I 7.50 7/15/2023 85
79 Government National Mortgage Assn. I 7.50 6/15/2026 87
144 Government National Mortgage Assn. I 7.50 6/15/2026 159
91 Government National Mortgage Assn. I 7.50 7/15/2026 99
140 Government National Mortgage Assn. I 7.50 5/15/2027 156
161 Government National Mortgage Assn. I 7.50 2/15/2028 187
122 Government National Mortgage Assn. I 7.50 12/15/2028 143
89 Government National Mortgage Assn. I 7.50 8/15/2029 102
626 Government National Mortgage Assn. II 5.50 4/20/2033 704
582 Government National Mortgage Assn. II 6.00 8/20/2032 681
429 Government National Mortgage Assn. II 6.00 9/20/2032 500
201 Government National Mortgage Assn. II 6.50 8/20/2031 232
----------
157,054
----------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.3%)
9,198 Totem Ocean Trailer Express, Inc., Title XI 6.37 4/15/2028 10,530
5,595 Washington Aircraft 1 Co. Ltd. (NBGA) 2.64 9/15/2026 5,633
----------
16,163
----------
Total U.S. Government Agency Issues (cost: $169,130) 173,217
----------
U.S. TREASURY SECURITIES (11.0%)
BONDS (4.0%)
30,000 3.88%, 8/15/2040 34,506
20,000 4.25%, 11/15/2040 24,305
40,000 2.75%, 8/15/2042 37,914
10,000 2.75%, 11/15/2042 9,472
5,000 3.38%, 5/15/2044 5,312
================================================================================
46 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 25,000 3.00%, 11/15/2044 $ 24,743
70,000 2.50%, 2/15/2045 62,523
5,000 3.00%, 11/15/2045 4,940
60,000 2.50%, 2/15/2046 53,426
12,950 2.25%, 8/15/2046 10,893
10,000 2.88%, 11/15/2046 9,656
----------
277,690
----------
INFLATION-INDEXED NOTES (1.0%)
57,621 2.38%, 1/15/2025 66,833
----------
NOTES (6.0%)
5,000 3.38%, 11/15/2019 5,268
50,000 3.63%, 2/15/2020(o) 53,162
45,000 3.50%, 5/15/2020 47,776
25,000 2.63%, 8/15/2020 25,858
55,000 2.63%, 11/15/2020 56,878
25,000 2.00%, 2/15/2022 25,077
20,000 1.63%, 8/15/2022 19,572
20,000 1.63%, 11/15/2022 19,498
10,000 2.00%, 2/15/2023 9,928
5,000 2.50%, 5/15/2024 5,077
10,000 2.25%, 11/15/2024 9,937
80,000 2.00%, 2/15/2025 77,873
5,000 2.25%, 11/15/2025 4,932
50,000 1.63%, 2/15/2026 46,708
----------
407,544
----------
Total U.S. Treasury Securities (cost: $746,705) 752,067
----------
MUNICIPAL BONDS (8.1%)
AIRPORT/PORT (1.0%)
6,500 Chicago Midway Airport 5.00% 1/01/2025 7,285
8,000 Chicago Midway Airport 5.00 1/01/2026 8,882
5,000 Chicago O'Hare International Airport 5.00 1/01/2021 5,526
12,570 Dallas-Fort Worth International Airport Facilities 4.00 11/01/2021 13,412
2,265 Dallas-Fort Worth International Airport Facilities(c) 4.44 11/01/2021 2,427
8,250 Miami-Dade County 2.70 10/01/2026 7,736
1,700 Port of Corpus Christi Auth. 3.29 12/01/2023 1,733
1,500 Port of Corpus Christi Auth. 3.39 12/01/2024 1,508
1,000 Port of Corpus Christi Auth. 3.49 12/01/2025 1,008
5,000 Port of Oakland 4.50 5/01/2030 5,362
11,700 Port of Oakland 4.50 5/01/2032 12,394
----------
67,273
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
APPROPRIATED DEBT (0.9%)
$ 5,600 Brevard County School Board 1.70% 7/01/2017 $ 5,608
4,955 Indiana Finance Auth. 4.36 7/15/2029 5,329
4,260 Indiana Finance Auth. 4.53 7/15/2031 4,639
1,500 Indiana Finance Auth. 3.62 7/01/2036 1,466
3,250 Jacksonville 2.00 10/01/2019 3,268
3,000 Jacksonville 2.37 10/01/2020 3,016
5,000 Kannapolis 7.28 3/01/2027 5,280
10,000 Kansas Dev. Finance Auth. 4.73 4/15/2037 10,566
2,000 McLennan County Public Facility 3.90 6/01/2029 2,001
10,000 Miami-Dade County School Board (INS) 5.38 5/01/2031 11,144
6,000 Palm Beach County School Board 5.40 8/01/2025 6,693
850 Placentia Yorba Linda USD 5.40 8/01/2021 934
----------
59,944
----------
CASINOS & GAMING (0.0%)
6,557 Mashantucket (Western) Pequot Tribe(k) 7.35 7/01/2026 1,049
----------
COMMUNITY SERVICE (0.0%)
2,750 Art Institute of Chicago 3.23 3/01/2022 2,798
----------
EDUCATION (0.7%)
2,000 Austin Texas CCD Public Auth. 6.91 8/01/2035 2,538
5,000 El Paso County 4.47 10/01/2035 4,984
9,520 Indiana State 2.13 7/15/2019 9,633
5,000 New Jersey EDA 2.42 6/15/2018 5,013
14,310 New Jersey EDA 4.45 6/15/2020 14,538
2,700 New Jersey EDA 5.25 9/01/2022 2,836
2,500 New Jersey EDA 5.71 6/15/2030 2,522
1,625 State Public School Building Auth. (INS) 2.84 12/01/2019 1,677
1,300 State Public School Building Auth. (INS) 4.08 12/01/2023 1,397
2,000 Torrance USD 5.52 8/01/2021 2,219
----------
47,357
----------
EDUCATION SERVICES (0.2%)
6,080 Princeton Theological Seminary 4.11 7/01/2023 6,566
5,000 Univ. of Notre Dame 3.44 2/15/2045 4,790
----------
11,356
----------
ELECTRIC UTILITIES (0.2%)
5,000 Appling County Dev. Auth 2.40 1/01/2038(l) 5,072
3,000 Hawaii Department of Budget and Finance 3.25 1/01/2025 3,032
10,000 Ohio Air Quality Dev. Auth. 3.75 12/01/2023(l) 4,342
5,000 Ohio Water Dev. Auth. 4.00 12/01/2033(l) 2,074
----------
14,520
----------
================================================================================
48 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
ELECTRIC/GAS UTILITIES (0.6%)
$ 10,000 Cleveland Public Power 5.50% 11/15/2038 $ 10,476
2,000 Jackson Energy Auth. 2.90 4/01/2022 2,024
2,745 Jackson Energy Auth. 3.05 4/01/2023 2,791
3,915 Jackson Energy Auth. 3.20 4/01/2024 3,964
10,000 Long Island Power Auth. 5.25 5/01/2022 10,881
2,500 Long Island Power Auth. 3.98 9/01/2025 2,563
2,500 Long Island Power Auth. 4.13 9/01/2026 2,592
5,014 Pedernales Electric Cooperative, Inc.(b) 5.95 11/15/2022 5,460
----------
40,751
----------
ESCROWED BONDS (0.1%)
7,300 New Jersey EDA (PRE) 5.25 9/01/2022 8,354
----------
GENERAL OBLIGATION (1.4%)
1,250 City and County of Honolulu 2.51 11/01/2022 1,252
5,000 City and County of Honolulu 2.51 11/01/2022 4,979
900 City and County of Honolulu 2.81 11/01/2023 909
730 City and County of Honolulu 2.91 11/01/2024 731
680 City and County of Honolulu 3.06 11/01/2025 676
775 City and County of Honolulu 3.16 11/01/2026 772
625 City and County of Honolulu 3.26 11/01/2027 627
690 City and County of Honolulu 3.36 11/01/2028 695
7,000 Hawaii 2.80 10/01/2027 6,743
1,250 Las Virgenes USD 5.54 8/01/2025 1,428
2,000 Oyster Bay 5.25 2/03/2017 2,000
600 Oyster Bay 3.55 2/01/2019 602
1,830 Oyster Bay 3.80 2/01/2020 1,836
1,500 Oyster Bay 3.95 2/01/2021 1,499
10,000 Philadelphia School District 5.06 9/01/2042 9,676
4,250 Riverside Community College District 3.49 8/01/2023 4,334
3,000 Riverside Community College District 3.61 8/01/2024 3,020
5,000 Scranton School District(b) 3.13 12/01/2025(l) 4,985
3,625 Scranton School District 4.13 6/15/2034(l) 3,609
1,800 State of Mississippi 2.83 12/01/2024 1,811
2,000 State of Mississippi 3.03 12/01/2025 1,977
10,000 State of Mississippi 3.73 10/01/2032 10,273
10,000 State of Washington 5.25 2/01/2036 11,216
3,845 Town of Hamden 4.93 8/15/2030 3,927
10,000 Town of Stratford 5.75 8/15/2030 11,162
2,200 Winnebago 3.80 12/01/2026 2,179
----------
92,918
----------
HEALTH CARE FACILITIES (0.1%)
8,000 Metropolitan Nashville & Davidson County
Health & Educational Board 4.05 7/01/2026 8,267
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 49
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
HOSPITAL (1.0%)
$ 7,000 Baylor Scott & White Holdings 3.10% 11/15/2025 $ 6,785
10,000 Baylor Scott & White Holdings 2.65 11/15/2026 9,409
4,250 Boston Medical Center Corp. 4.52 7/01/2026 4,426
10,000 Community Hospitals of Indiana 4.24 5/01/2025 10,025
15,000 Eastern Maine Healthcare 5.02 7/01/2036 14,223
15,000 Mercy Healthcare System 3.38 11/01/2025 14,655
10,000 Rochester Health Care Facilities 4.50 11/15/2038(l) 11,180
----------
70,703
----------
MULTI-UTILITIES (0.1%)
5,000 New York Energy Research and Dev. Auth. 2.38 7/01/2026(l) 5,053
----------
MUNICIPAL FINANCE (0.1%)
10,000 Pennsylvania State IDA(b) 3.56 7/01/2024 9,696
----------
REAL ESTATE TAX/FEE (0.4%)
5,000 Industry Public Facilities Auth. (INS) 3.47 1/01/2021 5,144
5,000 Industry Public Facilities Auth. (INS) 3.82 1/01/2022 5,210
5,250 San Marcos Redevelopment Agency 4.02 10/01/2025 5,317
6,500 San Marcos Redevelopment Agency 4.47 10/01/2029 6,366
2,590 Vista Redevelopment Agency (INS) 4.13 9/01/2030 2,587
----------
24,624
----------
SALES TAX (0.1%)
3,500 Arizona School Facilities Board 2.38 9/01/2019 3,552
----------
SEMICONDUCTORS (0.0%)
1,250 Sandoval County 2.32 6/01/2019 1,250
1,000 Sandoval County 2.72 6/01/2020 1,006
----------
2,256
----------
SPECIAL ASSESSMENT/TAX/FEE (0.8%)
9,000 Colony Local Dev. Corp. (INS) 4.38 10/01/2033 9,029
5,000 Maine Municipal Bond Bank 4.25 6/01/2023 5,326
5,000 New Jersey Transportation Trust Fund Auth. 1.76 12/15/2018 4,928
3,320 New Jersey Transportation Trust Fund Auth. 5.50 12/15/2022 3,623
5,000 New York City Transitional Finance Auth. 5.00 2/01/2035 5,524
7,000 New York MTA (ETM) 1.47 7/01/2018 7,008
10,000 South Carolina Public Service Auth. 4.77 12/01/2045 10,311
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,391
----------
51,140
----------
TOLL ROADS (0.0%)
3,000 North Texas Tollway Auth. 5.00 9/01/2031 3,352
----------
================================================================================
50 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
WATER/SEWER UTILITY (0.4%)
$ 6,500 Chicago Wastewater Transmission 5.84% 1/01/2035 $ 7,030
5,000 Houston Utility System 5.00 11/15/2033 5,592
10,825 New York Municipal Water Finance Auth. 5.25 6/15/2040 11,770
2,500 Tohopekaliga Water Auth. (PRE) 5.25 10/01/2036 2,905
----------
27,297
----------
Total Municipal Bonds (cost: $545,152) 552,260
----------
Total Bonds (cost: $6,409,724) 6,500,107
----------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (2.1%)
COMMON STOCKS (0.8%)
CONSUMER STAPLES (0.0%)
-----------------------
HOUSEHOLD PRODUCTS (0.0%)
24,000 Kimberly-Clark Corp. 2,907
----------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
23,780 Chevron Corp. 2,648
55,000 Royal Dutch Shell plc ADR "A" 2,991
----------
5,639
----------
Total Energy 5,639
----------
FINANCIALS (0.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.0%)
202,000 Prospect Capital Corp. 1,701
----------
CONSUMER FINANCE (0.0%)
24,649 Synchrony Financial 883
----------
DIVERSIFIED BANKS (0.1%)
50,000 Bank of Montreal 3,781
25,000 Canadian Imperial Bank of Commerce 2,130
----------
5,911
----------
REGIONAL BANKS (0.1%)
202,336 KeyCorp 3,636
198,414 Regions Financial Corp. 2,859
----------
6,495
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 51
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - MORTGAGE (0.1%)
89,000 AGNC Investment Corp. $ 1,662
219,132 Annaly Capital Management, Inc. 2,239
199,850 MFA Financial, Inc. 1,577
292,200 Two Harbors Investment Corp. 2,563
----------
8,041
----------
Total Financials 23,031
----------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
59,920 Merck & Co., Inc. 3,714
----------
INDUSTRIALS (0.0%)
------------------
INDUSTRIAL CONGLOMERATES (0.0%)
91,835 General Electric Co. 2,728
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
91,943 Intel Corp. 3,385
18,500 QUALCOMM, Inc. 989
----------
4,374
----------
Total Information Technology 4,374
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
70,050 AT&T, Inc. 2,954
21,000 Verizon Communications, Inc. 1,029
----------
3,983
----------
Total Telecommunication Services 3,983
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.0%)
46,500 Southern Co. 2,299
----------
MULTI-UTILITIES (0.1%)
65,000 CMS Energy Corp.(g) 2,769
15,200 Dominion Resources, Inc.(c) 1,159
----------
3,928
----------
Total Utilities 6,227
----------
Total Common Stocks (cost: $40,918) 52,603
----------
================================================================================
52 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (1.3%)
CONSUMER STAPLES (0.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.3%)
200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual $ 5,716
172,520 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 18,142
----------
23,858
----------
Total Consumer Staples 23,858
----------
FINANCIALS (0.2%)
-----------------
DIVERSIFIED BANKS (0.0%)
40,000 Citigroup Capital XIII, 7.26% 1,036
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$5,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(b) 4,475
----------
REGIONAL BANKS (0.1%)
10,800 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 11,125
----------
Total Financials 16,636
----------
REAL ESTATE (0.7%)
------------------
REITs - INDUSTRIAL (0.3%)
344,500 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual 21,628
----------
REITs - RESIDENTIAL (0.4%)
142,500 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual 9,004
250,000 Mid-America Apartment Communities, Inc., 8.5%, cumulative
redeemable, perpetual 16,550
----------
25,554
----------
Total Real Estate 47,182
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.1%)
200,000 Entergy Texas, Inc., 5.63% 5,314
----------
Total Preferred Stocks (cost: $79,037) 92,990
----------
Total Equity Securities (cost: $119,955) 145,593
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 53
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.0%)
COMMERCIAL PAPER (1.8%)
CONSUMER STAPLES (0.1%)
-----------------------
PACKAGED FOODS & MEAT (0.1%)
$ 9,086 McCormick & Co., Inc.(b),(m) 0.78% 2/01/2017 $ 9,086
----------
ENERGY (0.5%)
--------------
OIL & GAS REFINING & MARKETING (0.5%)
7,913 KOCH Resources, LLC(b),(m) 0.72 2/17/2017 7,911
24,985 Motiva Enterprises, LLC 1.08 2/06/2017 24,981
----------
32,892
----------
Total Energy 32,892
----------
FINANCIALS (0.3%)
-----------------
ASSET-BACKED FINANCING (0.3%)
18,904 Ridgefield Funding Co., LLC(b),(m) 0.78 2/03/2017 18,903
----------
UTILITIES (0.9%)
----------------
ELECTRIC UTILITIES (0.9%)
24,118 Arizona Public Service 0.80 2/01/2017 24,118
7,400 Eversource Energy(b),(m) 0.84 2/02/2017 7,400
30,965 Eversource Energy(b),(m) 0.86 2/10/2017 30,957
----------
62,475
----------
Total Utilities 62,475
----------
Total Commercial Paper 123,356
----------
VARIABLE-RATE DEMAND NOTES (0.2%)
MATERIALS (0.2%)
----------------
FOREST PRODUCTS (0.2%)
9,200 Liberty County IDA 0.87 10/01/2028 9,200
----------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
1,068,594 State Street Institutional Treasury Money Market Fund Premier Class,
0.42%(n) 1,069
----------
Total Money Market Instruments (cost: $133,625) 133,625
----------
TOTAL INVESTMENTS (COST: $6,663,304) $6,779,325
==========
================================================================================
54 | USAA INCOME FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION CONTRACT (DEPRECIATION)
CONTRACTS SECURITY DATE VALUE (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES(p)
LONG FUTURES
INTEREST RATE CONTRACTS
119 10YR U.S. Treasury Note 3/22/2017 $14,812 $ (90)
------- ----------
TOTAL LONG FUTURES $14,812 $ (90)
======= ==========
-------------------------------------------------------------------------------------------------------------
($ IN 000S) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $3,363,369 $- $3,363,369
Eurodollar and Yankee Obligations - 1,112,335 - 1,112,335
Foreign Government Obligations - 27,964 - 27,964
Asset-Backed Securities - 137,178 - 137,178
Collateralized Loan Obligations - 66,427 - 66,427
Commercial Mortgage Securities - 315,290 - 315,290
U.S. Government Agency Issues - 173,217 - 173,217
U.S. Treasury Securities 752,067 - - 752,067
Municipal Bonds - 552,260 - 552,260
Equity Securities:
Common Stocks 52,603 - - 52,603
Preferred Stocks - 92,990 - 92,990
Money Market Instruments:
Commercial Paper - 123,356 - 123,356
Variable-Rate Demand Notes - 9,200 - 9,200
Government & U.S. Treasury Money
Market Funds 1,069 - - 1,069
-------------------------------------------------------------------------------------------------------------
Total $805,739 $5,973,586 $- $6,779,325
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Futures(I) $(90) $- $- $(90)
-------------------------------------------------------------------------------------------------------------
Total $(90) $- $- $(90)
-------------------------------------------------------------------------------------------------------------
(I)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
PORTFOLIO OF INVESTMENTS | 55
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------------------------------
COLLATERALIZED
LOAN OBLIGATIONS
--------------------------------------------------------------------------------------------------------
Balance as of July 31, 2016 $ 4,000
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (4,000)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
--------------------------------------------------------------------------------------------------------
Balance as of January 31, 2017 $ -
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS TRANSFERS TRANSFERS
INTO (OUT OF) INTO (OUT OF) INTO (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------------------------------
Collateralized Loan Obligations(I) $- $4,000 $(4,000)
--------------------------------------------------------------------------------------------------------
Total $- $4,000 $(4,000)
--------------------------------------------------------------------------------------------------------
(I)Transferred from Level 3 to Level 2 as a result of the securities being
priced during the period by the Fund's pricing service.
================================================================================
56 | USAA INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 18.0% of net assets at
January 31, 2017.
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 | 57
================================================================================
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 LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations
are securities issued by entities that are collateralized by a pool of
loans. CLOs are issued in multiple classes (tranches), and can be equity
or debt with specific adjustable or fixed interest rates, and varying
maturities. The cash flow from the underlying loans is used to pay off
each tranche separately within the debt, or senior tranches. Equity, or
subordinated tranches, typically are not paid a cash flow but do offer
ownership in the CLO itself in the event of a sale.
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.
================================================================================
58 | USAA INCOME 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. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
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
CCD Community College District
EDA Economic Development Authority
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 59
================================================================================
Municipal Corp., Berkshire Hathaway Assurance Corp., or Build
America Mutual Assurance Corp. Although bond insurance reduces the
risk of loss due to default by an issuer, such bonds remain subject
to the risk that value may fluctuate for other reasons, and there
is no assurance that the insurance company will meet its
obligations.
(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 loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at January 31, 2017. 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, 2017, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(d) At January 31, 2017, the aggregate market value of securities purchased
on a delayed-delivery basis was $26,523,000, which included when-issued
securities of $22,499,000.
================================================================================
60 | USAA INCOME FUND
================================================================================
(e) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2017.
(f) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(g) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at January 31, 2017.
(h) In U.S. dollars unless otherwise noted.
(i) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2017, was $21,083,000, which represented 0.3% 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 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,
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 61
================================================================================
or others could adversely impact the value of the Fund's investments in
securities issued by Fannie Mae and Freddie Mac.
(k) Pay-in-kind (PIK) - security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments in
additional securities in lieu of cash.
(l) 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.
(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(a)(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(a)(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, 2017.
(o) Securities and cash with a value of $1,213,000 is segregated as
collateral for initial margin requirements on open futures contracts.
(p) The contract value of futures purchased and/or sold as a percentage of
net assets is 0.2%.
See accompanying notes to financial statements.
================================================================================
62 | USAA INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $6,663,304) $6,779,325
Cash 2,603
Receivables:
Capital shares sold 11,699
USAA Asset Management Company (Note 6C) 3
Dividends and interest 64,399
Securities sold 30,372
----------
Total assets 6,888,401
----------
LIABILITIES
Payables:
Securities purchased 68,895
Capital shares redeemed 5,765
Variation margin on futures contracts 89
Accrued management fees 1,129
Accrued transfer agent's fees 149
Other accrued expenses and payables 200
----------
Total liabilities 76,227
----------
Net assets applicable to capital shares outstanding $6,812,174
==========
NET ASSETS CONSIST OF:
Paid-in capital $6,702,856
Overdistribution of net investment income (4,196)
Accumulated net realized loss on investments and futures transactions (2,420)
Net unrealized appreciation of investments and futures contracts 115,931
Net unrealized appreciation of foreign currency translations 3
----------
Net assets applicable to capital shares outstanding $6,812,174
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $3,367,433/260,600 capital shares
outstanding, no par value) $ 12.92
==========
Institutional Shares (net assets of $3,299,589/255,524
capital shares outstanding, no par value) $ 12.91
==========
Adviser Shares (net assets of $140,117/10,870 capital shares
outstanding, no par value) $ 12.89
==========
R6 Shares (net assets of $5,035/390 capital shares outstanding,
no par value) $ 12.92
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 63
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $32) $ 4,301
Interest 127,761
---------
Total income 132,062
---------
EXPENSES
Management fees 6,595
Administration and servicing fees:
Fund Shares 2,553
Institutional Shares 1,614
Adviser Shares 116
Transfer agent's fees:
Fund Shares 1,971
Institutional Shares 1,614
Adviser Shares 73
Distribution and service fees (Note 6E):
Adviser Shares 194
Custody and accounting fees:
Fund Shares 191
Institutional Shares 179
Adviser Shares 8
Postage:
Fund Shares 68
Institutional Shares 71
Adviser Shares 5
Shareholder reporting fees:
Fund Shares 33
Institutional Shares 8
Adviser Shares 1
Trustees' fees 15
Registration fees:
Fund Shares 56
Institutional Shares 40
Adviser Shares 20
R6 Shares* 4
Professional fees 138
Other 56
---------
Total expenses 15,623
Expenses reimbursed:
R6 Shares* (3)
---------
Net expenses 15,620
---------
NET INVESTMENT INCOME 116,442
---------
================================================================================
64 | USAA INCOME FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FOREIGN CURRENCY AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions $ 8,011
Affiliated transactions (Note 8) (981)
Foreign currency transactions (5)
Futures transactions (1,380)
Change in net unrealized appreciation/(depreciation) of:
Investments (239,543)
Foreign currency translations 3
Futures contracts (2,324)
---------
Net realized and unrealized loss (236,219)
---------
Decrease in net assets resulting from operations $(119,777)
=========
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 65
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 116,442 $ 221,851
Net realized gain (loss) on investments 7,030 (9,600)
Net realized gain (loss) on foreign currency transactions (5) 2
Net realized gain (loss) on futures transactions (1,380) 2,090
Change in net unrealized appreciation/(depreciation) of:
Investments (239,543) 208,874
Foreign currency translations 3 4
Futures contracts (2,324) 2,234
-----------------------------
Increase (decrease) in net assets resulting from operations (119,777) 425,455
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (61,546) (118,846)
Institutional Shares (59,744) (93,477)
Adviser Shares (2,557) (6,333)
R6 Shares* (35) -
-----------------------------
Total distributions of net investment income (123,882) (218,656)
-----------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 95,220 (240,621)
Institutional Shares 301,053 775,798
Adviser Shares (25,856) (55,619)
R6 Shares* 5,000 -
-----------------------------
Total net increase in net assets from capital share transactions 375,417 479,558
-----------------------------
Net increase in net assets 131,758 686,357
NET ASSETS
Beginning of period 6,680,416 5,994,059
-----------------------------
End of period $6,812,174 $6,680,416
=============================
Accumulated undistributed (overdistribution) of net investment income:
End of period $ (4,196) $ 3,244
=============================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
66 | USAA INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 four classes of shares: Income Fund Shares (Fund Shares),
Income Fund Institutional Shares (Institutional Shares), Income Fund Adviser
Shares (Adviser Shares), and effective December 1, 2016, a new share class
designated Income Fund R6 Shares (R6 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' 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
available to institutional investors, which include retirement plans,
endowments, foundations, and bank trusts, as well as other persons or legal
entities that the Fund may approve from time to time, or for purchase by a USAA
fund participating in a fund-of-funds investment strategy (USAA fund-of-funds).
The Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services. The R6 Shares are available for
investment by participants in employer-sponsored retirement plans where a
financial intermediary provides retirement recordkeeping services to plan
participants and to endowment funds and foundations.
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.
================================================================================
68 | USAA INCOME FUND
================================================================================
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 yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
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. 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. Actively traded equity
securities listed on a domestic exchange generally are categorized in
Level 1 of the fair value hierarchy. Certain preferred and equity
securities traded in inactive markets generally are categorized in
Level 2 of the fair value hierarchy.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
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 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 which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
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 settlement 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 settlement 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
================================================================================
70 | USAA INCOME 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 | 71
================================================================================
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at January 31, 2017, 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
================================================================================
72 | USAA INCOME FUND
================================================================================
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, 2017* (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 $(90)**
appreciation of
investments and
futures contracts
--------------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2017, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended January 31, 2017.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JANUARY 31, 2017 (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 Net realized gain (loss) $(1,380) $(2,324)
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities 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. 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.
G. 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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
================================================================================
74 | USAA INCOME FUND
================================================================================
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income 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.
H. 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, 2017, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $26,414,000; which included
when-issued securities of $22,414,000.
I. 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, 2017, there were no custodian and other bank
credits.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 75
================================================================================
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, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $24,000, which represents 9.1% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
76 | 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 income tax.
At July 31, 2016, the Fund had net capital loss carryforwards of $5,391,000, 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, 2017, 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 basis 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, 2017, were
$624,766,000 and $349,019,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $225,467,000 and $109,446,000, respectively, resulting in net
unrealized appreciation of $116,021,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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 | 77
================================================================================
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, 2017 JULY 31, 2016
---------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
FUND SHARES:
Shares sold 28,561 $ 374,461 51,773 $ 668,401
Shares issued from
reinvested dividends 4,482 58,629 8,795 113,222
Shares redeemed (25,801) (337,870) (80,045) (1,022,244)
--------------------------------------------------------------------
Net increase (decrease) from
capital share transactions 7,242 $ 95,220 (19,477) $ (240,621)
====================================================================
INSTITUTIONAL SHARES:
Shares sold 37,418 $ 491,423 90,549 $ 1,154,944
Shares issued from
reinvested dividends 4,426 57,828 7,040 90,668
Shares redeemed (18,968) (248,198) (36,449) (469,814)
--------------------------------------------------------------------
Net increase from capital
share transactions 22,876 $ 301,053 61,140 $ 775,798
====================================================================
ADVISER SHARES:
Shares sold 212 $ 2,784 1,081 $ 13,960
Shares issued from
reinvested dividends 195 2,551 480 6,157
Shares redeemed (2,373) (31,191) (5,896) (75,736)
--------------------------------------------------------------------
Net decrease from capital
share transactions (1,966) $ (25,856) (4,335) $ (55,619)
====================================================================
R6 SHARES (COMMENCED ON
DECEMBER 1, 2016):
Shares sold 390 $ 5,000 - $ -
Shares issued from
reinvested dividends - - - -
Shares redeemed - - - -
--------------------------------------------------------------------
Net increase from capital
share transactions 390 $ 5,000 - $ -
====================================================================
================================================================================
78 | USAA 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
the Fund's assets. For the six-month period ended January 31, 2017, 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' 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 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
performance period for the R6 Shares commenced on December 1, 2016, and
includes the performance of the Fund Shares for the periods prior to
December 1, 2016. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 79
================================================================================
Each class' 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 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, 2017, (and for the period from
December 1, 2016, to January 31, 2017, for the R6 Shares), the Fund
incurred total management fees, paid or payable to the Manager, of
$6,595,000, which included a performance adjustment for the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares of $(882,000),
$(632,000), $(39,000), and less than $(500), respectively. For the Fund
Shares, Institutional Shares, Adviser Shares, and R6 Shares, the
performance adjustments were (0.05)%, (0.04)%, (0.05)%, and less than
(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, 0.10%
of average net assets of the Institutional Shares, and 0.05% of average net
assets of the R6 Shares. For the six-month period ended January 31, 2017,
(and for the period from December 1, 2016, to January 31, 2017, for the R6
Shares), the Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $2,553,000, $1,614,000, $116,000, and less than $500,
respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain
================================================================================
80 | USAA INCOME FUND
================================================================================
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, 2017, the Fund
reimbursed the Manager $75,000 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 November 30, 2017, to
limit the total annual operating expenses of the R6 Shares to 0.39% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and will reimburse the R6 Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through November 30, 2017, without the
approval of the Board, and may be changed or terminated by the Manager at
any time after that date. For the period from December 1, 2016, to January
31, 2017, the R6 Shares incurred reimbursable expenses of $3,000, of which
all 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 and R6
Shares are paid monthly based on a fee accrued daily at an annualized rate
of 0.10% of the Institutional Shares' and 0.01% of the R6 Shares' average
net assets, plus out-of-pocket expenses. For the six-month period ended
January 31, 2017 (and for the period from December 1, 2016, to January 31,
2017, for the R6 Shares), the Fund Shares, Institutional Shares, Adviser
Shares, and R6 Shares incurred transfer agent's fees, paid or payable to
SAS, of $1,971,000, $1,614,000, $73,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 81
================================================================================
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company (IMCO), the distributor, for distribution and
shareholder services. IMCO 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, 2017, the Adviser Shares incurred distribution and service (12b-1) fees
of $194,000.
F. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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, 2017, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.6
Target Retirement Income 0.7
Target Retirement 2020 0.8
Target Retirement 2030 1.3
Target Retirement 2040 0.9
Target Retirement 2050 0.2
Target Retirement 2060 0.0*
*Represents less than 0.1%
================================================================================
82 | USAA INCOME FUND
================================================================================
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2017, USAA and its affiliates owned 390,000 R6 Shares, which represents 100.0%
of the R6 Shares outstanding and 0.1% of the Fund's total outstanding shares.
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, 2017, 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
--------------------------------------------------------------------------------
Income High Income $ 4,019,000 $ (981,000)
High Income Income 24,236,000 1,651,000
Real Return Income 442,000 (79,000)
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 83
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
84 | USAA INCOME FUND
================================================================================
(10) 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,
-------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.40 $ 12.99 $ 13.28 $ 13.10 $ 13.43 $ 13.05
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .47 .47 .51 .49 .49
Net realized and
unrealized gain (loss) (.47) .40 (.27) .18 (.32) .38
-------------------------------------------------------------------------------------
Total from investment
operations (.24) .87 .20 .69 .17 .87
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.46) (.46) (.51) (.47) (.49)
Realized capital gains - - (.01) (.00)(a) (.03) -
Tax return of capital - - (.02) - - -
-------------------------------------------------------------------------------------
Total distributions (.24) (.46) (.49) (.51) (.50) (.49)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.92 $ 13.40 $ 12.99 $ 13.28 $ 13.10 $ 13.43
=====================================================================================
Total return (%)* (1.80) 6.88 1.45 5.43 1.30 6.85
Net assets at end
of period (000) $3,367,433 $3,394,088 $3,544,344 $2,859,427 $2,659,263 $3,570,505
Ratios to average
net assets:**
Expenses (%)(b) .48(c) .51 .53 .59 .58 .59
Net investment
income (%) 3.41(c) 3.61 3.36 3.55 3.53 3.75
Portfolio turnover (%) 5 11 10 14 24 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, 2017, average net assets were
$3,375,856,000.
(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%)(+)
(+)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 | 85
================================================================================
(10) 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,
-------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.39 $ 12.99 $ 13.28 $ 13.09 $ 13.42 $ 13.04
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .48 .49 .53 .48 .51
Net realized and
unrealized gain (loss) (.47) .39 (.28) .19 (.29) .38
-------------------------------------------------------------------------------------
Total from investment
operations (.24) .87 .21 .72 .19 .89
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.47) (.47) (.53) (.49) (.51)
Realized capital gains - - (.01) (.00)(a) (.03) -
Tax return of capital - - (.02) - - -
-------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.50) (.53) (.52) (.51)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.91 $ 13.39 $ 12.99 $ 13.28 $ 13.09 $ 13.42
=====================================================================================
Total return (%)* (1.77) 6.89 1.51 5.63 1.42 6.98
Net assets at end
of period (000) $3,299,589 $3,114,810 $2,227,221 $2,098,035 $1,847,503 $685,149
Ratios to average
net assets:**
Expenses (%)(b) .43(c) .44 .46 .48 .47 .48
Net investment
income (%) 3.46(c) 3.66 3.43 3.65 3.63 3.81
Portfolio turnover (%) 5 11 10 14 24 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, 2017, average net assets were
$3,203,171,000.
(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%)(+)
(+)Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
86 | USAA INCOME FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
-----------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.36 $ 12.96 $ 13.25 $ 13.08 $13.41 $13.03
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .44 .44 .37(a) .43 .46
Net realized and
unrealized gain (loss) (.46) .38 (.27) .28(a) (.30) .38
-----------------------------------------------------------------------------------
Total from investment
operations (.25) .82 .17 .65(a) .13 .84
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.42) (.43) (.48) (.43) (.46)
Realized capital gains - - (.01) (.00)(b) (.03) -
Tax return of capital - - (.02) - - -
-----------------------------------------------------------------------------------
Total distributions (.22) (.42) (.46) (.48) (.46) (.46)
-----------------------------------------------------------------------------------
Net asset value at end
of period $ 12.89 $ 13.36 $ 12.96 $ 13.25 $13.08 $13.41
===================================================================================
Total return (%)* (1.87) 6.53 1.23 5.11 .99 6.55
Net assets at end
of period (000) $140,117 $171,518 $222,494 $42,542 $5,875 $5,880
Ratios to average
net assets:**
Expenses (%)(d) .74(e) .77 .79(c) .88 .90 .90
Expenses, excluding
reimbursements (%)(d) .74(e) .77 .79 .88 1.08 1.12
Net investment
income (%) 3.15(e) 3.36 3.10 3.13 3.21 3.45
Portfolio turnover (%) 5 11 10 14 24 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, 2017, average net assets were
$153,561,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) 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.
(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%)(+)
(+)Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 87
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JANUARY 31,
-------------
2017***
-------------
Net asset value at beginning of period $12.83
------
Income from investment operations:
Net investment income .08
Net realized and unrealized gain .10
------
Total from investment operations .18
------
Less distributions from:
Net investment income (.09)
------
Net asset value at end of period $12.92
======
Total return (%)* 1.40
Net assets at end of period (000) $5,035
Ratios to average net assets:**
Expenses (%)(a) .39
Expenses, excluding reimbursements (%)(a) .80
Net investment income (%)(a) 3.52
Portfolio turnover (%) 5
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the period ended January 31, 2017, average net assets were
$5,019,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
88 | USAA INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017, for Fund Shares, Institutional Shares, and Adviser Shares and
the period of December 1, 2016, through January 31, 2017, for R6 Shares.
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
================================================================================
EXPENSE EXAMPLE | 89
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 982.00 $2.40
Hypothetical
(5% return before expenses) 1,000.00 1,022.79 2.45
INSTITUTIONAL SHARES
Actual 1,000.00 982.30 2.15
Hypothetical
(5% return before expenses) 1,000.00 1,023.04 2.19
ADVISER SHARES
Actual 1,000.00 981.30 3.70
Hypothetical
(5% return before expenses) 1,000.00 1,021.48 3.77
R6 SHARES**
Actual 1,000.00 1,014.00 0.66
Hypothetical
(5% return before expenses) 1,000.00 1,007.70 0.65
* Expenses are equal to the annualized expense ratio of 0.48% for Fund
Shares, 0.43% for Institutional Shares, 0.74% for Adviser Shares, and 0.39%
for R6 Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period,
multiplied by 184 days/365 days for Fund Shares, Institutional Shares, and
Adviser Shares (to reflect the one-half-year period) or 61 days/365 days
for R6 Shares (to reflect the current period beginning with the R6 Shares'
inception date). The Fund's actual ending account values are based on its
actual total returns of (1.80)% for Fund Shares, (1.77)% for Institutional
Shares, and (1.87)% for Adviser Shares, for the six-month period of August
1, 2016, through January 31, 2017, and 1.40% for R6 Shares for the period
of December 1, 2016, through January 31, 2017.
** R6 Shares commenced operations on December 1, 2016.
================================================================================
90 | USAA 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)
=============================================================================
23424-0317 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME STOCK FUND]
==============================================================
SEMIANNUAL REPORT
USAA INCOME STOCK FUND
FUND SHARES o INSTITUTIONAL SHARES o R6 SHARES
JANUARY 31, 2017
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 22
Financial Statements 24
Notes to Financial Statements 27
EXPENSE EXAMPLE 45
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)2017, USAA. All rights reserved.
203451-0317
================================================================================
================================================================================
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.
--------------------------------------------------------------------------------
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 tax 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 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
--------------------------------------------------------------------------------
o PLEASE REVIEW MARKET CONDITIONS OVER THE REPORTING PERIOD.
Initially the reporting period showed little movement among stocks; however,
by September 2016 the equity markets began to experience volatility.
Speculation over a potential Federal Reserve (the Fed) interest rate hike
initially led to a decline, but the market experienced strong gains over the
second half of the reporting period, driven by continued economic
improvement and the November 8, 2016 U.S. elections. The results of the
elections led to speculation around stronger economic growth going forward
with the Republicans winning the presidential election as well as
maintaining majorities in both houses of Congress.
The strongest gains for the reporting period were concentrated in financials
and cyclical areas, which were seen as being in the best position to benefit
from elevated stimulus and growth including energy, materials, and
industrials. Health care stocks lagged the broader market, likely due to
ongoing headlines around drug pricing and post-election uncertainty
regarding the future of the Affordable Care Act. Interest-rate-sensitive
sectors such as real estate and utilities also underperformed as investors
began to anticipate potential interest rate increases by the Fed. For the
reporting period ended January 31, 2017, all broad-based U.S. stock indexes
finished comfortably in double-digit positive territory. A post-election
strengthening in the dollar trimmed returns for U.S.-based investors in
international stocks.
================================================================================
2 | USAA INCOME STOCK FUND
================================================================================
o HOW DID THE USAA INCOME STOCK FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
R6 Shares. At the end of the reporting period, the Fund Shares and
Institutional Shares had a total return of 3.73% and 3.76%, respectively.
This compares to returns of 8.04% for the Russell 1000(R) Value Index (the
Index) and 5.80% for the Lipper Equity Income Funds Index. The R6 Shares
commenced operation on December 1, 2016, and from that time through January
31, 2017, had a total return of 3.34%.
USAA Asset Management Company (the Manager) is the Investment Adviser for
the Fund. The Manager along with sub-advisor Epoch Investment Partners
(Epoch) provides day-to-day discretionary management of the Fund's assets.
As the investment advisor, the Manager has dedicated resources that support
the research, selection and monitoring of sub-advisors.
o HOW DID THE MANAGER'S PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
For the reporting period ended January 31, 2017, the portion of the Fund
managed by the Manager modestly underperformed the Index. Relative
performance was aided by stock selection within the financials sector, as
well as by underweights to real estate and utilities. Performance was
constrained by stock selection within industrials, along with an overweight
to and selection within healthcare. Stock selection within information
technology also negatively affected relative performance. Finally, the
Fund's non-dollar currency exposure acted as a drag on returns as the
dollar rose post-election.
Within the Manager's portion of the portfolio, the leading positive
contributions to the Fund's relative performance in terms of individual
names came from within the financials sector. Specifically, a number of
bank stocks benefited from rising interest rates including PNC Financial
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
Services Group, Inc., JPMorgan Chase & Co., and BB&T Corp. On the downside,
a position in United Kingdom (U.K.) based telecommunication services
provider Vodafone Group plc ADR performed poorly on a rising U.S. dollar and
weak results in India. Multinational oil and gas company Occidental
Petroleum Corp., saw its shares suffer in the wake of an acquisition.
Shares of Pfizer, Inc., fell on concerns over the then President-elect's
tweets around drug pricing, as well as management's decision not to split
the company into two separate entities.
Following the post-election stock market surge, the Manager trimmed the
Fund's industrial sector and banking sub-sector overweights relative to the
Index. The Fund's portfolio remains underweight in both the utilities and
real estate sectors. The Manager remains focused on finding the best total
return investment for dividend stock opportunities.
o HOW DID EPOCH'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD?
The portion of the Fund managed by Epoch underperformed relative to the
Index during the reporting period. The most significant detractor from
returns was an underweight allocation to and selection within financials,
followed by an overweight allocation to utilities. Stock selection within
the industrials and telecommunication services sectors also detracted. An
underweight allocation to and stock selection within the health care
sector contributed positively to performance.
Leading individual contributors within Epoch's portion of the Fund included
U.S. tobacco company Reynolds American, Inc. (Reynolds). Pricing power, cost
savings, and relatively low capital expenditures are driving attractive cash
flow generation for the entire tobacco sector. Reynolds is well positioned
to take advantage of the strong industry fundamentals and has increased its
exposure to the growing premium and menthol segments. In addition, the stock
reacted favorably to the proposed merger with British American Tobacco plc.
Microchip Technology, Inc., a leading supplier of microcontrollers, analog
microchips, and memory devices, also outperformed. The company positively
revised its accretion time table and estimates for its Atmel Corp. (Atmel)
acquisition. It continued to benefit from a largely positive
================================================================================
4 | USAA INCOME STOCK FUND
================================================================================
demand environment, particularly in automotive, industrial, and the Internet
of Things. The company pays a well-covered dividend and is focused on
deleveraging the balance sheet post the Atmel purchase.
On the downside, CoreCivic Inc.(CoreCivic), the largest owner of privatized
correctional and detention facilities in the United States, was the leading
individual detractor. CoreCivic's management views the company as having a
robust set of growth opportunities, and indicated that it has been
examining the tradeoffs of maintaining its dividend versus funding these
investments. Our confidence in the sustainability of the dividend declined
as a result and we chose to exit the position. Subsequent to our exit,
CoreCivic ultimately announced a dividend cut in December 2016. Vodafone
Group plc ADR, a provider of telecommunication services in Europe, Asia,
and Africa, underperformed on concern about competition in India from a new
competitor. Weakness in the British pound further detracted from returns in
U.S. dollar terms. Results outside of India continue to be largely positive
and management has reconfirmed their long term free cash flow targets.
Shares of Welltower, Inc., a diversified healthcare real estate investment
trust operating in the United States, Canada, and the United Kingdom also
lagged. The company reported strong third quarter 2016 results and raised
the dividend, but the market's changing view on interest rates negatively
impacted the stock. Operating fundamentals and the growth outlook for the
industry leaves the dividend well-supported in Epoch's view.
Epoch remains invested in high quality companies that have proven they can
grow their free cash flow in a variety of economic environments, and that
have a disciplined approach to allocating cash for the benefit of
shareholders.
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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA INCOME STOCK FUND SHARES (FUND SHARES)
(Ticker Symbol: USISX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.6 Billion $1.6 Billion
Net Asset Value Per Share $18.64 $18.18
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
3.73% 18.82% 12.15% 4.43%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
14.10% 12.76% 4.49%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
0.80%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
6 | USAA INCOME STOCK FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EQUITY USAA INCOME
RUSSELL 1000 INCOME FUNDS STOCK FUND
VALUE INDEX INDEX SHARES
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,844.10 9,885.91 9,778.00
3/31/2007 9,996.29 9,996.80 9,884.00
4/30/2007 10,365.69 10,413.12 10,254.00
5/31/2007 10,739.57 10,784.38 10,612.00
6/30/2007 10,488.63 10,604.82 10,355.00
7/31/2007 10,003.59 10,197.87 9,813.00
8/31/2007 10,115.69 10,308.60 9,925.00
9/30/2007 10,463.14 10,612.20 10,201.00
10/31/2007 10,464.29 10,727.02 10,172.00
11/30/2007 9,952.86 10,254.03 9,627.00
12/31/2007 9,856.62 10,161.11 9,539.00
1/31/2008 9,461.83 9,698.67 9,168.00
2/29/2008 9,065.40 9,383.50 8,758.00
3/31/2008 8,997.24 9,289.65 8,637.00
4/30/2008 9,435.82 9,711.17 9,030.00
5/31/2008 9,420.84 9,798.00 8,998.00
6/30/2008 8,519.06 8,918.38 8,141.00
7/31/2008 8,488.31 8,850.71 8,115.00
8/31/2008 8,632.51 8,946.57 8,264.00
9/30/2008 7,998.27 8,239.77 7,728.00
10/31/2008 6,613.67 6,894.73 6,406.00
11/30/2008 6,139.41 6,432.09 6,008.00
12/31/2008 6,224.62 6,563.73 6,141.00
1/31/2009 5,508.86 5,971.14 5,530.00
2/28/2009 4,772.82 5,313.88 4,841.00
3/31/2009 5,180.91 5,748.40 5,191.00
4/30/2009 5,736.26 6,292.91 5,640.00
5/31/2009 6,090.96 6,664.48 5,925.00
6/30/2009 6,045.98 6,651.18 5,886.00
7/31/2009 6,540.86 7,156.65 6,325.00
8/31/2009 6,882.98 7,475.79 6,590.00
9/30/2009 7,148.91 7,699.42 6,796.00
10/31/2009 6,930.12 7,574.56 6,669.00
11/30/2009 7,320.72 7,976.67 7,022.00
12/31/2009 7,450.27 8,129.43 7,158.00
1/31/2010 7,240.74 7,869.44 6,950.00
2/28/2010 7,469.30 8,080.77 7,138.00
3/31/2010 7,955.55 8,538.39 7,555.00
4/30/2010 8,161.40 8,649.43 7,649.00
5/31/2010 7,490.57 7,999.14 7,024.00
6/30/2010 7,068.89 7,606.48 6,624.00
7/31/2010 7,547.44 8,145.81 7,069.00
8/31/2010 7,224.49 7,830.00 6,806.00
9/30/2010 7,784.99 8,456.61 7,397.00
10/31/2010 8,018.59 8,709.31 7,701.00
11/30/2010 7,976.16 8,669.07 7,633.00
12/31/2010 8,605.51 9,270.56 8,090.00
1/31/2011 8,800.17 9,473.41 8,334.00
2/28/2011 9,124.77 9,782.60 8,679.00
3/31/2011 9,161.01 9,813.12 8,680.00
4/30/2011 9,404.95 10,130.19 9,012.00
5/31/2011 9,305.59 10,037.79 8,910.00
6/30/2011 9,114.79 9,863.89 8,776.00
7/31/2011 8,812.46 9,576.02 8,524.00
8/31/2011 8,262.51 9,089.59 8,035.00
9/30/2011 7,638.08 8,479.36 7,509.00
10/31/2011 8,512.58 9,326.33 8,287.00
11/30/2011 8,468.46 9,344.89 8,314.00
12/31/2011 8,639.11 9,516.99 8,396.00
1/31/2012 8,965.93 9,820.08 8,698.00
2/29/2012 9,323.34 10,172.18 9,054.00
3/31/2012 9,599.73 10,400.44 9,311.00
4/30/2012 9,501.83 10,362.29 9,229.00
5/31/2012 8,944.64 9,770.48 8,706.00
6/30/2012 9,388.73 10,180.39 9,068.00
7/31/2012 9,485.90 10,346.92 9,150.00
8/31/2012 9,691.86 10,517.47 9,330.00
9/30/2012 9,999.50 10,750.05 9,501.00
10/31/2012 9,950.41 10,681.35 9,369.00
11/30/2012 9,946.28 10,701.10 9,390.00
12/31/2012 10,151.71 10,820.64 9,462.00
1/31/2013 10,811.54 11,401.67 9,991.00
2/28/2013 10,966.72 11,530.17 10,109.00
3/31/2013 11,401.19 11,966.15 10,492.00
4/30/2013 11,573.59 12,242.15 10,772.00
5/31/2013 11,870.63 12,401.61 11,009.00
6/30/2013 11,766.00 12,269.29 10,881.00
7/31/2013 12,401.29 12,834.05 11,428.00
8/31/2013 11,930.83 12,434.54 11,070.00
9/30/2013 12,229.71 12,779.67 11,359.00
10/31/2013 12,765.29 13,302.43 11,881.00
11/30/2013 13,121.41 13,608.66 12,113.00
12/31/2013 13,453.74 13,926.11 12,396.00
1/31/2014 12,975.93 13,394.29 11,984.00
2/28/2014 13,537.05 13,955.70 12,396.00
3/31/2014 13,860.23 14,210.42 12,696.00
4/30/2014 13,991.94 14,353.16 12,850.00
5/31/2014 14,196.85 14,602.11 13,040.00
6/30/2014 14,567.68 14,930.86 13,351.00
7/31/2014 14,319.43 14,607.03 13,035.00
8/31/2014 14,845.74 15,104.58 13,513.00
9/30/2014 14,539.51 14,837.76 13,271.00
10/31/2014 14,866.15 15,120.53 13,552.00
11/30/2014 15,170.54 15,456.72 13,892.00
12/31/2014 15,263.59 15,415.22 13,865.00
1/31/2015 14,653.46 14,923.31 13,370.00
2/28/2015 15,362.53 15,647.16 13,956.00
3/31/2015 15,153.40 15,413.20 13,601.00
4/30/2015 15,295.08 15,594.84 13,885.00
5/31/2015 15,478.89 15,699.55 13,977.00
6/30/2015 15,169.82 15,319.77 13,502.00
7/31/2015 15,236.33 15,507.31 13,726.00
8/31/2015 14,328.91 14,598.99 12,993.00
9/30/2015 13,896.32 14,208.92 12,747.00
10/31/2015 14,944.84 15,253.87 13,695.00
11/30/2015 15,002.04 15,236.24 13,648.00
12/31/2015 14,679.41 14,959.10 13,413.00
1/31/2016 13,920.92 14,363.76 12,984.00
2/29/2016 13,917.37 14,392.24 13,106.00
3/31/2016 14,919.91 15,327.19 13,931.00
4/30/2016 15,233.32 15,522.52 14,037.00
5/31/2016 15,469.93 15,727.99 14,224.00
6/30/2016 15,603.70 15,887.16 14,562.00
7/31/2016 16,056.76 16,301.74 14,873.00
8/31/2016 16,180.57 16,350.11 14,799.00
9/30/2016 16,146.84 16,284.78 14,716.00
10/31/2016 15,896.94 16,020.97 14,486.00
11/30/2016 16,804.89 16,706.00 14,971.00
12/31/2016 17,224.88 17,104.42 15,304.00
1/31/2017 17,347.60 17,247.25 15,428.00
[END CHART]
Data from 1/31/07 through 1/31/17.
The graph illustrates the comparison of a $10,000 hypothetical investment
in the USAA Income Stock Fund Shares to the following benchmarks:
o The unmanaged Russell 1000 Value Index measures the performance of those
Russell 1000 companies with lower price-to-book ratios and lower forecasted
growth values.
o The unmanaged Lipper Equity Income Funds Index tracks the total return
performance of funds within the Lipper Equity Income Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Equity Income Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA INCOME STOCK FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIISX)
-----------------------------------------------------------------------------------
1/31/17 7/31/16
-----------------------------------------------------------------------------------
Net Assets $1.2 Billion $1.2 Billion
Net Asset Value Per Share $18.62 $18.16
-----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
-----------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
3.76% 18.83% 12.24% 8.02%
-----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
-----------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
14.17% 12.85% 8.00%
-----------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
-----------------------------------------------------------------------------------
0.75%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to time, or
for purchase by a USAA fund participating in a fund-of-funds investment strategy
(USAA fund-of-funds).
================================================================================
8 | USAA INCOME STOCK FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EQUITY USAA INCOME STOCK
RUSSELL 1000 INCOME FUNDS FUND 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 9,550.00
10/31/2008 7,791.50 7,790.03 7,915.00
11/30/2008 7,232.78 7,267.31 7,424.00
12/31/2008 7,333.17 7,416.05 7,586.00
1/31/2009 6,489.93 6,746.50 6,839.00
2/28/2009 5,622.81 6,003.90 5,986.00
3/31/2009 6,103.58 6,494.84 6,424.00
4/30/2009 6,757.83 7,110.06 6,972.00
5/31/2009 7,175.71 7,529.88 7,333.00
6/30/2009 7,122.72 7,514.85 7,281.00
7/31/2009 7,705.72 8,085.96 7,833.00
8/31/2009 8,108.77 8,446.54 8,153.00
9/30/2009 8,422.06 8,699.21 8,413.00
10/31/2009 8,164.31 8,558.14 8,264.00
11/30/2009 8,624.47 9,012.47 8,702.00
12/31/2009 8,777.10 9,185.06 8,872.00
1/31/2010 8,530.25 8,891.31 8,607.00
2/28/2010 8,799.51 9,130.08 8,847.00
3/31/2010 9,372.36 9,647.12 9,361.00
4/30/2010 9,614.87 9,772.58 9,477.00
5/31/2010 8,824.57 9,037.85 8,703.00
6/30/2010 8,327.80 8,594.20 8,212.00
7/31/2010 8,891.57 9,203.56 8,763.00
8/31/2010 8,511.11 8,846.75 8,438.00
9/30/2010 9,171.43 9,554.73 9,176.00
10/31/2010 9,446.63 9,840.23 9,554.00
11/30/2010 9,396.63 9,794.78 9,478.00
12/31/2010 10,138.07 10,474.37 10,041.00
1/31/2011 10,367.40 10,703.56 10,344.00
2/28/2011 10,749.80 11,052.89 10,773.00
3/31/2011 10,792.50 11,087.38 10,778.00
4/30/2011 11,079.89 11,445.63 11,192.00
5/31/2011 10,962.82 11,341.23 11,065.00
6/30/2011 10,738.04 11,144.74 10,913.00
7/31/2011 10,381.87 10,819.50 10,592.00
8/31/2011 9,733.98 10,269.90 9,991.00
9/30/2011 8,998.35 9,580.42 9,342.00
10/31/2011 10,028.59 10,537.38 10,302.00
11/30/2011 9,976.61 10,558.35 10,336.00
12/31/2011 10,177.66 10,752.80 10,441.00
1/31/2012 10,562.68 11,095.25 10,817.00
2/29/2012 10,983.74 11,493.06 11,269.00
3/31/2012 11,309.35 11,750.97 11,584.00
4/30/2012 11,194.02 11,707.86 11,482.00
5/31/2012 10,537.59 11,039.21 10,839.00
6/30/2012 11,060.78 11,502.34 11,294.00
7/31/2012 11,175.25 11,690.49 11,388.00
8/31/2012 11,417.89 11,883.19 11,612.00
9/30/2012 11,780.32 12,145.97 11,829.00
10/31/2012 11,722.49 12,068.35 11,673.00
11/30/2012 11,717.62 12,090.66 11,699.00
12/31/2012 11,959.64 12,225.73 11,787.00
1/31/2013 12,736.97 12,882.21 12,446.00
2/28/2013 12,919.79 13,027.39 12,594.00
3/31/2013 13,431.63 13,519.99 13,075.00
4/30/2013 13,634.74 13,831.83 13,414.00
5/31/2013 13,984.68 14,012.00 13,719.00
6/30/2013 13,861.42 13,862.49 13,562.00
7/31/2013 14,609.85 14,500.59 14,245.00
8/31/2013 14,055.60 14,049.20 13,798.00
9/30/2013 14,407.70 14,439.15 14,154.00
10/31/2013 15,038.66 15,029.79 14,813.00
11/30/2013 15,458.21 15,375.78 15,103.00
12/31/2013 15,849.72 15,734.46 15,450.00
1/31/2014 15,286.83 15,133.58 14,936.00
2/28/2014 15,947.87 15,767.89 15,450.00
3/31/2014 16,328.60 16,055.68 15,827.00
4/30/2014 16,483.77 16,216.96 16,018.00
5/31/2014 16,725.18 16,498.23 16,265.00
6/30/2014 17,162.05 16,869.68 16,656.00
7/31/2014 16,869.59 16,503.80 16,261.00
8/31/2014 17,489.63 17,065.95 16,858.00
9/30/2014 17,128.86 16,764.48 16,549.00
10/31/2014 17,513.67 17,083.97 16,909.00
11/30/2014 17,872.27 17,463.82 17,334.00
12/31/2014 17,981.90 17,416.92 17,294.00
1/31/2015 17,263.10 16,861.14 16,685.00
2/28/2015 18,098.45 17,678.98 17,418.00
3/31/2015 17,852.08 17,414.65 16,967.00
4/30/2015 18,018.99 17,619.87 17,331.00
5/31/2015 18,235.53 17,738.18 17,446.00
6/30/2015 17,871.43 17,309.09 16,845.00
7/31/2015 17,949.78 17,520.98 17,135.00
8/31/2015 16,880.75 16,494.71 16,219.00
9/30/2015 16,371.12 16,053.98 15,914.00
10/31/2015 17,606.37 17,234.62 17,097.00
11/30/2015 17,673.76 17,214.71 17,029.00
12/31/2015 17,293.67 16,901.58 16,738.00
1/31/2016 16,400.10 16,228.93 16,213.00
2/29/2016 16,395.92 16,261.11 16,364.00
3/31/2016 17,577.01 17,317.46 17,388.00
4/30/2016 17,946.24 17,538.16 17,520.00
5/31/2016 18,224.98 17,770.31 17,765.00
6/30/2016 18,382.58 17,950.15 18,189.00
7/31/2016 18,916.32 18,418.57 18,567.00
8/31/2016 19,062.18 18,473.22 18,475.00
9/30/2016 19,022.45 18,399.40 18,373.00
10/31/2016 18,728.04 18,101.34 18,085.00
11/30/2016 19,797.68 18,875.32 18,701.00
12/31/2016 20,292.48 19,325.48 19,110.00
1/31/2017 20,437.04 19,486.86 19,265.00
[END CHART]
Data from 7/31/08 through 1/31/17.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Stock Fund Institutional Shares to the Fund's benchmarks listed
above (see page 7 for benchmark definitions).
*The performance of the Russell 1000 Value Index and the Lipper Equity Income
Funds Index is calculated from the end of the month, July 31, 2008, while the
inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged,
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper Equity Income Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA INCOME STOCK FUND R6 SHARES* (R6 SHARES)
(Ticker Symbol: URISX)
--------------------------------------------------------------------------------
1/31/17
--------------------------------------------------------------------------------
Net Assets $5.1 Million
Net Asset Value Per Share $18.63
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/17
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
3.34%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/16
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
2.51%
--------------------------------------------------------------------------------
EXPENSE RATIOS***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.71% AFTER REIMBURSEMENT 0.65%
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 R6 Shares commenced operations on December 1, 2016.
**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,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through November 30, 2017, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the R6 Shares (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.65% of the R6 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
November 30, 2017. If the total annual operating expense ratio of the R6 Shares
is lower than 0.65%, the R6 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
10 | USAA INCOME STOCK FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME LIPPER EQUITY
STOCK FUND INCOME FUNDS RUSSELL 1000
R6 SHARES INDEX VALUE INDEX
12/1/2016 10,000.00 10,000.00 10,000.00
12/31/2016 10,251.00 10,238.49 10,249.92
1/31/2017 10,334.00 10,323.99 10,322.94
[END CHART]
Data from 11/30/16 through 1/31/17.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Stock Fund R6 Shares to the Fund's benchmarks listed above (see page
7 for benchmark definitions).
*The performance of the Russell 1000 Value Index and the Lipper Equity Income
Funds Index is calculated from the end of the month, November 30, 2016, while
the inception date of the R6 Shares is December 1, 2016. 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o TOP 10 HOLDINGS* - 1/31/17 o
(% of Net Assets)
JPMorgan Chase & Co. ..................................................... 2.2%
Occidental Petroleum Corp. ............................................... 2.0%
Cisco Systems, Inc. ...................................................... 2.0%
Johnson & Johnson ........................................................ 1.9%
AbbVie, Inc. .............................................................. 1.7%
General Electric Co. ..................................................... 1.7%
Pfizer, Inc. ............................................................. 1.7%
Merck & Co., Inc. ........................................................ 1.7%
Procter & Gamble Co. ..................................................... 1.6%
Verizon Communications, Inc. ............................................. 1.5%
o SECTOR ALLOCATION - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 16.2%
INDUSTRIALS 13.8%
INFORMATION TECHNOLOGY 12.4%
CONSUMER STAPLES 11.5%
HEALTH CARE 9.7%
UTILITIES 8.4%
ENERGY 8.4%
TELECOMMUNICATION SERVICES 5.2%
CONSUMER DISCRETIONARY 4.3%
MATERIALS 2.5%
REAL ESTATE 1.9%
[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 13-21.
================================================================================
12 | USAA INCOME STOCK FUND
================================================================================
PORTFOLIO OF INVESTMENTS
JANUARY 31, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (94.3%)
COMMON STOCKS (94.3%)
CONSUMER DISCRETIONARY (4.3%)
-----------------------------
ADVERTISING (0.5%)
150,200 Omnicom Group, Inc. $ 12,865
------------
AUTO PARTS & EQUIPMENT (0.3%)
164,900 Magna International, Inc. 7,137
------------
AUTOMOBILE MANUFACTURERS (0.7%)
132,411 Daimler AG ADR 9,931
804,000 Ford Motor Co. 9,937
------------
19,868
------------
DISTRIBUTORS (0.4%)
130,560 Genuine Parts Co. 12,639
------------
GENERAL MERCHANDISE STORES (0.3%)
123,800 Target Corp. 7,983
------------
HOME IMPROVEMENT RETAIL (0.6%)
124,671 Home Depot, Inc. 17,152
------------
HOTELS, RESORTS & CRUISE LINES (0.3%)
131,089 Carnival Corp. 7,260
------------
MOVIES & ENTERTAINMENT (0.6%)
423,783 Regal Entertainment Group "A" 9,603
78,478 Time Warner, Inc. 7,601
------------
17,204
------------
RESTAURANTS (0.6%)
168,372 Brinker International, Inc. 7,492
77,765 McDonald's Corp. 9,532
------------
17,024
------------
Total Consumer Discretionary 119,132
------------
CONSUMER STAPLES (11.5%)
------------------------
AGRICULTURAL PRODUCTS (0.2%)
61,100 Bunge Ltd. 4,229
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BREWERS (0.4%)
126,279 Molson Coors Brewing Co. "B" $ 12,189
------------
DRUG RETAIL (0.5%)
89,180 CVS Health Corp. 7,028
84,800 Walgreens Boots Alliance, Inc. 6,949
------------
13,977
------------
FOOD RETAIL (0.3%)
212,700 Kroger Co. 7,223
------------
HOUSEHOLD PRODUCTS (2.7%)
102,735 Colgate-Palmolive Co. 6,635
198,336 Kimberly-Clark Corp. 24,024
501,999 Procter & Gamble Co. 43,975
------------
74,634
------------
HYPERMARKETS & SUPER CENTERS (1.1%)
450,940 Wal-Mart Stores, Inc. 30,096
------------
PACKAGED FOODS & MEAT (1.6%)
154,300 B&G Foods, Inc. 6,843
257,552 Campbell Soup Co. 16,028
244,710 Kraft Heinz Co. 21,850
------------
44,721
------------
PERSONAL PRODUCTS (0.5%)
374,200 Unilever N.V. 15,211
------------
SOFT DRINKS (1.1%)
313,200 Coca-Cola Co. 13,019
234,722 Coca-Cola European Partners plc 8,105
99,882 PepsiCo, Inc. 10,366
------------
31,490
------------
TOBACCO (3.1%)
344,592 Altria Group, Inc. 24,528
349,573 Philip Morris International, Inc. 33,604
453,748 Reynolds American, Inc. 27,284
------------
85,416
------------
Total Consumer Staples 319,186
------------
ENERGY (8.4%)
-------------
INTEGRATED OIL & GAS (5.7%)
342,100 Chevron Corp. 38,093
324,658 Exxon Mobil Corp. 27,236
819,201 Occidental Petroleum Corp. 55,517
================================================================================
14 | USAA INCOME STOCK FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
650,014 Royal Dutch Shell plc ADR "A" $ 35,354
------------
156,200
------------
OIL & GAS DRILLING (0.3%)
101,000 Helmerich & Payne, Inc. 7,187
------------
OIL & GAS EQUIPMENT & SERVICES (0.8%)
98,100 Halliburton Co. 5,550
194,900 Schlumberger Ltd. 16,315
------------
21,865
------------
OIL & GAS EXPLORATION & PRODUCTION (0.6%)
216,100 ConocoPhillips 10,537
408,800 Marathon Oil Corp. 6,847
------------
17,384
------------
OIL & GAS STORAGE & TRANSPORTATION (1.0%)
617,126 Enterprise Products Partners, LP 17,483
271,107 Spectra Energy Corp. 11,292
------------
28,775
------------
Total Energy 231,411
------------
FINANCIALS (16.2%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.3%)
288,700 Bank of New York Mellon Corp. 12,913
34,245 BlackRock, Inc. 12,807
141,900 State Street Corp. 10,813
------------
36,533
------------
CONSUMER FINANCE (0.6%)
439,613 Synchrony Financial 15,747
------------
DIVERSIFIED BANKS (5.6%)
1,668,400 Bank of America Corp. 37,773
104,876 Commonwealth Bank of Australia ADR 6,512
735,300 JPMorgan Chase & Co. 62,228
508,576 U.S. Bancorp 26,776
406,102 Wells Fargo & Co. 22,876
------------
156,165
------------
INSURANCE BROKERS (1.2%)
352,439 Arthur J. Gallagher & Co. 18,972
196,909 Marsh & McLennan Companies, Inc. 13,394
------------
32,366
------------
INVESTMENT BANKING & BROKERAGE (0.5%)
320,500 Morgan Stanley 13,618
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (0.4%)
194,100 MetLife, Inc. $ 10,561
------------
MULTI-LINE INSURANCE (0.4%)
595,723 Allianz SE ADR 10,106
------------
PROPERTY & CASUALTY INSURANCE (2.0%)
135,900 Allstate Corp. 10,221
156,600 Chubb Ltd. 20,592
399,900 Progressive Corp. 14,972
222,500 XL Group Ltd. 8,359
------------
54,144
------------
REGIONAL BANKS (2.8%)
146,500 BB&T Corp. 6,767
544,300 Fifth Third Bancorp 14,206
763,200 KeyCorp 13,715
77,052 M&T Bank Corp. 12,526
532,226 People's United Financial, Inc. 9,979
177,300 PNC Financial Services Group, Inc. 21,358
------------
78,551
------------
SPECIALIZED FINANCE (1.4%)
330,457 CME Group, Inc. 40,012
------------
Total Financials 447,803
------------
HEALTH CARE (9.7%)
-----------------
BIOTECHNOLOGY (1.9%)
792,206 AbbVie, Inc. 48,411
64,800 Gilead Sciences, Inc. 4,695
------------
53,106
------------
HEALTH CARE EQUIPMENT (1.1%)
404,271 Medtronic plc 30,733
------------
MANAGED HEALTH CARE (0.8%)
137,637 UnitedHealth Group, Inc. 22,311
------------
PHARMACEUTICALS (5.9%)
470,405 Johnson & Johnson 53,274
745,126 Merck & Co., Inc. 46,190
197,500 Novartis AG ADR 14,599
1,488,267 Pfizer, Inc. 47,223
------------
161,286
------------
Total Health Care 267,436
------------
================================================================================
16 | USAA INCOME STOCK FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INDUSTRIALS (13.8%)
-------------------
AEROSPACE & DEFENSE (4.2%)
113,356 Boeing Co. $ 18,525
64,923 General Dynamics Corp. 11,756
103,107 Lockheed Martin Corp. 25,914
205,921 Raytheon Co. 29,686
284,495 United Technologies Corp. 31,200
------------
117,081
------------
AIR FREIGHT & LOGISTICS (0.8%)
214,979 United Parcel Service, Inc. "B" 23,461
------------
BUILDING PRODUCTS (0.5%)
293,581 Johnson Controls International plc 12,912
------------
COMMERCIAL PRINTING (0.7%)
248,991 Deluxe Corp. 18,139
------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
76,000 Caterpillar, Inc. 7,270
------------
ELECTRICAL COMPONENTS & EQUIPMENT (1.9%)
531,957 Eaton Corp. plc 37,652
244,710 Emerson Electric Co. 14,354
------------
52,006
------------
ENVIRONMENTAL & FACILITIES SERVICES (1.7%)
452,061 Republic Services, Inc. 25,939
304,639 Waste Management, Inc. 21,173
------------
47,112
------------
INDUSTRIAL CONGLOMERATES (2.9%)
119,858 3M Co. 20,953
1,617,603 General Electric Co. 48,043
84,899 Honeywell International, Inc. 10,045
------------
79,041
------------
INDUSTRIAL MACHINERY (0.6%)
56,200 Parker-Hannifin Corp. 8,269
77,500 Stanley Black & Decker, Inc. 9,610
------------
17,879
------------
RAILROADS (0.2%)
66,000 Union Pacific Corp. 7,034
------------
Total Industrials 381,935
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (12.4%)
------------------------------
COMMUNICATIONS EQUIPMENT (2.0%)
1,788,965 Cisco Systems, Inc. $ 54,957
------------
DATA PROCESSING & OUTSOURCED SERVICES (1.1%)
186,208 Automatic Data Processing, Inc. 18,805
222,593 Paychex, Inc. 13,420
------------
32,225
------------
SEMICONDUCTORS (4.8%)
154,817 Analog Devices, Inc. 11,602
757,714 Intel Corp. 27,899
441,600 Maxim Integrated Products, Inc. 19,642
246,137 Microchip Technology, Inc. 16,577
557,131 QUALCOMM, Inc. 29,768
353,006 Texas Instruments, Inc. 26,666
------------
132,154
------------
SYSTEMS SOFTWARE (2.5%)
605,115 Microsoft Corp. 39,121
734,302 Oracle Corp. 29,453
------------
68,574
------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.0%)
182,412 Apple, Inc. 22,136
288,600 Hewlett Packard Enterprise Co. 6,545
1,324,700 HP, Inc. 19,937
88,900 Western Digital Corp. 7,088
------------
55,706
------------
Total Information Technology 343,616
------------
MATERIALS (2.5%)
----------------
COMMODITY CHEMICALS (0.1%)
34,600 LyondellBasell Industries N.V. "A" 3,227
------------
DIVERSIFIED CHEMICALS (1.4%)
527,209 Dow Chemical Co. 31,437
348,400 Huntsman Corp. 7,104
------------
38,541
------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%)
83,472 Agrium, Inc. 8,590
------------
GOLD (0.3%)
725,600 Tahoe Resources, Inc. 6,632
------------
================================================================================
18 | USAA INCOME STOCK FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PAPER PACKAGING (0.4%)
239,716 Bemis Co., Inc. $ 11,679
------------
Total Materials 68,669
------------
REAL ESTATE (1.9%)
------------------
REITs - HEALTH CARE (0.9%)
364,568 Welltower, Inc. 24,171
------------
REITs - INDUSTRIAL (0.1%)
123,800 Duke Realty Corp. 3,012
------------
REITs - OFFICE (0.1%)
21,900 Boston Properties, Inc. 2,867
------------
REITs - RESIDENTIAL (0.1%)
39,900 Equity Residential 2,425
------------
REITs - RETAIL (0.1%)
13,500 Simon Property Group, Inc. 2,481
------------
REITs - SPECIALIZED (0.6%)
10,900 Public Storage 2,343
421,643 Iron Mountain, Inc. 15,095
------------
17,438
------------
Total Real Estate 52,394
------------
TELECOMMUNICATION SERVICES (5.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (3.2%)
904,110 AT&T, Inc. 38,117
316,767 CenturyLink, Inc. 8,192
845,034 Verizon Communications, Inc. 41,415
------------
87,724
------------
WIRELESS TELECOMMUNICATION SERVICES (2.0%)
430,900 Rogers Communications, Inc. "B" 18,701
1,449,659 Vodafone Group plc ADR 36,096
------------
54,797
------------
Total Telecommunication Services 142,521
------------
UTILITIES (8.4%)
----------------
ELECTRIC UTILITIES (4.5%)
110,700 American Electric Power Co., Inc. 7,091
414,727 Duke Energy Corp. 32,573
101,500 Edison International 7,397
254,698 Entergy Corp. 18,247
302,499 Eversource Energy 16,734
57,200 NextEra Energy, Inc. 7,077
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
725,427 PPL Corp. $ 25,274
188,348 Southern Co. 9,310
-------------
123,703
-------------
MULTI-UTILITIES (3.9%)
421,643 Ameren Corp. 22,199
378,123 CMS Energy Corp. 16,108
226,161 Dominion Resources, Inc. 17,252
401,667 NiSource, Inc. 8,985
137,694 SCANA Corp. 9,460
218,313 Vectren Corp. 11,983
394,532 WEC Energy Group, Inc. 23,297
-------------
109,284
-------------
Total Utilities 232,987
-------------
Total Common Stocks 2,607,090
-------------
Total Equity Securities (cost: $2,037,605) 2,607,090
-------------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (5.8%)
COMMERCIAL PAPER (3.5%)
FINANCIALS (3.5%)
-----------------
ASSET-BACKED FINANCING (3.5%)
$ 13,500 Gotham Funding Corp.(b),(c) 0.78% 2/06/2017 13,498
13,000 Liberty Street Funding, LLC(b),(c) 0.75 2/08/2017 12,998
4,000 LMA Americas, LLC(b),(c) 0.72 2/06/2017 4,000
10,000 LMA Americas, LLC(b),(c) 0.77 2/08/2017 9,998
5,004 Manhattan Asset Funding Co.(b),(c) 0.80 2/24/2017 5,001
6,000 Nieuw Amsterdam Receivables Corp.(b),(c) 0.72 2/01/2017 6,000
3,600 Nieuw Amsterdam Receivables Corp.(b),(c) 0.74 2/03/2017 3,600
3,868 Ridgefield Funding Co., LLC(b),(c) 0.75 2/01/2017 3,868
6,000 Ridgefield Funding Co., LLC(b),(c) 0.80 2/02/2017 6,000
4,000 Ridgefield Funding Co., LLC(b),(c) 0.78 2/03/2017 4,000
9,147 Sheffield Receivables(b),(c) 0.81 2/01/2017 9,147
10,000 Victory Receivables Corp.(b),(c) 0.75 2/03/2017 10,000
3,500 Victory Receivables Corp.(b),(c) 0.80 2/07/2017 3,499
5,000 Working Capital Management Co.(b),(c) 0.78 2/13/2017 4,999
-------------
Total Commercial Paper 96,608
-------------
================================================================================
20 | USAA INCOME STOCK FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.3%)
62,560,686 State Street Institutional Treasury Money Market Fund Premier Class, 0.42%(a) $ 62,561
-------------
Total Money Market Instruments (cost: $159,169) 159,169
-------------
TOTAL INVESTMENTS (COST: $2,196,774) $ 2,766,259
=============
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
Assets LEVEL 1 LEVEL 2 LEVEL 3 Total
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $2,607,090 $ - $- $2,607,090
Money Market Instruments:
Commercial Paper - 96,608 - 96,608
Government & U.S. Treasury
Money Market Funds 62,561 - - 62,561
------------------------------------------------------------------------------------------------------------------
Total $2,669,651 $96,608 $- $2,766,259
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 6.5% of net assets at January 31,
2017.
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, 2017.
(b) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines
================================================================================
22 | USAA INCOME STOCK FUND
================================================================================
approved by USAA Mutual Funds Trust's Board of Trustees (the Board),
unless otherwise noted as illiquid.
(c) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(a)(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(a)(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.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,196,774) $2,766,259
Receivables:
Capital shares sold 3,551
USAA Asset Management Company (Note 6D) 3
Dividends and interest 4,475
Securities sold 7,014
----------
Total assets 2,781,302
----------
LIABILITIES
Payables:
Securities purchased 11,410
Capital shares redeemed:
Affiliated transactions (Note 7) 1,984
Nonaffiliated transactions 1,940
Accrued management fees 1,176
Accrued transfer agent's fees 24
Other accrued expenses and payables 167
----------
Total liabilities 16,701
----------
Net assets applicable to capital shares outstanding $2,764,601
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,169,605
Accumulated undistributed net investment income 1,101
Accumulated net realized gain on investments 24,410
Net unrealized appreciation of investments 569,485
----------
Net assets applicable to capital shares outstanding $2,764,601
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,586,915/85,157
capital shares outstanding, no par value) $ 18.64
==========
Institutional Shares (net assets of $1,172,560/62,980
capital shares outstanding, no par value) $ 18.62
==========
R6 Shares (net assets of $5,126/275
capital shares outstanding, no par value) $ 18.63
==========
See accompanying notes to financial statements.
================================================================================
24 | USAA INCOME STOCK FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $201) $42,769
Interest 278
-------
Total income 43,047
-------
EXPENSES
Management fees 6,808
Administration and servicing fees:
Fund Shares 1,175
Institutional Shares 578
Transfer agent's fees:
Fund Shares 717
Institutional Shares 578
Custody and accounting fees:
Fund Shares 87
Institutional Shares 63
Postage:
Fund Shares 45
Institutional Shares 17
Shareholder reporting fees:
Fund Shares 23
Institutional Shares 3
Trustees' fees 15
Registration fees:
Fund Shares 19
Institutional Shares 20
R6 Shares* 4
Professional fees 119
Other 27
-------
Total expenses 10,298
Expenses paid indirectly:
Fund Shares (6)
Institutional Shares (4)
Expenses reimbursed:
R6 Shares* (3)
-------
Net expenses 10,285
-------
NET INVESTMENT INCOME 32,762
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 62,248
Foreign currency transactions (5)
Change in net unrealized appreciation/(depreciation) 4,846
-------
Net realized and unrealized gain 67,089
-------
Increase in net assets resulting from operations $99,851
=======
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended July
31, 2016
-----------------------------------------------------------------------------------------
1/31/2017 7/31/2016
-----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 32,762 $ 62,615
Net realized gain on investments 62,248 (19,738)
Net realized loss on foreign currency transactions (5) (5)
Change in net unrealized appreciation/(depreciation)
of investments 4,846 165,561
----------------------------
Increase in net assets resulting from operations 99,851 208,433
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (18,347) (36,086)
Institutional Shares (13,787) (25,098)
R6 Shares* (40) -
----------------------------
Total distributions of net investment income (32,174) (61,184)
----------------------------
Net realized gains:
Fund Shares - (53,051)
Institutional Shares - (31,658)
----------------------------
Total distributions of net realized gains - (84,709)
----------------------------
Distributions to shareholders (32,174) (145,893)
----------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (16,605) (111,868)
Institutional Shares (14,756) 34,815
R6 Shares* 5,000 -
----------------------------
Total net decrease in net assets from
capital share transactions (26,361) (77,053)
----------------------------
Capital contribution from USAA Transfer
Agency Company:
Fund Shares - 2
----------------------------
Net increase (decrease) in net assets 41,316 (14,511)
NET ASSETS
Beginning of period 2,723,285 2,737,796
----------------------------
End of period $ 2,764,601 $2,723,285
============================
Accumulated undistributed net investment income:
End of period $ 1,101 $ 513
============================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
26 | USAA INCOME STOCK FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 three classes of shares: Income Stock Fund Shares (Fund
Shares), Income Stock Fund Institutional Shares (Institutional Shares), and
effective December 1, 2016, a new share class designated Income Stock Fund R6
Shares (R6 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' 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 | 27
================================================================================
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
R6 Shares are available for investment by participants in employer-sponsored
retirement plans where a financial intermediary provides retirement
recordkeeping services to plan participants and to endowment funds and
foundations.
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
================================================================================
28 | USAA INCOME STOCK FUND
================================================================================
or the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sales price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average of the bid
and asked prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities traded
in inactive markets generally are categorized in Level 2 of the fair
value hierarchy.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
securities may occur frequently based on an assessment that events which
occur on a fairly regular basis (such as U.S. market movements) are
significant. Such securities are categorized in Level 2 of the fair
value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
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.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
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
================================================================================
30 | USAA INCOME STOCK FUND
================================================================================
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective 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.
================================================================================
32 | USAA INCOME STOCK FUND
================================================================================
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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended January 31, 2017, brokerage
commission recapture credits reduced the expenses of the Fund Shares and
Institutional Shares by $6,000 and $4,000, respectively. For the period from
December 1, 2016, to January 31, 2017, the R6 Shares did not receive any
commission recapture credits. Additionally, there were no custodian and
other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $10,000, which represents 3.7% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
34 | USAA INCOME STOCK FUND
================================================================================
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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$330,953,000 and $401,758,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $627,218,000 and $57,733,000, respectively, resulting in net
unrealized appreciation of $569,485,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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 | 35
================================================================================
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, 2017 JULY 31, 2016
------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 3,358 $ 61,160 6,314 $ 107,451
Shares issued from
reinvested dividends 952 17,519 5,133 85,652
Shares redeemed (5,240) (95,284) (18,542) (304,971)
--------------------------------------------------
Net decrease from
capital share transactions (930) $ (16,605) (7,095) $(111,868)
==================================================
INSTITUTIONAL SHARES:
Shares sold 3,665 $ 66,327 15,514 $ 251,481
Shares issued from
reinvested dividends 750 13,786 3,401 56,752
Shares redeemed (5,218) (94,869) (15,938) (273,418)
--------------------------------------------------
Net increase (decrease) from
capital share transactions (803) $ (14,756) 2,977 $ 34,815
==================================================
R6 SHARES
(COMMENCED ON DECEMBER 1, 2016):
Shares sold 275 $ 5,000 - $ -
Shares issued from
reinvested dividends - - - -
Shares redeemed - - - -
--------------------------------------------------
Net increase from capital
share transactions 275 $ 5,000 - $ -
==================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for
directly managing the day-to-day investment of portion of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with
================================================================================
36 | USAA INCOME STOCK FUND
================================================================================
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 is also responsible for determining the asset allocation for 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' 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 funds within the
Lipper Equity Income Funds category. The performance period for each class
consists of the current month plus the previous 35 months. The performance
period for the R6 Shares commenced on December 1, 2016, and includes the
performance of the Fund Shares for the periods prior to December 1, 2016.
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 | 37
================================================================================
Each class' 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, 2017 (and for the period from
December 1, 2016, to January 31, 2017, for the R6 Shares), the Fund incurred
total management fees, paid or payable to the Manager, of $6,808,000. For
the six-month period ended January 31, 2017, (and for the period from
December 1, 2016, to January 31, 2016, for the R6 Shares) the Fund Shares,
Institutional Shares, and R6 Shares did not incur any performance
adjustment.
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, 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, 2017, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to Epoch of $1,702,000.
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, 0.10% of average
================================================================================
38 | USAA INCOME STOCK FUND
================================================================================
net assets of the Institutional Shares, and 0.05% of average net assets of
the R6 Shares. For the six-month period ended January 31, 2017 (and for the
period from December 1, 2016, to January 31, 2017, for the R6 Shares), the
Fund Shares, Institutional Shares, and R6 Shares incurred administration and
servicing fees, paid or payable to the Manager, of $1,175,000, $578,000, and
less than $500, 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, 2017, the Fund reimbursed the Manager
$30,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through November 30, 2017, to limit
the total annual operating expenses of the R6 Shares to 0.65% of its average
annual net assets, excluding extraordinary expenses and before reductions of
any expenses paid indirectly, and to reimburse the R6 Shares for all
expenses in excess of that amount. For the period from December 1, 2016, to
January 31, 2017, the R6 Shares incurred reimbursable expenses of $3,000, of
which all 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 held
with such intermediaries. Transfer agent's fees for Institutional Shares and
R6 Shares are paid monthly based on a fee accrued daily at an annualized
rate of 0.10% of the Institutional Shares' and 0.01% of the R6 Shares'
average net assets, plus out-of-pocket expenses. For the six-month period
ended January 31, 2017 (and for the period from December 1, 2016, to January
31, 2017, for the R6 Shares), the Fund Shares, Institutional Shares, and R6
Shares incurred transfer agent's fees, paid or payable to SAS, of $717,000,
$578,000 and less than $500, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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, 2017, the Fund
recorded a payable for capital shares redeemed of $1,984,000 for the USAA
fund-of-funds' purchases and redemptions of Institutional Shares. As of January
31, 2017, the USAA fund-of-funds owned the following percentages of the total
outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.1
Cornerstone Equity 0.4
Target Retirement Income 0.3
Target Retirement 2020 0.9
Target Retirement 2030 2.4
Target Retirement 2040 3.0
Target Retirement 2050 1.7
Target Retirement 2060 0.1
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution. At
January 31, 2017, USAA and its affiliates owned 275,000 R6 Shares, which
represents 100.0% of the R6 Shares outstanding and 0.2% of the Fund's total
outstanding shares.
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.
================================================================================
40 | USAA INCOME STOCK FUND
================================================================================
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(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,
------------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.18 $ 17.79 $ 17.72 $ 16.29 $ 13.26 $ 12.53
------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .22 .40 .44 .47 .24 .18
Net realized and
unrealized gain .46 .97 .51 1.77 3.03 .73
------------------------------------------------------------------------------------------
Total from investment
operations .68 1.37 .95 2.24 3.27 .91
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.40) (.46) (.45) (.24) (.18)
Realized capital gains - (.58) (.42) (.36) - -
------------------------------------------------------------------------------------------
Total distributions (.22) (.98) (.88) (.81) (.24) (.18)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 18.64 $ 18.18 $ 17.79 $ 17.72 $ 16.29 $ 13.26
==========================================================================================
Total return (%)* 3.73 8.29 5.36 14.06 24.89 7.34
Net assets at
end of period (000) $1,586,915 $1,564,900 $1,657,268 $1,640,134 $1,453,425 $1,680,648
Ratios to average
net assets:**
Expenses (%)(a) .78(c) .80 .79 .80 .85 .85
Net investment
income (%) 2.39(c) 2.42 2.38 2.77 1.67 1.43
Portfolio turnover (%) 13 19 12(b) 57 64 42
* 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, 2017, average net assets were
$1,552,952,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(b) Reflects overall decrease in purchases and sales of securities.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
42 | USAA INCOME STOCK 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,
------------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.16 $ 17.77 $ 17.71 $ 16.28 $ 13.25 $ 12.52
------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .22 .40 .45 .49 .26 .20
Net realized and
unrealized gain .46 .98 .50 1.76 3.03 .73
------------------------------------------------------------------------------------------
Total from
investment operations .68 1.38 .95 2.25 3.29 .93
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.41) (.47) (.46) (.26) (.20)
Realized capital gains - (.58) (.42) (.36) - -
------------------------------------------------------------------------------------------
Total distributions (.22) (.99) (.89) (.82) (.26) (.20)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 18.62 $ 18.16 $ 17.77 $ 17.71 $ 16.28 $ 13.25
==========================================================================================
Total return (%)* 3.76 8.36 5.37 14.16 25.08 7.52
Net assets at
end of period (000) $1,172,560 $1,158,385 $1,080,528 $1,037,014 $880,414 $249,551
Ratios to average
net assets:**
Expenses (%)(a) .73(c) .75 .73 .73 .73 .71
Net investment
income (%) 2.43(c) 2.47 2.45 2.85 1.83 1.56
Portfolio turnover (%) 13 19 12(b) 57 64 42
* 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, 2017, average net assets were
$1,145,793,000.
(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) Reflects overall decrease in purchases and sales of securities.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 SHARES
Per share operating performance for a share outstanding throughout the
period is as follows:
PERIOD ENDED
JANUARY 31,
------------
2017***
------------
Net asset value at beginning of period $18.17
------
Income from investment operations:
Net investment income .06
Net realized and unrealized gain .55
------
Total from investment operations .61
------
Less distributions from:
Net investment income (.15)
------
Net asset value at end of period $18.63
======
Total return (%)* 3.34
Net assets at end of period (000) $5,126
Ratios to average net assets:**
Expenses (%)(a) .65
Expenses, excluding reimbursements (%)(a) 1.06
Net investment income (%)(a) 1.86
Portfolio turnover (%) 13
* 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, 2017, average net assets were
$5,113,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
44 | USAA INCOME STOCK FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017, for Fund Shares and Institutional Shares and the period of
December 1, 2016, through January 31, 2017, for R6 Shares.
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 | 45
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,037.30 $3.95
Hypothetical
(5% return before expenses) 1,000.00 1,021.32 3.92
INSTITUTIONAL SHARES
Actual 1,000.00 1,037.60 3.75
Hypothetical
(5% return before expenses) 1,000.00 1,021.53 3.72
R6 SHARES**
Actual 1,000.00 1,033.40 1.10
Hypothetical
(5% return before expenses) 1,000.00 1,007.27 1.09
* Expenses are equal to the annualized expense ratio of 0.78% for Fund Shares,
0.73% for Institutional Shares, and 0.65% for R6 Shares, which are net of any
reimbursements and expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 184 days/365 days for the Fund Shares and
Institutional Shares (to reflect the one-half-year period) or 61 days/365 days
for R6 Shares (to reflect the current period beginning with the R6 Shares'
inception date). The Fund's actual ending account values are based on its
actual total returns of 3.73% for Fund Shares and 3.76% for Institutional
Shares for the six-month period of August 1, 2016, through January 31, 2017,
and 3.34% for R6 Shares for the period of December 1, 2016, through January
31, 2017.
**R6 Shares commenced operations on December 1, 2016.
================================================================================
46 | 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
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)
=============================================================================
23422-0317 (C)2017, 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 o R6 SHARES
JANUARY 31, 2017
========================================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 21
Notes to Portfolio of Investments 48
Financial Statements 54
Notes to Financial Statements 58
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)2017, USAA. All rights reserved.
202730-0317
================================================================================
================================================================================
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 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. 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 tax 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
JULIANNE BASS, CFA JOHN SPEAR, CFA*
BRIAN W. SMITH, CFA, CPA KURT DAUM, JD*
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The first part of the reporting period was relatively uneventful, with
investors focused mainly on mixed U.S. economic data and the timing of a
potential Federal Reserve (the Fed) interest rate increase. In early
November 2016, however, the market environment changed. U.S. Treasury
securities sold off as interest rates increased. (Bond prices and interest
rates move in opposite directions.) At the same time, U.S. stocks rallied.
The upward trend in stocks and the sell-off in the U.S. Treasury market
were driven by the Republican sweep in the November 8, 2016 U.S.
elections, which appeared to release "animal spirits." "Animal spirits" is
a term used by economist John Maynard Keynes to describe emotional
mindsets. Investors seemed pleased by a stronger outlook for economic
growth based on the potential for Republican-led fiscal policy, lower
taxes, and less regulation, though at the end of the reporting period, it
remained unclear what policies would actually be proposed and/or
implemented. An increase in inflation expectations also contributed to the
rise in interest rates. Inflation seemed likely to increase after the
Organization of the Petroleum Exporting Countries (OPEC) agreed to cut
production, leading crude oil prices to rise. However, economic data
remained contradictory, with better-than-expected third-quarter U.S. Gross
Domestic Product results giving way to weaker-than-expected fourth-quarter
numbers. In December 2016, the Fed raised the federal funds target rate by
0.25% to a range between 0.50% and 0.75%.
*Effective November 4, 2016, John Spear and Kurt Daum began co-managing the
Fund.
================================================================================
2 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
Policymakers suggested that three interest rate increases could take place
during 2017 and said they eventually plan to address the size of their
balance sheet. During the reporting period, lower-rated credits
outperformed higher-rated credits. Notably, while most fixed income sectors
generated negative returns during the reporting period, high-yield bonds
recorded solid gains. Most spread sectors, such as corporate bonds, taxable
municipal bonds, and commercial mortgage-backed securities, performed
better than U.S. Treasuries.
U.S. Treasury yields across all maturities ended the reporting period
higher than they began. Shorter-duration securities outperformed
longer-duration securities. The yield on the bellwether 10-year U.S.
Treasury rose from 1.46% on July 29, 2016, and finished the period at 2.45%.
o 10-YEAR U.S. TREASURY YIELD o
[CHART OF 10-YEAR U.S. TREASURY YIELD]
YIELD IN PERCENT
2/1/2016 1.95%
2/2/2016 1.84
2/3/2016 1.89
2/4/2016 1.84
2/5/2016 1.84
2/8/2016 1.75
2/9/2016 1.73
2/10/2016 1.67
2/11/2016 1.66
2/12/2016 1.75
2/15/2016 1.75
2/16/2016 1.77
2/17/2016 1.82
2/18/2016 1.74
2/19/2016 1.74
2/22/2016 1.75
2/23/2016 1.72
2/24/2016 1.75
2/25/2016 1.72
2/26/2016 1.76
2/29/2016 1.73
3/1/2016 1.82
3/2/2016 1.84
3/3/2016 1.83
3/4/2016 1.87
3/7/2016 1.91
3/8/2016 1.83
3/9/2016 1.88
3/10/2016 1.93
3/11/2016 1.98
3/14/2016 1.96
3/15/2016 1.97
3/16/2016 1.91
3/17/2016 1.90
3/18/2016 1.87
3/21/2016 1.92
3/22/2016 1.94
3/23/2016 1.88
3/24/2016 1.90
3/25/2016 1.90
3/28/2016 1.89
3/29/2016 1.80
3/30/2016 1.82
3/31/2016 1.77
4/1/2016 1.77
4/4/2016 1.76
4/5/2016 1.72
4/6/2016 1.75
4/7/2016 1.69
4/8/2016 1.72
4/11/2016 1.73
4/12/2016 1.78
4/13/2016 1.76
4/14/2016 1.79
4/15/2016 1.75
4/18/2016 1.77
4/19/2016 1.79
4/20/2016 1.85
4/21/2016 1.86
4/22/2016 1.89
4/25/2016 1.91
4/26/2016 1.93
4/27/2016 1.85
4/28/2016 1.82
4/29/2016 1.83
5/2/2016 1.87
5/3/2016 1.80
5/4/2016 1.78
5/5/2016 1.75
5/6/2016 1.78
5/9/2016 1.75
5/10/2016 1.76
5/11/2016 1.74
5/12/2016 1.75
5/13/2016 1.70
5/16/2016 1.75
5/17/2016 1.77
5/18/2016 1.85
5/19/2016 1.85
5/20/2016 1.84
5/23/2016 1.84
5/24/2016 1.86
5/25/2016 1.87
5/26/2016 1.83
5/27/2016 1.85
5/30/2016 1.85
5/31/2016 1.85
6/1/2016 1.84
6/2/2016 1.80
6/3/2016 1.70
6/6/2016 1.74
6/7/2016 1.72
6/8/2016 1.70
6/9/2016 1.69
6/10/2016 1.64
6/13/2016 1.61
6/14/2016 1.61
6/15/2016 1.57
6/16/2016 1.58
6/17/2016 1.61
6/20/2016 1.69
6/21/2016 1.71
6/22/2016 1.69
6/23/2016 1.75
6/24/2016 1.56
6/27/2016 1.44
6/28/2016 1.47
6/29/2016 1.52
6/30/2016 1.47
7/1/2016 1.44
7/4/2016 1.44
7/5/2016 1.38
7/6/2016 1.37
7/7/2016 1.39
7/8/2016 1.36
7/11/2016 1.43
7/12/2016 1.51
7/13/2016 1.47
7/14/2016 1.54
7/15/2016 1.55
7/18/2016 1.58
7/19/2016 1.55
7/20/2016 1.58
7/21/2016 1.56
7/22/2016 1.57
7/25/2016 1.57
7/26/2016 1.56
7/27/2016 1.50
7/28/2016 1.50
7/29/2016 1.45
8/1/2016 1.52
8/2/2016 1.56
8/3/2016 1.54
8/4/2016 1.50
8/5/2016 1.59
8/8/2016 1.59
8/9/2016 1.55
8/10/2016 1.51
8/11/2016 1.56
8/12/2016 1.51
8/15/2016 1.56
8/16/2016 1.57
8/17/2016 1.55
8/18/2016 1.54
8/19/2016 1.58
8/22/2016 1.54
8/23/2016 1.55
8/24/2016 1.56
8/25/2016 1.57
8/26/2016 1.63
8/29/2016 1.56
8/30/2016 1.57
8/31/2016 1.58
9/1/2016 1.57
9/2/2016 1.60
9/5/2016 1.60
9/6/2016 1.53
9/7/2016 1.54
9/8/2016 1.60
9/9/2016 1.67
9/12/2016 1.66
9/13/2016 1.73
9/14/2016 1.70
9/15/2016 1.69
9/16/2016 1.69
9/19/2016 1.71
9/20/2016 1.69
9/21/2016 1.65
9/22/2016 1.62
9/23/2016 1.62
9/26/2016 1.58
9/27/2016 1.56
9/28/2016 1.57
9/29/2016 1.56
9/30/2016 1.59
10/3/2016 1.62
10/4/2016 1.69
10/5/2016 1.70
10/6/2016 1.74
10/7/2016 1.72
10/10/2016 1.72
10/11/2016 1.76
10/12/2016 1.77
10/13/2016 1.74
10/14/2016 1.80
10/17/2016 1.77
10/18/2016 1.74
10/19/2016 1.74
10/20/2016 1.76
10/21/2016 1.73
10/24/2016 1.76
10/25/2016 1.76
10/26/2016 1.79
10/27/2016 1.85
10/28/2016 1.85
10/31/2016 1.83
11/1/2016 1.83
11/2/2016 1.80
11/3/2016 1.81
11/4/2016 1.78
11/7/2016 1.83
11/8/2016 1.85
11/9/2016 2.06
11/10/2016 2.15
11/11/2016 2.15
11/14/2016 2.26
11/15/2016 2.22
11/16/2016 2.22
11/17/2016 2.30
11/18/2016 2.35
11/21/2016 2.32
11/22/2016 2.31
11/23/2016 2.35
11/24/2016 2.35
11/25/2016 2.36
11/28/2016 2.31
11/29/2016 2.29
11/30/2016 2.38
12/1/2016 2.45
12/2/2016 2.38
12/5/2016 2.39
12/6/2016 2.39
12/7/2016 2.34
12/8/2016 2.41
12/9/2016 2.47
12/12/2016 2.47
12/13/2016 2.47
12/14/2016 2.57
12/15/2016 2.60
12/16/2016 2.59
12/19/2016 2.54
12/20/2016 2.56
12/21/2016 2.53
12/22/2016 2.55
12/23/2016 2.54
12/26/2016 2.54
12/27/2016 2.56
12/28/2016 2.51
12/29/2016 2.48
12/30/2016 2.44
1/2/2017 2.44
1/3/2017 2.44
1/4/2017 2.44
1/5/2017 2.34
1/6/2017 2.42
1/9/2017 2.36
1/10/2017 2.38
1/11/2017 2.37
1/12/2017 2.36
1/13/2017 2.40
1/16/2017 2.40
1/17/2017 2.33
1/18/2017 2.43
1/19/2017 2.47
1/20/2017 2.47
1/23/2017 2.40
1/24/2017 2.47
1/25/2017 2.51
1/26/2017 2.50
1/27/2017 2.48
1/30/2017 2.49
1/31/2017 2.45
[END CHART]
Source: Bloomberg Finance L.P.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
Credit spreads (yield differentials between corporate bonds and U.S.
Treasury securities of comparable maturity) tightened, continuing a trend
that began in February 2016. Credit spreads based on the Bloomberg Barclays
U.S. Aggregate Bond Index* narrowed 22 basis points from 1.38% on July 29,
2016, to 1.16% on January 31, 2017. (A basis point is 1/100(th) of a
percent.) Spreads are generally considered an indication of risk; the
narrower the spread, the lower the risk.
o BLOOMBERG BARCLAYS U.S. AGGREGATE CREDIT INDEX o
[CHART OF BARCLAYS U.S. AGGREGATE CREDIT INDEX]
AVERAGE OPTION
ADJUSTED SPREAD
1/4/2016 1.57
1/5/2016 1.56
1/6/2016 1.57
1/7/2016 1.60
1/8/2016 1.60
1/11/2016 1.60
1/12/2016 1.62
1/13/2016 1.64
1/14/2016 1.67
1/15/2016 1.70
1/19/2016 1.72
1/20/2016 1.78
1/21/2016 1.80
1/22/2016 1.77
1/25/2016 1.78
1/26/2016 1.79
1/27/2016 1.80
1/28/2016 1.81
1/29/2016 1.81
2/1/2016 1.83
2/2/2016 1.86
2/3/2016 1.87
2/4/2016 1.87
2/5/2016 1.87
2/8/2016 1.91
2/9/2016 1.95
2/10/2016 1.95
2/11/2016 2.00
2/12/2016 2.00
2/16/2016 1.95
2/17/2016 1.94
2/18/2016 1.92
2/19/2016 1.92
2/22/2016 1.89
2/23/2016 1.88
2/24/2016 1.89
2/25/2016 1.88
2/26/2016 1.85
2/29/2016 1.84
3/1/2016 1.80
3/2/2016 1.77
3/3/2016 1.76
3/4/2016 1.74
3/7/2016 1.72
3/8/2016 1.72
3/9/2016 1.71
3/10/2016 1.68
3/11/2016 1.64
3/14/2016 1.60
3/15/2016 1.60
3/16/2016 1.60
3/17/2016 1.59
3/18/2016 1.58
3/21/2016 1.56
3/22/2016 1.54
3/23/2016 1.54
3/24/2016 1.55
3/28/2016 1.55
3/29/2016 1.56
3/30/2016 1.55
3/31/2016 1.54
4/1/2016 1.55
4/4/2016 1.54
4/5/2016 1.55
4/6/2016 1.54
4/7/2016 1.54
4/8/2016 1.54
4/11/2016 1.54
4/12/2016 1.52
4/13/2016 1.51
4/14/2016 1.49
4/15/2016 1.49
4/18/2016 1.48
4/19/2016 1.46
4/20/2016 1.43
4/21/2016 1.41
4/22/2016 1.40
4/25/2016 1.39
4/26/2016 1.38
4/27/2016 1.38
4/28/2016 1.38
4/29/2016 1.39
5/2/2016 1.39
5/3/2016 1.40
5/4/2016 1.42
5/5/2016 1.43
5/6/2016 1.43
5/9/2016 1.44
5/10/2016 1.44
5/11/2016 1.44
5/12/2016 1.44
5/13/2016 1.44
5/16/2016 1.43
5/17/2016 1.43
5/18/2016 1.43
5/19/2016 1.43
5/20/2016 1.44
5/23/2016 1.44
5/24/2016 1.44
5/25/2016 1.42
5/26/2016 1.41
5/27/2016 1.41
5/31/2016 1.41
6/1/2016 1.41
6/2/2016 1.42
6/3/2016 1.43
6/6/2016 1.42
6/7/2016 1.42
6/8/2016 1.41
6/9/2016 1.41
6/10/2016 1.43
6/13/2016 1.45
6/14/2016 1.48
6/15/2016 1.48
6/16/2016 1.48
6/17/2016 1.48
6/20/2016 1.44
6/21/2016 1.43
6/22/2016 1.43
6/23/2016 1.40
6/24/2016 1.50
6/27/2016 1.51
6/28/2016 1.50
6/29/2016 1.48
6/30/2016 1.47
7/1/2016 1.46
7/5/2016 1.46
7/6/2016 1.46
7/7/2016 1.44
7/8/2016 1.43
7/11/2016 1.41
7/12/2016 1.38
7/13/2016 1.37
7/14/2016 1.36
7/15/2016 1.36
7/18/2016 1.35
7/19/2016 1.35
7/20/2016 1.35
7/21/2016 1.34
7/22/2016 1.34
7/25/2016 1.34
7/26/2016 1.35
7/27/2016 1.36
7/28/2016 1.37
7/29/2016 1.38
8/1/2016 1.39
8/2/2016 1.39
8/3/2016 1.40
8/4/2016 1.39
8/5/2016 1.37
8/8/2016 1.35
8/9/2016 1.35
8/10/2016 1.35
8/11/2016 1.34
8/12/2016 1.33
8/15/2016 1.32
8/16/2016 1.31
8/17/2016 1.31
8/18/2016 1.31
8/19/2016 1.30
8/22/2016 1.30
8/23/2016 1.29
8/24/2016 1.29
8/25/2016 1.29
8/26/2016 1.28
8/29/2016 1.28
8/30/2016 1.28
8/31/2016 1.29
9/1/2016 1.30
9/2/2016 1.30
9/6/2016 1.30
9/7/2016 1.30
9/8/2016 1.30
9/9/2016 1.31
9/12/2016 1.33
9/13/2016 1.33
9/14/2016 1.34
9/15/2016 1.33
9/16/2016 1.33
9/19/2016 1.32
9/20/2016 1.32
9/21/2016 1.32
9/22/2016 1.30
9/23/2016 1.31
9/26/2016 1.32
9/27/2016 1.31
9/28/2016 1.30
9/29/2016 1.31
9/30/2016 1.31
10/3/2016 1.30
10/4/2016 1.30
10/5/2016 1.29
10/6/2016 1.27
10/7/2016 1.27
10/11/2016 1.26
10/12/2016 1.25
10/13/2016 1.25
10/14/2016 1.24
10/17/2016 1.24
10/18/2016 1.23
10/19/2016 1.23
10/20/2016 1.23
10/21/2016 1.23
10/24/2016 1.23
10/25/2016 1.23
10/26/2016 1.24
10/27/2016 1.24
10/28/2016 1.25
10/31/2016 1.25
11/1/2016 1.27
11/2/2016 1.28
11/3/2016 1.28
11/4/2016 1.29
11/7/2016 1.27
11/8/2016 1.26
11/9/2016 1.25
11/10/2016 1.24
11/14/2016 1.25
11/15/2016 1.23
11/16/2016 1.23
11/17/2016 1.23
11/18/2016 1.25
11/21/2016 1.24
11/22/2016 1.24
11/23/2016 1.24
11/25/2016 1.25
11/28/2016 1.24
11/29/2016 1.24
11/30/2016 1.23
12/1/2016 1.23
12/2/2016 1.24
12/5/2016 1.23
12/6/2016 1.22
12/7/2016 1.22
12/8/2016 1.22
12/9/2016 1.21
12/12/2016 1.21
12/13/2016 1.19
12/14/2016 1.19
12/15/2016 1.20
12/16/2016 1.19
12/19/2016 1.19
12/20/2016 1.18
12/21/2016 1.18
12/22/2016 1.18
12/23/2016 1.18
12/27/2016 1.17
12/28/2016 1.18
12/29/2016 1.18
12/30/2016 1.18
1/3/2017 1.17
1/4/2017 1.16
1/5/2017 1.17
1/6/2017 1.17
1/9/2017 1.17
1/10/2017 1.17
1/11/2017 1.18
1/12/2017 1.17
1/13/2017 1.17
1/17/2017 1.17
1/18/2017 1.17
1/19/2017 1.17
1/20/2017 1.17
1/23/2017 1.17
1/24/2017 1.16
1/25/2017 1.15
1/26/2017 1.15
1/27/2017 1.15
1/30/2017 1.15
1/31/2017 1.16
[END CHART]
o HOW DID THE USAA INTERMEDIATE-TERM BOND FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has four share classes: Fund Shares, Institutional Shares, Adviser
Shares and R6 Shares. For the reporting period ended January 31, 2017, the
Fund Shares, Institutional Shares, and Adviser Shares had total returns of
-0.46%, -0.41%, and -0.58%, respectively.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indexes. Thus, the
Fund's benchmark is now called the Bloomberg Barclays U.S. Aggregate Bond
Index.
================================================================================
4 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
This compares to returns of -2.95% for the Bloomberg Barclays U.S.
Aggregate Bond Index (the Index) and -2.17% for the Lipper Index*. At the
same time, the Fund Shares, Institutional Shares, and Adviser Shares
provided a one-year dividend yield of 3.82%, 3.88%, and 3.57%,
respectively, compared to 2.73% for the Lipper Core Plus Bond Funds
Average. The R6 Shares commenced operations on December 1, 2016, and from
that time through January 31, 2017, had a total return of 1.61%.
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 adhere to our disciplined
investment process, building the Fund's portfolio bond-by-bond. We look for
opportunities where our fundamental understanding of the credit risk is
different than the market, working with our team of analysts to evaluate
each potential investment individually, rather than on the basis of
thematic trends. In keeping with our approach, we did not try to anticipate
interest rate movements during the reporting period. 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.) During the reporting period,
the Fund's SEC yield continued to trend up.
Relative to the Index, the Fund benefited during the reporting period from
its positions in corporate bonds and hybrid securities. Within corporate
bonds, overweight positions in midstream energy, metals and mining, and
financial institutions were advantageous. Among hybrid securities, the
portfolio's overweight position in the insurance industry
*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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
bolstered returns. Selection of bank corporate bonds, as well as energy and
insurance hybrid securities, also contributed positively. These results
were offset somewhat by selection among electric utility corporate bonds.
In addition, the Fund's portfolio benefited from its underweight position
in U.S. Treasury securities, which lagged the Index. Because times were
uncertain, we continued to emphasize liquidity in the portfolio. Our
liquidity strategy helps to prevent the Fund from being forced to sell its
securities in the event of investment outflows. During the reporting
period, we continued to seek relative values across the fixed income
market, finding attractive opportunities within corporate credit and among
floating-rate bank loans.
Our analysts continued to analyze and monitor every holding in the
portfolio. 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 tend to 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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.8 Billion $1.8 Billion
Net Asset Value Per Share $10.47 $10.71
Dollar-Weighted Average
Portfolio Maturity(+) 7.1 Years 7.1 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 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
-0.46% 7.15% 4.20% 5.64%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
6.69% 4.43% 5.57%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
3.24% 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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
JANUARY 31, 2017
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 5.64% = 5.12% + 0.52%
5 YEARS 4.20% = 4.74% + -0.54%
1 YEAR 7.15% = 4.00% + 3.15%
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.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED
JANUARY 31, 2008-JANUARY 31, 2017
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN
RETURN RETURN SHARE PRICE
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%
1/31/2017 7.15% 4.00% 3.15%
[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]
BLOOMBERG
USAA INTERMEDIATE-TERM BARCLAYS U.S.
BOND FUND SHARES LIPPER INDEX AGGREGATE BOND INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 10,163.00 10,161.92 10,154.20
3/31/2007 10,156.00 10,158.41 10,154.51
4/30/2007 10,217.00 10,209.54 10,209.27
5/31/2007 10,128.00 10,122.95 10,131.89
6/30/2007 10,105.00 10,081.69 10,101.92
7/31/2007 10,119.00 10,137.29 10,186.19
8/31/2007 10,197.00 10,228.75 10,311.03
9/30/2007 10,269.00 10,338.26 10,389.26
10/31/2007 10,333.00 10,406.09 10,482.58
11/30/2007 10,392.00 10,540.68 10,671.09
12/31/2007 10,375.00 10,553.46 10,701.06
1/31/2008 10,420.00 10,729.52 10,880.82
2/29/2008 10,343.00 10,675.86 10,895.92
3/31/2008 10,281.00 10,565.34 10,933.10
4/30/2008 10,264.00 10,620.45 10,910.25
5/31/2008 10,292.00 10,537.21 10,830.25
6/30/2008 10,212.00 10,449.65 10,821.50
7/31/2008 10,110.00 10,349.38 10,812.67
8/31/2008 10,109.00 10,411.33 10,915.29
9/30/2008 9,711.00 10,087.23 10,768.68
10/31/2008 9,040.00 9,711.83 10,514.49
11/30/2008 8,867.00 9,695.85 10,856.74
12/31/2008 8,767.00 10,056.54 11,261.79
1/31/2009 8,799.00 10,041.30 11,162.43
2/28/2009 8,740.00 9,928.88 11,120.29
3/31/2009 8,918.00 10,116.60 11,274.88
4/30/2009 9,132.00 10,291.22 11,328.78
5/31/2009 9,748.00 10,537.84 11,410.96
6/30/2009 10,026.00 10,664.55 11,475.86
7/31/2009 10,388.00 10,973.75 11,660.96
8/31/2009 10,720.00 11,130.47 11,781.70
9/30/2009 11,071.00 11,334.23 11,905.47
10/31/2009 11,272.00 11,437.42 11,964.25
11/30/2009 11,432.00 11,578.85 12,119.15
12/31/2009 11,472.00 11,494.73 11,929.71
1/31/2010 11,798.00 11,702.39 12,111.94
2/28/2010 11,880.00 11,761.37 12,157.17
3/31/2010 12,061.00 11,826.99 12,142.23
4/30/2010 12,292.00 11,991.10 12,268.62
5/31/2010 12,153.00 11,996.22 12,371.86
6/30/2010 12,263.00 12,189.76 12,565.87
7/31/2010 12,494.00 12,358.28 12,699.93
8/31/2010 12,708.00 12,544.32 12,863.35
9/30/2010 12,891.00 12,618.57 12,877.06
10/31/2010 13,084.00 12,694.77 12,922.91
11/30/2010 13,052.00 12,594.96 12,848.63
12/31/2010 13,015.00 12,485.26 12,710.08
1/31/2011 13,182.00 12,551.20 12,724.87
2/28/2011 13,292.00 12,602.49 12,756.70
3/31/2011 13,354.00 12,617.42 12,763.75
4/30/2011 13,570.00 12,804.14 12,925.77
5/31/2011 13,731.00 12,939.49 13,094.46
6/30/2011 13,622.00 12,876.54 13,056.12
7/31/2011 13,797.00 13,056.86 13,263.29
8/31/2011 13,662.00 13,111.08 13,457.07
9/30/2011 13,543.00 13,080.64 13,554.97
10/31/2011 13,733.00 13,189.41 13,569.53
11/30/2011 13,673.00 13,104.70 13,557.75
12/31/2011 13,841.00 13,269.53 13,706.76
1/31/2012 14,095.00 13,496.20 13,827.12
2/29/2012 14,221.00 13,547.24 13,823.94
3/31/2012 14,254.00 13,514.64 13,748.20
4/30/2012 14,391.00 13,674.28 13,900.62
5/31/2012 14,425.00 13,767.06 14,026.39
6/30/2012 14,499.00 13,818.18 14,031.89
7/31/2012 14,801.00 14,058.10 14,225.44
8/31/2012 14,921.00 14,107.32 14,234.73
9/30/2012 15,068.00 14,195.17 14,254.33
10/31/2012 15,273.00 14,256.67 14,282.36
11/30/2012 15,351.00 14,302.25 14,304.90
12/31/2012 15,392.00 14,307.08 14,284.53
1/31/2013 15,446.00 14,253.31 14,184.62
2/28/2013 15,573.00 14,330.63 14,255.72
3/31/2013 15,658.00 14,356.71 14,267.10
4/30/2013 15,868.00 14,513.07 14,411.47
5/31/2013 15,698.00 14,258.27 14,154.34
6/30/2013 15,308.00 13,949.97 13,935.39
7/31/2013 15,405.00 14,000.77 13,954.44
8/31/2013 15,322.00 13,899.12 13,883.11
9/30/2013 15,402.00 14,069.21 14,014.54
10/31/2013 15,602.00 14,201.86 14,127.85
11/30/2013 15,617.00 14,175.71 14,074.95
12/31/2013 15,593.00 14,092.89 13,995.42
1/31/2014 15,825.00 14,295.19 14,202.20
2/28/2014 15,954.00 14,387.98 14,277.71
3/31/2014 16,006.00 14,362.84 14,253.40
4/30/2014 16,164.00 14,478.37 14,373.67
5/31/2014 16,324.00 14,646.87 14,537.32
6/30/2014 16,377.00 14,669.62 14,544.83
7/31/2014 16,386.00 14,627.42 14,508.36
8/31/2014 16,518.00 14,780.96 14,668.52
9/30/2014 16,422.00 14,670.22 14,568.92
10/31/2014 16,495.00 14,801.91 14,712.12
11/30/2014 16,562.00 14,902.17 14,816.50
12/31/2014 16,489.00 14,877.63 14,830.39
1/31/2015 16,725.00 15,198.17 15,141.34
2/28/2015 16,672.00 15,091.03 14,998.99
3/31/2015 16,709.00 15,148.19 15,068.62
4/30/2015 16,702.00 15,109.28 15,014.56
5/31/2015 16,664.00 15,070.08 14,978.39
6/30/2015 16,473.00 14,900.67 14,815.05
7/31/2015 16,483.00 15,004.23 14,918.06
8/31/2015 16,333.00 14,938.68 14,896.61
9/30/2015 16,345.00 14,995.25 14,997.37
10/31/2015 16,402.00 15,039.25 14,999.92
11/30/2015 16,316.00 15,003.63 14,960.27
12/31/2015 16,111.00 14,914.14 14,911.94
1/31/2016 16,161.00 15,064.99 15,117.10
2/29/2016 16,216.00 15,130.23 15,224.37
3/31/2016 16,545.00 15,335.85 15,364.01
4/30/2016 16,779.00 15,450.48 15,423.02
5/31/2016 16,849.00 15,448.68 15,426.97
6/30/2016 17,163.00 15,728.52 15,704.16
7/31/2016 17,395.00 15,875.31 15,803.45
8/31/2016 17,499.00 15,882.36 15,785.41
9/30/2016 17,556.00 15,891.04 15,776.11
10/31/2016 17,487.00 15,791.97 15,655.45
11/30/2016 17,097.00 15,418.15 15,285.17
12/31/2016 17,186.00 15,469.03 15,306.70
1/31/2017 17,316.00 15,530.69 15,336.75
[END CHART]
Data from 1/31/07 through 1/31/17.
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 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.
o The unmanaged Bloomberg 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.
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 SHARES FUNDS AVERAGE
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
1/31/2017 3.82 2.76
[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 1/31/08 through 1/31/17.
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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.9 Billion $1.8 Billion
Net Asset Value Per Share $10.48 $10.72
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-0.41% 7.32% 4.32% 6.67%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
6.86% 4.54% 6.65%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
3.31% 0.54%
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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 BLOOMBERG
BOND FUND BARCLAYS U.S. AGGREGATE
INSTITUTIONAL SHARES LIPPER INDEX BOND INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 9,996.00 10,059.87 10,094.91
9/30/2008 9,603.00 9,746.71 9,959.32
10/31/2008 8,941.00 9,383.98 9,724.23
11/30/2008 8,771.00 9,368.53 10,040.76
12/31/2008 8,674.00 9,717.05 10,415.37
1/31/2009 8,707.00 9,702.33 10,323.47
2/28/2009 8,650.00 9,593.70 10,284.50
3/31/2009 8,828.00 9,775.08 10,427.47
4/30/2009 9,041.00 9,943.81 10,477.33
5/31/2009 9,653.00 10,182.10 10,553.32
6/30/2009 9,929.00 10,304.54 10,613.35
7/31/2009 10,290.00 10,603.29 10,784.54
8/31/2009 10,620.00 10,754.73 10,896.20
9/30/2009 10,969.00 10,951.61 11,010.67
10/31/2009 11,170.00 11,051.31 11,065.03
11/30/2009 11,330.00 11,187.97 11,208.29
12/31/2009 11,372.00 11,106.69 11,033.08
1/31/2010 11,697.00 11,307.34 11,201.62
2/28/2010 11,780.00 11,364.32 11,243.46
3/31/2010 11,949.00 11,427.73 11,229.63
4/30/2010 12,193.00 11,586.31 11,346.53
5/31/2010 12,056.00 11,591.25 11,442.01
6/30/2010 12,167.00 11,778.25 11,621.43
7/31/2010 12,399.00 11,941.09 11,745.42
8/31/2010 12,614.00 12,120.85 11,896.56
9/30/2010 12,798.00 12,192.59 11,909.23
10/31/2010 12,992.00 12,266.22 11,951.64
11/30/2010 12,961.00 12,169.77 11,882.95
12/31/2010 12,927.00 12,063.78 11,754.80
1/31/2011 13,096.00 12,127.49 11,768.49
2/28/2011 13,207.00 12,177.05 11,797.92
3/31/2011 13,271.00 12,191.48 11,804.44
4/30/2011 13,475.00 12,371.90 11,954.29
5/31/2011 13,649.00 12,502.68 12,110.29
6/30/2011 13,543.00 12,441.86 12,074.84
7/31/2011 13,719.00 12,616.09 12,266.44
8/31/2011 13,587.00 12,668.48 12,445.65
9/30/2011 13,470.00 12,639.06 12,536.19
10/31/2011 13,659.00 12,744.16 12,549.66
11/30/2011 13,601.00 12,662.31 12,538.77
12/31/2011 13,769.00 12,821.58 12,676.58
1/31/2012 14,022.00 13,040.59 12,787.89
2/29/2012 14,149.00 13,089.91 12,784.95
3/31/2012 14,183.00 13,058.41 12,714.90
4/30/2012 14,320.00 13,212.66 12,855.86
5/31/2012 14,354.00 13,302.31 12,972.19
6/30/2012 14,429.00 13,351.70 12,977.27
7/31/2012 14,731.00 13,583.53 13,156.27
8/31/2012 14,852.00 13,631.08 13,164.87
9/30/2012 14,999.00 13,715.97 13,182.99
10/31/2012 15,204.00 13,775.39 13,208.92
11/30/2012 15,283.00 13,819.44 13,229.76
12/31/2012 15,324.00 13,824.10 13,210.92
1/31/2013 15,380.00 13,772.15 13,118.52
2/28/2013 15,508.00 13,846.86 13,184.28
3/31/2013 15,595.00 13,872.06 13,194.81
4/30/2013 15,805.00 14,023.14 13,328.32
5/31/2013 15,634.00 13,776.93 13,090.52
6/30/2013 15,263.00 13,479.04 12,888.02
7/31/2013 15,347.00 13,528.13 12,905.64
8/31/2013 15,262.00 13,429.91 12,839.68
9/30/2013 15,361.00 13,594.26 12,961.23
10/31/2013 15,547.00 13,722.43 13,066.02
11/30/2013 15,563.00 13,697.17 13,017.10
12/31/2013 15,540.00 13,617.14 12,943.54
1/31/2014 15,769.00 13,812.61 13,134.78
2/28/2014 15,900.00 13,902.27 13,204.62
3/31/2014 15,957.00 13,877.98 13,182.13
4/30/2014 16,117.00 13,989.61 13,293.37
5/31/2014 16,276.00 14,152.42 13,444.71
6/30/2014 16,347.00 14,174.40 13,451.66
7/31/2014 16,343.00 14,133.62 13,417.93
8/31/2014 16,474.00 14,281.98 13,566.05
9/30/2014 16,381.00 14,174.98 13,473.94
10/31/2014 16,452.00 14,302.22 13,606.38
11/30/2014 16,524.00 14,399.10 13,702.91
12/31/2014 16,451.00 14,375.39 13,715.75
1/31/2015 16,688.00 14,685.11 14,003.34
2/28/2015 16,636.00 14,581.58 13,871.69
3/31/2015 16,677.00 14,636.82 13,936.08
4/30/2015 16,671.00 14,599.22 13,886.08
5/31/2015 16,634.00 14,561.34 13,852.63
6/30/2015 16,445.00 14,397.66 13,701.57
7/31/2015 16,453.00 14,497.72 13,796.84
8/31/2015 16,308.00 14,434.38 13,776.99
9/30/2015 16,321.00 14,489.04 13,870.18
10/31/2015 16,377.00 14,531.55 13,872.55
11/30/2015 16,294.00 14,497.14 13,835.87
12/31/2015 16,085.00 14,410.67 13,791.18
1/31/2016 16,141.00 14,556.42 13,980.92
2/29/2016 16,198.00 14,619.46 14,080.12
3/31/2016 16,528.00 14,818.14 14,209.27
4/30/2016 16,761.00 14,928.90 14,263.85
5/31/2016 16,833.00 14,927.16 14,267.50
6/30/2016 17,163.00 15,197.56 14,523.86
7/31/2016 17,395.00 15,339.39 14,615.68
8/31/2016 17,499.00 15,346.20 14,598.99
9/30/2016 17,540.00 15,354.59 14,590.40
10/31/2016 17,474.00 15,258.87 14,478.80
11/30/2016 17,086.00 14,897.67 14,136.35
12/31/2016 17,192.00 14,946.83 14,156.26
1/31/2017 17,323.00 15,006.40 14,184.05
[END CHART]
Data from 7/31/08 through 1/31/17.*
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 9 for benchmark definitions).
*The performance of the Lipper Index and the Bloomberg 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 SHARES FUNDS 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
1/31/2017 3.88 2.76
[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 1/31/17.
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.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
USAA INTERMEDIATE-TERM BOND FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UITBX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $89.9 Million $98.8 Million
Net Asset Value Per Share $10.46 $10.70
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-0.58% 6.88% 3.91% 4.87%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
6.32% 4.14% 4.81%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
2.98% 0.86%
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
14 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERMEDIATE-TERM BLOOMBERG
BOND FUND BARCLAYS U.S. AGGREGATE
ADVISER SHARES LIPPER INDEX BOND INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,168.00 10,150.54 10,128.68
9/30/2010 10,322.00 10,210.61 10,139.47
10/31/2010 10,474.00 10,272.28 10,175.57
11/30/2010 10,445.00 10,191.51 10,117.09
12/31/2010 10,403.00 10,102.74 10,007.99
1/31/2011 10,534.00 10,156.10 10,019.64
2/28/2011 10,629.00 10,197.61 10,044.70
3/31/2011 10,666.00 10,209.68 10,050.25
4/30/2011 10,836.00 10,360.78 10,177.83
5/31/2011 10,962.00 10,470.30 10,310.65
6/30/2011 10,883.00 10,419.36 10,280.46
7/31/2011 11,019.00 10,565.27 10,443.59
8/31/2011 10,898.00 10,609.15 10,596.17
9/30/2011 10,801.00 10,584.51 10,673.26
10/31/2011 10,949.00 10,672.52 10,684.72
11/30/2011 10,909.00 10,603.98 10,675.45
12/31/2011 11,040.00 10,737.36 10,792.78
1/31/2012 11,240.00 10,920.77 10,887.55
2/29/2012 11,327.00 10,962.07 10,885.05
3/31/2012 11,351.00 10,935.69 10,825.41
4/30/2012 11,468.00 11,064.87 10,945.43
5/31/2012 11,492.00 11,139.94 11,044.46
6/30/2012 11,538.00 11,181.31 11,048.79
7/31/2012 11,775.00 11,375.45 11,201.19
8/31/2012 11,867.00 11,415.27 11,208.51
9/30/2012 11,982.00 11,486.36 11,223.94
10/31/2012 12,142.00 11,536.12 11,246.01
11/30/2012 12,212.00 11,573.01 11,263.76
12/31/2012 12,241.00 11,576.91 11,247.72
1/31/2013 12,270.00 11,533.41 11,169.05
2/28/2013 12,380.00 11,595.97 11,225.03
3/31/2013 12,444.00 11,617.08 11,234.00
4/30/2013 12,596.00 11,743.60 11,347.67
5/31/2013 12,456.00 11,537.42 11,145.21
6/30/2013 12,157.00 11,287.95 10,972.81
7/31/2013 12,219.00 11,329.06 10,987.81
8/31/2013 12,148.00 11,246.80 10,931.64
9/30/2013 12,222.00 11,384.43 11,035.13
10/31/2013 12,378.00 11,491.77 11,124.35
11/30/2013 12,386.00 11,470.61 11,082.70
12/31/2013 12,353.00 11,403.60 11,020.07
1/31/2014 12,531.00 11,567.29 11,182.90
2/28/2014 12,643.00 11,642.38 11,242.35
3/31/2014 12,673.00 11,622.04 11,223.21
4/30/2014 12,795.00 11,715.52 11,317.91
5/31/2014 12,918.00 11,851.87 11,446.77
6/30/2014 12,970.00 11,870.27 11,452.69
7/31/2014 12,963.00 11,836.12 11,423.96
8/31/2014 13,075.00 11,960.36 11,550.08
9/30/2014 12,987.00 11,870.76 11,471.65
10/31/2014 13,051.00 11,977.32 11,584.41
11/30/2014 13,093.00 12,058.45 11,666.59
12/31/2014 13,044.00 12,038.59 11,677.53
1/31/2015 13,216.00 12,297.96 11,922.38
2/28/2015 13,172.00 12,211.26 11,810.29
3/31/2015 13,201.00 12,257.52 11,865.12
4/30/2015 13,193.00 12,226.04 11,822.55
5/31/2015 13,173.00 12,194.31 11,794.07
6/30/2015 13,007.00 12,057.24 11,665.46
7/31/2015 13,022.00 12,141.03 11,746.57
8/31/2015 12,904.00 12,087.99 11,729.67
9/30/2015 12,899.00 12,133.76 11,809.01
10/31/2015 12,939.00 12,169.37 11,811.02
11/30/2015 12,882.00 12,140.55 11,779.80
12/31/2015 12,714.00 12,068.13 11,741.75
1/31/2016 12,742.00 12,190.19 11,903.29
2/29/2016 12,783.00 12,242.99 11,987.75
3/31/2016 13,040.00 12,409.37 12,097.71
4/30/2016 13,220.00 12,502.12 12,144.18
5/31/2016 13,273.00 12,500.67 12,147.29
6/30/2016 13,530.00 12,727.11 12,365.55
7/31/2016 13,698.00 12,845.89 12,443.73
8/31/2016 13,777.00 12,851.59 12,429.52
9/30/2016 13,819.00 12,858.61 12,422.20
10/31/2016 13,763.00 12,778.45 12,327.19
11/30/2016 13,453.00 12,475.97 12,035.63
12/31/2016 13,520.00 12,517.14 12,052.58
1/31/2017 13,619.00 12,567.03 12,076.24
[END CHART]
Data from 7/31/10 to 1/31/17.*
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 9 for benchmark definitions).
*The performance of the Lipper Index and the Bloomberg 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
1/31/2017 3.57 2.76
[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 1/31/17.
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
================================================================================
USAA INTERMEDIATE-TERM BOND FUND R6 SHARES* (R6 SHARES)
(Ticker Symbol: URIBX)
--------------------------------------------------------------------------------
1/31/17
--------------------------------------------------------------------------------
Net Assets $5.0 Million
Net Asset Value Per Share $10.48
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/17
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
1.61%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/16
--------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
0.82%
--------------------------------------------------------------------------------
30-DAY SEC YIELDS*** AS OF 1/31/17
--------------------------------------------------------------------------------
UNSUBSIDIZED 3.43% SUBSIDIZED 3.49%
--------------------------------------------------------------------------------
EXPENSE RATIOS****
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.51% AFTER REIMBURSEMENT 0.39%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*The R6 Shares commenced operations on December 1, 2016.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***Calculated as prescribed by the Securities and Exchange Commission.
****The expense ratios are reported in the Fund's prospectus dated December 1,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through November 30, 2017, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the R6 Shares (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.39% of the R6 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
November 30, 2017. If the total annual operating expense ratio of the R6 Shares
is lower than 0.39%, the R6 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERMEDIATE TERM BLOOMBERG BARCLAYS
BOND FUND R6 SHARES LIPPER INDEX U.S. AGGREGATE BOND INDEX
12/1/2016 $10,000.00 $10,000.00 $10,000.00
12/31/2016 10,082.00 10,033.00 10,014.09
1/31/2017 10,161.00 10,072.99 10,033.75
[END CHART]
Data from 11/30/16 through 1/31/17.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Intermediate-Term Bond Fund R6 Shares to the Fund's benchmarks listed above
(see page 9 for benchmark definitions).
*The performance of the Lipper Index and the Bloomberg Barclays U.S. Aggregate
Bond Index is calculated from the end of the month, November 30, 2016, while the
inception date of the R6 Shares is December 1, 2016. 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.
================================================================================
18 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 12.6%
AA 7.3%
A 20.2%
BBB 48.7%
BELOW INVESTMENT-GRADE 9.5%
UNRATED 1.7%
[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 21-47.
================================================================================
INVESTMENT OVERVIEW | 19
================================================================================
o ASSET ALLOCATION* - 1/31/17 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 58.7%
EURODOLLAR AND YANKEE OBLIGATIONS 17.9%
U.S. TREASURY SECURITIES 5.8%
MUNICIPAL BONDS 4.0%
COMMERCIAL MORTGAGE SECURITIES 3.9%
U.S. GOVERNMENT AGENCY ISSUES 3.2%
MONEY MARKET INSTRUMENTS 2.4%
PREFERRED STOCKS 1.6%
ASSET-BACKED SECURITIES 0.9%
COLLATERALIZED LOAN OBLIGATIONS 0.6%
FOREIGN GOVERNMENT OBLIGATIONS 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*Excludes futures.
================================================================================
20 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
BONDS (95.4%)
CORPORATE OBLIGATIONS (58.7%)
CONSUMER DISCRETIONARY (2.7%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
$ 2,000 Lear Corp. 4.75% 1/15/2023 $ 2,090
----------
AUTOMOBILE MANUFACTURERS (0.3%)
10,000 Ford Motor Co. 4.35 12/08/2026 10,048
----------
AUTOMOTIVE RETAIL (0.4%)
10,302 Advance Auto Parts, Inc. 4.50 12/01/2023 10,894
5,500 CST Brands, Inc. 5.00 5/01/2023 5,727
----------
16,621
----------
CABLE & SATELLITE (0.8%)
20,000 Charter Communications Operating, LLC 4.91 7/23/2025 21,066
2,461 CSC Holdings, LLC(a) 3.77 10/11/2024 2,486
2,000 CSC Holdings, LLC(b) 5.50 4/15/2027 2,035
5,000 NBCUniversal Enterprise, Inc.(b) 1.97 4/15/2019 5,011
----------
30,598
----------
DEPARTMENT STORES (0.2%)
3,200 Dillard's, Inc. 7.13 8/01/2018 3,433
3,000 J.C. Penney Co., Inc. 5.65 6/01/2020 2,970
2,000 Macy's Retail Holdings, Inc. 7.45 7/15/2017 2,054
----------
8,457
----------
HOME FURNISHINGS (0.1%)
2,500 Serta Simmons Holdings, LLC(a) 4.50 11/08/2023 2,501
----------
HOMEBUILDING (0.2%)
2,000 D.R. Horton, Inc. 5.75 8/15/2023 2,227
5,000 Lennar Corp. 4.50 11/15/2019 5,213
2,000 Lennar Corp. 4.13 1/15/2022 2,024
----------
9,464
----------
HOUSEWARES & SPECIALTIES (0.2%)
7,500 Newell Brands, Inc. 3.85 4/01/2023 7,742
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
RESTAURANTS (0.1%)
$ 3,755 1011778 B.C. Unlimited Liability Co.(a) 3.75% 12/10/2021 $ 3,795
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
1,000 Service Corp. International 7.63 10/01/2018 1,085
2,000 Service Corp. International 5.38 5/15/2024 2,105
----------
3,190
----------
SPECIALTY STORES (0.2%)
4,271 Harbor Freight Tools USA, Inc.(a) 3.78 8/19/2023 4,302
2,000 Sally Holdings, LLC / Sally Capital, Inc. 5.75 6/01/2022 2,079
----------
6,381
----------
Total Consumer Discretionary 100,887
----------
CONSUMER STAPLES (2.5%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
5,000 Bunge Ltd. Finance Corp. 3.25 8/15/2026 4,796
2,000 Cargill, Inc.(b) 6.00 11/27/2017 2,070
----------
6,866
----------
DRUG RETAIL (0.7%)
5,000 CVS Health Corp. 4.88 7/20/2035 5,386
8,711 CVS Pass-Through Trust(b),(q) 5.93 1/10/2034 9,924
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 10,129
----------
25,439
----------
FOOD RETAIL (0.0%)
1,228 Albertsons, LLC(a) 4.75 6/22/2023 1,238
----------
PACKAGED FOODS & MEAT (1.6%)
10,000 Flowers Foods, Inc. 3.50 10/01/2026 9,576
10,000 J.M. Smucker Co. 4.25 3/15/2035 10,141
1,500 JBS USA, LLC(a),(f) 3.25 10/30/2022 1,506
11,799 Kraft Heinz Food Co.(b) 4.88 2/15/2025 12,636
15,000 Kraft Heinz Foods Co. 3.50 6/06/2022 15,282
3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,591
10,000 Tyson Foods, Inc. 3.95 8/15/2024 10,181
----------
62,913
----------
Total Consumer Staples 96,456
----------
ENERGY (10.6%)
--------------
INTEGRATED OIL & GAS (0.7%)
10,000 Chevron Corp. 2.95 5/16/2026 9,808
10,000 Occidental Petroleum Corp. 3.40 4/15/2026 10,011
5,000 Occidental Petroleum Corp. 3.00 2/15/2027 4,828
----------
24,647
----------
================================================================================
22 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.6%)
$ 10,000 Nabors Industries, Inc. 4.63% 9/15/2021 $ 10,250
5,000 Noble Holding International Ltd. 2.50 3/15/2017 5,019
1,000 Noble Holding International Ltd. 4.90 8/01/2020 1,004
3,000 Noble Holding International Ltd. 3.95 3/15/2022 2,704
5,000 Noble Holding International Ltd. 7.20 4/01/2025 4,975
----------
23,952
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
3,079 SEACOR Holdings, Inc. 7.38 10/01/2019 3,141
2,000 SESI, LLC 7.13 12/15/2021 2,062
2,000 Weatherford Bermuda 9.63 3/01/2019 2,160
3,180 Weatherford Bermuda 5.13 9/15/2020 3,053
----------
10,416
----------
OIL & GAS EXPLORATION & PRODUCTION (1.7%)
1,830 Chesapeake Energy Corp.(b) 8.00 12/15/2022 1,960
10,000 ConocoPhillips Co. 4.95 3/15/2026 11,005
4,000 Denbury Resources, Inc. 6.38 8/15/2021 3,680
4,000 Devon Energy Corp. 5.85 12/15/2025 4,597
2,000 EQT Corp. 6.50 4/01/2018 2,102
1,000 EQT Corp. 8.13 6/01/2019 1,126
3,000 EQT Corp. 4.88 11/15/2021 3,210
7,500 Hess Corp. 4.30 4/01/2027 7,528
5,000 Newfield Exploration Co. 5.38 1/01/2026 5,200
2,000 Noble Energy, Inc. 8.25 3/01/2019 2,241
5,000 Pioneer Natural Resource 3.95 7/15/2022 5,197
1,000 Polar Tankers, Inc.(b) 5.95 5/10/2037 1,083
900 QEP Resources, Inc. 6.80 3/01/2020 950
5,000 QEP Resources, Inc. 6.88 3/01/2021 5,312
10,000 Southwestern Energy Co. 4.10 3/15/2022 9,325
2,000 Southwestern Energy Co. 6.70 1/23/2025 2,015
----------
66,531
----------
OIL & GAS REFINING & MARKETING (0.3%)
6,000 EnLink Midstream Partners, LP 4.15 6/01/2025 5,906
5,000 Marathon Petroleum Corp. 4.75 9/15/2044 4,473
2,000 Motiva Enterprises, LLC(b) 5.75 1/15/2020 2,170
----------
12,549
----------
OIL & GAS STORAGE & TRANSPORTATION (7.0%)
15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 15,682
250 Buckeye Partners, LP 5.13 7/01/2017 253
10,000 Buckeye Partners, LP 2.65 11/15/2018 10,075
10,000 Buckeye Partners, LP 4.35 10/15/2024 10,256
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 Columbia Pipeline Group Co. 4.50% 6/01/2025 $ 10,573
3,000 DCP Midstream Operating, LP 4.95 4/01/2022 3,128
4,000 DCP Midstream Operating, LP 3.88 3/15/2023 3,880
18,000 DCP Midstream, LLC(b) 5.85 5/21/2043 16,245
9,306 Enable Oklahoma Intrastate Transmission, LLC(b) 6.25 3/15/2020 9,916
19,000 Enbridge Energy Partners, LP 8.05 10/01/2077 18,525
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,148
14,000 Energy Transfer Partners, LP 3.90(d) 11/01/2066 11,987
1,000 Enterprise Products Operating, LLC 4.59(d) 8/01/2066 976
11,800 Enterprise Products Operating, LLC 7.03 1/15/2068 12,329
5,000 EQT Midstream Partners, LP 4.00 8/01/2024 4,969
9,000 EQT Midstream Partners, LP 4.13 12/01/2026 8,870
2,000 Florida Gas Transmission Co.(b) 7.90 5/15/2019 2,230
3,000 Florida Gas Transmission Co.(b) 5.45 7/15/2020 3,229
2,000 Kinder Morgan Energy Partners 6.50 4/01/2020 2,234
7,000 Kinder Morgan Energy Partners(c) 5.00 10/01/2021 7,546
1,000 Kinder Morgan, Inc. 6.50 9/15/2020 1,122
6,000 Kinder Morgan, Inc.(b) 5.00 2/15/2021 6,461
7,500 MPLX, LP 4.00 2/15/2025 7,446
12,000 NGPL PipeCo, LLC(b) 7.12 12/15/2017 12,420
2,000 NuStar Logistics, LP 8.15 4/15/2018 2,140
5,000 NuStar Logistics, LP 4.80 9/01/2020 5,113
3,000 NuStar Logistics, LP 4.75 2/01/2022 3,023
2,000 ONEOK Partners, LP 8.63 3/01/2019 2,250
5,000 ONEOK Partners, LP 4.90 3/15/2025 5,383
8,000 ONEOK, Inc. 4.25 2/01/2022 8,200
1,000 Plains All American Pipeline, LP 8.75 5/01/2019 1,135
5,000 Plains All American Pipeline, LP 3.85 10/15/2023 5,044
1,000 Questar Pipeline Co. 5.83 2/01/2018 1,038
5,000 Regency Energy Partners, LP & Regency Energy
Finance Corp. 5.88 3/01/2022 5,542
6,000 Sabine Pass Liquefaction, LLC 5.63 2/01/2021 6,510
2,000 Southern Union Co. 3.90(d) 11/01/2066 1,698
1,000 Spectra Energy Capital, LLC 8.00 10/01/2019 1,133
5,000 Spectra Energy Partners, LP 3.38 10/15/2026 4,811
4,500 Targa Resources Partners, LP 5.00 1/15/2018 4,590
2,000 Tennessee Gas Pipeline Co. 7.00 10/15/2028 2,381
1,000 Tesoro Logistics, LP/Tesoro Logistics Finance Corp. 6.25 10/15/2022 1,070
3,000 Transcontinental Gas Pipe Line Company, LLC 7.85 2/01/2026 3,851
5,000 Western Gas Partners, LP 5.38 6/01/2021 5,418
6,250 Western Gas Partners, LP 4.65 7/01/2026 6,502
10,000 Williams Companies, Inc. 4.55 6/24/2024 10,175
----------
268,507
----------
Total Energy 406,602
----------
================================================================================
24 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FINANCIALS (18.1%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.2%)
$ 10,000 Ares Capital Corp. 4.88% 11/30/2018 $ 10,451
10,000 FS Investment Corp. 4.00 7/15/2019 10,091
5,000 Main Street Capital Corp. 4.50 12/01/2019 5,024
11,400 Prospect Capital Corp. 5.00 7/15/2019 11,738
10,000 State Street Corp. 1.96(d) 6/01/2077 8,835
----------
46,139
----------
DIVERSIFIED BANKS (1.6%)
2,000 Bank of America Corp. 5.75 12/01/2017 2,067
10,000 Bank of America Corp. 2.07(d) 3/22/2018 10,082
10,000 Bank of America Corp. 4.20 8/26/2024 10,175
15,000 Citigroup, Inc. 4.40 6/10/2025 15,224
1,000 Comerica Bank 5.20 8/22/2017 1,020
2,000 JPMorgan Chase Capital XIII 1.95(d) 9/30/2034 1,763
10,000 JPMorgan Chase Capital XXI 1.83(d) 1/15/2087 8,828
7,500 USB Realty Corp.(b) 2.17(d) -(e) 6,338
5,000 Wells Fargo & Co. 3.50 3/08/2022 5,144
----------
60,641
----------
FINANCIAL EXCHANGES & DATA (0.3%)
10,000 S&P Global, Inc. 4.00 6/15/2025 10,312
----------
INVESTMENT BANKING & BROKERAGE (0.3%)
10,000 Morgan Stanley 4.88 11/01/2022 10,737
----------
LIFE & HEALTH INSURANCE (1.8%)
3,000 American Equity Investment Life Holding Co. 6.63 7/15/2021 3,157
2,000 Forethought Financial Group(b) 8.63 4/15/2021 2,226
13,018 Lincoln National Corp. 3.26(d) 5/17/2066 11,163
5,000 MetLife Capital Trust X(b) 9.25 4/08/2068 6,937
8,000 MetLife, Inc. 6.40 12/15/2066 8,700
1,000 Ohio National Financial Services, Inc.(b) 6.38 4/30/2020 1,104
2,000 Ohio National Financial Services, Inc.(b) 6.63 5/01/2031 2,336
5,000 Primerica, Inc. 4.75 7/15/2022 5,362
3,000 Principal Financial Global Fund, LLC 1.53(d) 1/10/2031 2,591
2,000 Prudential Financial, Inc. 6.00 12/01/2017 2,074
10,000 Prudential Financial, Inc. 5.88 9/15/2042 10,687
14,271 StanCorp Financial Group, Inc. 6.90(d) 6/01/2067 11,881
----------
68,218
----------
MULTI-LINE INSURANCE (1.4%)
2,000 American International Group, Inc. 8.18 5/15/2068 2,565
10,000 Genworth Holdings, Inc. 2.91(d) 11/15/2066 3,825
14,000 Glen Meadow Pass-Through Trust(b) 6.51(d) 2/12/2067 11,970
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 Kemper Corp. 4.35% 2/15/2025 $ 9,862
5,000 Loews Corp. 3.75 4/01/2026 5,083
20,235 Nationwide Mutual Insurance Co.(b) 3.25(d) 12/15/2024 19,970
----------
53,275
----------
MULTI-SECTOR HOLDINGS (0.4%)
5,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 5,000
10,000 BNSF Funding Trust I 6.61 12/15/2055 11,450
----------
16,450
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
5,000 Icahn Enterprises, LP 3.50 3/15/2017 5,001
----------
PROPERTY & CASUALTY INSURANCE (4.0%)
2,000 Allied World Assurance Holdings Ltd. 5.50 11/15/2020 2,151
5,000 Allied World Assurance Holdings Ltd. 4.35 10/29/2025 4,956
15,000 Allstate Corp. 5.75 8/15/2053 15,834
5,000 Allstate Corp.(c) 6.13(d) 5/15/2067 4,963
7,500 AmTrust Financial Services, Inc. 6.13 8/15/2023 7,899
1,535 Assured Guaranty U.S. Holdings, Inc. 7.00 6/01/2034 1,795
1,000 Assured Guaranty U.S. Holdings, Inc. 3.34(d) 12/15/2066 735
22,000 Chubb Corp. 6.38(d) 3/29/2067 21,516
5,000 Hanover Insurance Group, Inc. 4.50 4/15/2026 5,101
9,760 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 11,315
4,000 Markel Corp. 3.63 3/30/2023 4,032
5,000 Navigators Group, Inc. 5.75 10/15/2023 5,333
15,000 Oil Insurance Ltd.(b) 3.98(d) -(e) 12,712
6,000 Old Republic International Corp. 3.88 8/26/2026 5,813
10,025 OneBeacon U.S. Holdings, Inc. 4.60 11/09/2022 10,010
10,000 ProAssurance Corp. 5.30 11/15/2023 10,940
20,010 Progressive Corp. 6.70(d) 6/15/2067 19,860
5,000 RLI Corp. 4.88 9/15/2023 5,098
5,000 Travelers Companies, Inc. 6.25(d) 3/15/2067 5,000
----------
155,063
----------
REGIONAL BANKS (6.3%)
10,000 Associated Banc-Corp. 4.25 1/15/2025 9,923
10,000 Banc of California, Inc. 5.25 4/15/2025 9,817
10,000 Bank of the Ozarks, Inc. 5.50 7/01/2026 10,462
5,000 BankUnited, Inc. 4.88 11/17/2025 4,986
15,000 Citizens Financial Group, Inc.(b) 4.15 9/28/2022 15,281
5,500 Citizens Financial Group, Inc. 3.75 7/01/2024 5,359
4,750 CoBiz Financial, Inc. 5.63 6/25/2030 4,997
6,035 Compass Bank 6.40 10/01/2017 6,207
2,000 Cullen/Frost Bankers, Inc. 1.44(d) 2/15/2017 2,000
10,000 Cullen/Frost Capital Trust II 2.48(d) 3/01/2034 8,694
================================================================================
26 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 Eagle Bancorp, Inc. 5.00% 8/01/2026 $ 10,197
10,000 Fifth Third Bank 3.85 3/15/2026 10,060
5,000 First Financial Bancorp 5.13 8/25/2025 4,866
1,000 First Maryland Capital Trust I 2.02(d) 1/15/2027 904
5,000 First Midwest Bancorp, Inc. 5.88 9/29/2026 5,186
10,000 First Niagara Financial Group, Inc.(c) 7.25 12/15/2021 11,846
5,000 FirstMerit Bank, N.A. 4.27 11/25/2026 5,078
10,000 Fulton Financial Corp. 4.50 11/15/2024 9,944
1,000 Hancock Holding Co. 5.88 4/01/2017 1,005
5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 4,965
10,000 Huntington Bancshares, Inc. 3.15 3/14/2021 10,142
10,000 Huntington Bancshares, Inc. 4.35 2/04/2023 10,388
10,000 Key Bank, N.A. 3.40 5/20/2026 9,709
750 KeyCorp Capital II 6.88 3/17/2029 825
5,000 LegacyTexas Financial Group 5.50 12/01/2025 4,976
16,000 Manufacturers & Traders Trust Co. 1.57(d) 12/01/2021 15,720
5,000 MUFG Americas Holdings Corp. 3.50 6/18/2022 5,126
10,000 People's United Bank 4.00 7/15/2024 9,888
10,000 People's United Financial, Inc. 3.65 12/06/2022 10,094
5,000 Sterling National Bank 5.25 4/01/2026 5,056
5,000 SunTrust Capital I 1.57(d) 5/15/2027 4,363
5,000 TCF National Bank 4.60 2/27/2025 4,848
5,000 Webster Financial Corp. 4.38 2/15/2024 4,967
1,000 Wilmington Trust Corp. 8.50 4/02/2018 1,071
3,500 Wintrust Financial Corp. 5.00 6/13/2024 3,489
----------
242,439
----------
REINSURANCE (0.4%)
5,000 Alleghany Corp. 5.63 9/15/2020 5,515
6,259 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 6,318
5,000 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 5,094
----------
16,927
----------
THRIFTS & MORTGAGE FINANCE (0.3%)
10,000 EverBank Financial Corp. 5.75 7/02/2025 10,195
----------
Total Financials 695,397
----------
HEALTH CARE (2.2%)
------------------
BIOTECHNOLOGY (0.1%)
5,000 Baxalta, Inc. 4.00 6/23/2025 5,029
----------
HEALTH CARE EQUIPMENT (0.2%)
9,000 CR Bard, Inc. 3.00 5/15/2026 8,669
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.4%)
$ 10,000 HCA, Inc. 4.50% 2/15/2027 $ 9,887
2,000 HealthSouth Corp. 5.75 11/01/2024 2,043
3,000 Premier Health Partners 2.91 11/15/2026 2,762
----------
14,692
----------
HEALTH CARE SERVICES (0.3%)
10,000 Express Scripts Holding Co. 3.00 7/15/2023 9,644
----------
MANAGED HEALTH CARE (0.1%)
5,000 UnitedHealth Group, Inc. 3.10 3/15/2026 4,928
----------
PHARMACEUTICALS (1.1%)
10,000 Actavis Funding SCS 3.80 3/15/2025 9,999
5,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 4,150
5,000 Mylan N.V.(b) 3.75 12/15/2020 4,733
5,000 Mylan N.V.(b) 3.95 6/15/2026 5,066
1,000 Pfizer, Inc. 6.05 3/30/2017 1,008
15,000 Zoetis, Inc. 3.25 2/01/2023 15,061
----------
40,017
----------
Total Health Care 82,979
----------
INDUSTRIALS (5.8%)
------------------
AEROSPACE & DEFENSE (1.2%)
10,000 Arconic, Inc. 5.40 4/15/2021 10,688
10,000 L-3 Communications Corp. 5.20 10/15/2019 10,763
15,000 Lockheed Martin Corp. 3.60 3/01/2035 14,336
5,000 Spirit AeroSystems, Inc. 3.85 6/15/2026 4,951
5,000 United Technologies Corp. 3.10 6/01/2022 5,133
----------
45,871
----------
AGRICULTURAL & FARM MACHINERY (0.4%)
5,000 CNH Industrial Capital, LLC 3.88 7/16/2018 5,100
10,000 CNH Industrial Capital, LLC 3.38 7/15/2019 10,150
----------
15,250
----------
AIR FREIGHT & LOGISTICS (0.2%)
10,000 FedEx Corp. 3.90 2/01/2035 9,599
----------
AIRLINES (1.4%)
530 America West Airlines, Inc. Pass-Through Trust (INS) 7.93 7/02/2020 562
8,256 American Airlines, Inc. Pass-Through Trust 4.00 1/15/2027 8,411
550 Continental Airlines, Inc. Pass-Through Trust 6.55 8/02/2020 576
562 Continental Airlines, Inc. Pass-Through Trust (INS) 6.24 9/15/2021 589
9,105 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 9,426
8,342 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 7/15/2027 8,436
================================================================================
28 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 6,330 United Airlines, Inc. Pass-Through Trust 4.63% 3/03/2024 $ 6,433
4,511 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,663
798 US Airways Group, Inc. Pass-Through Trust (INS) 7.08 9/20/2022 857
3,225 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,584
2,088 US Airways Group, Inc. Pass-Through Trust(c) 7.13 4/22/2025 2,404
8,391 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 8,548
----------
54,489
----------
BUILDING PRODUCTS (0.0%)
1,000 USG Corp. 8.25 1/15/2018 1,063
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%)
4,888 Terex Corp.(a) 3.75 8/13/2021 4,879
10,000 Wabtec Corp.(b) 3.45 11/15/2026 9,673
----------
14,552
----------
INDUSTRIAL CONGLOMERATES (0.2%)
5,921 General Electric Co. 5.00 -(e) 6,165
----------
INDUSTRIAL MACHINERY (0.2%)
6,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 6,328
----------
RAILROADS (0.3%)
1,700 Union Pacific Corp. 3.25 1/15/2025 1,729
10,000 Union Pacific Corp. 2.75 3/01/2026 9,723
----------
11,452
----------
TRADING COMPANIES & DISTRIBUTORS (0.6%)
10,000 Air Lease Corp. 3.00 9/15/2023 9,717
7,000 ILFC E-Capital Trust I(b) 4.67(d) 12/21/2065 6,164
2,000 ILFC E-Capital Trust II(b) 4.92(d) 12/21/2065 1,825
6,000 International Lease Finance Corp.(b) 7.13 9/01/2018 6,469
----------
24,175
----------
TRUCKING (0.9%)
1,000 Avis Budget Car Finance, Inc.(b) 5.13 6/01/2022 976
5,000 ERAC USA Finance, LLC(b) 3.30 10/15/2022 5,056
20,000 Penske Truck Leasing Co., LP(b) 4.25 1/17/2023 20,782
5,000 Ryder System, Inc. 3.45 11/15/2021 5,138
1,870 YRC Worldwide, Inc.(a) 8.00 2/13/2019 1,878
----------
33,830
----------
Total Industrials 222,774
----------
INFORMATION TECHNOLOGY (1.3%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
3,500 Solera, LLC(a),(f) 5.75 3/03/2023 3,543
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.3%)
$ 10,000 Cisco Systems, Inc. 2.60% 2/28/2023 $ 9,941
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
5,000 Molex Electronic Technologies, LLC(b) 3.90 4/15/2025 4,975
----------
HOME ENTERTAINMENT SOFTWARE (0.2%)
7,500 Activision Blizzard, Inc.(b) 3.40 9/15/2026 7,174
----------
SEMICONDUCTORS (0.4%)
5,000 Broadcom Ltd. / Broadcom Cayman L.P.(b) 3.63 1/15/2024 5,014
10,000 Qualcomm, Inc. 3.45 5/20/2025 10,026
----------
15,040
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.2%)
7,500 Diamond 1 Finance Corp. / Diamond 2 Finance
Corp.(b) 4.42 6/15/2021 7,813
----------
Total Information Technology 48,486
----------
MATERIALS (2.7%)
----------------
COMMODITY CHEMICALS (0.4%)
5,000 Chevron Phillips Chemical Co.(b) 3.40 12/01/2026 4,995
10,000 Westlake Chemical Corp.(b) 3.60 8/15/2026 9,728
----------
14,723
----------
CONSTRUCTION MATERIALS (0.2%)
3,000 CRH America, Inc. 5.75 1/15/2021 3,323
5,000 Martin Marietta Materials, Inc. 4.25 7/02/2024 5,179
----------
8,502
----------
DIVERSIFIED CHEMICALS (0.2%)
7,500 CF Industries, Inc.(b) 4.50 12/01/2026 7,511
1,000 E.I. du Pont de Nemours & Co. 6.00 7/15/2018 1,063
----------
8,574
----------
DIVERSIFIED METALS & MINING (0.2%)
6,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 5,640
----------
METAL & GLASS CONTAINERS (0.1%)
1,000 Ball Corp. 5.00 3/15/2022 1,054
2,500 Ball Corp. 5.25 7/01/2025 2,637
----------
3,691
----------
PAPER PACKAGING (0.8%)
3,000 International Paper Co. 7.50 8/15/2021 3,593
5,000 International Paper Co.(c) 4.75 2/15/2022 5,428
5,000 International Paper Co. 3.80 1/15/2026 5,076
7,500 International Paper Co. 3.00 2/15/2027 7,055
5,153 Sealed Air Corp.(b) 6.88 7/15/2033 5,437
================================================================================
30 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 WestRock RKT Co. 4.45% 3/01/2019 $ 5,200
----------
31,789
----------
PAPER PRODUCTS (0.1%)
3,000 Georgia-Pacific, LLC 7.25 6/01/2028 3,857
----------
STEEL (0.7%)
2,000 Allegheny Technologies, Inc. 9.38 6/01/2019 2,215
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 9,900
3,000 Allegheny Technologies, Inc. 7.88 8/15/2023 3,045
2,000 Carpenter Technology Corp.(c) 5.20 7/15/2021 2,021
10,000 Worthington Industries, Inc. 4.55 4/15/2026 10,028
----------
27,209
----------
Total Materials 103,985
----------
REAL ESTATE (4.8%)
------------------
REITs - DIVERSIFIED (0.3%)
6,000 Spirit Realty Capital, Inc.(b) 4.45 9/15/2026 5,763
5,000 Washington REIT 3.95 10/15/2022 5,040
----------
10,803
----------
REITs - HEALTH CARE (0.8%)
4,000 Care Capital Properties, LP(b) 5.13 8/15/2026 3,874
4,901 MPT Operating Partnership, LP / MPT Finance Corp. 5.25 8/01/2026 4,828
2,000 Nationwide Health Properties, Inc. 6.90 10/01/2037 2,357
10,000 Omega Healthcare Investors, Inc. 4.95 4/01/2024 10,190
2,000 Senior Housing Properties Trust(c) 6.75 12/15/2021 2,245
2,000 Welltower, Inc. 4.70 9/15/2017 2,038
3,000 Welltower, Inc. 6.13 4/15/2020 3,335
2,000 Welltower, Inc. 4.95 1/15/2021 2,157
----------
31,024
----------
REITs - HOTEL & RESORT (0.1%)
5,000 Hospitality Property Trust 4.95 2/15/2027 4,994
----------
REITs - OFFICE (0.7%)
7,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 7,417
2,000 Boston Properties, LP 5.88 10/15/2019 2,179
8,000 Boston Properties, LP 3.85 2/01/2023 8,269
7,500 Columbia Property Trust Operating Partnership, LP 3.65 8/15/2026 7,169
932 Duke Realty, LP 6.50 1/15/2018 974
1,000 Equity Commonwealth 6.65 1/15/2018 1,022
----------
27,030
----------
REITs - RESIDENTIAL (0.6%)
5,550 AvalonBay Communities, Inc. 2.85 3/15/2023 5,455
9,000 ERP Operating, LP 2.85 11/01/2026 8,473
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 UDR, Inc. 4.63% 1/10/2022 $ 10,690
----------
24,618
----------
REITs - RETAIL (1.0%)
5,000 CBL & Associates, LP 5.25 12/01/2023 4,965
3,000 Federal Realty Investment Trust 3.00 8/01/2022 3,018
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,779
1,000 National Retail Properties, Inc. 6.88 10/15/2017 1,036
5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,099
2,000 Realty Income Corp. 5.75 1/15/2021 2,212
2,100 Realty Income Corp. 3.25 10/15/2022 2,123
5,000 Realty Income Corp. 4.13 10/15/2026 5,146
6,000 Realty Income Corp. 3.00 1/15/2027 5,681
----------
39,059
----------
REITs - SPECIALIZED (1.3%)
5,000 American Tower Corp. 3.45 9/15/2021 5,072
5,000 American Tower Corp.(c) 5.90 11/01/2021 5,594
21,204 CC Holdings GS V, LLC / Crown Castle III Corp. 3.85 4/15/2023 21,709
3,940 Communications Sales & Leasing, Inc.(a) 4.50 10/24/2022 3,995
6,000 EPR Properties 7.75 7/15/2020 6,829
5,000 EPR Properties 4.75 12/15/2026 4,971
----------
48,170
----------
Total Real Estate 185,698
----------
TELECOMMUNICATION SERVICES (1.4%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.0%)
10,000 AT&T, Inc. 4.50 5/15/2035 9,430
2,000 AT&T, Inc.(f) 5.25 3/01/2037 2,008
2,000 CenturyLink, Inc. 6.45 6/15/2021 2,135
5,000 CenturyLink, Inc. 5.80 3/15/2022 5,161
2,000 CenturyLink, Inc. 6.75 12/01/2023 2,065
3,301 Frontier Communications Corp. 8.25 4/15/2017 3,350
3,000 Frontier Communications Corp. 6.25 9/15/2021 2,820
5,000 Frontier Communications Corp. 11.00 9/15/2025 5,075
6,000 Qwest Corp.(c) 6.75 12/01/2021 6,611
----------
38,655
----------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
4,774 Grain Spectrum Funding II(b) 3.29 10/10/2034 4,872
11,000 Sprint Spectrum Co. LLC/Sprint Spectrum
Co. II, LLC/Sprint Spectrum Co.(b) 3.36 3/20/2023 11,041
----------
15,913
----------
Total Telecommunication Services 54,568
----------
================================================================================
32 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
UTILITIES (6.6%)
----------------
ELECTRIC UTILITIES (4.3%)
$ 7,291 Bruce Mansfield Unit Pass-Through Trust 6.85% 6/01/2034 $ 2,688
10,000 Cleco Corporate Holdings, LLC(b) 3.74 5/01/2026 9,891
2,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 2,236
2,000 Commonwealth Edison Co. 5.80 3/15/2018 2,094
10,000 Duke Energy Carolinas, LLC 2.50 3/15/2023 9,913
5,000 Duke Energy Indiana, LLC 3.75 5/15/2046 4,739
1,045 Duke Energy Progress, Inc. 6.13 9/15/2033 1,297
13,000 Duquesne Light Holdings, Inc.(b) 6.40 9/15/2020 14,532
3,500 Duquesne Light Holdings, Inc.(b) 5.90 12/01/2021 3,915
10,000 Entergy Texas, Inc. 2.55 6/01/2021 9,994
144 FPL Energy National Wind, LLC(b) 5.61 3/10/2024 145
5,000 Georgia Power Co. 3.25 4/01/2026 5,024
3,000 Great Plains Energy, Inc. 6.88 9/15/2017 3,087
2,000 Indiana Michigan Power Co. 7.00 3/15/2019 2,203
12,500 IPALCO Enterprises, Inc.(c) 5.00 5/01/2018 12,937
2,000 Metropolitan Edison Co. 7.70 1/15/2019 2,195
1,000 Nevada Power Co. 6.50 5/15/2018 1,063
14,000 NextEra Energy Capital Holdings, Inc. 3.07(d) 10/01/2066 12,075
1,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 1,008
3,000 NV Energy, Inc. 6.25 11/15/2020 3,397
2,000 Oglethorpe Power Corp. 6.10 3/15/2019 2,168
5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 4,771
5,000 Pacific Gas & Electric Co. 2.95 3/01/2026 4,900
15,000 PPL Capital Funding, Inc. 6.70(d) 3/30/2067 13,875
3,000 Public Service Co. of New Mexico 7.95 5/15/2018 3,229
6,900 Southern California Edison Co. 6.25 -(e) 7,618
10,000 Southern Co. 3.25 7/01/2026 9,692
4,000 Texas - New Mexico Power Co.(b) 9.50 4/01/2019 4,586
10,000 Xcel Energy, Inc. 3.30 6/01/2025 10,012
----------
165,284
----------
GAS UTILITIES (0.5%)
2,000 Atmos Energy Corp. 6.35 6/15/2017 2,038
1,000 Atmos Energy Corp. 8.50 3/15/2019 1,133
4,000 National Fuel Gas Co.(c) 4.90 12/01/2021 4,250
10,000 National Fuel Gas Co. 3.75 3/01/2023 9,941
1,000 National Fuel Gas Co. 7.38 6/13/2025 1,170
2,000 Southern Natural Gas Co., LLC(b) 5.90 4/01/2017 2,015
----------
20,547
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (1.5%)
$ 1,000 Ameren Illinois Co. 6.13% 11/15/2017 $ 1,036
2,000 Ameren Illinois Co. 9.75 11/15/2018 2,276
3,000 Black Hills Corp. 5.88 7/15/2020 3,285
5,000 Black Hills Corp. 3.95 1/15/2026 5,117
2,000 CMS Energy Corp. 6.25 2/01/2020 2,222
3,000 CMS Energy Corp. 5.05 3/15/2022 3,290
5,000 Consumers Energy Co. 2.85 5/15/2022 5,077
6,050 Dominion Resources, Inc. 3.82(d) 6/30/2066 5,536
8,000 Dominion Resources, Inc. 3.30(d) 9/30/2066 6,280
8,000 Puget Sound Energy, Inc. 6.97 6/01/2067 7,060
2,000 Sempra Energy 9.80 2/15/2019 2,312
14,500 WEC Energy Group, Inc. 6.25(d) 5/15/2067 13,086
----------
56,577
----------
WATER UTILITIES (0.3%)
10,000 Aquarion Co., Inc.(b) 4.00 8/15/2024 10,047
----------
Total Utilities 252,455
----------
Total Corporate Obligations (cost: $2,206,642) 2,250,287
----------
EURODOLLAR AND YANKEE OBLIGATIONS (17.9%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.1%)
5,000 Daimler Finance, N.A., LLC(b) 2.25 7/31/2019 5,007
----------
PUBLISHING (0.1%)
4,622 Pearson Funding Four plc(b) 3.75 5/08/2022 4,519
----------
Total Consumer Discretionary 9,526
----------
CONSUMER STAPLES (1.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
8,000 Viterra, Inc. (b) 5.95 8/01/2020 8,766
----------
BREWERS (0.5%)
5,000 Anheuser-Busch InBev Worldwide, Inc. 3.75 1/15/2022 5,241
15,000 Anheuser-Busch InBev Worldwide, Inc. 3.65 2/01/2026 15,071
----------
20,312
----------
DISTILLERS & VINTNERS (0.3%)
10,000 Becle S.A. de C.V.(b) 3.75 5/13/2025 9,599
----------
FOOD RETAIL (0.0%)
301 Ahold Lease USA, Inc. Pass-Through Trust 7.82 1/02/2020 325
----------
PACKAGED FOODS & MEAT (0.1%)
2,500 Smithfield Foods, Inc.(b), (f) 4.25 2/01/2027 2,531
----------
================================================================================
34 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
TOBACCO (0.5%)
$ 10,000 BAT International Finance plc(b) 3.25% 6/07/2022 $ 10,092
10,000 Imperial Brands Finance plc(b) 4.25 7/21/2025 10,311
----------
20,403
----------
Total Consumer Staples 61,936
----------
ENERGY (1.6%)
--------------
INTEGRATED OIL & GAS (1.0%)
10,000 BP Capital Markets plc 3.72 11/28/2028 10,088
1,000 Husky Energy, Inc. 7.25 12/15/2019 1,137
10,000 Petrobras Global Finance B.V. 4.88 3/17/2020 10,215
5,000 Petroleos Mexicanos Co. 4.50 1/23/2026 4,560
10,000 Petroleos Mexicanos Co.(b) 6.50 3/13/2027 10,297
----------
36,297
----------
OIL & GAS DRILLING (0.0%)
620 QGOG Atlantic/Alaskan Rigs Ltd.(b),(c) 5.25 7/30/2019 604
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
1,500 Repsol Oil & Gas Canada, Inc. 7.75 6/01/2019 1,639
2,000 Woodside Finance Ltd.(b) 4.60 5/10/2021 2,114
----------
3,753
----------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
5,000 APT Pipelines Ltd.(b) 4.20 3/23/2025 5,028
1,275 Nakilat, Inc.(b) 6.07 12/31/2033 1,492
2,000 TransCanada PipeLines Ltd. 7.13 1/15/2019 2,195
11,860 TransCanada PipeLines Ltd. 6.35(d) 5/15/2067 10,941
----------
19,656
----------
Total Energy 60,310
----------
FINANCIALS (5.7%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
4,500 Brookfield Asset Management, Inc. 5.80 4/25/2017 4,543
----------
DIVERSIFIED BANKS (4.4%)
10,000 ABN AMRO Bank N.V.(b) 4.75 7/28/2025 10,221
10,000 ABN AMRO Bank N.V.(b) 4.80 4/18/2026 10,273
10,000 Australia & New Zealand Banking Group Ltd.(b) 4.40 5/19/2026 10,133
2,450 Barclays Bank plc 1.63(d) -(e) 1,861
15,000 BNP Paribas S.A.(b) 4.38 5/12/2026 15,001
10,000 Cooperatieve Rabobank U.A. 3.88 2/08/2022 10,501
8,451 Cooperatieve Rabobank U.A. 3.95 11/09/2022 8,658
10,000 Credit Suisse Group Funding Ltd. 4.55 4/17/2026 10,294
10,000 HSBC Bank plc 1.63(d) -(e) 7,690
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 HSBC Holdings plc 3.90% 5/25/2026 $ 10,013
5,000 Lloyds Bank plc 4.20 3/28/2017 5,024
10,000 Nordea Bank AB(b) 4.25 9/21/2022 10,383
4,500 Rabobank Nederland 1.70 3/19/2018 4,501
4,000 Royal Bank of Scotland Group plc 7.64 -(e) 3,740
10,000 Royal Bank of Scotland Group plc 9.50(d) 3/16/2022 10,109
6,560 Santander Bank, N.A. 8.75 5/30/2018 7,089
10,000 Santander UK plc 3.05 8/23/2018 10,177
5,000 Santander UK plc(b) 5.00 11/07/2023 5,187
7,500 Swedbank AB(b) 2.65 3/10/2021 7,521
10,000 Westpac Banking Corp. 4.32 11/23/2031 10,003
----------
168,379
----------
LIFE & HEALTH INSURANCE (0.2%)
7,000 Great-West Life & Annuity Insurance Capital, LP(b) 3.45(d) 5/16/2046 6,195
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
7,000 ING Bank N.V.(b) 3.75 3/07/2017 7,017
----------
PROPERTY & CASUALTY INSURANCE (0.8%)
20,056 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 22,137
5,000 XLIT Ltd. 6.50(d) -(e) 4,225
5,000 XLIT Ltd. 4.45 3/31/2025 5,004
----------
31,366
----------
Total Financials 217,500
----------
GOVERNMENT (0.1%)
-----------------
FOREIGN GOVERNMENT (0.1%)
5,000 Italy Government International Bond 5.38 6/15/2033 5,449
----------
HEALTH CARE (0.4%)
------------------
PHARMACEUTICALS (0.4%)
15,000 Teva Pharmaceuticals Finance 3.15 10/01/2026 13,626
----------
INDUSTRIALS (3.7%)
------------------
AEROSPACE & DEFENSE (0.3%)
10,000 BAE Systems Holdings, Inc.(b) 3.85 12/15/2025 10,262
----------
AIRLINES (1.5%)
5,000 Air Canada Pass-Through Trust(b) 5.00 3/15/2020 4,981
3,848 Air Canada Pass-Through Trust(b) 5.38 11/15/2022 3,929
9,316 Air Canada Pass-Through Trust(b) 3.88 9/15/2024 9,002
8,569 Air Canada Pass-Through Trust(b) 4.13 11/15/2026 8,773
5,855 Air Canada Pass-Through Trust(b) 3.75 6/15/2029 5,921
13,338 British Airways Pass-Through Trust(b) 4.63 12/20/2025 14,172
2,349 Virgin Australia Trust(b) 6.00 4/23/2022 2,384
================================================================================
36 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 10,000 WestJet Airlines Ltd.(b) 3.50% 6/16/2021 $ 10,018
----------
59,180
----------
AIRPORT SERVICES (0.6%)
10,000 Heathrow Funding Ltd.(b) 4.88 7/15/2023 10,740
10,000 Sydney Airport Finance Co. Proprietary Ltd.(b) 3.90 3/22/2023 10,287
2,000 Sydney Airport Finance Co. Proprietary Ltd. 3.63 4/28/2026 1,975
----------
23,002
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
5,500 Brambles USA, Inc.(b) 4.13 10/23/2025 5,612
----------
INDUSTRIAL CONGLOMERATES (0.8%)
7,500 CK Hutchison International 16 Ltd.(b) 2.75 10/03/2026 6,980
2,000 Hutchison Whampoa International Ltd.(b) 4.63 1/13/2022 2,154
20,000 Siemens Financieringsmaatschappij N.V.(b) 3.25 5/27/2025 20,020
1,000 Siemens Financieringsmaatschappij N.V.(b) 6.13 8/17/2026 1,221
----------
30,375
----------
RAILROADS (0.3%)
4,261 Asciano Finance Ltd.(b) 4.63 9/23/2020 4,418
8,000 Canadian National Railway Co. 2.75 3/01/2026 7,841
----------
12,259
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
3,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 3,154
----------
Total Industrials 143,844
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
5,000 Tyco Electronics Group S.A. 3.50 2/03/2022 5,157
----------
MATERIALS (3.2%)
-----------------
COMMODITY CHEMICALS (0.3%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 10,753
----------
DIVERSIFIED CHEMICALS (0.1%)
3,000 Incitec Pivot Finance, LLC(b) 6.00 12/10/2019 3,234
----------
DIVERSIFIED METALS & MINING (0.7%)
5,000 Anglo American Capital plc(b) 2.63 9/27/2017 5,009
5,000 Anglo American Capital plc(b) 4.13 4/15/2021 5,100
10,000 Glencore Funding, LLC(b) 2.50 1/15/2019 10,083
3,000 Southern Copper Corp. 3.88 4/23/2025 3,003
5,000 Teck Resources Ltd. 3.75 2/01/2023 4,875
----------
28,070
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%)
$ 10,000 Potash Corp. of Saskatchewan, Inc. 3.00% 4/01/2025 $ 9,477
----------
GOLD (0.7%)
2,000 Barrick Gold Corp. 6.95 4/01/2019 2,194
15,000 Goldcorp, Inc. 3.70 3/15/2023 15,197
10,000 Kinross Gold Corp. 5.95 3/15/2024 10,543
----------
27,934
----------
METAL & GLASS CONTAINERS (0.2%)
7,500 CCL Industries, Inc.(b) 3.25 10/01/2026 7,137
----------
PAPER PACKAGING (0.1%)
3,000 Smurfit Kappa Acquisitions(b) 4.88 9/15/2018 3,105
----------
PAPER PRODUCTS (0.1%)
5,000 Amcor Finance USA, Inc.(b) 3.63 4/28/2026 4,922
----------
PRECIOUS METALS & MINERALS (0.3%)
10,000 Fresnillo plc(b) 5.50 11/13/2023 10,638
----------
STEEL (0.4%)
3,000 ArcelorMittal 6.13 6/01/2018 3,154
2,000 ArcelorMittal 6.50 3/01/2021 2,195
4,000 ArcelorMittal 7.25 2/25/2022 4,530
2,000 Vale Overseas Ltd. 4.63 9/15/2020 2,080
5,000 Vale Overseas Ltd. 4.38 1/11/2022 5,056
----------
17,015
----------
Total Materials 122,285
----------
REAL ESTATE (0.3%)
------------------
REITs - RETAIL (0.3%)
10,750 WEA Finance, LLC / Westfield UK & Europe
Finance plc(b) 3.75 9/17/2024 10,903
----------
UTILITIES (1.0%)
----------------
ELECTRIC UTILITIES (1.0%)
5,000 Comision Federal de Electricidad(b) 4.75 2/23/2027 4,833
6,000 EDP Finance B.V.(b) 4.13 1/15/2020 6,179
10,000 Electricite De France S.A.(b) 5.25 -(e) 9,556
5,000 Emera US Finance, LP 3.55 6/15/2026 4,911
10,000 Fortis, Inc.(b) 3.06 10/04/2026 9,366
3,500 Transelec S.A.(b) 3.88 1/12/2029 3,344
----------
38,189
----------
Total Utilities 38,189
----------
Total Eurodollar and Yankee Obligations (cost: $677,854) 688,725
----------
================================================================================
38 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(o) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS (0.3%)
CAD15,000 Province of Alberta (cost: $14,605) 2.55% 12/15/2022 $ 11,890
----------
ASSET-BACKED SECURITIES (0.9%)
FINANCIALS (0.5%)
-----------------
ASSET-BACKED FINANCING (0.5%)
$ 2,855 Avis Budget Rental Car Funding AESOP, LLC(b) 3.75 7/20/2020 2,839
1,000 Citibank Credit Card Issuance Trust 5.65 9/20/2019 1,028
5,000 GE Capital Credit Card Master Note Trust 4.47 3/15/2020 5,019
2,000 Hertz Vehicle Financing, LLC(b) 6.44 2/25/2019 2,052
2,316 Hertz Vehicle Financing, LLC 3.95 9/25/2019 2,316
2,484 SLM Student Loan Trust 1.26(d) 1/25/2041 2,214
975 SLM Student Loan Trust 1.59(d) 10/25/2065 887
1,002 Trinity Rail Leasing, LP (INS)(b) 5.27 8/14/2027 1,032
3,037 Trinity Rail Leasing, LP(b) 5.90 5/14/2036 3,058
----------
20,445
----------
Total Financials 20,445
----------
UTILITIES (0.4%)
----------------
ELECTRIC UTILITIES (0.4%)
15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24 1/01/2031 14,968
----------
Total Asset-Backed Securities (cost: $35,213) 35,413
----------
COLLATERALIZED LOAN OBLIGATIONS (0.6%)
FINANCIALS (0.6%)
-----------------
4,000 Dryden Senior Loan Fund(b) 3.03(d) 7/20/2029 4,023
10,000 Oaktree EIF Ltd.(b) 3.09 10/20/2027 10,025
5,000 Race Point Ltd.(b) 2.48(d) 7/25/2028 5,016
5,000 Race Point Ltd.(b) 3.23(d) 7/25/2028 5,058
----------
Total Financials 24,122
----------
Total Collateralized Loan Obligations (cost: $24,000) 24,122
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
2,462 Structured Asset Mortgage Investments, Inc.
(cost: $2,337) 1.27(d) 7/19/2035 2,277
----------
COMMERCIAL MORTGAGE SECURITIES (3.9%)
FINANCIALS (3.9%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (3.2%)
584 Banc of America Commercial Mortgage, Inc. 5.00 11/10/2042 584
1,000 Banc of America Commercial Mortgage, Inc. 5.00 11/10/2042 806
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,980 Banc of America Commercial Mortgage, Inc. 6.28% 2/10/2051 $ 6,194
3,000 BCRR Trust(b) 5.86 7/17/2040 3,003
1,759 Bear Stearns Commercial Mortgage Securities, Inc. 5.21 2/11/2041 1,757
147 Bear Stearns Commercial Mortgage Securities, Inc. 5.33 2/11/2044 147
7,000 CFCRE Commercial Mortgage Trust(b) 5.00 12/15/2047 7,846
5,000 Citigroup Commercial Mortgage Trust 6.00 12/10/2049 5,101
1,651 Commercial Mortgage Trust 5.38 12/10/2046 1,649
2,113 Commercial Mortgage Trust(b) 5.54 12/11/2049 2,112
1,950 DB-UBS Mortgage Trust(b),(c) 5.00 8/10/2044 2,141
3,000 FREMF Mortgage Trust(b) 3.50 11/25/2023 2,851
1,203 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 1,202
1,000 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 975
1,546 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 1,430
2,142 Greenwich Capital Commercial Funding Corp. 5.77 7/10/2038 2,141
3,000 GS Mortgage Securities Trust(b) 4.95 1/10/2045 3,284
862 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.99 9/12/2037 867
4,000 J.P. Morgan Chase Commercial Mortgage Securities
Corp.(b) 5.00 11/15/2043 4,304
357 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.46 12/12/2043 357
275 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.93 4/17/2045 274
5,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.93 4/17/2045 3,941
9,961 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 3.51 5/15/2045 10,398
5,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp.(b) 5.00 8/15/2046 5,568
5,426 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.37 5/15/2047 5,423
2,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 6.04 2/15/2051 2,040
2,000 Merrill Lynch Mortgage Trust 6.28 2/12/2051 2,038
2,000 Merrill Lynch Mortgage Trust(b) 6.28 2/12/2051 2,040
83 Morgan Stanley Capital I, Inc. 5.79 7/12/2044 83
1,159 Morgan Stanley Capital I, Inc. 4.77 7/15/2056 1,155
5,000 Morgan Stanley-BAML Trust 3.74 8/15/2047 5,242
5,000 Royal Bank of Scotland Trust(b) 5.00 6/16/2049 5,036
9,859 UBS Commercial Mortgage Trust 3.40 5/10/2045 10,298
4,756 UBS-Citigroup Commercial Mortgage Trust(b) 5.15 1/10/2045 5,237
757 Wachovia Bank Commercial Mortgage Trust 5.80 7/15/2045 757
4,146 Wachovia Bank Commercial Mortgage Trust 5.00 6/15/2049 4,158
================================================================================
40 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 3,000 Wells Fargo Commercial Mortgage Trust(b) 5.28% 11/15/2043 $ 3,251
6,000 WF-RBS Commercial Mortgage Trust(b) 5.17 2/15/2044 6,502
----------
122,191
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.7%)
177,851 Fannie Mae(+) 0.63 4/25/2022 4,477
40,801 Freddie Mac(+) 1.00 12/25/2021 2,210
22,450 Freddie Mac(+) 1.69 3/25/2022 1,583
71,149 Freddie Mac(+) 1.00 8/25/2022 4,119
69,917 Freddie Mac(+) 0.88 10/25/2022 2,851
31,260 J.P. Morgan Chase Commercial
Mortgage Securities Corp(g) 2.00 10/15/2045 2,071
33,042 Morgan Stanley-BAML Trust(b),(g) 1.00 11/15/2045 1,919
27,119 UBS Commercial Mortgage Trust(b),(g) 2.00 5/10/2045 2,388
73,156 WF-RBS Commercial Mortgage Trust(b),(g) 1.00 12/15/2045 5,102
----------
26,720
----------
Total Financials 148,911
----------
Total Commercial Mortgage Securities (cost: $143,744) 148,911
----------
U.S. GOVERNMENT AGENCY ISSUES (3.2%)(h)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (3.2%)
9,288 Fannie Mae(+) 2.50 7/01/2027 9,394
190 Freddie Mac(+)(i) 5.00 9/01/2020 195
10,400 Freddie Mac(+) 3.06 12/25/2024 10,658
10,000 Freddie Mac(+) 2.81 1/25/2025 10,049
11,885 Freddie Mac(+) 3.33 8/25/2025 12,364
20,000 Freddie Mac(+) 3.31 9/25/2025 20,766
13,140 Freddie Mac(+) 3.00 12/25/2025 13,306
15,000 Freddie Mac(+) 2.67 3/25/2026 14,782
12,000 Freddie Mac(+) 2.85 3/25/2026 11,916
116 Freddie Mac(+) 5.50 4/01/2036 131
20,000 Freddie Mac(+) 2.65 9/25/2049 19,596
----------
123,158
----------
Total U.S. Government Agency Issues (cost: $128,013) 123,158
----------
U.S. TREASURY SECURITIES (5.8%)
BONDS (2.8%)
15,775 4.50%, 2/15/2036 19,938
20,000 2.75%, 8/15/2042 18,957
5,000 2.75%, 11/15/2042 4,736
5,000 3.13%, 8/15/2044 5,071
50,000 2.50%, 2/15/2045 44,659
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,050 2.25%, 8/15/2046 $ 4,248
10,000 2.88%, 11/15/2046 9,656
----------
107,265
----------
NOTES (3.0%)
40,000 2.25%, 11/15/2025 39,452
75,000 1.63%, 2/15/2026 70,062
5,000 2.00%, 11/15/2026 4,806
----------
114,320
----------
Total U.S. Treasury Securities (cost: $232,096) 221,585
----------
MUNICIPAL BONDS (4.0%)
AIRPORT/PORT (0.2%)
4,975 Chicago Midway Airport 5.00% 1/01/2024 5,629
2,470 Chicago Midway Airport 5.00 1/01/2025 2,768
175 Riverside Financing Auth. (INS) 5.19 8/01/2017 177
----------
8,574
----------
APPROPRIATED DEBT (0.4%)
3,000 Baltimore Board of School Commissioners 5.69 12/15/2025 3,446
485 Escondido Joint Powers Financing Auth. (INS) 5.53 9/01/2018 498
3,000 Kannapolis 7.28 3/01/2027 3,168
5,000 Miami-Dade County School Board (INS) 5.38 5/01/2031 5,572
4,000 Palm Beach County School Board 5.40 8/01/2025 4,462
----------
17,146
----------
CASINOS & GAMING (0.0%)
1,311 Mashantucket (Western) Pequot Tribe(j) 7.35 7/01/2026 210
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.0%)
285 American Eagle Northwest, LLC(b) 4.97 12/15/2018 292
----------
EDUCATION (1.0%)
3,430 Austin CCD 6.76 8/01/2030 4,117
250 California State Univ. (INS) 5.27 11/01/2017 253
1,000 Colorado State Board of Governors
Univ. Enterprise System 4.90 3/01/2021 1,076
3,000 Los Alamitos USD No. 1 6.19 2/01/2026 3,449
3,000 Miami Univ. 6.67 9/01/2028 3,679
10,000 New Jersey EDA 4.45 6/15/2020 10,159
10,000 New Jersey EDA 5.25 9/01/2026 10,478
2,500 New Jersey EDA 5.71 6/15/2030 2,522
3,000 Rensselaer Polytechnic Institute 5.60 9/01/2020 3,285
----------
39,018
----------
================================================================================
42 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
GENERAL OBLIGATION (0.8%)
$ 1,250 Las Virgenes USD 5.54% 8/01/2025 $ 1,428
3,000 Long Beach USD 5.91 8/01/2025 3,503
5,000 New York City 6.27 12/01/2037 6,607
610 Oyster Bay 3.55 2/01/2019 612
1,825 Oyster Bay 3.80 2/01/2020 1,831
1,500 Oyster Bay 3.95 2/01/2021 1,499
5,000 Scranton School District(b) 3.13 12/01/2025(k) 4,984
5,000 State of Washington 5.25 2/01/2036 5,608
1,520 Will County, Illinois 4.08 11/15/2017 1,546
1,405 Will County, Illinois 4.28 11/15/2018 1,454
----------
29,072
----------
HOSPITAL (0.6%)
5,000 Bon Secours Charity Health System, Inc. 5.25 11/01/2025 5,277
16,695 Eastern Maine Healthcare Systems 3.71 7/01/2026 15,816
----------
21,093
----------
MISCELLANEOUS (0.0%)
471 Keenan Dev. Association of Tennessee, LLC (INS)(b) 5.02 7/15/2028 498
----------
SALES TAX (0.1%)
3,300 Miami-Dade County Transit System 4.59 7/01/2021 3,474
----------
SINGLE FAMILY HOUSING (0.1%)
5,000 New York State Mortgage Agency 4.20 10/01/2027 5,132
----------
SPECIAL ASSESSMENT/TAX/FEE (0.6%)
2,000 Florida State Department of Environmental Protection 5.76 7/01/2020 2,191
4,500 Harris County 4.45 11/15/2031 4,453
1,745 Metropolitan Nashville Airport Auth. (INS) 5.14 7/01/2018 1,829
3,000 New York MTA 5.20 11/15/2018 3,193
5,000 New York MTA 6.73 11/15/2030 6,401
3,000 New Jersey Transportation Trust Fund Auth. 5.75 12/15/2028 3,117
2,500 New York City Transitional Finance Auth. 5.00 2/01/2035 2,762
----------
23,946
----------
WATER UTILITIES (0.1%)
3,000 Connecticut Dev. Auth. 5.50 4/01/2021 3,328
----------
WATER/SEWER UTILITY (0.1%)
2,500 Tohopekaliga Water Auth. (PRE) 5.25 10/01/2036 2,905
----------
Total Municipal Bonds (cost: $144,678) 154,688
----------
Total Bonds (cost: $3,609,182) 3,661,056
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000)/SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (1.6%)
PREFERRED STOCKS (1.6%)
CONSUMER STAPLES (0.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.7%)
400,000 CHS, Inc., 7.10%, cumulative redeemable, perpetual $ 10,973
150,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(b) 15,773
----------
26,746
----------
Total Consumer Staples 26,746
----------
FINANCIALS (0.5%)
-----------------
DIVERSIFIED BANKS (0.2%)
87,500 Citigroup Capital XIII, 7.26% 2,267
50,000 HSBC Holdings plc, 6.20%, perpetual 1,285
36,000 ING Groep N.V., 7.20%, perpetual 931
5,000 US Bancorp, 3.50%, perpetual 4,475
----------
8,958
----------
LIFE & HEALTH INSURANCE (0.2%)
369,987 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(c) 8,302
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$3,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(b) 2,685
----------
REGIONAL BANKS (0.0%)
2,000 CoBank ACB, 2.05%, perpetual(b) 1,274
----------
REINSURANCE (0.0%)
2,000 American Overseas Group Ltd., 7.50%, non-cumulative*(g),(l) 400
----------
Total Financials 21,619
----------
REAL ESTATE (0.2%)
------------------
REITs - RESIDENTIAL (0.2%)
100,000 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual 6,319
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
200,000 Qwest Corp., 6.50% 4,934
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
2,000 Centaur Funding Corp., 9.08%(b) 2,370
----------
Total Telecommunication Services 7,304
----------
Total Preferred Stocks 61,988
----------
Total Equity Securities (cost: $60,820) 61,988
----------
================================================================================
44 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.4%)
COMMERCIAL PAPER (2.3%)
CONSUMER DISCRETIONARY (0.5%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.5%)
$ 18,709 Hyundai Capital America(b),(m) 0.88% 2/01/2017 $ 18,709
----------
ENERGY (0.3%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
7,854 Canadian Natural Resources(b),(m) 1.19 2/13/2017 7,851
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
2,161 Spectra Energy Partners(b),(m) 0.93 2/07/2017 2,160
----------
Total Energy 10,011
----------
INDUSTRIALS (0.4%)
------------------
INDUSTRIAL MACHINERY (0.4%)
1,136 Pentair Finance S.A.(b),(m) 1.45 2/02/2017 1,136
2,869 Pentair Finance S.A.(b),(m) 1.45 2/07/2017 2,868
12,791 Pentair Finance S.A.(b),(m) 1.45 2/08/2017 12,788
----------
16,792
----------
Total Industrials 16,792
----------
MATERIALS (0.3%)
----------------
DIVERSIFIED CHEMICALS (0.3%)
10,176 E.I. du Pont de Nemours & Co.(b),(m) 0.95 2/06/2017 10,175
----------
UTILITIES (0.8%)
----------------
ELECTRIC UTILITIES (0.8%)
20,550 Eversource Energy(b),(m) 0.83 2/03/2017 20,549
4,000 South Carolina Fuel Co.(b),(m) 0.88 2/02/2017 4,000
7,175 South Carolina Fuel Co.(b),(m) 0.91 2/09/2017 7,173
----------
31,722
----------
Total Utilities 31,722
----------
Total Commercial Paper 87,409
----------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
3,557,684 State Street Institutional Treasury Money Market
Fund Premier Class, 0.42%(n) 3,558
----------
Total Money Market Instruments (cost: $90,967) 90,967
----------
TOTAL INVESTMENTS (COST: $3,760,969) $3,814,011
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
-------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION CONTRACT (DEPRECIATION)
CONTRACTS SECURITY DATE VALUE (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES(p)
LONG FUTURES
INTEREST RATE CONTRACTS
585 10 YR U.S. Treasury Note 03/22/2017 $72,814 $(443)
------- ------
TOTAL LONG FUTURES $72,814 $(443)
======= ======
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $2,250,287 $ - $2,250,287
Eurodollar and Yankee Obligations - 688,725 - 688,725
Foreign Government Obligations - 11,890 - 11,890
Asset-Backed Securities - 35,413 - 35,413
Collateralized Loan Obligations - 24,122 - 24,122
Collateralized Mortgage Obligations - 2,277 - 2,277
Commercial Mortgage Securities - 148,911 - 148,911
U.S. Government Agency Issues - 123,158 - 123,158
U.S. Treasury Securities 221,585 - - 221,585
Municipal Bonds - 154,688 - 154,688
Equity Securities:
Preferred Stocks 1,285 60,303 400 61,988
Money Market Instruments:
Commercial Paper - 87,409 - 87,409
Government & U.S. Treasury Money
Market Funds 3,558 - - 3,558
-------------------------------------------------------------------------------------------------------------
Total $226,428 $3,587,183 $400 $3,814,011
-------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Futures(1) $(443) $- $- $(443)
-------------------------------------------------------------------------------------------------------------
Total $(443) $- $- $(443)
-------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
46 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-------------------------------------------------------------------------------------------------------------
ASSET-BACKED COLLATERALIZED
($ IN 000s) SECURITIES LOAN OBLIGATIONS PREFERRED STOCKS
-------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2016 $ 3,163 $ 4,000 $ 500
Purchases - - -
Sales - - -
Transfers into Level 3 - - -
Transfers out of Level 3 (3,163) (4,000) -
Net realized gain (loss) on investments - - -
Change in net unrealized appreciation/
(depreciation) of investments - - (100)
-------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2017 $ - $ - $ 400
-------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS TRANSFERS TRANSFERS
INTO (OUT OF) INTO (OUT OF) INTO (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------------------------------
Asset-Backed Securities(I) $- $3,163 $(3,163)
Collateralized Loan Obligations(II) $- $4,000 $(4,000)
--------------------------------------------------------------------------------------------------------
Total $- $7,163 $(7,163)
--------------------------------------------------------------------------------------------------------
(I) Transferred from Level 3 to Level 2 as result of the securities no longer
being a single broker quoted.
(II) Transferred from Level 3 to Level 2 as a result of the securities being
priced during the period by the Fund's pricing service.
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 19.4% of net assets at
January 31, 2017.
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
================================================================================
48 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations
are securities issued by entities that are collateralized by a pool of
loans. CLOs are issued in multiple classes (tranches), and can be equity
or debt with specific adjustable or fixed interest rates, and varying
maturities. The cash flow from the underlying loans is used to pay off
each tranche separately within the debt, or senior tranches. Equity, or
subordinated tranches, typically are not paid a cash flow but do offer
ownership in the CLO itself in the event of a sale.
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 49
================================================================================
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 Dollar
CCD Community College District
EDA Economic Development Authority
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
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) 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 loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current
================================================================================
50 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
rate at January 31, 2017. 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 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) The security, or a portion thereof, is segregated to cover the
value of open futures contracts at January 31, 2017.
(d) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
January 31, 2017.
(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, 2017, the aggregate market value of securities
purchased on a delayed-delivery basis was $9,588,000, of which
$4,539,000 were when-issued securities.
(g) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at January 31, 2017, was $11,880,000, which represented 0.3% of the
Fund's net assets.
(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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 51
================================================================================
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) Securities with a value of $195,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(j) Pay-in-kind (PIK) - security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments in
additional securities in lieu of cash.
(k) 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.
(l) Security was fair valued at January 31, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $400,000, which represented less than
0.1% 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
================================================================================
52 | USAA INTERMEDIATE-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.
(n) Rate represents the money market fund annualized seven-day yield at
January 31, 2017.
(o) In U.S. dollars unless otherwise noted.
(p) The contract value of futures purchased as a percentage of net assets is
1.9%.
(q) At January 31, 2017, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 53
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $3,760,969) $3,814,011
Cash 1,292
Receivables:
Capital shares sold 5,766
USAA Asset Management Company (Note 6C) 4
Interest 39,705
Securities sold 11
----------
Total assets 3,860,789
----------
LIABILITIES
Payables:
Securities purchased 16,412
Capital shares redeemed 4,153
Dividends on capital shares 654
Variation margin on futures contracts 438
Accrued management fees 1,090
Accrued transfer agent's fees 82
Other accrued expenses and payables 189
----------
Total liabilities 23,018
----------
Net assets applicable to capital shares outstanding $3,837,771
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,796,835
Overdistribution of net investment income (14)
Accumulated net realized loss on investments and futures transactions (11,650)
Net unrealized appreciation of investments and futures contracts 52,599
Net unrealized appreciation of foreign currency translations 1
----------
Net assets applicable to capital shares outstanding $3,837,771
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,830,954/174,800 capital
shares outstanding, no par value) $ 10.47
==========
Institutional Shares (net assets of $1,911,894/182,497
capital shares outstanding, no par value) $ 10.48
==========
Adviser Shares (net assets of $89,875/8,589
capital shares outstanding, no par value) $ 10.46
==========
R6 Shares (net assets of $5,048/482 capital shares
outstanding, no par value) $ 10.48
==========
See accompanying notes to financial statements.
================================================================================
54 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,148
Interest 78,224
-------
Total income 80,372
-------
EXPENSES
Management fees 6,246
Administration and servicing fees:
Fund Shares 1,379
Institutional Shares 928
Adviser Shares 71
Transfer agent's fees:
Fund Shares 1,110
Institutional Shares 928
Adviser Shares 53
Distribution and service fees (Note 6E):
Adviser Shares 117
Custody and accounting fees:
Fund Shares 119
Institutional Shares 117
Adviser Shares 6
Postage:
Fund Shares 61
Institutional Shares 22
Adviser Shares 2
Shareholder reporting fees:
Fund Shares 28
Institutional Shares 4
Adviser Shares 1
Trustees' fees 15
Registration fees:
Fund Shares 33
Institutional Shares 21
Adviser Shares 18
R6 Shares* 4
Professional fees 117
Other 37
-------
Total expenses 11,437
-------
================================================================================
FINANCIAL STATEMENTS | 55
================================================================================
Expenses reimbursed:
R6 Shares* $ (4)
--------
Net expenses 11,433
--------
NET INVESTMENT INCOME 68,939
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments 2,630
Foreign currency transactions (3)
Futures transactions (686)
Change in net unrealized appreciation/(depreciation) of:
Investments (83,405)
Foreign currency translations 1
Futures contracts (4,138)
--------
Net realized and unrealized loss (85,601)
--------
Decrease in net assets resulting from operations $(16,662)
========
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
56 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 68,939 $ 139,553
Net realized gain (loss) on investments 2,630 (13,478)
Net realized loss on foreign currency transactions (3) (3)
Net realized gain (loss) on futures transactions (686) 3,196
Change in net unrealized appreciation/(depreciation) of:
Investments (83,405) 59,644
Foreign currency translations 1 1
Futures contracts (4,138) 3,434
-----------------------------
Increase (decrease) in net assets resulting from operations (16,662) 192,347
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (33,023) (76,392)
Institutional Shares (34,166) (59,439)
Adviser Shares (1,574) (3,793)
R6 Shares* (32) -
-----------------------------
Total distributions of net investment income (68,795) (139,624)
-----------------------------
Net realized gains:
Fund Shares - (2,192)
Institutional Shares - (1,328)
Adviser Shares - (110)
-----------------------------
Total distributions of net realized gains - (3,630)
-----------------------------
Distributions to shareholders (68,795) (143,254)
-----------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 59,760 (274,991)
Institutional Shares 182,350 449,930
Adviser Shares (6,790) (20,291)
R6 Shares* 5,000 -
-----------------------------
Total net increase in net assets from
capital share transactions 240,320 154,648
-----------------------------
Net increase in net assets 154,863 203,741
NET ASSETS
Beginning of period 3,682,908 3,479,167
-----------------------------
End of period $3,837,771 $3,682,908
=============================
Overdistribution of net investment income:
End of period $ (14) $ (158)
=============================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 57
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 four classes of shares: Intermediate-Term Bond Fund Shares
(Fund Shares), Intermediate-Term Bond Fund Institutional Shares (Institutional
Shares), Intermediate-Term Bond Fund Adviser Shares (Adviser Shares), and
effective December 1, 2016, a new share class designated Intermediate-Term Bond
Fund R6 Shares (R6 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' 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
================================================================================
58 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
program and certain advisory programs sponsored by financial intermediaries,
such as brokerage firms, investment advisors, financial planners, third-party
administrators, and insurance companies. Institutional Shares also are available
to institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services. The R6 Shares are available for
investment by participants in employer-sponsored retirement plans where a
financial intermediary provides retirement recordkeeping services to plan
participants and to endowment funds and foundations.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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 yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
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. 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. Actively traded equity
securities listed on a domestic exchange generally are
================================================================================
60 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. Futures are valued at the settlement 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 settlement price on the prior trading
date if it is within the spread between the closing bid and asked
prices closest to the last reported sale price.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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.
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 is primarily
supported by a 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.
Refer to the Portfolio of Investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
================================================================================
62 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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
transaction. The Fund's derivative agreements held at January 31, 2017, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
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, 2017*
(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 $443**
appreciation of
investments and
futures contracts
--------------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2017, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended January 31, 2017.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JANUARY 31, 2017 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain (loss) $(686) $(4,138)
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Securities 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
================================================================================
64 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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. 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.
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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
as ordinary income/loss for federal income 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, 2017, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $9,488,000; which included
when-issued securities of $4,488,000.
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, 2017, 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.
================================================================================
66 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability (including usage of the facility by other funds of the
Trust), 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),
plus 100.0 basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $14,000, which represents 5.1% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
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 income tax.
At July 31, 2016, the Fund had long-term capital loss carryforwards of
$9,906,000, 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, 2017, 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 basis 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, 2017, were
$446,209,000 and $227,385,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $115,824,000 and $62,782,000, respectively, resulting in net
unrealized appreciation of $53,042,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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
================================================================================
68 | USAA INTERMEDIATE-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, 2017 JULY 31, 2016
---------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
FUND SHARES:
Shares sold 22,478 $ 237,748 34,568 $ 359,122
Shares issued from
reinvested dividends 2,962 31,314 7,159 74,259
Shares redeemed (19,833) (209,302) (69,042) (708,372)
--------------------------------------------------------------------
Net increase (decrease) from
capital share transactions 5,607 $ 59,760 (27,315) $(274,991)
====================================================================
INSTITUTIONAL SHARES:
Shares sold 30,344 $ 321,324 76,663 $ 785,430
Shares issued from
reinvested dividends 3,022 31,963 5,529 57,429
Shares redeemed (16,169) (170,937) (37,913) (392,929)
--------------------------------------------------------------------
Net increase from
capital share transactions 17,197 $ 182,350 44,279 $ 449,930
====================================================================
ADVISER SHARES:
Shares sold 1,176 $ 12,518 1,889 $ 19,933
Shares issued from
reinvested dividends 147 1,556 356 3,695
Shares redeemed (1,968) (20,864) (4,239) (43,919)
--------------------------------------------------------------------
Net decrease from
capital share transactions (645) $ (6,790) (1,994) $ (20,291)
====================================================================
R6 SHARES (COMMENCED ON
DECEMBER 1, 2016):
Shares sold 482 $ 5,000 - $ -
Shares issued from
reinvested dividends - - - -
Shares redeemed - - - -
--------------------------------------------------------------------
Net increase from capital
share transactions 482 $ 5,000 - $ -
====================================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
(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 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,
2017, 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, 2017, 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' performance over the performance
period to that of the Lipper Index. 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. The share performance period for each class consists of the current
month plus the previous 35 months. The performance period for the R6 Shares
commenced on December 1, 2016, and includes the performance of the Fund
Shares for the periods prior to
================================================================================
70 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
December 1, 2016. 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' 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 Index over that period, even if the class had
overall negative returns during the performance period.
For the six-month period ended January 31, 2017 (and for the period from
December 1, 2016, to January 31, 2017, for the R6 Shares), the Fund
incurred total management fees, paid or payable to the Manager, of
$6,246,000, which included a performance adjustment for the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares of $256,000, $231,000,
$(2,000), and less than $500, respectively. For the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares, the performance
adjustments were 0.03%, 0.02%, (0.01)%, and less than 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
Adviser Shares, 0.10% of average net assets of the Institutional Shares,
and 0.05% of average net assets of the R6 Shares. For the six-month period
ended January 31, 2017 (and for the period from December 1, 2016, to
January 31, 2017, for the R6 Shares), the Fund Shares, Institutional
Shares, Adviser Shares, and R6 Shares incurred administration and servicing
fees, paid or payable to the Manager, of $1,379,000, $928,000, $71,000 and
less than $500, 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, 2017, the Fund reimbursed the
Manager $42,000 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 November 30, 2017, to
limit the total annual operating expenses of the R6 Shares to 0.39% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the R6 Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through November 30, 2017, without approval of
the Board, and may be changed or terminated by the Manager at any time
after that date. For the period from December 1, 2016, to January 31, 2017,
the Fund incurred reimbursable expenses from the Manager for the R6 Shares
of $4,000, of which all 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
================================================================================
72 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
with such intermediaries. Transfer agent's fees for Institutional Shares
and R6 Shares are paid monthly based on a fee accrued daily at an
annualized rate of 0.10% of the Institutional Shares' and 0.01% of the R6
Shares' average net assets, plus out-of-pocket expenses. For the six-month
period ended January 31, 2017 (and for the period from December 1, 2016, to
January 31, 2017, for the R6 Shares), the Fund Shares, Institutional
Shares, Adviser Shares, and R6 Shares incurred transfer agent's fees, paid
or payable to SAS, of $1,110,000, $928,000, $53,000, 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 (IMCO), the distributor, for distribution and
shareholder services. IMCO 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, 2017, the Adviser Shares incurred distribution and service (12b-1) fees
of $117,000.
F. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
January 31, 2017, the USAA fund-of-funds owned the following percentages of the
total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 1.0
Target Retirement Income 0.6
Target Retirement 2020 1.2
Target Retirement 2030 3.1
Target Retirement 2040 2.4
Target Retirement 2050 0.5
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,
2017, USAA and its affiliates owned 482,000 R6 Shares, which represents 100.0%
of the R6 Shares outstanding, and 0.1% of the Fund's total outstanding shares.
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, 2017, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN (LOSS) TO
SELLER PURCHASER PURCHASER SELLER
-------------------------------------------------------------------------------------
High Income Intermediate-Term Bond $16,075,000 $1,044,000
================================================================================
74 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 75
================================================================================
(10) 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,
-----------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.71 $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .42 .43 .46 .48 .53
Net realized and
unrealized gain (loss) (.24) .14 (.36) .21 (.04) .21
-----------------------------------------------------------------------------------------
Total from investment
operations (.05) .56 .07 .67 .44 .74
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.42) (.43) (.46) (.48) (.53)
Realized capital gains - (.01) (.02) (.00)(a) (.02) -
-----------------------------------------------------------------------------------------
Total distributions (.19) (.43) (.45) (.46) (.50) (.53)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.47 $ 10.71 $ 10.58 $ 10.96 $ 10.75 $ 10.81
=========================================================================================
Total return (%)* (.46) 5.55 .58 6.37 4.08 7.27
Net assets at
end of period (000) $1,830,954 $1,812,716 $2,079,610 $1,926,334 $1,775,162 $2,117,767
Ratios to average
net assets:**
Expenses (%)(b) .64(d) .62 .68 .68(c) .65(c) .65
Expenses, excluding
reimbursements (%)(b) .64(d) .62 .68 .70 .71 .72
Net investment
income (%) 3.60(d) 4.08 3.96 4.21 4.38 5.07
Portfolio turnover (%) 6 18 13 8 10 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2017, average net assets were
$1,823,617,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) 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.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
76 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(10) 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,
-----------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.72 $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .43 .44 .47 .49 .54
Net realized and
unrealized gain (loss) (.24) .15 (.36) .21 (.04) .21
-----------------------------------------------------------------------------------------
Total from investment
operations (.04) .58 .08 .68 .45 .75
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.43) (.44) (.47) (.49) (.54)
Realized capital gains - (.01) (.02) (.00)(a) (.02) -
-----------------------------------------------------------------------------------------
Total distributions (.20) (.44) (.46) (.47) (.51) (.54)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.48 $ 10.72 $ 10.58 $ 10.96 $ 10.75 $ 10.81
=========================================================================================
Total return (%)* (.41) 5.72 .68 6.49 4.18 7.37
Net assets at
end of period (000) $1,911,894 $1,771,357 $1,280,804 $1,284,768 $1,132,579 $336,501
Ratios to average
net assets:**
Expenses (%)(b) .56(c) .54 .58 .56 .55 .56
Net investment
income (%) 3.68(c) 4.13 4.07 4.32 4.41 5.13
Portfolio turnover (%) 6 18 13 8 10 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2017, average net assets were
$1,841,896,000.
(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%)(+)
(+) 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
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
-------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.70 $ 10.58 $ 10.95 $ 10.74 $10.80 $10.60
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .18 .40 .41 .39(a) .45 .50
Net realized and
unrealized gain (loss) (.24) .13 (.35) .25(a) (.04) .20
-------------------------------------------------------------------------------------
Total from investment
operations (.06) .53 .06 .64(a) .41 .70
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.40) (.41) (.43) (.45) (.50)
Realized capital gains - (.01) (.02) (.00)(b) (.02) -
-------------------------------------------------------------------------------------
Total distributions (.18) (.41) (.43) (.43) (.47) (.50)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.46 $ 10.70 $ 10.58 $ 10.95 $10.74 $10.80
=====================================================================================
Total return (%)* (.58) 5.19 .46 6.08 3.77 6.86
Net assets at
end of period (000) $89,875 $98,835 $118,753 $42,799 $8,890 $7,929
Ratios to average
net assets:**
Expenses (%)(c) .88(e) .86 .89(d) .94 .95 .95
Expenses, excluding
reimbursements (%)(c) .88(e) .86 .89 .94 1.06 1.14
Net investment income (%) 3.36(e) 3.85 3.74 3.83 4.07 4.76
Portfolio turnover (%) 6 18 13 8 10 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2017, average net assets were
$93,099,000.
(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 as follows:
- - - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.95% of the Adviser Shares'
average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
78 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 SHARES
Per share operating performance for a share outstanding throughout the period is
as follows:
PERIOD ENDED
JANUARY 31,
2017***
------------
Net asset value at beginning of period $10.38
------
Income from investment operations:
Net investment income .07
Net realized and unrealized gain .10
------
Total from investment operations .17
------
Less distributions from:
Net investment income (.07)
------
Net asset value at end of period $10.48
======
Total return (%)* 1.61
Net assets at end of period (000) $5,048
Ratios to average net assets:**
Expenses (%)(a) .39
Expenses, excluding reimbursements (%)(a) .87
Net investment income (%) 3.81
Portfolio turnover (%) 6
* 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, 2017, average net assets were $5,024,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 79
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017, for Fund Shares, Institutional Shares, and Adviser Shares and
the period of December 1, 2016, through January 31, 2017, for R6 Shares.
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
================================================================================
80 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 995.40 $3.22
Hypothetical
(5% return before expenses) 1,000.00 1,021.98 3.26
INSTITUTIONAL SHARES
Actual 1,000.00 995.90 2.82
Hypothetical
(5% return before expenses) 1,000.00 1,022.38 2.85
ADVISER SHARES
Actual 1,000.00 994.20 4.42
Hypothetical
(5% return before expenses) 1,000.00 1,020.77 4.48
R6 SHARES**
Actual 1,000.00 1,016.10 0.66
Hypothetical
(5% return before expenses) 1,000.00 1,007.70 0.65
*Expenses are equal to the annualized expense ratio of 0.64% for Fund Shares,
0.56% for Institutional Shares, 0.88% for Adviser Shares, and 0.39% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days for Fund Shares, Institutional Shares, and Adviser Shares (to
reflect the one-half-year period) or 61 days/365 days for R6 Shares (to
reflect the current period beginning with the R6 Shares' inception date). The
Fund's actual ending account values are based on its actual total returns of
(0.46)% for Fund Shares, (0.41)% for Institutional Shares, and (0.58)% for
Adviser Shares for the six-month period of August 1, 2016, through January
31, 2017, and 1.61% for R6 Shares for the period of December 1, 2016, through
January 31, 2017.
**R6 Shares commenced operations on December 1, 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
--------------------------------------------------------------------------------
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)
=============================================================================
40049-0317 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MONEY MARKET FUND]
=============================================================
SEMIANNUAL REPORT
USAA MONEY MARKET FUND
JANUARY 31, 2017
=============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 23
Financial Statements 26
Notes to Financial Statements 29
EXPENSE EXAMPLE 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
202727-0317
================================================================================
================================================================================
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 tax 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?
The first part of the reporting period was relatively uneventful, with
investors focused mainly on mixed U.S. economic data and the timing of a
potential Federal Reserve (the Fed) interest rate increase. In August 2016,
Fed chair Janet Yellen said the odds of an interest rate increase had
"strengthened," but in September 2016, the U.S. central bank remained on
hold, saying it wanted to wait for "further evidence of continued progress
toward its objectives." The Fed did not act at its November 2016 policy
meeting, which was held just before Election Day on November 8th, and many
observers suggested an interest rate increase was likely in December 2016.
In fact, the Fed did raise interest rates at its policy meeting in
mid-December 2016, lifting the federal funds target rate 0.25% to a range
between 0.50% and 0.75%. Fed policymakers also suggested that three
interest rate increases could take place during 2017 and said they
eventually planned to address the size of their balance sheet.
The Fed's December 2016 interest rate increase had a moderately positive
impact on taxable money market securities' interest rates. Nevertheless,
yields on money market funds remained low throughout the reporting
period. Overall, investors continued to rely on money market funds, in
spite of exceptionally low absolute yields, 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, 2017, the seven-day yield for
the Fund was 0.21%. The total return for the same period was 0.08%,
compared to an average of 0.12% 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 (CDs), and
corporate notes. We also continued to invest in variable rate demand notes
(VRDNs). When interest rates rise, VRDNs tend to benefit because of the
frequency of their interest rate reset feature. We believe shorter-term
yields will gradually rise in response to Fed increases in the federal funds
target rate, whenever they may occur in the future. The VRDNs owned by the
Fund also provide 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 also continue to analyze
and monitor every holding in the portfolio.
Thank you for your continued investment in the Fund.
As interest rates rise, bond prices generally fall; given the historically
low interest rate environment, risks associated with rising interest rates
may be heightened. o 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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $4.8 Billion $5.6 Billion
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 23 Days 32 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 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
0.08% 0.09% 0.03% 0.85%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.07% 0.03% 0.86%
--------------------------------------------------------------------------------
7-DAY YIELDS AS OF 1/31/17
--------------------------------------------------------------------------------
UNSUBSIDIZED 0.21% SUBSIDIZED 0.21%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
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.
**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, 2016, 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 (FDIC) 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares. 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
1/26/2016 0.04 0.01
2/23/2016 0.07 0.01
3/29/2016 0.07 0.01
4/26/2016 0.06 0.01
5/31/2016 0.06 0.01
6/28/2016 0.08 0.01
7/26/2016 0.08 0.01
8/30/2016 0.15 0.03
9/27/2016 0.18 0.17
10/25/2016 0.22 0.19
11/29/2016 0.25 0.13
12/27/2016 0.36 0.23
1/31/2017 0.39% 0.21%
[END CHART]
Data represents the last Tuesday of each month. Ending date 1/31/17.
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
1/31/2007 $10,000.00
2/28/2007 10,037.00
3/31/2007 10,079.00
4/30/2007 10,117.00
5/31/2007 10,159.00
6/30/2007 10,200.00
7/31/2007 10,240.00
8/31/2007 10,286.00
9/30/2007 10,323.00
10/31/2007 10,363.00
11/30/2007 10,403.00
12/31/2007 10,440.00
1/31/2008 10,474.00
2/29/2008 10,502.00
3/31/2008 10,527.00
4/30/2008 10,551.00
5/31/2008 10,576.00
6/30/2008 10,597.00
7/31/2008 10,618.00
8/31/2008 10,640.00
9/30/2008 10,667.00
10/31/2008 10,704.00
11/30/2008 10,724.00
12/31/2008 10,741.00
1/31/2009 10,755.00
2/28/2009 10,765.00
3/31/2009 10,776.00
4/30/2009 10,786.00
5/31/2009 10,797.00
6/30/2009 10,807.00
7/31/2009 10,816.00
8/31/2009 10,821.00
9/30/2009 10,825.00
10/31/2009 10,828.00
11/30/2009 10,829.00
12/31/2009 10,832.00
1/31/2010 10,832.00
2/28/2010 10,832.00
3/31/2010 10,832.00
4/30/2010 10,832.00
5/31/2010 10,832.00
6/30/2010 10,833.00
7/31/2010 10,833.00
8/31/2010 10,833.00
9/30/2010 10,833.00
10/31/2010 10,833.00
11/30/2010 10,833.00
12/31/2010 10,834.00
1/31/2011 10,834.00
2/28/2011 10,834.00
3/31/2011 10,835.00
4/30/2011 10,835.00
5/31/2011 10,835.00
6/30/2011 10,835.00
7/31/2011 10,835.00
8/31/2011 10,835.00
9/30/2011 10,835.00
10/31/2011 10,835.00
11/30/2011 10,835.00
12/31/2011 10,835.00
1/31/2012 10,837.00
2/29/2012 10,837.00
3/31/2012 10,838.00
4/30/2012 10,838.00
5/31/2012 10,838.00
6/30/2012 10,838.00
7/31/2012 10,838.00
8/31/2012 10,838.00
9/30/2012 10,838.00
10/31/2012 10,838.00
11/30/2012 10,838.00
12/31/2012 10,839.00
1/31/2013 10,839.00
2/28/2013 10,839.00
3/31/2013 10,839.00
4/30/2013 10,839.00
5/31/2013 10,839.00
6/30/2013 10,839.00
7/31/2013 10,839.00
8/31/2013 10,839.00
9/30/2013 10,839.00
10/31/2013 10,840.00
11/30/2013 10,840.00
12/31/2013 10,840.00
1/31/2014 10,840.00
2/28/2014 10,840.00
3/31/2014 10,840.00
4/30/2014 10,840.00
5/31/2014 10,840.00
6/30/2014 10,840.00
7/31/2014 10,840.00
8/31/2014 10,841.00
9/30/2014 10,841.00
10/31/2014 10,841.00
11/30/2014 10,841.00
12/31/2014 10,841.00
1/31/2015 10,841.00
2/28/2015 10,841.00
3/31/2015 10,841.00
4/30/2015 10,841.00
5/31/2015 10,841.00
6/30/2015 10,841.00
7/31/2015 10,842.00
8/31/2015 10,842.00
9/30/2015 10,842.00
10/31/2015 10,842.00
11/30/2015 10,842.00
12/31/2015 10,842.00
1/31/2016 10,842.00
2/29/2016 10,842.00
3/31/2016 10,842.00
4/30/2016 10,842.00
5/31/2016 10,842.00
6/30/2016 10,843.00
7/31/2016 10,843.00
8/31/2016 10,843.00
9/30/2016 10,844.00
10/31/2016 10,846.00
11/30/2016 10,847.00
12/31/2016 10,850.00
1/31/2017 10,852.00
[END CHART]
Data from 1/31/07 through 1/31/17.
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 - 1/31/17 o
[PIE CHART OF PORTFOLIO MIX - 1/31/17]
VARIABLE-RATE DEMAND NOTES 61.7%
COMMERCIAL PAPER 17.4%
FIXED-RATE INSTRUMENTS 12.2%
ADJUSTABLE-RATE NOTES 5.9%
REPURCHASE AGREEMENTS 2.4%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 9-22.
================================================================================
8 | USAA MONEY MARKET FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (12.2%)
DIVERSIFIED BANKS (9.6%)
$ 17,044 Bank of America Corp. 5.75% 12/01/2017 $ 17,608
30,000 Bank of Nova Scotia 1.14 4/19/2017 30,000
25,000 Canadian Imperial Bank of Commerce 1.12 4/18/2017 25,000
25,000 Canadian Imperial Bank of Commerce 1.22 7/18/2017 25,000
30,000 Landesbank Baden-Wurttemberg 1.30 5/22/2017 30,000
25,000 Landesbank Baden-Wurttemberg 1.20 6/19/2017 25,000
30,000 Mizuho Bank Ltd. 0.85 2/01/2017 30,000
30,000 Natixis 0.98 2/21/2017 30,000
25,000 Natixis 1.10 5/04/2017 25,000
25,000 Natixis 1.08 7/03/2017 25,000
30,000 Norinchukin Bank 0.98 3/15/2017 30,000
30,000 Norinchukin Bank 1.24 5/23/2017 30,000
25,000 Norinchukin Bank 1.32 7/19/2017 25,000
30,000 Skandinaviska Enskilda Banken AB 1.13 2/10/2017 30,000
25,000 Skandinaviska Enskilda Banken AB 1.16 7/25/2017 25,000
30,000 Sumitomo Mitsui Banking Corp. 0.95 3/27/2017 30,000
30,000 Swedbank AB 1.14 7/27/2017 30,000
-----------
462,608
-----------
DIVERSIFIED CAPITAL MARKETS (0.5%)
25,000 Credit Suisse AG 1.31 5/04/2017 25,000
-----------
GENERAL OBLIGATION (0.2%)
10,000 Yorkshire-Pioneer CSD 2.00 6/27/2017 10,044
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.5%)
30,000 Toronto-Dominion Bank 1.12 2/08/2017 30,000
40,000 Toronto-Dominion Bank 1.24 7/26/2017 40,000
-----------
70,000
-----------
REGIONAL BANKS (0.4%)
20,500 PNC Funding Corp. 5.63 2/01/2017 20,500
-----------
Total Fixed-Rate Instruments (cost: $588,152) 588,152
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (17.4%)
ASSET-BACKED FINANCING (10.3%)
$ 22,000 Cedar Springs Capital Co.(a),(b) 0.80% 2/23/2017 $ 21,989
40,000 Crown Point Capital Co.(a),(b) 1.10 2/13/2017 39,985
19,000 Crown Point Capital Co.(a),(b) 1.20 4/10/2017 18,957
20,000 Gotham Funding Corp.(a),(b) 0.75 2/09/2017 19,996
17,000 Gotham Funding Corp.(a),(b) 0.85 4/03/2017 16,975
20,000 Liberty Street Funding, LLC(a),(b) 1.00 3/22/2017 19,973
25,000 LMA Americas, LLC(a),(b) 0.92 2/01/2017 25,000
15,000 LMA Americas, LLC(a),(b) 0.72 2/06/2017 14,998
40,000 LMA Americas, LLC(a),(b) 1.06 3/06/2017 39,961
5,000 LMA Americas, LLC(a),(b) 0.78 3/07/2017 4,996
40,000 Manhattan Asset Funding Co.(a),(b) 0.82 2/01/2017 40,000
11,749 Manhattan Asset Funding Co.(a),(b) 0.83 2/07/2017 11,747
9,000 Manhattan Asset Funding Co.(a),(b) 0.75 2/14/2017 8,998
25,000 Manhattan Asset Funding Co.(a),(b) 0.93 4/03/2017 24,961
5,000 Nieuw Amsterdam Receivables(a),(b) 0.80 3/08/2017 4,996
10,000 Ridgefield Funding Co., LLC(a),(b) 0.90 3/02/2017 9,993
40,000 Ridgefield Funding Co., LLC(a),(b) 1.00 3/21/2017 39,940
22,500 Ridgefield Funding Co., LLC(a),(b) 1.08 4/03/2017 22,458
15,000 Sheffield Receivables Co., LLC(a),(b) 0.78 2/27/2017 14,992
32,000 Sheffield Receivables Co., LLC(a),(b) 1.10 3/17/2017 31,957
25,000 Victory Receivables Corp.(a),(b) 0.75 2/03/2017 24,999
8,000 Victory Receivables Corp.(a),(b) 0.80 2/07/2017 7,999
20,000 Victory Receivables Corp.(a),(b) 0.77 2/16/2017 19,994
9,000 Victory Receivables Corp.(a),(b) 0.85 2/17/2017 8,997
2,350 Victory Receivables Corp.(a),(b) 0.81 3/01/2017 2,349
-----------
497,210
-----------
AUTOMOTIVE RETAIL (0.3%)
14,000 Autozone, Inc.(a),(b) 0.93 2/17/2017 13,994
-----------
ELECTRIC/GAS UTILITIES (1.8%)
31,200 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.74 2/09/2017 31,200
30,000 San Antonio 0.78 4/03/2017 30,000
22,832 South Carolina Public Service Auth. 0.98 4/26/2017 22,832
-----------
84,032
-----------
GENERAL OBLIGATION (1.1%)
14,800 Houston 0.78 3/14/2017 14,800
39,100 Texas Public Finance Auth. 0.70 2/14/2017 39,100
-----------
53,900
-----------
HOSPITAL (3.0%)
30,000 Inova Health System Foundation 0.67 2/08/2017 29,996
30,000 Inova Health System Foundation 0.85 4/12/2017 29,950
================================================================================
10 | USAA MONEY MARKET FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
$ 25,031 Kaiser Foundation Hospitals 0.85% 2/22/2017 $ 25,019
34,000 Kaiser Foundation Hospitals 0.97 3/16/2017 33,961
25,064 Kaiser Foundation Hospitals 0.95 4/13/2017 25,017
-----------
143,943
-----------
INTEGRATED OIL & GAS (0.9%)
17,000 Exxon Mobil Corp. 0.56 2/02/2017 17,000
12,000 Exxon Mobil Corp. 0.59 2/06/2017 11,999
14,000 Exxon Mobil Corp. 0.63 3/01/2017 13,993
-----------
42,992
-----------
Total Commercial Paper (cost: $836,071) 836,071
-----------
VARIABLE-RATE DEMAND NOTES (61.7%)
AEROSPACE & DEFENSE (0.2%)
9,595 Albertville IDB (LOC - JP Morgan Chase & Co.) 0.78 3/01/2018 9,595
-----------
AGRICULTURAL PRODUCTS (2.2%)
15,000 Indiana Finance Auth. 0.68 6/01/2041 15,000
10,045 Iowa Finance Auth. 0.66 6/01/2036 10,045
51,500 Iowa Finance Auth. 0.66 6/01/2039 51,500
29,000 Iowa Finance Auth. 0.68 6/01/2039 29,000
2,520 Washington Economic Dev. Finance Auth.
(LOC - BNP Paribas) 0.75 9/01/2032 2,520
-----------
108,065
-----------
AIRPORT SERVICES (0.0%)
1,800 San Antonio Airport System (LOC - Bank of
America Corp.) 0.86 4/01/2020 1,800
-----------
AIRPORT/PORT (1.9%)
47,025 Broward County (LIQ) (LOC - Royal
Bank of Canada)(a) 0.73 10/01/2020 47,025
19,670 Denver (LIQ) (LOC - Royal Bank of Canada)(a) 0.75 11/15/2020 19,670
26,200 New Jersey EDA (LOC - Banco Santander S.A.) 0.85 7/01/2030 26,200
-----------
92,895
-----------
ALUMINUM (0.3%)
4,790 Bartow County Dev. Auth. (LOC - Comerica
Bank, N.A.) 0.72 5/01/2036 4,790
7,815 Hancock County (LOC - Wells Fargo & Co.) 0.86 4/01/2028 7,815
-----------
12,605
-----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.1%)
4,290 St. Charles Parish (LOC - Federal Home Loan
Bank of Atlanta) 0.80 9/01/2024 4,290
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT (0.2%)
$ 3,840 Illinois Finance Auth.
(LOC - Federal Home Loan Bank of Chicago) 0.82% 7/01/2040 $ 3,840
3,400 Savanna (LOC - Bank of America Corp.) 0.74 5/01/2019 3,400
-----------
7,240
-----------
BUILDING PRODUCTS (0.9%)
2,375 Atchison (LOC - Key Bank, N.A.) 0.80 1/01/2033 2,375
3,900 Cornell Iron Works, Inc. (LOC - Bank of America Corp.) 1.02 4/01/2019 3,900
1,715 Delaware EDA (LOC - Key Bank, N.A.) 0.80 4/01/2023 1,715
2,800 Manhattan IDB (LOC - JP Morgan Chase & Co.) 0.75 4/01/2028 2,800
3,485 Moondance Enterprises, LP (LOC - PNC Financial
Services Group) 0.78 11/01/2020 3,485
150 Tazewell County IDA (LOC - PNC Financial
Services Group) 0.84 2/01/2017 150
28,750 Union County (LOC - SunTrust Bank) 0.79 10/01/2027 28,750
-----------
43,175
-----------
COMMERCIAL PRINTING (0.0%)
1,741 Fairway, LLC (LOC - Federal Home Loan Bank
of San Francisco) 0.71 12/01/2023 1,741
-----------
COMMUNITY SERVICE (0.3%)
15,700 Wisconsin Public Finance Auth. (LOC - Fifth Third Bank) 0.68 2/01/2042 15,700
-----------
CONSTRUCTION MATERIALS (0.6%)
1,855 Franklin IDB (LOC - Federal Home Loan Bank
of Chicago) 0.82 7/01/2032 1,855
26,625 Yavapai County IDA (LOC - Bank of Nova Scotia) 0.85 9/01/2035 26,625
-----------
28,480
-----------
DISTRIBUTORS (0.3%)
14,780 Bhavnani, LLC (LOC - U.S. Bancorp) 0.67 5/01/2038 14,780
-----------
DIVERSIFIED CHEMICALS (2.1%)
20,700 Brazos Harbor IDC 0.76 10/01/2036 20,700
25,000 Brazos Harbor IDC 0.76 5/01/2038 25,000
19,500 Brazos River Harbor Navigation District 0.76 5/01/2036 19,500
14,750 Ohio Air Quality Dev. Auth. (LOC - CoBank, ACB) 0.77 3/01/2032 14,750
6,500 Port of Port Arthur Navigation District 0.76 4/01/2033 6,500
15,000 Port of Port Arthur Navigation District 0.76 4/01/2037 15,000
-----------
101,450
-----------
DIVERSIFIED REAL ESTATE ACTIVITIES (3.4%)
7,000 Fiore Capital, LLC (LOC - Wells Fargo & Co.) 0.73 8/01/2045 7,000
35,000 Fiore Capital, LLC (LOC - Wells Fargo & Co.) 0.73 8/01/2045 35,000
12,790 Kansas City Tax Financing Commission
(LOC - Key Bank, N.A.) 0.80 6/01/2024 12,790
================================================================================
12 | 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) 0.66% 5/01/2042 $ 58,400
27,030 Paca-Pratt Associates, Inc. (LOC - Manufacturers &
Traders Trust Co.) 1.23 1/01/2038 27,030
12,807 Pinnacle Properties Dev. Group, LLC
(LOC - Federal Home Loan Bank of Cincinnati) 0.75 6/15/2041 12,807
12,020 Stobro Co., LP (LOC - Federal Home Loan Bank
of Pittsburgh) 0.80 1/01/2032 12,020
-----------
165,047
-----------
EDUCATION (3.2%)
6,255 Colorado Educational and Cultural Facilities Auth.
(LOC - Fifth Third Bank) 0.69 1/01/2029 6,255
14,160 Loudoun County IDA (LOC - PNC Financial
Services Group) 0.67 3/01/2038 14,160
44,000 Michigan State Finance Auth. (LOC - Bank of Montreal) 0.72 9/01/2050 44,000
59,800 Michigan State Finance Auth. (LOC - PNC Financial
Services Group) 0.73 9/01/2050 59,800
5,170 Missouri Health and Educational Facilities Auth.
(LOC - Fifth Third Bank) 0.68 7/15/2037 5,170
2,800 Montgomery County IDA (LOC - Bank of New York
Mellon Corp.) 0.59 6/01/2035 2,800
23,970 Univ. of Illinois (LOC - Northern Trust Corp.) 0.72 4/01/2044 23,970
-----------
156,155
-----------
EDUCATION SERVICES (2.0%)
4,925 Harvest Time Tabernacle, Inc. (LOC - Federal Home
Loan Bank of Dallas) 0.88 8/01/2037 4,925
3,460 Manhattan Christian College, Inc. (LOC - Federal
Home Loan Bank of Topeka) 0.88 5/01/2036 3,460
74,500 Michigan State Finance Auth. (LOC - JP Morgan
Chase & Co.) 0.72 9/01/2053 74,500
12,710 Saddleback Valley Community Church
(LOC - Federal Home Loan Bank of San Francisco) 0.77 11/01/2038 12,710
1,730 Summit Country Day School (LOC - U.S. Bancorp) 1.00 2/01/2019 1,730
-----------
97,325
-----------
ELECTRIC UTILITIES (7.1%)
11,000 Appling County Dev. Auth. 0.70 9/01/2041 11,000
5,000 Collier County IDA (LOC - Wells Fargo & Co.) 0.69 10/01/2025 5,000
21,100 Dade County IDA 0.68 6/01/2021 21,100
29,000 Escambia County 0.71 4/01/2039 29,000
28,300 Garfield County Industrial Auth. 0.70 1/01/2025 28,300
24,200 Indiana Dev. Finance Auth. 0.89 12/01/2038 24,200
5,100 Jacksonville 0.63 5/01/2029 5,100
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
$ 17,000 Louisa County 0.67% 10/01/2024 $ 17,000
15,000 Miami-Dade County IDA 0.63 2/01/2023 15,000
7,250 Mobile IDB 0.72 9/01/2031 7,250
20,000 Mobile IDB 0.69 6/01/2034 20,000
20,000 Muskogee Industrial Trust 0.70 6/01/2027 20,000
57,385 St. Lucie County 0.63 5/01/2024 57,385
79,900 St. Lucie County 0.64 9/01/2028 79,900
-----------
340,235
-----------
ELECTRIC/GAS UTILITIES (1.9%)
5,900 Atascosa County IDC (NBGA) 0.72 6/30/2020 5,900
10,000 Central Plains Energy Project (LIQ) (LOC - Royal
Bank of Canada)(a) 0.71 3/01/2020 10,000
55,000 Columbia IDB 0.68 12/01/2037 55,000
20,400 Sweetwater County (LOC - Bank of Nova Scotia) 0.64 11/01/2025 20,400
-----------
91,300
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
4,560 Putnam County IDA (LOC - Citizens Financial Group) 0.94 7/01/2032 4,560
-----------
FOOD DISTRIBUTORS (0.1%)
4,560 Mississippi Business Finance Corp. (LOC - Federal
Home Loan Bank of Dallas) 1.00 8/01/2021 4,560
-----------
FOOD RETAIL (0.8%)
38,750 Altoona-Blair County Dev. Corp. (LOC - PNC
Financial Services Group)(a) 0.73 4/01/2035 38,750
1,445 Food Supply, Inc. (LOC - SunTrust Bank) 0.76 5/01/2024 1,445
-----------
40,195
-----------
FOREST PRODUCTS (0.1%)
3,600 Rex Lumber, LLC (LOC - Federal Home Loan
Bank of Dallas) 0.75 2/01/2022 3,600
-----------
GENERAL MERCHANDISE STORES (0.2%)
8,140 Marion EDA (LOC - Key Bank, N.A.) 0.93 2/01/2035 8,140
-----------
GENERAL OBLIGATION (2.0%)
7,500 Bridgeview (LOC - Bank of Montreal) 0.85 12/01/2038 7,500
7,500 Bridgeview (LOC - Bank of Montreal) 0.85 12/01/2038 7,500
45,950 California State (LOC - Citigroup, Inc.) 0.51 5/01/2034 45,950
34,345 Michigan Charter Township of Commerce
(LOC - PNC Financial Services Group) 0.75 10/01/2034 34,345
-----------
95,295
-----------
HEALTH CARE EQUIPMENT (0.2%)
1,300 Labcon North America (LOC - BNP Paribas) 0.90 1/01/2040 1,300
7,840 Labcon North America (LOC - BNP Paribas) 0.90 6/01/2044 7,840
-----------
9,140
-----------
================================================================================
14 | USAA MONEY MARKET FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (3.3%)
$ 6,740 Alexandria IDA (LOC - Bank of America Corp.) 0.77% 7/01/2030 $ 6,740
14,970 BJ Financing, LLC (LOC - Bank of Montreal) 1.00 12/01/2037 14,970
7,865 Bronson Lifestyle Improvement & Research Center
(LOC - Fifth Third Bank) 0.82 9/01/2030 7,865
1,795 Columbia County IDA (LOC - HSBC Bank USA) 1.20 7/01/2027 1,795
200 District of Columbia (LOC - Manufacturers &
Traders Trust Co.) 1.23 7/01/2032 200
3,435 Dunn Nursing Home, Inc. (LOC - Federal Home
Loan Bank of Dallas) 0.75 2/01/2024 3,435
1,590 HP LRHS Land, LLC (LOC - U.S. Bancorp) 0.86 10/01/2030 1,590
11,200 Lexington Financial Services (LOC - Bank
of America Corp.) 0.75 1/01/2033 11,200
3,125 Louisiana Public Facilities Auth.
(LOC - Capital One, N.A.) 0.92 7/01/2028 3,125
1,100 MBE Investment Co., LLC (LOC - Comerica Bank, N.A.) 0.93 2/01/2051 1,100
2,840 MCE MOB IV, LP (LOC - PNC Financial
Services Group) 0.78 8/01/2022 2,840
3,270 Medical Center of Athens (LOC - Federal Home
Loan Bank of Atlanta) 1.07 9/01/2032 3,270
7,180 MediLucent MOB I, LP (LOC - PNC Financial
Services Group) 0.78 8/01/2030 7,180
11,555 MMC Corp. (LOC - JP Morgan Chase & Co.) 1.30 11/01/2035 11,555
2,995 Onondaga County IDA (LOC - HSBC Bank USA) 0.80 1/01/2023 2,995
23,590 OSF Finance Co., LLC (LOC - PNC Financial
Services Group) 0.73 12/01/2037 23,590
2,900 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 2,900
3,730 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 3,730
6,430 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 6,430
4,485 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 4,485
22,400 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 22,400
2,465 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 2,465
2,445 Premier Senior Living, LLC (LOC - Wells Fargo & Co.) 0.75 8/01/2037 2,445
4,935 Sawmill Creek Lodge Co. (LOC - Fifth Third Bank) 0.87 10/01/2026 4,935
2,200 Syracuse IDA (LOC - HSBC Bank USA) 0.80 1/01/2023 2,200
2,920 Tallahassee Orthopedic Center, LC
(LOC - Wells Fargo & Co.) 0.75 4/03/2034 2,920
-----------
158,360
-----------
HEALTH CARE SERVICES (0.2%)
5,760 Kaneville Road Joint Venture (LOC - Federal Home
Loan Bank of Chicago) 0.75 11/01/2032 5,760
5,715 Vold Vision Ventures, LLC (LOC - Federal Home
Loan Bank of Dallas) 0.88 10/01/2039 5,715
-----------
11,475
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
HOME FURNISHINGS (0.1%)
$ 2,735 Caddo Parish IDB (LOC - Capital One, N.A.) 0.95% 7/01/2024 $ 2,735
2,300 Walton County Industrial Building Auth.
(LOC - Wells Fargo & Co.) 1.07 10/01/2017 2,300
-----------
5,035
-----------
HOME IMPROVEMENT RETAIL (0.1%)
4,910 Brookhaven IDA (LOC - Capital One, N.A.) 0.83 1/01/2025 4,910
-----------
HOMEBUILDING (0.2%)
11,300 Knox (LOC - SunTrust Bank) 0.78 2/01/2046 11,300
-----------
HOSPITAL (2.8%)
2,985 Albany IDA (LOC - Citizens Financial Group) 0.80 5/01/2035 2,985
20,300 Massachusetts Health and Educational Facilities Auth.
(LOC - Wells Fargo & Co.) 0.62 10/01/2049 20,300
6,855 Nassau Health Care Corp. (LOC - JP Morgan
Chase & Co.) 0.73 8/01/2022 6,855
39,000 Statewide Communities Dev. Auth. 0.65 4/01/2046 39,000
45,000 Univ. Hospitals Health System, Inc.
(LOC - Barclays Bank plc) 0.71 1/15/2050 45,000
14,745 Washington Health Care Facilities Auth.
(LOC - Barclays Bank plc) 0.64 8/15/2041 14,745
8,000 West Virginia State Hospital Finance Auth.
(LOC - Fifth Third Bank) 0.74 10/01/2033 8,000
-----------
136,885
-----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
3,120 Connecticut Dev. Auth. (LOC - Toronto-Dominion Bank) 0.92 12/01/2028 3,120
1,575 Doghouse Properties, LLC (LOC - Federal Home
Loan Bank of Atlanta) 0.75 5/01/2027 1,575
6,590 Forward Corp. (LOC - Fifth Third Bank) 0.82 12/01/2030 6,590
-----------
11,285
-----------
HOUSEHOLD APPLIANCES (0.0%)
780 Stark County (LOC - Key Bank, N.A.) 0.79 6/01/2018 780
-----------
INDUSTRIAL MACHINERY (0.2%)
4,736 Allegheny County IDA (LOC - PNC Financial
Services Group) 0.85 11/01/2027 4,736
2,780 Fulton County Dev. Auth. (LOC - Federal Home
Loan Bank of Atlanta) 0.86 5/01/2030 2,780
165 Henderson County (LOC - Wells Fargo & Co.) 0.77 11/01/2019 165
2,075 Lynchburg IDA (LOC - PNC Financial Services Group) 0.78 3/01/2029 2,075
500 Michigan Strategic Fund Ltd. (LOC - Fifth Third Bank) 0.79 3/01/2023 500
1,055 South Carolina Jobs EDA (LOC - Key Bank, N.A.) 0.80 4/01/2022 1,055
175 Trumbull County (LOC - Key Bank, N.A.) 0.80 4/01/2017 175
-----------
11,486
-----------
================================================================================
16 | USAA MONEY MARKET FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
INTEGRATED OIL & GAS (0.6%)
$ 5,000 Calhoun County Navigation IDA 0.77% 1/01/2024 $ 5,000
24,980 Mississippi Business Finance Corp. 0.59 12/01/2030 24,980
-----------
29,980
-----------
LEISURE FACILITIES (0.7%)
11,415 Ballenisles Country Club, Inc.
(LOC - Bank of America Corp.) 1.00 12/01/2022 11,415
4,325 Cattail Creek Country Club, Inc.
(LOC - Manufacturers & Traders Trust Co.) 1.23 3/01/2031 4,325
9,830 CEI Capital, LLC (LOC - Fifth Third Bank) 0.81 3/01/2033 9,830
9,400 Turfway Park, LLC (LOC - Fifth Third Bank) 1.01 7/01/2022 9,400
-----------
34,970
-----------
LEISURE PRODUCTS (0.1%)
5,975 Charter Lakes Capital, LLC (LOC - Wells Fargo & Co.) 0.82 10/01/2046 5,975
-----------
LIFE & HEALTH INSURANCE (0.9%)
2,670 2016 David Pearl Irrevocable Trust
(LOC - Federal Home Loan Bank of Dallas) 0.75 11/01/2036 2,670
17,175 Lav Jon Life Insurance Trust (LOC - Federal
Home Loan Bank of Atlanta) 0.75 7/01/2036 17,175
8,870 Lynette J. Keane Insurance Trust
(LOC - Wells Fargo & Co.) 0.75 10/01/2033 8,870
7,490 Mike P. Sturdivant Sr. Family Trust
(LOC - Wells Fargo & Co.) 0.75 11/01/2036 7,490
5,375 Sullivan Irrevocable Trust (LOC - Wells Fargo & Co.) 0.75 2/01/2035 5,375
-----------
41,580
-----------
MOVIES & ENTERTAINMENT (0.4%)
14,110 Esplanade Theatres, LLC (LOC - Federal Home
Loan Bank of Dallas) 0.79 11/01/2042 14,110
2,500 Kenner Theatres, LLC (LOC - Federal Home
Loan Bank of Dallas) 0.82 2/01/2042 2,500
-----------
16,610
-----------
MULTI-UTILITIES (0.5%)
22,400 Indiana Finance Auth. (LOC - Sumitomo Mitsui
Banking Corp.) 0.60 12/01/2039 22,400
-----------
MULTIFAMILY HOUSING (4.9%)
8,135 Alabama Housing Finance Auth. (LOC - U.S. Bancorp) 0.70 4/01/2037 8,135
7,330 Florida Housing Finance Corp. (LOC - SunTrust Bank) 0.78 4/01/2034 7,330
6,725 Florida Housing Finance Corp. (LOC - SunTrust Bank) 0.78 6/01/2034 6,725
6,890 Gwinnett County Housing Auth. (LOC - SunTrust Bank) 0.85 3/01/2041 6,890
13,020 Indianapolis (LOC - U.S. Bancorp) 0.76 12/01/2039 13,020
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
$ 10,000 Nebraska Investment Finance Auth.
(LOC - Citigroup, Inc.) 0.70% 10/01/2042 $ 10,000
9,660 Nevada Housing Division (LOC - Federal Home
Loan Bank of San Francisco) 0.71 4/15/2041 9,660
6,400 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.65 5/01/2041 6,400
61,540 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.67 5/01/2041 61,540
33,840 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.66 5/01/2042 33,840
40,000 New York Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.72 11/01/2049 40,000
905 Vermont Housing Finance Agency
(LOC - Key Bank, N.A.) 0.80 1/01/2038 905
4,965 West Bend Housing Auth.
(LOC - Federal Home Loan Bank of Chicago) 0.82 9/01/2035 4,965
24,600 Yonkers IDA (LOC - Manufacturers &
Traders Trust Co.) 0.96 12/01/2038 24,600
-----------
234,010
-----------
MUNICIPAL FINANCE (0.3%)
15,800 Montgomery County Public Building Auth.
(LOC - Bank of America Corp.) 0.69 7/01/2038 15,800
-----------
NURSING/CCRC (0.4%)
2,165 Berks County Municipal Auth. (LOC - Citizens
Financial Group) 0.95 5/15/2022 2,165
335 Roanoke County EDA (LOC - BB&T Corp.) 1.78 10/01/2028 335
14,350 Vermont EDA (LOC - Manufacturers &
Traders Trust Co.) 0.71 5/01/2029 14,350
-----------
16,850
-----------
OIL & GAS REFINING & MARKETING (0.2%)
3,000 Port of Port Arthur Navigation District 0.77 12/01/2039 3,000
4,000 Port of Port Arthur Navigation District 0.77 12/01/2039 4,000
-----------
7,000
-----------
PACKAGED FOODS & MEAT (0.4%)
2,485 Brewster Dairy, Inc. (LOC - Bank of Montreal) 0.85 4/03/2023 2,485
2,200 Indiana Finance Auth. (LOC - Bank of America Corp.) 0.82 12/01/2027 2,200
1,840 Lancaster IDA (LOC - Fulton Bank) 0.90 6/01/2027 1,840
2,800 Michigan Strategic Fund Ltd. (LOC - AgriBank, FCB) 0.75 6/01/2024 2,800
7,500 Premier Mushrooms, Inc. (LOC - CoBank, ACB) 0.75 12/01/2037 7,500
2,260 St. Tammany Parish (LOC - Federal Home Loan
Bank of Dallas) 0.78 7/01/2022 2,260
-----------
19,085
-----------
================================================================================
18 | USAA MONEY MARKET FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
PAPER PRODUCTS (0.1%)
$ 785 Jackson Paper Co. (LOC - Federal Home Loan
Bank of Atlanta) 0.75% 4/01/2027 $ 785
5,600 Willacoochee Dev. Auth. (LOC - Federal Home
Loan Bank of Atlanta) 0.81 5/01/2021 5,600
-----------
6,385
-----------
PHARMACEUTICALS (1.9%)
7,000 Montgomery County IDA (LOC - Landesbank
Hessen-Thuringen) 0.80 4/01/2022 7,000
34,000 New Hampshire Business Finance Auth.
(LOC - Landesbank Hessen-Thuringen) 0.80 11/01/2020 34,000
19,500 New Hampshire Business Finance Auth.
(LOC - Landesbank Hessen-Thuringen) 0.80 9/01/2025 19,500
30,000 New Hampshire Business Finance Auth.
(LOC - Landesbank Hessen-Thuringen) 0.80 4/01/2030 30,000
-----------
90,500
-----------
PUBLISHING (1.1%)
50,000 AARP (LOC - Bank of America Corp.) 0.80 5/01/2031 50,000
1,790 Washington Economic Dev. Finance Auth.
(LOC - U.S. Bancorp) 0.79 1/01/2033 1,790
-----------
51,790
-----------
REAL ESTATE OPERATING COMPANIES (4.9%)
7,000 ASC Admiral Way, LLC (LOC - Federal Home
Loan Bank of San Francisco) 0.74 8/01/2056 7,000
2,050 Beavercreek Enterprises, Inc. (LOC - PNC Financial
Services Group) 0.85 3/02/2020 2,050
2,360 Cain Capital Investments, LLC (LOC - BB&T Corp.) 1.01 10/01/2046 2,360
43,030 Carew Realty, Inc. (LOC - Fifth Third Bank) 0.82 5/01/2037 43,030
15,250 Cobb County Housing Auth. (LOC - SunTrust Bank) 0.72 10/01/2035 15,250
11,065 Delos, LLC (LOC - Wells Fargo & Co.) 0.80 3/01/2037 11,065
2,910 Dennis Wesley Co., Inc. (LOC - Federal Home
Loan Bank of Indianapolis) 0.75 6/15/2034 2,910
7,000 Desert Vistas, LP (LOC - Federal Home Loan
Bank of San Francisco) 0.75 9/01/2055 7,000
3,510 East Hempfield IDA (LOC - Fulton Bank) 0.98 10/15/2026 3,510
16,995 Elsinore Properties, LP (LOC - Fifth Third Bank) 0.82 2/01/2037 16,995
7,815 EMF, LLC (LOC - Comerica Bank, N.A.) 0.95 6/01/2042 7,815
3,850 Herman & Kittle Capital, LLC (LOC - Federal Home
Loan Bank of Cincinnati) 0.75 2/01/2037 3,850
9,345 Housing Venture I (LOC - Federal Home Loan Bank
of San Francisco) 0.75 12/01/2055 9,345
12,900 Indianapolis (LOC - Citizens Financial Group) 0.84 11/01/2042 12,900
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
$ 640 Indianapolis (LOC - Citizens Financial Group) 0.95% 11/01/2042 $ 640
18,300 MB N4P3, LLC (LOC - Federal Home Loan Bank
of San Francisco) 0.75 2/01/2055 18,300
3,550 Partisan Property, Inc. (LOC - Wells Fargo & Co.) 0.90 9/01/2044 3,550
2,700 Pennsylvania Economic Dev. Financing Auth.
(LOC - PNC Financial Services Group) 0.78 4/01/2035 2,700
14,325 Pineview Estates, LC (LOC - Fifth Third Bank) 0.81 4/01/2038 14,325
825 Science & Tech Campus (LOC - Fifth Third Bank) 0.87 11/01/2020 825
15,850 Sugar Creek Finance Co., LLC
(LOC - Northern Trust Corp.) 0.79 6/01/2042 15,850
30,795 Sunroad Centrum Apartments 23
(LOC - Comerica Bank, N.A.) 0.80 5/01/2055 30,795
3,565 Syracuse IDA (LOC - Key Bank, N.A.) 0.80 10/01/2039 3,565
-----------
235,630
-----------
REAL ESTATE TAX/FEE (0.6%)
2,600 Jasper, Morgan, Newton, & Walton County
(LOC - JP Morgan Chase & Co.) 0.80 12/01/2020 2,600
26,625 Traer Creek Metropolitan District
(LOC - BNP Paribas) 0.85 10/01/2030 26,625
-----------
29,225
-----------
REGIONAL BANKS (0.0%)
2,100 Cobb County IDA (LOC - Federal Home Loan
Bank of Atlanta) 0.75 2/01/2030 2,100
-----------
SALES TAX (0.3%)
12,455 Saint Paul (LOC - Wells Fargo & Co.) 0.72 11/01/2025 12,455
-----------
SEMICONDUCTOR EQUIPMENT (0.6%)
28,585 Saratoga County IDA (LOC - JP Morgan Chase & Co.) 0.75 11/01/2021 28,585
-----------
SINGLE FAMILY HOUSING (0.3%)
16,300 Montgomery County (LOC - PNC Financial
Services Group) 0.73 7/01/2039 16,300
-----------
SPECIAL ASSESSMENT/TAX/FEE (0.7%)
32,460 New York MTA (LOC - U.S. Bancorp) 0.62 11/15/2050 32,460
2,900 Sheridan Redevelopment Agency (LOC - JP Morgan
Chase & Co.) 0.85 12/01/2029 2,900
-----------
35,360
-----------
SPECIALTY STORES (0.7%)
29,220 Bass Pro Rossford Dev. Co., LLC
(LOC - Fifth Third Bank) 0.87 11/01/2027 29,220
2,450 Nextgen Automotive, LLC (LOC - Fifth Third Bank) 0.82 4/01/2048 2,450
-----------
31,670
-----------
================================================================================
20 | USAA MONEY MARKET FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------
STEEL (2.6%)
$ 2,500 Berkeley County 0.90% 9/01/2028 $ 2,500
11,000 Berkeley County 0.74 4/01/2031 11,000
522 Decatur IDB 0.90 8/01/2036 522
3,015 Klein Steel Services, Inc. (LOC - Manufacturers &
Traders Trust Co.)(a) 1.23 8/01/2025 3,015
2,500 Mississippi Business Finance Corp. (LOC - Federal
Home Loan Bank of Dallas) 0.85 7/01/2020 2,500
20,000 SSAB AB (LOC - Swedbank AB) 0.75 4/01/2034 20,000
15,000 SSAB AB (LOC - Credit Agricole Corp. Inv. Bank) 0.75 5/01/2034 15,000
33,500 SSAB AB (LOC - DNB Bank ASA) 0.75 6/01/2035 33,500
35,000 SSAB AB (LOC - Nordea Bank AB) 0.75 8/01/2035 35,000
-----------
123,037
-----------
STUDENT LOANS (1.0%)
47,000 Minnesota Office of Higher Education
(LOC - State Street Bank and Trust Co.) 0.67 10/01/2046 47,000
-----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.0%)
870 Alameda County IDA (LOC - BNP Paribas) 0.92 12/01/2040 870
-----------
WATER UTILITIES (0.1%)
4,000 Indiana Finance Auth. (LOC - Fifth Third Bank) 0.77 12/01/2028 4,000
930 Iowa Finance Auth. (LOC - Societe Generale) 0.84 11/01/2017 930
1,117 L3 Corp. (LOC - Fifth Third Bank) 0.87 10/01/2034 1,117
-----------
6,047
-----------
WATER/SEWER UTILITY (0.1%)
4,420 Hesperia Public Financing Auth. (LOC - BNP Paribas) 0.73 6/01/2026 4,420
-----------
Total Variable-Rate Demand Notes (cost: $2,974,518) 2,974,518
-----------
ADJUSTABLE-RATE NOTES (5.9%)
DIVERSIFIED BANKS (5.6%)
44,769 Citigroup, Inc. 1.49 3/10/2017 44,779
47,425 Citigroup, Inc. 1.41 5/01/2017 47,435
90,628 JPMorgan Chase & Co. 1.43 2/15/2017 90,637
25,000 Skandinaviska Enskilda Banken AB 1.34 3/06/2017 25,000
30,000 Wells Fargo & Co. 1.23 6/02/2017 30,006
30,000 Wells Fargo Bank, N.A. 1.31 4/20/2017 30,000
-----------
267,857
-----------
REGIONAL BANKS (0.3%)
15,000 Wachovia Corp. 1.23 6/15/2017 15,003
-----------
Total Adjustable-Rate Notes (cost: $282,860) 282,860
-----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (2.4%)
$ 32,148 Bank of America, N.A., 0.52%, acquired 1/31/2017
and due on 2/01/2017 at $32,148 (collateralized by
$32,894 of U.S. Treasury, 1.88%(c), due 1/31/2022;
market value $32,791) $ 32,148
20,000 Credit Agricole Corp. Inv. Bank, 0.54%, acquired
1/31/2017 and due on 2/01/2017 at $20,000
(collateralized by $20,096 of U.S. Treasury, 1.75%(c),
due 9/30/2019; market value $20,400) 20,000
65,500 HSBC Bank USA, Inc., 0.50%, acquired 1/31/2017
and due on 2/01/2017 at $65,500 (collateralized by
$68,670 of U.S. Treasury, 1.25%(c), due 10/31/2021;
market value $66,812) 65,500
-----------
Total Repurchase Agreements (cost: $117,648) 117,648
-----------
TOTAL INVESTMENTS (COST: $4,799,249) $4,799,249
===========
----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $ 588,152 $- $ 588,152
Commercial Paper - 836,071 - 836,071
Variable-Rate Demand Notes - 2,974,518 - 2,974,518
Adjustable-Rate Notes - 282,860 - 282,860
Repurchase Agreements - 117,648 - 117,648
----------------------------------------------------------------------------------------------------------------------
Total $- $4,799,249 $- $4,799,249
----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
22 | USAA MONEY MARKET FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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, 2017, for federal income tax purposes,
was $4,799,249,000.
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.
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
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
IDC Industrial Development Corp.
MTA Metropolitan Transportation Authority
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) regulations applicable to money market funds. In order to
qualify as an eligible security, the Trust's Board of Trustees (the Board),
must determine that the particular investment presents minimal credit risk
in accordance with these SEC regulations.
(LIQ) Liquidity enhancement that may, under certain circumstances,
provide for repayment of principal and interest upon demand
from Royal Bank of Canada.
(LOC) Principal and interest payments are guaranteed by a bank
letter of credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages, are guaranteed by a nonbank guarantee
agreement from National Rural Utility Corp.
================================================================================
24 | USAA MONEY MARKET FUND
================================================================================
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by the 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(a)(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(a)(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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $4,799,249
Cash 4,944
Receivables:
Capital shares sold 40,190
Interest 5,330
----------
Total assets 4,849,713
----------
LIABILITIES
Payables:
Capital shares redeemed 28,852
Dividends on capital shares 13
Accrued management fees 990
Other accrued expenses and payables 362
----------
Total liabilities 30,217
----------
Net assets applicable to capital shares outstanding $4,819,496
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,819,535
Overdistribution of net investment income (30)
Accumulated net realized loss on investments (9)
----------
Net assets applicable to capital shares outstanding $4,819,496
==========
Capital shares outstanding, no par value 4,820,057
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
26 | USAA MONEY MARKET FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $19,720
-------
EXPENSES
Management fees 6,217
Administration and servicing fees 2,591
Transfer agent's fees 6,476
Custody and accounting fees 287
Postage 325
Shareholder reporting fees 98
Trustees' fees 15
Registration fees 48
Professional fees 130
Other 50
-------
Total expenses 16,237
Expenses reimbursed (119)
-------
Net expenses 16,118
-------
NET INVESTMENT INCOME 3,602
-------
NET REALIZED GAIN ON INVESTMENTS
Net realized gain 559
-------
Increase in net assets resulting from operations $ 4,161
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended July 31,2016
--------------------------------------------------------------------------------
1/31/2017 7/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,602 $ 549
Net realized gain on investments 559 -
-----------------------------
Increase in net assets resulting from operations 4,161 549
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,625) (546)
Net realized gains (568) (1)
-----------------------------
Distributions to shareholders (4,193) (547)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 3,239,077 7,018,475
Reinvested dividends 4,174 546
Cost of shares redeemed (4,030,157) (6,701,841)
-----------------------------
Increase (decrease) in net assets from capital share
transactions (786,906) 317,180
-----------------------------
Net increase (decrease) in net assets (786,938) 317,182
NET ASSETS
Beginning of period 5,606,434 5,289,252
-----------------------------
End of period $ 4,819,496 $5,606,434
=============================
Overdistribution of net investment income:
End of period $ (30) $ (7)
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,239,077 7,018,475
Shares issued for dividends reinvested 4,174 546
Shares redeemed (4,030,157) (6,701,841)
-----------------------------
Increase (decrease) in shares outstanding (786,906) 317,180
=============================
See accompanying notes to financial statements.
================================================================================
28 | USAA MONEY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek the
highest income consistent with preservation of capital and the maintenance of
liquidity.
The Fund operates as a retail money market fund in compliance with the
requirements of Rule 2a-7; and as a retail money market fund, shares of the Fund
are available for sale only to accounts that are beneficially owned by natural
persons.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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. 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.
================================================================================
30 | USAA MONEY MARKET FUND
================================================================================
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities,
inputs that are observable for the securities, either directly or
indirectly, and market-corroborated inputs such as market indexes.
Level 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 taxable income and net capital gains, if any, to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
the Fund and its counterparty, until maturity of the repurchase
agreement. Master Repurchase Agreements typically contain netting
provisions, which provide for the net settlement of all transactions
and collateral with the Fund through a single payment in the event of
default or termination. Repurchase agreements are subject to credit
risk, and the Fund's Manager monitors the creditworthiness of sellers
with which the Fund may enter into repurchase agreements.
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At January 31,
2017, 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, 2017, 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.
================================================================================
32 | USAA MONEY MARKET FUND
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that may affect the
reported amounts in the financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $18,000, which represents 6.9% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, the Fund incurred management fees,
paid or payable to the Manager, of $6,217,000.
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, 2017, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $2,591,000.
================================================================================
34 | USAA MONEY MARKET FUND
================================================================================
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended January 31, 2017, the Fund reimbursed the
Manager $57,000 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, 2017, the Fund
incurred reimbursable expenses of $119,000.
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. The Fund's transfer agent fee is
accrued daily and paid monthly at an annualized rate of 0.25% of the Fund's
average net assets for the fiscal year. 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, 2017, the Fund incurred transfer agent's fees, paid or payable
to SAS, of $6,476,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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.
(6) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
36 | USAA MONEY MARKET 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,
--------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------
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) (.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) .08 .01 .01 .01 .01 .03(b)
Net assets at end
of period (000) $4,819,496 $5,606,434 $5,289,252 $5,192,675 $5,140,226 $4,879,905
Ratios to average
net assets:**
Expenses (%)(c),(d) .62(e) .41 .24 .22 .30 .34(b)
Expenses, excluding
reimbursements (%)(c) .63(e) .67 .65 .63 .63 .65(b)
Net investment
income (%) .14(e) .01 .01 .01 .01 .03
* 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, 2017, average net assets were
$5,132,471,000.
(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) Effective January 7, 2010, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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
================================================================================
38 | USAA MONEY MARKET FUND
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,000.80 $3.13
Hypothetical
(5% return before expenses) 1,000.00 1,022.08 3.16
*Expenses are equal to the Fund's annualized expense ratio of 0.62%, which
is net of any expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 184 days/365 days (to reflect the
one-half-year period). The Fund's actual ending account value is based on its
actual total return of 0.08% for the six-month period of August 1, 2016,
through January 31, 2017.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT 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)
=============================================================================
23428-0317 (C)2017, 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, 2017
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
;
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 25
Financial Statements 27
Notes to Financial Statements 30
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)2017, USAA. All rights reserved.
202734-0317
================================================================================
================================================================================
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 tax 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
ANNA (ANIA) A. ALDRICH, CFA
TIMOTHY A. BERANEK
COLIN M. DUNN, CFA
--------------------------------------------------------------------------------
o HOW DID THE SMALL-CAP MARKET PERFORM DURING THE REPORTING PERIOD?
Small-cap stocks as measured by the Russell 2000(R) Value Index performed
strongly over the reporting period ended January 31, 2017, as 10 of the 11
sectors within the index posted positive returns. Energy, financials, and
information technology were the top-performing sectors within the index,
while real estate was the only sector to post a negative return. Stocks
were essentially flat at the start of the reporting period as investors
remained focused on the timing of the next Federal Reserve (the Fed)
interest rate increase. A combination of worries contributed to increased
volatility during September 2016, including uncertainty surrounding the
U.S. presidential election, tepid economic data, and concerns about the
valuation equity securities. Stocks rose following the election on hopes of
increased fiscal stimulus, reduced regulatory restrictions, and lower
corporate taxes. Economic data released during the fourth quarter 2016 was
generally encouraging, as third-quarter gross domestic product was revised
slightly higher and the housing
================================================================================
2 | USAA SMALL CAP STOCK FUND
================================================================================
market continued to display healthy trends. In December 2016, the Fed
raised interest rates by 0.25%, a well-telegraphed move and only the second
interest rate increase during the last decade. In January 2017, stocks rose
for the third straight month as the "Trump rally" rolled on. In a month
where politics dominated headlines, hopes for tax reform, deregulation, and
infrastructure plans outweighed investor fears regarding further tightening
and revised tariff and trade policies by the Fed.
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, 2017, the Fund Shares and
Institutional Shares had total returns of 11.56% and 11.62%, respectively.
This compares to returns of 12.43% for the Russell 2000(R) Index (the
Index), 12.91% for the S&P SmallCap 600(R) Index, and 12.37% 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 underperformed its benchmark,
the Index, over the reporting period. Relative underperformance was driven
by security selection, primarily within the
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
industrials, information technology, and consumer discretionary sectors.
Stronger stock selection in financials slightly offset the negative
performance. Sector allocation, a residual of the our bottom-up stock
selection process, contributed to relative return, driven by underweight
positions in real estate and consumer discretionary, and an overweight to
industrials. Top individual contributors during the reporting period
included Webster Financial Corp., Hancock Holding Co., and International
Bancshares Corp. (all within financials). The largest detractors from
relative return included an out of benchmark position in Allscripts
Healthcare Solutions, Inc., (health care) Cato Corp. "A" (consumer
discretionary), and Huron Consulting Group, Inc. (industrials).
o HOW DID CAMBIAR'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD?
Cambiar's portion of the Fund outperformed the Index for the reporting
period. Small caps, in general, rallied post-election, reversing the
negative sentiment that had plagued the segment for the first half of 2016.
The Cambiar Small Cap portfolio benefited on a relative basis from our
underweighting in real estate and utilities as investors shifted their
preferences towards pro-cyclical areas of the market and away from these
bond proxy sectors in the latter part of 2016. Additionally, the
portfolio's performance benefited from strong stock selection within the
consumer discretionary sector; however, outsized market moves in financials
made the Index tough to beat, as the portfolio remained underweight
relative to the benchmark.
o HOW DID GIMI'S PORTION OF THE FUND PERFORM DURING THE PERIOD?
The GIMI growth portion of the Fund soundly outperformed its benchmark for
the reporting period. Their portfolio demonstrated positive relative
performance in eight of the nine benchmark sectors, largely driven by
strong stock selection. GIMI builds their portfolio from the bottom up,
with sector exposure secondary to and a result of
================================================================================
4 | USAA SMALL CAP STOCK FUND
================================================================================
stock selection. In addition, underweight positions in consumer staples,
consumer discretionary, and health care boosted the portfolio's relative
return. GIMI's significant overweight position in technology versus the
Index also benefited performance. Conversely, the portfolio's meaningful
underweight position within the materials sector detracted from performance
despite strong stock selection in the sector. Overall, holdings in the
Special Situation LifeCycle category drove outperformance, and included five
of the top 10 individual contributors in the reporting period. The top three
individual contributors were Brooks Automation, Inc. (Special Situation,
technology), InvenSense* (Pioneer, technology), and Texas Capital
Bankshares, Inc. (Core Growth, financials). Holdings in the Core Growth and
Pioneer sectors weighed on performance overall. The largest individual
detractors from performance included Cempra, Inc.* (Pioneer, health care),
Evolent Health, Inc. "A" (Pioneer, technology), and Gigamon, Inc. (Core
Growth, technology).
Thank you for allowing us to help you with your investment needs.
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.
*InvenSense and Cempra, Inc., were sold out of the Fund prior to January 31,
2017.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA SMALL CAP STOCK FUND SHARES (FUND SHARES)
(Ticker Symbol: USCAX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $655.5 Million $586.5 Million
Net Asset Value Per Share $17.82 $16.17
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
11.56% 29.68% 11.51% 6.17%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
18.88% 12.81% 6.35%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
1.16%
(includes acquired fund fees and expenses of 0.01%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
6 | USAA SMALL CAP STOCK FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P SMALLCAP 600 LIPPER SMALL-CAP CORE RUSSELL 2000 USAA SMALL CAP STOCK
INDEX FUNDS INDEX INDEX FUND SHARES
1/31/2007 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,945.73 10,022.48 9,920.65 10,020.00
3/31/2007 10,112.48 10,132.92 10,026.85 10,232.00
4/30/2007 10,337.89 10,422.09 10,206.96 10,516.00
5/31/2007 10,813.79 10,871.94 10,624.99 10,973.00
6/30/2007 10,636.70 10,761.94 10,469.56 10,801.00
7/31/2007 10,099.93 10,197.97 9,753.50 10,119.00
8/31/2007 10,289.23 10,237.51 9,974.57 10,265.00
9/30/2007 10,442.59 10,456.01 10,145.78 10,364.00
10/31/2007 10,636.85 10,708.86 10,436.87 10,576.00
11/30/2007 9,847.41 9,991.41 9,687.44 9,801.00
12/31/2007 9,769.23 10,013.37 9,681.40 9,691.00
1/31/2008 9,291.46 9,350.86 9,021.18 9,058.00
2/29/2008 9,005.32 9,171.82 8,686.79 8,712.00
3/31/2008 9,040.18 9,093.18 8,723.18 8,586.00
4/30/2008 9,403.00 9,532.82 9,088.42 9,028.00
5/31/2008 9,818.35 10,003.86 9,505.92 9,448.00
6/30/2008 9,076.59 9,308.86 8,774.08 8,807.00
7/31/2008 9,263.95 9,333.64 9,098.77 8,888.00
8/31/2008 9,650.91 9,548.76 9,427.64 9,087.00
9/30/2008 8,998.99 8,656.77 8,676.44 8,299.00
10/31/2008 7,185.95 6,811.08 6,871.49 6,657.00
11/30/2008 6,346.38 6,101.03 6,058.68 5,825.00
12/31/2008 6,733.57 6,449.88 6,410.33 6,193.00
1/31/2009 5,878.38 5,868.14 5,697.37 5,522.00
2/28/2009 5,174.48 5,240.37 5,005.00 4,955.00
3/31/2009 5,599.54 5,711.46 5,451.78 5,426.00
4/30/2009 6,577.03 6,613.47 6,294.53 6,142.00
5/31/2009 6,683.02 6,922.02 6,484.31 6,304.00
6/30/2009 6,778.92 6,980.89 6,579.55 6,378.00
7/31/2009 7,478.87 7,597.28 7,213.23 6,997.00
8/31/2009 7,650.00 7,830.39 7,420.07 7,196.00
9/30/2009 8,043.78 8,302.34 7,848.03 7,587.00
10/31/2009 7,585.59 7,845.60 7,315.19 7,225.00
11/30/2009 7,783.51 8,117.42 7,544.82 7,424.00
12/31/2009 8,455.33 8,674.92 8,152.13 7,933.00
1/31/2010 8,169.22 8,366.23 7,852.04 7,800.00
2/28/2010 8,520.22 8,743.25 8,205.74 8,066.00
3/31/2010 9,183.21 9,337.19 8,873.59 8,678.00
4/30/2010 9,720.27 9,804.44 9,375.79 9,076.00
5/31/2010 9,018.52 9,088.33 8,664.60 8,508.00
6/30/2010 8,381.15 8,493.55 7,993.15 7,933.00
7/31/2010 8,912.68 9,035.85 8,542.43 8,412.00
8/31/2010 8,247.36 8,500.39 7,909.97 7,823.00
9/30/2010 9,187.57 9,450.15 8,895.52 8,722.00
10/31/2010 9,578.51 9,791.20 9,259.54 9,091.00
11/30/2010 9,919.92 10,123.31 9,580.60 9,437.00
12/31/2010 10,679.75 10,904.97 10,341.38 10,116.00
1/31/2011 10,695.95 10,914.08 10,314.73 10,079.00
2/28/2011 11,167.35 11,455.16 10,880.40 10,515.00
3/31/2011 11,503.37 11,738.82 11,162.38 10,795.00
4/30/2011 11,802.35 12,025.77 11,457.13 11,172.00
5/31/2011 11,696.02 11,801.54 11,242.33 10,980.00
6/30/2011 11,484.51 11,578.53 10,983.13 10,795.00
7/31/2011 11,116.02 11,229.14 10,586.14 10,463.00
8/31/2011 10,263.13 10,364.56 9,665.12 9,577.00
9/30/2011 9,207.15 9,210.25 8,581.64 8,484.00
10/31/2011 10,587.84 10,559.74 9,880.54 9,821.00
11/30/2011 10,654.71 10,519.85 9,844.52 9,821.00
12/31/2011 10,788.24 10,489.80 9,909.55 9,899.00
1/31/2012 11,497.89 11,191.12 10,609.67 10,556.00
2/29/2012 11,741.11 11,530.94 10,863.59 10,770.00
3/31/2012 12,081.48 11,740.06 11,141.94 11,014.00
4/30/2012 11,929.03 11,616.12 10,969.83 10,822.00
5/31/2012 11,181.03 10,812.83 10,243.74 10,076.00
6/30/2012 11,648.80 11,144.75 10,754.90 10,534.00
7/31/2012 11,559.54 11,097.87 10,606.28 10,453.00
8/31/2012 11,997.50 11,463.92 10,959.97 10,711.00
9/30/2012 12,277.33 11,794.68 11,319.87 11,022.00
10/31/2012 12,028.07 11,662.25 11,074.29 10,793.00
11/30/2012 12,148.14 11,797.15 11,133.13 10,948.00
12/31/2012 12,549.45 12,161.58 11,529.75 11,368.00
1/31/2013 13,274.63 12,890.66 12,251.43 12,040.00
2/28/2013 13,461.48 13,037.00 12,386.58 12,199.00
3/31/2013 14,031.68 13,602.59 12,958.51 12,674.00
4/30/2013 13,994.38 13,530.20 12,910.90 12,471.00
5/31/2013 14,602.82 14,030.40 13,426.92 13,067.00
6/30/2013 14,581.51 13,918.60 13,358.23 13,022.00
7/31/2013 15,579.56 14,813.09 14,293.09 13,792.00
8/31/2013 15,200.01 14,369.96 13,839.11 13,391.00
9/30/2013 16,146.46 15,215.95 14,722.09 14,161.00
10/31/2013 16,728.95 15,699.92 15,092.29 14,682.00
11/30/2013 17,481.02 16,254.86 15,696.95 15,286.00
12/31/2013 17,734.03 16,554.98 16,005.87 15,649.00
1/31/2014 17,050.05 15,959.52 15,562.83 15,104.00
2/28/2014 17,809.92 16,687.09 16,296.01 15,699.00
3/31/2014 17,934.23 16,757.09 16,184.93 15,740.00
4/30/2014 17,433.68 16,333.73 15,557.27 15,121.00
5/31/2014 17,480.74 16,438.08 15,681.93 15,211.00
6/30/2014 18,304.91 17,188.56 16,516.32 15,839.00
7/31/2014 17,299.12 16,228.55 15,516.60 14,988.00
8/31/2014 18,042.11 16,940.27 16,286.00 15,616.00
9/30/2014 17,073.65 16,003.71 15,300.79 14,831.00
10/31/2014 18,283.84 16,878.89 16,309.40 15,608.00
11/30/2014 18,233.59 16,902.79 16,324.02 15,707.00
12/31/2014 18,754.65 17,232.69 16,789.26 16,067.00
1/31/2015 18,099.26 16,613.14 16,249.21 15,410.00
2/28/2015 19,190.54 17,605.58 17,213.87 16,567.00
3/31/2015 19,498.06 17,879.13 17,513.76 16,715.00
4/30/2015 19,044.68 17,534.42 17,067.11 16,456.00
5/31/2015 19,336.45 17,775.19 17,456.75 16,705.00
6/30/2015 19,535.45 17,857.96 17,587.48 16,909.00
7/31/2015 19,369.93 17,675.92 17,383.08 16,428.00
8/31/2015 18,367.20 16,751.80 16,290.71 15,512.00
9/30/2015 17,724.57 16,054.19 15,491.44 14,689.00
10/31/2015 18,805.00 16,996.12 16,364.23 15,651.00
11/30/2015 19,308.67 17,404.44 16,896.54 16,021.00
12/31/2015 18,384.70 16,504.50 16,048.16 15,215.00
1/31/2016 17,250.76 15,395.41 14,636.98 14,034.00
2/29/2016 17,443.50 15,508.47 14,636.32 14,145.00
3/31/2016 18,873.40 16,755.87 15,804.47 15,285.00
4/30/2016 19,095.01 16,968.16 16,052.52 15,437.00
5/31/2016 19,411.70 17,278.80 16,414.10 15,608.00
6/30/2016 19,529.56 17,228.61 16,403.75 15,366.00
7/31/2016 20,523.72 18,073.37 17,383.16 16,314.00
8/31/2016 20,802.12 18,331.56 17,690.57 16,597.00
9/30/2016 20,935.90 18,407.55 17,887.61 16,577.00
10/31/2016 19,998.88 17,753.64 17,037.24 15,820.00
11/30/2016 22,508.65 19,658.66 18,937.09 17,545.00
12/31/2016 23,266.89 20,224.17 19,467.70 18,088.00
1/31/2017 23,174.34 20,309.91 19,544.49 18,200.00
[END CHART]
Data from 1/31/07 through 1/31/17.
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 funds within 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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $908.4 Million $884.3 Million
Net Asset Value Per Share $17.95 $16.30
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
11.62% 29.86% 11.77% 9.08%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
19.12% 13.09% 9.09%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
1.00%
(includes acquired fund fees and expenses of 0.01%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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]
S&P SMALLCAP 600 LIPPER SMALL-CAP CORE RUSSELL 2000 USAA SMALL CAP STOCK FUND
INDEX FUNDS INDEX INDEX INSTITUTIONAL SHARES
7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,417.70 10,230.47 10,361.44 10,198.00
9/30/2008 9,713.98 9,274.80 9,535.84 9,314.00
10/31/2008 7,756.89 7,297.35 7,552.10 7,471.00
11/30/2008 6,850.62 6,536.60 6,658.79 6,537.00
12/31/2008 7,268.57 6,910.35 7,045.27 6,953.00
1/31/2009 6,345.43 6,287.09 6,261.69 6,198.00
2/28/2009 5,585.61 5,614.49 5,500.74 5,559.00
3/31/2009 6,044.43 6,119.22 5,991.78 6,098.00
4/30/2009 7,099.59 7,085.63 6,918.00 6,903.00
5/31/2009 7,214.01 7,416.20 7,126.57 7,094.00
6/30/2009 7,317.52 7,479.27 7,231.25 7,169.00
7/31/2009 8,073.09 8,139.67 7,927.69 7,882.00
8/31/2009 8,257.82 8,389.42 8,155.02 8,106.00
9/30/2009 8,682.88 8,895.07 8,625.37 8,546.00
10/31/2009 8,188.28 8,405.72 8,039.75 8,139.00
11/30/2009 8,401.93 8,696.95 8,292.12 8,372.00
12/31/2009 9,127.13 9,294.25 8,959.59 8,944.00
1/31/2010 8,818.28 8,963.52 8,629.78 8,795.00
2/28/2010 9,197.18 9,367.46 9,018.51 9,102.00
3/31/2010 9,912.84 10,003.80 9,752.51 9,790.00
4/30/2010 10,492.57 10,504.41 10,304.45 10,247.00
5/31/2010 9,735.06 9,737.17 9,522.82 9,608.00
6/30/2010 9,047.05 9,099.94 8,784.86 8,969.00
7/31/2010 9,620.82 9,680.95 9,388.55 9,508.00
8/31/2010 8,902.64 9,107.26 8,693.44 8,853.00
9/30/2010 9,917.55 10,124.83 9,776.61 9,865.00
10/31/2010 10,339.55 10,490.22 10,176.69 10,288.00
11/30/2010 10,708.08 10,846.05 10,529.55 10,678.00
12/31/2010 11,528.28 11,683.51 11,365.68 11,459.00
1/31/2011 11,545.77 11,693.27 11,336.39 11,417.00
2/28/2011 12,054.63 12,272.98 11,958.10 11,918.00
3/31/2011 12,417.34 12,576.89 12,268.00 12,234.00
4/30/2011 12,740.08 12,884.33 12,591.95 12,660.00
5/31/2011 12,625.30 12,644.08 12,355.87 12,451.00
6/30/2011 12,396.98 12,405.16 12,070.99 12,243.00
7/31/2011 11,999.22 12,030.82 11,634.69 11,868.00
8/31/2011 11,078.56 11,104.52 10,622.44 10,867.00
9/30/2011 9,938.69 9,867.80 9,431.64 9,632.00
10/31/2011 11,429.08 11,313.64 10,859.20 11,159.00
11/30/2011 11,501.26 11,270.90 10,819.62 11,159.00
12/31/2011 11,645.39 11,238.70 10,891.09 11,246.00
1/31/2012 12,411.43 11,990.09 11,660.55 12,000.00
2/29/2012 12,673.97 12,354.17 11,939.62 12,242.00
3/31/2012 13,041.39 12,578.22 12,245.54 12,527.00
4/30/2012 12,876.82 12,445.43 12,056.38 12,309.00
5/31/2012 12,069.39 11,584.79 11,258.37 11,464.00
6/30/2012 12,574.32 11,940.41 11,820.17 12,025.00
7/31/2012 12,477.97 11,890.18 11,656.82 11,924.00
8/31/2012 12,950.74 12,282.36 12,045.54 12,226.00
9/30/2012 13,252.80 12,636.74 12,441.10 12,586.00
10/31/2012 12,983.74 12,494.85 12,171.19 12,326.00
11/30/2012 13,113.34 12,639.38 12,235.86 12,510.00
12/31/2012 13,546.54 13,029.83 12,671.76 12,990.00
1/31/2013 14,329.34 13,810.97 13,464.93 13,755.00
2/28/2013 14,531.04 13,967.75 13,613.46 13,936.00
3/31/2013 15,146.54 14,573.72 14,242.04 14,486.00
4/30/2013 15,106.27 14,496.16 14,189.71 14,263.00
5/31/2013 15,763.05 15,032.07 14,756.85 14,942.00
6/30/2013 15,740.06 14,912.30 14,681.35 14,891.00
7/31/2013 16,817.40 15,870.64 15,708.80 15,777.00
8/31/2013 16,407.69 15,395.88 15,209.86 15,321.00
9/30/2013 17,429.34 16,302.27 16,180.30 16,207.00
10/31/2013 18,058.11 16,820.78 16,587.17 16,800.00
11/30/2013 18,869.94 17,415.35 17,251.72 17,497.00
12/31/2013 19,143.05 17,736.89 17,591.24 17,920.00
1/31/2014 18,404.73 17,098.92 17,104.31 17,299.00
2/28/2014 19,224.97 17,878.44 17,910.12 17,977.00
3/31/2014 19,359.16 17,953.44 17,788.04 18,024.00
4/30/2014 18,818.84 17,499.85 17,098.20 17,318.00
5/31/2014 18,869.63 17,611.64 17,235.21 17,421.00
6/30/2014 19,759.28 18,415.70 18,152.24 18,146.00
7/31/2014 18,673.58 17,387.15 17,053.51 17,167.00
8/31/2014 19,475.60 18,149.69 17,899.11 17,892.00
9/30/2014 18,430.20 17,146.26 16,816.32 16,998.00
10/31/2014 19,736.55 18,083.93 17,924.84 17,892.00
11/30/2014 19,682.30 18,109.53 17,940.90 18,005.00
12/31/2014 20,244.76 18,462.99 18,452.22 18,416.00
1/31/2015 19,537.29 17,799.21 17,858.68 17,668.00
2/28/2015 20,715.28 18,862.50 18,918.89 18,996.00
3/31/2015 21,047.24 19,155.58 19,248.48 19,164.00
4/30/2015 20,557.84 18,786.25 18,757.59 18,869.00
5/31/2015 20,872.79 19,044.22 19,185.83 19,164.00
6/30/2015 21,087.59 19,132.89 19,329.50 19,407.00
7/31/2015 20,908.93 18,937.86 19,104.85 18,859.00
8/31/2015 19,826.52 17,947.76 17,904.29 17,794.00
9/30/2015 19,132.83 17,200.35 17,025.85 16,866.00
10/31/2015 20,299.11 18,209.53 17,985.09 17,963.00
11/30/2015 20,842.80 18,647.00 18,570.12 18,395.00
12/31/2015 19,845.41 17,682.81 17,637.72 17,466.00
1/31/2016 18,621.38 16,494.53 16,086.76 16,119.00
2/29/2016 18,829.44 16,615.66 16,086.04 16,258.00
3/31/2016 20,372.94 17,952.12 17,369.89 17,569.00
4/30/2016 20,612.16 18,179.57 17,642.50 17,742.00
5/31/2016 20,954.02 18,512.39 18,039.90 17,937.00
6/30/2016 21,081.23 18,458.61 18,028.53 17,661.00
7/31/2016 22,154.39 19,363.69 19,104.95 18,754.00
8/31/2016 22,454.91 19,640.30 19,442.81 19,088.00
9/30/2016 22,599.32 19,721.73 19,659.36 19,065.00
10/31/2016 21,587.85 19,021.13 18,724.76 18,191.00
11/30/2016 24,297.02 21,062.15 20,812.80 20,181.00
12/31/2016 25,115.51 21,668.04 21,395.96 20,805.00
1/31/2017 25,015.60 21,759.90 21,480.36 20,933.00
[END CHART]
Data from 7/31/08 through 1/31/17.*
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* - 1/31/17 o
(% of Net Assets)
Diebold, Inc. ............................................................ 1.3%
Albany International Corp. "A" ........................................... 1.2%
Mueller Industries, Inc. ................................................. 1.2%
Webster Financial Corp. .................................................. 1.1%
Belden, Inc. ............................................................. 1.1%
DSW, Inc. "A" ............................................................ 1.0%
CEB, Inc. ................................................................ 0.9%
First Midwest Bancorp, Inc. .............................................. 0.9%
International Bancshares Corp. ........................................... 0.9%
Telephone & Data Systems, Inc. ........................................... 0.9%
o SECTOR ALLOCATION* - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
INDUSTRIALS 25.2%
INFORMATION TECHNOLOGY 16.9%
FINANCIALS 16.0%
HEALTH CARE 10.9%
CONSUMER DISCRETIONARY 8.1%
ENERGY 5.0%
MATERIALS 4.2%
CONSUMER STAPLES 3.9%
REAL ESTATE 3.0%
UTILITIES 1.6%
TELECOMMUNICATION SERVICES 1.4%
[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 12-24.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.2%)
COMMON STOCKS (96.2%)
CONSUMER DISCRETIONARY (8.1%)
-----------------------------
APPAREL RETAIL (1.4%)
218,794 Cato Corp. "A" $ 5,555
704,030 DSW, Inc. "A" 14,897
448,010 Stage Stores, Inc. 1,255
----------
21,707
----------
AUTO PARTS & EQUIPMENT (0.2%)
264,900 Modine Manufacturing Co.* 3,603
----------
AUTOMOTIVE RETAIL (1.7%)
160,000 Group 1 Automotive, Inc. 12,926
20,800 Lithia Motors, Inc. "A" 2,145
186,000 Murphy USA, Inc.* 11,848
----------
26,919
----------
BROADCASTING (0.1%)
34,200 Nexstar Broadcasting Group, Inc. "A" 2,237
----------
CASINOS & GAMING (0.1%)
50,500 Boyd Gaming Corp.* 1,026
13,000 Red Rock Resorts, Inc. "A" 305
----------
1,331
----------
CONSUMER ELECTRONICS (0.1%)
141,200 ZAGG, Inc.* 946
----------
EDUCATION SERVICES (0.1%)
12,010 Bright Horizons Family Solutions, Inc.* 851
12,200 Grand Canyon Education, Inc.* 720
----------
1,571
----------
FOOTWEAR (0.8%)
499,000 Wolverine World Wide, Inc. 11,721
----------
GENERAL MERCHANDISE STORES (0.5%)
522,070 Fred's, Inc. "A" 7,607
----------
================================================================================
12 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOUSEHOLD APPLIANCES (0.4%)
42,760 Helen of Troy Ltd.* $ 3,989
52,163 SodaStream International Ltd.* 2,295
----------
6,284
----------
LEISURE FACILITIES (0.2%)
85,800 ClubCorp Holdings, Inc. 1,416
14,300 Vail Resorts, Inc. 2,453
----------
3,869
----------
MOVIES & ENTERTAINMENT (0.2%)
118,119 IMAX Corp.* 3,851
----------
RESTAURANTS (1.6%)
262,000 Brinker International, Inc. 11,659
3,500 Buffalo Wild Wings, Inc.* 528
65,740 Kona Grill, Inc.* 602
486,000 Sonic Corp. 12,101
----------
24,890
----------
SPECIALIZED CONSUMER SERVICES (0.7%)
265,000 Sotheby's* 10,523
----------
Total Consumer Discretionary 127,059
----------
CONSUMER STAPLES (3.9%)
-----------------------
DISTILLERS & VINTNERS (0.5%)
1,818,393 C&C Group plc 7,760
----------
FOOD DISTRIBUTORS (0.7%)
262,000 United Natural Foods, Inc.* 11,973
----------
FOOD RETAIL (0.5%)
573,290 Smart & Final Stores, Inc.* 8,227
----------
HOUSEHOLD PRODUCTS (0.8%)
239,330 Energizer Holdings, Inc. 12,079
----------
PACKAGED FOODS & MEAT (1.4%)
307,892 Cranswick plc 8,971
613,000 Dean Foods Co. 12,174
40,660 Freshpet, Inc.* 453
----------
21,598
----------
Total Consumer Staples 61,637
----------
ENERGY (5.0%)
-------------
OIL & GAS EQUIPMENT & SERVICES (2.8%)
21,870 Core Laboratories N.V. 2,555
255,800 Enservco Corp.* 138
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
237,659 Era Group, Inc.* $ 3,722
319,000 Oil States International, Inc.* 12,600
128,679 SEACOR Holdings, Inc.* 9,467
735,000 Superior Energy Services, Inc. 12,987
310,292 Tesco Corp.* 2,669
----------
44,138
----------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
767,000 Callon Petroleum Co.* 11,720
28,100 Diamondback Energy, Inc.* 2,955
202,660 Resolute Energy Corp.* 9,321
----------
23,996
----------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
392,810 Dorian LPG Ltd.* 4,443
1,240,530 Scorpio Tankers, Inc. 4,751
----------
9,194
----------
Total Energy 77,328
----------
FINANCIALS (16.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.7%)
20,620 Affiliated Managers Group, Inc.* 3,142
21,576 Harris & Harris Group, Inc.* 32
237,688 Safeguard Scientifics, Inc.* 2,864
249,277 Solar Capital Ltd. 5,289
----------
11,327
----------
CONSUMER FINANCE (0.1%)
51,211 PRA Group, Inc.* 2,038
----------
FINANCIAL EXCHANGES & DATA (0.3%)
21,400 MarketAxess Holdings, Inc. 4,007
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
144,600 BGC Partners, Inc. "A" 1,601
----------
LIFE & HEALTH INSURANCE (0.1%)
82,200 Trupanion, Inc.* 1,314
----------
MULTI-LINE INSURANCE (0.4%)
158,630 Kemper Corp. 6,853
----------
PROPERTY & CASUALTY INSURANCE (0.4%)
78,000 James River Group Holdings 3,093
30,800 Kinsale Capital Group, Inc. 904
115,934 State National Companies, Inc. 1,595
----------
5,592
----------
================================================================================
14 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REGIONAL BANKS (11.7%)
216,000 Banner Corp. $ 12,122
158,700 Customers Bancorp, Inc.* 5,469
27,000 FCB Financial Holdings, Inc. "A"* 1,268
259,302 First Busey Corp. 7,585
582,326 First Midwest Bancorp, Inc. 14,139
276,879 Flushing Financial Corp. 7,531
263,786 Great Western Bancorp, Inc. 11,277
292,000 Hancock Holding Co. 13,388
406,000 Hilltop Holdings, Inc. 11,116
572,000 Hope Bancorp, Inc. 11,960
373,800 International Bancshares Corp. 13,868
275,600 MB Financial, Inc. 12,272
61,500 Pacific Premier Bancorp, Inc.* 2,420
712,000 TCF Financial Corp. 12,353
60,000 Texas Capital Bancshares, Inc.* 4,950
706,000 Umpqua Holdings Corp. 12,927
412,000 United Community Banks, Inc. 11,590
326,650 Webster Financial Corp. 17,156
----------
183,391
----------
REINSURANCE (0.8%)
1,022,070 Third Point Reinsurance Ltd.* 11,703
----------
THRIFTS & MORTGAGE FINANCE (1.4%)
73,360 LendingTree, Inc.* 8,209
17,300 Meta Financial Group, Inc. 1,520
720,130 Northwest Bancshares, Inc. 12,292
----------
22,021
----------
Total Financials 249,847
----------
HEALTH CARE (10.9%)
-------------------
BIOTECHNOLOGY (1.8%)
79,080 Acceleron Pharma, Inc.* 1,920
72,340 Alkermes plc* 3,914
799,115 Array BioPharma, Inc.* 8,686
51,200 Enanta Pharmaceuticals, Inc.* 1,696
35,280 Esperion Therapeutics, Inc.* 427
317,500 Exact Sciences Corp.* 6,017
147,000 Ironwood Pharmaceuticals, Inc.* 2,114
36,070 Ligand Pharmaceuticals, Inc.* 3,824
----------
28,598
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT (2.3%)
95,460 ABIOMED, Inc.* $ 10,154
121,700 Cardiovascular Systems, Inc.* 3,006
42,310 CONMED Corp. 1,887
82,912 Cutera, Inc.* 1,534
69,756 Cynosure, Inc. "A"* 3,725
55,900 DexCom, Inc.* 4,424
51,965 Inogen, Inc.* 3,345
77,460 Natus Medical, Inc.* 3,025
128,099 Zeltiq Aesthetics, Inc.* 5,680
----------
36,780
----------
HEALTH CARE FACILITIES (0.3%)
102,800 Acadia Healthcare Co., Inc.* 3,945
27,200 Ensign Group, Inc. 553
----------
4,498
----------
HEALTH CARE SERVICES (0.8%)
128,618 CorVel Corp.* 4,932
95,720 Envision Healthcare Corp.* 6,509
34,700 Fulgent Genetics, Inc.* 454
----------
11,895
----------
HEALTH CARE SUPPLIES (1.4%)
236,170 Haemonetics Corp.* 9,414
48,662 ICU Medical, Inc.* 6,672
67,730 Spectranetics Corp.* 1,751
11,208 Vascular Solutions, Inc.* 627
36,600 West Pharmaceutical Services, Inc. 3,097
----------
21,561
----------
HEALTH CARE TECHNOLOGY (1.0%)
749,195 Allscripts Healthcare Solutions, Inc.* 8,773
365,390 Evolent Health, Inc. "A"* 6,650
20,600 Veeva Systems, Inc. "A"* 872
----------
16,295
----------
LIFE SCIENCES TOOLS & SERVICES (1.8%)
15,150 Bio-Rad Laboratories, Inc. "A"* 2,880
540,000 Bruker Corp. 12,814
92,160 Charles River Laboratories International, Inc.* 7,447
235,452 Harvard Bioscience, Inc.* 706
451,906 NeoGenomics, Inc.* 3,642
----------
27,489
----------
MANAGED HEALTH CARE (0.7%)
205,310 Molina Healthcare, Inc.* 11,645
----------
================================================================================
16 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (0.8%)
77,550 AcelRx Pharmaceuticals, Inc.* $ 206
174,300 Nektar Therapeutics* 2,111
70,000 Pacira Pharmaceuticals, Inc.* 2,691
83,360 Paratek Pharmaceuticals, Inc.* 1,259
149,450 Phibro Animal Health Corp. "A" 3,990
78,200 Supernus Pharmaceuticals, Inc.* 2,115
----------
12,372
----------
Total Health Care 171,133
----------
INDUSTRIALS (25.2%)
-------------------
Aerospace & Defense (0.9%)
247,188 Cubic Corp. 11,754
102,615 Taser International, Inc.* 2,563
----------
14,317
----------
AIR FREIGHT & LOGISTICS (0.5%)
52,800 Echo Global Logistics, Inc.* 1,254
118,530 Forward Air Corp. 5,712
----------
6,966
----------
AIRLINES (0.2%)
59,250 Hawaiian Holdings, Inc.* 3,019
13,500 Spirit Airlines, Inc.* 729
----------
3,748
----------
BUILDING PRODUCTS (0.6%)
44,070 Apogee Enterprises, Inc. 2,515
2,025,313 Tyman plc 6,803
----------
9,318
----------
COMMERCIAL PRINTING (0.0%)
68,200 InnerWorkings, Inc.* 655
----------
CONSTRUCTION & ENGINEERING (1.2%)
670,000 KBR, Inc. 11,397
316,320 Primoris Services Corp. 7,851
----------
19,248
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (1.1%)
103,877 Douglas Dynamics, Inc. 3,511
845,000 Federal Signal Corp. 13,131
----------
16,642
----------
DIVERSIFIED SUPPORT SERVICES (0.9%)
158,551 Matthews International Corp. "A" 10,694
107,125 Mobile Mini, Inc. 3,487
----------
14,181
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT (2.8%)
155,000 EnerSys $ 12,082
270,000 Generac Holdings, Inc.* 10,870
174,000 Regal-Beloit Corp. 12,633
418,490 Thermon Group Holdings, Inc.* 8,688
----------
44,273
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.8%)
105,094 Hudson Technologies, Inc.* 763
392,627 SP Plus Corp.* 10,876
----------
11,639
----------
HEAVY ELECTRICAL EQUIPMENT (0.3%)
310,267 Babcock & Wilcox Enterprises, Inc.* 5,163
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.2%)
35,189 WageWorks, Inc.* 2,539
----------
INDUSTRIAL MACHINERY (5.9%)
406,769 Albany International Corp. "A" 19,301
120,890 CIRCOR International, Inc. 7,529
220,467 ESCO Technologies, Inc. 12,831
11,900 John Bean Technologies Corp. 1,028
79,629 Kennametal, Inc. 2,846
263,500 Kornit Digital Ltd.* 4,374
371,566 Luxfer Holdings plc ADR 4,058
470,720 Mueller Industries, Inc. 18,951
48,150 Proto Labs, Inc.* 2,528
37,714 RBC Bearings, Inc.* 3,494
44,250 Tennant Co. 3,064
544,714 TriMas Corp.* 11,602
----------
91,606
----------
MARINE (0.8%)
194,000 Kirby Corp.* 12,503
----------
OFFICE SERVICES & SUPPLIES (2.2%)
727,950 ACCO Brands Corp.* 9,281
404,460 Essendant, Inc. 8,449
596,000 Interface, Inc. 10,847
333,790 Steelcase, Inc. "A" 5,608
----------
34,185
----------
RAILROADS (0.3%)
66,200 Genesee & Wyoming, Inc. "A"* 4,989
----------
RESEARCH & CONSULTING SERVICES (2.5%)
192,000 CEB, Inc. 14,678
270,220 FTI Consulting, Inc.* 11,387
================================================================================
18 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
133,500 Huron Consulting Group, Inc.* $ 6,048
311,736 Mistras Group, Inc.* 7,195
----------
39,308
----------
TRADING COMPANIES & DISTRIBUTORS (4.0%)
359,000 Air Lease Corp. 13,060
555,000 Aircastle Ltd. 12,377
223,000 Beacon Roofing Supply, Inc.* 9,761
529,000 BMC Stock Holdings, Inc.* 9,892
157,880 GATX Corp. 9,129
73,113 Kaman Corp. 3,694
83,710 Rush Enterprises, Inc. "A"* 2,742
169,820 Titan Machinery, Inc.* 2,345
----------
63,000
----------
Total Industrials 394,280
----------
INFORMATION TECHNOLOGY (16.9%)
------------------------------
APPLICATION SOFTWARE (1.6%)
44,923 BroadSoft, Inc.* 1,887
50,100 Cadence Design Systems, Inc.* 1,304
126,000 Callidus Software, Inc.* 2,325
20,830 Digimarc Corp.* 550
4,780 Ebix, Inc. 265
3,320 Ellie Mae, Inc.* 275
40,039 Guidewire Software, Inc.* 2,095
4,800 Hubspot, Inc.* 246
22,930 Monotype Imaging Holdings, Inc. 502
20,050 Paycom Software, Inc.* 927
101,028 PROS Holdings, Inc.* 2,261
44,576 PTC, Inc.* 2,343
74,400 Synchronoss Technologies, Inc.* 2,866
13,450 Tyler Technologies, Inc.* 1,964
24,672 Ultimate Software Group, Inc.* 4,778
13,890 Zendesk, Inc.* 333
----------
24,921
----------
COMMUNICATIONS EQUIPMENT (0.6%)
589,090 Aerohive Networks, Inc.* 3,375
79,000 Finisar Corp.* 2,336
45,900 Infinera Corp.* 414
111,065 RADWARE Ltd.* 1,631
283,140 ShoreTel, Inc.* 1,968
----------
9,724
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (2.5%)
224,540 Cardtronics plc "A"* $ 12,255
76,222 Euronet Worldwide, Inc.* 5,452
856,500 Travelport Worldwide Ltd. 12,299
319,556 WNS Holdings Ltd. ADR* 9,088
----------
39,094
----------
ELECTRONIC COMPONENTS (1.1%)
221,450 Belden, Inc. 16,934
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.9%)
8,200 Coherent, Inc.* 1,294
34,350 OSI Systems, Inc.* 2,565
560,000 VeriFone Systems, Inc.* 10,175
----------
14,034
----------
ELECTRONIC MANUFACTURING SERVICES (0.5%)
272,290 CTS Corp. 5,854
22,250 IPG Photonics Corp.* 2,559
----------
8,413
----------
INTERNET SOFTWARE & SERVICES (1.6%)
96,106 2U, Inc.* 3,271
68,090 Amber Road, Inc.* 603
38,040 Apptio, Inc.* 527
12,654 CoStar Group, Inc.* 2,557
88,000 GTT Communications, Inc.* 2,486
28,970 Liquidity Services, Inc.* 283
138,920 LivePerson, Inc.* 1,014
25,020 Mindbody, Inc. "A"* 609
11,200 Nutanix, Inc. "A"* 339
117,300 Pandora Media, Inc.* 1,525
23,420 Shopify, Inc. "A"* 1,190
58,011 SPS Commerce, Inc.* 4,003
14,300 Stamps.com, Inc.* 1,738
83,110 Trivago NV ADR* 964
56,600 Twilio, Inc.* 1,632
36,390 Wix.com Ltd.* 1,912
----------
24,653
----------
IT CONSULTING & OTHER SERVICES (1.1%)
15,600 EPAM Systems, Inc.* 1,004
229,259 Forrester Research, Inc. 9,354
184,900 Perficient, Inc.* 3,278
103,018 Virtusa Corp.* 2,625
----------
16,261
----------
================================================================================
20 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (1.4%)
432,872 Brooks Automation, Inc. $ 7,541
127,500 Rudolph Technologies, Inc.* 2,926
155,198 Teradyne, Inc. 4,404
165,555 Tessera Holding Corp. 7,483
----------
22,354
----------
SEMICONDUCTORS (2.6%)
2,670 Acacia Communications, Inc.* 155
109,113 Ceva, Inc.* 3,857
42,940 Impinj, Inc.* 1,512
58,196 Inphi Corp.* 2,667
74,850 Mellanox Technologies Ltd.* 3,544
50,000 Microsemi Corp.* 2,658
19,839 Monolithic Power Systems, Inc. 1,731
24,200 Power Integrations, Inc. 1,718
898,000 Rambus, Inc.* 11,656
31,242 Silicon Laboratories, Inc.* 2,037
158,000 Synaptics, Inc.* 8,908
----------
40,443
----------
SYSTEMS SOFTWARE (1.1%)
30,300 CyberArk Software Ltd.* 1,608
116,466 Gigamon, Inc.* 3,861
37,100 Imperva, Inc.* 1,549
40,974 Proofpoint, Inc.* 3,285
103,200 Qualys, Inc.* 3,705
128,100 Rapid7, Inc.* 1,597
26,100 Red Hat, Inc.* 1,980
----------
17,585
----------
TECHNOLOGY DISTRIBUTORS (0.3%)
133,680 ScanSource, Inc.* 5,287
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.6%)
742,700 Diebold, Inc. 20,201
136,834 Nimble Storage, Inc.* 1,173
118,100 Super Micro Computer, Inc.* 3,124
----------
24,498
----------
Total Information Technology 264,201
----------
MATERIALS (4.2%)
----------------
COMMODITY CHEMICALS (0.6%)
638,000 Calgon Carbon Corp. 10,113
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
FOREST PRODUCTS (0.6%)
124,350 Deltic Timber Corp. $ 9,447
----------
METAL & GLASS CONTAINERS (0.8%)
215,270 Greif, Inc. "A" 12,395
----------
PAPER PACKAGING (0.4%)
337,330 Multi Packaging Solutions International Ltd.* 6,011
----------
PAPER PRODUCTS (0.8%)
272,360 Schweitzer-Mauduit International, Inc. 12,074
----------
SPECIALTY CHEMICALS (1.0%)
26,609 Quaker Chemical Corp. 3,419
161,274 Sensient Technologies Corp. 12,378
----------
15,797
----------
Total Materials 65,837
----------
REAL ESTATE (3.0%)
------------------
REITs - HOTEL & RESORT (0.8%)
446,250 Summit Hotel Properties, Inc. 7,064
490,564 DiamondRock Hospitality Co. 5,529
----------
12,593
----------
REITs - INDUSTRIAL (0.1%)
62,200 STAG Industrial, Inc. 1,439
----------
REITs - OFFICE (0.4%)
205,890 Corporate Office Properties Trust 6,551
----------
REITs - RESIDENTIAL (1.2%)
370,000 Colony Starwood Homes 11,636
171,566 Education Realty Trust, Inc. 6,899
----------
18,535
----------
REITs - RETAIL (0.3%)
301,200 Ramco-Gershenson Properties Trust 4,898
----------
REITs - SPECIALIZED (0.2%)
71,049 QTS Realty Trust, Inc. "A" 3,580
----------
Total Real Estate 47,596
----------
TELECOMMUNICATION SERVICES (1.4%)
---------------------------------
ALTERNATIVE CARRIERS (0.5%)
74,620 Cogent Communications Holdings, Inc. 3,119
646,700 Vonage Holdings Corp.* 4,585
----------
7,704
----------
================================================================================
22 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.9%)
438,620 Telephone & Data Systems, Inc. $ 13,444
----------
Total Telecommunication Services 21,148
----------
UTILITIES (1.6%)
----------------
ELECTRIC UTILITIES (0.5%)
213,130 PNM Resources, Inc. 7,332
----------
GAS UTILITIES (1.1%)
121,890 New Jersey Resources Corp. 4,595
93,950 Spire, Inc. 6,107
86,410 WGL Holdings, Inc. 7,080
----------
17,782
----------
Total Utilities 25,114
----------
Total Common Stocks (cost: $1,162,069) 1,505,180
----------
RIGHTS (0.0%)
HEALTH CARE (0.0%)
------------------
BIOTECHNOLOGY (0.0%)
72,450 Prosensa Holdings N.V.*(a),(b) -
----------
PHARMACEUTICALS (0.0%)
133,709 NuPathe, Inc.*(a),(b) -
----------
Total Health Care -
----------
Total Rights (cost: $80) -
----------
Total Equity Securities (cost: $1,162,149) 1,505,180
----------
MONEY MARKET INSTRUMENTS (4.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (4.2%)
65,086,419 State Street Institutional Treasury Money Market
Fund Premier Class, 0.42%(c) (cost: $65,086) 65,086
----------
TOTAL INVESTMENTS (COST: $1,227,235) $1,570,266
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,505,180 $- $- $1,505,180
Rights - - - -
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 65,086 - - 65,086
--------------------------------------------------------------------------------------------------------
Total $1,570,266 $- $- $1,570,266
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
24 | USAA SMALL CAP STOCK FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
REIT Real estate investment trust
o SPECIFIC NOTES
(a) Security deemed illiquid by the USAA Asset Management Company (the
Manager), under liquidity guidelines approved by the USAA Mutual Funds
Trust's Board of Trustees (the Board).
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
(b) Security was fair valued at January 31, 2017, by the Manager in
accordance with valuation procedures approved by the Board.
(c) Rate represents the money market fund annualized seven-day yield at
January 31, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
26 | USAA SMALL CAP STOCK FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,227,235) $1,570,266
Cash 563
Receivables:
Capital shares sold 6,748
Dividends and interest 405
Securities sold 1,135
----------
Total assets 1,579,117
----------
LIABILITIES
Payables:
Securities purchased 12,809
Capital shares redeemed 1,340
Accrued management fees 962
Accrued transfer agent's fees 31
Other accrued expenses and payables 141
----------
Total liabilities 15,283
----------
Net assets applicable to capital shares outstanding $1,563,834
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,166,151
Overdistribution of net investment income (2,577)
Accumulated net realized gain on investments 57,229
Net unrealized appreciation of investments 343,031
----------
Net assets applicable to capital shares outstanding $1,563,834
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $655,466/36,789
capital shares outstanding, no par value) $ 17.82
==========
Institutional Shares (net assets of $908,368/50,619
capital shares outstanding, no par value) $ 17.95
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3) $ 10,037
Interest 108
----------
Total income 10,145
----------
EXPENSES
Management fees 5,478
Administration and servicing fees:
Fund Shares 460
Institutional Shares 455
Transfer agent's fees:
Fund Shares 570
Institutional Shares 455
Custody and accounting fees:
Fund Shares 52
Institutional Shares 75
Postage:
Fund Shares 33
Institutional Shares 20
Shareholder reporting fees:
Fund Shares 19
Institutional Shares 6
Trustees' fees 15
Registration fees:
Fund Shares 20
Institutional Shares 23
Professional fees 70
Other 18
----------
Total expenses 7,769
Expenses paid indirectly:
Fund Shares (11)
Institutional Shares (16)
----------
Net expenses 7,742
----------
NET INVESTMENT INCOME 2,403
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 77,914
Foreign currency transactions (7)
Change in net unrealized appreciation/(depreciation) of:
Investments 86,940
Foreign currency translations 1
----------
Net realized and unrealized gain 164,848
----------
Increase in net assets resulting from operations $ 167,251
==========
See accompanying notes to financial statements.
================================================================================
28 | USAA SMALL CAP STOCK FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,403 $ 3,636
Net realized gain on investments 77,914 20,135
Net realized loss on foreign currency transactions (7) (2)
Change in net unrealized appreciation/(depreciation) of:
Investments 86,940 (18,901)
Foreign currency translations 1 (1)
-------------------------------
Increase in net assets resulting from operations 167,251 4,867
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (1,247) (2,353)
Institutional Shares (3,126) (2,311)
-------------------------------
Total distributions of net investment income (4,373) (4,664)
-------------------------------
Net realized gains:
Fund Shares (6,660) (62,875)
Institutional Shares (9,660) (43,424)
-------------------------------
Total distributions of net realized gains (16,320) (106,299)
-------------------------------
Distributions to shareholders (20,693) (110,963)
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 10,108 (142,528)
Institutional Shares (63,457) 207,503
-------------------------------
Total net increase (decrease) in net assets
from capital share transactions (53,349) 64,975
-------------------------------
Net increase (decrease) in net assets 93,209 (41,121)
NET ASSETS
Beginning of period 1,470,625 1,511,746
===============================
End of period $1,563,834 $1,470,625
===============================
Overdistribution of net investment income:
End of period $ (2,577) $ (607)
===============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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' 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
================================================================================
30 | USAA SMALL CAP 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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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 which occur on
a fairly regular basis (such as U.S. market movements) are significant.
Such securities are categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of
================================================================================
32 | USAA SMALL CAP STOCK FUND
================================================================================
each business day and are categorized in Level 1 of the fair value
hierarchy.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. 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.
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
================================================================================
34 | USAA SMALL CAP STOCK FUND
================================================================================
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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the
exchange rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31,
2017, brokerage commission recapture credits reduced
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
the expenses of the Fund Shares and Institutional Shares by $11,000 and
$16,000, respectively. Additionally, there were no custodian and other bank
credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the
================================================================================
36 | USAA SMALL CAP STOCK FUND
================================================================================
committed loan agreement, the assessed facility fee on the amount of the
additional commitment will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $6,000, which represents 2.1% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal 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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$309,575,000 and $364,201,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $381,728,000 and $38,697,000 respectively, resulting in net
unrealized appreciation of $343,031,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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, 2017 JULY 31, 2016
-------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
FUND SHARES:
Shares sold 3,106 $ 53,306 6,196 $ 96,523
Shares issued from
reinvested dividends 435 7,810 4,205 64,678
Shares redeemed (3,019) (51,008) (21,151) (303,729)
--------------------------------------------------------
Net increase (decrease) from
capital share transactions 522 $ 10,108 (10,750) $(142,528)
========================================================
INSTITUTIONAL SHARES:
Shares sold 3,911 $ 66,863 26,710 $ 376,976
Shares issued from
reinvested dividends 708 12,787 2,952 45,726
Shares redeemed (8,253) (143,107) (13,229) (215,199)
--------------------------------------------------------
Net increase (decrease) from
capital share transactions (3,634) $ (63,457) 16,433 $ 207,503
========================================================
(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
================================================================================
38 | USAA SMALL CAP STOCK FUND
================================================================================
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 is also responsible for determining the asset allocation for 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' 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 funds
within 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.
Each class' 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $5,478,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $(143,000) and $(96,000), respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were (0.05)% and (0.02)%,
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment
Subadvisory Agreements with Wellington Management Company LLP (Wellington
Management), Cambiar Investors, LLC (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, 2017, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to
Wellington Management of $2,036,000.
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 average net assets
over $300 million that Cambiar manages. For the
================================================================================
40 | USAA SMALL CAP STOCK FUND
================================================================================
six-month period ended January 31, 2017, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Cambiar of $1,815,000.
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,
2017, the Manager incurred subadvisory fees with respect to the Fund, paid
or payable to GIMI of $1,005,000.
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, 2017, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $460,000 and
$455,000, 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, 2017, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
assets, plus out-of-pocket expenses. For the six-month period ended January
31, 2017, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $570,000 and $455,000, 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 funds for the
purpose of exercising management or control. As of January 31, 2017, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.2
Cornerstone Equity 0.7
Target Retirement Income 0.0*
Target Retirement 2020 0.6
Target Retirement 2030 1.6
Target Retirement 2040 2.2
Target Retirement 2050 1.5
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.
================================================================================
42 | USAA SMALL CAP STOCK FUND
================================================================================
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
(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,
-------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------
Net asset value
at beginning of period $ 16.17 $ 17.77 $ 18.14 $ 18.27 $ 14.15 $ 14.17
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) .02 .02 .02 (.01) .05 .02
Net realized and
unrealized gain (loss) 1.85 (.22) 1.63 1.62 4.39 (.03)
-------------------------------------------------------------------------
Total from investment
operations 1.87 (.20) 1.65 1.61 4.44 (.01)
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.03) (.05) (.02) - (.04) (.01)
Realized capital gains (.19) (1.35) (2.00) (1.74) (.28) -
-------------------------------------------------------------------------
Total distributions (.22) (1.40) (2.02) (1.74) (.32) (.01)
-------------------------------------------------------------------------
Net asset value at
end of period $ 17.82 $ 16.17 $ 17.77 $ 18.14 $ 18.27 $ 14.15
=========================================================================
Total return (%)* 11.56 (.75) 9.67 8.68 31.94 (.10)
Net assets at
end of period (000) $655,466 $586,438 $835,256 $709,753 $645,220 $751,742
Ratios to average
net assets:**
Expenses (%)(a) 1.09(b) 1.15 1.15 1.14 1.25 1.28(c)
Net investment
income (loss) (%) .24(b) .18 .06 (.03) .03 .16
Portfolio turnover (%) 21 52 45 45 55 84(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, 2017, average net assets
were $609,472,000.
(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%) (.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, 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) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
================================================================================
44 | USAA SMALL CAP STOCK 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,
-------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.30 $ 17.89 $ 18.24 $ 18.34 $ 14.24 $ 14.23
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .03 .07 .05 .03 .04(a) .06
Net realized and
unrealized gain (loss) 1.87 (.24) 1.65 1.61 4.46(a) .00(b)
-------------------------------------------------------------------------
Total from investment
operations 1.90 (.17) 1.70 1.64 4.50(a) .06
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.06) (.07) (.05) - (.12) (.05)
Realized capital gains (.19) (1.35) (2.00) (1.74) (.28) -
-------------------------------------------------------------------------
Total distributions (.25) (1.42) (2.05) (1.74) (.40) (.05)
-------------------------------------------------------------------------
Net asset value at
end of period $ 17.95 $ 16.30 $ 17.89 $ 18.24 $ 18.34 $ 14.24
=========================================================================
Total return (%)* 11.62 (.55) 9.85 8.81 32.31 .48
Net assets at
end of period (000) $908,368 $884,187 $676,490 $661,910 $601,624 $190,828
Ratios to average
net assets:**
Expenses (%)(d) .97(c) .99 .99 .99 1.00 .99
Net investment
income (%) .37(c) .35 .22 .12 .23 .47
Portfolio turnover (%) 21 52 45 45 55 84(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, 2017, average net assets
were $903,147,000.
(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 Institutional Shares
before reductions of any expenses paid indirectly. The Institutional
Shares' expenses paid indirectly decreased the expense ratios by less than
0.01%.
(e) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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.
================================================================================
46 | USAA SMALL CAP STOCK FUND
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,115.60 $5.81
Hypothetical
(5% return before expenses) 1,000.00 1,019.71 5.55
INSTITUTIONAL SHARES
Actual 1,000.00 1,116.20 5.17
Hypothetical
(5% return before expenses) 1,000.00 1,020.32 4.94
*Expenses are equal to the annualized expense ratio of 1.09% for Fund Shares and
0.97% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 11.56% for Fund Shares and 11.62% for Institutional Shares for the six-month
period of August 1, 2016, through January 31, 2017.
================================================================================
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)
=============================================================================
40053-0317 (C)2017, 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 o R6 SHARES
JANUARY 31, 2017
========================================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 22
Notes to Portfolio of Investments 45
Financial Statements 51
Notes to Financial Statements 55
EXPENSE EXAMPLE 73
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)2017, USAA. All rights reserved.
202728-0317
================================================================================
================================================================================
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 tax 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
JULIANNE BASS, CFA JOHN SPEAR, CFA*
BRIAN W. SMITH, CFA, CPA KURT DAUM, JD*
--------------------------------------------------------------------------------
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
U.S. Treasury yields edged up during the first part of the reporting period,
with the yield on a 10-year U.S. Treasury security rising from 1.46% on July
29, 2016 to 1.88% on November 8, 2016, election day. After Donald Trump was
elected the 45th president of the U.S., yields surged higher as investors
anticipated stronger economic growth due to proposed tax cuts and regulatory
relief. The 10-year U.S. Treasury yield reached a high for the reporting
period of 2.60% in December 2016 and settled at 2.45% by the end of January
2017. The U.S. Treasury yield curve steepened, with the yields on two-year,
five-year, 10-year, and 30-year U.S. Treasuries rising 55 basis points, 89
basis points, 100 basis points, and 88 basis points, respectively. (A basis
point is 1/100(th) of a percent.) The market appeared to be pricing in
higher economic growth as well as potentially higher inflation.
*Effective November 4, 2016, John Spear and Kurt Daum began co-managing the
Fund.
================================================================================
2 | USAA SHORT-TERM BOND FUND
================================================================================
o U.S. TREASURY YIELD CURVE o
[CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %)
-----------------------------------
2/01/16 2/01/17
MATURITY -----------------------------------
1M 0.180% 0.489%
3M 0.303 0.505
6M 0.441 0.643
1Y 0.467 0.824
2Y 0.799 1.214
3Y 0.997 1.474
5Y 1.364 1.930
7Y 1.708 2.263
10Y 1.949 2.471
30Y 2.762 3.076
[END CHART]
Source: Bloomberg Finance L.P.
Economic growth remained subpar, with U.S. real gross domestic product
coming in at 1.60% for 2016 as a whole. The Federal Reserve (the Fed)
maintained its cautious approach, raising the federal funds target rate by
only 25 basis points at its December 2016 meeting. (A basis point is
1/100 (th) of a percent.) Based on federal funds futures at the end of the
reporting period, the markets did not seem to expect another rate increase
until July 2017.
As interest rates rose during the reporting period, bond prices--which move
in the opposite direction of interest rates--declined, though they found
some support from continued foreign demand for U.S. securities. Credit
spreads (yield differentials versus U.S. Treasury securities of comparable
maturity) tightened across the credit spectrum, with A-rated, BBB-rated, and
high yield spreads narrowing 14 basis points, 36 basis points, and 152 basis
points, respectively. Spreads are generally considered an indication of
risk; the wider the spread, the greater the risk.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
o BLOOMBERG BARCLAYS U.S. AGGREGATE CREDIT INDEX o
[CHART OF BLOOMBERG BARCLAYS U.S. AGGREGATE CREDIT INDEX]
AVERAGE OPTION
ADJUSTED SPREAD
1/4/2016 1.57
1/5/2016 1.56
1/6/2016 1.57
1/7/2016 1.60
1/8/2016 1.60
1/11/2016 1.60
1/12/2016 1.62
1/13/2016 1.64
1/14/2016 1.67
1/15/2016 1.70
1/19/2016 1.72
1/20/2016 1.78
1/21/2016 1.80
1/22/2016 1.77
1/25/2016 1.78
1/26/2016 1.79
1/27/2016 1.80
1/28/2016 1.81
1/29/2016 1.81
2/1/2016 1.83
2/2/2016 1.86
2/3/2016 1.87
2/4/2016 1.87
2/5/2016 1.87
2/8/2016 1.91
2/9/2016 1.95
2/10/2016 1.95
2/11/2016 2.00
2/12/2016 2.00
2/16/2016 1.95
2/17/2016 1.94
2/18/2016 1.92
2/19/2016 1.92
2/22/2016 1.89
2/23/2016 1.88
2/24/2016 1.89
2/25/2016 1.88
2/26/2016 1.85
2/29/2016 1.84
3/1/2016 1.80
3/2/2016 1.77
3/3/2016 1.76
3/4/2016 1.74
3/7/2016 1.72
3/8/2016 1.72
3/9/2016 1.71
3/10/2016 1.68
3/11/2016 1.64
3/14/2016 1.60
3/15/2016 1.60
3/16/2016 1.60
3/17/2016 1.59
3/18/2016 1.58
3/21/2016 1.56
3/22/2016 1.54
3/23/2016 1.54
3/24/2016 1.55
3/28/2016 1.55
3/29/2016 1.56
3/30/2016 1.55
3/31/2016 1.54
4/1/2016 1.55
4/4/2016 1.54
4/5/2016 1.55
4/6/2016 1.54
4/7/2016 1.54
4/8/2016 1.54
4/11/2016 1.54
4/12/2016 1.52
4/13/2016 1.51
4/14/2016 1.49
4/15/2016 1.49
4/18/2016 1.48
4/19/2016 1.46
4/20/2016 1.43
4/21/2016 1.41
4/22/2016 1.40
4/25/2016 1.39
4/26/2016 1.38
4/27/2016 1.38
4/28/2016 1.38
4/29/2016 1.39
5/2/2016 1.39
5/3/2016 1.40
5/4/2016 1.42
5/5/2016 1.43
5/6/2016 1.43
5/9/2016 1.44
5/10/2016 1.44
5/11/2016 1.44
5/12/2016 1.44
5/13/2016 1.44
5/16/2016 1.43
5/17/2016 1.43
5/18/2016 1.43
5/19/2016 1.43
5/20/2016 1.44
5/23/2016 1.44
5/24/2016 1.44
5/25/2016 1.42
5/26/2016 1.41
5/27/2016 1.41
5/31/2016 1.41
6/1/2016 1.41
6/2/2016 1.42
6/3/2016 1.43
6/6/2016 1.42
6/7/2016 1.42
6/8/2016 1.41
6/9/2016 1.41
6/10/2016 1.43
6/13/2016 1.45
6/14/2016 1.48
6/15/2016 1.48
6/16/2016 1.48
6/17/2016 1.48
6/20/2016 1.44
6/21/2016 1.43
6/22/2016 1.43
6/23/2016 1.40
6/24/2016 1.50
6/27/2016 1.51
6/28/2016 1.50
6/29/2016 1.48
6/30/2016 1.47
7/1/2016 1.46
7/5/2016 1.46
7/6/2016 1.46
7/7/2016 1.44
7/8/2016 1.43
7/11/2016 1.41
7/12/2016 1.38
7/13/2016 1.37
7/14/2016 1.36
7/15/2016 1.36
7/18/2016 1.35
7/19/2016 1.35
7/20/2016 1.35
7/21/2016 1.34
7/22/2016 1.34
7/25/2016 1.34
7/26/2016 1.35
7/27/2016 1.36
7/28/2016 1.37
7/29/2016 1.38
8/1/2016 1.39
8/2/2016 1.39
8/3/2016 1.40
8/4/2016 1.39
8/5/2016 1.37
8/8/2016 1.35
8/9/2016 1.35
8/10/2016 1.35
8/11/2016 1.34
8/12/2016 1.33
8/15/2016 1.32
8/16/2016 1.31
8/17/2016 1.31
8/18/2016 1.31
8/19/2016 1.30
8/22/2016 1.30
8/23/2016 1.29
8/24/2016 1.29
8/25/2016 1.29
8/26/2016 1.28
8/29/2016 1.28
8/30/2016 1.28
8/31/2016 1.29
9/1/2016 1.30
9/2/2016 1.30
9/6/2016 1.30
9/7/2016 1.30
9/8/2016 1.30
9/9/2016 1.31
9/12/2016 1.33
9/13/2016 1.33
9/14/2016 1.34
9/15/2016 1.33
9/16/2016 1.33
9/19/2016 1.32
9/20/2016 1.32
9/21/2016 1.32
9/22/2016 1.30
9/23/2016 1.31
9/26/2016 1.32
9/27/2016 1.31
9/28/2016 1.30
9/29/2016 1.31
9/30/2016 1.31
10/3/2016 1.30
10/4/2016 1.30
10/5/2016 1.29
10/6/2016 1.27
10/7/2016 1.27
10/11/2016 1.26
10/12/2016 1.25
10/13/2016 1.25
10/14/2016 1.24
10/17/2016 1.24
10/18/2016 1.23
10/19/2016 1.23
10/20/2016 1.23
10/21/2016 1.23
10/24/2016 1.23
10/25/2016 1.23
10/26/2016 1.24
10/27/2016 1.24
10/28/2016 1.25
10/31/2016 1.25
11/1/2016 1.27
11/2/2016 1.28
11/3/2016 1.28
11/4/2016 1.29
11/7/2016 1.27
11/8/2016 1.26
11/9/2016 1.25
11/10/2016 1.24
11/14/2016 1.25
11/15/2016 1.23
11/16/2016 1.23
11/17/2016 1.23
11/18/2016 1.25
11/21/2016 1.24
11/22/2016 1.24
11/23/2016 1.24
11/25/2016 1.25
11/28/2016 1.24
11/29/2016 1.24
11/30/2016 1.23
12/1/2016 1.23
12/2/2016 1.24
12/5/2016 1.23
12/6/2016 1.22
12/7/2016 1.22
12/8/2016 1.22
12/9/2016 1.21
12/12/2016 1.21
12/13/2016 1.19
12/14/2016 1.19
12/15/2016 1.20
12/16/2016 1.19
12/19/2016 1.19
12/20/2016 1.18
12/21/2016 1.18
12/22/2016 1.18
12/23/2016 1.18
12/27/2016 1.17
12/28/2016 1.18
12/29/2016 1.18
12/30/2016 1.18
1/3/2017 1.17
1/4/2017 1.16
1/5/2017 1.17
1/6/2017 1.17
1/9/2017 1.17
1/10/2017 1.17
1/11/2017 1.18
1/12/2017 1.17
1/13/2017 1.17
1/17/2017 1.17
1/18/2017 1.17
1/19/2017 1.17
1/20/2017 1.17
1/23/2017 1.17
1/24/2017 1.16
1/25/2017 1.15
1/26/2017 1.15
1/27/2017 1.15
1/30/2017 1.15
1/31/2017 1.16
[END CHART]
o HOW DID THE USAA SHORT-TERM BOND FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has four share classes: Fund Shares, Institutional Shares, Adviser
Shares, and R6 Shares. For the reporting period ended January 31, 2017, the
Fund Shares, Institutional Shares and Adviser Shares had total returns of
0.40%, 0.35%, and 0.28%, respectively. This compares to returns of 0.10% for
the Bloomberg Barclays 1-3 Year Credit Index* and 0.22% for the Lipper Short
Investment Grade Debt Funds Index. At the same time, the Fund Shares,
Institutional Shares,
Refer to page 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indexes. Thus, the Fund's
benchmark is now called the Bloomberg Barclays 1-3 Year Credit Index.
================================================================================
4 | USAA SHORT-TERM BOND FUND
================================================================================
and Adviser Shares provided a one-year dividend yield of 1.88%, 1.97%, and
1.61%, respectively, compared to 1.56% for the Lipper Short Investment Grade
Debt Funds Average. The R6 Shares commenced operations on December 1, 2016,
and from that time through January 31, 2017, had a total return of 0.68%.
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?
The Fund's total return was hindered during the reporting period by the
sharp increase in interest rates. This was manifested primarily in the
portfolio's holdings of U.S. Treasury securities and higher-quality bonds,
which did not experience much spread narrowing. Still, the Fund produced a
positive total return, led by its coupon income and driven by the general
tightening in credit spreads.
The Fund was helped by the strong performance of its holdings of
subordinated debt, which benefited from spread tightening and higher
short-term interest rates. In addition, the portfolio's energy-related bonds
(primarily those issued by exploration and production companies and pipeline
businesses), as well as metals and mining bonds, added to results. These
bond issues performed well amid improving commodity prices, including higher
prices for crude oil, natural gas, iron ore, and copper. Finally, the
Fund's allocation to high-yield corporate bonds enhanced results. High-yield
bonds saw the greatest tightening in credit spreads. Throughout the
reporting period, we continued to adhere to our disciplined investment
approach, which is to maintain an attractive yield with an acceptable level
of risk.
To identify attractive investment opportunities, we worked with our in-
house team of analysts, continuing to build the portfolio bond-by-bond
through fundamental bottom-up analysis. We look for opportunities where our
fundamental understanding of the credit risk is different than
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
the market. This approach, we believe, will generate total returns that may
outperform the Fund's Lipper peers over the long run, with less volatility.
Our analysts review all securities considered for purchase and assign their
own independent credit rating to each security. During the reporting period,
we found value primarily in corporate bonds, asset-backed securities, and
certain municipal bonds. Because times were uncertain, we also continued to
emphasize liquidity in the portfolio. Our liquidity strategy helps to
prevent the Fund from being forced to sell its securities due to investment
outflows.
Our analysts continued to analyze and monitor every holding in the
portfolio. 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 Fund's position 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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $1.3 Billion $1.4 Billion
Net Asset Value Per Share $9.15 $9.20
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 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
0.40% 3.13% 1.89% 3.35%
---------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
---------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
3.01% 1.95% 3.34%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
1.85% 0.61%
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
JANUARY 31, 2017
------------------------------------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
------------------------------------------------------------------------------------------------------------
10 YEARS 3.35% = 3.01% + 0.34%
5 YEARS 1.89% = 1.94% + -0.05%
1 YEAR 3.13% = 1.91% + 1.22%
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, 2008-JANUARY 31, 2017
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
------------------------------------------------------------------------------------------------
PERIOD ENDING TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
------------------------------------------------------------------------------------------------
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
1/31/2017 3.13 1.91 1.22
[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 SHORT-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA SHORT-TERM BLOOMBERG LIPPER SHORT
BOND FUND BARCLAYS 1-3 YEAR INVESTMENT GRADE
SHARES CREDIT INDEX DEBT FUNDS INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 10,104.00 10,091.40 10,082.23
3/31/2007 10,130.00 10,130.08 10,118.46
4/30/2007 10,169.00 10,170.10 10,157.90
5/31/2007 10,150.00 10,154.83 10,144.46
6/30/2007 10,180.00 10,197.18 10,171.76
7/31/2007 10,230.00 10,260.61 10,232.75
8/31/2007 10,286.00 10,303.85 10,245.28
9/30/2007 10,357.00 10,384.79 10,331.65
10/31/2007 10,398.00 10,443.13 10,355.26
11/30/2007 10,524.00 10,543.91 10,449.85
12/31/2007 10,551.00 10,568.48 10,452.94
1/31/2008 10,628.00 10,763.77 10,581.90
2/29/2008 10,624.00 10,844.81 10,600.58
3/31/2008 10,611.00 10,786.02 10,468.89
4/30/2008 10,604.00 10,772.89 10,468.37
5/31/2008 10,657.00 10,772.62 10,461.28
6/30/2008 10,661.00 10,774.94 10,441.11
7/31/2008 10,666.00 10,782.27 10,374.82
8/31/2008 10,685.00 10,844.00 10,411.00
9/30/2008 10,581.00 10,432.41 10,182.12
10/31/2008 10,308.00 10,286.16 9,984.44
11/30/2008 10,259.00 10,410.61 9,824.69
12/31/2008 10,281.00 10,600.55 9,971.03
1/31/2009 10,376.00 10,795.22 10,070.22
2/28/2009 10,435.00 10,707.76 10,095.64
3/31/2009 10,577.00 10,738.13 10,087.35
4/30/2009 10,737.00 10,979.89 10,215.22
5/31/2009 10,995.00 11,202.35 10,391.91
6/30/2009 11,119.00 11,327.07 10,471.65
7/31/2009 11,320.00 11,475.19 10,609.27
8/31/2009 11,453.00 11,590.62 10,734.71
9/30/2009 11,575.00 11,676.39 10,829.29
10/31/2009 11,664.00 11,749.11 10,949.64
11/30/2009 11,761.00 11,850.69 10,977.40
12/31/2009 11,725.00 11,829.16 10,994.03
1/31/2010 11,863.00 11,936.82 11,105.14
2/28/2010 11,900.00 11,970.23 11,131.80
3/31/2010 11,921.00 12,003.11 11,166.47
4/30/2010 11,997.00 12,054.84 11,258.29
5/31/2010 12,014.00 12,018.83 11,240.81
6/30/2010 12,084.00 12,084.14 11,306.55
7/31/2010 12,170.00 12,194.21 11,392.81
8/31/2010 12,227.00 12,241.20 11,456.73
9/30/2010 12,271.00 12,304.72 11,495.49
10/31/2010 12,314.00 12,356.27 11,544.70
11/30/2010 12,304.00 12,325.09 11,509.90
12/31/2010 12,282.00 12,320.54 11,494.05
1/31/2011 12,323.00 12,366.19 11,524.55
2/28/2011 12,339.00 12,388.44 11,554.88
3/31/2011 12,343.00 12,391.56 11,557.99
4/30/2011 12,427.00 12,475.90 11,628.63
5/31/2011 12,468.00 12,526.20 11,677.65
6/30/2011 12,471.00 12,523.34 11,660.79
7/31/2011 12,516.00 12,575.16 11,719.04
8/31/2011 12,505.00 12,542.55 11,659.69
9/30/2011 12,496.00 12,491.53 11,640.67
10/31/2011 12,551.00 12,565.60 11,670.58
11/30/2011 12,554.00 12,508.78 11,630.46
12/31/2011 12,585.00 12,536.38 11,670.77
1/31/2012 12,667.00 12,658.33 11,773.92
2/29/2012 12,710.00 12,710.33 11,816.96
3/31/2012 12,726.00 12,733.65 11,837.55
4/30/2012 12,781.00 12,757.32 11,879.53
5/31/2012 12,780.00 12,736.15 11,875.01
6/30/2012 12,822.00 12,769.92 11,905.11
7/31/2012 12,918.00 12,854.17 11,987.08
8/31/2012 12,960.00 12,898.75 12,027.52
9/30/2012 13,010.00 12,943.42 12,077.02
10/31/2012 13,063.00 12,974.33 12,102.19
11/30/2012 13,089.00 12,980.68 12,119.77
12/31/2012 13,099.00 12,998.72 12,132.91
1/31/2013 13,119.00 13,016.77 12,143.97
2/28/2013 13,158.00 13,041.70 12,170.43
3/31/2013 13,195.00 13,053.31 12,182.54
4/30/2013 13,247.00 13,089.67 12,220.96
5/31/2013 13,184.00 13,074.84 12,178.47
6/30/2013 13,077.00 13,030.26 12,087.92
7/31/2013 13,126.00 13,080.74 12,126.28
8/31/2013 13,106.00 13,075.02 12,106.77
9/30/2013 13,167.00 13,124.16 12,159.84
10/31/2013 13,231.00 13,168.92 12,207.72
11/30/2013 13,254.00 13,200.63 12,231.27
12/31/2013 13,231.00 13,187.32 12,215.66
1/31/2014 13,310.00 13,223.41 12,257.39
2/28/2014 13,345.00 13,254.86 12,291.09
3/31/2014 13,335.00 13,249.41 12,278.14
4/30/2014 13,384.00 13,279.61 12,312.06
5/31/2014 13,432.00 13,317.94 12,348.77
6/30/2014 13,436.00 13,312.22 12,356.47
7/31/2014 13,425.00 13,309.09 12,339.69
8/31/2014 13,459.00 13,337.06 12,356.90
9/30/2014 13,433.00 13,318.47 12,343.65
10/31/2014 13,467.00 13,354.75 12,366.93
11/30/2014 13,484.00 13,374.58 12,379.01
12/31/2014 13,451.00 13,334.38 12,337.06
1/31/2015 13,499.00 13,403.70 12,389.14
2/28/2015 13,504.00 13,400.49 12,398.69
3/31/2015 13,536.00 13,428.18 12,423.98
4/30/2015 13,540.00 13,451.41 12,441.52
5/31/2015 13,559.00 13,465.08 12,452.20
6/30/2015 13,534.00 13,443.55 12,432.84
7/31/2015 13,538.00 13,452.13 12,439.91
8/31/2015 13,511.00 13,435.33 12,418.96
9/30/2015 13,530.00 13,475.80 12,427.82
10/31/2015 13,534.00 13,488.58 12,441.63
11/30/2015 13,508.00 13,475.27 12,427.66
12/31/2015 13,454.00 13,448.20 12,391.72
1/31/2016 13,487.00 13,492.33 12,419.25
2/29/2016 13,491.00 13,499.57 12,419.27
3/31/2016 13,617.00 13,601.59 12,500.36
4/30/2016 13,701.00 13,648.77 12,549.49
5/31/2016 13,706.00 13,646.98 12,555.34
6/30/2016 13,803.00 13,734.09 12,623.85
7/31/2016 13,853.00 13,756.24 12,654.71
8/31/2016 13,875.00 13,755.53 12,662.71
9/30/2016 13,913.00 13,769.11 12,684.11
10/31/2016 13,919.00 13,772.06 12,686.48
11/30/2016 13,820.00 13,714.25 12,637.10
12/31/2016 13,858.00 13,731.94 12,650.77
1/31/2017 13,909.00 13,770.36 12,682.60
[END CHART]
Data from 1/31/07 through 1/31/17.
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 Short Investment Grade Debt 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 Bloomberg 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 Lipper Short Investment Grade Debt Funds Index tracks the
total return performance of 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]
USAA SHORT-TERM LIPPER SHORT
BOND FUND INVESTMENT GRADE
SHARES DEBT FUNDS AVERAGE
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
1/31/2017 1.88 1.55
[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 1/31/08 through 1/31/17.
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)
-------------------------------------------------------------------------------
1/31/17 7/31/16
-------------------------------------------------------------------------------
Net Assets $1.8 Billion $1.9 Billion
Net Asset Value Per Share $9.14 $9.20
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
0.35% 3.23% 2.00% 3.34%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
2.99% 2.06% 3.32%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
1.98% 0.51%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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]
USAA SHORT-TERM BLOOMBERG BARCLAYS LIPPER SHORT
BOND FUND 1-3 YEAR CREDIT INVESTMENT GRADE
INSTITUTIONAL SHARES INDEX DEBT FUNDS INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,016.00 10,057.26 10,034.87
9/30/2008 9,921.00 9,675.52 9,814.26
10/31/2008 9,668.00 9,539.88 9,623.72
11/30/2008 9,625.00 9,655.31 9,469.75
12/31/2008 9,648.00 9,831.46 9,610.79
1/31/2009 9,740.00 10,012.01 9,706.41
2/28/2009 9,797.00 9,930.90 9,730.90
3/31/2009 9,934.00 9,959.07 9,722.91
4/30/2009 10,086.00 10,183.28 9,846.16
5/31/2009 10,331.00 10,389.60 10,016.47
6/30/2009 10,450.00 10,505.27 10,093.33
7/31/2009 10,643.00 10,642.65 10,225.98
8/31/2009 10,770.00 10,749.71 10,346.88
9/30/2009 10,886.00 10,829.25 10,438.05
10/31/2009 10,973.00 10,896.70 10,554.05
11/30/2009 11,066.00 10,990.91 10,580.81
12/31/2009 11,034.00 10,970.94 10,596.84
1/31/2010 11,166.00 11,070.79 10,703.93
2/28/2010 11,202.00 11,101.78 10,729.63
3/31/2010 11,224.00 11,132.27 10,763.05
4/30/2010 11,298.00 11,180.24 10,851.55
5/31/2010 11,316.00 11,146.85 10,834.70
6/30/2010 11,385.00 11,207.42 10,898.07
7/31/2010 11,468.00 11,309.50 10,981.21
8/31/2010 11,524.00 11,353.09 11,042.82
9/30/2010 11,568.00 11,412.00 11,080.18
10/31/2010 11,611.00 11,459.81 11,127.61
11/30/2010 11,603.00 11,430.89 11,094.07
12/31/2010 11,585.00 11,426.67 11,078.79
1/31/2011 11,626.00 11,469.01 11,108.19
2/28/2011 11,644.00 11,489.64 11,137.42
3/31/2011 11,649.00 11,492.54 11,140.42
4/30/2011 11,731.00 11,570.76 11,208.51
5/31/2011 11,772.00 11,617.41 11,255.76
6/30/2011 11,778.00 11,614.76 11,239.51
7/31/2011 11,822.00 11,662.81 11,295.65
8/31/2011 11,814.00 11,632.57 11,238.45
9/30/2011 11,807.00 11,585.26 11,220.12
10/31/2011 11,860.00 11,653.95 11,248.94
11/30/2011 11,865.00 11,601.25 11,210.27
12/31/2011 11,896.00 11,626.85 11,249.13
1/31/2012 11,975.00 11,739.96 11,348.55
2/29/2012 12,018.00 11,788.18 11,390.04
3/31/2012 12,034.00 11,809.81 11,409.89
4/30/2012 12,088.00 11,831.76 11,450.34
5/31/2012 12,088.00 11,812.13 11,445.99
6/30/2012 12,129.00 11,843.45 11,475.00
7/31/2012 12,220.00 11,921.58 11,554.01
8/31/2012 12,261.00 11,962.93 11,592.99
9/30/2012 12,311.00 12,004.36 11,640.70
10/31/2012 12,349.00 12,033.03 11,664.96
11/30/2012 12,389.00 12,038.91 11,681.91
12/31/2012 12,401.00 12,055.65 11,694.57
1/31/2013 12,409.00 12,072.39 11,705.23
2/28/2013 12,460.00 12,095.50 11,730.74
3/31/2013 12,484.00 12,106.27 11,742.41
4/30/2013 12,534.00 12,140.00 11,779.44
5/31/2013 12,490.00 12,126.24 11,738.48
6/30/2013 12,389.00 12,084.90 11,651.21
7/31/2013 12,424.00 12,131.71 11,688.18
8/31/2013 12,420.00 12,126.41 11,669.38
9/30/2013 12,480.00 12,171.98 11,720.53
10/31/2013 12,528.00 12,213.49 11,766.68
11/30/2013 12,565.00 12,242.91 11,789.38
12/31/2013 12,545.00 12,230.56 11,774.33
1/31/2014 12,622.00 12,264.04 11,814.56
2/28/2014 12,657.00 12,293.20 11,847.04
3/31/2014 12,648.00 12,288.15 11,834.55
4/30/2014 12,696.00 12,316.16 11,867.25
5/31/2014 12,729.00 12,351.70 11,902.63
6/30/2014 12,748.00 12,346.40 11,910.06
7/31/2014 12,739.00 12,343.50 11,893.88
8/31/2014 12,772.00 12,369.43 11,910.47
9/30/2014 12,749.00 12,352.20 11,897.70
10/31/2014 12,782.00 12,385.84 11,920.13
11/30/2014 12,786.00 12,404.24 11,931.78
12/31/2014 12,756.00 12,366.95 11,891.35
1/31/2015 12,817.00 12,431.25 11,941.54
2/28/2015 12,822.00 12,428.26 11,950.75
3/31/2015 12,854.00 12,453.95 11,975.12
4/30/2015 12,858.00 12,475.49 11,992.03
5/31/2015 12,878.00 12,488.17 12,002.33
6/30/2015 12,855.00 12,468.20 11,983.67
7/31/2015 12,860.00 12,476.16 11,990.48
8/31/2015 12,836.00 12,460.58 11,970.29
9/30/2015 12,855.00 12,498.11 11,978.83
10/31/2015 12,846.00 12,509.96 11,992.14
11/30/2015 12,836.00 12,497.62 11,978.67
12/31/2015 12,786.00 12,472.51 11,944.03
1/31/2016 12,804.00 12,513.44 11,970.56
2/29/2016 12,810.00 12,520.16 11,970.58
3/31/2016 12,930.00 12,614.78 12,048.74
4/30/2016 13,010.00 12,658.53 12,096.10
5/31/2016 13,031.00 12,656.87 12,101.74
6/30/2016 13,110.00 12,737.66 12,167.77
7/31/2016 13,173.00 12,758.21 12,197.52
8/31/2016 13,195.00 12,757.55 12,205.23
9/30/2016 13,232.00 12,770.14 12,225.86
10/31/2016 13,224.00 12,772.88 12,228.14
11/30/2016 13,146.00 12,719.27 12,180.54
12/31/2016 13,169.00 12,735.67 12,193.72
1/31/2017 13,218.00 12,771.30 12,224.40
[END CHART]
Data from 7/31/08 through 1/31/17.*
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).
*The performance of the Bloomberg Barclays 1-3 Year Credit Index and the Lipper
Short Investment Grade Debt 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 Short Investment Grade Debt 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 INVESTMENT
BOND FUND GRADE DEBT FUNDS
INSTITUTIONAL SHARES INDEX 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
1/31/2017 1.97 1.55
[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 1/31/17.
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)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $16.4 Million $12.7 Million
Net Asset Value Per Share $9.15 $9.20
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
0.28% 2.86% 1.64% 1.82%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.73% 1.70% 1.79%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/17 EXPENSE RATIO AS OF 7/31/16***
--------------------------------------------------------------------------------
1.66% 0.86%
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA SHORT-TERM LIPPER SHORT INVESTMENT
1-3 YEAR CREDIT BOND FUND ADVISER GRADE DEBT FUNDS
INDEX SHARES INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,038.54 10,044.00 10,056.10
9/30/2010 10,090.63 10,078.00 10,090.12
10/31/2010 10,132.90 10,122.00 10,133.32
11/30/2010 10,107.33 10,100.00 10,102.77
12/31/2010 10,103.60 10,079.00 10,088.86
1/31/2011 10,141.03 10,121.00 10,115.63
2/28/2011 10,159.28 10,122.00 10,142.25
3/31/2011 10,161.84 10,133.00 10,144.98
4/30/2011 10,231.00 10,189.00 10,206.99
5/31/2011 10,272.25 10,231.00 10,250.01
6/30/2011 10,269.91 10,221.00 10,235.21
7/31/2011 10,312.40 10,255.00 10,286.34
8/31/2011 10,285.66 10,244.00 10,234.25
9/30/2011 10,243.83 10,235.00 10,217.56
10/31/2011 10,304.56 10,277.00 10,243.80
11/30/2011 10,257.97 10,277.00 10,208.59
12/31/2011 10,280.60 10,301.00 10,243.98
1/31/2012 10,380.61 10,366.00 10,334.51
2/29/2012 10,423.25 10,399.00 10,372.29
3/31/2012 10,442.37 10,410.00 10,390.37
4/30/2012 10,461.79 10,453.00 10,427.21
5/31/2012 10,444.42 10,449.00 10,423.25
6/30/2012 10,472.12 10,481.00 10,449.67
7/31/2012 10,541.21 10,557.00 10,521.62
8/31/2012 10,577.77 10,588.00 10,557.11
9/30/2012 10,614.40 10,627.00 10,600.56
10/31/2012 10,639.75 10,656.00 10,622.65
11/30/2012 10,644.95 10,687.00 10,638.09
12/31/2012 10,659.75 10,693.00 10,649.62
1/31/2013 10,674.55 10,696.00 10,659.32
2/28/2013 10,694.99 10,737.00 10,682.55
3/31/2013 10,704.52 10,753.00 10,693.18
4/30/2013 10,734.33 10,805.00 10,726.90
5/31/2013 10,722.17 10,751.00 10,689.60
6/30/2013 10,685.61 10,661.00 10,610.13
7/31/2013 10,727.01 10,699.00 10,643.80
8/31/2013 10,722.32 10,680.00 10,626.67
9/30/2013 10,762.61 10,728.00 10,673.26
10/31/2013 10,799.32 10,778.00 10,715.28
11/30/2013 10,825.33 10,794.00 10,735.95
12/31/2013 10,814.41 10,773.00 10,722.25
1/31/2014 10,844.01 10,835.00 10,758.88
2/28/2014 10,869.80 10,862.00 10,788.46
3/31/2014 10,865.33 10,853.00 10,777.09
4/30/2014 10,890.10 10,893.00 10,806.86
5/31/2014 10,921.53 10,931.00 10,839.08
6/30/2014 10,916.84 10,932.00 10,845.85
7/31/2014 10,914.27 10,920.00 10,831.12
8/31/2014 10,937.20 10,945.00 10,846.22
9/30/2014 10,921.97 10,922.00 10,834.59
10/31/2014 10,951.71 10,947.00 10,855.02
11/30/2014 10,967.98 10,959.00 10,865.63
12/31/2014 10,935.01 10,930.00 10,828.81
1/31/2015 10,991.86 10,967.00 10,874.52
2/28/2015 10,989.22 10,969.00 10,882.90
3/31/2015 11,011.93 10,993.00 10,905.10
4/30/2015 11,030.98 10,995.00 10,920.50
5/31/2015 11,042.19 11,008.00 10,929.87
6/30/2015 11,024.54 10,986.00 10,912.88
7/31/2015 11,031.57 10,986.00 10,919.08
8/31/2015 11,017.80 10,962.00 10,900.69
9/30/2015 11,050.99 10,974.00 10,908.47
10/31/2015 11,061.46 10,976.00 10,920.59
11/30/2015 11,050.55 10,953.00 10,908.33
12/31/2015 11,028.35 10,907.00 10,876.78
1/31/2016 11,064.54 10,932.00 10,900.95
2/29/2016 11,070.47 10,933.00 10,900.97
3/31/2016 11,154.14 11,032.00 10,972.14
4/30/2016 11,192.83 11,084.00 11,015.26
5/31/2016 11,191.36 11,099.00 11,020.40
6/30/2016 11,262.79 11,175.00 11,080.54
7/31/2016 11,280.96 11,213.00 11,107.63
8/31/2016 11,280.38 11,228.00 11,114.64
9/30/2016 11,291.51 11,256.00 11,133.43
10/31/2016 11,293.93 11,258.00 11,135.51
11/30/2016 11,246.53 11,176.00 11,092.16
12/31/2016 11,261.04 11,205.00 11,104.17
1/31/2017 11,292.54 11,244.00 11,132.11
[END CHART]
Data from 7/31/10 through 1/31/17.*
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).
*The performance of the Bloomberg Barclays 1-3 Year Credit Index and the Lipper
Short Investment Grade Debt 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 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 INVESTMENT
BOND FUND ADVISER GRADE DEBT FUNDS
SHARES INDEX 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
1/31/2017 1.61 1.55
[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 1/31/17.
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
================================================================================
USAA SHORT-TERM BOND FUND R6 SHARES* (R6 SHARES)
(Ticker Symbol: URSBX)
-------------------------------------------------------------------------------
1/31/17
-------------------------------------------------------------------------------
Net Assets $5.0 Million
Net Asset Value Per Share $9.15
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/17
-------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
0.68%
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/16
-------------------------------------------------------------------------------
SINCE INCEPTION 12/01/2016**
0.29%
-------------------------------------------------------------------------------
30-DAY SEC YIELDS*** AS OF 1/31/17
-------------------------------------------------------------------------------
UNSUBSIDIZED 2.03% SUBSIDIZED 2.11%
-------------------------------------------------------------------------------
EXPENSE RATIOS****
-------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.47% AFTER REIMBURSEMENT 0.39%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*The R6 Shares commenced operations on December 1, 2016.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***Calculated as prescribed by the Securities and Exchange Commission.
****The expense ratios are reported in the Fund's prospectus dated December 1,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through November 30, 2017, to
make payments or waive management, administration, and other fees so that the
total annual operating expenses of the R6 Shares (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.39% of the R6 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
November 30, 2017. If the total annual operating expense ratio of the R6 Shares
is lower than 0.39%, the R6 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
18 | USAA SHORT-TERM BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA SHORT TERM BLOOMBERG BARCLAYS LIPPER SHORT
BOND FUND 1-3 YEAR CREDIT INVESTMENT GRADE
R6 SHARES INDEX DEBT FUNDS INDEX
12/1/2016 $10,000.00 $10,000.00 $10,000.00
12/31/2016 10,029.00 10,012.90 10,010.82
1/31/2017 10,068.00 10,040.91 10,036.01
[END CHART]
Data from 11/30/16 through 1/31/17.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Short-Term Bond Fund R6 Shares to the Fund's benchmarks listed above (see
page 10 for benchmark definitions).
*The performance of the Bloomberg Barclays 1-3 Year Credit Index and the Lipper
Short Investment Grade Debt Funds Index is calculated from the end of the month,
November 30, 2016, while the inception date of the R6 Shares is December 1,
2016. 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.
================================================================================
INVESTMENT OVERVIEW | 19
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 19.7%
AA 9.1%
A 25.4%
BBB 39.6%
BELOW INVESTMENT-GRADE 5.4%
UNRATED 0.8%
[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 22-44.
================================================================================
20 | USAA SHORT-TERM BOND FUND
================================================================================
o ASSET ALLOCATION - 1/31/17 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 49.3%
EURODOLLAR AND YANKEE OBLIGATIONS 16.1%
ASSET-BACKED SECURITIES 8.2%
U.S. TREASURY SECURITIES 7.4%
MUNICIPAL BONDS 6.5%
MONEY MARKET INSTRUMENTS 4.6%
COMMERCIAL MORTGAGE SECURITIES 3.7%
COLLATERALIZED LOAN OBLIGATIONS 2.2%
U.S. GOVERNMENT AGENCY ISSUES 2.0%
FOREIGN GOVERNMENT OBLIGATIONS 0.2%
PREFERRED STOCKS 0.1%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 21
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
BONDS (95.7%)
CORPORATE OBLIGATIONS (49.3%)
CONSUMER DISCRETIONARY (3.0%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.5%)
$ 10,000 Ford Motor Credit Co., LLC 1.68% 9/08/2017 $ 10,007
5,000 Ford Motor Credit Co., LLC 2.38 1/16/2018 5,026
----------
15,033
----------
CABLE & SATELLITE (1.1%)
18,000 Charter Communications Operating, LLC &
Charter Communications Operating Capital Corp. 3.58 7/23/2020 18,455
15,000 NBCUniversal Enterprise(a) 1.71(b) 4/15/2018 15,104
----------
33,559
----------
CASINOS & GAMING (0.3%)
9,749 Las Vegas Sands Corp.(c) 3.04 12/19/2020 9,806
----------
HOUSEHOLD APPLIANCES (0.2%)
7,000 Whirlpool Corp. 1.35 3/01/2017 7,002
----------
INTERNET RETAIL (0.1%)
3,000 QVC, Inc. 3.13 4/01/2019 3,049
----------
MOVIES & ENTERTAINMENT (0.1%)
4,764 Regal Cinemas Corp.(c) 3.28 4/01/2022 4,809
----------
RESTAURANTS (0.3%)
9,074 ARAMARK Services, Inc.(c) 3.36 9/07/2019 9,171
----------
SPECIALTY STORES (0.4%)
1,965 Petsmart, Inc.(c) 4.00 3/11/2022 1,950
10,000 Staples, Inc. 2.75 1/12/2018 10,067
----------
12,017
----------
Total Consumer Discretionary 94,446
----------
CONSUMER STAPLES (3.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
5,000 Cargill, Inc.(a) 1.90 3/01/2017 5,004
----------
BREWERS (0.1%)
5,000 Molson Coors Brewing Co. 2.10 7/15/2021 4,882
----------
================================================================================
22 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
DRUG RETAIL (0.8%)
$ 5,000 CVS Health Corp. 2.13% 6/01/2021 $ 4,899
7,000 Walgreens Boots Alliance, Inc. 1.75 11/17/2017 7,016
8,000 Walgreens Boots Alliance, Inc. 2.70 11/18/2019 8,115
5,000 Walgreens Boots Alliance, Inc. 2.60 6/01/2021 4,993
----------
25,023
----------
HOUSEHOLD PRODUCTS (0.3%)
10,000 Church & Dwight Co., Inc. 2.45 12/15/2019 10,077
----------
PACKAGED FOODS & MEAT (1.7%)
3,000 JBS USA, LLC(c),(d) 3.25 10/30/2022 3,012
7,000 JM Smucker Co. 1.75 3/15/2018 7,014
5,000 JM Smucker Co. 2.50 3/15/2020 5,048
5,000 Kraft Heinz Food Co. 2.25 6/05/2017 5,018
15,000 Kraft Heinz Food Co. 2.00 7/02/2018 15,030
10,000 Kraft Heinz Food Co.(a) 4.88 2/15/2025 10,710
5,000 Mead Johnson Nutrition Co. 3.00 11/15/2020 5,062
2,605 Tyson Foods, Inc. 4.50 6/15/2022 2,775
----------
53,669
----------
TOBACCO (0.3%)
10,000 Reynolds American, Inc. 2.30 6/12/2018 10,064
----------
Total Consumer Staples 108,719
----------
ENERGY (7.4%)
-------------
INTEGRATED OIL & GAS (0.5%)
15,000 ConocoPhillips Co. 1.50 5/15/2018 14,955
----------
OIL & GAS DRILLING (0.3%)
4,000 Noble Holding International Ltd. 2.50 3/15/2017 4,015
5,000 Noble Holding International Ltd. 5.25 3/16/2018 5,050
----------
9,065
----------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
20,000 Schlumberger Holdings Corp.(a) 1.90 12/21/2017 20,084
3,215 Weatherford Bermuda 5.13 9/15/2020 3,086
----------
23,170
----------
OIL & GAS EXPLORATION & PRODUCTION (1.0%)
15,000 EQT Corp. 6.50 4/01/2018 15,764
3,400 Murphy Oil Corp. 3.50 12/01/2017 3,442
7,000 Southwestern Energy Co. 5.05 1/23/2018 7,166
6,950 Southwestern Energy Co. 5.80 1/23/2020 7,211
----------
33,583
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING (0.3%)
$ 3,180 EnLink Midstream Partners, LP 2.70% 4/01/2019 $ 3,195
5,000 Phillips 66 2.95 5/01/2017 5,022
----------
8,217
----------
OIL & GAS STORAGE & TRANSPORTATION (4.6%)
408 Alliance Pipeline, LP(a) 7.00 12/31/2019 429
5,000 Boardwalk Pipelines, LLC 5.50 2/01/2017 5,000
5,040 Boardwalk Pipelines, LLC 5.75 9/15/2019 5,436
5,000 Columbia Pipeline Group, Inc. 2.45 6/01/2018 5,029
10,000 Columbia Pipeline Group, Inc. 3.30 6/01/2020 10,201
5,000 DCP Midstream, LLC(a) 5.35 3/15/2020 5,275
5,000 DCP Midstream, LLC(a) 4.75 9/30/2021 5,125
9,306 Enable Oklahoma Intrastate Transmission, LLC(a) 6.25 3/15/2020 9,917
2,000 Enbridge Energy Partners, LP 9.88 3/01/2019 2,306
11,400 Enbridge Energy Partners, LP 8.05 10/01/2077 11,115
5,000 Energy Transfer Partners, LP 2.50 6/15/2018 5,036
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,148
5,000 Energy Transfer Partners, LP 4.15 10/01/2020 5,231
12,000 Energy Transfer Partners, LP 3.90(b) 11/01/2066 10,275
7,000 Enterprise Products Operating, LLC 2.55 10/15/2019 7,083
12,000 Enterprise Products Operating, LLC 7.03 1/15/2068 12,539
2,437 Kern River Funding Corp.(a) 4.89 4/30/2018 2,494
5,000 Kinder Morgan, Inc. 2.00 12/01/2017 5,013
4,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 4,140
16,968 NuStar Logistics, LP 8.15 4/15/2018 18,156
5,000 ONEOK Partners, LP 3.80 3/15/2020 5,184
10,000 Plains All American Pipeline, LP 2.60 12/15/2019 10,019
----------
146,151
----------
Total Energy 235,141
----------
FINANCIALS (14.5%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
10,000 FS Investment Corp. 4.00 7/15/2019 10,091
5,000 State Street Corp. 1.35 5/15/2018 4,991
----------
15,082
----------
CONSUMER FINANCE (0.6%)
5,000 Capital One, N.A. 1.50 9/05/2017 4,998
5,000 Discover Bank 3.10 6/04/2020 5,072
10,000 Synchrony Financial 2.60 1/15/2019 10,060
----------
20,130
----------
DIVERSIFIED BANKS (2.5%)
3,000 Bank of America Corp. 2.15 11/09/2020 2,953
10,000 Bank of America Corp. 5.00 5/13/2021 10,858
================================================================================
24 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 5,000 Bank of America Corp. 3.12% 1/20/2023 $ 4,998
7,000 Bank of America, N.A. 6.10 6/15/2017 7,118
10,000 Citigroup, Inc. 1.55 8/14/2017 10,004
5,000 Citigroup, Inc. 1.85 11/24/2017 5,014
15,000 Citizens Bank, N.A. 2.55 5/13/2021 14,949
10,000 Comerica Bank 2.50 6/02/2020 10,025
5,000 JPMorgan Chase & Co. 1.35 2/15/2017 5,001
10,000 Wells Fargo & Co. 3.07 1/24/2023 9,998
----------
80,918
----------
FINANCIAL EXCHANGES & DATA (0.2%)
5,000 S&P Global, Inc. 2.50 8/15/2018 5,049
----------
LIFE & HEALTH INSURANCE (2.4%)
5,000 MetLife Global Funding I(a) 3.65 6/14/2018 5,139
10,000 New York Life Global Funding(a) 1.30 10/30/2017 10,006
20,000 New York Life Global Funding(a) 1.30 4/27/2018 19,952
17,550 Protective Life Corp. 6.40 1/15/2018 18,292
5,000 Reliance Standard Life Global Funding II(a) 2.15 10/15/2018 5,023
16,400 TIAA Asset Management Finance, LLC(a) 2.95 11/01/2019 16,697
----------
75,109
----------
MULTI-LINE INSURANCE (0.3%)
2,545 Glen Meadow Pass-Through Trust(a) 6.51(b) 2/12/2067 2,176
9,000 MassMutual Global Funding, LLC(a) 2.10 8/02/2018 9,078
----------
11,254
----------
MULTI-SECTOR HOLDINGS (0.2%)
5,000 Berkshire Hathaway, Inc. 2.20 3/15/2021 5,003
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
3,859 AWAS Finance Luxembourg(c) 3.78 7/16/2018 3,873
2,043 Receipts on Corporate Securities Trust 6.50 8/01/2017 2,072
----------
5,945
----------
PROPERTY & CASUALTY INSURANCE (1.9%)
12,000 Allstate Corp. 6.13(b) 5/15/2067 11,910
22,016 Chubb Corp. 6.38(b) 3/29/2067 21,531
12,420 Oil Insurance Ltd.(a) 3.98(b) -(e) 10,526
15,080 Progressive Corp. 6.70(b) 6/15/2067 14,967
----------
58,934
----------
REGIONAL BANKS (5.4%)
8,000 Allfirst Preferred Capital Trust 2.52(b) 7/15/2029 7,360
13,000 Associated Banc-Corp. 2.75 11/15/2019 13,079
8,000 BB&T Corp. 1.82(b) 6/15/2018 8,060
5,000 Citizens Financial Group, Inc. 5.16 6/29/2023 5,178
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 2,000 City National Bank of Los Angeles 5.38% 7/15/2022 $ 2,222
13,550 Compass Bank 1.85 9/29/2017 13,528
4,000 Compass Bank 6.40 10/01/2017 4,114
5,000 Compass Bank 2.75 9/29/2019 4,980
5,000 Cullen/Frost Bankers, Inc. 1.44(b) 2/15/2017 4,999
3,806 Fifth Third Bancorp 4.50 6/01/2018 3,930
5,000 First Niagara Financial Group, Inc. 6.75 3/19/2020 5,642
15,000 First Republic Bank 2.38 6/17/2019 14,989
8,500 Fulton Financial Corp. 5.75 5/01/2017 8,578
1,900 Hancock Holding Co. 5.88 4/01/2017 1,910
5,000 Huntington National Bank 1.38 4/24/2017 5,002
10,000 MUFG Americas Holdings Corp. 2.25 2/10/2020 9,900
5,000 MUFG Union Bank, N.A. 2.13 6/16/2017 5,017
5,000 MUFG Union Bank, N.A. 2.63 9/26/2018 5,050
9,500 People's United Financial, Inc. 3.65 12/06/2022 9,589
3,112 Regions Bank of Birmingham 7.50 5/15/2018 3,328
10,000 Regions Bank of Birmingham 2.25 9/14/2018 10,039
10,000 Regions Financial Corp. 3.20 2/08/2021 10,184
10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,928
5,000 SunTrust Banks, Inc. 2.90 3/03/2021 5,062
----------
171,668
----------
REINSURANCE (0.0%)
1,250 Alterra USA Holdings Ltd.(a) 7.20 4/14/2017 1,262
----------
THRIFTS & MORTGAGE FINANCE (0.3%)
8,600 Chittenden Corp. 1.59(b) 2/14/2017 8,599
----------
Total Financials 458,953
----------
HEALTH CARE (4.2%)
------------------
BIOTECHNOLOGY (1.0%)
10,000 AbbVie, Inc. 1.80 5/14/2018 10,018
10,000 AbbVie, Inc. 2.30 5/14/2021 9,851
5,000 Amgen, Inc. 2.25 8/19/2023 4,749
8,000 Baxalta, Inc. 2.00 6/22/2018 8,013
----------
32,631
----------
HEALTH CARE EQUIPMENT (0.2%)
5,000 Medtronic, Inc. 2.50 3/15/2020 5,063
----------
HEALTH CARE FACILITIES (0.4%)
10,000 HCA, Inc. 6.50 2/15/2020 10,950
----------
HEALTH CARE SERVICES (0.6%)
4,868 Express Scripts Holding Co.(c) 2.03 4/28/2020 4,850
5,000 Express Scripts Holding Co. 3.00 7/15/2023 4,822
================================================================================
26 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 10,200 Laboratory Corp. of America Holdings 3.20% 2/01/2022 $ 10,326
----------
19,998
----------
PHARMACEUTICALS (2.0%)
5,000 Actavis Funding SCS 2.35 3/12/2018 5,033
5,000 Actavis Funding SCS 3.00 3/12/2020 5,082
10,000 Mallinckrodt International Finance S.A. 3.50 4/15/2018 10,000
7,000 Mylan NV 3.00 12/15/2018 7,059
5,000 Mylan NV 2.50 6/07/2019 4,980
5,000 Shire Acquisitions Investments Ireland
Designated Activity Co. 1.90 9/23/2019 4,944
5,755 Valeant Pharmaceuticals International, Inc.(c) 5.02 2/13/2019 5,768
822 Valeant Pharmaceuticals International, Inc.(c) 5.27 12/11/2019 825
11,278 Zoetis, Inc. 1.88 2/01/2018 11,295
8,135 Zoetis, Inc. 3.25 2/01/2023 8,168
----------
63,154
----------
Total Health Care 131,796
----------
INDUSTRIALS (4.7%)
------------------
AEROSPACE & DEFENSE (0.7%)
5,046 Alcoa, Inc. 6.75 7/15/2018 5,380
4,984 Arconic, Inc. 6.15 8/15/2020 5,428
4,000 Arconic, Inc. 5.40 4/15/2021 4,275
3,450 TransDigm, Inc.(c) 3.78 6/09/2023 3,447
5,000 United Technologies Corp. 1.80 6/01/2017 5,012
----------
23,542
----------
AIR FREIGHT & LOGISTICS (0.2%)
5,000 FedEx Corp. 2.30 2/01/2020 5,011
176 FedEx Corp. Pass-Through Trust(a) 2.63 1/15/2018 177
1,351 FedEx Corp. Pass-Through Trust 6.85 7/15/2020 1,401
----------
6,589
----------
AIRLINES (1.4%)
5,750 American Airlines 2014-1 Class B Pass-Through Trust 4.38 4/01/2024 5,757
4,703 American Airlines 2015-2 Class B Pass-Through Trust 4.40 3/22/2025 4,765
4,850 American Airlines, Inc.(c) 3.27 12/14/2023 4,878
1,500 Continental Airlines 1998-1 Class A Pass-Through Trust 6.65 3/15/2019 1,512
10,194 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 10,602
4,087 United Airlines, Inc. Pass-Through Trust 5.38 2/15/2023 4,246
1,420 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 1,443
3,030 US Airways Group, Inc. Pass-Through Trust 8.50 10/22/2018 3,079
798 US Airways Group, Inc. Pass-Through Trust (INS) 7.08 9/20/2022 857
6,123 US Airways Group, Inc. Pass-Through Trust 5.38 5/15/2023 6,329
----------
43,468
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
$ 9,750 Terex Corp.(c) 3.75% 8/13/2021 $ 9,735
----------
INDUSTRIAL MACHINERY (0.4%)
3,000 CNH Industrial Capital, LLC 3.63 4/15/2018 3,060
4,583 CNH Industrial Capital, LLC 3.38 7/15/2019 4,652
5,000 Fortive Corp.(a) 1.80 6/15/2019 4,972
----------
12,684
----------
TRADING COMPANIES & DISTRIBUTORS (0.7%)
5,000 Air Lease Corp. 2.13 1/15/2020 4,942
2,554 International Lease Finance Corp. 3.88 4/15/2018 2,599
13,000 International Lease Finance Corp.(a) 7.13 9/01/2018 14,016
----------
21,557
----------
TRUCKING (1.0%)
5,000 ERAC USA Finance, LLC(a) 2.75 3/15/2017 5,010
3,000 ERAC USA Finance, LLC(a) 6.38 10/15/2017 3,099
4,970 Penske Truck Leasing Co., LP / PTL Finance Corp.(a) 3.38 3/15/2018 5,055
14,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(a) 2.88 7/17/2018 14,172
5,000 Ryder System, Inc. 2.25 9/01/2021 4,900
----------
32,236
----------
Total Industrials 149,811
----------
INFORMATION TECHNOLOGY (2.5%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.2%)
5,000 Harris Corp. 2.70 4/27/2020 5,000
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
10,000 Total System Services, Inc. 2.38 6/01/2018 10,055
----------
ELECTRONIC COMPONENTS (0.2%)
5,000 Amphenol Corp. 2.55 1/30/2019 5,064
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.2%)
5,000 FLIR Systems, Inc. 3.13 6/15/2021 5,027
----------
ELECTRONIC MANUFACTURING SERVICES (0.5%)
16,892 Molex Electronics Technologies, LLC(a) 2.88 4/15/2020 16,989
----------
SEMICONDUCTORS (0.3%)
10,000 Broadcom Corp. & Broadcom Cayman Finance Ltd.(a) 2.38 1/15/2020 9,987
----------
SYSTEMS SOFTWARE (0.1%)
5,000 Oracle Corp. 2.40 9/15/2023 4,833
----------
TECHNOLOGY DISTRIBUTORS (0.2%)
5,000 Tech Data Corp. 3.75 9/21/2017 5,068
----------
================================================================================
28 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.5%)
$ 8,491 Dell International, LLC(c) 2.78% 12/31/2018 $ 8,511
5,000 Diamond 1 Finance Corp & Diamond 2 Finance Corp.(a) 3.48 6/01/2019 5,106
3,000 Xerox Corp. 2.95 3/15/2017 3,006
----------
16,623
----------
Total Information Technology 78,646
----------
MATERIALS (1.0%)
----------------
CONSTRUCTION MATERIALS (0.3%)
10,000 Martin Marietta Materials, Inc. 2.10(b) 6/30/2017 10,024
----------
DIVERSIFIED CHEMICALS (0.6%)
12,550 CF Industries, Inc. 6.88 5/01/2018 13,256
5,000 CF Industries, Inc.(a) 3.40 12/01/2021 4,988
----------
18,244
----------
DIVERSIFIED METALS & MINING (0.1%)
3,000 Freeport-McMoRan, Inc. 2.30 11/14/2017 3,011
2,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 1,995
----------
5,006
----------
Total Materials 33,274
----------
REAL ESTATE (2.2%)
------------------
REITs - DIVERSIFIED (0.1%)
4,167 ARC Properties Operating Partnership, LP(c) 2.62 6/30/2018 4,099
----------
REITs - HEALTH CARE (0.3%)
2,950 Nationwide Health Properties, Inc. 6.90 10/01/2037 3,477
3,000 Ventas Realty, LP 4.00 4/30/2019 3,114
2,505 Welltower, Inc. 4.13 4/01/2019 2,598
----------
9,189
----------
REITs - INDUSTRIAL (0.2%)
7,300 First Industrial, LP 5.95 5/15/2017 7,387
----------
REITs - OFFICE (0.5%)
9,000 Boston Properties, LP(f) 3.70 11/15/2018 9,255
7,000 Mack-Cali Realty, LP 2.50 12/15/2017 7,021
----------
16,276
----------
REITs - RESIDENTIAL (0.3%)
8,425 Essex Portfolio, LP 5.50 3/15/2017 8,467
----------
REITs - RETAIL (0.4%)
11,355 Realty Income Corp. 2.00 1/31/2018 11,398
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
REITs - SPECIALIZED (0.4%)
$ 10,000 American Tower Corp. 3.40% 2/15/2019 $ 10,252
3,940 Communications Sales & Leasing, Inc.(c) 4.50 10/24/2022 3,995
----------
14,247
----------
Total Real Estate 71,063
----------
TELECOMMUNICATION SERVICES (1.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.5%)
25,000 AT&T, Inc. 2.45 6/30/2020 24,827
10,000 AT&T, Inc.(d) 3.20 3/01/2022 9,992
5,000 Centel Capital Corp. 9.00 10/15/2019 5,700
3,600 CenturyLink, Inc. 6.45 6/15/2021 3,843
2,500 Frontier Communications Corp. 8.88 9/15/2020 2,672
----------
47,034
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
4,770 Grain Spectrum Funding, LLC(a) 4.00 10/10/2018 4,730
3,000 Sprint Spectrum Co. LLC/Sprint Spectrum
Co. II, LLC/Sprint Spectrum Co.(a) 3.36 3/20/2023 3,011
----------
7,741
----------
Total Telecommunication Services 54,775
----------
UTILITIES (4.7%)
----------------
ELECTRIC UTILITIES (3.3%)
8,000 Duke Energy Corp. 2.10 6/15/2018 8,036
10,000 Eversource Energy 1.60 1/15/2018 9,991
15,000 Exelon Corp. 1.55 6/09/2017 15,000
7,000 FirstEnergy Corp. 2.75 3/15/2018 7,055
12,000 IPALCO Enterprises, Inc.(f) 5.00 5/01/2018 12,420
7,000 IPALCO Enterprises, Inc. 3.45 7/15/2020 7,175
10,000 NextEra Energy Capital Holding, Inc. 1.59 6/01/2017 10,010
10,000 NextEra Energy Capital Holding, Inc. 2.06 9/01/2017 10,039
5,000 Southern Co. 1.85 7/01/2019 4,987
10,000 Southern Co. Gas Capital Corp. 2.45 10/01/2023 9,621
284 Tri-State Generation & Transmission
Association Pass-Through Trust(a) 6.04 1/31/2018 293
10,000 Xcel Energy, Inc. 1.20 6/01/2017 9,992
----------
104,619
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.6%)
7,975 Exelon Generation Co., LLC 4.00 10/01/2020 8,307
10,000 Southern Power Co. 2.38 6/01/2020 10,000
----------
18,307
----------
================================================================================
30 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (0.8%)
$ 10,000 Black Hills Corp. 2.50% 1/11/2019 $ 10,078
6,000 Dominion Resources, Inc. 2.96 7/01/2019 6,084
10,000 Sempra Energy 2.40 3/15/2020 10,005
----------
26,167
----------
Total Utilities 149,093
----------
Total Corporate Obligations (cost: $1,558,526) 1,565,717
----------
EURODOLLAR AND YANKEE OBLIGATIONS (16.1%)
CONSUMER DISCRETIONARY (0.9%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.9%)
5,000 Daimler Finance, N.A., LLC(a) 1.88 1/11/2018 5,014
2,000 Hyundai Capital America(a) 1.45 2/06/2017 2,000
7,800 Hyundai Capital Services, Inc.(a) 1.79(b) 3/18/2017 7,808
13,235 Nissan Motor Acceptance Corp.(a) 1.49(b) 3/03/2017 13,241
----------
28,063
----------
Total Consumer Discretionary 28,063
----------
CONSUMER STAPLES (2.1%)
-----------------------
BREWERS (0.6%)
9,530 Anheuser-Busch InBev Worldwide, Inc. 2.20 8/01/2018 9,603
10,000 Anheuser-Busch InBev Worldwide, Inc. 3.75 1/15/2022 10,481
----------
20,084
----------
PACKAGED FOODS & MEAT (0.8%)
10,465 Grupo Bimbo SAB de CV(a) 4.50 1/25/2022 10,959
3,000 Mondelez International Holdings Netherlands B.V.(a) 1.63 10/28/2019 2,957
10,000 Smithfield Foods, Inc.(a),(d) 2.70 1/31/2020 10,049
----------
23,965
----------
TOBACCO (0.7%)
5,000 B.A.T. International Finance plc(a) 2.13 6/07/2017 5,011
7,000 Imperial Tobacco Finance plc(a) 2.05 7/20/2018 7,004
10,000 Imperial Tobacco Finance plc(a) 2.95 7/21/2020 10,107
----------
22,122
----------
Total Consumer Staples 66,171
----------
ENERGY (1.8%)
-------------
INTEGRATED OIL & GAS (1.4%)
8,000 BP Capital Markets plc 1.63 8/17/2017 8,007
12,820 Origin Energy Finance Ltd.(a) 3.50 10/09/2018 13,042
2,000 Petroleos Mexicanos Co. 3.50 7/18/2018 2,024
6,000 Petroleos Mexicanos Co.(a) 5.38 3/13/2022 6,124
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 15,000 Shell International Finance B.V. 1.13% 8/21/2017 $ 15,000
----------
44,197
----------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
7,500 Enbridge, Inc. 1.38(b) 6/02/2017 7,503
6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 6,016
----------
13,519
----------
Total Energy 57,716
----------
FINANCIALS (6.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
16,756 Brookfield Asset Management, Inc. 5.80 4/25/2017 16,915
----------
DIVERSIFIED BANKS (4.4%)
5,000 ANZ New Zealand International Ltd.(a) 2.60 9/23/2019 5,040
5,000 ANZ New Zealand International Ltd.(a) 2.85 8/06/2020 5,058
4,000 Banco Santander Chile(a) 1.91(b) 4/11/2017 3,996
10,000 Bank of Montreal 1.40 4/10/2018 9,982
7,500 Barclays Bank plc(a) 2.25 5/10/2017 7,527
5,000 BPCE S.A. 1.63 2/10/2017 5,000
2,000 Commonwealth Bank of Australia(a) 2.25 3/16/2017 2,003
5,000 DNB Bank ASA(a) 3.20 4/03/2017 5,017
5,000 Lloyds Bank plc 4.20 3/28/2017 5,024
7,000 National Australia Bank Ltd. 2.75 3/09/2017 7,014
10,010 Royal Bank of Scotland Group plc 9.50(b) 3/16/2022 10,119
10,000 Santander Bank, N.A. 2.00 1/12/2018 10,009
14,350 Santander Bank, N.A. 8.75 5/30/2018 15,507
5,000 Santander UK Group Holdings plc 3.57 1/10/2023 5,025
5,000 Santander UK plc 2.35 9/10/2019 5,020
19,000 Standard Chartered Bank(a) 6.40 9/26/2017 19,520
5,000 Standard Chartered plc(a) 2.25 4/17/2020 4,929
5,000 Svenska Handelsbanken AB 2.88 4/04/2017 5,016
8,000 Toronto-Dominion Bank 1.40 4/30/2018 7,991
----------
138,797
----------
DIVERSIFIED CAPITAL MARKETS (0.3%)
10,000 UBS Group Funding Ltd.(a) 2.95 9/24/2020 10,016
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
7,000 ING Bank N.V.(a) 3.75 3/07/2017 7,017
2,000 ING Capital Funding Trust III 4.60(b) -(e) 1,987
----------
9,004
----------
PROPERTY & CASUALTY INSURANCE (0.9%)
12,000 QBE Insurance Group Ltd.(a) 2.40 5/01/2018 12,055
================================================================================
32 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 17,000 Suncorp-Metway Ltd.(a) 1.70% 3/28/2017 $ 17,015
----------
29,070
----------
Total Financials 203,802
----------
INDUSTRIALS (2.6%)
------------------
AEROSPACE & DEFENSE (0.1%)
3,580 BAE Systems Holdings, Inc.(a) 2.85 12/15/2020 3,627
----------
AIRLINES (1.1%)
10,000 Air Canada Pass-Through Trust(a) 5.00 3/15/2020 9,963
9,199 British Airways Pass-Through Trust plc(a) 5.63 12/20/2021 9,647
9,499 Virgin Australia Trust(a) 5.00 4/23/2025 9,938
5,000 WestJet Airlines Ltd.(a) 3.50 6/16/2021 5,009
----------
34,557
----------
INDUSTRIAL CONGLOMERATES (0.5%)
10,000 CK Hutchison International 16 Ltd.(a) 1.88 10/03/2021 9,625
6,600 Hutchison Whampoa International Ltd.(a) 2.00 11/08/2017 6,616
----------
16,241
----------
MARINE (0.3%)
10,000 A.P. Moeller-Maersk A/S(a) 2.55 9/22/2019 10,013
----------
RAILROADS (0.3%)
10,000 Asciano Finance(a) 5.00 4/07/2018 10,267
----------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
8,000 AerCap Ireland Capital Ltd. 2.75 5/15/2017 8,030
----------
Total Industrials 82,735
----------
MATERIALS (1.0%)
----------------
CONSTRUCTION MATERIALS (0.2%)
5,000 Holcim US Finance Sarl & Cie SCS(a) 6.00 12/30/2019 5,496
----------
DIVERSIFIED METALS & MINING (0.7%)
5,000 Anglo American Capital plc(a) 2.63 9/27/2017 5,009
3,000 Anglo American Capital plc(a) 3.63 5/14/2020 3,037
14,000 Glencore Finance Canada Ltd.(a) 2.95 10/25/2017 14,108
----------
22,154
----------
STEEL (0.1%)
4,500 ArcelorMittal 5.13 6/01/2020 4,759
----------
Total Materials 32,409
----------
REAL ESTATE (0.4%)
------------------
REITs - RETAIL (0.4%)
5,000 Scentre Group Trust(a) 2.38 4/28/2021 4,929
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 7,000 WEA Finance, LLC(a) 1.75% 9/15/2017 $ 7,008
----------
11,937
----------
Total Real Estate 11,937
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
5,000 Deutsche Telekom International Finance BV(a) 2.23 1/17/2020 5,008
5,000 Deutsche Telekom International Finance BV(a) 2.82 1/19/2022 4,974
----------
9,982
----------
Total Telecommunication Services 9,982
----------
UTILITIES (0.6%)
----------------
ELECTRIC UTILITIES (0.3%)
5,000 Emera US Finance, LP 2.15 6/15/2019 4,999
5,000 Emera US Finance, LP 2.70 6/15/2021 4,966
----------
9,965
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
10,000 TransAlta Corp. 1.90 6/03/2017 10,025
----------
Total Utilities 19,990
----------
Total Eurodollar and Yankee Obligations
(cost: $510,432) 512,805
----------
FOREIGN GOVERNMENT OBLIGATIONS (0.2%)
5,000 Province of Ontario (cost: $5,011) 2.45 6/29/2022 4,995
----------
ASSET-BACKED SECURITIES (8.2%)
FINANCIALS (8.2%)
-----------------
ASSET-BACKED FINANCING (8.2%)
1,028 Access Group, Inc. 1.30(b) 4/25/2029 1,021
157 AmeriCredit Automobile Receivables Trust 1.93 8/08/2018 157
758 AmeriCredit Automobile Receivables Trust 1.57 1/08/2019 759
6,000 AmeriCredit Automobile Receivables Trust 2.09 2/08/2019 6,018
5,631 ARL First, LLC(a) 2.52(b) 12/15/2042 5,474
1,328 Avis Budget Rental Car Funding AESOP, LLC(a) 4.72 2/20/2018 1,330
2,000 Avis Budget Rental Car Funding AESOP, LLC(a) 2.96 7/20/2020 1,999
2,855 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 2,839
833 Avis Budget Rental Car Funding, LLC(a) 3.78 2/20/2018 834
12,000 Avis Budget Rental Car Funding, LLC(a) 2.62 9/20/2019 11,968
5,000 Bank of The West Auto Trust(a) 1.65 3/16/2020 5,011
10,000 Bank of The West Auto Trust(a) 1.66 9/15/2020 10,003
4,200 California Republic Auto Receivables Trust 2.30 12/16/2019 4,227
9,425 California Republic Auto Receivables Trust 2.57 11/16/2020 9,450
================================================================================
34 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 4 CenterPoint Energy Transition Bond Co. III, LLC 4.19% 2/01/2020 $ 4
6,713 CIT Education Loan Trust(a) 1.30(b) 6/25/2042 5,927
10,211 CIT Equipment Collateral(a) 1.50 10/21/2019 10,211
6,000 CNH Equipment Trust 1.27 11/16/2020 6,002
5,500 CNH Equipment Trust 2.14 8/15/2022 5,509
2,170 College Loan Corp. Trust 1.51(b) 1/15/2037 1,946
4,673 Collegiate Funding Services Education Loan Trust 1.32(b) 3/28/2035 4,253
1,055 Credit Acceptance Auto Loan Trust(a) 1.55 10/15/2021 1,055
4,000 Credit Acceptance Auto Loan Trust(a) 2.29 4/15/2022 4,009
5,000 Credit Acceptance Auto Loan Trust(a) 2.67 9/15/2022 5,022
1,218 Drive Auto Receivables Trust(a) 2.28 6/17/2019 1,219
1,943 Drive Auto Receivables Trust "B"(a) 2.23 9/16/2019 1,946
3,710 Element Rail Leasing I, LLC(a) 2.30 4/19/2044 3,612
6,418 Enterprise Fleet Financing, LLC(a) 1.59 2/22/2021 6,417
5,000 Enterprise Fleet Financing, LLC(a) 2.13 7/20/2022 5,000
10,000 Enterprise Fleet Financing, LLC(a) 2.60 7/20/2022 9,997
184 Exeter Automobile Receivables Trust(a) 2.42 1/15/2019 184
2,297 First Investors Auto Owner Trust(a) 2.26 3/15/2019 2,297
2,785 First Investors Auto Owner Trust(a) 1.49 6/15/2020 2,784
2,000 Hertz Fleet Lease Funding, LP(a) 2.76(b) 12/10/2027 1,995
10,500 Hertz Vehicle Financing, LLC(a) 2.96 9/25/2019 10,481
3,000 Huntington Auto Trust "C" 2.15 6/15/2021 3,003
3,091 Iowa Student Loan Liquidity Corp. 1.35(b) 9/25/2037 2,763
5,000 Master Credit Card Trust(a) 2.26 7/21/2021 5,000
10,000 MMAF Equipment Finance, LLC(a) 1.93 7/16/2021 10,013
1,414 Nelnet Student Loan Trust 1.28(b) 9/22/2037 1,212
2,245 Prestige Auto Receivables Trust(a) 1.52 4/15/2020 2,246
2,491 Prestige Auto Receivables Trust "B"(a) 1.74 5/15/2019 2,492
1,044 Santander Drive Auto Receivables Trust 1.95 3/15/2019 1,046
83 Santander Drive Auto Receivables Trust 1.45 5/15/2019 83
4,500 Santander Drive Auto Receivables Trust 2.73 10/15/2019 4,547
5,000 Santander Drive Auto Receivables Trust 2.74 12/15/2021 5,041
5,000 SBA Tower Trust(a) 2.90 10/15/2044 5,038
5,577 SLC Student Loan Trust 1.32(b) 7/15/2036 5,498
8,000 SLC Student Loan Trust 1.47(b) 7/15/2036 7,179
975 SLM Student Loan Trust 1.59(b) 10/25/2065 887
5,000 Suntrust Auto Receivables Trust "B"(a) 2.20 2/15/2021 4,991
8,000 Suntrust Auto Receivables Trust "C"(a) 2.50 4/15/2021 8,015
5,000 TCF Auto Receivables Owner Trust(a) 2.55 4/15/2021 5,036
7,500 TCF Auto Receivables Owner Trust "B"(a) 2.49 4/15/2021 7,549
5,000 TCF Auto Receivables Owner Trust "B"(a) 2.92 10/17/2022 4,983
4,283 Trinity Rail Leasing, LP(a) 2.27 1/15/2043 4,121
7,547 Trip Rail Master Funding, LLC(a) 2.86 4/15/2044 7,373
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 902 Westlake Automobile Receivables Trust(a) 2.24% 4/15/2020 $ 904
5,150 Westlake Automobile Receivables Trust(a) 2.45 1/15/2021 5,181
5,000 Wheels SPV, LLC(a) 1.87 5/20/2025 4,994
----------
260,155
----------
Total Financials 260,155
----------
Total Asset-Backed Securities (cost: $261,046) 260,155
----------
COLLATERALIZED LOAN OBLIGATIONS (2.2%)
FINANCIALS (2.2%)
-----------------
1,500 American Money Management Corp.(a) 2.38(b) 10/15/2028 1,512
3,000 Annisa Ltd.(a) 2.58(b) 7/20/2028 3,003
10,347 Babson Ltd.(a) 2.15(b) 5/15/2023 10,360
3,650 Cent, LP (a) 2.34(b) 1/30/2025 3,650
7,500 Dryden Senior Loan Fund(a) 2.52(b) 4/15/2027 7,519
15,000 Marine Park Ltd.(a) 2.19(b) 5/18/2023 14,995
11,000 Oaktree EIF Ltd.(a) 3.09 10/20/2027 11,027
10,000 Race Point Ltd.(a) 2.48(b) 7/25/2028 10,031
4,000 Teachers Insurance and Annuity Association of America(a) 2.73(b) 7/20/2028 4,012
3,250 Trinitas Ltd. 2.74(b) 10/25/2028 3,262
----------
Total Financials 69,371
----------
Total Collateralized Loan Obligations (cost: $69,248) 69,371
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
3,328 Sequoia Mortgage Trust(a) (cost: $3,377) 3.00(b) 5/25/2043 3,278
----------
COMMERCIAL MORTGAGE SECURITIES (3.7%)
FINANCIALS (3.7%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (2.1%)
456 Banc of America Commercial Mortgage, Inc. 5.00 11/10/2042 456
375 Banc of America Commercial Mortgage, Inc. 4.73 7/10/2043 375
10,000 Banc of America Commercial Mortgage, Inc. 6.28 2/10/2051 10,357
10,000 Barclays Commercial Mortgage Securities, LLC(a) 2.37 2/15/2028 9,884
4,300 Commercial Mortgage Trust(a) 2.36 2/13/2032 4,309
3,466 Greenwich Capital Commercial Funding Corp. 5.77 7/10/2038 3,464
3,041 GS Mortgage Securities Corp. II 2.32 5/10/2045 3,043
2,098 GS Mortgage Securities Trust 1.21 7/10/2046 2,098
318 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.12 7/15/2041 317
1,554 J.P. Morgan Chase Commercial Mortgage Securities
Corp.(a) 4.11 7/15/2046 1,597
================================================================================
36 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 11,653 LB Commercial Mortgage Trust 5.92% 7/15/2044 $ 11,766
5,611 Morgan Stanley Capital I, Inc. 5.57 12/15/2044 5,701
1,594 Morgan Stanley Capital I, Inc. 5.27 10/12/2052 1,593
7,676 UBS-Barclays Commercial Mortgage Trust 2.73 8/10/2049 7,826
4,146 Wachovia Bank Commercial Mortgage Trust 5.00 6/15/2049 4,158
----------
66,944
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.6%)
66,321 Commercial Mortgage Trust, acquired
8/09/2012-8/27/2012; cost $8,520(g) 1.00 8/15/2045 4,774
70,039 Commercial Mortgage Trust, acquired
11/06/2012; cost $9,389(g) 1.00 10/15/2045 4,816
26,017 Fannie Mae(+) 3.97 12/25/2017 422
77,688 Fannie Mae(+) 2.10 12/25/2019 2,050
76,408 Fannie Mae(+) 0.75 5/25/2022 2,475
81,011 Fannie Mae (+) 0.61 8/25/2022 2,034
10,044 Freddie Mac(+) 1.00 4/25/2017 18
56,434 Freddie Mac(+) 3.00 1/25/2019 2,147
37,115 Freddie Mac(+) 1.00 5/25/2019 1,187
100,152 Freddie Mac(+) 1.00 7/25/2019 3,260
55,459 Freddie Mac(+) 1.00 11/25/2019 1,616
71,149 Freddie Mac(+) 1.00 8/25/2022 4,119
32,856 GS Mortgage Securities Corp. II, acquired
5/18/2012; cost $5,020(g) 2.37 5/10/2045 2,506
30,264 GS Mortgage Securities Trust, acquired
11/16/2012; cost $4,668(g) 2.28 11/10/2045 2,374
31,260 J.P. Morgan Chase Commercial Mortgage Securities
Corp., acquired 9/28/2012; cost $4,267(g) 2.00 10/15/2045 2,071
33,042 Morgan Stanley-BAML Trust, acquired
10/05/2012; cost $4,293(a),(g) 1.00 11/15/2045 1,919
95,476 UBS Commercial Mortgage Trust, acquired
5/01/2012-11/01/2016; cost $12,021(a),(g) 2.00 5/10/2045 8,407
32,102 UBS-Barclays Commercial Mortgage Trust, acquired
9/14/2012; cost $4,575(a),(g) 2.00 8/10/2049 2,453
33,409 WF Commercial Mortgage Trust, acquired
9/21/2012; cost $4,635(a),(g) 2.00 10/15/2045 2,313
----------
50,961
----------
Total Financials 117,905
----------
Total Commercial Mortgage Securities (cost: $110,112) 117,905
----------
U.S. GOVERNMENT AGENCY ISSUES (2.0%)(h)
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
5,439 Fannie Mae(+) 1.25 9/25/2027 5,250
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.8%)
$ 4,595 Fannie Mae(+) 2.50% 4/01/2027 $ 4,648
13,541 Fannie Mae(+) 2.50 5/01/2027 13,696
6,485 Fannie Mae(+) 2.50 8/01/2027 6,559
8,356 Fannie Mae(+) 2.50 8/01/2027 8,452
211 Fannie Mae(+) 4.50 5/01/2023 224
114 Fannie Mae(+) 4.50 2/01/2024 120
100 Fannie Mae(+) 5.00 12/01/2021 105
254 Fannie Mae(+) 5.00 6/01/2023 272
68 Fannie Mae(+) 5.00 9/01/2023 69
439 Fannie Mae(+) 5.00 2/01/2024 469
275 Fannie Mae(+) 5.50 12/01/2020 287
256 Fannie Mae(+) 5.50 2/01/2023 273
803 Fannie Mae(+) 5.50 6/01/2023 861
207 Fannie Mae(+) 5.50 9/01/2023 224
754 Fannie Mae(+) 5.50 6/01/2024 808
344 Fannie Mae(+) 6.00 10/01/2022 368
764 Fannie Mae(+) 6.00 1/01/2023 831
445 Fannie Mae(+) 6.00 1/01/2023 483
382 Fannie Mae(+) 6.00 7/01/2023 408
1,796 Freddie Mac(+) 1.56 10/25/2018 1,797
5,039 Freddie Mac(+) 1.78 10/25/2020 5,049
8,000 Freddie Mac(+) 2.72 6/25/2022 8,173
1,111 Freddie Mac(+) 2.82(b) 4/01/2035 1,166
163 Freddie Mac(+) 5.00 5/01/2020 168
207 Freddie Mac(+) 5.00 9/01/2020 212
12 Freddie Mac(+) 5.50 11/01/2018 12
345 Freddie Mac(+) 5.50 4/01/2021 365
----------
56,099
----------
OTHER U.S. GOVERNMENT SECURITIES (0.1%)
3,000 Private Export Funding Corp. (NBGA) 1.38 2/15/2017 3,001
----------
Total U.S. Government Agency Issues (cost: $64,109) 64,350
----------
U.S. TREASURY SECURITIES (7.4%)
NOTES (7.4%)
5,000 1.00%, 3/15/2018 5,004
25,000 1.25%, 10/31/2018 25,046
10,000 1.25%, 1/31/2019 10,007
10,000 1.13%, 5/31/2019 9,957
10,000 1.25%, 1/31/2020 9,933
15,000 1.38%, 2/29/2020(f) 14,938
55,000 1.38%, 3/31/2020 54,738
================================================================================
38 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 45,000 1.38%, 9/30/2020 $ 44,546
25,000 1.63%, 11/30/2020 24,924
5,000 1.38%, 1/31/2021 4,928
5,000 1.13%, 2/28/2021 4,873
15,000 1.88%, 11/30/2021 14,979
10,000 1.38%, 6/30/2023 9,516
----------
233,389
----------
Total U.S. Treasury Securities (cost: $234,817) 233,389
----------
MUNICIPAL BONDS (6.5%)
AIRPORT/PORT (0.1%)
2,000 Port of Corpus Christi Auth. of Nueces County 1.24% 12/01/2017 1,996
----------
APPROPRIATED DEBT (0.2%)
2,500 Jacksonville 1.41 10/01/2017 2,501
4,000 Jacksonville 1.70 10/01/2018 4,010
----------
6,511
----------
COMMUNITY SERVICE (0.1%)
1,650 Art Institute of Chicago 2.48 3/01/2019 1,658
----------
EDUCATION (1.7%)
3,045 New Jersey EDA 4.73 6/15/2017 3,062
10,000 New Jersey EDA 4.83 6/15/2017 10,089
10,000 New Jersey EDA 2.42 6/15/2018 10,026
12,500 New Jersey EDA 4.45 6/15/2020 12,699
2,110 New York Dormitory Auth. 2.04 7/01/2018 2,096
1,000 New York Dormitory Auth. 1.98 7/01/2019 992
3,870 New York Dormitory Auth. 2.30 7/01/2019 3,827
1,270 New York Dormitory Auth. 2.24 7/01/2020 1,252
5,125 New York Dormitory Auth. 2.57 7/01/2020 5,017
1,550 New York Dormitory Auth. 2.44 7/01/2021 1,516
1,000 Pennsylvania Public School Building Auth. (INS) 1.97 12/01/2017 1,005
2,640 Pennsylvania Public School Building Auth. (INS) 2.41 12/01/2018 2,670
----------
54,251
----------
ELECTRIC UTILITIES (1.6%)
16,530 Appling County Dev. Auth 2.40 1/01/2038(i) 16,768
5,000 Beaver County IDA 4.75 8/01/2033(i) 5,192
13,310 Beaver County IDA 2.50 12/01/2041(i) 7,454
2,000 Burke County Dev. Auth. 1.38 10/01/2032(i) 2,001
10,000 Missouri Environmental Improvement and
Energy Resources Auth. 2.88 5/01/2038(i) 10,144
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 10,000 South Carolina Public Service Auth. 2.39% 12/01/2023 $ 9,743
----------
51,302
----------
ELECTRIC/GAS UTILITIES (0.2%)
6,265 Long Island Power Auth. 2.36 9/01/2018 6,278
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
3,000 Bucks County IDA 1.50 12/01/2022(i) 3,000
800 Mississippi Business Finance Corp. 1.38 3/01/2027(i) 800
4,000 Pennsylvania Economic Dev. Financing Auth. 0.85 8/01/2045 4,000
----------
7,800
----------
GENERAL OBLIGATION (0.9%)
3,000 City of West Haven 2.70 3/15/2018 2,998
2,403 Glassboro Borough 2.00 1/10/2018 2,409
2,000 Mount Clemens Community School District(d) 2.12 5/01/2019 2,014
3,635 Mount Clemens Community School District(d) 2.46 5/01/2020 3,677
1,500 Oyster Bay 3.25 2/01/2018 1,502
2,260 Oyster Bay(d) 3.50 2/02/2018 2,283
600 Oyster Bay 3.55 2/01/2019 602
1,830 Oyster Bay 3.80 2/01/2020 1,836
3,000 San Bernardino CCD 2.14 8/01/2018 3,021
5,000 Scranton School District(a) 3.13 12/01/2025 4,985
2,000 Scranton School District 4.13 6/15/2034(i) 1,991
----------
27,318
----------
MULTI-UTILITIES (0.2%)
5,000 New York Energy Research and Dev. Auth. 2.38 7/01/2026(i) 5,052
----------
MUNICIPAL FINANCE (0.2%)
856 Kentucky Asset 3.17 4/01/2018 864
5,000 Pennsylvania IDA(a) 2.97 7/01/2021 4,923
----------
5,787
----------
NURSING/CCRC (0.5%)
3,225 ACTS Retirement-Life Communities, Inc. 1.85 11/15/2017 3,203
3,000 ACTS Retirement-Life Communities, Inc. 2.18 11/16/2018 2,971
750 ACTS Retirement-Life Communities, Inc. 2.47 11/16/2019 736
8,500 Public Finance Auth. 2.63 11/01/2019 8,480
----------
15,390
----------
SALES TAX (0.0%)
1,500 Arizona School Facilities Board 1.47 9/01/2017 1,501
----------
SEMICONDUCTORS (0.0%)
1,000 Sandoval County 1.95 6/01/2018 1,003
----------
SPECIAL ASSESSMENT/TAX/FEE (0.5%)
2,195 Channahon 4.00 1/01/2020 2,233
================================================================================
40 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 5,000 New Jersey Transportation Trust Fund Auth. 1.76% 12/15/2018 $ 4,928
10,000 New York MTA (ETM) 1.47 7/01/2018 10,011
----------
17,172
----------
WATER/SEWER UTILITY (0.1%)
665 Chicago Wastewater Transmission 2.59 1/01/2018 665
535 Chicago Wastewater Transmission 3.38 1/01/2019 536
500 Chicago Wastewater Transmission 3.73 1/01/2020 502
2,520 Chicago Wastewater Transmission 4.31 1/01/2021 2,569
----------
4,272
----------
Total Municipal Bonds (cost: $212,518) 207,291
----------
Total Bonds (cost: $3,029,196) 3,039,256
----------
------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (0.1%)
PREFERRED STOCKS (0.1%)
FINANCIALS (0.1%)
-----------------
DIVERSIFIED BANKS (0.1%)
200,000 Citigroup Capital XIII, 7.26% (cost: $5,470) 5,180
----------
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.6%)
COMMERCIAL PAPER (3.2%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.4%)
$ 12,596 Hyundai Capital America(a),(j) 0.98 2/10/2017 12,593
----------
ENERGY (1.3%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
12,000 Canadian Natural Resources Ltd.(a),(j) 1.33 2/07/2017 11,997
----------
OIL & GAS STORAGE & TRANSPORTATION (0.9%)
4,000 Spectra Energy Partners(a),(j) 0.95 2/02/2017 4,000
25,000 Spectra Energy Partners(a),(j) 1.00 2/08/2017 24,995
----------
28,995
----------
Total Energy 40,992
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
INDUSTRIALS (0.2%)
------------------
INDUSTRIAL MACHINERY (0.2%)
$ 3,139 Pentair Finance S.A.(a),(j) 1.45% 2/02/2017 $ 3,139
2,340 Pentair Finance S.A.(a),(j) 1.50 2/13/2017 2,339
----------
5,478
----------
Total Industrials 5,478
----------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
ELECTRONIC COMPONENTS (0.5%)
15,794 Amphenol Corp.(a),(j) 0.90 2/02/2017 15,794
----------
MATERIALS (0.1%)
----------------
DIVERSIFIED CHEMICALS (0.1%)
5,375 EI Dupont De Nemours(a),(j) 0.89 2/03/2017 5,375
----------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.7%)
12,500 PPL Electric Utilities Corp.(a),(j) 0.89 2/01/2017 12,500
9,298 South Carolina Fuel Co.(a),(j) 0.91 2/09/2017 9,296
----------
21,796
----------
Total Utilities 21,796
----------
Total Commercial Paper 102,028
----------
VARIABLE-RATE DEMAND NOTES (1.4%)
INDUSTRIALS (0.1%)
------------------
AIRPORT SERVICES (0.1%)
2,355 Metropolitan Nashville Airport Auth.
(LOC - Regions Bank) 2.12 4/01/2030 2,355
----------
MATERIALS (0.6%)
----------------
FOREST PRODUCTS (0.3%)
9,200 Liberty County IDA 0.87 10/01/2028 9,200
----------
STEEL (0.3%)
10,000 Illinois Finance Auth. (LOC - UniCredit Bank A.G.) 3.50 2/01/2037 10,000
----------
Total Materials 19,200
----------
MUNICIPAL BONDS (0.7%)
----------------------
HOSPITAL (0.7%)
21,840 Chattanooga Health, Educational and Housing
Facilities Board 1.00 5/01/2039 21,840
----------
Total Variable-Rate Demand Notes 43,395
----------
================================================================================
42 | USAA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
417 State Street Institutional Treasury Money Market Fund Premier Class, 0.42%(k) $ -
----------
Total Money Market Instruments (cost: $145,423) 145,423
----------
TOTAL INVESTMENTS (COST: $3,180,089) $3,189,859
==========
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $1,565,717 $- $1,565,717
Eurodollar and Yankee Obligations - 512,805 - 512,805
Foreign Government Obligations - 4,995 - 4,995
Asset-Backed Securities - 260,155 - 260,155
Collateralized Loan Obligations - 69,371 - 69,371
Collateralized Mortgage Obligations - 3,278 - 3,278
Commercial Mortgage Securities - 117,905 - 117,905
U.S. Government Agency Issues - 64,350 - 64,350
U.S. Treasury Securities 233,389 - - 233,389
Municipal Bonds - 207,291 - 207,291
Equity Securities:
Preferred Stocks - 5,180 - 5,180
Money Market Instruments:
Commercial Paper - 102,028 - 102,028
Variable-Rate Demand Notes - 43,395 - 43,395
Government & U.S. Treasury Money
Market Funds - - - -
------------------------------------------------------------------------------------------------------------
Total $233,389 $2,956,470 $- $3,189,859
------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------
COLLATERALIZED LOAN OBLIGATIONS
------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2016 $ 3,000
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (3,000)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2017 $ -
------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------
Collateralized Loan Obligations(I) $- $3,000 $(3,000)
------------------------------------------------------------------------------------------------------------
Total $- $3,000 $(3,000)
------------------------------------------------------------------------------------------------------------
(I)Transferred from Level 3 to Level 2 as a result of the securities being
priced during the period by the Fund's pricing service.
================================================================================
44 | USAA SHORT-TERM BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 18.5% of net assets at January 31,
2017.
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
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 LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations are
securities issued by entities that are collateralized by a pool of loans.
CLOs are issued in multiple classes (tranches), and can be equity or debt
with specific adjustable or fixed interest rates, and varying maturities.
The cash flow from the underlying loans is used to pay off each tranche
separately within the debt, or senior tranches. Equity, or subordinated
tranches, typically are not paid a cash flow but do offer ownership in the
CLO itself in the event of a sale.
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
================================================================================
46 | USAA SHORT-TERM BOND FUND
================================================================================
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 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
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 - 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: Build America Mutual Assurance Co. or MBIA Insurance
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 47
================================================================================
(NBGA) Principal and interest payments are guaranteed by a nonbank
guarantee agreement from the Export-Import Bank of the United
States.
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) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at January
31, 2017.
(c) 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 loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at January 31, 2017. 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.
(d) At January 31, 2017, the aggregate market value of securities purchased
on a delayed-delivery basis was $31,027,000, which included when-issued
securities of $28,015,000.
(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, 2017, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
================================================================================
48 | USAA SHORT-TERM BOND FUND
================================================================================
(g) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2017, was $31,633,000, which represented 1.0% of the Fund's
net assets.
(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) 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.
(j) 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(a)(2) Commercial Paper). Unless this
commercial paper is subsequently registered, a
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 49
================================================================================
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(a)(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.
(k) Rate represents the money market fund annualized seven-day yield at
January 31, 2017.
See accompanying notes to financial statements.
================================================================================
50 | USAA SHORT-TERM BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $3,180,089) $3,189,859
Cash 1,033
Receivables:
Capital shares sold 7,384
USAA Asset Management Company (Note 6C) 3
Interest 20,528
Securities sold 10
----------
Total assets 3,218,817
----------
LIABILITIES
Payables:
Securities purchased 38,840
Capital shares redeemed 3,085
Dividends on capital shares 139
Accrued management fees 768
Accrued transfer agent's fees 67
Other accrued expenses and payables 203
----------
Total liabilities 43,102
----------
Net assets applicable to capital shares outstanding $3,175,715
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,168,112
Accumulated undistributed net investment income 5
Accumulated net realized loss on investments and futures transactions (2,172)
Net unrealized appreciation of investments 9,770
----------
Net assets applicable to capital shares outstanding $3,175,715
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,331,179/145,557 capital
shares outstanding, no par value) $ 9.15
==========
Institutional Shares (net assets of $1,823,118/199,451 capital
shares outstanding, no par value) $ 9.14
==========
Adviser Shares (net assets of $16,402/1,793 capital
shares outstanding, no par value) $ 9.15
==========
R6 Shares (net assets of $5,016/548 capital shares
outstanding, no par value) $ 9.15
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 51
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 185
Interest income 40,446
----------
Total income 40,631
----------
EXPENSES
Management fees 4,674
Administration and servicing fees:
Fund Shares 1,045
Institutional Shares 914
Adviser Shares 11
Transfer agent's fees:
Fund Shares 1,077
Institutional Shares 914
Adviser Shares 3
Distribution and service fees (Note 6E):
Adviser Shares 18
Custody and accounting fees:
Fund Shares 98
Institutional Shares 123
Adviser Shares 1
Postage:
Fund Shares 64
Institutional Shares 74
Shareholder reporting fees:
Fund Shares 26
Institutional Shares 11
Trustees' fees 15
Registration fees:
Fund Shares 30
Institutional Shares 39
Adviser Shares 10
R6 Shares* 4
Professional fees 105
Other 36
----------
Total expenses 9,292
----------
Expenses reimbursed:
R6 Shares* (3)
----------
Net expenses 9,289
----------
NET INVESTMENT INCOME 31,342
----------
================================================================================
52 | USAA SHORT-TERM BOND FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investments $ 1,021
Futures transactions 2
Change in net unrealized appreciation/(depreciation) (20,715)
--------
Net realized and unrealized loss (19,692)
--------
Increase in net assets resulting from operations $ 11,650
========
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 53
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
------------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 31,342 $ 68,179
Net realized gain (loss) on investments 1,021 (2,837)
Net realized gain on long-term capital gain distributions
from other investment companies - 27
Net realized gain on futures transactions 2 -
Change in net unrealized appreciation/(depreciation) of investments (20,715) 11,252
--------------------------
Increase in net assets resulting from operations 11,650 76,621
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (13,078) (27,924)
Institutional Shares (18,127) (39,973)
Adviser Shares (115) (231)
R6 Shares* (17) -
--------------------------
Distributions to shareholders (31,337) (68,128)
--------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (60,054) (425,322)
Institutional Shares (108,453) (302,371)
Adviser Shares 3,723 (611)
R6 Shares* 5,000 -
--------------------------
Total net decrease in net assets from capital share transactions (159,784) (728,304)
--------------------------
Net decrease in net assets (179,471) (719,811)
NET ASSETS
Beginning of period 3,355,186 4,074,997
--------------------------
End of period $3,175,715 $3,355,186
==========================
Accumulated undistributed net investment income:
End of period $ 5 $ -
==========================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
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54 | USAA SHORT-TERM BOND FUND
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NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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 four classes of shares: Short-Term Bond Fund Shares (Fund
Shares), Short-Term Bond Fund Institutional Shares (Institutional Shares),
Short-Term Bond Fund Adviser Shares (Adviser Shares), and effective December 1,
2016, a new share class designated Short-Term Bond Fund R6 Shares (R6 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' 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
insurance companies. Institutional Shares also are available to institutional
investors, which include retirement plans, endowments, foundations, and bank
trusts, as well as other persons or legal entities that the Fund may approve
from time to time, or for purchase by a USAA fund participating in a
fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares
permit investors to purchase shares through financial intermediaries, including
banks, broker-dealers, insurance companies, investment advisers, plan sponsors,
and financial professionals that provide various administrative and distribution
services. The R6 Shares are available for investment by participants in
employer-sponsored retirement plans where a financial intermediary provides
retirement recordkeeping services to plan participants and to endowment funds
and foundations.
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.
================================================================================
56 | USAA SHORT-TERM BOND FUND
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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 yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
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. 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. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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
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 which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
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 settlement 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 settlement 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
================================================================================
58 | USAA SHORT-TERM BOND FUND
================================================================================
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.
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
E. 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, 2017, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $30,905,000; which included
when-issued securities of $27,905,000.
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, 2017, 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
================================================================================
60 | USAA SHORT-TERM BOND FUND
================================================================================
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, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability (including usage of the facility by other funds of the
Trust), 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),
plus 100.0 basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $12,000, which represents 4.4% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 income tax.
At July 31, 2016, the Fund had net capital loss carryforwards of $3,246,000, 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, 2017, 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 basis 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, 2017, were
$367,722,000 and $482,780,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $27,325,000 and $17,555,000, respectively, resulting in net
unrealized appreciation of $9,770,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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
================================================================================
62 | 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, 2017 JULY 31, 2016
------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 16,223 $ 148,737 40,685 $ 370,296
Shares issued from reinvested dividends 1,381 12,665 2,932 26,699
Shares redeemed (24,191) (221,456) (90,746) (822,317)
--------------------------------------------------
Net decrease from capital share transactions (6,587) $ (60,054) (47,129) $(425,322)
==================================================
INSTITUTIONAL SHARES:
Shares sold 26,075 $ 238,763 95,878 $ 868,848
Shares issued from reinvested dividends 1,941 17,788 4,313 39,243
Shares redeemed (39,744) (365,004) (133,581) (1,210,462)
--------------------------------------------------
Net decrease from capital share transactions (11,728) $(108,453) (33,390) $ (302,371)
==================================================
ADVISER SHARES:
Shares sold 717 $ 6,560 680 $ 6,202
Shares issued from reinvested dividends 8 68 16 151
Shares redeemed (317) (2,905) (765) (6,964)
--------------------------------------------------
Net increase (decrease) from capital share transactions 408 $ 3,723 (69) $ (611)
==================================================
R6 SHARES: (COMMENCED ON DECEMBER 1, 2016)
Shares sold 548 $ 5,000 - $ -
Shares issued from reinvested dividends - - - -
Shares redeemed - - - -
--------------------------------------------------
Net increase from capital share transactions 548 $ 5,000 - $ -
==================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
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(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, 2017, 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' performance over the performance
period to that of the Lipper Short Investment Grade Bond Funds Index. The
Lipper Short Investment Grade Bond Funds Index tracks the total return
performance of funds within 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 performance period for the R6 Shares
commenced on December 1, 2016, and includes the performance of the Fund
Shares for the periods prior to December 1, 2016. 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.
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64 | USAA SHORT-TERM BOND FUND
================================================================================
Each class' 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.
For the six-month period ended January 31, 2017 (and for the period from
December 1, 2016, to January 31, 2017, for the R6 Shares), the Fund incurred
total management fees, paid or payable to the Manager, of $4,674,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and R6 Shares of $330,000, $460,000, and less than $500, respectively. For
the Fund Shares, Institutional Shares, and R6 Shares, the performance
adjustments were 0.05%, 0.05%, and less than 0.01%, respectively. For the
six-month period ended January 31, 2017, the Adviser Shares did not incur
any performance adjustment.
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, 0.10%
of average net assets of the Institutional Shares, and 0.05% of average net
assets of the R6 Shares. For the six-month period ended January 31, 2017
(and for the period from December 1, 2016 to January 31, 2017, for the R6
Shares), the Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $1,045,000, $914,000, $11,000, and less than $500, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
the Manager. For the six-month period ended January 31, 2017, the Fund
reimbursed the Manager $36,000 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 November 30, 2017, to limit
the total annual operating expenses of the R6 Shares to 0.39% of its average
annual net assets, excluding extraordinary expenses and before reductions of
any expenses paid indirectly, and to reimburse the R6 Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through November 30, 2017, without approval of
the Trust's Board of Trustees, and may be changed or terminated by the
Manager at any time after that date. For the period from December 1, 2016,
to January 31, 2017, the R6 Shares incurred reimbursable expenses of $3,000,
of which all 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 and R6 Shares are paid monthly based
on a fee accrued daily at an annualized rate of 0.10% of the Institutional
Shares' and 0.01% of the R6 Shares' average net assets, plus out-of-pocket
expenses. For the six-month period ended January 31, 2017 (and for the
period from December 1, 2016, to January 31, 2016, for the R6 Shares), the
Fund Shares, Institutional Shares, Adviser Shares, and R6 Shares incurred
transfer agent's fees, paid or payable to SAS, of $1,077,000, $914,000,
$3,000, 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
(IMCO), the distributor, for distribution and shareholder services. IMCO
pays all or a portion of such fees to
================================================================================
66 | USAA SHORT-TERM BOND FUND
================================================================================
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,
2017, the Adviser Shares incurred distribution and service (12b-1) fees of
$18,000.
F. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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, 2017, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.4
Target Retirement Income 2.7
Target Retirement 2020 2.6
Target Retirement 2030 0.8
Target Retirement 2040 0.0*
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,
2017, USAA and its affiliates owned 542,000 Adviser Shares and 548,000 R6
Shares, which represents 30.3% of the Adviser Shares outstanding, and 0.2% of
the Fund's total outstanding shares, and 100.0% of the R6 Shares outstanding,
and 0.2% of the Fund's total outstanding shares.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
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, 2017, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN (LOSS) TO
SELLER PURCHASER PURCHASER SELLER
--------------------------------------------------------------------------------
Real Return Short-Term Bond $2,121,000 $53,000
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
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68 | USAA SHORT-TERM BOND FUND
================================================================================
(10) 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,
-------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.20 $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .16 .15 .17 .20 .25
Net realized and
unrealized gain (loss) (.05) .05 (.08) .04 (.05) .04
-------------------------------------------------------------------------------------
Total from investment
operations .04 .21 .07 .21 .15 .29
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.16) (.15) (.17) (.20) (.25)
Realized capital gains - - (.00)(a) - (.00)(a) -
-------------------------------------------------------------------------------------
Total distributions (.09) (.16) (.15) (.17) (.20) (.25)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.15 $ 9.20 $ 9.15 $ 9.23 $ 9.19 $ 9.24
=====================================================================================
Total return (%)* .40 2.34 .83 2.28 1.61 3.21
Net assets at end
of period (000) $1,331,179 $1,400,054 $1,823,922 $1,683,052 $1,657,261 $2,246,096
Ratios to average
net assets:**
Expenses (%)(b) .63(c) .61 .62 .63 .64 .63
Net investment
income (%) 1.88(c) 1.76 1.65 1.83 2.14 2.73
Portfolio turnover (%) 12 22 31 28 25 36
* 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, 2017, average net assets were
$1,380,693,000.
(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 | 69
================================================================================
(10) 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,
---------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.20 $ 9.15 $ 9.23 $ 9.18 $ 9.24 $ 9.20
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .17 .16 .18 .21 .26
Net realized and
unrealized gain (loss) (.06) .05 (.08) .05 (.06) .04
---------------------------------------------------------------------------------------
Total from investment
operations .03 .22 .08 .23 .15 .30
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.17) (.16) (.18) (.21) (.26)
Realized capital gains - - (.00)(a) - (.00)(a) -
---------------------------------------------------------------------------------------
Total distributions (.09) (.17) (.16) (.18) (.21) (.26)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.14 $ 9.20 $ 9.15 $ 9.23 $ 9.18 $ 9.24
=======================================================================================
Total return (%)* .35 2.44 .95 2.54 1.66 3.37
Net assets at end
of period (000) $1,823,118 $1,942,385 $2,237,771 $1,977,300 $1,697,847 $369,557
Ratios to average
net assets:**
Expenses (%)(b) .53(c) .51 .50 .49 .48 .49
Net investment
income (%) 1.98(c) 1.87 1.76 1.96 2.24 2.82
Portfolio turnover (%) 12 22 31 28 25 36
* 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, 2017, average net assets were
$1,812,850,000.
(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) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
70 | USAA SHORT-TERM BOND FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
----------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.20 $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .14 .13 .15 .17 .23
Net realized and
unrealized gain (loss) (.05) .05 (.08) .04 (.05) .04
--------------------------------------------------------------------------------
Total from investment
operations .03 .19 .05 .19 .12 .27
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.14) (.13) (.15) (.17) (.23)
Realized capital gains - - (.00)(a) - (.00)(a) -
--------------------------------------------------------------------------------
Total distributions (.08) (.14) (.13) (.15) (.17) (.23)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 9.15 $ 9.20 $ 9.15 $ 9.23 $ 9.19 $ 9.24
================================================================================
Total return (%)* .28 2.08 .59 2.07 1.35 2.94
Net assets at end
of period (000) $16,402 $12,747 $13,304 $13,056 $9,872 $6,992
Ratios to average
net assets:**
Expenses (%)(c) .85(d) .86 .85(b) .84 .90 .90
Expenses, excluding
reimbursements (%)(c) .85(d) .86 .85 .84 1.01 1.11
Net investment
income (%) 1.65(d) 1.52 1.41 1.62 1.85 2.46
Portfolio turnover (%) 12 22 31 28 25 36
* 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, 2017, average net assets were
$13,925,000.
(a) Represents less than $0.01 per share.
(b) 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.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JANUARY 31,
------------
2017***
------------
Net asset value at beginning of period $ 9.12
------
Income from investment operations:
Net investment income .03
Net realized and unrealized gain .03
------
Total from investment operations .06
------
Less distributions from:
Net investment income (.03)
------
Net asset value at end of period $ 9.15
======
Total return (%)* .68
Net assets at end of period (000) $5,016
Ratios to average net assets:**
Expenses (%)(a) .39
Expenses, excluding reimbursements (%)(a) .81
Net investment income (%)(a) 2.08
Portfolio turnover (%) 12
* 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, 2017, average net assets were $5,005,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
72 | USAA SHORT-TERM BOND FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017, for Fund Shares, Institutional Shares, and Adviser Shares and
the period of December 1, 2016, through January 31, 2017, for R6 Shares.
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
================================================================================
EXPENSE EXAMPLE | 73
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,004.00 $3.18
Hypothetical
(5% return before expenses) 1,000.00 1,022.03 3.21
INSTITUTIONAL SHARES
Actual 1,000.00 1,003.50 2.68
Hypothetical
(5% return before expenses) 1,000.00 1,022.53 2.70
ADVISER SHARES
Actual 1,000.00 1,002.80 4.29
Hypothetical
(5% return before expenses) 1,000.00 1,020.92 4.33
R6 SHARES**
Actual 1,000.00 1,006.80 0.65
Hypothetical
(5% return before expenses) 1,000.00 1,007.70 0.65
* Expenses are equal to the annualized expense ratio of 0.63% for Fund Shares,
0.53% for Institutional Shares, 0.85% for Adviser Shares, and 0.39% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days for Fund Shares, Institutional Shares, and Adviser Shares (to
reflect the one-half-year period) or 61 days/365 days for R6 Shares (to
reflect the current period beginning with the R6 Shares' inception date).
The Fund's actual ending account values are based on its actual total
returns of 0.40% for Fund Shares, 0.35% for Institutional Shares, and 0.28%
for Adviser Shares, for the six-month period of August 1, 2016, through
January 31, 2017, and 0.68% for R6 Shares for the period of December 1,
2016, through January 31, 2017.
** R6 Shares commenced operations on December 1, 2016.
================================================================================
74 | 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)
=============================================================================
23426-0317 (C)2017, 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, 2017
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate- and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 20
Financial Statements 22
Notes to Financial Statements 25
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)2017, USAA. All rights reserved.
202726-0317
================================================================================
================================================================================
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 tax 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 BRUCE L. GLAZER
JOHN F. AVERILL, CFA ANITA M. KILLIAN, CFA
--------------------------------------------------------------------------------
o PLEASE CHARACTERIZE THE PERFORMANCE OF THE MARKET OVER THE REPORTING PERIOD.
As the reporting period began, uncertainty surrounding Federal Reserve (the
Fed) interest rate increases and the U.S. presidential election drove
volatility in U.S. stocks through August and September 2016. Chair Janet
Yellen's aggressive speech during the Fed's August 2016 meeting stirred
investor expectations for further rate increases. However, the Fed's more
reserved statement in September 2016 appeared to appease investors, and
spurred a brief rally through the second half of the month. As the
presidential election loomed, stock prices decreased through October 2016
despite strong growth figures and an above-average number of positive
earnings news. Global equities rebounded following the unexpected U.S.
presidential election results in November 2016. Equities surged over the
month as investors placed faith in Trump's proposals of fiscal stimulus and
deregulation. Emerging market equities, meanwhile, were hindered by the new
president's protectionist tone. Optimism surrounding Trump's proposals
bolstered the S&P 500(R) to a new record high in December 2016. With that
backdrop, the Fed announced an interest rate increase during the month of
December 2016, and indicated the possibility of pursuing three interest rate
increases during 2017. In January 2017, U.S. and global equities rallied for
the third consecutive month. The Dow Jones Industrial Average managed to top
20,000 for the first time as hopes surrounding the new president's tax
reform, deregulation, and infrastructure plans outweighed investor fears
concerning further Fed tightening and potential changes in tariff and trade
policies.
================================================================================
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, 2017, the Fund Shares and Adviser Shares
had total returns of 5.79% and 5.65%, respectively. This compares to
returns of 5.96% for the S&P 500(R) Index, 10.63% for the S&P North American
Technology Index, -5.10% for the S&P Composite 1500 Health Care Index, and
9.25% 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 during the
reporting period. Sector allocation (a result of Wellington Management's
investment process), particularly positions in professional services and
auto components, drove relative underperformance. Conversely, a strong
position in the electronic equipment and instruments industry and a
significant underweight position in the software and services industry were
beneficial. Security selection partially offset detractors from sector
allocation. Most notably, strong selection within the internet and direct
marketing retail and the communications equipment industry drove relative
outperformance, and offset negative selection within semiconductors and
semiconductor equipment. One of the largest individual detractors for the
period came from the Fund's underweight
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
position in the technology hardware company Apple Inc., which comprises a
significant portion of the benchmark, and posted strong returns.
Overweights to Netflix, Inc. (retail industry) and Seagate Technology plc
(technology hardware and equipment) were among the top relative
contributors. Positions in Asian lens manufacturers Sunny Optical Technology
Group Co., Ltd. and Largan Precision Co., Ltd. (technology hardware and
equipment industry) also added to relative performance.
o HOW DID THE FUND'S HEALTH CARE PORTION PERFORM DURING THE REPORTING PERIOD?
The health care portion of the Fund's portfolio outperformed its benchmark
during the reporting period. Both sector allocation and security selection
contributed to relative performance. From an allocation perspective, a
significant underweight to large-cap biopharmaceuticals represented a top
contributor. Security selection within mid- and small-cap biopharmaceuticals
also was strong, although weak selection in large-cap biopharmaceuticals
detracted. Non-benchmark holdings ARIAD Pharmaceuticals, Inc., Incyte Corp.,
and TESARO, Inc. were the top contributors over the reporting period. A lack
of exposure to benchmark constituent Merck detracted, as did overweights to
Ono Pharmaceutical Co., Ltd., and AstraZeneca plc ADR.
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)
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1/31/17 7/31/16
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Net Assets $927.4 Million $901.6 Million
Net Asset Value Per Share $22.39 $22.03
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
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7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
5.79% 18.30% 17.88% 9.96%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
2.63% 17.90% 9.40%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
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1.17%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P NORTH
AMERICAN USAA SCIENCE & S&P COMPOSITE LIPPER SCIENCE
TECHNOLOGY TECHNOLOGY 1500 HEALTH & TECHNOLOGY S&P 500
INDEX FUND SHARES CARE INDEX FUNDS INDEX INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,795.25 9,906.00 9,801.12 9,927.59 9,804.41
3/31/2007 9,840.11 9,949.00 9,842.73 9,982.16 9,914.07
4/30/2007 10,332.99 10,385.00 10,482.39 10,324.44 10,353.22
5/31/2007 10,777.87 10,915.00 10,667.25 10,724.68 10,714.50
6/30/2007 10,863.18 10,915.00 10,324.01 10,859.33 10,536.49
7/31/2007 10,787.41 10,753.00 9,907.23 10,849.33 10,209.81
8/31/2007 11,099.42 11,009.00 10,160.02 11,077.25 10,362.86
9/30/2007 11,559.62 11,463.00 10,459.38 11,657.79 10,750.41
10/31/2007 12,332.18 11,873.00 10,660.88 12,367.46 10,921.42
11/30/2007 11,365.79 11,146.00 10,741.24 11,435.18 10,464.83
12/31/2007 11,506.25 11,052.00 10,473.55 11,490.60 10,392.23
1/31/2008 10,049.53 9,957.00 9,946.65 10,002.26 9,768.89
2/29/2008 9,705.73 9,607.00 9,713.15 9,755.59 9,451.54
3/31/2008 9,794.00 9,444.00 9,260.70 9,689.62 9,410.73
4/30/2008 10,506.41 10,214.00 9,433.17 10,431.57 9,869.06
5/31/2008 11,171.44 10,719.00 9,633.83 11,018.09 9,996.89
6/30/2008 10,107.44 9,940.00 9,175.09 10,052.96 9,154.12
7/31/2008 10,039.69 9,760.00 9,628.93 9,845.21 9,077.16
8/31/2008 10,257.12 9,923.00 9,838.97 10,029.26 9,208.46
9/30/2008 8,841.33 8,537.00 9,228.31 8,558.48 8,387.92
10/31/2008 7,219.15 6,749.00 8,050.64 7,010.52 6,979.19
11/30/2008 6,406.03 6,031.00 7,470.27 6,202.14 6,478.40
12/31/2008 6,520.26 6,270.00 7,984.58 6,423.49 6,547.33
1/31/2009 6,378.55 6,108.00 7,874.65 6,280.17 5,995.48
2/28/2009 6,105.87 5,629.00 6,905.42 6,036.34 5,357.09
3/31/2009 6,828.91 6,270.00 7,337.83 6,703.72 5,826.35
4/30/2009 7,750.73 6,886.00 7,339.24 7,533.68 6,383.99
5/31/2009 8,249.64 7,211.00 7,816.63 7,849.11 6,741.06
6/30/2009 8,230.65 7,434.00 8,059.65 8,000.09 6,754.43
7/31/2009 8,977.36 8,058.00 8,530.77 8,655.83 7,265.32
8/31/2009 9,198.11 8,289.00 8,728.75 8,870.12 7,527.63
9/30/2009 9,619.77 8,683.00 8,862.68 9,406.56 7,808.52
10/31/2009 9,539.56 8,400.00 8,646.59 9,087.70 7,663.46
11/30/2009 10,037.44 8,939.00 9,399.43 9,535.53 8,123.15
12/31/2009 10,640.23 9,453.00 9,642.09 10,142.67 8,280.05
1/31/2010 9,761.51 8,879.00 9,670.57 9,421.01 7,982.18
2/28/2010 10,184.72 9,162.00 9,732.40 9,802.68 8,229.45
3/31/2010 10,896.48 9,752.00 10,055.89 10,476.80 8,726.06
4/30/2010 11,084.03 9,837.00 9,741.46 10,711.12 8,863.82
5/31/2010 10,201.63 9,102.00 9,109.08 9,977.83 8,156.04
6/30/2010 9,534.21 8,597.00 8,941.70 9,379.97 7,729.08
7/31/2010 10,255.73 9,110.00 9,028.91 9,973.25 8,270.61
8/31/2010 9,574.66 8,640.00 8,863.99 9,465.38 7,897.24
9/30/2010 10,787.72 9,769.00 9,705.23 10,678.99 8,602.02
10/31/2010 11,459.19 10,163.00 9,902.61 11,284.09 8,929.32
11/30/2010 11,404.12 10,154.00 9,657.04 11,334.69 8,930.47
12/31/2010 11,986.55 10,736.00 10,143.38 11,953.34 9,527.30
1/31/2011 12,454.61 11,121.00 10,211.03 12,358.39 9,753.11
2/28/2011 12,745.07 11,480.00 10,570.07 12,794.64 10,087.25
3/31/2011 12,497.72 11,480.00 10,799.04 12,697.78 10,091.26
4/30/2011 12,883.75 11,985.00 11,509.66 13,156.93 10,390.12
5/31/2011 12,677.86 12,002.00 11,742.29 12,976.10 10,272.50
6/30/2011 12,348.82 11,711.00 11,583.14 12,550.95 10,101.27
7/31/2011 12,335.08 11,343.00 11,136.05 12,195.78 9,895.86
8/31/2011 11,558.32 10,565.00 10,843.70 11,281.40 9,358.30
9/30/2011 11,036.31 10,034.00 10,331.23 10,542.64 8,700.42
10/31/2011 12,343.73 11,086.00 10,947.95 11,849.86 9,651.32
11/30/2011 12,103.10 10,838.00 11,048.23 11,529.34 9,629.99
12/31/2011 11,881.62 10,676.00 11,348.81 11,258.84 9,728.50
1/31/2012 12,816.11 11,360.00 11,754.06 12,202.28 10,164.48
2/29/2012 13,581.89 11,950.00 11,944.81 12,995.67 10,604.02
3/31/2012 14,205.82 12,549.00 12,445.13 13,572.18 10,952.99
4/30/2012 14,016.93 12,515.00 12,410.82 13,205.26 10,884.24
5/31/2012 12,797.43 11,625.00 11,976.68 12,038.56 10,230.09
6/30/2012 13,208.54 12,130.00 12,652.32 12,421.74 10,651.59
7/31/2012 13,229.58 12,181.00 12,748.19 12,326.42 10,799.53
8/31/2012 13,814.16 12,609.00 12,937.27 12,896.64 11,042.76
9/30/2012 13,987.37 12,891.00 13,450.17 13,125.31 11,328.13
10/31/2012 13,186.34 12,121.00 13,330.09 12,346.21 11,118.96
11/30/2012 13,476.79 12,515.00 13,441.87 12,657.00 11,183.46
12/31/2012 13,691.72 12,609.00 13,431.51 12,893.86 11,285.40
1/31/2013 14,260.16 13,396.00 14,439.45 13,444.99 11,869.92
2/28/2013 14,379.17 13,550.00 14,627.71 13,483.58 12,031.06
3/31/2013 14,776.67 13,978.00 15,548.66 13,829.95 12,482.26
4/30/2013 14,850.98 14,072.00 16,007.92 13,723.11 12,722.75
5/31/2013 15,540.25 14,508.00 16,302.69 14,362.68 13,020.36
6/30/2013 15,144.32 14,251.00 16,199.99 14,195.77 12,845.51
7/31/2013 15,839.97 15,210.00 17,378.87 15,153.87 13,499.15
8/31/2013 15,683.68 15,030.00 16,792.74 15,088.61 13,108.19
9/30/2013 16,347.17 16,133.00 17,339.26 15,987.89 13,519.26
10/31/2013 17,003.89 16,484.00 18,081.59 16,314.85 14,140.71
11/30/2013 17,641.22 17,109.00 18,952.56 16,800.78 14,571.63
12/31/2013 18,425.28 17,797.00 19,098.50 17,637.85 14,940.53
1/31/2014 18,060.10 18,308.00 19,265.52 17,565.61 14,423.97
2/28/2014 18,964.52 19,478.00 20,392.98 18,567.07 15,083.78
3/31/2014 18,776.58 18,651.00 20,127.18 18,070.73 15,210.57
4/30/2014 18,493.02 18,178.00 19,998.12 17,394.47 15,323.01
5/31/2014 19,162.01 18,920.00 20,576.05 17,991.91 15,682.70
6/30/2014 19,716.42 19,700.00 21,047.47 18,751.20 16,006.67
7/31/2014 19,782.29 19,459.00 21,053.12 18,470.08 15,785.92
8/31/2014 20,604.83 20,304.00 22,069.47 19,231.70 16,417.44
9/30/2014 20,294.61 19,923.00 22,102.37 18,847.35 16,187.20
10/31/2014 20,547.45 20,554.00 23,301.35 19,255.76 16,582.58
11/30/2014 21,471.20 21,529.00 24,061.32 19,894.45 17,028.56
12/31/2014 21,241.08 21,347.00 23,833.36 19,799.54 16,985.67
1/31/2015 20,475.27 21,357.00 24,143.40 19,293.04 16,475.77
2/28/2015 22,190.96 22,638.00 25,242.96 20,807.82 17,422.66
3/31/2015 21,556.67 22,534.00 25,530.83 20,503.95 17,147.13
4/30/2015 22,092.19 22,669.00 25,136.70 20,593.59 17,311.62
5/31/2015 22,549.70 23,617.00 26,289.47 21,261.93 17,534.24
6/30/2015 21,729.16 23,242.00 26,264.39 20,596.17 17,194.81
7/31/2015 22,592.20 24,023.00 27,001.21 20,872.44 17,555.06
8/31/2015 21,372.17 22,430.00 24,912.34 19,558.38 16,495.90
9/30/2015 21,121.11 21,544.00 23,477.86 19,060.79 16,087.73
10/31/2015 23,474.01 23,637.00 25,206.67 20,805.64 17,444.80
11/30/2015 23,777.98 23,898.00 25,201.11 21,198.66 17,496.67
12/31/2015 23,345.48 23,696.00 25,599.75 20,745.08 17,220.72
1/31/2016 21,827.17 21,855.00 23,645.28 18,958.67 16,366.16
2/29/2016 21,623.64 21,466.00 23,517.46 18,785.71 16,344.07
3/31/2016 23,451.99 22,776.00 24,231.85 20,196.33 17,452.83
4/30/2016 22,708.98 22,709.00 24,934.37 19,856.50 17,520.49
5/31/2016 23,940.33 23,519.00 25,485.12 20,844.16 17,835.12
6/30/2016 23,400.46 23,020.00 25,749.41 20,398.02 17,881.33
7/31/2016 25,140.30 24,440.00 27,028.08 21,909.33 18,540.59
8/31/2016 25,683.28 24,706.00 26,178.54 22,388.07 18,566.63
9/30/2016 26,403.90 25,383.00 26,062.86 23,055.64 18,570.14
10/31/2016 26,238.10 24,606.00 24,325.40 22,560.83 18,231.40
11/30/2016 26,243.63 24,473.00 24,852.09 22,710.05 18,906.59
12/31/2016 26,510.24 24,319.00 25,074.17 22,775.73 19,280.30
1/31/2017 27,811.99 25,855.00 25,648.74 23,935.26 19,645.98
[END CHART]
Data from 1/31/07 through 1/31/17.
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 North American Technology Index provides investors with a
benchmark that represents U.S. securities classified under the Global
Industry Classification System (GICS(R)) technology sector and internet
retail sub-industry.
o The unmanaged S&P Composite 1500 Health Care 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 GICS(R).
o The unmanaged Lipper Science & Technology Funds Index tracks the total
return performance of funds within 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)
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1/31/17 7/31/16
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Net Assets $101.4 Million $122.4 Million
Net Asset Value Per Share $21.98 $21.67
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
5.65% 18.02% 17.62% 16.80%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.33% 17.63% 15.94%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.42% AFTER REIMBURSEMENT 1.40%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 2017, 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 1.40% 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 November 30, 2017. If
the total annual operating expense ratio of the Adviser Shares is lower than
1.40%, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
8 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P NORTH
S&P COMPOSITE USAA SCIENCE & AMERICAN LIPPER SCIENCE
1500 HEALTH TECHNOLOGY FUND TECHNOLOGY & TECHNOLOGY S&P 500
CARE INDEX ADVISER SHARES INDEX FUNDS INDEX INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,817.34 9,308.12 9,335.92 9,490.77 9,548.56
9/30/2010 10,749.06 10,525.83 10,518.72 10,707.64 10,400.72
10/31/2010 10,967.67 10,950.18 11,173.45 11,314.36 10,796.45
11/30/2010 10,695.69 10,940.96 11,119.75 11,365.09 10,797.84
12/31/2010 11,234.33 11,568.27 11,687.66 11,985.40 11,519.47
1/31/2011 11,309.26 11,974.17 12,144.05 12,391.54 11,792.50
2/28/2011 11,706.92 12,361.62 12,427.26 12,828.96 12,196.50
3/31/2011 11,960.51 12,352.40 12,186.08 12,731.84 12,201.36
4/30/2011 12,747.57 12,896.68 12,562.49 13,192.22 12,562.70
5/31/2011 13,005.22 12,905.90 12,361.73 13,010.91 12,420.50
6/30/2011 12,828.94 12,592.25 12,040.90 12,584.62 12,213.46
7/31/2011 12,333.77 12,195.57 12,027.50 12,228.49 11,965.10
8/31/2011 12,009.98 11,346.86 11,270.11 11,311.67 11,315.14
9/30/2011 11,442.40 10,784.13 10,761.11 10,570.92 10,519.69
10/31/2011 12,125.44 11,909.59 12,035.94 11,881.64 11,669.42
11/30/2011 12,236.51 11,642.07 11,801.31 11,560.27 11,643.64
12/31/2011 12,569.42 11,466.79 11,585.35 11,289.04 11,762.74
1/31/2012 13,018.26 12,195.57 12,496.54 12,235.01 12,289.89
2/29/2012 13,229.52 12,822.88 13,243.22 13,030.53 12,821.33
3/31/2012 13,783.65 13,468.63 13,851.59 13,608.59 13,243.27
4/30/2012 13,745.65 13,431.73 13,667.41 13,240.68 13,160.14
5/31/2012 13,264.82 12,472.32 12,478.32 12,070.85 12,369.21
6/30/2012 14,013.12 13,007.38 12,879.19 12,455.06 12,878.85
7/31/2012 14,119.31 13,062.73 12,899.70 12,359.49 13,057.72
8/31/2012 14,328.72 13,514.76 13,469.70 12,931.23 13,351.82
9/30/2012 14,896.79 13,819.19 13,638.59 13,160.51 13,696.85
10/31/2012 14,763.79 12,998.15 12,857.54 12,379.32 13,443.95
11/30/2012 14,887.60 13,404.06 13,140.74 12,690.96 13,521.94
12/31/2012 14,876.12 13,505.54 13,350.31 12,928.45 13,645.19
1/31/2013 15,992.46 14,354.24 13,904.58 13,481.05 14,351.94
2/28/2013 16,200.98 14,511.07 14,020.62 13,519.75 14,546.77
3/31/2013 17,220.98 14,972.32 14,408.21 13,867.04 15,092.32
4/30/2013 17,729.63 15,073.80 14,480.66 13,759.92 15,383.10
5/31/2013 18,056.11 15,535.06 15,152.75 14,401.21 15,742.94
6/30/2013 17,942.36 15,249.08 14,766.69 14,233.85 15,531.53
7/31/2013 19,248.03 16,273.06 15,445.00 15,194.52 16,321.84
8/31/2013 18,598.86 16,088.56 15,292.60 15,129.08 15,849.13
9/30/2013 19,204.17 17,260.15 15,939.55 16,030.78 16,346.15
10/31/2013 20,026.33 17,638.38 16,579.90 16,358.61 17,097.55
11/30/2013 20,990.98 18,293.36 17,201.33 16,845.85 17,618.58
12/31/2013 21,152.62 19,024.76 17,965.84 17,685.16 18,064.61
1/31/2014 21,337.60 19,564.89 17,609.77 17,612.73 17,440.04
2/28/2014 22,586.32 20,815.20 18,491.63 18,616.87 18,237.82
3/31/2014 22,291.93 19,934.98 18,308.38 18,119.21 18,391.12
4/30/2014 22,148.99 19,424.86 18,031.89 17,441.13 18,527.07
5/31/2014 22,789.08 20,225.06 18,684.20 18,040.17 18,961.97
6/30/2014 23,311.20 21,055.26 19,224.79 18,801.50 19,353.68
7/31/2014 23,317.46 20,785.19 19,289.01 18,519.62 19,086.78
8/31/2014 24,443.12 21,685.41 20,091.04 19,283.29 19,850.34
9/30/2014 24,479.56 21,275.31 19,788.56 18,897.91 19,571.97
10/31/2014 25,807.50 21,955.48 20,035.10 19,307.42 20,050.02
11/30/2014 26,649.21 22,995.74 20,935.80 19,947.82 20,589.26
12/31/2014 26,396.73 22,792.97 20,711.42 19,852.65 20,537.39
1/31/2015 26,740.11 22,804.21 19,964.71 19,344.80 19,920.87
2/28/2015 27,957.94 24,153.57 21,637.62 20,863.64 21,065.76
3/31/2015 28,276.77 24,052.37 21,019.14 20,558.95 20,732.61
4/30/2015 27,840.25 24,187.31 21,541.32 20,648.83 20,931.50
5/31/2015 29,117.00 25,188.08 21,987.42 21,318.96 21,200.67
6/30/2015 29,089.23 24,772.03 21,187.34 20,651.42 20,790.26
7/31/2015 29,905.29 25,604.14 22,028.86 20,928.43 21,225.85
8/31/2015 27,591.75 23,906.19 20,839.25 19,610.84 19,945.21
9/30/2015 26,002.99 22,961.64 20,594.45 19,111.92 19,451.70
10/31/2015 27,917.74 25,188.08 22,888.68 20,861.45 21,092.52
11/30/2015 27,911.59 25,446.71 23,185.06 21,255.53 21,155.25
12/31/2015 28,353.10 25,240.36 22,763.35 20,800.73 20,821.59
1/31/2016 26,188.41 23,261.90 21,282.91 19,009.52 19,788.34
2/29/2016 26,046.85 22,842.00 21,084.44 18,836.10 19,761.64
3/31/2016 26,838.08 24,233.00 22,867.21 20,250.50 21,102.23
4/30/2016 27,616.15 24,161.00 22,142.73 19,909.76 21,184.04
5/31/2016 28,226.14 25,013.00 23,343.37 20,900.08 21,564.47
6/30/2016 28,518.86 24,473.00 22,816.96 20,452.74 21,620.34
7/31/2016 29,935.05 25,984.00 24,513.42 21,968.11 22,417.46
8/31/2016 28,994.14 26,260.00 25,042.86 22,448.13 22,448.93
9/30/2016 28,866.01 26,979.00 25,745.51 23,117.48 22,453.18
10/31/2016 26,941.69 26,152.00 25,583.85 22,621.35 22,043.60
11/30/2016 27,525.02 25,996.00 25,589.24 22,770.97 22,859.99
12/31/2016 27,770.99 25,829.00 25,849.20 22,836.83 23,311.84
1/31/2017 28,407.36 27,453.00 27,118.49 23,999.47 23,753.98
[END CHART]
Data from 7/31/10 through 1/31/17.*
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 Composite 1500 Health Care Index, S&P North American
Technology 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* - 1/31/17 o
(% of Net Assets)
Visa, Inc. "A" ........................................................... 3.8%
Amazon.com, Inc. ......................................................... 3.3%
Global Payments, Inc. .................................................... 2.7%
Facebook, Inc. "A" ....................................................... 2.7%
Workday, Inc. "A" ........................................................ 2.2%
Netflix, Inc. ............................................................ 2.2%
Broadcom Ltd. ............................................................ 2.0%
Arista Networks, Inc. .................................................... 1.8%
Alliance Data Systems Corp. .............................................. 1.8%
Flex Ltd. ................................................................ 1.7%
o SECTOR ALLOCATION - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION - 1/31/17]
INFORMATION TECHNOLOGY 64.3%
HEALTH CARE 23.5%
CONSUMER DISCRETIONARY 7.4%
INDUSTRIALS 4.0%
CONSUMER STAPLES 0.1%
[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 11-19.
================================================================================
10 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2017 (unaudited)
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.3%)
COMMON STOCKS (98.6%)
CONSUMER DISCRETIONARY (7.4%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.6%)
813,000 Hota Industrial Manufacturing Co., Ltd.(a) $ 3,375
311,000 Tung Thih Electronic Co., Ltd.(a) 2,939
----------
6,314
----------
CONSUMER ELECTRONICS (0.3%)
1,427,100 Pioneer Corp.* 3,134
----------
INTERNET RETAIL (6.5%)
41,578 Amazon.com, Inc.* 34,239
85,037 Expedia, Inc. 10,340
157,355 Netflix, Inc.* 22,141
----------
66,720
----------
Total Consumer Discretionary 76,168
----------
CONSUMER STAPLES (0.1%)
-----------------------
DRUG RETAIL (0.1%)
11,903 Walgreens Boots Alliance, Inc. 975
----------
HEALTH CARE (23.5%)
-------------------
BIOTECHNOLOGY (5.7%)
148,790 Aduro Biotech, Inc.* 1,763
29,491 Alder BioPharmaceuticals, Inc.* 606
110,160 Alkermes plc* 5,961
26,010 Alnylam Pharmaceuticals, Inc.* 1,040
346,370 Arena Pharmaceuticals, Inc.* 533
102,030 ARIAD Pharmaceuticals, Inc.* 2,430
17,430 Biogen, Inc.* 4,832
32,210 bluebird bio, Inc.* 2,400
84,940 Celgene Corp.* 9,866
154,700 Cytokinetics, Inc.* 1,617
24,792 Galapagos NV* 1,604
68,991 GlycoMimetics, Inc.* 393
41,651 Incyte Corp.* 5,048
22,788 Innate Pharma S.A.* 321
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
82,790 Ironwood Pharmaceuticals, Inc.* $ 1,191
72,610 Karyopharm Therapeutics, Inc.* 751
70,680 Loxo Oncology, Inc.* 2,773
115,434 Portola Pharmaceuticals, Inc.* 3,146
28,530 PTC Therapeutics, Inc.* 374
8,581 Regeneron Pharmaceuticals, Inc.* 3,083
304,190 Rigel Pharmaceuticals, Inc.* 633
102,030 Syndax Pharmaceuticals, Inc.* 775
29,250 T2 Biosystems, Inc.* 158
21,298 TESARO, Inc.* 3,468
155,343 Trevena, Inc.* 1,084
33,470 Ultragenyx Pharmaceutical, Inc.* 2,511
----------
58,361
----------
HEALTH CARE DISTRIBUTORS (0.7%)
43,950 Cardinal Health, Inc. 3,295
32,880 McKesson Corp. 4,575
----------
7,870
----------
HEALTH CARE EQUIPMENT (5.8%)
231,403 Abbott Laboratories 9,666
20,140 ABIOMED, Inc.* 2,142
79,190 AtriCure, Inc.* 1,288
69,180 Baxter International, Inc. 3,314
25,841 Becton, Dickinson & Co. 4,581
322,550 Boston Scientific Corp.* 7,761
114,441 ConforMIS, Inc.* 950
20,460 Edwards Lifesciences Corp.* 1,969
128,151 Globus Medical, Inc. "A"* 3,378
20,488 Invuity, Inc.* 133
117,630 K2M Group Holdings, Inc.* 2,390
170,659 Medtronic plc 12,974
53,800 Stryker Corp. 6,646
13,401 Teleflex, Inc. 2,248
----------
59,440
----------
HEALTH CARE FACILITIES (0.9%)
24,709 Acadia Healthcare Co., Inc.* 948
46,120 Community Health Systems, Inc.* 295
143,576 Georgia Healthcare Group plc*(b) 614
58,590 HCA Holdings, Inc.* 4,704
22,020 LifePoint Health, Inc.* 1,307
9,860 Universal Health Services, Inc. "B" 1,110
----------
8,978
----------
================================================================================
12 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.3%)
30,153 Envision Healthcare Corp.* $ 2,051
84,814 Teladoc, Inc.* 1,696
----------
3,747
----------
HEALTH CARE SUPPLIES (0.2%)
189,990 Convatec Ltd.*(b) 588
22,717 DENTSPLY SIRONA, Inc. 1,288
97,818 Endologix, Inc.* 671
----------
2,547
----------
HEALTH CARE TECHNOLOGY (0.6%)
50,315 Allscripts Healthcare Solutions, Inc.* 589
18,610 athenahealth, Inc.* 2,345
54,566 Cerner Corp.* 2,931
----------
5,865
----------
LIFE SCIENCES TOOLS & SERVICES (1.2%)
17,150 ICON plc* 1,441
15,040 Illumina, Inc.* 2,408
6,470 Medpace Holdings, Inc.* 226
50,620 Patheon N.V.* 1,452
5,110 Samsung Biologics Co., Ltd.* 708
39,890 Thermo Fisher Scientific, Inc. 6,079
----------
12,314
----------
MANAGED HEALTH CARE (2.5%)
30,190 Aetna, Inc. 3,581
19,903 Cigna Corp. 2,910
6,110 Humana, Inc. 1,213
92,860 UnitedHealth Group, Inc. 15,052
21,050 WellCare Health Plans, Inc.* 3,064
----------
25,820
----------
PHARMACEUTICALS (5.6%)
53,290 Allergan plc* 11,665
206,870 AstraZeneca plc ADR 5,633
204,780 Bristol-Myers Squibb Co. 10,067
27,070 Chugai Pharmaceutical Co., Ltd. 791
43,520 Eisai Co., Ltd. 2,396
97,500 Eli Lilly & Co. 7,510
14,770 Hikma Pharmaceuticals plc 339
39,100 Intersect ENT, Inc.* 528
12,500 Johnson & Johnson 1,416
66,195 Medicines Co.* 2,386
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
121,560 MediWound Ltd.* $ 693
109,980 Mylan N.V.* 4,185
78,110 MyoKardia, Inc.* 875
97,940 Nabriva Therapeutics AG ADR* 797
82,570 Ono Pharmaceutical Co., Ltd. 1,687
54,171 Revance Therapeutics, Inc.* 1,083
35,330 Shionogi & Co. Ltd. 1,697
751,340 Sino Biopharmaceutical Ltd.(a) 593
16,150 Takeda Pharmaceutical Co., Ltd. 676
32,599 UCB S.A. 2,242
----------
57,259
----------
Total Health Care 242,201
----------
INDUSTRIALS (3.9%)
------------------
ELECTRICAL COMPONENTS & EQUIPMENT (1.1%)
499,757 BizLink Holding, Inc.(a) 2,646
74,880 Nidec Corp. 7,036
139,705 Voltronic Power Technology Corp.(a) 1,895
----------
11,577
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.3%)
41,752 WageWorks, Inc.* 3,012
----------
INDUSTRIAL CONGLOMERATES (0.7%)
3,427,800 Toshiba Corp.* 7,356
----------
RESEARCH & CONSULTING SERVICES (1.8%)
72,885 Equifax, Inc. 8,548
292,601 TransUnion* 9,226
----------
17,774
----------
Total Industrials 39,719
----------
INFORMATION TECHNOLOGY (63.7%)
------------------------------
APPLICATION SOFTWARE (3.4%)
83,918 Mobileye N.V.* 3,605
102,680 salesforce.com, Inc.* 8,122
277,375 Workday, Inc. "A"* 23,047
----------
34,774
----------
COMMUNICATIONS EQUIPMENT (2.7%)
194,864 Arista Networks, Inc.* 18,317
54,121 CIENA Corp.* 1,317
814,176 Oclaro, Inc.* 7,987
----------
27,621
----------
================================================================================
14 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (15.7%)
80,108 Alliance Data Systems Corp. $ 18,295
116,488 Automatic Data Processing, Inc. 11,764
41,433 Cardtronics plc "A"* 2,261
78,153 FleetCor Technologies, Inc.* 11,527
479,048 Genpact Ltd.* 11,823
360,682 Global Payments, Inc. 27,874
390,052 PayPal Holdings, Inc.* 15,516
137,116 Total System Services, Inc. 6,949
70,372 Vantiv, Inc. "A"* 4,380
470,423 Visa, Inc. "A" 38,909
111,221 WEX, Inc.* 12,716
----------
162,014
----------
ELECTRONIC COMPONENTS (3.9%)
157,500 Alps Electric Co., Ltd. 4,206
74,000 Chunghwa Precision Test Tech. Co., Ltd.(a) 2,643
117,893 Largan Precision Co., Ltd.(a) 16,831
2,320,860 Sunny Optical Technology Group Co., Ltd.(a) 13,620
10,320,000 Tongda Group Holdings Ltd.(a) 2,887
----------
40,187
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (1.4%)
28,052 Coherent, Inc.* 4,425
60,136 Itron, Inc.* 3,710
338,063 VeriFone Systems, Inc.* 6,143
----------
14,278
----------
ELECTRONIC MANUFACTURING SERVICES (1.7%)
1,115,546 Flex Ltd.* 17,480
----------
HOME ENTERTAINMENT SOFTWARE (0.8%)
46,058 Electronic Arts, Inc.* 3,843
154,100 Nexon Co., Ltd. 2,350
10,548 Nintendo Co., Ltd. 2,160
----------
8,353
----------
INTERNET SOFTWARE & SERVICES (10.1%)
75,800 Akamai Technologies, Inc.* 5,199
122,524 Alibaba Group Holding Ltd. ADR* 12,413
11,217 Alphabet, Inc. "A"* 9,200
151,029 Dropbox, Inc., acquired 5/01/2012; cost $1,367*(c),(d),(e) 1,692
213,438 Facebook, Inc. "A"* 27,815
102,225 GrubHub, Inc.* 4,248
43,305 J2 Global, Inc. 3,629
1,053,085 Just Eat plc* 7,147
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
151,427 Nutanix, Inc. "A", acquired 8/25/2014 - 9/30/2016; cost $2,029*(c),(e) $ 4,584
487,812 Tencent Holdings Ltd.(a) 12,728
147,913 Wix.com Ltd.* 7,773
216,035 Zillow Group, Inc.* 7,643
----------
104,071
----------
IT CONSULTING & OTHER SERVICES (2.0%)
97,794 Accenture plc "A" 11,136
189,083 Cognizant Technology Solutions Corp. "A"* 9,944
----------
21,080
----------
SEMICONDUCTOR EQUIPMENT (1.7%)
65,622 ASML Holding N.V. 7,967
365,579 FormFactor, Inc.* 4,551
69,015 MKS Instruments, Inc. 4,548
----------
17,066
----------
SEMICONDUCTORS (12.2%)
154,176 Analog Devices, Inc. 11,554
103,512 Broadcom Ltd. 20,651
211,304 Cavium Networks, Inc.* 13,990
148,158 Integrated Device Technology, Inc.* 3,732
358,873 Intel Corp. 13,214
331,839 Land Mark Optoelectronics Corp.(a) 2,939
235,385 MACOM Technology Solutions Holdings, Inc.* 11,193
308,366 MaxLinear, Inc. "A"* 7,888
141,981 Microchip Technology, Inc. 9,562
164,653 Micron Technology, Inc.* 3,970
652,326 Parade Technologies Ltd.(a) 6,731
2,047,700 Semiconductor Manufacturing International Corp.*(a) 2,804
293,000 Silergy Corp.(a) 4,454
1,536,655 Taiwan Semiconductor Manufacturing Co., Ltd.(a) 9,158
191,106 Tower Semiconductor Ltd.* 4,053
----------
125,893
----------
SYSTEMS SOFTWARE (1.5%)
171,910 ServiceNow, Inc.* 15,578
----------
TECHNOLOGY DISTRIBUTORS (0.3%)
411,201 Kingpak Technology, Inc.(a) 2,825
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (6.3%)
109,134 Apple, Inc. 13,243
1,119,000 Catcher Technology Co., Ltd.(a) 9,151
639,206 Pure Storage, Inc. "A"* 7,268
6,642 Samsung Electronics Co., Ltd. 11,277
================================================================================
16 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
183,116 Seagate Technology plc $ 8,268
190,218 Western Digital Corp. 15,166
----------
64,373
----------
Total Information Technology 655,593
----------
Total Common Stocks (cost: $787,818) 1,014,656
----------
PREFERRED STOCKS (0.7%)
INDUSTRIALS (0.1%)
------------------
INDUSTRIAL MACHINERY (0.1%)
37,837 Cloudera, Inc. "F", acquired 2/05/2014; cost $551*(c),(d),(e) 696
----------
INFORMATION TECHNOLOGY (0.6%)
-----------------------------
INTERNET SOFTWARE & SERVICES (0.6%)
133,140 Uber Technologies, Inc., acquired 6/05/2014; cost $2,065*(c),(d),(e) 6,493
----------
Total Preferred Stocks (cost: $2,616) 7,189
----------
Total Equity Securities (cost: $790,434) 1,021,845
----------
MONEY MARKET INSTRUMENTS (1.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.3%)
12,914,691 State Street Institutional Treasury Money Market Fund Premier
Class, 0.42%(f) (cost: $12,915) 12,914
----------
TOTAL INVESTMENTS (COST: $803,349) $1,034,759
==========
------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $914,745 $98,219 $1,692 $1,014,656
Preferred Stocks - - 7,189 7,189
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 12,914 - - 12,914
------------------------------------------------------------------------------------------------------
Total $927,659 $98,219 $8,881 $1,034,759
------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------
($ IN 000s) COMMON STOCKS PREFERRED STOCKS
------------------------------------------------------------------------------------------------------
Balance as of July 31, 2016 $1,501 $ 9,234
Purchases - -
Sales - (2,029)
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation) of investments 191 (16)
------------------------------------------------------------------------------------------------------
Balance as of January 31, 2017 $1,692 $ 7,189
------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2016, through January 31, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS TRANSFERS TRANSFERS
INTO (OUT OF) INTO (OUT OF) INTO (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------
Common Stocks(I) $(86,886) $86,886 $-
------------------------------------------------------------------------------------------------------
Total $(86,886) $86,886 $-
------------------------------------------------------------------------------------------------------
(I)Transferred from Level 1 to Level 2 due to an assessment of events at the end
of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
================================================================================
18 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
JANUARY 31, 2017 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE
------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $1,692 Market Revenue Multiple(a) 4.2x - 8.0x
Comparables
Discount for lack
of marketability(b) 10%
------------------------------------------------------------------------------------------------------
Preferred Stocks $696 Market Revenue Multiple(a) 4.9x - 6.6x
Comparables
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.
** Quantitative Information table includes certain Level 3 securities using
valuation models.
Increases in the earnings before interest, taxes, depreciation, and amortization
(EBITDA), revenue multiples, transaction prices, 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.
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 19.0% of net assets at January 31,
2017.
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 $98,219,000, which represented 9.5% of the
Fund's net assets, were classified as Level 2 at January 31, 2017, 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
================================================================================
20 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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, 2017, was $13,465,000, which represented 1.3% of the
Fund's net assets.
(d) Security was fair valued at January 31, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $8,881,000, which represented 0.9% 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, 2017.
* 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, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $803,349) $1,034,759
Cash 47
Receivables:
Capital shares sold 427
Dividends and interest 165
Securities sold 40,966
----------
Total assets 1,076,364
----------
LIABILITIES
Payables:
Securities purchased 45,577
Capital shares redeemed 1,147
Accrued management fees 680
Accrued transfer agent's fees 53
Other accrued expenses and payables 147
----------
Total liabilities 47,604
----------
Net assets applicable to capital shares outstanding $1,028,760
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 769,559
Accumulated undistributed net investment loss (3,419)
Accumulated net realized gain on investments 31,211
Net unrealized appreciation of investments 231,410
Net unrealized depreciation of foreign currency translations (1)
----------
Net assets applicable to capital shares outstanding $1,028,760
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $927,410/41,424
capital shares outstanding, no par value) $ 22.39
==========
Adviser Shares (net assets of $101,350/4,612
capital shares outstanding, no par value) $ 21.98
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $207) $ 4,957
Interest 29
-------
Total income 4,986
-------
EXPENSES
Management fees 4,117
Administration and servicing fees:
Fund Shares 708
Adviser Shares 82
Transfer agent's fees:
Fund Shares 740
Adviser Shares 94
Distribution and service fees (Note 6F):
Adviser Shares 137
Custody and accounting fees:
Fund Shares 127
Adviser Shares 14
Postage:
Fund Shares 43
Adviser Shares 3
Shareholder reporting fees:
Fund Shares 22
Adviser Shares 2
Trustees' fees 15
Registration fees:
Fund Shares 22
Adviser Shares 21
Professional fees 81
Other 14
-------
Total expenses 6,242
Expenses paid indirectly:
Fund Shares (14)
Adviser Shares (2)
-------
Net expenses 6,226
-------
NET INVESTMENT LOSS (1,240)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments 64,863
Foreign currency transactions 85
Change in net unrealized appreciation/(depreciation) of:
Investments (6,056)
Foreign currency translations (6)
-------
Net realized and unrealized gain 58,886
-------
Increase in net assets resulting from operations $57,646
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (1,240) $ (2,646)
Net realized gain on investments 64,863 10,948
Net realized gain (loss) on foreign currency transactions 85 (67)
Change in net unrealized appreciation/(depreciation) of:
Investments (6,056) 8,465
Foreign currency translations (6) 10
--------------------------------
Increase in net assets resulting from operations 57,646 16,710
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains:
Fund Shares (36,810) (54,146)
Adviser Shares (4,095) (7,785)
--------------------------------
Distributions to shareholders (40,905) (61,931)
--------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 10,367 85,968
Adviser Shares (22,407) 7,532
--------------------------------
Total net increase (decrease) in net assets
from capital share transactions (12,040) 93,500
--------------------------------
Capital contribution from USAA Transfer Agency
Company:
Fund Shares - 6
--------------------------------
Net increase in net assets 4,701 48,285
NET ASSETS
Beginning of period 1,024,059 975,774
--------------------------------
End of period $1,028,760 $1,024,059
================================
Accumulated undistributed net investment loss:
End of period $ (3,419) $ (2,179)
================================
See accompanying notes to financial statements.
================================================================================
24 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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' 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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. 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. Actively traded equity
securities listed on a domestic exchange generally are
================================================================================
26 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
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) 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 which occur on
a fairly regular basis (such as U.S. market movements) are significant.
Such securities are categorized in Level 2 of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
================================================================================
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. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service and are categorized in Level 2 of the fair value
hierarchy.
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
================================================================================
28 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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.
The valuation of securities falling in the Level 3 category is 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short-term securities are
amortized on a straight-line basis over the life of the respective
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.
================================================================================
30 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended January 31, 2017, brokerage
commission recapture credits reduced the expenses of the Fund Shares and
Adviser Shares by $14,000 and $2,000, respectively. Additionally, there were
no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption requests
that might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trust), 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), plus 100.0
basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $4,000, which represents 1.4% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal tax law.
================================================================================
32 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 income tax.
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$489,934,000 and $525,950,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $262,460,000 and $31,050,000, respectively, resulting in net
unrealized appreciation of $231,410,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2017 JULY 31, 2016
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
FUND SHARES:
Shares sold 4,560 $ 100,793 9,653 $ 203,339
Shares issued from
reinvested dividends 1,687 36,119 2,467 52,725
Shares redeemed (5,755) (126,545) (8,196) (170,096)
----------------------------------------------------------------
Net increase from capital
share transactions 492 $ 10,367 3,924 $ 85,968
================================================================
ADVISER SHARES:
Shares sold 870 $ 19,121 3,097 $ 64,168
Shares issued from
reinvested dividends 191 4,015 332 6,995
Shares redeemed (2,099) (45,543) (3,137) (63,631)
----------------------------------------------------------------
Net increase (decrease) from capital
share transactions (1,038) $ (22,407) 292 $ 7,532
================================================================
(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 is also responsible for determining the asset allocation for 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
================================================================================
34 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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' 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
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' 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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $4,117,000, which
included a performance adjustment for the Fund Shares and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Adviser Shares of $149,000 and $15,000, respectively. For the Fund Shares
and Adviser Shares, the performance adjustments were 0.03% and 0.03%,
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, 2017, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Wellington Management, of $1,890,000.
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, 2017, the Fund Shares and Adviser
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $708,000 and $82,000, 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, 2017, the Fund reimbursed the Manager
$12,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - Effective December 1, 2016, the Manager agreed, through
November 30, 2017, to limit the total annual operating expenses of the
Adviser Shares to 1.40% of its average net assets, excluding
================================================================================
36 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 not be changed or
terminated through November 30, 2017, 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, 2017, the Adviser Shares incurred
reimbursable expenses of less than $500, of which all 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. For the six-month period
ended January 31, 2017, the Fund Shares and Adviser Shares incurred transfer
agent's fees, paid or payable to SAS, of $740,000 and $94,000, 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
(IMCO), the distributor, for distribution and shareholder services. IMCO
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, 2017, the Adviser Shares incurred
distribution and service (12b-1) fees of $137,000.
G. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(7) 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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
38 | USAA SCIENCE & TECHNOLOGY 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,
----------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 22.03 $ 23.07 $ 20.96 $ 17.78 $ 14.24 $ 13.26
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.02) (.01) .27 (.09)(b) .03(a) (.02)
Net realized and
unrealized gain 1.25 .37 4.35 4.86 (b) 3.51 1.00
----------------------------------------------------------------------------------------
Total from investment
operations 1.23 .36 4.62 4.77(b) 3.54 .98
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.31) (.40) - -
Realized capital gains (.87) (1.40) (2.20) (1.19) - -
----------------------------------------------------------------------------------------
Total distributions (.87) (1.40) (2.51) (1.59) - -
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 22.39 $ 22.03 $ 23.07 $ 20.96 $ 17.78 $ 14.24
========================================================================================
Total return (%)* 5.79 1.74 23.45 27.94 24.86 7.39
Net assets at end
of period (000) $927,410 $901,629 $853,755 $589,615 $436,613 $354,495
Ratios to average
net assets:**
Expenses (%)(c) 1.15(d) 1.17 1.18 1.24 1.34 1.38
Net investment
income (loss) (%) (.21)(d) (.24) .52 (.44) (.08) (.30)
Portfolio turnover (%) 48 83 73 91 93 77
* 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, 2017, average net assets were
$936,516,000.
(a) Reflected a net realized and unrealized gain per share, whereas the
Statement of Operations reflected a net realized and unrealized loss for the
period. The difference in realized and unrealized gains and losses was due
to the timing of sales and repurchases of shares in relation to fluctuating
market values for the portfolio.
(b) Calculated using average shares.
(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 by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
----------------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 21.67 $ 22.77 $ 20.78 $ 17.64 $14.16 $13.22
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.06) (.07) .13(b) (.12)(b) .00(a) (.05)
Net realized and
unrealized gain 1.24 .37 4.39(b) 4.82(b) 3.48 .99
----------------------------------------------------------------------------------------
Total from investment
operations 1.18 .30 4.52(b) 4.70(b) 3.48 .94
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.33) (.37) - -
Realized capital gains (.87) (1.40) (2.20) (1.19) - -
----------------------------------------------------------------------------------------
Total distributions (.87) (1.40) (2.53) (1.56) - -
----------------------------------------------------------------------------------------
Net asset value
at end of period $ 21.98 $ 21.67 $ 22.77 $ 20.78 $17.64 $14.16
========================================================================================
Total return (%)* 5.65 1.48 23.18 27.73 24.58 7.11
Net assets at end of
period (000) $101,350 $122,430 $122,019 $17,901 $8,815 $6,940
Ratios to average
net assets:**
Expenses (%)(c) 1.44(d),(f) 1.42 1.42 1.41(e) 1.56 1.63
Expenses, excluding
reimbursements (%)(c) 1.44(d) 1.42 1.42 1.41 1.56 1.63
Net investment
income (loss) (%) (.48)(d) (.50) .59 (.61) (.30) (.55)
Portfolio turnover (%) 48 83 73 91 93 77
* 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, 2017, average net assets were
$108,545,000.
(a) Represents less than $0.01 per share.
(b) Calculated using average shares.
(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.
(f) Effective December 1, 2016, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.40% of the Adviser Shares'
average net assets.
================================================================================
40 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,057.90 $5.97
Hypothetical
(5% return before expenses) 1,000.00 1,019.41 5.85
ADVISER SHARES
Actual 1,000.00 1,056.50** 7.46**
Hypothetical
(5% return before expenses) 1,000.00 1,017.95** 7.32**
* Expenses are equal to the Fund's annualized expense ratio of 1.15% for
Fund Shares and 1.44% for Adviser Shares, which are net of any expenses paid
indirectly, multiplied by the average account value over the period,
multiplied by 184 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
5.79% for Fund Shares and 5.65% for Adviser Shares for the six-month period
of August 1, 2016, through January 31, 2017.
** The Funds' annualized expense ratio of 1.44% for the Adviser Shares above
reflects a change effective December 1, 2016, where the Manager voluntarily
agreed to limit the total annual operating expenses of the Adviser Shares to
1.40% of the Adviser Shares' average net assets. Had the expense limitation
been in effect for the entire six-month period of August 1, 2016, through
January 31, 2017, the values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
---------------------------------------------------------------
ADVISER SHARES
Actual $1,000.00 $1,056.50 $7.26
Hypothetical
(5% return before expenses) 1,000.00 1,018.15 7.12
================================================================================
42 | USAA SCIENCE & TECHNOLOGY 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)
=============================================================================
31704-0317 (C)2017, 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, 2017
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"A DIVERSIFIED PORTFOLIO BASED ON ONE'S
INDIVIDUAL GOALS, TIME HORIZON, AND RISK [PHOTO OF BROOKS ENGLEHARDT]
TOLERANCE IS A GOOD WAY TO INVEST FOR THE
LONG TERM."
--------------------------------------------------------------------------------
MARCH 2017
Where do we go from here?
When the reporting period ended on January 31, 2017, U.S. stock prices were near
all-time highs. Interest rates, especially those on bonds with intermediate-and
longer-term maturities, were higher than they had been at the beginning of the
reporting period. Bond prices, which move in the opposite direction of bond
rates, were lower. A notable exception: high-yield corporate bonds, which
recorded gains during the reporting period.
None of this could have been foreseen during the summer of 2016. At the time,
U.S. stocks were trading in a rather narrow range and continued to do so until
just before the November 2016 U.S. presidential election. U.S. stocks rallied
strongly after Donald Trump prevailed on Election Day, as investors appeared to
like the President-elect's promises of lower tax rates, less regulation, and
more fiscal stimulus through infrastructure spending. U.S. stocks continued to
rise through December 2016, hitting new highs in January 2017.
Interest rates edged up during the summer and fall of 2016, amid improving U.S.
economic data and speculation about Federal Reserve (the Fed) monetary policy.
After the November 2016 election, interest rates increased, rising further in
anticipation of a December 2016 interest rate hike by the Fed. In December 2016,
the Fed raised short-term interest rates by 0.25% and indicated that three
interest rate increases were possible for 2017. Although interest rates trended
down in the final days of the reporting period, they increased again after the
Fed determined not to raise interest rates at its February 1, 2017 policy
meeting and investors focused on a possible interest rate increase in the spring
or summer of 2017.
Looking ahead, we are optimistic about the future, but it is prudent to remain
cautious. At USAA Investments, we see a number of factors that could affect the
financial markets. Disappointing economic data is one--the U.S. economy grew
just 1.9% in the fourth quarter of 2016, down from 3.5% in the third quarter.
Uncertainties surrounding the Trump administration, is another, as it has staked
out an economic growth agenda, but has not spelled out priorities and specifics.
================================================================================
================================================================================
At the end of the reporting period, U.S. stock prices appeared rather high. We
believe that earnings news in the coming months will have to be good to support
continued price appreciation. Additionally, stock investors will likely keep
viewing the new administration's words and actions through an economic growth
prism. We can expect the various sectors of the stock market to react in
different ways to potential changes.
As for the bond market, we believe that Fed interest rate increases during 2017
could add to short-term pressures. However, we see little reason to worry about
rising yields, as long as they do not rise too quickly. At USAA Investments, we
believe interest rates are likely to increase on a gradual basis; the economy is
still growing slowly and inflation remains on the low side. However, as interest
rates rise, the cost of borrowing may increase so we consider it a good time to
look at reducing variable-rate debt. Additionally, while rising yields will push
down bond prices, the result is more income for bond investors. Bonds also
continue to play an important role in a diversified portfolio, as they can
offset the potential volatility of stock holdings.
In this environment, we expect uncertainty to persist, so we think it's
important to make sure your financial house is in order. As we write to you, tax
season is on the horizon. You may be preparing to make contributions to your
IRA. It could also be a good time to do some goal planning, including a review
of your investment strategy to make sure it still suits your objectives, time
horizon, and tolerance for risk. A diversified portfolio based on one's
individual goals, time horizon, and risk tolerance is a good way to invest for
the long term. If you are uneasy about market risk in general or have concerns
about too much exposure to specific asset classes, please call USAA to speak
with an advisor.
Rest assured that we will continue to monitor economic conditions, Fed policy,
political developments, and other issues that have the potential to affect your
investments. From all of us here at USAA Investments, thank you for allowing us
to help you work toward your financial goals.
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. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 20
Financial Statements 21
Notes to Financial Statements 24
EXPENSE EXAMPLE 42
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
202729-0317
================================================================================
================================================================================
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 tax 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 JOHN P. HARLOE, CFA
JEFF G. FAHRENBRUCH, CFA LEWIS ROPP
DAVID W. GANUCHEAU, CFA CORY L. MARTIN
JAMES S. McCLURE, CFA
--------------------------------------------------------------------------------
o PLEASE REVIEW MARKET CONDITIONS OVER THE REPORTING PERIOD.
Initially the reporting period showed little movement among stocks; however,
by September 2016 the equity markets began to experience volatility.
Speculation over a potential Federal Reserve (the Fed) interest rate hike
initially led to a decline, but the market experienced strong gains over the
second half of the reporting period, driven by continued economic
improvement and the November 8, 2016 U.S. elections. The results of the
elections led to speculation around stronger economic growth going forward
with the Republicans winning the presidential election as well as
maintaining majorities in both houses of Congress.
The strongest gains for the reporting period were concentrated in financials
and cyclical areas, which were seen as being in the best position to benefit
from elevated stimulus and growth including energy, materials, and
industrials. Health care stocks lagged the broader market, likely due to
ongoing headlines around drug pricing and post-election uncertainty around
the future of the Affordable Care Act. Interest-rate-sensitive sectors such
as real estate and utilities also underperformed as investors began to
anticipate potential interest rate increases by the Fed. For the reporting
period ended January 31, 2017, all broad-based U.S. stock indexes finished
comfortably in double-digit positive territory.
================================================================================
2 | USAA VALUE FUND
================================================================================
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. At the end of the reporting period, the Fund Shares,
Institutional Shares, and Adviser Shares had a total return of 9.92%,
10.00%, and 9.81%, respectively. This compares to returns of 8.71% for the
Russell 3000(R) Value Index (the Index) and 9.41% 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?
Throughout the reporting period, the Fund remained positioned to benefit
from gradual economic improvement and an accompanying rise in market
interest rate levels. In this position, returns for the Fund versus the
benchmark were supported by underweight exposure to "bond substitute" areas
of the market including the utilities, real estate investment trusts, and
consumer staples sectors. The Fund's industrials sector exposure added to
relative performance as cyclical areas of the market benefited
post-election. Selection within the information technology sector also added
to relative performance, as the Fund held a number of names positioned to
benefit from the long-term trends toward automation and cloud-based delivery
of software and services. The Fund's health care sector position detracted
from performance, as that sector was negatively affected by post-election
uncertainty around the new administration's policy plans. In addition, while
overweight in
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
lenders, the Fund was underweight in the broader financials sector, which
benefited from the outlook for higher interest rates.
Specific holdings within the financials sector contributed to performance
including banking services conglomerate PNC Financial Services Group, Inc.,
and consumer lending giant Capital One Financial Corp. International
building materials conglomerate CRH plc ADR benefited from the outlook for
stepped up infrastructure spending, while General Dynamics Corp., saw its
shares rise on speculation over increased defense spending. The leading
detractors were concentrated heavily within the health care sector, and
included drug giant Teva Pharmaceutical Industries Ltd. ADR, health care
services company Cardinal Health, Inc., pharmaceutical chain CVS Health
Corp., benefits manager Express Scripts Holding Co., and multinational drug
company Sanofi ADR.
We believe the Fund continues to be positioned for an improving economic
backdrop and interest rate increases. Overall, BHMS maintains a preference
for economically sensitive sectors where it sees long-term value, such as
industrials, consumer discretionary, health care, and financials. While
healthcare stocks have lagged in recent quarters, we believe the long-term
outlook is favorable and are maintaining a significant weighting in the
healthcare sector. BHMS has begun to build the Fund's position within the
energy sector with a focus on strong balance sheets and predictable
production, while remaining focused on relative value. As always, 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.
================================================================================
4 | USAA VALUE FUND
================================================================================
INVESTMENT OVERVIEW
USAA VALUE FUND SHARES (FUND SHARES)
(Ticker Symbol: UVALX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $882.8 Million $807.1 Million
Net Asset Value Per Share $20.47 $19.41
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS 10 YEARS
9.92% 23.26% 12.55% 6.13%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
14.35% 13.23% 6.18%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
1.11%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016 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 net investment income
and realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP
USAA VALUE RUSSELL 3000 VALUE FUNDS
FUND SHARES VALUE INDEX INDEX
1/31/2007 $10,000.00 $10,000.00 $10,000.00
2/28/2007 9,927.00 9,847.12 9,829.01
3/31/2007 10,112.00 9,996.32 9,912.67
4/30/2007 10,449.00 10,341.59 10,319.86
5/31/2007 10,872.00 10,715.18 10,714.35
6/30/2007 10,687.00 10,464.97 10,524.59
7/31/2007 10,178.00 9,946.45 10,036.47
8/31/2007 10,231.00 10,065.06 10,056.54
9/30/2007 10,456.00 10,386.36 10,322.19
10/31/2007 10,528.00 10,396.38 10,364.75
11/30/2007 10,145.00 9,866.61 9,839.38
12/31/2007 9,962.00 9,772.04 9,730.88
1/31/2008 9,597.00 9,379.89 9,259.25
2/29/2008 9,198.00 8,988.48 8,931.29
3/31/2008 8,854.00 8,936.67 8,753.14
4/30/2008 9,295.00 9,360.19 9,200.43
5/31/2008 9,515.00 9,371.31 9,365.34
6/30/2008 8,613.00 8,474.70 8,500.73
7/31/2008 8,565.00 8,479.74 8,406.99
8/31/2008 8,696.00 8,644.74 8,501.66
9/30/2008 8,008.00 8,028.68 7,714.48
10/31/2008 6,570.00 6,620.33 6,300.41
11/30/2008 6,082.00 6,121.76 5,881.73
12/31/2008 6,368.00 6,229.52 6,067.31
1/31/2009 5,882.00 5,499.10 5,546.31
2/28/2009 5,150.00 4,762.04 4,936.35
3/31/2009 5,601.00 5,170.46 5,365.99
4/30/2009 6,241.00 5,745.98 5,949.49
5/31/2009 6,530.00 6,081.95 6,304.89
6/30/2009 6,593.00 6,039.52 6,262.00
7/31/2009 7,268.00 6,549.53 6,775.45
8/31/2009 7,585.00 6,889.55 7,067.85
9/30/2009 7,789.00 7,162.00 7,352.12
10/31/2009 7,613.00 6,922.11 7,168.03
11/30/2009 8,092.00 7,298.99 7,486.67
12/31/2009 8,326.00 7,460.57 7,680.41
1/31/2010 8,155.00 7,250.03 7,469.57
2/28/2010 8,454.00 7,487.59 7,711.88
3/31/2010 8,960.00 7,986.20 8,155.23
4/30/2010 9,152.00 8,222.48 8,350.46
5/31/2010 8,411.00 7,544.97 7,654.71
6/30/2010 7,834.00 7,100.51 7,181.05
7/31/2010 8,419.00 7,583.27 7,673.32
8/31/2010 7,906.00 7,239.45 7,303.74
9/30/2010 8,703.00 7,817.56 7,937.23
10/31/2010 8,924.00 8,057.51 8,206.39
11/30/2010 8,974.00 8,034.51 8,170.15
12/31/2010 9,667.00 8,671.19 8,797.18
1/31/2011 9,969.00 8,851.65 8,993.35
2/28/2011 10,285.00 9,188.07 9,317.04
3/31/2011 10,364.00 9,232.02 9,409.02
4/30/2011 10,659.00 9,469.86 9,659.41
5/31/2011 10,551.00 9,364.05 9,521.00
6/30/2011 10,379.00 9,168.83 9,319.28
7/31/2011 9,882.00 8,864.80 8,990.90
8/31/2011 9,206.00 8,292.76 8,291.01
9/30/2011 8,430.00 7,643.82 7,501.37
10/31/2011 9,480.00 8,536.40 8,439.15
11/30/2011 9,494.00 8,494.30 8,383.83
12/31/2011 9,626.00 8,662.44 8,435.05
1/31/2012 10,041.00 9,009.62 8,915.11
2/29/2012 10,485.00 9,350.69 9,332.67
3/31/2012 10,813.00 9,628.89 9,547.49
4/30/2012 10,616.00 9,527.45 9,429.60
5/31/2012 9,903.00 8,966.91 8,751.52
6/30/2012 10,281.00 9,410.96 9,099.42
7/31/2012 10,354.00 9,493.68 9,136.85
8/31/2012 10,602.00 9,706.31 9,412.04
9/30/2012 10,857.00 10,017.27 9,668.88
10/31/2012 10,806.00 9,962.29 9,633.45
11/30/2012 10,849.00 9,960.74 9,672.92
12/31/2012 11,022.00 10,182.52 9,888.74
1/31/2013 11,613.00 10,840.14 10,523.84
2/28/2013 11,761.00 10,993.30 10,656.88
3/31/2013 12,264.00 11,430.52 11,107.31
4/30/2013 12,478.00 11,589.13 11,247.10
5/31/2013 12,944.00 11,890.23 11,620.94
6/30/2013 12,855.00 11,789.74 11,471.99
7/31/2013 13,580.00 12,435.78 12,110.98
8/31/2013 13,166.00 11,957.86 11,742.56
9/30/2013 13,661.00 12,288.10 12,141.81
10/31/2013 14,164.00 12,815.05 12,668.57
11/30/2013 14,674.00 13,183.92 13,023.16
12/31/2013 14,973.00 13,510.91 13,328.48
1/31/2014 14,397.00 13,027.65 12,868.66
2/28/2014 15,050.00 13,593.63 13,429.41
3/31/2014 15,304.00 13,905.65 13,656.71
4/30/2014 15,189.00 13,998.62 13,691.16
5/31/2014 15,419.00 14,194.62 13,943.33
6/30/2014 15,788.00 14,585.34 14,307.63
7/31/2014 15,373.00 14,285.58 13,976.41
8/31/2014 15,911.00 14,818.09 14,491.92
9/30/2014 15,488.00 14,458.31 14,045.96
10/31/2014 15,880.00 14,834.48 14,294.31
11/30/2014 16,188.00 15,109.04 14,582.40
12/31/2014 16,231.00 15,226.23 14,646.53
1/31/2015 15,627.00 14,615.57 14,166.11
2/28/2015 16,610.00 15,320.58 14,950.39
3/31/2015 16,449.00 15,148.20 14,829.58
4/30/2015 16,578.00 15,252.75 14,938.81
5/31/2015 16,836.00 15,431.62 15,119.59
6/30/2015 16,594.00 15,148.65 14,827.53
7/31/2015 16,522.00 15,175.12 14,843.86
8/31/2015 15,659.00 14,283.95 14,017.11
9/30/2015 15,079.00 13,847.63 13,476.74
10/31/2015 16,143.00 14,870.81 14,443.80
11/30/2015 16,183.00 14,956.60 14,464.24
12/31/2015 15,666.00 14,597.33 13,983.01
1/31/2016 14,714.00 13,825.41 13,072.78
2/29/2016 14,654.00 13,829.41 13,138.73
3/31/2016 15,564.00 14,837.22 14,134.12
4/30/2016 15,938.00 15,149.06 14,469.09
5/31/2016 16,099.00 15,387.69 14,618.58
6/30/2016 15,912.00 15,514.85 14,522.57
7/31/2016 16,499.00 15,993.56 15,038.93
8/31/2016 16,686.00 16,137.33 15,159.58
9/30/2016 16,601.00 16,115.85 15,124.29
10/31/2016 16,414.00 15,845.03 14,933.99
11/30/2016 17,680.00 16,840.20 15,919.41
12/31/2016 17,914.00 17,283.18 16,267.45
1/31/2017 18,135.00 17,386.19 16,454.65
[END CHART]
Data from 1/31/07 to 1/31/17.
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 are also 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 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.
================================================================================
6 | USAA VALUE FUND
================================================================================
USAA VALUE FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIVAX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $566.6 Million $522.7 Million
Net Asset Value Per Share $20.45 $19.40
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
10.00% 23.42% 12.68% 9.42%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
14.50% 13.36% 9.36%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/16**
--------------------------------------------------------------------------------
0.98%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
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 VALUE FUND LIPPER MULTI-CAP
INSTITUTIONAL RUSSELL 3000 VALUE FUNDS
SHARES VALUE INDEX INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,177.00 10,194.58 10,112.61
9/30/2008 9,372.00 9,468.06 9,176.26
10/31/2008 7,689.00 7,807.23 7,494.25
11/30/2008 7,118.00 7,219.27 6,996.23
12/31/2008 7,455.00 7,346.36 7,216.98
1/31/2009 6,886.00 6,484.98 6,597.26
2/28/2009 6,036.00 5,615.79 5,871.72
3/31/2009 6,556.00 6,097.43 6,382.76
4/30/2009 7,306.00 6,776.13 7,076.84
5/31/2009 7,644.00 7,172.33 7,499.57
6/30/2009 7,727.00 7,122.30 7,448.56
7/31/2009 8,518.00 7,723.74 8,059.30
8/31/2009 8,898.00 8,124.71 8,407.11
9/30/2009 9,137.00 8,446.01 8,745.24
10/31/2009 8,931.00 8,163.12 8,526.27
11/30/2009 9,500.00 8,607.55 8,905.29
12/31/2009 9,771.00 8,798.10 9,135.74
1/31/2010 9,570.00 8,549.82 8,884.95
2/28/2010 9,922.00 8,829.97 9,173.17
3/31/2010 10,516.00 9,417.97 9,700.54
4/30/2010 10,750.00 9,696.61 9,932.75
5/31/2010 9,871.00 8,897.64 9,105.17
6/30/2010 9,202.00 8,373.50 8,541.76
7/31/2010 9,888.00 8,942.81 9,127.30
8/31/2010 9,286.00 8,537.34 8,687.70
9/30/2010 10,231.00 9,219.10 9,441.23
10/31/2010 10,490.00 9,502.06 9,761.38
11/30/2010 10,557.00 9,474.94 9,718.28
12/31/2010 11,372.00 10,225.77 10,464.12
1/31/2011 11,727.00 10,438.58 10,697.46
2/28/2011 12,108.00 10,835.32 11,082.49
3/31/2011 12,202.00 10,887.14 11,191.90
4/30/2011 12,549.00 11,167.62 11,489.74
5/31/2011 12,422.00 11,042.85 11,325.09
6/30/2011 12,218.00 10,812.63 11,085.16
7/31/2011 11,643.00 10,454.09 10,694.55
8/31/2011 10,847.00 9,779.49 9,862.03
9/30/2011 9,932.00 9,014.21 8,922.77
10/31/2011 11,169.00 10,066.81 10,038.24
11/30/2011 11,185.00 10,017.17 9,972.45
12/31/2011 11,351.00 10,215.45 10,033.37
1/31/2012 11,840.00 10,624.87 10,604.40
2/29/2012 12,365.00 11,027.09 11,101.08
3/31/2012 12,751.00 11,355.17 11,356.60
4/30/2012 12,519.00 11,235.54 11,216.37
5/31/2012 11,686.00 10,574.51 10,409.81
6/30/2012 12,124.00 11,098.16 10,823.63
7/31/2012 12,219.00 11,195.72 10,868.15
8/31/2012 12,511.00 11,446.46 11,195.49
9/30/2012 12,811.00 11,813.17 11,501.00
10/31/2012 12,751.00 11,748.33 11,458.85
11/30/2012 12,803.00 11,746.51 11,505.80
12/31/2012 13,012.00 12,008.05 11,762.52
1/31/2013 13,711.00 12,783.57 12,517.96
2/28/2013 13,886.00 12,964.19 12,676.21
3/31/2013 14,480.00 13,479.79 13,211.98
4/30/2013 14,734.00 13,666.84 13,378.26
5/31/2013 15,293.00 14,021.92 13,822.94
6/30/2013 15,179.00 13,903.41 13,645.77
7/31/2013 16,045.00 14,665.28 14,405.84
8/31/2013 15,546.00 14,101.68 13,967.61
9/30/2013 16,141.00 14,491.12 14,442.51
10/31/2013 16,735.00 15,112.54 15,069.08
11/30/2013 17,338.00 15,547.54 15,490.86
12/31/2013 17,703.00 15,933.15 15,854.04
1/31/2014 17,012.00 15,363.26 15,307.09
2/28/2014 17,784.00 16,030.71 15,974.10
3/31/2014 18,093.00 16,398.67 16,244.46
4/30/2014 17,957.00 16,508.30 16,285.44
5/31/2014 18,230.00 16,739.44 16,585.40
6/30/2014 18,666.00 17,200.22 17,018.72
7/31/2014 18,184.00 16,846.71 16,624.74
8/31/2014 18,812.00 17,474.69 17,237.94
9/30/2014 18,321.00 17,050.41 16,707.47
10/31/2014 18,784.00 17,494.02 17,002.88
11/30/2014 19,148.00 17,817.80 17,345.56
12/31/2014 19,199.00 17,956.00 17,421.84
1/31/2015 18,492.00 17,235.86 16,850.38
2/28/2015 19,657.00 18,067.27 17,783.28
3/31/2015 19,466.00 17,863.98 17,639.58
4/30/2015 19,619.00 17,987.27 17,769.50
5/31/2015 19,934.00 18,198.22 17,984.54
6/30/2015 19,638.00 17,864.51 17,637.14
7/31/2015 19,561.00 17,895.73 17,656.57
8/31/2015 18,540.00 16,844.79 16,673.15
9/30/2015 17,853.00 16,330.25 16,030.39
10/31/2015 19,122.00 17,536.86 17,180.69
11/30/2015 19,161.00 17,638.03 17,205.01
12/31/2015 18,556.00 17,214.36 16,632.59
1/31/2016 17,427.00 16,304.04 15,549.88
2/29/2016 17,356.00 16,308.75 15,628.33
3/31/2016 18,445.00 17,497.25 16,812.34
4/30/2016 18,888.00 17,865.00 17,210.77
5/31/2016 19,080.00 18,146.41 17,388.60
6/30/2016 18,858.00 18,296.36 17,274.39
7/31/2016 19,553.00 18,860.90 17,888.59
8/31/2016 19,785.00 19,030.44 18,032.11
9/30/2016 19,684.00 19,005.11 17,990.13
10/31/2016 19,463.00 18,685.74 17,763.77
11/30/2016 20,964.00 19,859.33 18,935.91
12/31/2016 21,245.00 20,381.73 19,349.90
1/31/2017 21,508.00 20,503.20 19,572.58
[END CHART]
Data from 7/31/08 to 1/31/17.*
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 6 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.
================================================================================
8 | USAA VALUE FUND
================================================================================
USAA VALUE FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAVAX)
--------------------------------------------------------------------------------
1/31/17 7/31/16
--------------------------------------------------------------------------------
Net Assets $9.1 Million $8.8 Million
Net Asset Value Per Share $20.41 $19.32
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/17
--------------------------------------------------------------------------------
7/31/16-1/31/17* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
9.81% 22.92% 12.18% 11.75%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
14.01% 12.87% 11.71%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.42% AFTER REIMBURSEMENT 1.30%
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 2017, 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 1.30% 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 November 30,
2017. If the total annual operating expense ratio of the Adviser Shares is
lower than 1.30%, 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 net investment income
and realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA VALUE
RUSSELL 3000 VALUE FUNDS FUND ADVISER
VALUE INDEX INDEX SHARES
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,546.60 9,518.37 9,188.00
9/30/2010 10,308.96 10,343.94 10,116.00
10/31/2010 10,625.37 10,694.71 10,365.00
11/30/2010 10,595.04 10,647.48 10,423.00
12/31/2010 11,434.64 11,464.64 11,223.00
1/31/2011 11,672.60 11,720.29 11,566.00
2/28/2011 12,116.24 12,142.13 11,934.00
3/31/2011 12,174.19 12,262.00 12,017.00
4/30/2011 12,487.83 12,588.32 12,352.00
5/31/2011 12,348.30 12,407.93 12,218.00
6/30/2011 12,090.87 12,145.06 12,017.00
7/31/2011 11,689.95 11,717.10 11,432.00
8/31/2011 10,935.60 10,804.98 10,655.00
9/30/2011 10,079.84 9,775.91 9,744.00
10/31/2011 11,256.88 10,998.04 10,956.00
11/30/2011 11,201.37 10,925.96 10,964.00
12/31/2011 11,423.10 10,992.71 11,111.00
1/31/2012 11,880.92 11,618.33 11,591.00
2/29/2012 12,330.68 12,162.50 12,096.00
3/31/2012 12,697.55 12,442.46 12,466.00
4/30/2012 12,563.77 12,288.82 12,239.00
5/31/2012 11,824.59 11,405.14 11,414.00
6/30/2012 12,410.16 11,858.52 11,843.00
7/31/2012 12,519.24 11,907.30 11,919.00
8/31/2012 12,799.63 12,265.94 12,197.00
9/30/2012 13,209.69 12,600.66 12,483.00
10/31/2012 13,137.19 12,554.48 12,424.00
11/30/2012 13,135.15 12,605.92 12,466.00
12/31/2012 13,427.61 12,887.18 12,667.00
1/31/2013 14,294.80 13,714.86 13,339.00
2/28/2013 14,496.78 13,888.23 13,510.00
3/31/2013 15,073.33 14,475.24 14,080.00
4/30/2013 15,282.50 14,657.41 14,318.00
5/31/2013 15,679.55 15,144.61 14,846.00
6/30/2013 15,547.04 14,950.50 14,735.00
7/31/2013 16,398.96 15,783.25 15,570.00
8/31/2013 15,768.74 15,303.11 15,084.00
9/30/2013 16,204.22 15,823.42 15,655.00
10/31/2013 16,899.10 16,509.90 16,217.00
11/30/2013 17,385.53 16,972.01 16,795.00
12/31/2013 17,816.73 17,369.91 17,143.00
1/31/2014 17,179.46 16,770.66 16,473.00
2/28/2014 17,925.82 17,501.45 17,213.00
3/31/2014 18,337.27 17,797.66 17,513.00
4/30/2014 18,459.87 17,842.56 17,372.00
5/31/2014 18,718.34 18,171.19 17,637.00
6/30/2014 19,233.58 18,645.95 18,060.00
7/31/2014 18,838.28 18,214.31 17,584.00
8/31/2014 19,540.51 18,886.13 18,192.00
9/30/2014 19,066.06 18,304.94 17,707.00
10/31/2014 19,562.11 18,628.59 18,148.00
11/30/2014 19,924.17 19,004.05 18,501.00
12/31/2014 20,078.71 19,087.61 18,539.00
1/31/2015 19,273.44 18,461.52 17,847.00
2/28/2015 20,203.13 19,483.61 18,973.00
3/31/2015 19,975.81 19,326.18 18,779.00
4/30/2015 20,113.68 19,468.51 18,917.00
5/31/2015 20,349.56 19,704.12 19,222.00
6/30/2015 19,976.41 19,323.50 18,936.00
7/31/2015 20,011.31 19,344.79 18,853.00
8/31/2015 18,836.13 18,267.35 17,856.00
9/30/2015 18,260.76 17,563.13 17,192.00
10/31/2015 19,610.02 18,823.41 18,400.00
11/30/2015 19,723.15 18,850.05 18,437.00
12/31/2015 19,249.39 18,222.91 17,851.00
1/31/2016 18,231.46 17,036.67 16,754.00
2/29/2016 18,236.73 17,122.62 16,686.00
3/31/2016 19,565.73 18,419.83 17,725.00
4/30/2016 19,976.95 18,856.37 18,143.00
5/31/2016 20,291.63 19,051.19 18,317.00
6/30/2016 20,459.31 18,926.07 18,104.00
7/31/2016 21,090.59 19,599.00 18,754.00
8/31/2016 21,280.17 19,756.24 18,968.00
9/30/2016 21,251.84 19,710.24 18,871.00
10/31/2016 20,894.71 19,462.24 18,657.00
11/30/2016 22,207.04 20,746.45 20,084.00
12/31/2016 22,791.20 21,200.02 20,352.00
1/31/2017 22,927.03 21,443.99 20,594.00
[END CHART]
Data from 7/31/10 to 1/31/17.*
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 6 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.
================================================================================
10 | USAA VALUE FUND
================================================================================
o TOP 10 HOLDINGS* - 1/31/17 o
(% of Net Assets)
Johnson Controls International plc ...................................... 2.4%
Wells Fargo & Co. ....................................................... 2.1%
Cardinal Health, Inc. ................................................... 1.9%
CVS Health Corp. ........................................................ 1.9%
JPMorgan Chase & Co. .................................................... 1.9%
Medtronic plc ........................................................... 1.8%
BP plc ADR .............................................................. 1.8%
Altria Group, Inc. ...................................................... 1.8%
Air Products & Chemicals, Inc. .......................................... 1.8%
Philip Morris International, Inc. ....................................... 1.7%
o SECTOR ALLOCATION* - 1/31/17 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 19.6%
INDUSTRIALS 15.7%
HEALTH CARE 15.3%
INFORMATION TECHNOLOGY 11.5%
ENERGY 9.9%
CONSUMER DISCRETIONARY 8.8%
CONSUMER STAPLES 6.6%
MATERIALS 6.1%
TELECOMMUNICATION SERVICES 2.2%
UTILITIES 1.2%
REAL ESTATE 0.5%
[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, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.4%)
COMMON STOCKS (97.4%)
CONSUMER DISCRETIONARY (8.8%)
-----------------------------
APPAREL RETAIL (0.4%)
103,400 L Brands, Inc. $ 6,226
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.6%)
390,400 Hanesbrands, Inc. 9,256
----------
AUTO PARTS & EQUIPMENT (0.5%)
346,223 American Axle & Manufacturing Holdings, Inc.* 7,063
----------
GENERAL MERCHANDISE STORES (0.7%)
146,143 Target Corp. 9,423
----------
HOME IMPROVEMENT RETAIL (1.0%)
190,852 Lowe's Companies, Inc. 13,947
----------
HOMEFURNISHING RETAIL (0.3%)
160,100 RH* 4,326
----------
HOTELS, RESORTS & CRUISE LINES (2.5%)
232,160 Carnival Corp. 12,857
254,000 Norwegian Cruise Line Holdings Ltd.* 11,938
131,700 Royal Caribbean Cruises Ltd. 12,331
----------
37,126
----------
HOUSEHOLD APPLIANCES (1.1%)
87,947 Whirlpool Corp. 15,381
----------
LEISURE FACILITIES (0.3%)
268,500 SeaWorld Entertainment, Inc. 4,862
----------
MOVIES & ENTERTAINMENT (0.8%)
385,900 Twenty-First Century Fox, Inc. "A" 12,110
----------
PUBLISHING (0.4%)
93,600 Meredith Corp. 5,738
----------
SPECIALTY STORES (0.2%)
140,400 Vitamin Shoppe, Inc.* 3,040
----------
Total Consumer Discretionary 128,498
----------
================================================================================
12 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (6.6%)
-----------------------
DRUG RETAIL (1.9%)
356,200 CVS Health Corp. $ 28,072
----------
SOFT DRINKS (0.5%)
198,700 Coca-Cola European Partners plc 6,861
----------
TOBACCO (4.2%)
356,818 Altria Group, Inc. 25,398
263,787 Philip Morris International, Inc. 25,358
169,840 Reynolds American, Inc. 10,213
----------
60,969
----------
Total Consumer Staples 95,902
----------
ENERGY (9.9%)
-------------
INTEGRATED OIL & GAS (4.0%)
734,556 BP plc ADR 26,429
104,400 Chevron Corp. 11,625
299,224 Occidental Petroleum Corp. 20,279
----------
58,333
----------
OIL & GAS EXPLORATION & PRODUCTION (3.9%)
317,200 Callon Petroleum Co.* 4,847
642,300 Chesapeake Energy Corp.* 4,143
492,357 ConocoPhillips 24,007
241,600 Devon Energy Corp. 11,003
133,987 Range Resources Corp. 4,333
213,500 Vermilion Energy, Inc. 8,794
----------
57,127
----------
OIL & GAS REFINING & MARKETING (1.4%)
258,000 PBF Energy, Inc. "A" 5,983
166,077 Phillips 66 13,555
----------
19,538
----------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
340,700 Golar LNG Ltd. 8,810
----------
Total Energy 143,808
----------
FINANCIALS (19.6%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.2%)
63,000 Ameriprise Financial, Inc. 7,073
135,089 State Street Corp. 10,294
----------
17,367
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER FINANCE (4.1%)
228,241 American Express Co. $ 17,433
178,135 Capital One Financial Corp. 15,567
164,500 Discover Financial Services 11,397
575,900 Navient Corp. 8,662
646,400 SLM Corp.* 7,679
----------
60,738
----------
DIVERSIFIED BANKS (6.6%)
855,666 Bank of America Corp. 19,372
340,153 Citigroup, Inc. 18,991
321,144 JPMorgan Chase & Co. 27,178
551,867 Wells Fargo & Co. 31,087
----------
96,628
----------
INSURANCE BROKERS (0.6%)
65,907 Willis Towers Watson plc 8,247
----------
MULTI-LINE INSURANCE (1.6%)
361,021 American International Group, Inc. 23,199
----------
PROPERTY & CASUALTY INSURANCE (1.5%)
206,500 FNF Group 7,302
384,900 XL Group Ltd. 14,460
----------
21,762
----------
REGIONAL BANKS (3.3%)
241,400 Fifth Third Bancorp 6,300
181,900 KeyCorp 3,269
76,099 PNC Financial Services Group, Inc. 9,167
104,900 Prosperity Bancshares, Inc. 7,619
124,200 Texas Capital Bancshares, Inc.* 10,246
99,800 UMB Financial Corp. 7,699
327,400 Valley National Bancorp 3,965
----------
48,265
----------
THRIFTS & MORTGAGE FINANCE (0.7%)
669,300 New York Community Bancorp, Inc. 10,167
----------
Total Financials 286,373
----------
HEALTH CARE (15.3%)
-------------------
HEALTH CARE DISTRIBUTORS (2.2%)
380,200 Cardinal Health, Inc. 28,500
100,331 Patterson Companies, Inc. 4,175
----------
32,675
----------
================================================================================
14 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT (1.8%)
349,183 Medtronic plc $ 26,545
----------
HEALTH CARE FACILITIES (0.4%)
129,180 HealthSouth Corp. 5,015
----------
HEALTH CARE SERVICES (1.3%)
278,797 Express Scripts Holding Co.* 19,203
----------
MANAGED HEALTH CARE (3.3%)
158,655 Anthem, Inc. 24,455
81,000 Cigna Corp. 11,844
70,861 UnitedHealth Group, Inc. 11,486
----------
47,785
----------
PHARMACEUTICALS (6.3%)
191,802 Johnson & Johnson 21,722
282,429 Merck & Co., Inc. 17,508
688,843 Pfizer, Inc. 21,857
394,484 Sanofi ADR 16,087
429,591 Teva Pharmaceutical Industries Ltd. ADR 14,361
----------
91,535
----------
Total Health Care 222,758
----------
INDUSTRIALS (15.7%)
-------------------
AEROSPACE & DEFENSE (4.6%)
95,233 General Dynamics Corp. 17,245
144,900 Mercury Systems, Inc.* 4,886
64,500 Orbital ATK, Inc. 5,608
49,544 Raytheon Co. 7,142
169,600 Spirit AeroSystems Holdings, Inc. "A" 10,185
197,569 United Technologies Corp. 21,667
----------
66,733
----------
AGRICULTURAL & FARM MACHINERY (0.8%)
473,100 CNH Industrial N.V. 4,239
73,373 Deere & Co. 7,855
----------
12,094
----------
BUILDING PRODUCTS (4.5%)
127,125 Gibraltar Industries, Inc.* 5,581
784,203 Johnson Controls International plc 34,489
227,000 Owens Corning, Inc. 12,542
147,500 Simpson Manufacturing Co., Inc. 6,419
90,200 Trex Co., Inc.* 6,109
----------
65,140
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING (0.7%)
135,221 Comfort Systems USA, Inc. $ 4,577
251,800 Primoris Services Corp. 6,250
----------
10,827
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.9%)
69,900 Oshkosh Corp. 4,867
243,202 Terex Corp. 7,734
----------
12,601
----------
DIVERSIFIED SUPPORT SERVICES (0.3%)
142,630 Mobile Mini, Inc. 4,643
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
100,100 Encore Wire Corp. 4,229
----------
INDUSTRIAL CONGLOMERATES (0.9%)
114,735 Honeywell International, Inc. 13,575
----------
INDUSTRIAL MACHINERY (1.5%)
135,500 Barnes Group, Inc. 6,522
147,600 Colfax Corp.* 5,756
81,500 Stanley Black & Decker, Inc. 10,106
----------
22,384
----------
RAILROADS (0.5%)
57,200 Norfolk Southern Corp. 6,719
----------
RESEARCH & CONSULTING SERVICES (0.4%)
127,400 Nielsen Holdings plc 5,212
----------
TRUCKING (0.3%)
62,600 Ryder System, Inc. 4,858
----------
Total Industrials 229,015
----------
INFORMATION TECHNOLOGY (11.5%)
------------------------------
APPLICATION SOFTWARE (0.4%)
156,400 Mentor Graphics Corp. 5,773
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.4%)
106,800 Total System Services, Inc. 5,413
----------
ELECTRONIC COMPONENTS (1.4%)
304,500 II-VI, Inc.* 11,115
561,640 Vishay Intertechnology, Inc. 9,323
----------
20,438
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.7%)
119,000 FARO Technologies, Inc.* 4,415
99,700 MTS Systems Corp. 5,792
----------
10,207
----------
================================================================================
16 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.6%)
97,400 Park Electrochemical Corp. $ 1,785
141,300 Plexus Corp.* 7,673
----------
9,458
----------
SEMICONDUCTOR EQUIPMENT (1.3%)
435,100 Brooks Automation, Inc. 7,579
437,186 Photronics, Inc.* 5,028
148,300 Versum Materials, Inc.* 4,145
300,000 Xcerra Corp.* 2,274
----------
19,026
----------
SEMICONDUCTORS (3.5%)
258,430 Diodes, Inc.* 6,432
145,200 Microchip Technology, Inc. 9,779
324,819 QUALCOMM, Inc. 17,355
236,612 Texas Instruments, Inc. 17,874
----------
51,440
----------
SYSTEMS SOFTWARE (3.2%)
332,721 Microsoft Corp. 21,510
628,766 Oracle Corp. 25,220
----------
46,730
----------
Total Information Technology 168,485
----------
MATERIALS (6.1%)
----------------
CONSTRUCTION MATERIALS (0.5%)
215,500 CRH plc ADR 7,439
----------
DIVERSIFIED CHEMICALS (0.7%)
127,700 E.I. du Pont de Nemours & Co. 9,641
----------
DIVERSIFIED METALS & MINING (0.4%)
545,600 Ferroglobe plc 5,734
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (1.0%)
155,400 FMC Corp. 9,349
61,731 Scotts Miracle-Gro Co. "A" 5,677
----------
15,026
----------
INDUSTRIAL GASES (1.8%)
180,565 Air Products & Chemicals, Inc. 25,236
----------
SPECIALTY CHEMICALS (1.4%)
277,400 Axalta Coating Systems Ltd.* 8,045
50,300 Celanese Corp. "A" 4,245
213,800 Flotek Industries, Inc.* 2,260
184,000 PolyOne Corp. 6,276
----------
20,826
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
STEEL (0.3%)
219,400 Allegheny Technologies, Inc. $ 4,768
----------
Total Materials 88,670
----------
REAL ESTATE (0.5%)
------------------
REITs - OFFICE (0.2%)
87,300 Corporate Office Properties Trust 2,778
----------
REITs - SPECIALIZED (0.3%)
124,300 Geo Group, Inc. 5,161
----------
Total Real Estate 7,939
----------
TELECOMMUNICATION SERVICES (2.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.2%)
215,114 AT&T, Inc. 9,069
460,442 Verizon Communications, Inc. 22,566
----------
31,635
----------
Total Telecommunication Services 31,635
----------
UTILITIES (1.2%)
----------------
ELECTRIC UTILITIES (0.9%)
86,200 Pinnacle West Capital Corp. 6,692
169,000 Xcel Energy, Inc. 6,983
----------
13,675
----------
MULTI-UTILITIES (0.3%)
144,000 CenterPoint Energy, Inc. 3,774
----------
Total Utilities 17,449
----------
Total Common Stocks (cost: $1,029,839) 1,420,532
----------
RIGHTS (0.0%)
MATERIALS (0.0%)
----------------
DIVERSIFIED METALS & MINING (0.0%)
545,600 Ferroglobe Representation & Warranty Insurance Trust*(a) (cost: $0) -
----------
Total Equity Securities (cost: $1,029,839) 1,420,532
----------
MONEY MARKET INSTRUMENTS (2.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.4%)
34,486,765 State Street Institutional Treasury Money Market Fund
Premier Class, 0.42%(b) (cost: $34,487) 34,487
----------
TOTAL INVESTMENTS (COST: $1,064,326) $1,455,019
==========
================================================================================
18 | USAA VALUE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,420,532 $- $- $1,420,532
Rights - - - -
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 34,487 - - 34,487
--------------------------------------------------------------------------------------------------------
Total $1,455,019 $- $- $1,455,019
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2016, through January 31, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2017 (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 7.4% of net assets at January 31,
2017.
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) Security was fair valued at January 31, 2017, by USAA Asset Management
Company in accordance with valuation procedures approved by USAA Mutual
Funds Trust's Board of Trustees.
(b) Rate represents the money market fund annualized seven-day yield at
January 31, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
20 | USAA VALUE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,064,326) $1,455,019
Receivables:
Capital shares sold:
Affiliated transactions (Note 7) 3,303
Nonaffiliated transactions 2,451
USAA Asset Management Company (Note 6D) 2
Dividends and interest 1,270
----------
Total assets 1,462,045
----------
LIABILITIES
Payables:
Securities purchased 1,545
Capital shares redeemed 890
Accrued management fees 922
Accrued transfer agent's fees 39
Other accrued expenses and payables 102
----------
Total liabilities 3,498
----------
Net assets applicable to capital shares outstanding $1,458,547
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,041,771
Overdistribution of net investment income (298)
Accumulated net realized gain on investments 26,380
Net unrealized appreciation of investments 390,693
Net unrealized appreciation of foreign currency translations 1
----------
Net assets applicable to capital shares outstanding $1,458,547
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $882,770/43,135
capital shares outstanding, no par value) $ 20.47
==========
Institutional Shares (net assets of $566,643/27,712
capital shares outstanding, no par value) $ 20.45
==========
Adviser Shares (net assets of $9,134/448
capital shares outstanding, no par value) $ 20.41
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $62) $ 19,004
Interest 46
--------
Total income 19,050
--------
EXPENSES
Management fees 5,193
Administration and servicing fees:
Fund Shares 630
Institutional Shares 268
Adviser Shares 7
Transfer agent's fees:
Fund Shares 608
Institutional Shares 268
Distribution and service fees (Note 6F):
Adviser Shares 11
Custody and accounting fees:
Fund Shares 52
Institutional Shares 33
Adviser Shares 1
Postage:
Fund Shares 40
Shareholder reporting fees:
Fund Shares 19
Trustees' fees 15
Registration fees:
Fund Shares 12
Institutional Shares 11
Adviser Shares 10
Professional fees 69
Other 14
--------
Total expenses 7,261
Expenses reimbursed:
Adviser Shares (2)
--------
Net expenses 7,259
--------
NET INVESTMENT INCOME 11,791
--------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain 45,954
Change in net unrealized appreciation/(depreciation) of:
Investments 73,583
Foreign currency translations 1
--------
Net realized and unrealized gain 119,538
--------
Increase in net assets resulting from operations $131,329
========
See accompanying notes to financial statements.
================================================================================
22 | USAA VALUE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2017 (unaudited), and year ended
July 31, 2016
--------------------------------------------------------------------------------------------------------
1/31/2017 7/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 11,791 $ 16,595
Net realized gain on investments 45,954 22,335
Change in net unrealized appreciation/(depreciation) of:
Investments 73,583 (36,431)
Foreign currency translations 1 -
------------------------------
Increase in net assets resulting from operations 131,329 2,499
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (12,200) (11,360)
Institutional Shares (8,357) (4,726)
Adviser Shares (103) (82)
------------------------------
Total distributions of net investment income (20,660) (16,168)
------------------------------
Net realized gains:
Fund Shares (23,766) (36,580)
Institutional Shares (15,022) (14,111)
Adviser Shares (258) (351)
------------------------------
Total distributions of net realized gains (39,046) (51,042)
------------------------------
Distributions to shareholders (59,706) (67,210)
------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 32,416 (85,915)
Institutional Shares 16,092 218,991
Adviser Shares (124) (9)
------------------------------
Total net increase in net assets from capital
share transactions 48,384 133,067
------------------------------
Net increase in net assets 120,007 68,356
NET ASSETS
Beginning of period 1,338,540 1,270,184
------------------------------
End of period $1,458,547 $1,338,540
==============================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (298) $ 8,571
==============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2017 (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' 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
================================================================================
24 | USAA VALUE FUND
================================================================================
institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies,
investment advisers, plan sponsors, and financial professionals that provide
various administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board 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:
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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. 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. Actively traded equity
securities listed on a domestic exchange generally are categorized in
Level 1 of the fair value hierarchy. Certain preferred and equity
securities traded in inactive markets generally are categorized in Level
2 of the fair value hierarchy.
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
================================================================================
26 | USAA VALUE FUND
================================================================================
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 which occur on a
fairly regular basis (such as U.S. market movements) are significant.
Such securities are categorized in Level 2 of the fair value hierarchy.
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 and are categorized in Level 1 of the fair value hierarchy.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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.
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
================================================================================
28 | USAA VALUE FUND
================================================================================
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities 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. Premiums and discounts on short- term
securities are amortized on a straight-line basis over the life of the
respective 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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, net realized foreign currency gains/losses are reclassified from
accumulated net realized gains/losses to accumulated undistributed net
investment income on the Statement of Assets and Liabilities, as such
amounts are treated as ordinary income/loss for federal income tax
purposes. Net unrealized foreign currency exchange gains/losses arise
from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period ended January 31, 2017, the Fund
did not receive any brokerage commission recapture credits. Additionally,
there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
================================================================================
30 | USAA VALUE FUND
================================================================================
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust, 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 provide temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability (including usage of the facility by other funds of the
Trust), 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),
plus 100.0 basis points.
The Funds are also assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2016, the maximum annual facility fee was 9.0 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 from
$500 million up to $750 million. If the Funds increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 13.0 basis points.
For the six-month period ended January 31, 2017, the Fund paid CAPCO facility
fees of $5,000, which represents 1.9% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2017, in
accordance with applicable federal 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 income tax.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
At July 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2017, 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 basis 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, 2017, were
$250,534,000 and $250,948,000, respectively.
As of January 31, 2017, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2017, were $419,920,000 and $29,227,000, respectively, resulting in net
unrealized appreciation of $390,693,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2017, 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
================================================================================
32 | USAA VALUE 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, 2017 JULY 31, 2016
--------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
FUND SHARES:
Shares sold 3,315 $ 66,533 6,682 $ 124,724
Shares issued from reinvested
dividends 1,722 35,534 2,535 47,491
Shares redeemed (3,490) (69,651) (14,493) (258,130)
--------------------------------------------------------------
Net increase (decrease) from
capital share transactions 1,547 $ 32,416 (5,276) $ (85,915)
==============================================================
INSTITUTIONAL SHARES:
Shares sold 1,853 $ 36,965 13,507 $ 241,166
Shares issued from reinvested
dividends 1,133 23,375 1,006 18,819
Shares redeemed (2,217) (44,248) (2,208) (40,994)
--------------------------------------------------------------
Net increase from
capital share transactions 769 $ 16,092 12,305 $ 218,991
==============================================================
ADVISER SHARES:
Shares sold 1 $ 12 7 $ 129
Shares issued from reinvested
dividends -* 4 -* 3
Shares redeemed (7) (140) (7) (141)
--------------------------------------------------------------
Net decrease from
capital share transactions (6) $ (124) (-)* $ (9)
==============================================================
*Represents less than 500 shares.
(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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 is also responsible for determining the asset allocation for 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' 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 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.
Each class' 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.
================================================================================
34 | USAA VALUE FUND
================================================================================
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $5,193,000, which
included a (0.01)% performance adjustment of less than $(500) for the
Adviser Shares. The Fund Shares and Institutional Shares did not incur any
performance adjustment for the six-month period ended January 31, 2017.
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, 2017, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to BHMS, of $1,509,000.
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, 2017, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $630,000, $268,000, and $7,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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, 2017, the Fund reimbursed the Manager
$15,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - Effective December 1, 2016, the Manager agreed,
through November 30, 2017, to limit the total annual operating expenses of
the Adviser Shares to 1.30% 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 not be changed or
terminated through November 30, 2017, 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, 2017, the Adviser Shares incurred
reimbursable expenses of $2,000, of which all $2,000 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, 2017, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $608,000, $268,000, and less than $500, respectively.
F. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company (IMCO), the distributor, for
================================================================================
36 | USAA VALUE FUND
================================================================================
distribution and shareholder services. IMCO 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,
2017, the Adviser Shares incurred distribution and service (12b-1) fees of
$11,000.
G. UNDERWRITING SERVICES - IMCO 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, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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, 2017, the Fund
recorded a receivable for capital shares sold of $3,303,000 for the USAA
fund-of-funds' purchases of Institutional Shares. As of January 31, 2017, the
USAA fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.2
Cornerstone Equity 1.0
Target Retirement Income 0.9
Target Retirement 2020 2.9
Target Retirement 2030 7.5
Target Retirement 2040 9.4
Target Retirement 2050 5.7
Target Retirement 2060 0.4
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
January 31, 2017, USAA and its affiliates owned 441,000 Adviser Shares, which
represents 98.4% of the Adviser Shares outstanding and 0.6% of the Fund's
outstanding shares.
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) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amends
Regulation S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager is currently evaluating the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
the amendments to Regulation S-X is August 1, 2017, with other staggered
compliance dates extending through December 2018.
================================================================================
38 | USAA VALUE 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,
-----------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 19.41 $ 20.50 $ 20.00 $ 18.37 $ 14.22 $ 13.74
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .23 .20 .27 .21 .23
Net realized and
unrealized gain (loss) 1.77 (.31) 1.28 2.11 4.17 .41
-----------------------------------------------------------------------------------
Total from investment
operations 1.93 (.08) 1.48 2.38 4.38 .64
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.23) (.25) (.20) (.23) (.16)
Realized capital gains (.58) (.78) (.73) (.55) - -
-----------------------------------------------------------------------------------
Total distributions (.87) (1.01) (.98) (.75) (.23) (.16)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 20.47 $ 19.41 $ 20.50 $ 20.00 $ 18.37 $ 14.22
===================================================================================
Total return (%)* 9.92 (.14) 7.47 13.21 31.15 4.77
Net assets at
end of period (000) $882,770 $807,052 $960,925 $844,121 $633,228 $425,071
Ratios to average
net assets:**
Expenses (%)(a) 1.09(c) 1.11 1.09 1.11(b) 1.15 1.15
Expenses, excluding
reimbursements (%)(a) 1.09(c) 1.11 1.09 1.11 1.25 1.31
Net investment
income (%) 1.66(c) 1.28 1.06 1.55 1.40 1.48
Portfolio turnover (%) 19 20 30 20 26 20
* 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, 2017, average net assets were
$833,136,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+) (.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 | 39
================================================================================
(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,
----------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 19.40 $ 20.49 $ 20.00 $ 18.36 $ 14.22 $ 13.75
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .18 .25 .26(a) .29 .25 .21
Net realized and
unrealized gain (loss) 1.76 (.31) 1.24(a) 2.11 4.15 .45
----------------------------------------------------------------------------------
Total from investment
operations 1.94 (.06) 1.50(a) 2.40 4.40 .66
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.31) (.25) (.28) (.21) (.26) (.19)
Realized capital gains (.58) (.78) (.73) (.55) - -
----------------------------------------------------------------------------------
Total distributions (.89) (1.03) (1.01) (.76) (.26) (.19)
----------------------------------------------------------------------------------
Net asset value at end of
period $ 20.45 $ 19.40 $ 20.49 $ 20.00 $ 18.36 $ 14.22
==================================================================================
Total return (%)* 10.00 (.04) 7.57 13.34 31.31 4.95
Net assets at
end of period (000) $566,643 $522,721 $299,990 $330,114 $214,855 $171,322
Ratios to average
net assets:**
Expenses (%)(b) .98(c) .98 .98 1.00 1.01 1.00
Net investment
income (%) 1.78(c) 1.41 1.23 1.59 1.54 1.61
Portfolio turnover (%) 19 20 30 20 26 20
* 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, 2017, average net assets were
$532,316,000.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Institutional Shares
before reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+) (.01%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA VALUE 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
JANUARY 31, YEAR ENDED JULY 31,
---------------------------------------------------------------------------------
2017 2016 2015 2014 2013 2012
---------------------------------------------------------------------------------
Net asset value at
beginning of period $19.32 $20.43 $19.94 $18.29 $14.16 $13.68
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .17 .17 .25 .15 .13
Net realized and
unrealized gain (loss) 1.76 (.32) 1.26 2.08 4.15 .44
-------------------------------------------------------------------------------
Total from investment
operations 1.90 (.15) 1.43 2.33 4.30 .57
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.18) (.21) (.13) (.17) (.09)
Realized capital gains (.58) (.78) (.73) (.55) - -
-------------------------------------------------------------------------------
Total distributions (.81) (.96) (.94) (.68) (.17) (.09)
-------------------------------------------------------------------------------
Net asset value at
end of period $20.41 $19.32 $20.43 $19.94 $18.29 $14.16
===============================================================================
Total return (%)* 9.81 (.52) 7.22 12.94 30.63 4.26
Net assets at end
of period (000) $9,134 $8,767 $9,269 $8,861 $8,237 $6,406
Ratios to average
net assets:**
Expenses (%)(a) 1.36(c),(d) 1.42 1.34 1.35(b) 1.57 1.65
Expenses, excluding
reimbursements (%)(a) 1.41(c) 1.42 1.34 1.35 1.57 1.66
Net investment
income (%) 1.40(c) .97 .82 1.30 .99 .97
Portfolio turnover (%) 19 20 30 20 26 20
* 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, 2017, average net assets were
$8,954,000.
(a) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) - (.01%)(+) (.00%)(+) (.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 Adviser Shares to 1.65% of the Adviser Shares'
average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Effective December 1, 2016, the Manager had voluntarily agreed to limit
the annual expenses of the Adviser Shares to 1.30% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
EXPENSE EXAMPLE
January 31, 2017 (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, 2016, through
January 31, 2017.
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
================================================================================
42 | USAA VALUE 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, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,099.20 $5.77
Hypothetical
(5% return before expenses) 1,000.00 1,019.71 5.55
INSTITUTIONAL SHARES
Actual 1,000.00 1,100.00 5.19
Hypothetical
(5% return before expenses) 1,000.00 1,020.27 4.99
ADVISER SHARES
Actual 1,000.00 1,098.10** 7.19**
Hypothetical
(5% return before expenses) 1,000.00 1,018.35** 6.92**
*Expenses are equal to the annualized expense ratio of 1.09% for Fund Shares,
0.98% for Institutional Shares, and 1.36% 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/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of 9.92% for Fund Shares, 10.00% for Institutional Shares,
and 9.81% for Adviser Shares for the six-month period of August 1, 2016,
through January 31, 2017.
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
**The Funds' annualized expense ratio of 1.36% for the Adviser Shares on the
previous page reflects a change effective December 1, 2016, where the Manager
agreed to limit the total annual operating expenses of the Adviser Shares to
1.30%. Had the expense limitation ratio been in effect for the entire
six-month period of August 1, 2016, through January 31, 2017, the values in
the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2016 -
AUGUST 1, 2016 JANUARY 31, 2017 JANUARY 31, 2017
--------------------------------------------------------------
ADVISER SHARES
Actual $1,000.00 $1,098.70 $6.88
Hypothetical
(5% return before expenses) 1,000.00 1,018.65 6.61
================================================================================
44 | USAA VALUE 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)
=============================================================================
40847-0317 (C)2017, 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, 2017
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 03/22/2017
------------------------------
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: 03/22/2017
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 03/22/2017
------------------------------
*Print the name and title of each signing officer under his or her signature.