0000908695-16-000454.txt : 20160329 0000908695-16-000454.hdr.sgml : 20160329 20160329172627 ACCESSION NUMBER: 0000908695-16-000454 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20160131 FILED AS OF DATE: 20160329 DATE AS OF CHANGE: 20160329 EFFECTIVENESS DATE: 20160329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USAA MUTUAL FUNDS TRUST CENTRAL INDEX KEY: 0000908695 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07852 FILM NUMBER: 161536413 BUSINESS ADDRESS: STREET 1: 9800 FREDERICKSBURG ROAD STREET 2: A-3-W CITY: SAN ANTONIO STATE: TX ZIP: 78288-0227 BUSINESS PHONE: 210-498-0226 MAIL ADDRESS: STREET 1: 9800 FREDERICKSBURG ROAD STREET 2: A-3-W CITY: SAN ANTONIO STATE: TX ZIP: 78288-0227 FORMER COMPANY: FORMER CONFORMED NAME: USAA STATE TAX FREE TRUST DATE OF NAME CHANGE: 19940325 FORMER COMPANY: FORMER CONFORMED NAME: USAA STATE TAX EXEMPT TRUST DATE OF NAME CHANGE: 19930707 0000908695 S000012894 Aggressive Growth Fund C000034863 Aggressive Growth Fund Shares USAUX C000066835 Aggressive Growth Fund Institutional Shares UIAGX 0000908695 S000012895 Growth Fund C000034864 Growth Fund Shares USAAX C000066836 Growth Fund Institutional Shares UIGRX 0000908695 S000012896 Growth & Income Fund C000034865 Growth & Income Fund Shares USGRX C000091150 Growth & Income Fund Adviser Shares USGIX C000159207 Growth & Income Fund Institutional Shares UIGIX 0000908695 S000012898 High Income Fund C000034867 High Income Fund Shares USHYX C000066837 High Income Fund Institutional Shares UIHIX C000091151 High Income Fund Adviser Shares UHYOX 0000908695 S000012899 Income Fund C000034868 Income Fund Shares USAIX C000066838 Income Fund Institutional Shares UIINX C000091152 Income Fund Adviser Shares UINCX 0000908695 S000012900 Income Stock Fund C000034869 Income Stock Fund Shares USISX C000066839 Income Stock Fund Institutional Shares UIISX 0000908695 S000012902 Intermediate-Term Bond Fund C000034871 Intermediate-Term Bond Fund Shares USIBX C000066840 Intermediate-Term Bond Fund Institutional Shares UIITX C000091154 Intermediate-Term Bond Fund Adviser Shares UITBX 0000908695 S000012906 Money Market Fund C000034875 Money Market Fund USAXX 0000908695 S000012911 Science & Technology Fund C000034880 Science & Technology Fund Shares USSCX C000091159 Science & Technology Fund Adviser Shares USTCX 0000908695 S000012913 Short-Term Bond Fund C000034882 Short-Term Bond Fund Shares USSBX C000066843 Short-Term Bond Fund Institutional Shares UISBX C000091161 Short-Term Bond Fund Adviser Shares UASBX 0000908695 S000012914 Small Cap Stock Fund C000034883 Small Cap Stock Fund Shares USCAX C000066844 Small Cap Stock Fund Institutional Shares UISCX 0000908695 S000012920 Value Fund C000034890 Value Fund Shares UVALX C000066845 Value Fund Institutional Shares UIVAX C000091163 Value Fund Adviser Shares UAVAX 0000908695 S000012925 Capital Growth Fund C000034895 Capital Growth Fund USCGX C000159209 Capital Growth Fund Institutional Shares UICGX 0000908695 S000012928 First Start Growth Fund C000034898 First Start Growth Fund UFSGX N-CSRS 1 ncsrsmft013116.txt USAA MUTUAL FUNDS TRUST - N-CSR/S 01-31-2016 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/S CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-7852 Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD SAN ANTONIO, TX 78288 Name and address of agent for service: DANIEL J. MAVICO USAA MUTUAL FUNDS TRUST 9800 FREDERICKSBURG ROAD SAN ANTONIO, TX 78288 Registrant's telephone number, including area code: (210) 498-0226 Date of fiscal year end: JULY 31 Date of reporting period: JANUARY 31, 2016 ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS. USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2016 [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA AGGRESSIVE GROWTH FUND] ============================================================== SEMIANNUAL REPORT USAA AGGRESSIVE GROWTH FUND FUND SHARES o INSTITUTIONAL SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 10 Notes to Portfolio of Investments 17 Financial Statements 18 Notes to Financial Statements 21 EXPENSE EXAMPLE 35
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202720-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA AGGRESSIVE GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in equity securities of large capitalization companies that are selected for their growth potential. Although the Fund invests primarily in U.S. securities, it may invest up to 20% of its total assets in foreign securities including securities issued in emerging markets. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ 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 -------------------------------------------------------------------------------- o HOW DID THE OVERALL MARKET PERFORM DURING THE REPORTING PERIOD? For the reporting period ended January 31, 2016, concerns regarding the possibility of a significant slowdown in China's economic growth dominated headlines. Fears were amplified in early August 2015 when China unexpectedly devalued its currency, the renminbi, triggering concerns regarding global disinflationary trends and a weaker than anticipated global growth backdrop. In September 2015, Chinese manufacturing activity fell to its lowest level since 2009. Investor risk tolerance also appeared to curtail due to the European Central Bank's downgrade of its Eurozone growth, inflation outlook and the cut in Brazil's credit rating to below investment-grade. Global equities rallied in October 2015 amid increasing signs of extended monetary policy accommodations by major central banks. After much anticipation, on December 16, 2015, the Federal Reserve delivered its first interest rate increase since 2006, approving a small increase in the federal funds rate. The market initially reacted positively to the news, but remained volatile through the end of the reporting period as the S&P 500(R) Index was down 4.96% in January 2016 alone. Seven of the 10 sectors within the Russell 1000(R) Growth Index (the Index) posted negative returns for the reporting period. Energy, health care, and materials were the Index's bottom-performing sectors, while telecommunication services, utilities, and consumer staples were the top-performing market segments. ================================================================================ 2 | USAA AGGRESSIVE GROWTH FUND ================================================================================ O HOW DID THE USAA AGGRESSIVE GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Institutional Shares. For the reporting period ended January 31, 2016, the Fund Shares and Institutional Shares had total returns of -8.24% and -8.15%, respectively. This compares to returns of -7.18% for the Index and -10.09% for the Lipper Large-Cap Growth Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadvisers. Wellington Management Company LLP (Wellington Management) and Winslow Capital Management, LLC (Winslow Capital) are subadvisers to the Fund. The subadvisers each provide day-to-day discretionary management for a portion of the Fund's assets. o HOW DID WELLINGTON MANAGEMENT'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? Wellington Management's portion of the Fund's assets outperformed the Index during the reporting period. Stock selection was the primary contributor to the Fund's relative performance, driven by strong selection in the information technology, health care, and consumer discretionary sectors. Stock selection in the consumer staples sector partially offset positive returns. Sector allocation, a result of Wellington Management's bottom-up stock selection process, detracted from relative performance due to an overweight allocation to health care and an underweight allocation in consumer staples. Top individual contributors included positions in First Solar, Inc. (information technology) and Microsoft Corp. (information technology), as well as a lack of holdings in Walt Disney Co., an Index constituent. The top individual detractors came from underweight positions in Altria Group, Inc. (consumer staples) Refer to page 6 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ and Chipotle Mexican Grill, Inc.* (consumer discretionary), and the lack of a position in Coca-Cola. o HOW DID WINSLOW CAPITAL'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? Winslow Capital's portion of the Fund's assets underperformed the Index over the reporting period. Top-performing sectors were consumer discretionary, materials, and industrials. Within the consumer discretionary sector, stock selection drove outperformance, with the online retailer Amazon.com, Inc. and the Chinese travel services company Ctrip.com International Ltd. ADR* as contributors. Within the materials sector, stock selection was incremental, led by Winslow Capital's position in the agricultural producer Monsanto Co.* An underweight position in industrials also contributed to the Fund's performance. The bottom-performing sectors within Winslow Capital's portion of the Fund were health care, consumer staples, and telecommunication services. Within the health care sector, stock selection drove underperformance. Individual detractors included the specialty pharmaceutical firms Valeant Pharmaceuticals International, Inc.* and Mallinckrodt plc.* An underweight position in consumer staples also contributed to underperformance. Stock selection in telecommunication services sector, stemming from the Fund's holdings in the wireless tower operator SBA Communications Corp. "A", contributed to underperformance during the reporting period. Thank you for allowing us to help with your investment needs. *Chipolte Mexican Grill, Inc., Ctrip.com International Ltd. ADR, Monsanto Co., Valeant Pharmaceuticals International Inc., and Mallinckrodt plc were sold out of the Fund prior to January 31, 2016. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. ================================================================================ 4 | USAA AGGRESSIVE GROWTH FUND ================================================================================ INVESTMENT OVERVIEW USAA AGGRESSIVE GROWTH FUND SHARES (FUND SHARES) (Ticker Symbol: USAUX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.1 Billion $1.2 Billion Net Asset Value Per Share $36.59 $42.55 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -8.24% 0.96% 9.61% 5.35% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS 6.00% 11.62% 6.35% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 0.78% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Effective December 1, 2015, the administration and servicing fees for the Fund Shares was reduced from 0.25% to 0.15% of the Fund Shares' average net assets. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER LARGE-CAP USAA AGGRESSIVE RUSSELL 1000 GROWTH FUNDS GROWTH FUND GROWTH INDEX INDEX SHARES 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 9,984.11 9,865.11 9,950.25 3/31/2006 10,131.53 9,960.23 10,034.20 4/30/2006 10,117.75 9,944.59 10,031.09 5/31/2006 9,774.81 9,480.66 9,601.99 6/30/2006 9,736.24 9,449.50 9,592.66 7/31/2006 9,550.80 9,207.57 9,291.04 8/31/2006 9,848.78 9,420.76 9,353.23 9/30/2006 10,119.41 9,623.89 9,561.57 10/31/2006 10,475.14 9,913.43 9,850.75 11/30/2006 10,683.01 10,139.92 10,087.06 12/31/2006 10,719.19 10,193.56 10,264.30 1/31/2007 10,994.73 10,456.66 10,743.16 2/28/2007 10,788.07 10,220.62 10,360.70 3/31/2007 10,846.58 10,297.54 10,323.38 4/30/2007 11,357.24 10,715.60 10,621.89 5/31/2007 11,765.81 11,078.48 11,032.34 6/30/2007 11,590.18 10,973.99 10,923.51 7/31/2007 11,410.50 10,834.74 10,796.02 8/31/2007 11,592.32 11,013.29 11,019.90 9/30/2007 12,077.93 11,685.11 11,791.04 10/31/2007 12,488.99 12,207.28 12,490.67 11/30/2007 12,028.93 11,709.60 11,856.34 12/31/2007 11,985.43 11,719.83 11,791.84 1/31/2008 11,050.85 10,716.95 10,785.03 2/29/2008 10,831.37 10,493.68 10,407.86 3/31/2008 10,765.42 10,404.39 10,195.90 4/30/2008 11,330.60 11,045.55 10,841.14 5/31/2008 11,745.91 11,347.13 11,015.69 6/30/2008 10,899.95 10,512.32 10,195.90 7/31/2008 10,692.71 10,304.90 10,093.04 8/31/2008 10,807.85 10,332.41 10,005.76 9/30/2008 9,556.25 9,008.00 8,908.56 10/31/2008 7,873.78 7,434.78 7,590.04 11/30/2008 7,247.59 6,688.96 6,785.84 12/31/2008 7,378.57 6,868.64 6,898.87 1/31/2009 7,023.63 6,513.57 6,349.35 2/28/2009 6,495.25 6,088.71 5,925.43 3/31/2009 7,074.60 6,611.94 6,324.23 4/30/2009 7,753.81 7,312.50 6,955.39 5/31/2009 8,138.18 7,712.84 7,432.69 6/30/2009 8,229.22 7,715.86 7,259.99 7/31/2009 8,813.71 8,297.28 7,796.95 8/31/2009 8,996.50 8,460.97 8,016.76 9/30/2009 9,379.17 8,867.29 8,365.31 10/31/2009 9,252.13 8,691.85 8,214.59 11/30/2009 9,820.51 9,216.12 8,823.77 12/31/2009 10,124.05 9,513.00 8,872.10 1/31/2010 9,682.28 9,014.60 8,484.17 2/28/2010 10,015.02 9,334.38 8,727.02 3/31/2010 10,594.32 9,920.68 9,342.04 4/30/2010 10,712.70 10,022.72 9,480.82 5/31/2010 9,894.87 9,217.56 8,793.25 6/30/2010 9,350.01 8,687.06 8,194.00 7/31/2010 10,016.96 9,276.27 8,692.33 8/31/2010 9,549.27 8,820.88 8,244.46 9/30/2010 10,565.80 9,766.41 9,244.27 10/31/2010 11,070.42 10,279.31 9,682.67 11/30/2010 11,198.98 10,382.18 9,799.37 12/31/2010 11,815.84 10,951.85 10,407.96 1/31/2011 12,116.54 11,167.96 10,641.42 2/28/2011 12,513.08 11,470.14 10,988.46 3/31/2011 12,528.36 11,475.91 11,061.02 4/30/2011 12,947.92 11,823.89 11,414.37 5/31/2011 12,806.96 11,679.99 11,225.07 6/30/2011 12,623.27 11,525.37 11,054.71 7/31/2011 12,496.74 11,463.70 10,906.43 8/31/2011 11,837.23 10,692.96 10,158.72 9/30/2011 10,965.01 9,759.79 9,275.36 10/31/2011 12,168.31 10,931.19 10,486.83 11/30/2011 12,167.13 10,796.66 10,341.71 12/31/2011 12,128.01 10,633.76 10,149.26 1/31/2012 12,851.95 11,362.67 10,903.28 2/29/2012 13,466.59 12,031.87 11,464.85 3/31/2012 13,909.53 12,457.04 11,903.37 4/30/2012 13,888.05 12,365.46 11,739.32 5/31/2012 12,997.18 11,417.40 10,761.31 6/30/2012 13,350.09 11,670.29 11,054.71 7/31/2012 13,529.05 11,688.33 11,070.48 8/31/2012 13,893.04 12,127.30 11,464.85 9/30/2012 14,165.50 12,425.08 11,698.31 10/31/2012 13,752.06 11,993.11 11,177.75 11/30/2012 13,982.34 12,259.96 11,455.38 12/31/2012 13,978.47 12,326.45 11,430.45 1/31/2013 14,577.58 12,858.51 11,947.63 2/28/2013 14,758.98 12,927.21 12,028.00 3/31/2013 15,312.64 13,333.69 12,447.34 4/30/2013 15,637.67 13,506.52 12,597.60 5/31/2013 15,928.18 13,862.46 12,988.99 6/30/2013 15,628.44 13,581.59 12,761.85 7/31/2013 16,457.09 14,430.77 13,432.79 8/31/2013 16,175.04 14,257.30 13,184.68 9/30/2013 16,895.85 15,072.43 13,890.56 10/31/2013 17,643.25 15,704.56 14,467.15 11/30/2013 18,140.95 16,173.96 14,921.43 12/31/2013 18,659.15 16,691.30 15,365.48 1/31/2014 18,127.21 16,292.86 15,004.84 2/28/2014 19,060.26 17,227.35 15,787.50 3/31/2014 18,868.04 16,672.73 15,315.60 4/30/2014 18,868.80 16,382.80 14,981.82 5/31/2014 19,456.84 16,977.60 15,576.49 6/30/2014 19,836.03 17,393.46 15,887.25 7/31/2014 19,532.39 17,213.29 15,691.59 8/31/2014 20,427.32 17,927.66 16,366.82 9/30/2014 20,131.00 17,615.02 16,171.16 10/31/2014 20,661.48 18,129.99 16,658.40 11/30/2014 21,316.21 18,586.66 17,214.70 12/31/2014 21,094.13 18,416.67 17,011.46 1/31/2015 20,771.12 18,116.93 16,679.34 2/28/2015 22,155.63 19,259.52 17,766.27 3/31/2015 21,903.65 19,050.95 17,455.72 4/30/2015 22,013.35 19,046.68 17,403.96 5/31/2015 22,323.21 19,411.86 17,809.41 6/30/2015 21,929.95 19,230.36 17,606.68 7/31/2015 22,673.61 19,913.22 18,352.88 8/31/2015 21,296.67 18,604.23 17,201.24 9/30/2015 20,769.84 17,970.36 16,679.34 10/31/2015 22,558.24 19,536.86 18,171.72 11/30/2015 22,621.56 19,643.45 18,223.48 12/31/2015 22,289.59 19,450.17 18,031.89 1/31/2016 21,045.14 17,903.27 16,839.90
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Aggressive Growth Fund Shares to the following benchmarks: o The unmanaged Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. o The unmanaged Lipper Large-Cap Growth Funds Index tracks the total return performance of the 30 largest funds within the Lipper Large-Cap Growth Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Large-Cap Growth Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 6 | USAA AGGRESSIVE GROWTH FUND ================================================================================ USAA AGGRESSIVE GROWTH FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIAGX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $124.9 Million $163.1 Million Net Asset Value Per Share $36.91 $42.92 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -8.15% 1.19% 9.95% 7.57% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 6.21% 11.97% 8.65% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** 0.68% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER LARGE-CAP USAA AGGRESSIVE GROWTH RUSSELL 1000 GROWTH FUNDS FUND INSTITUTIONAL GROWTH INDEX INDEX SHARES 7/31/2008 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,107.67 10,026.70 10,012.48 9/30/2008 8,937.16 8,741.47 8,914.54 10/31/2008 7,363.69 7,214.80 7,595.13 11/30/2008 6,778.06 6,491.05 6,790.39 12/31/2008 6,900.56 6,665.41 6,909.17 1/31/2009 6,568.61 6,320.85 6,357.57 2/28/2009 6,074.46 5,908.55 5,938.36 3/31/2009 6,616.28 6,416.31 6,341.81 4/30/2009 7,251.48 7,096.14 6,978.52 5/31/2009 7,610.95 7,484.63 7,460.77 6/30/2009 7,696.10 7,487.57 7,290.56 7/31/2009 8,242.73 8,051.78 7,832.71 8/31/2009 8,413.67 8,210.62 8,056.50 9/30/2009 8,771.55 8,604.93 8,409.52 10/31/2009 8,652.74 8,434.67 8,261.38 11/30/2009 9,184.30 8,943.43 8,879.17 12/31/2009 9,468.18 9,231.53 8,926.20 1/31/2010 9,055.02 8,747.88 8,538.24 2/28/2010 9,366.21 9,058.20 8,789.46 3/31/2010 9,907.97 9,627.15 9,412.73 4/30/2010 10,018.69 9,726.17 9,552.65 5/31/2010 9,253.84 8,944.83 8,865.78 6/30/2010 8,744.28 8,430.03 8,264.76 7/31/2010 9,368.02 9,001.80 8,770.38 8/31/2010 8,930.63 8,559.89 8,318.82 9/30/2010 9,881.30 9,477.45 9,330.05 10/31/2010 10,353.23 9,975.17 9,778.43 11/30/2010 10,473.47 10,075.00 9,899.27 12/31/2010 11,050.36 10,627.81 10,517.15 1/31/2011 11,331.58 10,837.52 10,759.87 2/28/2011 11,702.43 11,130.76 11,114.38 3/31/2011 11,716.72 11,136.36 11,191.03 4/30/2011 12,109.10 11,474.04 11,548.74 5/31/2011 11,977.27 11,334.40 11,363.50 6/30/2011 11,805.49 11,184.35 11,194.23 7/31/2011 11,687.16 11,124.51 11,050.51 8/31/2011 11,070.37 10,376.57 10,296.77 9/30/2011 10,254.66 9,471.02 9,405.71 10/31/2011 11,380.00 10,607.76 10,635.32 11/30/2011 11,378.90 10,477.21 10,491.60 12/31/2011 11,342.31 10,319.13 10,299.97 1/31/2012 12,019.35 11,026.47 11,066.48 2/29/2012 12,594.17 11,675.87 11,641.36 3/31/2012 13,008.42 12,088.46 12,091.68 4/30/2012 12,988.33 11,999.59 11,928.80 5/31/2012 12,155.17 11,079.58 10,938.73 6/30/2012 12,485.22 11,324.98 11,238.94 7/31/2012 12,652.59 11,342.50 11,261.30 8/31/2012 12,992.99 11,768.47 11,666.91 9/30/2012 13,247.80 12,057.45 11,909.64 10/31/2012 12,861.15 11,638.25 11,382.66 11/30/2012 13,076.51 11,897.21 11,670.10 12/31/2012 13,072.90 11,961.73 11,647.13 1/31/2013 13,633.19 12,478.05 12,179.13 2/28/2013 13,802.84 12,544.72 12,264.25 3/31/2013 14,320.63 12,939.17 12,696.94 4/30/2013 14,624.61 13,106.88 12,852.99 5/31/2013 14,896.29 13,452.29 13,257.30 6/30/2013 14,615.98 13,179.73 13,026.77 7/31/2013 15,390.94 14,003.78 13,714.82 8/31/2013 15,127.16 13,835.45 13,466.56 9/30/2013 15,801.28 14,626.46 14,190.07 10/31/2013 16,500.26 15,239.89 14,782.36 11/30/2013 16,965.71 15,695.40 15,246.97 12/31/2013 17,450.34 16,197.44 15,704.57 1/31/2014 16,952.86 15,810.78 15,334.46 2/28/2014 17,825.47 16,717.63 16,137.02 3/31/2014 17,645.70 16,179.41 15,657.82 4/30/2014 17,646.42 15,898.07 15,318.88 5/31/2014 18,196.36 16,475.27 15,930.54 6/30/2014 18,550.98 16,878.82 16,253.90 7/31/2014 18,267.01 16,703.98 16,059.10 8/31/2014 19,103.97 17,397.21 16,756.48 9/30/2014 18,826.84 17,093.82 16,553.89 10/31/2014 19,322.96 17,593.55 17,060.36 11/30/2014 19,935.27 18,036.71 17,633.07 12/31/2014 19,727.58 17,871.76 17,427.74 1/31/2015 19,425.49 17,580.88 17,085.66 2/28/2015 20,720.31 18,689.66 18,203.96 3/31/2015 20,484.65 18,487.27 17,892.60 4/30/2015 20,587.24 18,483.12 17,839.97 5/31/2015 20,877.03 18,837.49 18,260.97 6/30/2015 20,509.25 18,661.37 18,050.47 7/31/2015 21,204.73 19,324.03 18,822.30 8/31/2015 19,917.00 18,053.77 17,647.00 9/30/2015 19,424.29 17,438.65 17,111.97 10/31/2015 21,096.84 18,958.80 18,646.88 11/30/2015 21,156.05 19,062.23 18,703.89 12/31/2015 20,845.59 18,874.67 18,510.81 1/31/2016 19,681.76 17,373.55 17,288.31
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Aggressive Growth Fund Institutional Shares to the Fund's benchmarks listed above (see page 6 for benchmark definitions). *The performance of the Russell 1000 Growth Index and the Lipper Large-Cap Growth Funds Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Large-Cap Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA AGGRESSIVE GROWTH FUND ================================================================================ o TOP 10 HOLDINGS* - 1/31/16 o (% of Net Assets) Alphabet, Inc. "C" ...................................................... 4.2% Apple, Inc. ............................................................. 4.0% Facebook, Inc. "A" ...................................................... 3.8% Amazon.com, Inc. ........................................................ 3.7% Visa, Inc. "A" .......................................................... 3.4% Microsoft Corp. ......................................................... 2.6% Home Depot, Inc. ........................................................ 2.4% Bristol-Myers Squibb Co. ................................................ 2.2% UnitedHealth Group, Inc. ................................................ 1.8% MasterCard, Inc. "A" .................................................... 1.7%
o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] INFORMATION TECHNOLOGY 36.8% HEALTH CARE 19.8% CONSUMER DISCRETIONARY 19.8% CONSUMER STAPLES 7.0% INDUSTRIALS 5.0% FINANCIALS 4.2% MATERIALS 2.3% TELECOMMUNICATION SERVICES 1.7% ENERGY 0.4% UTILITIES 0.2% MONEY MARKET INSTRUMENTS 2.5%
*Does not include money market instruments. Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 10-16. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- EQUITY SECURITIES (97.2%) COMMON STOCKS (97.2%) CONSUMER DISCRETIONARY (19.8%) ------------------------------ APPAREL RETAIL (1.6%) 90,350 L Brands, Inc. $ 8,687 92,161 Ross Stores, Inc. 5,185 97,261 TJX Companies, Inc. 6,929 ---------- 20,801 ---------- APPAREL, ACCESSORIES & LUXURY GOODS (1.1%) 107,450 Lululemon Athletica, Inc.* 6,670 12,136 Ralph Lauren Corp. 1,365 68,200 Under Armour, Inc. "A"* 5,826 ---------- 13,861 ---------- AUTO PARTS & EQUIPMENT (0.5%) 91,400 Delphi Automotive plc 5,935 ---------- AUTOMOTIVE RETAIL (1.1%) 29,287 Advance Auto Parts, Inc. 4,453 35,700 O'Reilly Automotive, Inc.* 9,314 ---------- 13,767 ---------- BROADCASTING (0.3%) 47,430 Discovery Communications, Inc. "A"* 1,309 38,527 Scripps Networks Interactive "A" 2,349 ---------- 3,658 ---------- CABLE & SATELLITE (1.0%) 222,090 Comcast Corp. "A" 12,373 ---------- CASINOS & GAMING (0.2%) 49,811 Las Vegas Sands Corp. 2,246 ---------- FOOTWEAR (1.4%) 290,900 NIKE, Inc. "B" 18,039 ---------- GENERAL MERCHANDISE STORES (0.7%) 106,300 Dollar Tree, Inc.* 8,644 ----------
================================================================================ 10 | USAA AGGRESSIVE GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- HOME IMPROVEMENT RETAIL (3.2%) 241,092 Home Depot, Inc. $ 30,320 132,066 Lowe's Companies, Inc. 9,464 ---------- 39,784 ---------- HOMEBUILDING (0.1%) 83,373 PulteGroup, Inc. 1,397 ---------- HOTELS, RESORTS & CRUISE LINES (0.3%) 88,107 Hilton Worldwide Holdings, Inc. 1,569 35,079 Wyndham Worldwide Corp. 2,277 ---------- 3,846 ---------- INTERNET RETAIL (5.1%) 79,547 Amazon.com, Inc.* 46,694 8,618 Expedia, Inc. 871 42,380 Netflix, Inc.* 3,892 11,466 Priceline Group, Inc.* 12,211 ---------- 63,668 ---------- MOVIES & ENTERTAINMENT (0.5%) 66,300 Walt Disney Co. 6,353 ---------- RESTAURANTS (2.0%) 52,788 Dunkin' Brands Group, Inc. 2,078 68,821 McDonald's Corp. 8,519 244,600 Starbucks Corp. 14,864 ---------- 25,461 ---------- SPECIALTY STORES (0.7%) 49,895 Ulta Salon, Cosmetics & Fragrance, Inc.* 9,039 ---------- Total Consumer Discretionary 248,872 ---------- CONSUMER STAPLES (7.0%) ----------------------- BREWERS (0.2%) 16,284 Anheuser-Busch InBev N.V. ADR 2,049 ---------- DRUG RETAIL (1.7%) 216,461 CVS Health Corp. 20,908 ---------- HOUSEHOLD PRODUCTS (0.4%) 69,477 Colgate-Palmolive Co. 4,692 ---------- HYPERMARKETS & SUPER CENTERS (1.3%) 108,422 Costco Wholesale Corp. 16,385 ---------- PACKAGED FOODS & MEAT (0.8%) 37,058 Hershey Co. 3,265 148,780 Mondelez International, Inc. "A" 6,413 ---------- 9,678 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- PERSONAL PRODUCTS (0.5%) 79,112 Estee Lauder Companies, Inc. "A" $ 6,744 ---------- SOFT DRINKS (1.6%) 30,742 Monster Beverage Corp.* 4,151 160,015 PepsiCo, Inc. 15,889 ---------- 20,040 ---------- TOBACCO (0.5%) 113,975 Altria Group, Inc. 6,965 ---------- Total Consumer Staples 87,461 ---------- ENERGY (0.4%) ------------- INTEGRATED OIL & GAS (0.4%) 100,589 BP plc ADR 3,256 26,045 Chevron Corp. 2,252 ---------- 5,508 ---------- Total Energy 5,508 ---------- FINANCIALS (4.2%) ----------------- DIVERSIFIED BANKS (0.7%) 296,419 Bank of America Corp. 4,191 77,987 JPMorgan Chase & Co. 4,640 ---------- 8,831 ---------- INVESTMENT BANKING & BROKERAGE (0.3%) 24,179 Goldman Sachs Group, Inc. 3,906 ---------- MULTI-LINE INSURANCE (0.4%) 82,490 American International Group, Inc. 4,659 ---------- REITs - SPECIALIZED (1.6%) 132,500 American Tower Corp. 12,500 29,566 Public Storage 7,497 ---------- 19,997 ---------- SPECIALIZED FINANCE (1.2%) 15,317 FactSet Research Systems, Inc. 2,308 28,244 Intercontinental Exchange, Inc. 7,451 67,779 Moody's Corp. 6,042 ---------- 15,801 ---------- Total Financials 53,194 ---------- HEALTH CARE (19.8%) ------------------- BIOTECHNOLOGY (5.7%) 74,250 Alexion Pharmaceuticals, Inc.* 10,835 121,781 Amgen, Inc. 18,600
================================================================================ 12 | USAA AGGRESSIVE GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- 198,608 Celgene Corp.* $ 19,924 211,459 Gilead Sciences, Inc. 17,551 3,470 Regeneron Pharmaceuticals, Inc.* 1,458 34,838 Vertex Pharmaceuticals, Inc.* 3,162 ---------- 71,530 ---------- HEALTH CARE DISTRIBUTORS (0.5%) 80,184 Cardinal Health, Inc. 6,525 ---------- HEALTH CARE EQUIPMENT (4.2%) 38,469 Becton, Dickinson & Co. 5,592 551,100 Boston Scientific Corp.* 9,661 25,450 C.R. Bard, Inc. 4,664 80,445 DexCom, Inc.* 5,734 95,000 Edwards Lifesciences Corp.* 7,430 208,512 Medtronic plc 15,830 24,405 Varian Medical Systems, Inc.* 1,882 22,340 Zimmer Biomet Holdings, Inc. 2,218 ---------- 53,011 ---------- LIFE SCIENCES TOOLS & SERVICES (0.8%) 152,900 Quintiles Transnational Holdings, Inc.* 9,301 ---------- MANAGED HEALTH CARE (2.4%) 49,758 Aetna, Inc. 5,067 17,510 Anthem, Inc. 2,285 197,250 UnitedHealth Group, Inc. 22,715 ---------- 30,067 ---------- PHARMACEUTICALS (6.2%) 52,910 Allergan plc* 15,049 104,956 AstraZeneca plc ADR 3,382 444,216 Bristol-Myers Squibb Co. 27,612 159,008 Eli Lilly and Co. 12,578 59,086 Johnson & Johnson 6,171 94,058 Merck & Co., Inc. 4,766 206,300 Zoetis, Inc. 8,881 ---------- 78,439 ---------- Total Health Care 248,873 ---------- INDUSTRIALS (5.0%) ------------------ AEROSPACE & DEFENSE (1.1%) 39,028 Boeing Co. 4,689 91,571 Honeywell International, Inc. 9,450 ---------- 14,139 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- AIRLINES (0.7%) 196,900 Delta Air Lines, Inc. $ 8,721 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (0.2%) 22,031 Rockwell Automation, Inc. 2,105 ---------- INDUSTRIAL CONGLOMERATES (1.9%) 196,985 Danaher Corp. 17,069 223,500 General Electric Co. 6,504 ---------- 23,573 ---------- RESEARCH & CONSULTING SERVICES (1.1%) 49,641 IHS, Inc. "A"* 5,193 78,170 Nielsen Holdings plc 3,765 63,400 Verisk Analytics, Inc.* 4,628 ---------- 13,586 ---------- Total Industrials 62,124 ---------- INFORMATION TECHNOLOGY (36.8%) ------------------------------ APPLICATION SOFTWARE (3.9%) 177,800 Adobe Systems, Inc.* 15,848 129,402 Intuit, Inc. 12,359 207,000 Mobileye N.V.* 5,616 233,444 salesforce.com, Inc.* 15,888 ---------- 49,711 ---------- COMMUNICATIONS EQUIPMENT (1.1%) 167,485 Cisco Systems, Inc. 3,985 15,252 F5 Networks, Inc.* 1,430 41,100 Palo Alto Networks, Inc.* 6,144 59,499 QUALCOMM, Inc. 2,698 ---------- 14,257 ---------- DATA PROCESSING & OUTSOURCED SERVICES (8.5%) 14,940 Alliance Data Systems Corp.* 2,985 627,500 First Data Corp. "A"* 8,390 54,846 Fiserv, Inc.* 5,186 52,353 Jack Henry & Associates, Inc. 4,250 240,430 MasterCard, Inc. "A" 21,405 122,826 Paychex, Inc. 5,878 328,581 PayPal Holdings, Inc.* 11,875 103,082 Vantiv, Inc. "A"* 4,850 565,561 Visa, Inc. "A" 42,129 ---------- 106,948 ---------- HOME ENTERTAINMENT SOFTWARE (0.1%) 42,942 Activision Blizzard, Inc. 1,495 ----------
================================================================================ 14 | USAA AGGRESSIVE GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (11.7%) 105,569 Alibaba Group Holding Ltd. ADR* $ 7,076 22,840 Alphabet, Inc. "A"* 17,389 70,684 Alphabet, Inc. "C"* 52,515 10,431 Baidu, Inc. ADR* 1,703 32,650 CoStar Group, Inc.* 5,726 85,681 eBay, Inc.* 2,010 427,244 Facebook, Inc. "A"* 47,941 66,550 LinkedIn Corp. "A"* 13,171 10,208 Marketo, Inc.* 194 ---------- 147,725 ---------- IT CONSULTING & OTHER SERVICES (0.3%) 57,930 Amdocs Ltd. 3,171 ---------- SEMICONDUCTORS (2.1%) 69,100 Avago Technologies Ltd. 9,240 37,254 Broadcom Corp. "A" 2,037 94,538 First Solar, Inc.* 6,491 99,982 Linear Technology Corp. 4,272 127,764 Maxim Integrated Products, Inc. 4,267 ---------- 26,307 ---------- SYSTEMS SOFTWARE (5.0%) 110,573 Check Point Software Technologies Ltd.* 8,714 586,005 Microsoft Corp. 32,283 451,094 Oracle Corp. 16,379 88,200 ServiceNow, Inc.* 5,487 ---------- 62,863 ---------- TECHNOLOGY DISTRIBUTORS (0.1%) 28,467 CDW Corp. 1,095 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (4.0%) 511,900 Apple, Inc. 49,828 ---------- Total Information Technology 463,400 ---------- MATERIALS (2.3%) ---------------- SPECIALTY CHEMICALS (2.3%) 91,350 Ecolab, Inc. 9,854 83,100 PPG Industries, Inc. 7,904 43,750 Sherwin-Williams Co. 11,186 ---------- 28,944 ---------- Total Materials 28,944 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (1.7%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (1.1%) 262,965 Verizon Communications, Inc. $ 13,141 ---------- WIRELESS TELECOMMUNICATION SERVICES (0.6%) 78,700 SBA Communications Corp. "A"* 7,813 ---------- Total Telecommunication Services 20,954 ---------- UTILITIES (0.2%) ---------------- ELECTRIC UTILITIES (0.2%) 25,592 NextEra Energy, Inc. 2,859 ---------- Total Common Stocks 1,222,189 ---------- Total Equity Securities (cost: $912,259) 1,222,189 ---------- MONEY MARKET INSTRUMENTS (2.5%) MONEY MARKET FUNDS (2.5%) 31,713,158 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a) (cost: $31,713) 31,713 ---------- TOTAL INVESTMENTS (COST: $943,972) $1,253,902 ========== --------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY --------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL --------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $1,222,189 $- $- $1,222,189 Money Market Instruments: Money Market Funds 31,713 - - 31,713 --------------------------------------------------------------------------------------------------- Total $1,253,902 $- $- $1,253,902 ---------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 16 | USAA AGGRESSIVE GROWTH FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. REIT Real estate investment trust o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 17 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $943,972) $1,253,902 Cash 123 Receivables: Capital shares sold 399 USAA Asset Management Company (Note 6C) 9 Dividends and interest 595 Securities sold 22,394 ---------- Total assets 1,277,422 ---------- LIABILITIES Payables: Securities purchased 18,159 Capital shares redeemed 526 Accrued management fees 492 Accrued transfer agent's fees 25 Other accrued expenses and payables 94 ---------- Total liabilities 19,296 ---------- Net assets applicable to capital shares outstanding $1,258,126 ========== NET ASSETS CONSIST OF: Paid-in capital $ 951,560 Accumulated overdistribution of net investment income (10,608) Accumulated net realized gain on investments 7,244 Net unrealized appreciation of investments 309,930 ---------- Net assets applicable to capital shares outstanding $1,258,126 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,133,253/30,971 shares outstanding) $ 36.59 ========== Institutional Shares (net assets of $124,873/3,384 shares outstanding) $ 36.91 ==========
See accompanying notes to financial statements. ================================================================================ 18 | USAA AGGRESSIVE GROWTH FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $7) $ 6,669 Interest 18 --------- Total income 6,687 --------- EXPENSES Management fees 3,046 Administration and servicing fees: Fund Shares 1,300 Institutional Shares 67 Transfer agent's fees: Fund Shares 973 Institutional Shares 67 Custody and accounting fees: Fund Shares 101 Institutional Shares 10 Postage: Fund Shares 58 Shareholder reporting fees: Fund Shares 28 Trustees' fees 13 Registration fees: Fund Shares 31 Institutional Shares 14 Professional fees 57 Other 12 --------- Total expenses 5,777 Expenses paid indirectly: Fund Shares (19) Institutional Shares (2) --------- Net expenses 5,756 --------- NET INVESTMENT INCOME 931 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain 28,830 Change in net unrealized appreciation/(depreciation) (143,211) --------- Net realized and unrealized loss (114,381) --------- Decrease in net assets resulting from operations $(113,450) =========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 19 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
--------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 --------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 931 $ 4,263 Net realized gain on investments 28,830 96,651 Change in net unrealized appreciation/ (depreciation) of investments (143,211) 105,903 ---------------------------- Increase (decrease) in net assets resulting from operations (113,450) 206,817 ---------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (10,241) (22,980) Institutional Shares (1,324) (3,308) ---------------------------- Total distributions of net investment income (11,565) (26,288) ---------------------------- Net realized gains: Fund Shares (68,053) (108,265) Institutional Shares (7,384) (13,990) ---------------------------- Total distributions of net realized gains (75,437) (122,255) ---------------------------- Distributions to shareholders (87,002) (148,543) ---------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 65,909 101,935 Institutional Shares (18,199) 37,812 ---------------------------- Total net increase in net assets from capital share transactions 47,710 139,747 ---------------------------- Net increase (decrease) in net assets (152,742) 198,021 NET ASSETS Beginning of period 1,410,868 1,212,847 ---------------------------- End of period $1,258,126 $1,410,868 ============================ Accumulated undistributed (overdistribution of) net investment income: End of period $ (10,608) $ 26 ============================
See accompanying notes to financial statements. ================================================================================ 20 | USAA AGGRESSIVE GROWTH FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Aggressive Growth Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek capital appreciation. The Fund consists of two classes of shares: Aggressive Growth Fund Shares (Fund Shares) and Aggressive Growth Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 ================================================================================ A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. ================================================================================ 22 | USAA AGGRESSIVE GROWTH FUND ================================================================================ 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser(s) will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser(s) have agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Repurchase agreements are valued at cost. 6. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. ================================================================================ 24 | USAA AGGRESSIVE GROWTH FUND ================================================================================ The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by the custodian to directly reduce expenses paid by the Fund. In addition, through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, brokerage commission recapture credits reduced the expenses of the Fund Shares and Institutional Shares by $19,000 and $2,000, respectively. Additionally, there were no custodian and other bank credits. F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. G. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $4,000, which represents 1.9% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. ================================================================================ 26 | USAA AGGRESSIVE GROWTH FUND ================================================================================ (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $381,541,000 and $447,532,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $332,310,000 and $22,380,000, respectively, resulting in net unrealized appreciation of $309,930,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 -------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------- FUND SHARES: Shares sold 1,554 $ 61,913 3,059 $ 125,750 Shares issued from reinvested dividends 1,931 77,371 3,240 129,519 Shares redeemed (1,837) (73,375) (3,718) (153,334) --------------------------------------------------- Net increase from capital share transactions 1,648 $ 65,909 2,581 $ 101,935 =================================================== INSTITUTIONAL SHARES: Shares sold 173 $ 6,970 999 $ 42,027 Shares issued from reinvested dividends 216 8,707 429 17,298 Shares redeemed (805) (33,876) (516) (21,513) --------------------------------------------------- Net increase (decrease) from capital share transactions (416) $(18,199) 912 $ 37,812 ===================================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of a portion of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the ================================================================================ 28 | USAA AGGRESSIVE GROWTH FUND ================================================================================ subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee, which is accrued daily and paid monthly, is computed as a percentage of the Fund's average net assets at annualized rates of 0.50% of the first $750 million of average net assets, 0.40% of that portion of average net assets over $750 million but not over $1.5 billion, and 0.33% of that portion of average net assets over $1.5 billion. For the six-month period ended January 31, 2016, the Fund's effective annualized base fee was 0.46% of the Fund's average net assets for the same period. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Large-Cap Growth Funds Index. The Lipper Large-Cap Growth Funds Index tracks the total return performance of the 30 largest funds in the Lipper Large-Cap Growth Funds category. The performance period for the Fund consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ----------------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Large-Cap Growth Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $3,046,000, which did not include any performance adjustments for the Fund Shares and Institutional Shares. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory Agreements with Wellington Management Company LLP (Wellington Management) and Winslow Capital Management, LLC (Winslow Capital), under which Wellington Management and Winslow Capital each direct the investment and reinvestment of a portion of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays Wellington Management a subadvisory fee in the annual amount of 0.325% on the first $300 million, 0.30% on the next $700 million, and 0.28% on assets over $1 billion of the portion of the Fund's average net assets that Wellington Management manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Wellington Management, of $1,002,000. The Manager (not the Fund) pays Winslow Capital a subadvisory fee in the annual amount of 0.40% on the first $100 million, 0.35% on the next $250 million, 0.30% on the next $250 million, and 0.25% on the next $400 million of the portion of the Fund's average net assets that Winslow Capital manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Winslow Capital, of $1,131,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, ================================================================================ 30 | USAA AGGRESSIVE GROWTH FUND ================================================================================ the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% and 0.10% of average net assets of the Fund Shares and Institutional Shares, respectively. Prior to December 1, 2015, the administration and servicing fees for the Fund Shares was 0.25% of the Fund Shares' average net assets. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,300,000 and $67,000, respectively. At January 31, 2016, the Fund Shares recorded a receivable from the Manager of $9,000 due to the change in administration and servicing fees. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $17,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of $973,000 and $67,000, respectively. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- USAA Cornerstone Conservative 0.1 USAA Cornerstone Equity 0.3 USAA Target Retirement Income 0.4 USAA Target Retirement 2020 1.1 USAA Target Retirement 2030 2.7 USAA Target Retirement 2040 3.3 USAA Target Retirement 2050 1.8 USAA Target Retirement 2060 0.1
The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 32 | USAA AGGRESSIVE GROWTH FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, --------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 --------------------------------------------------------------------------- Net asset value at beginning of period $ 42.55 $ 40.90 $ 38.44 $ 35.09 $ 34.57 $ 27.56 --------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) .03 .79 .79 .13 .00(a) (.01) Net realized and unrealized gain (loss) (3.33) 5.75 5.47 6.73 .52 7.03 --------------------------------------------------------------------------- Total from investment operations (3.30) 6.54 6.26 6.86 .52 7.02 --------------------------------------------------------------------------- Less distributions from: Net investment income (.33) (.79) (.89) (.08) - (.01) Realized capital gains (2.33) (4.10) (2.91) (3.43) - - --------------------------------------------------------------------------- Total distributions (2.66) (4.89) (3.80) (3.51) - (.01) --------------------------------------------------------------------------- Net asset value at end of period $ 36.59 $ 42.55 $ 40.90 $ 38.44 $ 35.09 $ 34.57 =========================================================================== Total return (%)* (8.24) 16.96 16.82 21.34 1.50 25.47 Net assets at end of period (000) $1,133,253 $1,247,753 $1,093,796 $1,009,963 $878,246 $1,207,205 Ratios to average net assets:** Expenses (%)(b) .88(c) .88 .93 1.08 1.08 1.02 Net investment income (loss) (%) .12(c) .30 .17 .40 (.01) (.12) Portfolio turnover (%) 29 55 68 67 55 63 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,191,786,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) (.00%)(+) (.00%)(+) (.01%) (.01%) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------- Net asset value at beginning of period $ 42.92 $ 41.22 $ 38.67 $ 35.26 $ 34.60 $ 27.58 ------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .10 .21(a) 1.10 .30 .13 .14 Net realized and unrealized gain (loss) (3.38) 6.47(a) 5.29 6.73 .53 7.02 ------------------------------------------------------------------------- Total from investment operations (3.28) 6.68(a) 6.39 7.03 .66 7.16 ------------------------------------------------------------------------- Less distributions from: Net investment income (.40) (.88) (.93) (.19) - (.14) Realized capital gains (2.33) (4.10) (2.91) (3.43) - - ------------------------------------------------------------------------- Total distributions (2.73) (4.98) (3.84) (3.62) - (.14) ------------------------------------------------------------------------- Net asset value at end of period $ 36.91 $ 42.92 $ 41.22 $ 38.67 $ 35.26 $ 34.60 ========================================================================= Total return (%)* (8.15) 17.21 17.09 21.79 1.91 26.00 Net assets at end of period (000) $124,873 $163,115 $119,051 $165,058 $177,320 $136,837 Ratios to average net assets:** Expenses (%)(b) .71(d) .68 .68 .71 .68 .58(c) Expenses, excluding reimbursements (%)(b) .71(d) .68 .68 .71 .68 .58 Net investment income (%) .31(d) .50 .43 .78 .37 .31 Portfolio turnover (%) 29 55 68 67 55 63 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $133,292,000. (a) Calculated using average shares. (b) Reflects total operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.01%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to .61% of the Institutional Shares' average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 34 | USAA AGGRESSIVE GROWTH FUND ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund ================================================================================ EXPENSE EXAMPLE | 35 ================================================================================ and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ----------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 917.60** $4.24** Hypothetical (5% return before expenses) 1,000.00 1,020.71** 4.47** INSTITUTIONAL SHARES Actual 1,000.00 918.50 3.42 Hypothetical (5% return before expenses) 1,000.00 1,021.57 3.61
*Expenses are equal to the annualized expense ratio of 0.88% for Fund Shares and 0.71% for Institutional Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (8.24)% for Fund Shares and (8.15)% for Institutional Shares for the six-month period of August 1, 2015, through January 31, 2016. **The Fund Shares' annualized expense ratio of 0.88% above reflects a change effective December 1, 2015, in the rate of the Manager's administration and servicing fees from 0.25% to 0.15%. Had the decrease been in effect for the entire six-month period of August 1, 2015, through January 31, 2016, the Fund Shares' expense ratio would have been 0.81%, net of expenses paid indirectly, and the values in the table above would be as shown below.
EXPENSES PAID BEGINNING ENDING DURING PERIOD ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ----------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 917.90 $3.90 Hypothetical (5% return before expenses) 1,000.00 1,021.06 4.12
================================================================================ 36 | USAA AGGRESSIVE GROWTH FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23418-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA CAPITAL GROWTH FUND] ============================================================== SEMIANNUAL REPORT USAA CAPITAL GROWTH FUND FUND SHARES o INSTITUTIONAL SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 11 Notes to Portfolio of Investments 20 Financial Statements 21 Notes to Financial Statements 24 EXPENSE EXAMPLE 39
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202723-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA CAPITAL GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in equity securities that are believed to be the most attractive in the global marketplace. The Fund may invest up to 100% of its assets in foreign securities. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF JOSEPH S. GIROUX] [PHOTO OF STEPHEN A. LANZENDORF] JOSEPH S. GIROUX STEPHEN A. LANZENDORF, CFA QS Batterymarch Financial QS Batterymarch Financial Management, Inc. Management, Inc. -------------------------------------------------------------------------------- o PLEASE CHARACTERIZE THE PERFORMANCE OF GLOBAL STOCKS DURING THE REPORTING PERIOD. For the reporting period ended January 31, 2016, equities sold off in reaction to several events, including China's depreciation of its currency, the renminbi, and continued downward pressure on commodity prices. On September 17, 2015, the Federal Reserve (the Fed) announced that short-term interest rates would remain unchanged, causing investors to speculate whether global growth was weaker than anticipated. Nevertheless, global equities rebounded in October 2015, with virtually all markets in positive territory. However, global stocks declined later during the final quarter of 2015, as market volatility increased. On December 16, 2015, the Fed eventually raised short-term interest rates. The year 2016 began with many stocks hit hard amid the continued slide in oil prices, fears of a global slowdown due to China's slowing growth, and uncertainty regarding the Fed's interest rate policy going forward. Defensive market sectors held up well, with utilities and consumer staples posted positive returns. o HOW DID THE USAA CAPITAL GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Institutional Shares. For the reporting period ended January 31, 2016, the Fund Shares had a total return of -9.32%. This compares to returns of -10.79% for the ================================================================================ 2 | USAA CAPITAL GROWTH FUND ================================================================================ MSCI World Index (the Index) and -11.54% for the Lipper Global Funds Index. The Institutional Shares commenced operations on August 7, 2015, and from that time through January 31, 2016, had a total return of -9.72%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadviser. QS Batterymarch Financial Management, Inc. (QS Batterymarch) is the subadviser to the Fund. The subadviser provides day-to-day discretionary management for the Fund's assets. o PLEASE DISCUSS THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD. During the reporting period, stock selection contributed to relative performance and was especially strong within Continental Europe, led by stock selection in the financials and health care sectors. Stock selection also was positive in Japan, led by consumer discretionary stocks. Stock selection was mixed and an overall detractor within the Fund's U.S. holdings. Positive selections within the energy and industrials sectors were offset by negative results in information technology and telecommunications sectors. Stock selection was neutral in the United Kingdom but detracted from relative return in developed Asia ex-Japan. Regional and sector allocations contributed to returns. Underweight positions in the commodity-sensitive countries of Australia, New Zealand, and Canada, as well as to Continental Europe, contributed to the Fund's performance. The primary contributor to relative return at the stock level were holdings in Tyson Foods, Inc. "A", based on a reasonable valuation and attractive growth prospects. We expect that Tyson should benefit from lower feed costs and synergies Refer to page 6 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ realized as the company proceeds with its integration of Hillshire Brands. Cameron International Corp. and Fuji Heavy Industries Ltd. also were strong contributors to the Fund's performance, due to overweight positions and above-benchmark returns. A lack of holdings in Microsoft Corp. represented the primary detractor at the individual security level. Overweight positions in Macy's, Inc. and United Therapeutics Corp. also detracted from the Fund's performance. Thank you for allowing us to help you with your investments needs. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. ================================================================================ 4 | USAA CAPITAL GROWTH FUND ================================================================================ INVESTMENT OVERVIEW USAA CAPITAL GROWTH FUND SHARES (FUND SHARES) (Ticker Symbol: USCGX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $675.3 Million $760.8 Million Net Asset Value Per Share $9.11 $10.16 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -9.32% -2.91% 7.38% 3.95% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS 3.04% 9.09% 5.23% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.23% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA CAPITAL GROWTH MSCI WORLD LIPPER GLOBAL FUND SHARES INDEX FUNDS INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 9,988.15 9,985.11 9,930.07 3/31/2006 10,272.51 10,204.67 10,184.22 4/30/2006 10,651.66 10,514.50 10,462.70 5/31/2006 10,047.39 10,155.33 10,075.58 6/30/2006 10,071.09 10,152.35 10,053.61 7/31/2006 10,142.18 10,215.71 10,055.27 8/31/2006 10,426.54 10,480.88 10,319.53 9/30/2006 10,462.09 10,605.86 10,460.84 10/31/2006 10,876.78 10,995.12 10,795.42 11/30/2006 11,244.08 11,264.37 11,104.12 12/31/2006 11,575.30 11,493.39 11,346.51 1/31/2007 11,750.69 11,629.07 11,521.45 2/28/2007 11,683.23 11,568.55 11,405.26 3/31/2007 12,007.02 11,780.32 11,634.74 4/30/2007 12,384.77 12,299.85 12,079.66 5/31/2007 12,870.44 12,644.49 12,452.73 6/30/2007 12,762.51 12,546.96 12,434.62 7/31/2007 12,600.62 12,269.09 12,183.06 8/31/2007 12,573.64 12,259.78 12,162.56 9/30/2007 13,464.05 12,842.80 12,658.44 10/31/2007 14,098.13 13,236.71 13,089.88 11/30/2007 13,221.21 12,695.65 12,513.79 12/31/2007 13,047.91 12,531.86 12,398.94 1/31/2008 11,942.40 11,574.18 11,524.51 2/29/2008 11,956.94 11,507.19 11,421.67 3/31/2008 11,724.21 11,396.89 11,350.28 4/30/2008 12,364.24 11,995.89 11,847.19 5/31/2008 12,713.35 12,178.81 12,011.00 6/30/2008 11,855.12 11,207.46 11,017.71 7/31/2008 11,491.47 10,933.62 10,760.88 8/31/2008 11,040.54 10,780.03 10,642.57 9/30/2008 9,775.02 9,497.88 9,517.40 10/31/2008 7,854.93 7,697.07 7,807.24 11/30/2008 7,214.90 7,198.85 7,283.94 12/31/2008 7,374.42 7,429.81 7,591.22 1/31/2009 6,751.23 6,778.92 7,022.65 2/28/2009 6,113.20 6,085.04 6,424.51 3/31/2009 6,498.99 6,543.90 6,850.88 4/30/2009 6,944.12 7,277.99 7,496.58 5/31/2009 7,493.12 7,937.42 8,173.81 6/30/2009 7,433.77 7,901.61 8,157.66 7/31/2009 8,116.31 8,570.85 8,838.85 8/31/2009 8,353.72 8,924.44 9,190.22 9/30/2009 8,680.15 9,280.16 9,525.72 10/31/2009 8,502.10 9,115.05 9,329.63 11/30/2009 8,873.04 9,487.52 9,692.64 12/31/2009 9,082.07 9,657.89 9,949.22 1/31/2010 8,646.73 9,258.72 9,571.63 2/28/2010 8,796.85 9,389.23 9,705.01 3/31/2010 9,457.36 9,970.71 10,271.68 4/30/2010 9,382.31 9,972.11 10,311.35 5/31/2010 8,481.60 9,020.73 9,355.43 6/30/2010 8,136.34 8,707.75 9,075.82 7/31/2010 8,856.90 9,413.71 9,794.67 8/31/2010 8,481.60 9,062.25 9,419.01 9/30/2010 9,337.27 9,907.26 10,341.81 10/31/2010 9,772.61 10,276.56 10,755.70 11/30/2010 9,562.45 10,054.70 10,538.51 12/31/2010 10,183.39 10,793.97 11,281.32 1/31/2011 10,319.77 11,037.83 11,441.16 2/28/2011 10,638.01 11,424.29 11,807.38 3/31/2011 10,653.16 11,311.63 11,831.32 4/30/2011 11,062.31 11,792.17 12,274.17 5/31/2011 10,804.70 11,547.54 12,009.88 6/30/2011 10,668.31 11,364.86 11,781.69 7/31/2011 10,471.31 11,158.79 11,515.36 8/31/2011 9,562.08 10,372.58 10,589.90 9/30/2011 8,622.54 9,476.69 9,502.24 10/31/2011 9,546.93 10,456.93 10,492.17 11/30/2011 9,471.16 10,201.62 10,304.34 12/31/2011 9,378.00 10,195.95 10,157.84 1/31/2012 9,931.46 10,707.62 10,805.94 2/29/2012 10,331.18 11,230.67 11,342.15 3/31/2012 10,392.67 11,375.05 11,416.03 4/30/2012 10,285.05 11,245.88 11,214.99 5/31/2012 9,331.88 10,275.09 10,213.26 6/30/2012 9,793.09 10,798.66 10,667.89 7/31/2012 9,900.71 10,937.48 10,816.51 8/31/2012 10,146.69 11,214.77 11,005.93 9/30/2012 10,408.04 11,522.88 11,288.06 10/31/2012 10,300.43 11,445.01 11,278.82 11/30/2012 10,469.54 11,591.56 11,406.10 12/31/2012 10,712.61 11,809.56 11,773.95 1/31/2013 11,273.97 12,411.13 12,357.97 2/28/2013 11,367.53 12,431.62 12,332.13 3/31/2013 11,617.02 12,723.74 12,612.88 4/30/2013 12,038.04 13,123.47 12,971.84 5/31/2013 12,038.04 13,128.42 13,055.55 6/30/2013 11,788.55 12,804.93 12,767.97 7/31/2013 12,474.66 13,479.06 13,413.26 8/31/2013 12,053.64 13,192.16 13,132.47 9/30/2013 12,739.74 13,851.93 13,791.18 10/31/2013 13,379.07 14,394.15 14,273.02 11/30/2013 13,690.94 14,649.95 14,539.45 12/31/2013 13,829.34 14,959.94 14,802.46 1/31/2014 13,482.82 14,405.85 14,301.88 2/28/2014 14,112.85 15,127.02 15,000.56 3/31/2014 14,112.85 15,148.91 15,060.80 4/30/2014 14,112.85 15,304.14 15,133.52 5/31/2014 14,396.37 15,605.25 15,439.05 6/30/2014 14,711.39 15,884.41 15,706.94 7/31/2014 14,664.14 15,630.71 15,371.33 8/31/2014 15,057.91 15,975.13 15,722.93 9/30/2014 14,758.64 15,541.75 15,242.88 10/31/2014 14,916.15 15,642.29 15,345.01 11/30/2014 15,372.93 15,955.78 15,643.65 12/31/2014 15,270.33 15,698.49 15,373.87 1/31/2015 15,174.39 15,414.04 15,179.59 2/28/2015 16,037.84 16,317.13 16,017.38 3/31/2015 15,877.94 16,061.71 15,843.91 4/30/2015 16,181.75 16,438.39 16,168.99 5/31/2015 16,373.63 16,495.02 16,260.45 6/30/2015 16,021.85 16,111.47 15,924.93 7/31/2015 16,245.71 16,400.67 16,091.42 8/31/2015 15,222.36 15,315.37 15,046.45 9/30/2015 14,790.63 14,750.47 14,489.33 10/31/2015 15,925.91 15,919.36 15,525.60 11/30/2015 15,957.89 15,840.15 15,524.90 12/31/2015 15,734.85 15,561.72 15,196.28 1/31/2016 14,732.21 14,630.76 14,233.70
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Capital Growth Fund Shares to the following benchmarks: o The unmanaged MSCI World Index reflects the movements of world stock markets by representing a broad selection of domestically listed companies within each market. o The unmanaged Lipper Global Funds Index tracks the total return performance of the 30 largest funds within this category. This category includes funds that invest at least 25% of their portfolio in securities traded outside of the United States and that may own U.S. securities as well. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except the Lipper Global Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 6 | USAA CAPITAL GROWTH FUND ================================================================================ USAA CAPITAL GROWTH FUND INSTITUTIONAL SHARES* (INSTITUTIONAL SHARES) (Ticker Symbol: UICGX) -------------------------------------------------------------------------------- 1/31/16 -------------------------------------------------------------------------------- Net Assets $4.5 Million Net Asset Value Per Share $9.10 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/16 -------------------------------------------------------------------------------- SINCE INCEPTION 8/07/15** -9.72% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/15 -------------------------------------------------------------------------------- SINCE INCEPTION 8/07/15** -3.57% -------------------------------------------------------------------------------- EXPENSE RATIOS*** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 1.31% AFTER REIMBURSEMENT 1.10% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *The Institutional Shares commenced operations on August 7, 2015. **Total returns for periods of less than one year are not annualized. This return is cumulative. ***The expense ratios are reported in the Fund's prospectus dated December 1, 2015, and are based on estimated expenses for the current fiscal year. USAA Asset Management Company (the Manager) has agreed, through December 1, 2016, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Institutional Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.10% of the Institutional Shares' average net assets. If the total annual operating expense ratio of the Institutional Shares is lower than 1.10%, the Institutional Shares will operate at the lower expense ratio. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after December 1, 2016. These estimated expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA CAPITAL GROWTH FUND MSCI WORLD LIPPER GLOBAL INSTITUTIONAL SHARES INDEX FUNDS INDEX 7/31/2015 $10,000.00 $10,000.00 $10,000.00 8/31/2015 9,323.53 9,338.25 9,350.60 9/30/2015 9,068.63 8,993.82 9,004.38 10/31/2015 9,764.71 9,706.53 9,648.38 11/30/2015 9,784.31 9,658.23 9,647.94 12/31/2015 9,643.40 9,488.46 9,443.72 1/31/2016 9,028.29 8,920.83 8,845.52
[END CHART] Data from 7/31/15 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Capital Growth Fund Institutional Shares to the Fund's benchmarks listed above (see page 6 for benchmark definitions). Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Global Funds Index reflects the fees and expenses of the underlying funds included in the index. *The performance of the MSCI World Index and the Lipper Global Funds Index is calculated from the end of the month, July 31, 2015, while the Institutional Shares' inception date is August 7, 2015. There may be a slight variation of performance numbers because of this difference. ================================================================================ 8 | USAA CAPITAL GROWTH FUND ================================================================================ o TOP 10 HOLDINGS - 1/31/16 o (% of Net Assets) Apple, Inc. .............................................................. 2.5% Altria Group, Inc. ....................................................... 1.6% Toyota Motor Corp. ....................................................... 1.6% Fuji Heavy Industries Ltd. ............................................... 1.5% JPMorgan Chase & Co. ..................................................... 1.5% CVS Health Corp. ......................................................... 1.3% Intel Corp. .............................................................. 1.3% Alaska Air Group, Inc. ................................................... 1.2% Lowe's Companies, Inc. ................................................... 1.2% Tyson Foods, Inc. "A" .................................................... 1.2%
o ASSET ALLOCATION - 1/31/16 o [PIE CHART OF ASSET ALLOCATION] FINANCIALS 18.7% CONSUMER DISCRETIONARY 14.4% HEALTH CARE 14.3% INFORMATION TECHNOLOGY 13.0% INDUSTRIALS 11.7% CONSUMER STAPLES 10.9% ENERGY 7.0% MATERIALS 3.9% TELECOMMUNICATION SERVICES 3.0% UTILITIES 2.9% MONEY MARKET INSTRUMENTS 0.2%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 11-19 ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o COUNTRY ALLOCATION* - 1/31/16 o [PIE CHART OF COUNTRY ALLOCATION] UNITED STATES 58.7% JAPAN 9.5% UNITED KINGDOM 6.2% CHINA 3.3% NETHERLANDS 3.1% OTHER** 19.0%
[END CHART] *Excludes money market instruments. **Includes countries with less than 3% of the portfolio. Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ 10 | USAA CAPITAL GROWTH FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- EQUITY SECURITIES (99.8%) COMMON STOCKS (99.7%) CONSUMER DISCRETIONARY (14.4%) ------------------------------ APPAREL RETAIL (0.8%) 73,500 TJX Companies, Inc. $ 5,236 ----------- AUTOMOBILE MANUFACTURERS (3.5%) 252,000 Fuji Heavy Industries Ltd.(a) 10,298 146,600 Mazda Motor Corp.(a) 2,663 174,600 Toyota Motor Corp.(a) 10,545 ----------- 23,506 ----------- AUTOMOTIVE RETAIL (0.9%) 23,800 O'Reilly Automotive, Inc.* 6,209 ----------- BROADCASTING (1.1%) 1,964,881 ITV plc(a) 7,503 ----------- CABLE & SATELLITE (1.6%) 85,600 Comcast Corp. "A" 4,769 920,000 Sirius XM Holdings, Inc.* 3,404 100,000 Starz "A"* 2,843 ----------- 11,016 ----------- DEPARTMENT STORES (1.8%) 41,500 Kohl's Corp. 2,065 100,200 Macy's, Inc. 4,049 61,643 Next plc(a) 6,102 ----------- 12,216 ----------- GENERAL MERCHANDISE STORES (0.7%) 63,000 Target Corp. 4,562 ----------- HOME IMPROVEMENT RETAIL (2.3%) 57,900 Home Depot, Inc. 7,282 116,900 Lowe's Companies, Inc. 8,377 ----------- 15,659 ----------- HOMEBUILDING (0.9%) 110,200 Bellway plc(a) 4,377 66,000 Persimmon plc(a) 1,923 ----------- 6,300 -----------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- MOVIES & ENTERTAINMENT (0.3%) 47,000 Viacom, Inc. "B" $ 2,145 ----------- RESTAURANTS (0.5%) 74,100 Brinker International, Inc. 3,686 ----------- Total Consumer Discretionary 98,038 ----------- CONSUMER STAPLES (10.9%) ------------------------ AGRICULTURAL PRODUCTS (0.4%) 84,300 Archer-Daniels-Midland Co. 2,980 ----------- BREWERS (0.8%) 58,800 Heineken N.V.(a) 5,113 ----------- DRUG RETAIL (1.3%) 90,400 CVS Health Corp. 8,732 ----------- FOOD RETAIL (1.9%) 285,171 Koninklijke Ahold N.V.(a) 6,473 174,370 Kroger Co. 6,767 ----------- 13,240 ----------- HOUSEHOLD PRODUCTS (1.6%) 51,900 Kimberly-Clark Corp. 6,665 49,946 Reckitt Benckiser Group plc(a) 4,457 ----------- 11,122 ----------- HYPERMARKETS & SUPER CENTERS (0.4%) 42,000 Wal-Mart Stores, Inc. 2,787 ----------- PACKAGED FOODS & MEAT (1.2%) 147,100 Tyson Foods, Inc. "A" 7,849 ----------- SOFT DRINKS (1.7%) 63,000 Dr. Pepper Snapple Group, Inc. 5,912 58,100 PepsiCo, Inc. 5,769 ----------- 11,681 ----------- TOBACCO (1.6%) 174,500 Altria Group, Inc. 10,664 ----------- Total Consumer Staples 74,168 ----------- ENERGY (7.0%) ------------- INTEGRATED OIL & GAS (2.1%) 84,636 Exxon Mobil Corp. 6,589 613,881 Gazprom PAO ADR(a) 2,221 231,400 Royal Dutch Shell plc "A"(a) 5,079 ----------- 13,889 -----------
================================================================================ 12 | USAA CAPITAL GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- OIL & GAS DRILLING (0.3%) 200,000 Transocean Ltd. $ 2,084 ----------- OIL & GAS EQUIPMENT & SERVICES (1.1%) 85,753 Cameron International Corp.* 5,631 343,000 Subsea 7 S.A.*(a) 2,064 ----------- 7,695 ----------- OIL & GAS REFINING & MARKETING (3.5%) 77,600 Marathon Petroleum Corp. 3,243 215,883 Neste Oyj(a) 6,747 77,630 Phillips 66 6,222 113,900 Valero Energy Corp. 7,730 ----------- 23,942 ----------- Total Energy 47,610 ----------- FINANCIALS (18.7%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (0.6%) 1,623,000 Man Group PLC(a) 3,807 ----------- DIVERSIFIED BANKS (8.3%) 6,260,000 Agricultural Bank of China Ltd. "H"(a) 2,255 314,900 Bank of America Corp. 4,453 57,000 BNP Paribas S.A.(a) 2,709 1,627,000 BOC Hong Kong Holdings Ltd.(a) 4,285 5,021,000 China Construction Bank Corp. "H"(a) 3,107 1,799,400 China Merchants Bank Co. Ltd. "H"(a) 3,499 6,758,000 Industrial & Commercial Bank of China Ltd. "H"(a) 3,544 170,400 JPMorgan Chase & Co. 10,139 3,000,000 Lloyds Banking Group plc(a) 2,814 134,200 National Bank of Canada 3,829 422,000 Oversea-Chinese Banking Corp. Ltd.(a) 2,366 92,000 Royal Bank of Canada 4,764 120,000 Societe Generale S.A.(a) 4,591 315,000 United Overseas Bank Ltd.(a) 4,030 ----------- 56,385 ----------- LIFE & HEALTH INSURANCE (2.7%) 357,600 Dai-Ichi Life Insurance Co., Ltd.(a) 4,938 1,200,000 Legal & General Group plc(a) 4,193 79,000 Lincoln National Corp. 3,117 45,000 Prudential Financial, Inc. 3,154 107,000 Sun Life Financial, Inc. 3,069 ----------- 18,471 -----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- MULTI-LINE INSURANCE (2.1%) 97,650 Ageas(a) $ 3,962 36,300 Allianz SE(a) 5,859 84,500 American International Group, Inc. 4,772 ----------- 14,593 ----------- OTHER DIVERSIFIED FINANCIAL SERVICES (1.1%) 325,700 ORIX Corp.(a) 4,622 87,200 Voya Financial, Inc. 2,667 ----------- 7,289 ----------- PROPERTY & CASUALTY INSURANCE (1.3%) 78,000 Allstate Corp. 4,727 113,300 Tokio Marine Holdings, Inc.(a) 4,054 ----------- 8,781 ----------- REAL ESTATE DEVELOPMENT (0.9%) 576,000 China Overseas Land & Investment Ltd.(a) 1,655 5,527,000 Country Garden Holdings Co. Ltd.(a) 2,118 1,512,000 Shimao Property Holdings Ltd.(a) 2,148 ----------- 5,921 ----------- REAL ESTATE SERVICES (0.0%) 192,000 China Overseas Property Holdings Ltd.*(a) 23 ----------- REGIONAL BANKS (0.3%) 93,000 Popular, Inc. 2,338 ----------- REINSURANCE (1.4%) 50,705 Hannover Rueck SE(a) 5,337 21,724 Muenchener Rueckversicherungs-Gesellschaft AG(a) 4,161 ----------- 9,498 ----------- Total Financials 127,106 ----------- HEALTH CARE (14.3%) ------------------- BIOTECHNOLOGY (4.9%) 99,300 AbbVie, Inc. 5,452 57,635 Actelion Ltd.(a) 7,624 35,500 Amgen, Inc. 5,422 12,800 Biogen, Inc.* 3,495 48,667 Gilead Sciences, Inc. 4,039 60,800 United Therapeutics Corp.* 7,489 ----------- 33,521 -----------
================================================================================ 14 | USAA CAPITAL GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- HEALTH CARE DISTRIBUTORS (2.5%) 53,000 AmerisourceBergen Corp. $ 4,747 82,450 Cardinal Health, Inc. 6,709 33,300 McKesson Corp. 5,361 ----------- 16,817 ----------- HEALTH CARE EQUIPMENT (1.3%) 56,218 Edwards Lifesciences Corp.* 4,397 30,713 Teleflex, Inc. 4,167 ----------- 8,564 ----------- HEALTH CARE SUPPLIES (0.6%) 100,000 Hoya Corp.(a) 3,863 ----------- MANAGED HEALTH CARE (1.6%) 54,100 Aetna, Inc. 5,510 47,000 UnitedHealth Group, Inc. 5,412 ----------- 10,922 ----------- PHARMACEUTICALS (3.4%) 125,165 Novo Nordisk A/S "B"(a) 6,990 134,756 Pfizer, Inc. 4,109 87,701 Shire plc(a) 4,919 120,700 Teva Pharmaceutical Industries Ltd. ADR 7,420 ----------- 23,438 ----------- Total Health Care 97,125 ----------- INDUSTRIALS (11.7%) ------------------- AEROSPACE & DEFENSE (4.7%) 56,500 Boeing Co. 6,787 35,500 Huntington Ingalls Industries, Inc. 4,540 29,400 Lockheed Martin Corp. 6,204 39,797 Northrop Grumman Corp. 7,365 54,900 Raytheon Co. 7,040 ----------- 31,936 ----------- AIRLINES (1.9%) 119,600 Alaska Air Group, Inc. 8,420 99,000 Delta Air Lines, Inc. 4,384 ----------- 12,804 ----------- HEAVY ELECTRICAL EQUIPMENT (0.7%) 78,000 Vestas Wind Systems A/S(a) 5,092 ----------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%) 49,800 Adecco S.A.(a) 3,074 -----------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (0.4%) 2,000,000 CITIC Ltd.(a) $ 2,856 ----------- INDUSTRIAL MACHINERY (1.1%) 48,800 Illinois Tool Works, Inc. 4,396 56,600 Lincoln Electric Holdings, Inc. 3,013 ----------- 7,409 ----------- RAILROADS (2.4%) 85,200 Canadian National Railway Co. 4,619 36,700 Central Japan Railway Co.(a) 6,814 74,300 West Japan Railway Co.(a) 4,812 ----------- 16,245 ----------- Total Industrials 79,416 ----------- INFORMATION TECHNOLOGY (13.0%) ------------------------------ APPLICATION SOFTWARE (1.0%) 117,300 Aspen Technology, Inc.* 3,805 150,000 Nuance Communications, Inc.* 2,645 ----------- 6,450 ----------- COMMUNICATIONS EQUIPMENT (2.2%) 565,000 Brocade Communications Systems, Inc. 4,509 250,000 Cisco Systems, Inc. 5,947 203,800 Juniper Networks, Inc. 4,810 ----------- 15,266 ----------- INTERNET SOFTWARE & SERVICES (1.2%) 187,000 eBay, Inc.* 4,387 47,100 VeriSign, Inc.* 3,561 ----------- 7,948 ----------- IT CONSULTING & OTHER SERVICES (1.1%) 64,480 Computer Sciences Corp. 2,068 64,480 CSRA, Inc. 1,727 85,400 Leidos Holdings, Inc. 3,938 ----------- 7,733 ----------- SEMICONDUCTORS (3.4%) 278,000 Intel Corp. 8,623 155,000 NVIDIA Corp. 4,540 56,500 NXP Semiconductors N.V.* 4,225 106,800 Texas Instruments, Inc. 5,653 ----------- 23,041 -----------
================================================================================ 16 | USAA CAPITAL GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (4.1%) 179,757 Apple, Inc. $ 17,497 139,546 Hewlett Packard Enterprise Co. 1,920 139,546 HP, Inc. 1,355 92,000 NetApp, Inc. 2,018 5,511 Samsung Electronics Co. Ltd.(a) 5,320 ----------- 28,110 ----------- Total Information Technology 88,548 ----------- MATERIALS (3.9%) ---------------- COMMODITY CHEMICALS (0.4%) 33,700 LyondellBasell Industries N.V. "A" 2,628 ----------- DIVERSIFIED CHEMICALS (0.5%) 80,700 Dow Chemical Co. 3,389 ----------- DIVERSIFIED METALS & MINING (0.3%) 78,500 Rio Tinto plc(a) 1,931 ----------- PAPER PACKAGING (1.9%) 71,280 Avery Dennison Corp. 4,340 118,400 International Paper Co. 4,050 93,800 Packaging Corp. of America 4,768 ----------- 13,158 ----------- PAPER PRODUCTS (0.4%) 173,000 UPM-Kymmene Oyj(a) 2,815 ----------- SPECIALTY CHEMICALS (0.4%) 66,500 Novozymes A/S "B"(a) 2,773 ----------- Total Materials 26,694 ----------- TELECOMMUNICATION SERVICES (3.0%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (2.0%) 524,050 BT Group plc(a) 3,645 7,000,000 China Telecom Corp. Ltd. "H"(a) 3,305 189,662 Hellenic Telecommunications Organization S.A.(a) 1,646 117,600 Nippon Telegraph & Telephone Corp.(a) 5,003 ----------- 13,599 ----------- WIRELESS TELECOMMUNICATION SERVICES (1.0%) 284,000 NTT DOCOMO, Inc.(a) 6,336 ----------- Total Telecommunication Services 19,935 -----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
--------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------- UTILITIES (2.8%) ---------------- ELECTRIC UTILITIES (1.9%) 59,600 Entergy Corp. $ 4,207 100,000 Korea Electric Power Corp.*(a) 4,404 1,347,600 Tenaga Nasional Berhad(a) 4,412 -------- 13,023 -------- GAS UTILITIES (0.9%) 135,310 Enagas S.A.(a) 3,943 96,520 Gas Natural SDG S.A.(a) 1,901 -------- 5,844 -------- Total Utilities 18,867 -------- Total Common Stocks (cost: $576,836) 677,507 -------- PREFERRED STOCKS (0.1%) UTILITIES (0.1%) ---------------- RENEWABLE ELECTRICITY (0.1%) 246,800 Companhia Energetica de Sao Paulo "B"(cost: $3,200) 814 -------- Total Equity Securities (cost: $580,036) 678,321 -------- MONEY MARKET INSTRUMENTS (0.2%) MONEY MARKET FUNDS (0.2%) 1,226,254 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(b) (cost: $1,226) 1,226 -------- TOTAL INVESTMENTS (COST: $581,262) $679,547 ======== --------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY --------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL --------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $428,387 $249,120 $- $677,507 Preferred Stocks 814 - - 814 Money Market Instruments: Money Market Funds 1,226 - - 1,226 --------------------------------------------------------------------------------------------------- Total $430,427 $249,120 $- $679,547 ---------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. ================================================================================ 18 | USAA CAPITAL GROWTH FUND ================================================================================ Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
--------------------------------------------------------------------------------------------------- COMMON STOCKS --------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $ 1,665 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 (1,665) Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments - --------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $ - ---------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, common stocks with a fair value of $255,021,000 were transferred from Level 1 to Level 2. Due to an assessment of events at the end of the current reporting period, these securities had adjustments to their foreign market closing prices to reflect changes in value that occurred after the close of foreign markets and prior to the close of the U.S. securities markets. Common stocks with a fair value of $1,665,000 were transferred from Level 3 to Level 2 as a result of no longer being affected by the Athens stock exchange closure but rather due to an assessment of events at the end of the current reporting period, these securities had adjustments to their foreign market closing prices to reflect changes in value that occurred after the close of foreign markets and prior to the close of the U.S. securities markets. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 41.1% of net assets at January 31, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. o SPECIFIC NOTES (a) Securities with a value of $249,120,000, which represented 36.6% of the Fund's net assets, were classified as Level 2 at January 31, 2016, due to the prices being adjusted to take into account significant market movements following the close of local trading. (b) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 20 | USAA CAPITAL GROWTH FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $581,262) $679,547 Cash denominated in foreign currencies (identified cost of $26) 26 Receivables: Capital shares sold 245 USAA Asset Management Company (Note 6D) 1 Dividends and interest 761 -------- Total assets 680,580 -------- LIABILITIES Payables: Capital shares redeemed 260 Accrued management fees 465 Accrued transfer agent's fees 25 Other accrued expenses and payables 63 -------- Total liabilities 813 -------- Net assets applicable to capital shares outstanding $679,767 ======== NET ASSETS CONSIST OF: Paid-in capital $681,475 Accumulated overdistribution of net investment income (196) Accumulated net realized loss on investments (99,765) Net unrealized appreciation of investments 98,285 Net unrealized depreciation of foreign currency translations (32) -------- Net assets applicable to capital shares outstanding $679,767 ======== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $675,304/74,144 shares outstanding) $ 9.11 ======== Institutional Shares (net assets of $4,463/490 shares outstanding) $ 9.10 ========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 21 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $205) $ 7,595 Interest 3 -------- Total income 7,598 -------- EXPENSES Management fees 2,886 Administration and servicing fees: Fund Shares 541 Institutional Shares* 2 Transfer agent's fees: Fund Shares 830 Institutional Shares* 2 Custody and accounting fees: Fund Shares 77 Institutional Shares* 1 Postage: Fund Shares 47 Shareholder reporting fees: Fund Shares 23 Trustees' fees 13 Registration fees: Fund Shares 22 Institutional Shares* 10 Professional fees 50 Other 8 -------- Total expenses 4,512 Expenses reimbursed: Institutional Shares* (8) -------- Net expenses 4,504 -------- NET INVESTMENT INCOME 3,094 -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized gain (loss) on: Investments 1,237 Foreign currency transactions (87) Change in net unrealized appreciation/(depreciation) of: Investments (75,132) Foreign currency translations 20 -------- Net realized and unrealized loss (73,962) -------- Decrease in net assets resulting from operations $(70,868) ========
*Institutional Shares commenced operations on August 7, 2015. See accompanying notes to financial statements. ================================================================================ 22 | USAA CAPITAL GROWTH FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
--------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 --------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 3,094 $ 7,013 Net realized gain on investments 1,237 59,348 Net realized loss on foreign currency transactions (87) (168) Change in net unrealized appreciation/(depreciation) of: Investments (75,132) 8,188 Foreign currency translations 20 (46) ----------------------------- Increase (decrease) in net assets resulting from operations (70,868) 74,335 ----------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (8,090) (10,941) Institutional Shares* (57) - ----------------------------- Distributions to shareholders (8,147) (10,941) ----------------------------- NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (6,982) (9,553) Institutional Shares* 5,000 - ----------------------------- Total net decrease in net assets from capital share transactions (1,982) (9,553) ----------------------------- Capital contribution from USAA Transfer Agency Company: Fund Shares - 5 ----------------------------- Net increase (decrease) in net assets (80,997) 53,846 NET ASSETS Beginning of period 760,764 706,918 ----------------------------- End of period $679,767 $760,764 ============================= Accumulated undistributed (overdistribution of) net investment income: End of period $ (196) $ 4,857 =============================
*Institutional Shares commenced operations on August 7, 2015. See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 23 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940 as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Capital Growth Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek capital appreciation. The Fund consists of two classes of shares: Capital Growth Fund Shares (Fund Shares), and effective August 7, 2015, a new share class designated Capital Growth Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to ================================================================================ 24 | USAA CAPITAL GROWTH FUND ================================================================================ time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser has agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. ================================================================================ 26 | USAA CAPITAL GROWTH FUND ================================================================================ 5. Repurchase agreements are valued at cost. 6. Forward foreign currency contracts are valued on a daily basis using forward foreign currency exchange rates obtained from an independent pricing service. 7. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include certain common stocks, which are valued based on methods discussed in Note 1A2. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, ================================================================================ 28 | USAA CAPITAL GROWTH FUND ================================================================================ foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the Funds based on their respective average net assets for the period. The Funds may request an optional increase of the committed loan agreement up to $750 million. If the Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. ================================================================================ 30 | USAA CAPITAL GROWTH FUND ================================================================================ (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. The Fund is permitted to carry forward post-enactment capital losses indefinitely. Additionally, such capital losses that are carried forward will retain their character as short-term and/or long-term capital losses. Post-enactment capital loss carryforwards must be used before pre-enactment capital loss carryforwards. As a result, pre-enactment capital loss carryforwards may be more likely to expire unused. At July 31, 2015, the Fund had pre-enactment capital loss carryforwards of $98,365,000, and no post-enactment capital loss carryforwards, for federal income tax purposes. If not offset by subsequent capital gains, the pre- enactment capital loss carryforwards will expire in 2018. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used or expire. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $68,210,000 and $72,508,000, respectively. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $156,475,000 and $58,190,000, respectively, resulting in net unrealized appreciation of $98,285,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 ----------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------- FUND SHARES: Shares sold 3,659 $ 35,106 84,759 $ 8,624 Shares issued from reinvested dividends 832 8,029 10,856 1,122 Shares redeemed (5,239) (50,117) (105,168) (10,764) ------------------------------------------------------- Net decrease from capital share transactions (748) $ (6,982) (9,553) $ (1,018) ======================================================= INSTITUTIONAL SHARES (COMMENCED ON AUGUST 7, 2015): Shares sold 490 $ 5,000 - $ - Shares issued from reinvested dividends - - - - Shares redeemed - - - - ------------------------------------------------------- Net increase from capital share transactions 490 $ 5,000 - $ - =======================================================
================================================================================ 32 | USAA CAPITAL GROWTH FUND ================================================================================ (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund. The Manager also is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.75% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Global Funds Index. The Lipper Global Funds Index tracks the total return performance of the 30 largest funds in the Lipper Global Funds category. For the Fund Shares, the performance period consists of the current month plus the previous 35 months. The performance period for the Institutional Shares commenced on August 7, 2015, and includes the performance of the ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ Fund Shares for periods prior to August 7, 2015. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) --------------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share classes are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Global Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016 (and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares), the Fund incurred total management fees, paid or payable to the Manager, of $2,886,000, which included a performance adjustment for the Fund Shares and the Institutional Shares of $161,000 and less than $500, respectively. For the Fund Shares and the Institutional Shares, the performance adjustments were 0.04% and less than 0.01%, respectively. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory Agreement with QS Batterymarch Financial Management, ================================================================================ 34 | USAA CAPITAL GROWTH FUND ================================================================================ Inc. (QS Batterymarch), under which QS Batterymarch directs the investment and reinvestment of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays QS Batterymarch a subadvisory fee in the annual amount of 0.25% of the first $250 million of assets, 0.21% on assets over $250 million and up to $500 million, and 0.17% on assets over $500 million of the Fund's average net assets that QS Batterymarch manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to QS Batterymarch, of $769,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016 (and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares), the Fund Shares and Institutional Shares incurred administration and servicing fees, paid or payable to the Manager, of $541,000 and $2,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $9,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. EXPENSE LIMITATION - The Manager agreed, through December 1, 2016, to limit the total annual operating expenses of the Institutional Shares to 1.10% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Institutional Shares for all expenses in excess of that amount. This expense limitation arrangement may not be changed or ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ terminated through December 1, 2016, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the period from August 7, 2015, to January 31, 2016, the Fund incurred reimbursable expenses from the Manager for the Institutional Shares of $8,000, of which $1,000 was receivable from the Manager. E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, (and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares), the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of $830,000 and $2,000, respectively. F. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 490,000 Institutional Shares, which represents 100.0% of the Institutional Shares and 0.7% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 36 | USAA CAPITAL GROWTH FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ---------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ---------------------------------------------------------------------------------- Net asset value at beginning of period $ 10.16 $ 9.31 $ 8.00 $ 6.44 $ 6.91 $ 5.90 ---------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .04 .12 .12 .10 .10 .08 Net realized and unrealized gain (loss) (.98) .88 1.28 1.56 (.48) .99 ---------------------------------------------------------------------------------- Total from investment operations (.94) 1.00 1.40 1.66 (.38) 1.07 ---------------------------------------------------------------------------------- Less distributions from: Net investment income (.11) (.15) (.09) (.10) (.09) (.06) ---------------------------------------------------------------------------------- Net asset value at end of period $ 9.11 $ 10.16 $ 9.31 $ 8.00 $ 6.44 $ 6.91 ================================================================================== Total return (%)* (9.32) 10.79 17.55 26.00 (5.45) 18.23 Net assets at end of period (000) $675,304 $760,764 $706,918 $642,927 $568,904 $683,864 Ratios to average net assets:** Expenses (%)(a) 1.24(d) 1.23(b) 1.28 1.30 1.30 1.30 Expenses, excluding reimbursements (%)(a) 1.24(d) 1.23 1.28 1.34 1.38 1.34 Net investment income (%) .85(d) .95 1.41 1.40 1.43 1.31 Portfolio turnover (%) 9 38 36(c) 83 100 113(c) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $716,936,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+)Represents less than 0.01% of average net assets. (b) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Fund Shares to 1.30% of the Fund Shares' average net assets. (c) Reflects overall decrease in purchases and sales of securities. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
PERIOD ENDED JANUARY 31, ------------ 2016*** ------------ Net asset value at beginning of period $10.09 ------ Income (loss) from investment operations: Net investment income 05 Net realized and unrealized loss (.92) ------ Total from investment operations (.87) ------ Less distributions from: Net investment income (.12) ------ Net asset value at end of period $ 9.10 ====== Total return (%)* (9.72) Net assets at end of period (000) $4,463 Ratios to average net assets:** Expenses (%)(a) 1.10 Expenses, excluding reimbursements (%)(a) 1.46 Net investment income (%)(a) 1.02 Portfolio turnover (%) 9
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the period ended January 31, 2016, average net assets were $4,711,000. *** Institutional Shares commenced operations on August 7, 2015. (a) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 38 | USAA CAPITAL GROWTH FUND ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual ================================================================================ EXPENSE EXAMPLE | 39 ================================================================================ return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD** ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015- AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 906.80 $5.94 Hypothetical (5% return before expenses) 1,000.00 1,018.90 6.29 INSTITUTIONAL SHARES* Actual 1,000.00 902.80 4.98 Hypothetical (5% return before expenses) 1,000.00 1,018.54 5.28
*Institutional Shares commenced operations on August 7, 2015. **Expenses are equal to the annualized expense ratio of 1.24% for Fund Shares and 1.10% for Institutional Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days for Fund Shares (to reflect the one-half-year period) or 174 days/366 days for Institutional Shares (to reflect the current period beginning with the Institutional Shares' inception date). The Fund's actual ending account values are based on its actual total returns of (9.32)% for Fund Shares for the six-month period of August 1, 2015, through January 31, 2016, and (9.72)% for Institutional Shares for the period of August 7, 2015, through January 31, 2016. ================================================================================ 40 | USAA CAPITAL GROWTH FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 36843-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA FIRST START GROWTH FUND] ============================================================ SEMIANNUAL REPORT USAA FIRST START GROWTH FUND JANUARY 31, 2016 ============================================================ ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 6 FINANCIAL INFORMATION Portfolio of Investments 11 Notes to Portfolio of Investments 29 Financial Statements 33 Notes to Financial Statements 36 EXPENSE EXAMPLE 48
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202738-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA FIRST START GROWTH FUND (THE FUND), SEEKS LONG-TERM CAPITAL GROWTH WITH REDUCED VOLATILITY OVER TIME. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in equity securities when we believe the reward characteristics outweigh the risk in the market. The Fund considers equity securities to include, among others, domestic or foreign common stocks, securities convertible into common stocks, securities that carry the right to buy common stocks, preferred securities, and domestic and foreign exchange-traded funds (ETFs). To reduce the overall volatility to investors, we generally will invest between 20% and 80% of the Fund's assets in bonds and money market instruments, depending on our view of the overall direction of the stock and bond markets. To the extent the Fund invests in debt securities, it will invest primarily in investment-grade securities, but the Fund also may invest up to 10% of its net assets in below-investment grade securities, with are sometimes referred to as high yield or "junk" bonds. Although the Fund typically will invest primarily in U.S. securities, it may invest without limit in foreign securities. In our attempt to reduce the Fund's volatility over time, the Fund at times may implement an index option-based risk management strategy. The strategy involves selling index call or corresponding ETF and purchasing put index or corresponding ETF options or put spread options against a highly correlated stock portfolio to reduce the Fund's volatility. This option strategy may not fully protect the Fund against declines in the value of its stock portfolio, and the Fund could experience a loss in both the stock and option portions of its portfolio. It could also cause the Fund to underperform. The combination of the diversified stock portfolio with the index call and put or corresponding ETF options is designed to provide the Fund with fairly consistent returns over a wide range of equity market environments. We expect to implement this strategy at times when we believe stocks are significantly overpriced or are at materially elevated risk of a major sell-off based on the portfolio manager's assessment of economic and market conditions. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company Quantitative Management Associates LLC** ARNOLD J. ESPE, CFA PETER Xu, Ph.D. WASIF A. LATIF DANIEL CARLUCCI, CFA JOHN P. TOOHEY, CFA* STACIE L. MINTZ, CFA -------------------------------------------------------------------------------- o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD? The reporting period ended January 31, 2016, proved to be a challenging time for the financial markets due largely to the mounting evidence of slowing global growth. While economic conditions in the United States remained relatively firm thanks to strength in the housing and job markets, the uncertain outlook for growth overseas weighed heavily on market performance. Most notably, the continued slowdown in China's growth rate translated into a sharp drop in the prices of oil and other commodities. In turn, this fueled significant underperformance for the energy and materials sectors, as well as emerging-market nations whose economies are dependent on commodity exports. The persistent decline in oil prices beginning in November 2015 through January 2016 also pressured investor sentiment during the latter half of the reporting period, fueling a sharp sell-off in equities during the first two weeks of January 2016. The Federal Reserve's (the Fed) decision in December 2015 to raise interest rates for the first time in nearly a decade also contributed to the difficult backdrop for equities. Amid this environment, higher-risk asset classes generally lagged more defensive market segments by a substantial margin, leading *Effective January 29, 2016, John P. Toohey is a co-manager of the Fund. **Effective January 29, 2016, Quantitative Management Associates LLC is no longer a subadviser for the Fund. ================================================================================ 2 | USAA FIRST START GROWTH FUND ================================================================================ to significant underperformance for both domestic small-cap and emerging-market stocks. Slowing growth and increased investor uncertainty, while a negative for stocks, provided a boost to U.S. Treasuries. Yields fell (and prices rose), as investors sought "safe haven" assets that have the potential to hold up well even during a period of slowing growth. These gains did not extend to the performance of corporate bonds, however. Weakness in the energy and materials sectors, in combination with the prospect of declining profits for U.S. companies, led to a substantial shortfall in the performance of corporate bonds relative to U.S. Treasuries. o HOW DID THE USAA FIRST START GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended January 31, 2016, the Fund had a total return of -7.79%. This compares to total returns of 1.33% for the Barclays U.S. Aggregate Bond Index, -11.40% for the MSCI All-Country World Index*, -7.43% for First Start Growth Composite Index**, and -7.59% for the Lipper Flexible Portfolio Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employed dedicated resources to support the research, selection, and monitoring of the Fund's former subadviser, Quantitative Management Associates LLC (QMA). The investment adviser provides day-to-day discretionary management of the Fund's assets and will continue to manage the Fund in a manner consistent with its existing investment objective and strategy. Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *As of December 1, 2015, the MSCI All-Country World Index replaced the Barclays U.S. Aggregate Bond Index as the Fund's broad-based securities market index as it more closely represents the securities held by the Fund. **The First Start Growth Composite Index is a combination of unmanaged indexes representing the Fund's model allocation, and consists of the MSCI USA Investable Market Index (IMI) (40%), the MSCI ACWI ex USA IMI (27%), the Barclays U.S. Universal Index (28%), the Bloomberg Commodity Index Total Return (1.5%), the MSCI U.S. Real Estate Investment Trust (REIT) Index (1.5%), and the Barclays U.S. Treasury -Bills (3-M) (2%). ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE. As would be expected at a time of poor performance for the global stock markets, the Fund's equity allocation lost ground on an absolute basis. In addition, it slightly underperformed the broader market due to the impact of individual stock selection. However, the Fund's relative performance was helped by our decision to favor large-cap stocks over small-cap stocks. We consider small-cap stocks to be overvalued relative to large-cap stocks. The Fund's allocation to international equities had a negative impact on the Fund's performance, which was consistent with the poor returns of both the developed and emerging markets overseas. While these investments may hinder short-term returns, we continue to believe that a favorable longer-term outlook may be in store for both of these asset classes. We believe this to be especially true with respect to developed-market Europe, a view that is based primarily on relative stock valuations. Fundamental measures, such as price-to-earnings and price-to-book-value ratios, show European equities to be significantly cheaper than U.S. stocks. European earnings growth is forecast to be higher than that of the United States in 2016, and lower profit margins in Europe could potentially provide an advantage. European economic growth, while low on an absolute basis, is showing signs of a gradual improvement. The European Central Bank's monetary easing policy adds to the appeal of European equities by leading to a weaker euro, which provides an advantage to Europe's exporters over their U.S. competitors. We have a preference for emerging markets in the long run because of their higher economic growth potential and the inexpensive valuations in their equity markets. The Fund's fixed-income portfolio, which emphasizes corporate bonds and other credit-sensitive segments of the fixed-income market, finished the reporting period with a negative return. At a time in which the downturn in oil prices weighed on the credit outlook for energy issuers and fueled a "flight to quality" in the corporate bond market, many lower-rated investment-grade corporate bonds held in the Fund's bond ================================================================================ 4 | USAA FIRST START GROWTH FUND ================================================================================ portfolio underperformed. The Fund also holds a position in longer-term maturity U.S. Treasuries, as a hedge against market volatility, which aided performance and offset some of the weakness in corporate bonds at a time in which yields fell (as prices rose). It's also important to note that the Fund's bond allocation succeeded in providing both income and overall stability to the portfolio during a time of poor performance and above-average volatility for equities. We believe the financial markets could experience continued disruptions in the months ahead, as many of the issues that weighed on investor sentiment in 2015, such as slow global growth, weak commodity prices, and uncertainty regarding Fed interest rate policy, continues as we enter the new year. Still, investors investing for the long-term should keep their perspective regarding current market conditions, since the impact of shorter-term events tends to even out over time. With this as background, we believe the Fund will be well served by our continued emphasis on diversification and our preference for market segments where we see the most potential for attractive valuations. Thank you for allowing us to help you with your investment needs. Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. o As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ INVESTMENT OVERVIEW USAA FIRST START GROWTH FUND (THE FUND) (Ticker Symbol: UFSGX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $353.3 Million $378.4 Million Net Asset Value Per Share $11.66 $13.29 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -7.79% -5.23% 5.54% 3.90% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -2.32% 6.64% 4.50% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 7/31/15** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 1.84% AFTER REIMBURSEMENT 1.47%
(includes acquired fund fees and expenses of 0.09%) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and are calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through December 1, 2016, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Fund (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.38% of the Fund's average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after December 1, 2016. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. If the total annual operating expense ratio of the Fund is lower than 1.38%, the Fund will operate at the lower expense ratio. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 6 | USAA FIRST START GROWTH FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
FIRST START GROWTH BARCLAY U.S. AGGREGATE LIPPER FLEXIBLE USAA FIRST START MSCI ALL-COUNTRY COMPOSITE INDEX BOND INDEX PORTFOLIO FUNDS INDEX GROWTH FUND WORLD INDEX* 1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 2/28/2006 9,997.21 10,033.20 9,957.23 9,870.73 9,985.34 3/31/2006 10,133.37 9,934.74 10,115.67 9,796.86 10,195.33 4/30/2006 10,321.97 9,916.73 10,229.54 9,639.89 10,534.66 5/31/2006 10,054.33 9,906.15 9,995.04 9,104.34 10,119.37 6/30/2006 10,060.63 9,927.15 9,984.53 9,021.24 10,115.00 7/31/2006 10,131.09 10,061.38 10,017.72 8,882.73 10,184.04 8/31/2006 10,349.69 10,215.41 10,194.48 8,993.54 10,448.08 9/30/2006 10,467.41 10,305.14 10,306.82 9,261.31 10,569.84 10/31/2006 10,771.53 10,373.30 10,578.93 9,455.22 10,966.26 11/30/2006 11,029.20 10,493.65 10,815.54 9,612.19 11,276.34 12/31/2006 11,148.82 10,432.75 10,924.06 9,710.49 11,527.94 1/31/2007 11,263.71 10,428.47 11,053.80 9,841.08 11,642.61 2/28/2007 11,265.59 10,589.28 11,010.63 9,738.47 11,581.32 3/31/2007 11,402.48 10,589.60 11,114.00 9,813.10 11,813.72 4/30/2007 11,750.72 10,646.70 11,460.70 10,120.92 12,336.84 5/31/2007 11,987.13 10,566.01 11,718.60 10,316.81 12,704.76 6/30/2007 11,899.43 10,534.76 11,665.44 10,186.22 12,667.44 7/31/2007 11,740.99 10,622.63 11,547.38 9,981.00 12,474.01 8/31/2007 11,794.02 10,752.83 11,539.54 10,036.97 12,439.49 9/30/2007 12,220.05 10,834.40 11,994.38 10,316.81 13,107.28 10/31/2007 12,535.55 10,931.73 12,313.67 10,475.39 13,618.62 11/30/2007 12,181.58 11,128.31 12,022.18 10,158.24 13,016.49 12/31/2007 12,111.08 11,159.57 11,969.49 10,106.97 12,872.41 1/31/2008 11,553.15 11,347.03 11,580.45 9,613.95 11,818.09 2/29/2008 11,524.21 11,362.78 11,507.23 9,490.69 11,851.45 3/31/2008 11,438.09 11,401.55 11,354.18 9,376.92 11,677.62 4/30/2008 11,867.79 11,377.72 11,763.88 9,566.54 12,329.02 5/31/2008 12,005.64 11,294.29 11,950.21 9,737.20 12,521.79 6/30/2008 11,332.44 11,285.16 11,413.39 9,263.14 11,493.58 7/31/2008 11,162.03 11,275.96 11,197.55 9,158.85 11,195.11 8/31/2008 11,112.39 11,382.97 11,159.28 9,206.26 10,953.82 9/30/2008 10,161.98 11,230.08 10,113.80 8,533.09 9,584.80 10/31/2008 8,646.74 10,965.00 8,558.50 7,328.98 7,685.57 11/30/2008 8,266.31 11,321.91 8,076.38 6,826.47 7,180.65 12/31/2008 8,563.14 11,744.32 8,376.40 6,982.60 7,440.89 1/31/2009 8,039.54 11,640.70 8,020.93 6,570.12 6,805.15 2/28/2009 7,462.77 11,596.76 7,479.85 6,128.19 6,138.85 3/31/2009 7,924.27 11,757.97 7,975.44 6,462.10 6,644.51 4/30/2009 8,619.35 11,814.19 8,614.17 7,100.45 7,428.86 5/31/2009 9,172.11 11,899.88 9,162.71 7,679.88 8,169.06 6/30/2009 9,175.27 11,967.56 9,012.33 7,876.29 8,123.26 7/31/2009 9,769.20 12,160.60 9,745.79 8,298.59 8,838.34 8/31/2009 10,068.06 12,286.51 9,983.24 8,622.67 9,154.43 9/30/2009 10,430.07 12,415.58 10,406.55 9,064.61 9,574.39 10/31/2009 10,306.35 12,476.88 10,244.17 9,084.25 9,426.47 11/30/2009 10,669.04 12,638.41 10,681.15 9,300.31 9,814.15 12/31/2009 10,827.18 12,440.86 10,819.59 9,540.59 10,017.38 1/31/2010 10,569.08 12,630.90 10,536.76 9,489.84 9,584.47 2/28/2010 10,734.48 12,678.07 10,719.25 9,662.39 9,706.56 3/31/2010 11,222.34 12,662.48 11,242.53 10,048.07 10,331.01 4/30/2010 11,352.28 12,794.29 11,413.74 10,129.27 10,348.39 5/31/2010 10,655.45 12,901.96 10,757.33 9,713.14 9,358.25 6/30/2010 10,420.34 13,104.28 10,407.24 9,398.50 9,078.72 7/31/2010 11,027.47 13,244.09 10,966.38 9,875.53 9,817.44 8/31/2010 10,773.96 13,414.50 10,705.44 9,601.49 9,474.24 9/30/2010 11,505.38 13,428.80 11,385.93 10,322.11 10,380.60 10/31/2010 11,827.80 13,476.61 11,761.16 10,616.45 10,755.74 11/30/2010 11,709.97 13,399.16 11,752.05 10,565.70 10,516.44 12/31/2010 12,285.67 13,254.67 12,216.43 11,045.54 11,286.56 1/31/2011 12,437.94 13,270.09 12,471.67 11,191.01 11,463.68 2/28/2011 12,722.80 13,303.29 12,723.47 11,544.30 11,797.49 3/31/2011 12,747.62 13,310.64 12,781.30 11,710.56 11,785.71 4/30/2011 13,134.24 13,479.60 13,143.84 12,053.46 12,267.89 5/31/2011 13,010.26 13,655.51 13,029.85 11,928.77 12,004.19 6/30/2011 12,836.13 13,615.53 12,840.08 11,772.90 11,815.04 7/31/2011 12,745.13 13,831.59 12,736.56 11,585.87 11,622.71 8/31/2011 12,172.53 14,033.67 12,179.11 10,879.28 10,773.66 9/30/2011 11,386.93 14,135.75 11,361.30 10,172.70 9,756.48 10/31/2011 12,283.12 14,150.94 12,305.21 10,952.02 10,801.82 11/30/2011 12,076.46 14,138.66 12,117.01 10,848.11 10,478.47 12/31/2011 12,117.95 14,294.06 12,075.09 10,796.36 10,457.30 1/31/2012 12,645.62 14,419.57 12,631.63 11,306.93 11,065.36 2/29/2012 13,069.81 14,416.26 13,029.34 11,689.85 11,622.10 3/31/2012 13,167.20 14,337.27 13,149.65 11,828.13 11,699.37 4/30/2012 13,125.91 14,496.22 13,118.03 11,753.67 11,565.50 5/31/2012 12,393.75 14,627.38 12,419.61 11,104.83 10,528.56 6/30/2012 12,805.01 14,633.12 12,769.05 11,455.84 11,048.56 7/31/2012 12,974.43 14,834.96 12,925.86 11,562.21 11,199.81 8/31/2012 13,191.10 14,844.65 13,191.74 11,806.86 11,443.33 9/30/2012 13,475.62 14,865.08 13,477.73 12,094.05 11,803.75 10/31/2012 13,396.78 14,894.32 13,384.74 12,104.69 11,725.08 11/30/2012 13,509.66 14,917.82 13,501.99 12,200.42 11,875.01 12/31/2012 13,706.40 14,896.58 13,686.11 12,405.16 12,143.99 1/31/2013 14,150.83 14,792.39 14,106.53 12,839.29 12,703.44 2/28/2013 14,202.75 14,866.53 14,120.93 12,893.55 12,701.47 3/31/2013 14,449.74 14,878.41 14,356.40 13,164.88 12,933.70 4/30/2013 14,739.90 15,028.96 14,554.62 13,436.21 13,303.18 5/31/2013 14,697.85 14,760.81 14,548.20 13,447.06 13,266.69 6/30/2013 14,360.77 14,532.48 14,213.90 13,143.17 12,878.92 7/31/2013 14,864.13 14,552.35 14,732.82 13,631.57 13,495.46 8/31/2013 14,613.08 14,477.96 14,498.46 13,316.83 13,214.29 9/30/2013 15,149.93 14,615.03 15,007.91 13,718.39 13,896.83 10/31/2013 15,604.10 14,733.19 15,431.73 14,130.81 14,455.38 11/30/2013 15,760.71 14,678.02 15,578.55 14,380.43 14,660.09 12/31/2013 15,953.97 14,595.08 15,813.67 14,586.82 14,913.01 1/31/2014 15,639.03 14,810.72 15,547.60 14,196.80 14,316.48 2/28/2014 16,207.37 14,889.47 16,136.52 14,742.83 15,008.08 3/31/2014 16,249.64 14,864.11 16,121.78 14,865.40 15,074.80 4/30/2014 16,359.72 14,989.54 16,146.38 15,010.27 15,218.31 5/31/2014 16,641.40 15,160.20 16,468.63 15,300.00 15,541.99 6/30/2014 16,902.79 15,168.04 16,761.46 15,489.44 15,834.61 7/31/2014 16,693.82 15,130.00 16,514.30 15,288.86 15,642.42 8/31/2014 17,054.37 15,297.02 16,853.11 15,645.45 15,987.92 9/30/2014 16,614.54 15,193.16 16,453.34 15,333.43 15,469.66 10/31/2014 16,811.83 15,342.49 16,554.37 15,534.01 15,578.57 11/30/2014 17,019.41 15,451.34 16,701.29 15,745.74 15,839.14 12/31/2014 16,840.36 15,465.83 16,495.99 15,593.53 15,533.51 1/31/2015 16,744.58 15,790.10 16,477.86 15,461.98 15,290.65 2/28/2015 17,350.77 15,641.66 16,932.88 16,035.98 16,141.90 3/31/2015 17,215.59 15,714.26 16,739.54 15,928.36 15,891.79 4/30/2015 17,486.87 15,657.89 16,941.62 16,000.11 16,352.88 5/31/2015 17,510.15 15,620.17 16,977.84 16,059.90 16,331.54 6/30/2015 17,200.78 15,449.83 16,663.23 15,737.02 15,947.07 7/31/2015 17,305.47 15,557.25 16,749.36 15,892.48 16,085.55 8/31/2015 16,510.34 15,534.88 16,060.23 15,079.32 14,982.87 9/30/2015 16,138.18 15,639.96 15,658.17 14,744.49 14,440.05 10/31/2015 16,991.02 15,642.63 16,414.92 15,581.57 15,573.38 11/30/2015 16,906.68 15,601.27 16,328.56 15,545.69 15,444.78 12/31/2015 16,668.70 15,550.87 16,079.43 15,231.98 15,166.25 1/31/2016 16,020.29 15,764.83 15,477.94 14,653.87 14,251.23
[END CHART] Data from 1/31/06 through 1/31/16 See next page for benchmark definitions. *As of December 1, 2015, the MSCI All-Country World Index replaced the Barclays U.S. Aggregate Bond Index as the Fund's broad-based securities market index as it more closely represents the securities held by the Fund. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except the Lipper Flexible Portfolio Funds Index reflects the fees and expenses of the underlying funds included in the composite. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ The graph on page 7 illustrates the comparison of a $10,000 hypothetical investment in the USAA First Start Growth Fund to the following benchmarks: o The First Start Growth Composite Index is a combination of unmanaged indexes representing the Fund's model allocation, and consists of the MSCI USA Investable Market Index (IMI) (40%), the MSCI ACWI ex USA IMI (27%), the Barclays U.S. Universal Index (28%), the Bloomberg Commodity Index Total Return (1.5%), the MSCI U.S. Real Estate Investment Trust (REIT) Index (1.5%), and the Barclays U.S. Treasury - Bills (3-M) (2%). o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S. investment-grade fixed-rate bond market, including government and credit securities, agency mortgage pass-through securities, asset-backed securities, and commercial mortgage-backed securities that have remaining maturities of more than one year. o The unmanaged Lipper Flexible Portfolio Funds Index tracks the total return performance of the 30 largest funds within the Lipper Flexible Portfolio Funds category. o The unmanaged MSCI All-Country World Index reflects the movements of world stock markets by representing a broad selection of domestically listed companies within each market. ================================================================================ 8 | USAA FIRST START GROWTH FUND ================================================================================ o TOP 10 HOLDINGS - 1/31/16 o (% of Net Assets) iShares MSCI EAFE ETF* ..................................................... 5.7% iShares Core MSCI EAFE ETF* ................................................ 5.1% U.S. Treasury Bond, 3.13%, 8/15/2044 ....................................... 3.2% iShares MSCI Germany ETF* .................................................. 2.9% iShares Core MSCI Emerging Markets ETF* .................................... 2.5% Apple, Inc. ................................................................ 1.6% Microsoft Corp. ............................................................ 1.6% U.S. Treasury Bond, 3.08%, 5/15/2045 ....................................... 1.3% U.S. Treasury Bond, 3.00%, 5/15/2045 ....................................... 1.2% Alphabet, Inc. "C" ......................................................... 1.0%
*The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. You will find a complete list of securities that the Fund owns on pages 11-28. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] FINANCIALS 19.4% INTERNATIONAL EXCHANGE-TRADED FUNDS* 17.4% INFORMATION TECHNOLOGY 11.3% GOVERNMENT 9.1% HEALTH CARE 8.2% CONSUMER DISCRETIONARY 7.1% INDUSTRIALS 5.5% CONSUMER STAPLES 5.2% ENERGY 4.0% UTILITIES 3.8% TELECOMMUNICATION SERVICES 2.0% MATERIALS 1.8% DOMESTIC EXCHANGE-TRADED FUNDS* 0.5% MONEY MARKET INSTRUMENTS 4.4%
[END CHART] *The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ 10 | USAA FIRST START GROWTH FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (72.8%) COMMON STOCKS (53.7%) CONSUMER DISCRETIONARY (7.1%) ----------------------------- APPAREL RETAIL (0.7%) 29,600 Gap, Inc. $ 732 29,600 Ross Stores, Inc. 1,665 ---------- 2,397 ---------- APPAREL, ACCESSORIES & LUXURY GOODS (0.2%) 4,500 Carter's, Inc. 437 1,700 Michael Kors Holdings Ltd.* 68 3,300 Oxford Industries, Inc. 231 ---------- 736 ---------- AUTO PARTS & EQUIPMENT (0.1%) 4,300 Dana Holding Corp. 51 2,700 Visteon Corp. 181 ---------- 232 ---------- AUTOMOBILE MANUFACTURERS (0.3%) 8,500 Ford Motor Co. 102 29,200 General Motors Co. 865 4,600 Thor Industries, Inc. 241 ---------- 1,208 ---------- AUTOMOTIVE RETAIL (0.0%) 3,300 AutoNation, Inc.* 143 ---------- BROADCASTING (0.1%) 12,700 Tribune Media Co. "A" 418 ---------- CABLE & SATELLITE (0.7%) 36,500 Comcast Corp. "A" 2,033 6,300 DISH Network Corp. "A"* 304 ---------- 2,337 ---------- DEPARTMENT STORES (0.5%) 6,800 Dillard's, Inc. "A" 479 24,100 Macy's, Inc. 974 8,800 Nordstrom, Inc. 432 ---------- 1,885 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- DISTRIBUTORS (0.1%) 4,100 Genuine Parts Co. $ 353 ---------- FOOTWEAR (0.2%) 8,800 NIKE, Inc. "B" 546 9,000 Wolverine World Wide, Inc. 152 ---------- 698 ---------- GENERAL MERCHANDISE STORES (0.2%) 10,300 Target Corp. 746 ---------- HOME FURNISHINGS (0.1%) 7,400 La-Z-Boy, Inc. 159 ---------- HOME IMPROVEMENT RETAIL (0.4%) 11,600 Home Depot, Inc. 1,459 ---------- HOMEBUILDING (0.0%) 3,300 Meritage Homes Corp.* 109 ---------- HOTELS, RESORTS & CRUISE LINES (0.1%) 13,400 Extended Stay America, Inc. 171 6,600 Marriott Vacations Worldwide Corp. 326 ---------- 497 ---------- INTERNET RETAIL (1.0%) 5,700 Amazon.com, Inc.* 3,346 6,400 NutriSystem, Inc. 127 ---------- 3,473 ---------- MOVIES & ENTERTAINMENT (0.3%) 16,200 Cinemark Holdings, Inc. 478 11,100 Viacom, Inc. "B" 506 2,200 Walt Disney Co. 211 ---------- 1,195 ---------- PUBLISHING (0.4%) 22,300 News Corp. "A" 289 20,500 Thomson Reuters Corp. 767 16,800 Time, Inc. 252 ---------- 1,308 ---------- RESTAURANTS (1.3%) 15,100 Bloomin' Brands, Inc. 267 1,700 Chipotle Mexican Grill, Inc.* 770 11,400 Denny's Corp.* 107 1,900 DineEquity, Inc. 161 18,600 McDonald's Corp. 2,302 13,000 Yum! Brands, Inc. 941 ---------- 4,548 ----------
================================================================================ 12 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- SPECIALTY STORES (0.4%) 15,200 GNC Holdings, Inc. "A" $ 426 106,500 Staples, Inc. 950 ---------- 1,376 ---------- Total Consumer Discretionary 25,277 ---------- CONSUMER STAPLES (4.6%) ----------------------- AGRICULTURAL PRODUCTS (0.7%) 35,300 Archer-Daniels-Midland Co. 1,248 17,600 Bunge Ltd. 1,091 ---------- 2,339 ---------- FOOD RETAIL (0.5%) 45,300 Kroger Co. 1,758 ---------- HOUSEHOLD PRODUCTS (1.3%) 11,800 Colgate-Palmolive Co. 797 12,800 Kimberly-Clark Corp. 1,644 24,400 Procter & Gamble Co. 1,993 ---------- 4,434 ---------- HYPERMARKETS & SUPER CENTERS (0.6%) 32,800 Wal-Mart Stores, Inc. 2,177 ---------- PACKAGED FOODS & MEAT (0.3%) 27,900 ConAgra Foods, Inc. 1,162 ---------- SOFT DRINKS (1.2%) 43,100 Coca-Cola Co. 1,850 24,900 PepsiCo, Inc. 2,472 ---------- 4,322 ---------- Total Consumer Staples 16,192 ---------- ENERGY (2.9%) ------------- INTEGRATED OIL & GAS (0.8%) 9,000 Chevron Corp. 778 26,900 Exxon Mobil Corp. 2,094 ---------- 2,872 ---------- OIL & GAS DRILLING (0.2%) 61,600 Ensco plc "A" 603 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.3%) 21,500 Hess Corp. 914 9,400 Marathon Oil Corp. 91 ---------- 1,005 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- OIL & GAS REFINING & MARKETING (1.5%) 26,000 HollyFrontier Corp. $ 909 26,100 Marathon Petroleum Corp. 1,091 19,100 Phillips 66 1,531 22,400 Valero Energy Corp. 1,520 4,900 World Fuel Services Corp. 191 ---------- 5,242 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.1%) 22,500 Columbia Pipeline Group, Inc. 417 ---------- Total Energy 10,139 ---------- FINANCIALS (8.9%) ----------------- ASSET MANAGEMENT & CUSTODY BANKS (0.2%) 19,400 Franklin Resources, Inc. 672 ---------- CONSUMER FINANCE (0.5%) 8,600 Capital One Financial Corp. 565 100,000 Navient Corp. 956 2,500 Nelnet, Inc. "A" 81 ---------- 1,602 ---------- DIVERSIFIED BANKS (2.1%) 167,700 Bank of America Corp. 2,371 21,100 Citigroup, Inc. 898 48,700 JPMorgan Chase & Co. 2,898 25,100 Wells Fargo & Co. 1,261 ---------- 7,428 ---------- INVESTMENT BANKING & BROKERAGE (0.5%) 10,200 Goldman Sachs Group, Inc. 1,648 4,800 Piper Jaffray Co., Inc.* 163 ---------- 1,811 ---------- LIFE & HEALTH INSURANCE (0.4%) 19,800 AFLAC, Inc. 1,147 6,400 MetLife, Inc. 286 ---------- 1,433 ---------- MULTI-LINE INSURANCE (0.2%) 12,400 American Financial Group, Inc. 880 ---------- MULTI-SECTOR HOLDINGS (1.0%) 26,300 Berkshire Hathaway, Inc. "B"* 3,413 ---------- PROPERTY & CASUALTY INSURANCE (0.7%) 13,000 Allstate Corp. 788
================================================================================ 14 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- 28,600 Old Republic International Corp. $ 517 9,300 Travelers Companies, Inc. 995 ---------- 2,300 ---------- REAL ESTATE SERVICES (0.5%) 23,000 CBRE Group, Inc. "A"* 644 7,100 Jones Lang LaSalle, Inc. 999 ---------- 1,643 ---------- REGIONAL BANKS (0.5%) 7,400 PNC Financial Services Group, Inc. 641 16,600 Regions Financial Corp. 135 30,200 SunTrust Banks, Inc. 1,105 ---------- 1,881 ---------- REITs - DIVERSIFIED (0.2%) 5,600 American Assets Trust, Inc. 209 60,400 Lexington Realty Trust 443 3,500 WP Carey, Inc. 204 ---------- 856 ---------- REITs - HOTEL & RESORT (0.4%) 15,500 Ashford Hospitality Trust, Inc. 86 30,200 Hospitality Properties Trust 713 9,000 RLJ Lodging Trust 165 1,900 Ryman Hospitality Properties, Inc. 89 10,800 Summit Hotel Properties, Inc. 110 15,775 Sunstone Hotel Investors, Inc. 187 8,900 Xenia Hotels & Resorts, Inc. 130 ---------- 1,480 ---------- REITs - INDUSTRIAL (0.4%) 31,400 ProLogis, Inc. 1,239 ---------- REITs - MORTGAGE (0.6%) 5,500 AG Mortgage Investment Trust, Inc. 65 110,000 Annaly Capital Management, Inc. 1,045 22,800 Invesco Mortgage Capital 258 41,400 Starwood Property Trust, Inc. 788 ---------- 2,156 ---------- REITs - OFFICE (0.0%) 15,700 Franklin Street Properties Corp. 153 ---------- REITs - RETAIL (0.4%) 36,200 CBL & Associates Properties, Inc. 389 5,800 Simon Property Group, Inc. 1,081 ---------- 1,470 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- REITs - SPECIALIZED (0.1%) 11,600 Geo Group, Inc. $ 343 ---------- SPECIALIZED FINANCE (0.2%) 9,500 McGraw Hill Financial, Inc. 808 ---------- Total Financials 31,568 ---------- HEALTH CARE (8.2%) ------------------ BIOTECHNOLOGY (2.2%) 14,100 Amgen, Inc. 2,154 5,100 Baxalta, Inc. 204 5,500 Biogen, Inc.* 1,502 10,400 Celgene Corp.* 1,043 21,800 Gilead Sciences, Inc. 1,809 2,700 Regeneron Pharmaceuticals, Inc.* 1,134 ---------- 7,846 ---------- HEALTH CARE DISTRIBUTORS (0.4%) 7,900 McKesson Corp. 1,272 ---------- HEALTH CARE EQUIPMENT (1.6%) 33,700 Abbott Laboratories 1,276 29,500 Baxter International, Inc. 1,080 5,900 C.R. Bard, Inc. 1,081 3,900 Edwards Lifesciences Corp.* 305 17,100 Hologic, Inc.* 580 14,300 Stryker Corp. 1,418 ---------- 5,740 ---------- HEALTH CARE SERVICES (0.3%) 12,600 Express Scripts Holdings Co.* 906 ---------- LIFE SCIENCES TOOLS & SERVICES (0.4%) 11,900 Thermo Fisher Scientific, Inc. 1,571 ---------- MANAGED HEALTH CARE (0.5%) 2,000 Aetna, Inc. 204 5,800 Anthem, Inc. 757 2,500 Cigna Corp. 334 1,800 Magellan Health, Inc.* 102 2,200 UnitedHealth Group, Inc. 253 ---------- 1,650 ---------- PHARMACEUTICALS (2.8%) 22,500 Bristol-Myers Squibb Co. 1,399 6,300 Jazz Pharmaceuticals plc* 811 26,500 Johnson & Johnson 2,768 11,300 Mallinckrodt plc* 657
================================================================================ 16 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- 32,900 Merck & Co., Inc. $ 1,667 77,900 Pfizer, Inc. 2,375 2,900 Prestige Brands Holdings, Inc.* 135 5,800 Sucampo Pharmaceuticals, Inc. "A"* 37 ---------- 9,885 ---------- Total Health Care 28,870 ---------- INDUSTRIALS (5.3%) ------------------ AEROSPACE & DEFENSE (1.6%) 10,700 General Dynamics Corp. 1,431 9,500 Huntington Ingalls Industries, Inc. 1,215 7,500 Lockheed Martin Corp. 1,582 1,200 Moog, Inc. "A"* 56 4,500 Raytheon Co. 577 8,200 United Technologies Corp. 719 ---------- 5,580 ---------- AIR FREIGHT & LOGISTICS (0.4%) 10,000 FedEx Corp. 1,329 ---------- AIRLINES (0.7%) 18,800 Delta Air Lines, Inc. 833 37,200 Southwest Airlines Co. 1,399 6,100 United Continental Holdings, Inc.* 295 ---------- 2,527 ---------- BUILDING PRODUCTS (0.4%) 3,800 American Woodmark Corp.* 262 8,100 Continental Building Products, Inc.* 121 38,900 Masco Corp. 1,026 1,200 Universal Forest Products, Inc. 83 ---------- 1,492 ---------- CONSTRUCTION & ENGINEERING (0.2%) 5,900 EMCOR Group, Inc. 270 18,500 KBR, Inc. 264 10,500 MasTec, Inc.* 162 ---------- 696 ---------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%) 16,900 Meritor, Inc.* 115 37,800 Trinity Industries, Inc. 810 18,600 Wabash National Corp.* 206 ---------- 1,131 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- ELECTRICAL COMPONENTS & EQUIPMENT (0.1%) 1,200 Acuity Brands, Inc. $ 243 1,400 Regal-Beloit Corp. 79 ---------- 322 ---------- HEAVY ELECTRICAL EQUIPMENT (0.0%) 3,800 Babcock & Wilcox Enterprises, Inc.* 78 ---------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.2%) 12,100 Robert Half International, Inc. 530 ---------- INDUSTRIAL CONGLOMERATES (1.1%) 13,200 3M Co. 1,993 6,200 Carlisle Companies, Inc. 519 27,046 General Electric Co. 787 2,200 Roper Industries, Inc. 387 ---------- 3,686 ---------- INDUSTRIAL MACHINERY (0.1%) 8,700 Colfax Corp.* 192 11,100 Rexnord Corp.* 182 7,500 SPX Corp. 70 ---------- 444 ---------- MARINE (0.1%) 7,800 Matson, Inc. 315 ---------- OFFICE SERVICES & SUPPLIES (0.0%) 5,600 West Corp. 101 ---------- RAILROADS (0.1%) 2,800 Union Pacific Corp. 202 ---------- SECURITY & ALARM SERVICES (0.0%) 3,400 Brink's Co. 100 ---------- TRADING COMPANIES & DISTRIBUTORS (0.0%) 3,500 WESCO International, Inc.* 141 ---------- Total Industrials 18,674 ---------- INFORMATION TECHNOLOGY (11.3%) ------------------------------ APPLICATION SOFTWARE (0.9%) 11,500 Citrix Systems, Inc.* 810 12,300 Intuit, Inc. 1,175 10,900 Manhattan Associates, Inc.* 628 7,800 Nuance Communications, Inc.* 138 7,300 Synopsys, Inc.* 313 ---------- 3,064 ---------- COMMUNICATIONS EQUIPMENT (1.1%) 17,100 Brocade Communications Systems, Inc. 136
================================================================================ 18 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- 86,700 Cisco Systems, Inc. $ 2,063 41,600 Juniper Networks, Inc. 982 14,300 QUALCOMM, Inc. 648 ---------- 3,829 ---------- DATA PROCESSING & OUTSOURCED SERVICES (1.3%) 7,400 DST Systems, Inc. 780 14,800 Fiserv, Inc.* 1,400 2,900 MasterCard, Inc. "A" 258 1,600 Syntel, Inc.* 76 29,500 Visa, Inc. "A" 2,197 ---------- 4,711 ---------- ELECTRONIC MANUFACTURING SERVICES (0.1%) 10,000 Sanmina Corp.* 187 ---------- INTERNET SOFTWARE & SERVICES (2.2%) 2,890 Alphabet, Inc. "A"* 2,200 4,802 Alphabet, Inc. "C"* 3,568 48,700 eBay, Inc.* 1,143 9,100 Facebook, Inc."A"* 1,021 ---------- 7,932 ---------- IT CONSULTING & OTHER SERVICES (0.3%) 4,700 Computer Sciences Corp. 151 5,200 CSRA, Inc. 139 6,500 International Business Machines Corp. 811 ---------- 1,101 ---------- SEMICONDUCTOR EQUIPMENT (0.1%) 7,900 Tessera Technologies, Inc. 228 ---------- SEMICONDUCTORS (1.2%) 22,600 Integrated Device Technology, Inc.* 576 68,600 Intel Corp. 2,128 28,200 Texas Instruments, Inc. 1,492 ---------- 4,196 ---------- SYSTEMS SOFTWARE (2.0%) 103,900 Microsoft Corp. 5,724 32,900 Oracle Corp. 1,195 11,000 Symantec Corp. 218 ---------- 7,137 ---------- TECHNOLOGY DISTRIBUTORS (0.1%) 14,800 CDW Corp. 569 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.0%) 59,260 Apple, Inc. 5,768
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- 4,100 EMC Corp. $ 102 53,400 Hewlett Packard Enterprise Co. 735 53,400 HP, Inc. 518 ---------- 7,123 ---------- Total Information Technology 40,077 ---------- MATERIALS (1.3%) ---------------- COMMODITY CHEMICALS (0.7%) 10,000 Cabot Corp. 404 16,200 LyondellBasell Industries N.V. "A" 1,263 14,300 Westlake Chemical Corp. 650 ---------- 2,317 ---------- CONSTRUCTION MATERIALS (0.1%) 13,100 Headwaters, Inc.* 209 ---------- DIVERSIFIED CHEMICALS (0.0%) 18,400 Huntsman Corp. 159 ---------- FOREST PRODUCTS (0.0%) 7,000 Boise Cascade Co.* 145 ---------- GOLD (0.0%) 19,672 Hycroft Mining Corp., acquired 6/09/2015; cost $620*(a),(b) 6 ---------- METAL & GLASS CONTAINERS (0.1%) 4,000 Crown Holdings, Inc.* 183 ---------- PAPER PACKAGING (0.2%) 23,600 International Paper Co. 807 ---------- SPECIALTY CHEMICALS (0.0%) 3,100 Minerals Technologies, Inc. 127 ---------- STEEL (0.2%) 32,200 Steel Dynamics, Inc. 591 2,900 Worthington Industries, Inc. 89 ---------- 680 ---------- Total Materials 4,633 ---------- TELECOMMUNICATION SERVICES (1.8%) --------------------------------- ALTERNATIVE CARRIERS (0.1%) 7,200 Inteliquent, Inc. 124 ---------- INTEGRATED TELECOMMUNICATION SERVICES (1.7%) 81,066 AT&T, Inc. 2,923 63,300 Verizon Communications, Inc. 3,163 ---------- 6,086 ---------- Total Telecommunication Services 6,210 ----------
================================================================================ 20 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- UTILITIES (2.3%) ---------------- ELECTRIC UTILITIES (1.2%) 10,800 Entergy Corp. $ 762 47,200 Exelon Corp. 1,396 21,900 FirstEnergy Corp. 724 38,900 PPL Corp. 1,364 ---------- 4,246 ---------- GAS UTILITIES (0.2%) 19,500 UGI Corp. 663 ---------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%) 23,200 AES Corp. 220 70,300 NRG Energy, Inc. 748 ---------- 968 ---------- MULTI-UTILITIES (0.6%) 32,000 Public Service Enterprise Group, Inc. 1,322 8,200 Sempra Energy 777 ---------- 2,099 ---------- Total Utilities 7,976 ---------- Total Common Stocks (cost: $178,620) 189,616 ---------- PREFERRED STOCKS (1.2%) CONSUMER STAPLES (0.6%) ----------------------- AGRICULTURAL PRODUCTS (0.6%) 40,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 1,132 10,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(c) 1,067 ---------- 2,199 ---------- Total Consumer Staples 2,199 ---------- ENERGY (0.1%) ------------- OIL & GAS EXPLORATION & PRODUCTION (0.1%) 800 Chesapeake Energy Corp., 5.75%, perpetual(c) 123 ---------- FINANCIALS (0.5%) ----------------- LIFE & HEALTH INSURANCE (0.2%) 28,000 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 694 ---------- REGIONAL BANKS (0.1%) 500 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 511 ---------- REINSURANCE (0.0%) 500 American Overseas Group Ltd., 7.50%, non-cumulative, acquired 3/09/2007; cost $526*(a),(b) 125 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- REITs - OFFICE (0.2%) 20,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual $ 515 ---------- Total Financials 1,845 ---------- Total Preferred Stocks (cost: $4,640) 4,167 ---------- EXCHANGE-TRADED FUNDS (17.9%) ----------------------------- DOMESTIC EXCHANGE-TRADED FUNDS (0.5%) 16,200 iShares Russell 1000 ETF 1,736 ---------- INTERNATIONAL EXCHANGE-TRADED FUNDS (17.4%) 29,398 EGShares Emerging Markets Consumer ETF 604 356,000 iShares Core MSCI EAFE ETF 18,256 233,824 iShares Core MSCI Emerging Markets ETF 8,731 366,771 iShares MSCI EAFE ETF 20,348 420,976 iShares MSCI Germany ETF 10,242 17,870 iShares MSCI Turkey ETF 665 110,000 PowerShares FTSE RAFI Emerging Markets Portfolio 1,457 20,334 WisdomTree Emerging Markets SmallCap Dividend Fund 675 36,637 WisdomTree India Earnings Fund 681 ---------- Total International Exchange-Traded Funds 61,659 ---------- Total Exchange-Traded Funds (cost: $70,777) 63,395 ---------- Total Equity Securities (cost: $254,037) 257,178 ---------- ------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON (000) RATE MATURITY ------------------------------------------------------------------------------------------------------------- BONDS (22.5%) CORPORATE OBLIGATIONS (7.6%) ENERGY (1.0%) ------------- OIL & GAS DRILLING (0.1%) $ 782 Schahin II Finance Co. SPV Ltd.(c),(d) 5.88% 9/25/2023 160 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.1%) 500 Newfield Exploration Co. 5.38 1/01/2026 405 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.8%) 800 DCP Midstream, LLC(c) 5.85 5/21/2043 460 1,000 Enbridge Energy Partners, LP 8.05 10/01/2077 708 1,000 Energy Transfer Partners, LP 3.35(e) 11/01/2066 590
================================================================================ 22 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 1,000 Enterprise Products Operating, LLC 7.00% 6/01/2067 $ 802 500 TEPPCO Partners, LP 7.00 6/01/2067 394 ---------- 2,954 ---------- Total Energy 3,519 ---------- FINANCIALS (4.9%) ----------------- ASSET MANAGEMENT & CUSTODY BANKS (0.3%) 900 Prospect Capital Corp. 5.00 7/15/2019 905 ---------- DIVERSIFIED BANKS (0.2%) 1,000 JPMorgan Chase Capital XIII 1.55(e) 9/30/2034 841 ---------- LIFE & HEALTH INSURANCE (0.7%) 800 Lincoln National Corp. 7.00(e) 5/17/2066 598 200 Lincoln National Corp. 6.05 4/20/2067 146 1,000 Prudential Financial, Inc. 5.63 6/15/2043 1,012 1,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 815 ---------- 2,571 ---------- MULTI-LINE INSURANCE (0.6%) 1,000 Genworth Holdings, Inc. 6.15 11/15/2066 270 1,000 Glen Meadow Pass-Through Trust(c) 6.51 2/12/2067 772 1,000 Nationwide Mutual Insurance Co.(c) 2.80(e) 12/15/2024 970 ---------- 2,012 ---------- PROPERTY & CASUALTY INSURANCE (1.8%) 1,000 Allstate Corp. 5.75 8/15/2053 1,021 1,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 1,068 1,000 HSB Group, Inc.(b) 1.53(e) 7/15/2027 750 750 Ironshore Holdings, Inc.(c) 8.50 5/15/2020 872 1,300 Oil Insurance Ltd.(c) 3.59(e) -(f) 1,157 500 Progressive Corp. 6.70 6/15/2067 500 1,000 Travelers Companies, Inc. 6.25 3/15/2067 995 ---------- 6,363 ---------- REGIONAL BANKS (1.1%) 500 Compass Bank 3.88 4/10/2025 464 1,000 Cullen/Frost Capital Trust II 1.96(e) 3/01/2034 880 1,000 KeyCorp Capital I 1.35(e) 7/01/2028 824 1,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 982 1,000 SunTrust Capital I 1.03(e) 5/15/2027 808 ---------- 3,958 ---------- REINSURANCE (0.2%) 500 Alterra USA Holdings Ltd.(c) 7.20 4/14/2017 526 ---------- Total Financials 17,176 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- INDUSTRIALS (0.2%) ------------------ AEROSPACE & DEFENSE (0.2%) $ 750 Constellis Holdings, LLC & Constellis Finance Corp.(c) 9.75% 5/15/2020 $ 577 ---------- MATERIALS (0.1%) ---------------- DIVERSIFIED METALS & MINING (0.1%) 1,000 Freeport-McMoRan, Inc. 5.45 3/15/2043 399 ---------- TELECOMMUNICATION SERVICES (0.2%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (0.2%) 900 Frontier Communications Corp.(c) 11.00 9/15/2025 871 ---------- UTILITIES (1.2%) ---------------- ELECTRIC UTILITIES (0.4%) 983 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 739 1,000 PPL Capital Funding, Inc. 6.70 3/30/2067 770 ---------- 1,509 ---------- MULTI-UTILITIES (0.8%) 1,000 Dominion Resources, Inc. 7.50(e) 6/30/2066 839 770 Integrys Holding, Inc. 6.11 12/01/2066 562 1,000 Puget Sound Energy, Inc. 6.97 6/01/2067 767 975 WEC Energy Group, Inc. 6.25 5/15/2067 707 ---------- 2,875 ---------- Total Utilities 4,384 ---------- Total Corporate Obligations (cost: $29,453) 26,926 ---------- EURODOLLAR AND YANKEE OBLIGATIONS (1.3%) FINANCIALS (0.6%) ----------------- DIVERSIFIED BANKS (0.0%) 500 LBI hf, acquired 10/12/2007; cost $500(a),(b),(c),(d) 7.43 -(f) - ---------- LIFE & HEALTH INSURANCE (0.3%) 1,000 Great-West Life & Annuity Insurance Capital, LP(c) 7.15(e) 5/16/2046 1,002 ---------- PROPERTY & CASUALTY INSURANCE (0.1%) 250 QBE Capital Funding III Ltd.(c) 7.25 5/24/2041 276 ---------- REGIONAL BANKS (0.0%) 1,000 Glitnir Banki hf, acquired 9/11/2006-10/18/2006; cost $1,017(a),(b),(c),(d) 7.45 -(f) - ---------- REINSURANCE (0.2%) 804 Swiss Re Capital I, LP(c) 6.85(e) -(f) 813 ---------- Total Financials 2,091 ----------
================================================================================ 24 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- MATERIALS (0.4%) ---------------- COMMODITY CHEMICALS (0.2%) $ 1,000 Braskem Finance Ltd. 6.45% 2/03/2024 $ 883 ---------- GOLD (0.2%) 1,000 Kinross Gold Corp. 5.95 3/15/2024 625 ---------- Total Materials 1,508 ---------- UTILITIES (0.3%) ---------------- ELECTRIC UTILITIES (0.3%) 650 Electricite De France S.A.(c) 5.25 -(f) 585 500 Enel S.p.A.(c) 8.75 9/24/2073 551 ---------- 1,136 ---------- Total Utilities 1,136 ---------- Total Eurodollar and Yankee Obligations (cost: $6,608) 4,735 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%) FINANCIALS (0.2%) ----------------- 864 Structured Asset Mortgage Investments, Inc. (cost: $796) 0.93(e) 7/19/2035 793 ---------- COMMERCIAL MORTGAGE SECURITIES (4.3%) FINANCIALS (4.3%) ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (4.3%) 500 Banc of America Commercial Mortgage, Inc. 6.05 5/10/2045 500 355 Banc of America Commercial Mortgage, Inc. 5.58 9/10/2047 355 500 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 517 1,000 Bear Stearns Commercial Mortgage Securities, Inc.(c) 5.66 9/11/2041 995 44 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 44 530 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 528 500 Commercial Mortgage Trust 5.38 12/10/2046 496 1,000 GE Capital Commercial Mortgage Corp. 5.61 11/10/2045 997 1,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 1,020 252 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 255 250 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 259 319 GS Mortgage Securities Trust 5.83 4/10/2038 319 690 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.57 4/15/2043 691 378 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.72 12/15/2044 377 500 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.72 12/15/2044 499
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 1,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 6.11% 4/15/2045 $ 880 1,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.48 5/15/2045 1,013 900 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.37 5/15/2047 909 107 Merrill Lynch Mortgage Trust 5.68 7/12/2038 107 135 Merrill Lynch Mortgage Trust 5.71 7/12/2038 135 670 Merrill Lynch Mortgage Trust 5.91 5/12/2039 660 33 Merrill Lynch Mortgage Trust 5.01 10/12/2041 33 1,000 Merrill Lynch Mortgage Trust 6.03 6/12/2050 1,018 1,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 1,017 500 ML-CFC Commercial Mortgage Trust 6.07 8/12/2049 505 1,000 Wachovia Bank Commercial Mortgage Trust 5.95 5/15/2043 1,000 ---------- 15,129 ---------- Total Financials 15,129 ---------- Total Commercial Mortgage Securities (cost: $14,574) 15,129 ---------- U.S. GOVERNMENT AGENCY ISSUES (0.3%)(g) COMMERCIAL MORTGAGE-BACKED SECURITIES (0.3%) 1,000 Freddie Mac(+) (cost: $1,019) 3.51 4/25/2030 1,037 ---------- U.S. TREASURY SECURITIES (8.8%) BONDS (7.3%) 8,100 2.87%, 8/15/2044 (STRIPS Principal)(h) 3,568 10,500 3.13%, 8/15/2044 11,301 2,000 3.00%, 11/15/2044 2,098 4,200 3.00%, 5/15/2045 4,403 10,300 3.08%, 5/15/2045 (STRIPS Principal)(h) 4,413 ---------- 25,783 ---------- NOTES (1.5%) 1,970 1.63%, 8/15/2022 1,972 390 1.63%, 11/15/2022 390 1,000 2.75%, 11/15/2023 1,073 800 2.38%, 8/15/2024 833 1,000 2.25%, 11/15/2024 1,030 ---------- 5,298 ---------- Total U.S. Treasury Securities (cost: $29,432) 31,081 ---------- Total Bonds (cost: $81,882) 79,701 ----------
================================================================================ 26 | USAA FIRST START GROWTH FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (4.4%) MONEY MARKET FUNDS (4.4%) 15,396,746 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(i) (cost: $15,397) $ 15,397 -------- TOTAL INVESTMENTS (COST: $351,316) $352,276 ======== ------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL ------------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $189,610 $ - $ 6 $189,616 Preferred Stocks - 4,042 125 4,167 Exchange-Traded Funds 63,395 - - 63,395 Bonds: Corporate Obligations - 26,176 750 26,926 Eurodollar and Yankee Obligations - 4,735 - 4,735 Collateralized Mortgage Obligations - 793 - 793 Commercial Mortgage Securities - 15,129 - 15,129 U.S. Government Agency Issues - 1,037 - 1,037 U.S. Treasury Securities 23,100 7,981 - 31,081 Money Market Instruments: Money Market Funds 15,397 - - 15,397 ------------------------------------------------------------------------------------------------------------- Total $291,502 $59,893 $881 $352,276 -------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. ================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================ Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
-------------------------------------------------------------------------------------------------------- COMMON PREFERRED CORPORATE STOCKS STOCKS OBLIGATIONS -------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $ - $125 $630 Purchases 620 - - Sales - - - Transfers into Level 3 - - - Transfers out of Level 3 - - - Net realized gain (loss) on investments - - - Change in net unrealized appreciation/(depreciation) of investments (614) - 120 -------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $ 6 $125 $750 --------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 28 | USAA FIRST START GROWTH FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 19.1% of net assets at January 31, 2016. The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. o CATEGORIES AND DEFINITIONS EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S. dollar-denominated instruments that are issued outside the U.S. capital markets by foreign corporations and financial institutions and by foreign branches of U.S. corporations and financial institutions. Yankee obligations are dollar-denominated instruments that are issued by foreign issuers in the U.S. capital markets. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage obligations are debt obligations of a legal entity that are fully collateralized by a portfolio of mortgages or mortgage-related securities. CMOs are issued in multiple classes (tranches), with specific adjustable or fixed interest rates, varying maturities, and must be fully retired no later than ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 29 ================================================================================ its final distribution date. The cash flow from the underlying mortgages is used to pay off each tranche separately. CMOs are designed to provide investors with more predictable maturities than regular mortgage securities but such maturities can be difficult to predict because of the effect of prepayments. ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed securities represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets. Commercial mortgage-backed securities reflect an interest in, and are secured by, mortgage loans on commercial real property. These securities represent ownership in a pool of loans and are divided into pieces (tranches) with varying maturities. The stated final maturity of such securities represents the date the final principal payment will be made for the last outstanding loans in the pool. The weighted average life is the average time for principal to be repaid, which is calculated by assuming prepayment rates of the underlying loans. The weighted average life is likely to be substantially shorter than the stated final maturity as a result of scheduled principal payments and unscheduled principal prepayments. Stated interest rates on commercial mortgage-backed securities may change slightly over time as underlying mortgages pay down. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS REIT Real estate investment trust STRIPS Separate trading of registered interest and principal of securities o SPECIFIC NOTES (a) Security deemed illiquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by the USAA Mutual Funds Trust's Board of Trustees (the Board). The aggregate market value of these securities at January 31, 2016, was $131,000, which represented less than 0.1% of the Fund's net assets. (b) Security was fair valued at January 31, 2016, by the Manager in accordance with valuation procedures approved by the Board. The ================================================================================ 30 | USAA FIRST START GROWTH FUND ================================================================================ total value of all such securities was $881,000, which represented 0.2% of the Fund's net assets. (c) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (d) At January 31, 2016, the issuer was in default with respect to interest and/or principal payments. (e) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at January 31, 2016. (f) Security is perpetual and has no final maturity date but may be subject to calls at various dates in the future. (g) U.S. government agency issues - Mortgage-backed securities issued by certain U.S. Government Sponsored Enterprises (GSEs) such as the Government National Mortgage Association (GNMA or Ginnie Mae) and certain other U.S. government guaranteed securities are supported by the full faith and credit of the U.S. government. Securities issued by other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) and Fannie Mae (Federal National Mortgage Association or FNMA), indicated with a "+", are supported only by the right of the GSE to borrow from the U.S. Treasury, the discretionary authority of the U.S. government to purchase the GSEs' obligations, or only by the credit of the issuing agency, instrumentality, or corporation, and are neither issued nor guaranteed by the U.S. Treasury. In September of 2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship and appointed the Federal Housing Finance Agency (FHFA) to act as conservator and oversee their daily operations. In addition, the U.S. Treasury entered into purchase agreements with Fannie Mae and Freddie Mac to provide them with capital in exchange for senior ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 31 ================================================================================ preferred stock. While these arrangements are intended to ensure that Fannie Mae and Freddie Mac can continue to meet their obligations, it is possible that actions by the U.S. Treasury, FHFA, or others could adversely impact the value of the Fund's investments in securities issued by Fannie Mae and Freddie Mac. (h) Zero-coupon security. Rate represents the effective yield at the date of purchase. (i) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 32 | USAA FIRST START GROWTH FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $351,316) $352,276 Cash 14 Receivables: Capital shares sold 384 USAA Asset Management Company (Note 5D) 115 Dividends and interest 1,049 -------- Total assets 353,838 -------- LIABILITIES Payables: Capital shares redeemed 162 Accrued management fees 235 Accrued transfer agent's fees 31 Other accrued expenses and payables 74 -------- Total liabilities 502 -------- Net assets applicable to capital shares outstanding $353,336 ======== NET ASSETS CONSIST OF: Paid-in capital $351,518 Accumulated overdistribution of net investment income (341) Accumulated net realized gain on investments 1,199 Net unrealized appreciation of investments 960 -------- Net assets applicable to capital shares outstanding $353,336 ======== Capital shares outstanding, unlimited number of shares authorized, no par value 30,314 ======== Net asset value, redemption price, and offering price per share $ 11.66 ========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 33 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $2) $ 3,125 Interest 2,297 -------- Total income 5,422 -------- EXPENSES Management fees 1,436 Administration and servicing fees 274 Transfer agent's fees 1,345 Custody and accounting fees 76 Postage 63 Shareholder reporting fees 34 Trustees' fees 13 Registration fees 17 Professional fees 49 Other 5 -------- Total expenses 3,312 Expenses reimbursed (787) -------- Net expenses 2,525 -------- NET INVESTMENT INCOME 2,897 -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain 2,498 Change in net unrealized appreciation/(depreciation) (35,027) -------- Net realized and unrealized loss (32,529) -------- Decrease in net assets resulting from operations $(29,632) ========
See accompanying notes to financial statements. ================================================================================ 34 | USAA FIRST START GROWTH FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
--------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 --------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 2,897 $ 5,255 Net realized gain on investments 2,498 16,832 Net realized loss on options - (456) Change in net unrealized appreciation/(depreciation) of: Investments (35,027) (7,748) Options - (174) ---------------------------- Increase (decrease) in net assets resulting from operations (29,632) 13,709 ---------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (5,667) (4,944) Net realized gains (12,398) (19,776) ---------------------------- Distributions to shareholders (18,065) (24,720) ---------------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 38,231 92,830 Reinvested dividends 17,963 24,530 Cost of shares redeemed (33,545) (68,939) ---------------------------- Increase in net assets from capital share transactions 22,649 48,421 ---------------------------- Net increase (decrease) in net assets (25,048) 37,410 NET ASSETS Beginning of period 378,384 340,974 ---------------------------- End of period $353,336 $378,384 ============================ Accumulated undistributed (overdistribution of) net investment income: End of period $ (341) $ 2,429 ============================ CHANGE IN SHARES OUTSTANDING Shares sold 3,055 6,900 Shares issued for dividends reinvested 1,456 1,850 Shares redeemed (2,676) (5,129) ---------------------------- Increase in shares outstanding 1,835 3,621 ============================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 35 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA First Start Growth Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek long-term capital growth with reduced volatility over time. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. ================================================================================ 36 | USAA FIRST START GROWTH FUND ================================================================================ Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 6. Repurchase agreements are valued at cost. 7. Futures are valued at the last sale price at the close of market on the principal exchange on which they are traded or, in the absence of any transactions that day, the last sale price on the prior trading date if it is within the spread between the closing bid and asked prices closest to the last reported sale price. 8. Options are valued by a pricing service at the National Best Bid/Offer (NBBO) composite price, which is derived from the best available bid and asked prices in all participating options exchanges determined to most closely reflect market value of the options at the time of computation of the Fund's NAV. ================================================================================ 38 | USAA FIRST START GROWTH FUND ================================================================================ 9. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include certain preferred stocks, which are valued based on methods discussed in Note 1A2, and certain bonds, valued based on methods discussed in Note 1A5. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by a discounted prior tender offer and quoted prices obtained from the broker-dealers participating in the market for these securities. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex- dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. ================================================================================ 40 | USAA FIRST START GROWTH FUND ================================================================================ E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an ================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 ================================================================================ affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $1,000, which represents 0.5% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ================================================================================ 42 | USAA FIRST START GROWTH FUND ================================================================================ ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $93,255,000 and $92,097,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $30,113,000 and $29,153,000, respectively, resulting in net unrealized appreciation of $960,000. (5) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 43 ================================================================================ The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.75% of the Fund's average net assets. The performance adjustment is calculated monthly by comparing the Fund's performance over the performance period to that of the Lipper Flexible Portfolio Funds Index. The Lipper Flexible Portfolio Funds Index tracks the total return performance of the 30 largest funds in the Lipper Flexible Portfolio Funds category. The performance period for the Fund consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the Fund and its relevant index, rounded to the nearest basis point. Average net assets are calculated over a rolling 36-month period. The annual performance adjustment rate is multiplied by the average net assets of the Fund over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, the Fund will pay a positive performance fee adjustment for a performance period whenever the Fund outperforms the Lipper Flexible Portfolio Funds Index over that period, even if the Fund had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $1,436,000, which included a 0.04% performance adjustment of $64,000. ================================================================================ 44 | USAA FIRST START GROWTH FUND ================================================================================ B. SUBADVISORY ARRANGEMENT(S) - The Manager had previously entered into an Investment Subadvisory Agreement with Quantitative Management Associates LLC (QMA), under which QMA directed the investment and reinvestment of a portion of the Fund's assets invested in domestic stocks (as allocated from time to time by the Manager). The Manager (not the Fund) paid QMA a subadvisory fee in the annual amount of 0.20% on the first $250 million, and 0.15% on assets over $250 million of the portion of the Fund's average net assets that QMA managed. Effective January 29, 2016, the Manager terminated its Investment Subadvisory Agreement with QMA. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to QMA, of $200,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of the Fund's average net assets. For the six-month period ended January 31, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $274,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $5,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. EXPENSE LIMITATION - The Manager agreed, through December 1, 2016, to limit the total annual operating expenses of the Fund to 1.38% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Fund for all expenses in excess of that amount. This expense limitation arrangement may not be changed or terminated through December 1, 2016, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended ================================================================================ NOTES TO FINANCIAL STATEMENTS | 45 ================================================================================ January 31, 2016, the Fund incurred reimbursable expenses of $787,000, of which $115,000 was receivable from the Manager. E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended January 31, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $1,345,000. F. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee, or other compensation for these services. (6) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 46 | USAA FIRST START GROWTH FUND ================================================================================ (7) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 13.29 $ 13.72 $ 12.56 $ 10.87 $ 11.15 $ 9.73 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .09 .18 .20 .23 .24 .21 Net realized and unrealized gain (loss) (1.10) .35 1.31 1.69 (.28) 1.46 ----------------------------------------------------------------------------------- Total from investment operations (1.01) .53 1.51 1.92 (.04) 1.67 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.19) (.18) (.23) (.23) (.24) (.25) Realized capital gains (.43) (.78) (.12) - - - ----------------------------------------------------------------------------------- Total distributions (.62) (.96) (.35) (.23) (.24) (.25) ----------------------------------------------------------------------------------- Net asset value at end of period $ 11.66 $ 13.29 $ 13.72 $ 12.56 $ 10.87 $ 11.15 =================================================================================== Total return (%)* (7.79) 3.95 12.16 17.90 (.20) 17.32 Net assets at end of period (000) $353,336 $378,384 $340,974 $278,214 $222,427 $226,948 Ratios to average net assets:** Expenses (%)(a) 1.38(b) 1.38 1.38 1.38 1.38 1.38 Expenses, excluding reimbursements (%)(a) 1.81(b) 1.75 1.74 1.79 1.90 1.91 Net investment income (%) 1.59(b) 1.45 1.53 2.01 2.26 1.95 Portfolio turnover (%) 26 62 64 70 85(c) 133(c) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $363,537,000. (a) Reflects total annual operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. (c) Reflects decreased trading activity due to changes in subadviser(s) and asset allocation strategies.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 47 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do ================================================================================ 48 | USAA FIRST START GROWTH FUND ================================================================================ so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015- AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 --------------------------------------------------------------- Actual $1,000.00 $ 922.10 $6.67 Hypothetical (5% return before expenses) 1,000.00 1,018.20 7.00
*Expenses are equal to the Fund's annualized expense ratio of 1.38%, which is net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of (7.79)% for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 49 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 31703-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA GROWTH FUND] ============================================================== SEMIANNUAL REPORT USAA GROWTH FUND FUND SHARES o INSTITUTIONAL SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 10 Notes to Portfolio of Investments 16 Financial Statements 17 Notes to Financial Statements 20 EXPENSE EXAMPLE 34
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202722-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA GROWTH FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests its assets primarily in a diversified portfolio of equity securities selected for their growth potential. Although the Fund will invest primarily in U.S. securities, it may invest up to 20% of its total assets in foreign securities including securities issued in emerging markets. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND Loomis, Sayles & Company, L.P. Renaissance Investment Management AZIZ V. HAMZAOGULLARI, CFA MICHAEL E. SCHROER, CFA PAUL A. RADOMSKI, CFA ERIC J. STRANGE, CPA, CFA -------------------------------------------------------------------------------- o PLEASE DISCUSS THE MARKET CONDITIONS DURING THE REPORTING PERIOD. For the reporting period ended January 31, 2016, stocks sold off in reaction to several events, including China's depreciation of its currency, the renminbi, and continued downward pressure on commodity prices. On September 17, 2015, the Federal Reserve (the Fed) announced that short- term interest rates would remain unchanged, causing investors to speculate whether growth was weaker than anticipated. Nevertheless, stocks rebounded in October 2015, with virtually all markets in positive territory. However, stocks declined later during the final quarter of 2015, as market volatility increased. On December 16, 2015, the Fed eventually raised short-term interest rates. The year 2016 began with many stocks hit hard amid the continued slide in oil prices, fears of a global slowdown due to China's slowing growth, and uncertainty regarding the Fed's interest rate policy going forward. Defensive market sectors held up well, with utilities and consumer staples posted positive returns. o HOW DID THE USAA GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Institutional Shares. For the reporting period ended January 31, 2016, the Fund Shares and Institutional Shares had total returns of -6.87% and -6.82%, respectively. Refer to page 6 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ 2 | USAA GROWTH FUND ================================================================================ This compares to returns of -7.18% for the Russell 1000(R) Growth Index (the Index) and -10.09% for the Lipper Large-Cap Growth Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadvisers. Loomis, Sayles & Company, L.P. (Loomis Sayles) and Renaissance Investment Management (Renaissance) are subadvisers to the Fund. The subadvisers each provide day-to-day discretionary management for a portion of the Fund's assets. o HOW DID LOOMIS SAYLES' PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? Loomis Sayles' portion of the Fund posted negative returns that outperformed the Index during the reporting period. Through their proprietary, bottom-up research framework, Loomis Sayles looks to invest in those few high-quality businesses with sustainable competitive advantages and profitable growth when they trade at a significant discount to intrinsic value. Stock selection in the consumer discretionary, energy, information technology, and health care sectors as well as Loomis Sayles' allocation to the information technology and consumer staples sectors contributed positively to relative performance. Stock selection in the financials sector and Loomis Sayles' allocation to the energy sector detracted from the Fund's relative return. Top contributors to the Fund's performance included Facebook, Inc. "A" (Facebook), Alphabet Inc., and Amazon.com, Inc (Amazon). Facebook reported strong growth in key fundamentals such as revenue, mobile advertising and free cash flow. The largest detractors from the Fund's performance included QUALCOMM, Inc. (QUALCOMM), SEI Investments Co. (SEI), and Novartis AG ADR. QUALCOMM shares were under pressure as the implementation of new licensing agreements and improved device reporting progressed more slowly than anticipated following the company's settlement with China's antitrust regulators. Loomis Sayles initiated a position in Cerner Corp. and sold the Fund's position in Zimmer Biomet Holdings, Inc. Loomis Sayles also added to positions in Alibaba Group Holdings Ltd. ADR, Coca-Cola Co., Oracle Corp., Procter & Gamble Co., QUALCOMM, SABMiller plc ADR (SABMiller), Schlumberger ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ Ltd., and Yum! Brands, Inc. on the basis of price weakness during the reporting period. Positions in Amazon, Facebook, FactSet Research Systems, Inc., SABMiller, and SEI were reduced to help finance the purchases and take advantage of compelling reward-to-risk opportunities. o HOW DID RENAISSANCE'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? Renaissance's portion of the Fund underperformed the Index over the reporting period, primarily due to weak stock selection and underrepresentation in higher-priced stocks that led the market. In particular the "FANG" stocks (Facebook, Amazon, Netflix, Inc., and Google - now known as Alphabet Inc. (Alphabet)) contributed about 60% of the return of the Index for the year, and Alphabet was Renaissance's only holding of that group. Most of the negative impact from stock selection is attributable to Renaissance's holdings in the financials, information technology, and consumer staples sectors. Within the information technology segment, several of the Fund's holdings associated with traditional technology markets, including SanDisk Corp. and Western Digital Corp., saw their stock prices come under pressure partly as a result of slowing global economic growth. Within the consumer discretionary sector, retailers with brick and mortar stores, which generally are more susceptible to declining mall traffic and/or erosion from online sales, witnessed a greater than anticipated decline in their share prices. Conversely, the Fund's airline holdings, within the industrials sector, continued to fare well partly due to the sustained decline in oil prices. Sector allocation effects were slightly negative, with the Fund's overweight position in the industrials sector and its underweight position within consumer staples the principal detractors from performance. Thank you for allowing us to help you with your investment needs. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. ================================================================================ 4 | USAA GROWTH FUND ================================================================================ INVESTMENT OVERVIEW USAA GROWTH FUND SHARES (FUND SHARES) (Ticker Symbol: USAAX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.0 Billion $1.3 Billion Net Asset Value Per Share $22.59 $25.91 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -6.87% 1.34% 12.05% 5.30% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS 5.63% 13.71% 6.31% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.11% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 1000 LIPPER LARGE-CAP USAA GROWTH GROWTH INDEX GROWTH FUNDS INDEX FUND SHARES 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 9,984.11 9,865.11 9,866.33 3/31/2006 10,131.53 9,960.23 9,885.42 4/30/2006 10,117.75 9,944.59 9,751.75 5/31/2006 9,774.81 9,480.66 9,102.48 6/30/2006 9,736.24 9,449.50 9,064.29 7/31/2006 9,550.80 9,207.57 8,784.21 8/31/2006 9,848.78 9,420.76 8,879.69 9/30/2006 10,119.41 9,623.89 9,153.41 10/31/2006 10,475.14 9,913.43 9,433.48 11/30/2006 10,683.01 10,139.92 9,592.62 12/31/2006 10,719.19 10,193.56 9,643.54 1/31/2007 10,994.73 10,456.66 10,025.46 2/28/2007 10,788.07 10,220.62 9,669.00 3/31/2007 10,846.58 10,297.54 9,802.67 4/30/2007 11,357.24 10,715.60 10,082.75 5/31/2007 11,765.81 11,078.48 10,471.04 6/30/2007 11,590.18 10,973.99 10,339.86 7/31/2007 11,410.50 10,834.74 10,206.15 8/31/2007 11,592.32 11,013.29 10,390.79 9/30/2007 12,077.93 11,685.11 11,103.89 10/31/2007 12,488.99 12,207.28 11,778.78 11/30/2007 12,028.93 11,709.60 11,256.69 12/31/2007 11,985.43 11,719.83 11,543.20 1/31/2008 11,050.85 10,716.95 10,110.65 2/29/2008 10,831.37 10,493.68 9,887.81 3/31/2008 10,765.42 10,404.39 9,894.18 4/30/2008 11,330.60 11,045.55 10,499.03 5/31/2008 11,745.91 11,347.13 10,791.91 6/30/2008 10,899.95 10,512.32 10,097.92 7/31/2008 10,692.71 10,304.90 9,773.20 8/31/2008 10,807.85 10,332.41 9,677.70 9/30/2008 9,556.25 9,008.00 8,347.02 10/31/2008 7,873.78 7,434.78 6,901.73 11/30/2008 7,247.59 6,688.96 6,252.30 12/31/2008 7,378.57 6,868.64 6,324.36 1/31/2009 7,023.63 6,513.57 6,100.99 2/28/2009 6,495.25 6,088.71 5,673.41 3/31/2009 7,074.60 6,611.94 6,075.47 4/30/2009 7,753.81 7,312.50 6,471.14 5/31/2009 8,138.18 7,712.84 6,732.79 6/30/2009 8,229.22 7,715.86 6,726.41 7/31/2009 8,813.71 8,297.28 7,096.55 8/31/2009 8,996.50 8,460.97 7,217.81 9/30/2009 9,379.17 8,867.29 7,556.04 10/31/2009 9,252.13 8,691.85 7,377.35 11/30/2009 9,820.51 9,216.12 7,804.93 12/31/2009 10,124.05 9,513.00 8,086.91 1/31/2010 9,682.28 9,014.60 7,595.05 2/28/2010 10,015.02 9,334.38 7,959.15 3/31/2010 10,594.32 9,920.68 8,463.79 4/30/2010 10,712.70 10,022.72 8,540.44 5/31/2010 9,894.87 9,217.56 7,901.66 6/30/2010 9,350.01 8,687.06 7,460.91 7/31/2010 10,016.96 9,276.27 7,997.48 8/31/2010 9,549.27 8,820.88 7,492.85 9/30/2010 10,565.80 9,766.41 8,425.46 10/31/2010 11,070.42 10,279.31 8,853.44 11/30/2010 11,198.98 10,382.18 8,955.65 12/31/2010 11,815.84 10,951.85 9,401.47 1/31/2011 12,116.54 11,167.96 9,490.94 2/28/2011 12,513.08 11,470.14 9,682.68 3/31/2011 12,528.36 11,475.91 9,759.37 4/30/2011 12,947.92 11,823.89 10,130.06 5/31/2011 12,806.96 11,679.99 10,034.20 6/30/2011 12,623.27 11,525.37 9,868.02 7/31/2011 12,496.74 11,463.70 9,650.72 8/31/2011 11,837.23 10,692.96 9,024.38 9/30/2011 10,965.01 9,759.79 8,378.87 10/31/2011 12,168.31 10,931.19 9,414.25 11/30/2011 12,167.13 10,796.66 9,299.21 12/31/2011 12,128.01 10,633.76 9,213.37 1/31/2012 12,851.95 11,362.67 9,796.82 2/29/2012 13,466.59 12,031.87 10,175.10 3/31/2012 13,909.53 12,457.04 10,502.09 4/30/2012 13,888.05 12,365.46 10,418.74 5/31/2012 12,997.18 11,417.40 9,662.18 6/30/2012 13,350.09 11,670.29 9,963.52 7/31/2012 13,529.05 11,688.33 10,072.51 8/31/2012 13,893.04 12,127.30 10,425.15 9/30/2012 14,165.50 12,425.08 10,675.20 10/31/2012 13,752.06 11,993.11 10,412.32 11/30/2012 13,982.34 12,259.96 10,771.37 12/31/2012 13,978.47 12,326.45 10,865.11 1/31/2013 14,577.58 12,858.51 11,540.96 2/28/2013 14,758.98 12,927.21 11,650.39 3/31/2013 15,312.64 13,333.69 11,920.73 4/30/2013 15,637.67 13,506.52 12,075.21 5/31/2013 15,928.18 13,862.46 12,467.85 6/30/2013 15,628.44 13,581.59 12,268.31 7/31/2013 16,457.09 14,430.77 12,905.54 8/31/2013 16,175.04 14,257.30 12,615.89 9/30/2013 16,895.85 15,072.43 13,220.94 10/31/2013 17,643.25 15,704.56 13,780.93 11/30/2013 18,140.95 16,173.96 14,192.88 12/31/2013 18,659.15 16,691.30 14,736.34 1/31/2014 18,127.21 16,292.86 14,353.66 2/28/2014 19,060.26 17,227.35 15,060.64 3/31/2014 18,868.04 16,672.73 14,956.86 4/30/2014 18,868.80 16,382.80 14,833.63 5/31/2014 19,456.84 16,977.60 15,313.60 6/30/2014 19,836.03 17,393.46 15,618.44 7/31/2014 19,532.39 17,213.29 15,320.08 8/31/2014 20,427.32 17,927.66 16,007.61 9/30/2014 20,131.00 17,615.02 15,800.05 10/31/2014 20,661.48 18,129.99 16,234.62 11/30/2014 21,316.21 18,586.66 16,999.97 12/31/2014 21,094.13 18,416.67 16,917.67 1/31/2015 20,771.12 18,116.93 16,542.50 2/28/2015 22,155.63 19,259.52 17,619.39 3/31/2015 21,903.65 19,050.95 17,383.17 4/30/2015 22,013.35 19,046.68 17,390.12 5/31/2015 22,323.21 19,411.86 17,668.02 6/30/2015 21,929.95 19,230.36 17,278.95 7/31/2015 22,673.61 19,913.22 18,001.51 8/31/2015 21,296.67 18,604.23 16,875.99 9/30/2015 20,769.84 17,970.36 16,521.65 10/31/2015 22,558.24 19,536.86 17,994.57 11/30/2015 22,621.56 19,643.45 18,098.78 12/31/2015 22,289.59 19,450.17 17,869.94 1/31/2016 21,045.14 17,903.27 16,764.19
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Growth Fund Shares to the following benchmarks: o The unmanaged Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. o The unmanaged Lipper Large-Cap Growth Funds Index tracks the total return performance of the 30 largest funds in the Lipper Large-Cap Growth Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Large-Cap Growth Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 6 | USAA GROWTH FUND ================================================================================ USAA GROWTH FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIGRX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $899.6 Million $866.0 Million Net Asset Value Per Share $22.54 $25.86 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -6.82% 1.42% 12.10% 7.64% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 5.72% 13.76% 8.66% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.01% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 1000 LIPPER LARGE-CAP USAA GROWTH FUND GROWTH INDEX GROWTH FUNDS INDEX INSTITUTIONAL SHARES 7/31/2008 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,107.67 10,026.70 9,980.30 9/30/2008 8,937.16 8,741.47 8,608.01 10/31/2008 7,363.69 7,214.80 7,117.53 11/30/2008 6,778.06 6,491.05 6,447.80 12/31/2008 6,900.56 6,665.41 6,520.15 1/31/2009 6,568.61 6,320.85 6,289.64 2/28/2009 6,074.46 5,908.55 5,854.96 3/31/2009 6,616.28 6,416.31 6,269.88 4/30/2009 7,251.48 7,096.14 6,671.63 5/31/2009 7,610.95 7,484.63 6,941.65 6/30/2009 7,696.10 7,487.57 6,941.65 7/31/2009 8,242.73 8,051.78 7,323.64 8/31/2009 8,413.67 8,210.62 7,448.78 9/30/2009 8,771.55 8,604.93 7,797.83 10/31/2009 8,652.74 8,434.67 7,613.43 11/30/2009 9,184.30 8,943.43 8,054.69 12/31/2009 9,468.18 9,231.53 8,348.25 1/31/2010 9,055.02 8,747.88 7,840.09 2/28/2010 9,366.21 9,058.20 8,216.26 3/31/2010 9,907.97 9,627.15 8,744.21 4/30/2010 10,018.69 9,726.17 8,823.41 5/31/2010 9,253.84 8,944.83 8,163.47 6/30/2010 8,744.28 8,430.03 7,701.51 7/31/2010 9,368.02 9,001.80 8,262.46 8/31/2010 8,930.63 8,559.89 7,741.10 9/30/2010 9,881.30 9,477.45 8,704.62 10/31/2010 10,353.23 9,975.17 9,153.38 11/30/2010 10,473.47 10,075.00 9,258.97 12/31/2010 11,050.36 10,627.81 9,716.04 1/31/2011 11,331.58 10,837.52 9,815.11 2/28/2011 11,702.43 11,130.76 10,013.27 3/31/2011 11,716.72 11,136.36 10,092.53 4/30/2011 12,109.10 11,474.04 10,475.62 5/31/2011 11,977.27 11,334.40 10,376.54 6/30/2011 11,805.49 11,184.35 10,204.81 7/31/2011 11,687.16 11,124.51 9,980.24 8/31/2011 11,070.37 10,376.57 9,339.55 9/30/2011 10,254.66 9,471.02 8,672.44 10/31/2011 11,380.00 10,607.76 9,742.46 11/30/2011 11,378.90 10,477.21 9,623.57 12/31/2011 11,342.31 10,319.13 9,534.56 1/31/2012 12,019.35 11,026.47 10,138.35 2/29/2012 12,594.17 11,675.87 10,529.81 3/31/2012 13,008.42 12,088.46 10,868.20 4/30/2012 12,988.33 11,999.59 10,781.94 5/31/2012 12,155.17 11,079.58 10,005.64 6/30/2012 12,485.22 11,324.98 10,310.86 7/31/2012 12,652.59 11,342.50 10,423.65 8/31/2012 12,992.99 11,768.47 10,788.58 9/30/2012 13,247.80 12,057.45 11,053.98 10/31/2012 12,861.15 11,638.25 10,775.31 11/30/2012 13,076.51 11,897.21 11,153.51 12/31/2012 13,072.90 11,961.73 11,249.13 1/31/2013 13,633.19 12,478.05 11,950.11 2/28/2013 13,802.84 12,544.72 12,063.60 3/31/2013 14,320.63 12,939.17 12,337.32 4/30/2013 14,624.61 13,106.88 12,504.22 5/31/2013 14,896.29 13,452.29 12,904.79 6/30/2013 14,615.98 13,179.73 12,697.83 7/31/2013 15,390.94 14,003.78 13,365.43 8/31/2013 15,127.16 13,835.45 13,065.01 9/30/2013 15,801.28 14,626.46 13,685.88 10/31/2013 16,500.26 15,239.89 14,266.70 11/30/2013 16,965.71 15,695.40 14,693.96 12/31/2013 17,450.34 16,197.44 15,253.33 1/31/2014 16,952.86 15,810.78 14,863.08 2/28/2014 17,825.47 16,717.63 15,589.75 3/31/2014 17,645.70 16,179.41 15,482.09 4/30/2014 17,646.42 15,898.07 15,360.98 5/31/2014 18,196.36 16,475.27 15,852.16 6/30/2014 18,550.98 16,878.82 16,168.39 7/31/2014 18,267.01 16,703.98 15,858.89 8/31/2014 19,103.97 17,397.21 16,572.10 9/30/2014 18,826.84 17,093.82 16,356.79 10/31/2014 19,322.96 17,593.55 16,807.59 11/30/2014 19,935.27 18,036.71 17,594.82 12/31/2014 19,727.58 17,871.76 17,512.60 1/31/2015 19,425.49 17,580.88 17,130.49 2/28/2015 20,720.31 18,689.66 18,240.79 3/31/2015 20,484.65 18,487.27 17,995.66 4/30/2015 20,587.24 18,483.12 18,010.08 5/31/2015 20,877.03 18,837.49 18,298.47 6/30/2015 20,509.25 18,661.37 17,894.72 7/31/2015 21,204.73 19,324.03 18,644.55 8/31/2015 19,917.00 18,053.77 17,476.56 9/30/2015 19,424.29 17,438.65 17,116.07 10/31/2015 21,096.84 18,958.80 18,644.55 11/30/2015 21,156.05 19,062.23 18,752.70 12/31/2015 20,845.59 18,874.67 18,514.45 1/31/2016 19,681.76 17,373.55 17,373.66
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Growth Fund Institutional Shares to the Fund's benchmarks listed above (see page 6 for benchmark definitions). *The performance of the Russell 1000 Growth Index and the Lipper Large-Cap Growth Funds Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Large-Cap Growth Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA GROWTH FUND ================================================================================ o TOP 10 HOLDINGS - 1/31/16 o (% of Net Assets) Facebook, Inc. "A" ....................................................... 4.2% Amazon.com, Inc. ......................................................... 3.8% Oracle Corp. ............................................................. 3.5% Visa, Inc. "A" ........................................................... 3.2% Cisco Systems, Inc. ...................................................... 2.8% Alphabet, Inc. "A" ....................................................... 2.7% Microsoft Corp. .......................................................... 2.7% Monster Beverage Corp. ................................................... 2.7% Alibaba Group Holding Ltd. ADR ........................................... 2.5% Danone ADR ............................................................... 2.5%
o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] Information Technology 38.1% Consumer Discretionary 15.0% Health Care 14.2% Consumer Staples 13.2% Industrials 10.2% Financials 6.1% Energy 1.6% Materials 0.6% Money Market Instruments 0.7%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 10-15. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
-------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- EQUITY SECURITIES (99.0%) COMMON STOCKS (99.0%) CONSUMER DISCRETIONARY (15.0%) ----------------------------- ADVERTISING (0.8%) 701,844 Interpublic Group of Companies, Inc. $ 15,749 ----------- APPAREL RETAIL (1.7%) 222,025 Foot Locker, Inc. 15,000 313,216 Ross Stores, Inc. 17,622 ----------- 32,622 ----------- AUTOMOTIVE RETAIL (1.5%) 19,307 AutoZone, Inc.* 14,816 54,889 O'Reilly Automotive, Inc.* 14,321 ----------- 29,137 ----------- DEPARTMENT STORES (0.5%) 221,937 Macy's, Inc. 8,968 ----------- GENERAL MERCHANDISE STORES (0.7%) 177,295 Dollar General Corp. 13,308 ----------- HOME IMPROVEMENT RETAIL (2.5%) 114,646 Home Depot, Inc. 14,418 464,247 Lowe's Companies, Inc. 33,268 ----------- 47,686 ----------- HOTELS, RESORTS & CRUISE LINES (1.3%) 205,506 Marriott International, Inc. "A" 12,593 151,495 Royal Caribbean Cruises Ltd. 12,417 ----------- 25,010 ----------- INTERNET RETAIL (3.8%) 125,765 Amazon.com, Inc.* 73,824 ----------- MOVIES & ENTERTAINMENT (0.7%) 135,788 Walt Disney Co. 13,011 ----------- RESTAURANTS (1.5%) 402,283 Yum! Brands, Inc. 29,113 ----------- Total Consumer Discretionary 288,428 -----------
================================================================================ 10 | USAA GROWTH FUND ================================================================================
-------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- CONSUMER STAPLES (13.2%) ----------------------- BREWERS (1.7%) 540,369 SABMiller plc ADR $ 32,239 ----------- DRUG RETAIL (0.7%) 150,247 CVS Health Corp. 14,512 ----------- FOOD RETAIL (0.9%) 432,234 Kroger Co. 16,775 ----------- HOUSEHOLD PRODUCTS (2.3%) 547,461 Procter & Gamble Co. 44,722 ----------- PACKAGED FOODS & MEAT (2.5%) 3,433,449 Danone ADR 47,485 ----------- SOFT DRINKS (5.1%) 1,094,538 Coca-Cola Co. 46,977 378,892 Monster Beverage Corp.* 51,162 ----------- 98,139 ----------- Total Consumer Staples 253,872 ----------- ENERGY (1.6%) ------------ OIL & GAS EQUIPMENT & SERVICES (1.6%) 432,310 Schlumberger Ltd. 31,243 ----------- FINANCIALS (6.1%) ---------------- ASSET MANAGEMENT & CUSTODY BANKS (2.4%) 42,877 BlackRock, Inc. 13,475 835,838 SEI Investments Co. 32,798 ----------- 46,273 ----------- CONSUMER FINANCE (1.0%) 359,279 American Express Co. 19,221 ----------- INVESTMENT BANKING & BROKERAGE (0.2%) 145,014 Greenhill & Co., Inc. 3,449 ----------- LIFE & HEALTH INSURANCE (0.6%) 169,194 Prudential Financial, Inc. 11,857 ----------- REGIONAL BANKS (0.8%) 102,534 Signature Bank* 14,287 ----------- SPECIALIZED FINANCE (1.1%) 144,198 FactSet Research Systems, Inc. 21,731 ----------- Total Financials 116,818 -----------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
-------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- HEALTH CARE (14.2%) ------------------ BIOTECHNOLOGY (3.1%) 261,220 Amgen, Inc. $ 39,896 37,232 Biogen, Inc.* 10,166 127,071 Gilead Sciences, Inc. 10,547 ----------- 60,609 ----------- HEALTH CARE DISTRIBUTORS (1.3%) 172,267 Cardinal Health, Inc. 14,018 64,923 McKesson Corp. 10,451 ----------- 24,469 ----------- HEALTH CARE EQUIPMENT (1.5%) 363,204 Varian Medical Systems, Inc.* 28,014 ----------- HEALTH CARE SERVICES (0.7%) 174,023 Express Scripts Holdings Co.* 12,507 ----------- HEALTH CARE TECHNOLOGY (1.0%) 336,639 Cerner Corp.* 19,528 ----------- MANAGED HEALTH CARE (1.9%) 125,074 Aetna, Inc. 12,738 92,895 Anthem, Inc. 12,122 93,924 Cigna Corp. 12,548 ----------- 37,408 ----------- PHARMACEUTICALS (4.7%) 315,893 Merck & Co., Inc. 16,006 378,614 Novartis AG ADR 29,521 805,821 Novo Nordisk A/S ADR 45,021 ----------- 90,548 ----------- Total Health Care 273,083 ----------- INDUSTRIALS (10.2%) ------------------ AEROSPACE & DEFENSE (0.7%) 110,072 Boeing Co. 13,223 ----------- AIR FREIGHT & LOGISTICS (4.2%) 802,606 Expeditors International of Washington, Inc. 36,213 476,834 United Parcel Service, Inc. "B" 44,441 ----------- 80,654 ----------- AIRLINES (1.4%) 207,013 Alaska Air Group, Inc. 14,574 308,081 Southwest Airlines Co. 11,590 ----------- 26,164 -----------
================================================================================ 12 | USAA GROWTH FUND ================================================================================
-------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- BUILDING PRODUCTS (0.7%) 514,348 Masco Corp. $ 13,574 ----------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.5%) 103,811 Cummins, Inc. 9,332 ----------- DIVERSIFIED SUPPORT SERVICES (0.7%) 152,286 Cintas Corp. 13,084 ----------- ELECTRICAL COMPONENTS & EQUIPMENT (0.6%) 126,181 Rockwell Automation, Inc. 12,059 ----------- INDUSTRIAL CONGLOMERATES (0.7%) 159,897 Danaher Corp. 13,855 ----------- RESEARCH & CONSULTING SERVICES (0.7%) 129,209 Equifax, Inc. 13,670 ----------- Total Industrials 195,615 ----------- INFORMATION TECHNOLOGY (38.1%) ----------------------------- APPLICATION SOFTWARE (2.0%) 532,721 Autodesk, Inc.* 24,942 305,518 Synopsys, Inc.* 13,107 ----------- 38,049 ----------- COMMUNICATIONS EQUIPMENT (6.0%) 2,285,917 Cisco Systems, Inc. 54,382 111,899 F5 Networks, Inc.* 10,494 475,956 Juniper Networks, Inc. 11,232 888,882 QUALCOMM, Inc. 40,302 ----------- 116,410 ----------- DATA PROCESSING & OUTSOURCED SERVICES (5.0%) 130,326 Automatic Data Processing, Inc. 10,829 216,293 Global Payments, Inc. 12,750 254,565 Total System Services, Inc. 10,223 829,237 Visa, Inc. "A" 61,770 ----------- 95,572 ----------- ELECTRONIC COMPONENTS (0.7%) 716,708 Corning, Inc. 13,338 ----------- HOME ENTERTAINMENT SOFTWARE (0.6%) 197,366 Electronic Arts, Inc.* 12,739 ----------- INTERNET SOFTWARE & SERVICES (11.6%) 715,500 Alibaba Group Holding Ltd. ADR* 47,960 68,348 Alphabet, Inc. "A"* 52,037
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
-------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 56,239 Alphabet, Inc. "C"* $ 41,783 725,877 Facebook, Inc. "A"* 81,450 ---------- 223,230 ---------- SEMICONDUCTOR EQUIPMENT (0.7%) 180,841 Lam Research Corp. 12,983 ---------- SEMICONDUCTORS (2.8%) 90,266 Analog Devices, Inc. 4,862 568,576 ARM Holdings plc ADR 24,494 142,049 Skyworks Solutions, Inc. 9,790 286,281 Texas Instruments, Inc. 15,153 ---------- 54,299 ---------- SYSTEMS SOFTWARE (6.2%) 938,172 Microsoft Corp. 51,684 1,862,310 Oracle Corp. 67,620 ---------- 119,304 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.5%) 119,331 Apple, Inc. 11,616 558,997 EMC Corp. 13,846 207,760 SanDisk Corp. 14,689 167,944 Western Digital Corp. 8,058 ---------- 48,209 ---------- Total Information Technology 734,133 ---------- MATERIALS (0.6%) --------------- DIVERSIFIED CHEMICALS (0.6%) 287,625 Dow Chemical Co. 12,080 ---------- Total Common Stocks 1,905,272 ---------- Total Equity Securities (cost: $1,392,881) 1,905,272 ---------- MONEY MARKET INSTRUMENTS (0.7%) MONEY MARKET FUNDS (0.7%) 14,117,092 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a) (cost: $14,117) 14,117 ---------- TOTAL INVESTMENTS (COST: $1,406,998) $1,919,389 ==========
================================================================================ 14 | USAA GROWTH FUND ================================================================================
--------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY --------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL --------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $1,905,272 $- $- $1,905,272 Money Market Instruments: Money Market Funds 14,117 - - 14,117 --------------------------------------------------------------------------------------------------------- Total $1,919,389 $- $- $1,919,389 ---------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 11.8% of net assets at January 31, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 16 | USAA GROWTH FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $1,406,998) $1,919,389 Receivables: Capital shares sold 6,118 Dividends and interest 1,188 ---------- Total assets 1,926,695 ---------- LIABILITIES Payables: Capital shares redeemed 942 Accrued management fees 1,287 Accrued transfer agent's fees 89 Other accrued expenses and payables 123 ---------- Total liabilities 2,441 ---------- Net assets applicable to capital shares outstanding $1,924,254 ========== NET ASSETS CONSIST OF: Paid-in capital $1,398,419 Accumulated overdistribution of net investment income (7,143) Accumulated net realized gain on investments 20,587 Net unrealized appreciation of investments 512,391 ---------- Net assets applicable to capital shares outstanding $1,924,254 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,024,616/45,364 shares outstanding) $ 22.59 ========== Institutional Shares (net assets of $899,638/39,922 shares outstanding) $ 22.54 ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 17 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $30) $ 13,599 Interest 14 --------- Total income 13,613 --------- EXPENSES Management fees 7,966 Administration and servicing fees: Fund Shares 916 Institutional Shares 404 Transfer agent's fees: Fund Shares 887 Institutional Shares 404 Custody and accounting fees: Fund Shares 67 Institutional Shares 42 Postage: Fund Shares 39 Institutional Shares 28 Shareholder reporting fees: Fund Shares 19 Institutional Shares 5 Trustees' fees 13 Registration fees: Fund Shares 31 Institutional Shares 41 Professional fees 64 Other 16 --------- Total expenses 10,942 Expenses paid indirectly: Fund Shares (3) Institutional Shares (3) --------- Net expenses 10,936 --------- NET INVESTMENT INCOME 2,677 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain 31,207 Change in net unrealized appreciation/(depreciation) (177,715) --------- Net realized and unrealized loss (146,508) --------- Decrease in net assets resulting from operations $(143,831) =========
See accompanying notes to financial statements. ================================================================================ 18 | USAA GROWTH FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
--------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 --------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 2,677 $ 5,647 Net realized gain on investments 31,207 153,331 Change in net unrealized appreciation/(depreciation) of investments (177,715) 166,123 -------------------------- Increase (decrease) in net assets resulting from operations (143,831) 325,101 -------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (5,575) (14,131) Institutional Shares (4,245) (9,931) -------------------------- Total distributions of net investment income (9,820) (24,062) -------------------------- Net realized gains: Fund Shares (75,648) (67,618) Institutional Shares (49,069) (46,698) -------------------------- Total distributions of net realized gains (124,717) (114,316) -------------------------- Distributions to shareholders (134,537) (138,378) -------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (68,423) 49,443 Institutional Shares 142,974 72,793 -------------------------- Total net increase in net assets from capital share transactions 74,551 122,236 -------------------------- Net increase (decrease) in net assets (203,817) 308,959 NET ASSETS Beginning of period 2,128,071 1,819,112 -------------------------- End of period $1,924,254 $2,128,071 ========================== Accumulated overdistribution of net investment income: End of period $ (7,143) $ - ==========================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 19 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Growth Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek long-term growth of capital. The Fund consists of two classes of shares: Growth Fund Shares (Fund Shares) and Growth Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ 20 | USAA GROWTH FUND ================================================================================ A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 ================================================================================ 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser(s) will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser(s) have agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Repurchase agreements are valued at cost. 6. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has ================================================================================ 22 | USAA GROWTH FUND ================================================================================ been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by the custodian to directly reduce expenses paid by the Fund. In addition, through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, brokerage commission recapture credits reduced the expenses of the Fund Shares and Institutional Shares by $3,000 each. Additionally, there were no custodian and other bank credits. F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out ================================================================================ 24 | USAA GROWTH FUND ================================================================================ of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. G. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $6,000, which represents 2.9% of the total fees paid to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $208,051,000 and $275,855,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $564,211,000 and $51,820,000, respectively, resulting in net unrealized appreciation of $512,391,000. ================================================================================ 26 | USAA GROWTH FUND ================================================================================ (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 ------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------- FUND SHARES: Shares sold 3,756 $ 91,828 8,489 $ 210,943 Shares issued from reinvested dividends 3,267 80,214 3,305 80,688 Shares redeemed (10,372) (240,465) (9,724) (242,188) -------------------------------------------- Net increase (decrease) from capital share transactions (3,349) $ (68,423) 2,070 $ 49,443 ============================================= INSTITUTIONAL SHARES: Shares sold 8,246 $ 187,350 6,240 $ 153,659 Shares issued from reinvested dividends 2,175 53,304 2,324 56,608 Shares redeemed (3,985) (97,680) (5,526) (137,474) -------------------------------------------- Net increase from capital share transactions 6,436 $ 142,974 3,038 $ 72,793 =============================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.75% of the Fund's average net assets for the fiscal year. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Large-Cap Growth Funds Index. The Lipper Large-Cap Growth Funds Index tracks the total return performance of the 30 largest funds within the Lipper Large-Cap Growth Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of ================================================================================ 28 | USAA GROWTH FUND ================================================================================ overperformance) or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Large-Cap Growth Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $7,966,000, which included a performance adjustment for the Fund Shares and Institutional Shares of $205,000 and $153,000, respectively. For the Fund Shares and Institutional Shares, the performance adjustments were 0.03% and 0.04%, respectively. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory Agreements with Loomis, Sayles & Company, L.P. (Loomis Sayles) and Renaissance Investment Management (Renaissance), under which Loomis Sayles and Renaissance each direct the investment and reinvestment of a portion of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays Loomis Sayles a subadvisory fee in the annual amount of 0.20% of the portion of the Fund's average net assets that Loomis Sayles manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Loomis Sayles, of $1,250,000. The Manager (not the Fund) pays Renaissance a subadvisory fee in the annual amount of 0.20% of the portion of the Fund's average net assets that Renaissance manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Renaissance, of $781,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ rate of 0.15% of average net assets of the Fund Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred administration and servicing fees, paid or payable to the Manager, of $916,000 and $404,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $26,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of $887,000 and $404,000, respectively. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fees or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of exercising management or control. As of January 31, 2016, ================================================================================ 30 | USAA GROWTH FUND ================================================================================ the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- USAA Cornerstone Conservative 0.1 USAA Cornerstone Equity 0.3 USAA Target Retirement Income 0.4 USAA Target Retirement 2020 1.1 USAA Target Retirement 2030 2.7 USAA Target Retirement 2040 3.4 USAA Target Retirement 2050 1.8 USAA Target Retirement 2060 0.1
The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 25.91 $ 23.62 $ 20.05 $ 15.71 $ 15.10 $ 12.52 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .02 .28 .11 .13 .06 .04 Net realized and unrealized gain (loss) (1.67) 3.73 3.63 4.28 .59 2.55 ----------------------------------------------------------------------------------- Total from investment operations (1.65) 4.01 3.74 4.41 .65 2.59 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.11) (.28) (.17) (.07) (.04) (.01) Realized capital gains (1.56) (1.44) - - - - ----------------------------------------------------------------------------------- Total distributions (1.67) (1.72) (.17) (.07) (.04) (.01) ----------------------------------------------------------------------------------- Net asset value at end of period $ 22.59 $ 25.91 $ 23.62 $ 20.05 $ 15.71 $ 15.10 =================================================================================== Total Return(%)* (6.87) 17.50 18.71 28.13 4.37 20.67 Net assets at end of period (000) $1,024,616 $1,262,075 $1,101,533 $796,024 $1,035,999 $794,896 Ratios to average net assets:** Expenses(%)(a) 1.12(b) 1.08(c) 1.00 1.00 1.00 1.00 Expenses, excluding reimbursements(%)(a) 1.12(b) 1.11 1.12 1.19 1.17 1.17 Net investment income (%) .23(b) .25 .39 .51 .42 .30 Portfolio turnover(%) 10 31 31 28 43 39(d) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,212,523,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: (.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. (c) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Fund Shares to 1.00% of the Fund Shares' average net assets. (d) Reflects overall decrease in purchases and sales of securities.
================================================================================ 32 | USAA GROWTH FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 25.86 $ 23.57 $ 20.02 $ 15.71 $ 15.11 $ 12.52 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .04(a) .30 .10 .10(a) .06 .06 Net realized and unrealized gain (loss) (1.67)(a) 3.72 3.62 4.32(a) .60 2.54 ----------------------------------------------------------------------------------- Total from investment operations (1.63)(a) 4.02 3.72 4.42(a) .66 2.60 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.13) (.29) (.17) (.11) (.06) (.01) Realized capital gains (1.56) (1.44) - - - - ----------------------------------------------------------------------------------- Total distributions (1.69) (1.73) (.17) (.11) (.06) (.01) ----------------------------------------------------------------------------------- Net asset value at end of period $ 22.54 $ 25.86 $ 23.57 $ 20.02 $ 15.71 $ 15.11 =================================================================================== Total return(%)* (6.82) 17.57 18.66 28.22 4.44 20.79 Net assets at end of period (000) $899,638 $865,996 $717,579 $664,513 $233,849 $157,225 Ratios to average net assets:** Expenses(%)(b) 1.03(e) 1.01 1.00 .99 .95 .86(d) Expenses, excluding reimbursements(%)(b) 1.03(e) 1.01 1.00 .99 .95 .86 Net investment income(%) .31(e) .31 .39 .53 .46 .43 Portfolio turnover(%) 10 31 31 28 43 39(f)
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $802,332,000. (a) Calculated using average shares. For the six-month period ended January 31, 2016, average shares were 33,477,000. (b) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (d) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to 0.87% of the Institutional Shares' average net assets. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations. (f) Reflects overall decrease in purchases and sales of securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ 34 | USAA GROWTH FUND ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ----------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 931.30 $5.39 Hypothetical (5% return before expenses) 1,000.00 1,019.56 5.63 INSTITUTIONAL SHARES Actual 1,000.00 931.80 5.00 Hypothetical (5% return before expenses) 1,000.00 1,019.96 5.23
*Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares and 1.03% for Institutional Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (6.87)% for Fund Shares and (6.82)% for Institutional Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 35 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23420-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA GROWTH & INCOME FUND] ============================================================== SEMIANNUAL REPORT USAA GROWTH & INCOME FUND FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 6 FINANCIAL INFORMATION Portfolio of Investments 13 Notes to Portfolio of Investments 21 Financial Statements 22 Notes to Financial Statements 26 EXPENSE EXAMPLE 43
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202739-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA GROWTH & INCOME FUND (THE FUND) SEEKS CAPITAL GROWTH WITH A SECONDARY INVESTMENT OBJECTIVE OF CURRENT INCOME. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests its assets primarily in equity securities that show the best potential for total return through a combination of capital growth and income. Although the Fund invests primarily in U.S. securities, it may invest up to 20% of its total assets in foreign securities, including securities issued in emerging markets. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company Barrow, Hanley, Mewhinney & Strauss, LLC JOHN B. JARES, CFA MARK GIAMBRONE JOHN P. TOOHEY, CFA MICHAEL B. NAYFA, CFA TERRY L. PELZEL, CFA -------------------------------------------------------------------------------- o PLEASE DISCUSS THE MARKET BACKDROP DURING THE REPORTING PERIOD. Stocks finished notably lower for the reporting period ended January 31, 2016. Financial markets also exhibited a lot of volatility over the reporting period as China's policy with regard to its currency, global central bank policies, disappointing economic growth, weakening global trade, lower oil prices, higher high-yield credit spreads, and impacts from the strength of the U.S. dollar dominated the headlines. China concerns drove the biggest moves during the reporting period as the government's mid-August 2015 devaluation of the renminbi in the face of the Chinese economy's slowing growth raised fears of a global currency war and helped drive investor risk aversion that led to a sell-off in equities and other risk assets. Uncertainty over China's future economic growth intensified through the end of September 2015, further weakening commodities markets and suppressing any recovery in stock prices. U.S. equities rebounded in October 2015 as worries over China eased momentarily. U.S. employment numbers exceeded expectations, and markets increasingly focused on the Federal Reserve's (the Fed) December 16, 2015, meeting as a likely candidate for the first increase in the benchmark federal funds rate. The Fed's 25 basis point rate increase to short term interest rates during December 2015 was received as a positive sign with respect to the path of the U.S. economy, and investors anticipated an incremental but fairly steady pace with respect to future increases. However, the period of relatively optimistic sentiment proved short-lived. A resumption of the drop in oil prices as 2016 opened ================================================================================ 2 | USAA GROWTH & INCOME FUND ================================================================================ raised alarms that the global demand outlook had further deteriorated, leading to substantial losses for equities in January 2016. o HOW DID THE USAA GROWTH & INCOME FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended January 31, 2016, the Fund Shares and Adviser Shares had total returns of -11.41% and -11.51%, respectively. This compares to returns of -8.53% for the Russell 3000(R) Index (the Index) and -10.28% for the Lipper Multi-Cap Core Funds Index. The Institutional Shares commenced operation on August 7, 2015, and from that time through January 31, 2016, had a total return of -11.79%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadviser. Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS) is the subadviser to the Fund. The investment adviser and the subadviser each provide day-to-day discretionary management for a portion of the Fund's assets. o HOW DID BHMS' VALUE-ORIENTED PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? Within BHMS' portion of the Fund, stock selection within financials was the leading detractor from performance relative to the benchmark. Stock selection within industrials and an underweight to utilities also detracted from performance. Conversely, issue selection within information technology was the leading contributor to performance, followed by stock selection in consumer discretionary and consumer staples. Within financials, their position in American Express Co. (American Express) Refer to page 7 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ was a leading individual detractor from performance, as the company saw its shares negatively affected by flat earnings, driven largely by heightened competition within the consumer finance segment. The Fund has maintained the position as BHMS believes that American Express' earnings growth can be expected to resume over time. Another straggler within financials was the investment manager/custodian bank State Street Corp. (State Street), whose shares tend to be highly sensitive to stock market and interest rate movements. BHMS believes that State Street's shares are trading at a substantially discounted valuation and has maintained the position. The leading positive contribution to performance came from holdings in Reynolds American Inc., which saw its shares benefit from the company's stable business model against a backdrop of heightened uncertainty. The company continues to offer strong cash flows and an attractive dividend. Lastly, BHMS' focus on valuation was rewarded, as a position in the chip industry pioneer Fairchild Semiconductor International, Inc.* rose on news of a proposed acquisition. With markets on edge over faltering Chinese growth and the ripple effects from weakness in crude oil prices, we believe that the Fed will proceed even more incrementally in its normalization of short-term interest rates, and that there may likely be upward pressure on long-term interest rates. While this scenario is not necessarily supportive of BHMS' focus on valuation, they remain steadfast in their commitment to not overpay for utilities, real estate investment trusts (REITs), and other dividend-oriented stocks. BHMS will continue to focus on broad measures of valuation, including low-payout ratios and solid earnings prospects that together suggest the potential for long-term growth in dividends. o HOW DID THE MANAGER'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? For the reporting period ended January 31, 2016, the Manager's portion of the Fund substantially underperformed the Index. The vast majority of the underperformance took place in January 2016, as U.S. and world markets endured a major bout of volatility. Investors shunned *Fairchild Semiconductor International, Inc. was sold out of the Fund prior to January 31, 2016. ================================================================================ 4 | USAA GROWTH & INCOME FUND ================================================================================ economically sensitive stocks as they instead sought the relative safety of consumer staples and utilities stocks. Concern over slowing growth in China, falling crude oil prices, and a strengthening U.S. dollar ignited fears of a global recession. Many of the Fund's holdings managed by the Manager suffered during the reporting period as investors generally sold stocks without regard to their steady fundamentals. The bottom-performing sectors in the portfolio were consumer discretionary, industrials, and financials, while top-performing sectors included information technology, materials, and health care. The Fund's holdings in cruise line stocks represented the largest detractor from performance within the consumer sectors, as recessionary concerns rose and fears of a spreading Zika virus spurred a sell-off. In addition, railroad and airlines positions suffered within the industrial sector, driven by a strengthening U.S. dollar and plummeting oil and coal prices. Additionally, financial holdings dipped after the Fed raised interest rates on December 16, 2015, and investors fretted over the pace of economic growth and future Fed interest rate increases. Conversely, technology positions performed well thanks to the Fund's holdings in Internet and social media stocks. Also, the Fund's positions in the materials sector performed relatively well thanks to an underweight in the sector, along with holdings in companies that have no revenue exposure to China. Lastly, health care was additive based on the Fund's underweight positioning. Despite the severe bout of volatility that has been recently experienced, the fundamental performance of Manager's portion of the Fund continues to be strong. The Manager firmly believes that over time fears of a global recession will subside, and that the Fund's holdings will recover from recent losses as the market returns to a focus on fundamentals. Thank you for allowing us to help you with your investment needs. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. o Investing in REITs has some of the same risks associated with the direct ownership of real estate. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ INVESTMENT OVERVIEW USAA GROWTH & INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USGRX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.3 Billion $1.6 Billion Net Asset Value Per Share $18.40 $22.00 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -11.41% -4.38% 8.36% 4.73% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -0.53% 10.52% 5.91% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 0.93% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 6 | USAA GROWTH & INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA GROWTH & CORE FUNDS INCOME FUND RUSSELL 3000 INDEX INDEX SHARES 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,017.78 9,960.25 9,931.94 3/31/2006 10,190.94 10,182.24 10,023.50 4/30/2006 10,301.50 10,308.38 10,154.56 5/31/2006 9,971.69 9,951.29 9,667.01 6/30/2006 9,989.33 9,921.97 9,684.45 7/31/2006 9,979.98 9,803.06 9,532.07 8/31/2006 10,224.12 10,035.07 9,621.40 9/30/2006 10,452.99 10,250.55 9,937.20 10/31/2006 10,829.27 10,631.89 10,247.74 11/30/2006 11,064.89 10,883.69 10,537.22 12/31/2006 11,197.40 11,005.40 10,588.17 1/31/2007 11,410.53 11,245.28 10,898.90 2/28/2007 11,223.35 11,097.06 10,711.29 3/31/2007 11,340.17 11,214.03 10,893.04 4/30/2007 11,793.17 11,650.15 11,250.67 5/31/2007 12,222.94 12,086.33 11,795.91 6/30/2007 11,994.03 11,981.67 11,678.65 7/31/2007 11,585.00 11,598.34 11,291.71 8/31/2007 11,751.29 11,673.23 11,391.37 9/30/2007 12,179.71 12,080.06 11,807.63 10/31/2007 12,403.14 12,323.51 12,188.71 11/30/2007 11,844.77 11,769.75 11,672.79 12/31/2007 11,773.09 11,662.36 11,593.42 1/31/2008 11,059.50 11,007.41 10,787.57 2/29/2008 10,716.00 10,717.38 10,401.58 3/31/2008 10,652.51 10,566.55 10,252.60 4/30/2008 11,185.23 11,097.63 10,841.75 5/31/2008 11,414.38 11,369.63 11,119.39 6/30/2008 10,472.45 10,463.14 10,260.74 7/31/2008 10,388.93 10,310.03 10,077.51 8/31/2008 10,550.28 10,408.44 10,158.94 9/30/2008 9,558.30 9,247.89 9,092.71 10/31/2008 7,863.04 7,500.90 7,372.10 11/30/2008 7,242.34 6,846.31 6,685.21 12/31/2008 7,380.89 7,061.78 6,787.24 1/31/2009 6,761.48 6,562.39 6,281.95 2/28/2009 6,053.18 5,955.33 5,715.21 3/31/2009 6,583.40 6,436.27 6,197.57 4/30/2009 7,276.20 7,269.89 6,896.08 5/31/2009 7,664.43 7,718.22 7,265.88 6/30/2009 7,690.55 7,711.29 7,200.83 7/31/2009 8,289.15 8,350.95 7,783.75 8/31/2009 8,585.33 8,635.62 8,051.21 9/30/2009 8,945.03 9,027.33 8,438.63 10/31/2009 8,714.96 8,763.38 8,246.37 11/30/2009 9,210.18 9,241.50 8,727.01 12/31/2009 9,472.64 9,554.64 8,977.42 1/31/2010 9,131.18 9,203.08 8,626.58 2/28/2010 9,440.74 9,513.06 8,956.79 3/31/2010 10,035.76 10,098.25 9,509.85 4/30/2010 10,252.34 10,294.79 9,675.12 5/31/2010 9,442.43 9,484.67 8,876.32 6/30/2010 8,899.61 9,011.91 8,339.91 7/31/2010 9,517.44 9,594.84 9,009.04 8/31/2010 9,069.42 9,166.61 8,505.47 9/30/2010 9,925.73 10,003.03 9,376.65 10/31/2010 10,313.60 10,425.93 9,742.87 11/30/2010 10,373.14 10,464.22 9,756.69 12/31/2010 11,076.33 11,143.48 10,407.58 1/31/2011 11,318.25 11,410.28 10,629.17 2/28/2011 11,730.33 11,803.29 10,933.85 3/31/2011 11,783.24 11,854.83 10,920.73 4/30/2011 12,133.96 12,201.30 11,295.15 5/31/2011 11,995.51 12,032.37 11,156.48 6/30/2011 11,780.08 11,819.84 10,940.31 7/31/2011 11,510.32 11,541.93 10,586.05 8/31/2011 10,819.76 10,721.24 9,905.32 9/30/2011 9,980.19 9,806.52 9,085.17 10/31/2011 11,128.84 10,890.60 10,199.06 11/30/2011 11,098.76 10,826.58 10,115.52 12/31/2011 11,189.99 10,830.60 10,144.80 1/31/2012 11,754.67 11,423.53 10,738.27 2/29/2012 12,251.92 11,917.77 11,206.06 3/31/2012 12,629.86 12,199.83 11,498.33 4/30/2012 12,547.02 12,083.02 11,302.49 5/31/2012 11,771.38 11,255.23 10,414.24 6/30/2012 12,232.41 11,635.92 10,742.82 7/31/2012 12,353.57 11,742.01 10,826.97 8/31/2012 12,661.89 12,050.14 11,205.63 9/30/2012 12,994.39 12,369.14 11,475.35 10/31/2012 12,770.26 12,218.04 11,257.51 11/30/2012 12,869.15 12,372.35 11,306.70 12/31/2012 13,026.86 12,579.84 11,412.33 1/31/2013 13,741.65 13,294.64 12,033.02 2/28/2013 13,923.76 13,421.75 12,110.61 3/31/2013 14,469.39 13,930.39 12,497.34 4/30/2013 14,706.23 14,100.63 12,688.19 5/31/2013 15,053.16 14,458.68 13,119.38 6/30/2013 14,857.92 14,242.75 12,938.37 7/31/2013 15,672.25 15,038.75 13,739.04 8/31/2013 15,234.75 14,641.29 13,363.51 9/30/2013 15,801.12 15,232.09 13,876.85 10/31/2013 16,472.31 15,820.46 14,551.18 11/30/2013 16,950.35 16,243.94 15,076.44 12/31/2013 17,397.55 16,678.08 15,510.15 1/31/2014 16,847.90 16,158.67 14,976.79 2/28/2014 17,647.10 16,920.52 15,652.38 3/31/2014 17,740.76 16,954.61 15,703.59 4/30/2014 17,762.29 16,898.84 15,667.88 5/31/2014 18,149.88 17,280.70 16,082.07 6/30/2014 18,605.12 17,721.23 16,450.02 7/31/2014 18,238.09 17,349.44 16,185.27 8/31/2014 19,003.26 18,015.65 16,886.49 9/30/2014 18,607.14 17,572.84 16,622.31 10/31/2014 19,119.09 17,981.48 16,851.78 11/30/2014 19,582.42 18,354.74 17,239.02 12/31/2014 19,582.19 18,355.78 17,249.32 1/31/2015 19,037.19 17,859.15 16,608.35 2/28/2015 20,139.46 18,884.88 17,630.66 3/31/2015 19,934.72 18,752.03 17,377.58 4/30/2015 20,024.89 18,821.63 17,580.88 5/31/2015 20,301.87 19,103.01 17,979.34 6/30/2015 19,962.21 18,779.28 17,696.95 7/31/2015 20,296.08 18,955.61 17,925.09 8/31/2015 19,070.82 17,857.33 16,808.85 9/30/2015 18,515.10 17,241.97 16,234.95 10/31/2015 19,977.52 18,478.60 17,540.93 11/30/2015 20,088.26 18,585.87 17,622.55 12/31/2015 19,675.94 18,086.40 17,157.99 1/31/2016 18,565.73 17,006.27 15,880.64
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Growth & Income Fund Shares to the following benchmarks: o The unmanaged Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. o The unmanaged Lipper Multi-Cap Core Funds Index tracks the total return performance of the 30 largest funds in the Lipper Multi-Cap Core Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Multi-Cap Core Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ USAA GROWTH & INCOME FUND INSTITUTIONAL SHARES* (INSTITUTIONAL SHARES) (Ticker Symbol: UIGIX) -------------------------------------------------------------------------------- 1/31/16 -------------------------------------------------------------------------------- Net Assets $104.7 Million Net Asset Value Per Share $18.39 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/16 -------------------------------------------------------------------------------- SINCE INCEPTION 8/7/15** -11.79% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- SINCE INCEPTION 8/7/15** -4.74% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 7/31/15*** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.98% AFTER REIMBURSEMENT 0.85% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *The Institutional Shares commenced operations on August 7, 2015. **Total returns for periods of less than one year are not annualized. This return is cumulative. ***The expense ratios are reported in the Fund's prospectus dated December 1, 2015, and are based on estimated expenses for the current fiscal year. USAA Asset Management Company (the Manager) has agreed, through December 1, 2016, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Institutional Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 0.85% of the Institutional Shares' average net assets. If the total annual operating expense ratio of the Institutional Shares is lower than 0.85%, the Institutional Shares will operate at that lower expense ratio. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after December 1, 2016. These estimated expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ 8 | USAA GROWTH & INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA GROWTH & CORE FUNDS INCOME FUND RUSSELL 3000 INDEX INDEX INSTITUTIONAL SHARES 7/31/2015 $10,000.00 $10,000.00 $10,000.00 8/31/2015 9,396.30 9,420.60 9,334.84 9/30/2015 9,122.50 9,095.97 9,016.07 10/31/2015 9,843.04 9,748.35 9,741.71 11/30/2015 9,897.61 9,804.94 9,787.06 12/31/2015 9,694.45 9,541.45 9,526.05 1/31/2016 9,147.45 8,971.62 8,820.94
[END CHART] Data from 7/31/15 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Growth & Income Fund Institutional Shares to the Fund's benchmarks listed above (see page 7 for benchmark definitions). Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Multi-Cap Core Funds Index reflects the fees and expenses of the underlying funds included in the index. *The performance of the Russell 3000 Index and the Lipper Multi-Cap Core Funds Index is calculated from the end of the month, July 31, 2015, while the Institutional Shares' inception date is August 7, 2015. There may be a slight variation of performance numbers because of this difference. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA GROWTH & INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: USGIX)
----------------------------------------------------------------------------------------- 1/31/16 7/31/15 ----------------------------------------------------------------------------------------- Net Assets $7.6 Million $9.1 Million Net Asset Value Per Share $18.35 $21.93 ----------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 ----------------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -11.51% -4.58% 8.02% 10.09% ----------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 ----------------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 -0.83% 10.17% 11.83% ----------------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 7/31/15** ----------------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 1.27% AFTER REIMBURSEMENT 1.20%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and are calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through December 1, 2016, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Adviser Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.20% of the Adviser Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after December 1, 2016. If the total annual operating expense ratio of the Adviser Shares is lower than 1.20%, the Adviser Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 10 | USAA GROWTH & INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER MULTI-CAP USAA GROWTH & CORE FUNDS INCOME FUND RUSSELL 3000 INDEX INDEX ADVISER SHARES 7/31/2010 $10,000.00 $10,000.00 $10,000.00 8/31/2010 9,529.27 9,553.69 9,242.88 9/30/2010 10,429.00 10,425.42 10,181.90 10/31/2010 10,836.53 10,866.19 10,572.36 11/30/2010 10,899.09 10,906.09 10,594.88 12/31/2010 11,637.93 11,614.04 11,294.92 1/31/2011 11,892.12 11,892.10 11,535.56 2/28/2011 12,325.09 12,301.71 11,858.92 3/31/2011 12,380.68 12,355.43 11,843.03 4/30/2011 12,749.19 12,716.53 12,249.34 5/31/2011 12,603.72 12,540.46 12,091.33 6/30/2011 12,377.37 12,318.96 11,856.29 7/31/2011 12,093.93 12,029.32 11,464.60 8/31/2011 11,368.35 11,173.96 10,726.40 9/30/2011 10,486.22 10,220.62 9,836.31 10/31/2011 11,693.10 11,350.48 11,035.68 11/30/2011 11,661.50 11,283.76 10,945.16 12/31/2011 11,757.35 11,287.94 10,972.69 1/31/2012 12,350.66 11,905.91 11,615.47 2/29/2012 12,873.13 12,421.03 12,114.58 3/31/2012 13,270.23 12,714.99 12,431.21 4/30/2012 13,183.19 12,593.26 12,211.66 5/31/2012 12,368.22 11,730.51 11,257.74 6/30/2012 12,852.62 12,127.27 11,605.30 7/31/2012 12,979.93 12,237.85 11,696.32 8/31/2012 13,303.88 12,558.98 12,098.34 9/30/2012 13,653.24 12,891.45 12,389.98 10/31/2012 13,417.75 12,733.97 12,154.49 11/30/2012 13,521.65 12,894.80 12,200.07 12/31/2012 13,687.36 13,111.05 12,299.97 1/31/2013 14,438.39 13,856.03 12,962.98 2/28/2013 14,629.74 13,988.51 13,046.81 3/31/2013 15,203.03 14,518.63 13,461.18 4/30/2013 15,451.88 14,696.06 13,659.59 5/31/2013 15,816.40 15,069.23 14,125.08 6/30/2013 15,611.25 14,844.19 13,925.21 7/31/2013 16,466.88 15,673.79 14,781.20 8/31/2013 16,007.19 15,259.55 14,376.13 9/30/2013 16,602.28 15,875.29 14,917.60 10/31/2013 17,307.51 16,488.51 15,644.36 11/30/2013 17,809.78 16,929.88 16,202.81 12/31/2013 18,279.65 17,382.35 16,664.88 1/31/2014 17,702.13 16,841.00 16,090.50 2/28/2014 18,541.85 17,635.03 16,810.40 3/31/2014 18,640.27 17,670.55 16,868.28 4/30/2014 18,662.89 17,612.44 16,822.15 5/31/2014 19,070.13 18,010.42 17,268.07 6/30/2014 19,548.45 18,469.56 17,661.32 7/31/2014 19,162.81 18,082.06 17,368.75 8/31/2014 19,966.78 18,776.40 18,107.85 9/30/2014 19,550.58 18,314.90 17,831.45 10/31/2014 20,088.48 18,740.79 18,070.43 11/30/2014 20,575.30 19,129.82 18,479.02 12/31/2014 20,575.07 19,130.90 18,481.06 1/31/2015 20,002.43 18,613.30 17,783.67 2/28/2015 21,160.59 19,682.34 18,882.07 3/31/2015 20,945.47 19,543.89 18,608.20 4/30/2015 21,040.21 19,616.42 18,817.77 5/31/2015 21,331.23 19,909.68 19,236.92 6/30/2015 20,974.35 19,572.29 18,938.40 7/31/2015 21,325.15 19,756.06 19,174.48 8/31/2015 20,037.76 18,611.40 17,976.62 9/30/2015 19,453.87 17,970.06 17,358.12 10/31/2015 20,990.44 19,258.91 18,749.22 11/30/2015 21,106.80 19,370.71 18,827.96 12/31/2015 20,673.57 18,850.14 18,327.67 1/31/2016 19,507.07 17,724.40 16,968.35
[END CHART] Data from 7/31/10 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Growth & Income Fund Adviser Shares to the Fund's benchmarks listed above (see page 7 for benchmark definitions). *The performance of the Russell 3000 Index and the Lipper Multi-Cap Core Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Multi-Cap Core Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o TOP 10 HOLDINGS* - 1/31/16 o (% of Net Assets) Norwegian Cruise Line Holdings Ltd. ..................................... 2.6% Microsoft Corp. ......................................................... 2.1% Facebook, Inc. "A" ...................................................... 2.0% Alphabet, Inc. "A" ...................................................... 1.7% Citigroup, Inc. ......................................................... 1.7% Canadian Pacific Railway Ltd. ........................................... 1.7% Juniper Networks, Inc. .................................................. 1.6% NXP Semiconductors N.V. ................................................. 1.6% Royal Caribbean Cruises Ltd. ............................................ 1.5% American International Group, Inc. ...................................... 1.5%
o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] FINANCIALS 19.4% INFORMATION TECHNOLOGY 19.2% CONSUMER DISCRETIONARY 16.5% INDUSTRIALS 16.0% HEALTH CARE 11.1% CONSUMER STAPLES 5.9% ENERGY 5.5% MATERIALS 3.2% TELECOMMUNICATION SERVICES 1.8% MONEY MARKET INSTRUMENTS 2.0%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 13-20. *Does not include money market instruments. ================================================================================ 12 | USAA GROWTH & INCOME FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (98.6%) COMMON STOCKS (98.6%) CONSUMER DISCRETIONARY (16.5%) ------------------------------ APPAREL, ACCESSORIES & LUXURY GOODS (0.8%) 348,400 Hanesbrands, Inc. $ 10,651 ---------- AUTO PARTS & EQUIPMENT (2.2%) 100,000 BorgWarner, Inc. 2,936 190,930 Delphi Automotive plc 12,399 426,600 Johnson Controls, Inc. 15,302 ---------- 30,637 ---------- CABLE & SATELLITE (0.7%) 171,100 Comcast Corp. "A" 9,532 ---------- CASINOS & GAMING (1.2%) 126,610 Las Vegas Sands Corp. 5,710 548,600 MGM Resorts International* 11,016 ---------- 16,726 ---------- GENERAL MERCHANDISE STORES (1.2%) 52,900 Dollar General Corp. 3,970 172,090 Target Corp. 12,463 ---------- 16,433 ---------- HOME IMPROVEMENT RETAIL (1.0%) 115,890 Home Depot, Inc. 14,574 ---------- HOMEBUILDING (0.6%) 5,055 NVR, Inc.* 8,346 ---------- HOTELS, RESORTS & CRUISE LINES (5.1%) 188,900 Carnival Corp. 9,092 275,100 Hilton Worldwide Holdings, Inc. 4,900 797,100 Norwegian Cruise Line Holdings Ltd.* 36,164 260,300 Royal Caribbean Cruises Ltd. 21,334 ---------- 71,490 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- INTERNET RETAIL (1.7%) 34,810 Amazon.com, Inc.* $ 20,433 38,000 Expedia, Inc. 3,840 ---------- 24,273 ---------- LEISURE FACILITIES (0.6%) 431,800 SeaWorld Entertainment, Inc. 8,230 ---------- MOVIES & ENTERTAINMENT (1.1%) 154,600 Walt Disney Co. 14,814 ---------- SPECIALTY STORES (0.3%) 73,590 Tiffany & Co. 4,698 ---------- Total Consumer Discretionary 230,404 ---------- CONSUMER STAPLES (5.9%) ----------------------- DRUG RETAIL (1.5%) 117,775 CVS Health Corp. 11,376 115,860 Walgreens Boots Alliance, Inc. 9,236 ---------- 20,612 ---------- FOOD RETAIL (0.5%) 180,000 Kroger Co. 6,986 ---------- HOUSEHOLD PRODUCTS (1.0%) 165,715 Procter & Gamble Co. 13,537 ---------- SOFT DRINKS (0.7%) 98,700 PepsiCo, Inc. 9,801 ---------- TOBACCO (2.2%) 189,300 Altria Group, Inc. 11,568 81,500 Philip Morris International, Inc. 7,336 244,626 Reynolds American, Inc. 12,219 ---------- 31,123 ---------- Total Consumer Staples 82,059 ---------- ENERGY (5.5%) ------------- INTEGRATED OIL & GAS (1.9%) 285,700 BP plc ADR 9,248 97,800 Chevron Corp. 8,457 130,600 Occidental Petroleum Corp. 8,989 ---------- 26,694 ---------- OIL & GAS EQUIPMENT & SERVICES (0.7%) 393,200 Fairmount Santrol Holdings Inc.* 963 252,650 Halliburton Co. 8,032 ---------- 8,995 ----------
================================================================================ 14 | USAA GROWTH & INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION (2.5%) 151,540 Cimarex Energy Co. $ 14,093 166,900 ConocoPhillips 6,523 195,000 EOG Resources, Inc. 13,849 ---------- 34,465 ---------- OIL & GAS REFINING & MARKETING (0.4%) 74,100 Phillips 66 5,939 ---------- Total Energy 76,093 ---------- FINANCIALS (19.4%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (2.8%) 179,640 Ameriprise Financial, Inc. 16,284 252,500 Bank of New York Mellon Corp. 9,146 236,400 Invesco Ltd. 7,075 126,700 State Street Corp. 7,061 ---------- 39,566 ---------- CONSUMER FINANCE (3.0%) 116,400 American Express Co. 6,227 300,100 Capital One Financial Corp. 19,693 137,200 Discover Financial Services 6,282 515,720 Navient Corp. 4,930 797,120 SLM Corp.* 5,102 ---------- 42,234 ---------- DIVERSIFIED BANKS (4.8%) 1,384,900 Bank of America Corp. 19,582 557,200 Citigroup, Inc. 23,726 188,955 JPMorgan Chase & Co. 11,243 232,935 Wells Fargo & Co. 11,700 ---------- 66,251 ---------- INVESTMENT BANKING & BROKERAGE (2.0%) 397,900 Charles Schwab Corp. 10,158 265,900 E*Trade Financial Corp.* 6,265 430,700 Morgan Stanley 11,147 ---------- 27,570 ---------- MULTI-LINE INSURANCE (1.5%) 375,115 American International Group, Inc. 21,186 ---------- REGIONAL BANKS (2.3%) 370,300 Fifth Third Bancorp 5,851 289,100 First Niagara Financial Group, Inc. 2,830 706,100 KeyCorp 7,880
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- 490,000 People's United Financial, Inc. $ 7,041 103,250 PNC Financial Services Group, Inc. 8,947 ---------- 32,549 ---------- SPECIALIZED FINANCE (2.4%) 177,070 CME Group, Inc. 15,910 67,020 Intercontinental Exchange, Inc. 17,680 ---------- 33,590 ---------- THRIFTS & MORTGAGE FINANCE (0.6%) 538,300 New York Community Bancorp, Inc. 8,333 ---------- Total Financials 271,279 ---------- HEALTH CARE (11.1%) ------------------- BIOTECHNOLOGY (1.2%) 98,300 AbbVie, Inc. 5,396 58,280 Amgen, Inc. 8,901 30,600 Gilead Sciences, Inc. 2,540 ---------- 16,837 ---------- HEALTH CARE DISTRIBUTORS (1.0%) 88,700 Cardinal Health, Inc. 7,218 45,000 McKesson Corp. 7,244 ---------- 14,462 ---------- HEALTH CARE EQUIPMENT (2.0%) 536,000 Hologic, Inc.* 18,192 137,200 Medtronic plc 10,416 ---------- 28,608 ---------- MANAGED HEALTH CARE (2.2%) 50,428 Anthem, Inc. 6,580 62,260 Cigna Corp. 8,318 131,600 UnitedHealth Group, Inc. 15,155 ---------- 30,053 ---------- PHARMACEUTICALS (4.7%) 50,615 Allergan plc* 14,396 168,000 Johnson & Johnson 17,546 135,575 Merck & Co., Inc. 6,870 320,682 Pfizer, Inc. 9,778 205,800 Sanofi ADR 8,569 129,600 Teva Pharmaceutical Industries Ltd. ADR 7,968 ---------- 65,127 ---------- Total Health Care 155,087 ----------
================================================================================ 16 | USAA GROWTH & INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- INDUSTRIALS (16.0%) ------------------- AEROSPACE & DEFENSE (5.5%) 65,360 Boeing Co. $ 7,852 49,300 General Dynamics Corp. 6,595 130,130 Honeywell International, Inc. 13,430 57,500 Raytheon Co. 7,374 643,000 Rolls-Royce Holdings plc ADR 5,163 456,000 Spirit AeroSystems Holdings, Inc. "A"* 19,334 42,580 TransDigm Group, Inc.* 9,569 94,405 United Technologies Corp. 8,278 ---------- 77,595 ---------- AGRICULTURAL & FARM MACHINERY (0.4%) 69,200 Deere & Co. 5,329 ---------- AIR FREIGHT & LOGISTICS (0.6%) 62,055 FedEx Corp. 8,246 ---------- AIRLINES (1.8%) 287,625 Southwest Airlines Co. 10,821 293,380 United Continental Holdings, Inc.* 14,164 ---------- 24,985 ---------- BUILDING PRODUCTS (0.8%) 253,600 Owens Corning, Inc. 11,714 ---------- CONSTRUCTION & ENGINEERING (0.3%) 300,400 KBR, Inc. 4,283 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (0.3%) 96,472 Eaton Corp. plc 4,873 ---------- ENVIRONMENTAL & FACILITIES SERVICES (0.6%) 186,700 Republic Services, Inc. 8,159 ---------- INDUSTRIAL CONGLOMERATES (0.7%) 331,556 General Electric Co. 9,648 ---------- INDUSTRIAL MACHINERY (1.4%) 100,000 Illinois Tool Works, Inc. 9,007 55,500 SPX Flow, Inc.* 1,323 101,800 Stanley Black & Decker, Inc. 9,604 ---------- 19,934 ---------- RAILROADS (2.3%) 193,800 Canadian Pacific Railway Ltd. 23,204 120,790 Kansas City Southern 8,561 ---------- 31,765 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- RESEARCH & CONSULTING SERVICES (0.7%) 193,600 Nielsen Holdings plc $ 9,324 ---------- SECURITY & ALARM SERVICES (0.6%) 239,800 Tyco International plc 8,247 ---------- Total Industrials 224,102 ---------- INFORMATION TECHNOLOGY (19.2%) ------------------------------ APPLICATION SOFTWARE (1.2%) 122,200 Adobe Systems, Inc.* 10,892 90,000 Citrix Systems, Inc.* 6,341 ------------ 17,233 ---------- COMMUNICATIONS EQUIPMENT (2.3%) 943,600 Juniper Networks, Inc. 22,269 226,300 QUALCOMM, Inc. 10,260 ---------- 32,529 ---------- DATA PROCESSING & OUTSOURCED SERVICES (1.3%) 16,000 Alliance Data Systems Corp.* 3,197 195,960 Visa, Inc. "A" 14,597 ---------- 17,794 ---------- INTERNET SOFTWARE & SERVICES (3.7%) 31,416 Alphabet, Inc. "A"* 23,918 245,100 Facebook, Inc. "A"* 27,503 ---------- 51,421 ---------- IT CONSULTING & OTHER SERVICES (0.2%) 40,000 Cognizant Technology Solutions Corp. "A"* 2,532 ---------- SEMICONDUCTOR EQUIPMENT (0.9%) 524,500 Applied Materials, Inc. 9,257 55,000 Lam Research Corp. 3,949 ---------- 13,206 ---------- SEMICONDUCTORS (5.2%) 367,000 Broadcom Corp. "A" 20,064 424,200 Intel Corp. 13,159 182,800 Microchip Technology, Inc. 8,191 292,245 NXP Semiconductors N.V.* 21,854 185,600 Texas Instruments, Inc. 9,824 ---------- 73,092 ----------
================================================================================ 18 | USAA GROWTH & INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- SYSTEMS SOFTWARE (3.5%) 522,935 Microsoft Corp. $ 28,808 560,065 Oracle Corp. 20,336 ---------- 49,144 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.9%) 121,950 Apple, Inc. 11,871 ---------- Total Information Technology 268,822 ---------- MATERIALS (3.2%) ---------------- CONSTRUCTION MATERIALS (1.7%) 366,000 CRH plc ADR 9,853 156,190 Vulcan Materials Co. 13,776 ---------- 23,629 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.9%) 197,400 FMC Corp. 7,051 56,000 Monsanto Co. 5,074 ---------- 12,125 ---------- INDUSTRIAL GASES (0.6%) 68,500 Air Products & Chemicals, Inc. 8,679 ---------- Total Materials 44,433 ---------- TELECOMMUNICATION SERVICES (1.8%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (0.7%) 192,640 Verizon Communications, Inc. 9,626 ---------- WIRELESS TELECOMMUNICATION SERVICES (1.1%) 286,500 T-Mobile US, Inc.* 11,503 135,727 Vodafone Group plc ADR 4,371 ---------- 15,874 ---------- Total Telecommunication Services 25,500 ---------- Total Common Stocks 1,377,779 ---------- Total Equity Securities (cost: $1,201,521) 1,377,779 ---------- MONEY MARKET INSTRUMENTS (2.0%) MONEY MARKET FUNDS (2.0%) 28,206,726 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a) (cost: $28,207) 28,207 ---------- TOTAL INVESTMENTS (COST: $1,229,728) $1,405,986 ==========
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL ------------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $1,377,779 $- $- $1,377,779 Money Market Instruments: Money Market Funds 28,207 - - 28,207 ------------------------------------------------------------------------------------------------------------- Total $1,405,986 $- $- $1,405,986 -------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 20 | USAA GROWTH & INCOME FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 7.3% of net assets at January 31, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 21 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $1,229,728) $1,405,986 Receivables: Capital shares sold 5,641 USAA Asset Management Company (Note 6D) 1 Dividends and interest 1,094 Securities sold 655 ---------- Total assets 1,413,377 ---------- LIABILITIES Payables: Securities purchased 14,125 Capital shares redeemed 499 Accrued management fees 765 Accrued transfer agent's fees 68 Other accrued expenses and payables 79 ---------- Total liabilities 15,536 ---------- Net assets applicable to capital shares outstanding $1,397,841 ========== NET ASSETS CONSIST OF: Paid-in capital $1,249,200 Accumulated undistributed net investment income 247 Accumulated net realized loss on investments (27,864) Net unrealized appreciation of investments 176,258 ---------- Net assets applicable to capital shares outstanding $1,397,841 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,285,487/69,848 shares outstanding) $ 18.40 ========== Institutional Shares (net assets of $104,720/5,693 shares outstanding) $ 18.39 ========== Adviser Shares (net assets of $7,634/416 shares outstanding) $ 18.35 ==========
See accompanying notes to financial statements. ================================================================================ 22 | USAA GROWTH & INCOME FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $34) $ 13,166 Interest 36 -------- Total income 13,202 -------- EXPENSES Management fees 4,734 Administration and servicing fees: Fund Shares 1,122 Institutional Shares* 4 Adviser Shares 6 Transfer agent's fees: Fund Shares 1,074 Institutional Shares* 4 Adviser Shares 1 Distribution and service fees (Note 6F): Adviser Shares 11 Custody and accounting fees: Fund Shares 95 Adviser Shares 1 Postage: Fund Shares 64 Shareholder reporting fees: Fund Shares 27 Trustees' fees 13 Registration fees: Fund Shares 22 Institutional Shares* 9 Adviser Shares 11 Professional fees 60 Other 14 -------- Total expenses 7,272 Expenses reimbursed: Institutional Shares* (9) Adviser Shares (5) -------- Net expenses 7,258 -------- NET INVESTMENT INCOME 5,944 --------
*Institutional Shares commenced operations on August 7, 2015. ================================================================================ FINANCIAL STATEMENTS | 23 ================================================================================ NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY Net realized loss on: Investments (22,913) Foreign currency transactions (1) Change in net unrealized appreciation/(depreciation) (163,313) --------- Net realized and unrealized loss (186,227) --------- Decrease in net assets resulting from operations $(180,283) =========
See accompanying notes to financial statements. ================================================================================ 24 | USAA GROWTH & INCOME FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
------------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 ------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 5,944 $ 10,517 Net realized gain (loss) on investments (22,913) 98,872 Net realized loss on foreign currency transactions (1) (5) Change in net unrealized appreciation/ (depreciation) of investments (163,313) 51,091 ----------------------------- Increase (decrease) in net assets resulting from operations (180,283) 160,475 ----------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (5,657) (12,643) Institutional Shares* (20) - Adviser Shares (18) (45) ----------------------------- Total distributions of net investment income (5,695) (12,688) ----------------------------- Net realized gains: Fund Shares (79,462) (183,949) Institutional Shares* (252) - Adviser Shares (461) (1,135) ----------------------------- Total distributions of net realized gains (80,175) (185,084) ----------------------------- Distributions to shareholders (85,870) (197,772) ----------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (32,409) 105,598 Institutional Shares* 103,932 - Adviser Shares 20 50 ----------------------------- Total net increase in net assets from capital share transactions 71,543 105,648 ----------------------------- Net increase (decrease) in net assets (194,610) 68,351 NET ASSETS Beginning of period 1,592,451 1,524,100 ----------------------------- End of period $1,397,841 $1,592,451 ============================= Accumulated undistributed (overdistribution of) net investment income: End of period $ 247 $ (2) =============================
*Institutional Shares commenced operations on August 7, 2015. See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 25 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Growth & Income Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objectives are to seek capital growth and, secondarily, current income. The Fund consists of three classes of shares: Growth & Income Fund Shares (Fund Shares), Growth & Income Fund Adviser Shares (Adviser Shares), and effective August 7, 2015, a new share class designated Growth & Income Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, ================================================================================ 26 | USAA GROWTH & INCOME FUND ================================================================================ foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser(s) will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser(s) have agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. ================================================================================ 28 | USAA GROWTH & INCOME FUND ================================================================================ 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 6. Repurchase agreements are valued at cost. 7. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes ================================================================================ 30 | USAA GROWTH & INCOME FUND ================================================================================ have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. ================================================================================ 32 | USAA GROWTH & INCOME FUND ================================================================================ For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $4,000, which represents 2.1% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income are made quarterly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $200,268,000 and $202,076,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $256,949,000 and $80,691,000, respectively, resulting in net unrealized appreciation of $176,258,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 -------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------ FUND SHARES: Shares sold 3,072 $ 62,425 6,888 $ 151,852 Shares issued from reinvested dividends 4,163 83,881 9,062 193,462 Shares redeemed (9,355) (178,715) (10,934) (239,716) ------------------------------------------------------------ Net increase (decrease) from capital share transactions (2,120) $ (32,409) 5,016 $ 105,598 ============================================================ INSTITUTIONAL SHARES (COMMENCED ON AUGUST 7, 2015): Shares sold 5,693 $ 103,932 - $ - Shares issued from reinvested dividends - - - - Shares redeemed - - - - ------------------------------------------------------------ Net increase from capital share transactions 5,693 $ 103,932 - $ - ============================================================ ADVISER SHARES: Shares sold 2 $ 40 7 $ 143 Shares issued from reinvested dividends 1 18 2 38 Shares redeemed (2) (38) (6) (131) ------------------------------------------------------------ Net increase from capital share transactions 1 $ 20 3 $ 50 ============================================================
================================================================================ 34 | USAA GROWTH & INCOME FUND ================================================================================ (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of a portion of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.60% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Multi-Cap Core Funds Index. The Lipper Multi-Cap Core Funds Index tracks the total return performance of the 30 largest funds within the Lipper Multi-Cap Core Funds category. For the Fund Shares and Adviser Shares, the performance period consists of the current month plus the previous 35 months. The performance period for the Institutional Shares commenced on August 7, 2015, and includes the performance of the Fund Shares for ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ periods prior to August 7, 2015. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ---------------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance) or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Multi-Cap Core Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares, the Fund incurred total management fees, paid or payable to the Manager, of $4,734,000, which included a performance adjustment for the Fund Shares, Institutional Shares, and Adviser Shares of $199,000, less than $500, and $1,000, respectively. For the Fund Shares, Institutional Shares, and Adviser Shares, the performance adjustments were 0.03%, less than 0.01%, and 0.01%, respectively. B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into an Investment Subadvisory Agreement with Barrow, Hanley, Mewhinney & Strauss, ================================================================================ 36 | USAA GROWTH & INCOME FUND ================================================================================ LLC (BHMS), under which BHMS directs the investment and reinvestment of a portion of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays BHMS a subadvisory fee based on the aggregate net assets that BHMS manages in the USAA Value Fund and the USAA Growth & Income Fund combined, in an annual amount of 0.75% on the first $15 million of assets, 0.55% on assets over $15 million and up to $25 million, 0.45% on assets over $25 million and up to $100 million, 0.35% on assets over $100 million and up to $200 million, 0.25% on assets over $200 million and up to $1 billion, and 0.15% on assets over $1 billion. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to BHMS, of $664,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and Adviser Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016 (and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares), for the Fund Shares, Institutional Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,122,000, $4,000, and $6,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $19,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. EXPENSE LIMITATION - The Manager agreed, through December 1, 2016, to limit the total annual operating expenses of the Institutional Shares and Adviser Shares to 0.85% and 1.20%, respectively, of their average net ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Institutional Shares and the Adviser Shares for all expenses in excess of that amount. This expense limitation arrangement may not be changed or terminated through December 1, 2016, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended January 31, 2016 (and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares), Institutional Shares, and Adviser Shares incurred reimbursable expenses from the Manager of $9,000 and $5,000, respectively, of which $1,000 was receivable from the Manager. E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016 (and for the period from August 7, 2015, to January 31, 2016, for the Institutional Shares), the Fund Shares, Institutional Shares, and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $1,074,000, $4,000, and $1,000, respectively. F. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an ================================================================================ 38 | USAA GROWTH & INCOME FUND ================================================================================ initial sales charge or a contingent deferred sales charge. For the six- month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $11,000. G. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 226,000 Institutional Shares and 398,000 Adviser Shares, which represents 4.0% of the Institutional Shares, 95.6% of the Adviser Shares, and 0.8% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 22.00 $ 22.63 $ 19.39 $ 15.44 $ 15.24 $ 13.06 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .08 .17 .21 .18 .14 .11 Net realized and unrealized gain (loss) (2.49) 2.14 3.24 3.95 .20 2.17 ----------------------------------------------------------------------------------- Total from investment operations (2.41) 2.31 3.45 4.13 .34 2.28 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.08) (.18) (.21) (.18) (.14) (.10) Realized capital gains (1.11) (2.76) - - - - ----------------------------------------------------------------------------------- Total distributions (1.19) (2.94) (.21) (.18) (.14) (.10) ----------------------------------------------------------------------------------- Net asset value at end of period $ 18.40 $ 22.00 $ 22.63 $ 19.39 $ 15.44 $ 15.24 =================================================================================== Total return (%)* (11.41) 10.70 17.86 26.90 2.28 17.50 Net assets at end of period (000) $1,285,487 $1,583,353 $1,514,795 $1,418,296 $1,152,540 $1,153,199 Ratios to average net assets:** Expenses (%)(a) .96(d) .93 .94 .96 1.01 .98 Net investment income (%) .79(d) .66 .97 1.04 .93 .72 Portfolio turnover (%) 14 35 61(c) 112(b) 51 52 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,484,483,000. (a) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: - - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (b) Reflects increased trading activity due to changes in subadviser(s). (c) Reflects decreased trading activity due to changes in subadviser(s). (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 40 | USAA GROWTH & INCOME FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
PERIOD ENDED JANUARY 31, 2016*** ------------------- Net asset value at beginning of period $ 21.83 -------- Income (loss) from investment operations: Net investment income(b) .03 Net realized and unrealized loss(b) (2.27) -------- Total from investment operations(b) (2.24) -------- Less distributions from: Net investment income (.09) Realized capital gains (1.11) -------- Total distributions (1.20) -------- Net asset value at end of period $ 18.39 ======== Total return (%)* (11.79) Net assets at end of period (000) $104,720 Ratios to average net assets:** Expenses (%)(a) .79 Expenses, excluding reimbursements (%)(a) 1.02 Net investment income (%)(a) .65 Portfolio turnover (%) 14 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the period ended January 31, 2016, average net assets were $8,391,000. *** Institutional Shares commenced operations on August 7, 2015. (a) Annualized. The ratio is not necessarily indicative of 12 months of operations. (b) Calculated using average shares. For the six-month period ended January 31, 2016, the average shares were 1,007,000.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, JULY 31, ---------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011*** ---------------------------------------------------------------------------------- Net asset value at beginning of period $ 21.93 $22.56 $19.34 $15.42 $15.22 $13.34 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .06(f) .10 .15 .12 .10 .05 Net realized and unrealized gain (loss) (2.49)(f) 2.14 3.23 3.93 .20 1.90 ----------------------------------------------------------------------------- Total from investment operations (2.43)(f) 2.24 3.38 4.05 .30 1.95 ----------------------------------------------------------------------------- Less distributions from: Net investment income (.04) (.11) (.16) (.13) (.10) (.07) Realized capital gains (1.11) (2.76) - - - - ----------------------------------------------------------------------------- Total distributions (1.15) (2.87) (.16) (.13) (.10) (.07) ----------------------------------------------------------------------------- Net asset value at end of period $ 18.35 $21.93 $22.56 $19.34 $15.42 $15.22 ============================================================================= Total return (%)* (11.51) 10.40 17.51 26.37 2.02 14.65 Net assets at end of period (000) $ 7,634 $9,098 $9,305 $7,919 $6,223 $6,151 Ratios to average net assets:** Expenses (%)(a) 1.20(b) 1.22(e) 1.22 1.30 1.30 1.30(b) Expenses, excluding reimbursements (%)(a) 1.31(b) 1.27 1.22 1.39 1.43 1.83(b) Net investment income (%) .55(b) .37 .70 .70 .64 .35(b) Portfolio turnover (%) 14 35 61(d) 112(c) 51 52 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $8,464,000. *** Adviser Shares commenced operations on August 1, 2010. (a) Reflects total operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios as follows: - - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. (c) Reflects increased trading activity due to changes in subadviser(s). (d) Reflects decreased trading activity due to changes in subadviser(s). (e) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 1.30% of the Adviser Shares' average net assets. (f) Calculated using average shares. For the six-month period ended January 31, 2016, the average shares were 415,000.
================================================================================ 42 | USAA GROWTH & INCOME FUND ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ EXPENSE EXAMPLE | 43 ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD** ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 885.90 $4.55 Hypothetical (5% return before expenses) 1,000.00 1,020.31 4.88 INSTITUTIONAL SHARES* Actual 1,000.00 882.10 3.53 Hypothetical (5% return before expenses) 1,000.00 1,020.01 3.79 ADVISER SHARES Actual 1,000.00 884.90 5.69 Hypothetical (5% return before expenses) 1,000.00 1,019.10 6.09
*Institutional Shares commenced operations on August 7, 2015. **Expenses are equal to the annualized expense ratio of 0.96% for Fund Shares, 0.79% for Institutional Shares, and 1.20% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days for Fund Shares and Adviser Shares (to reflect the one-half-year period) or 174 days/366 days for Institutional Shares (to reflect the current period beginning with the Institutional Shares' inception date). The Fund's actual ending account values are based on its actual total returns of (11.41)% for Fund Shares and (11.51)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016, and (11.79)% for Institutional Shares for the period of August 7, 2015, through January 31, 2016. ================================================================================ 44 | USAA GROWTH & INCOME FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23432-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA HIGH INCOME FUND] ============================================================== SEMIANNUAL REPORT USAA HIGH INCOME FUND FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 8 FINANCIAL INFORMATION Portfolio of Investments 17 Notes to Portfolio of Investments 39 Financial Statements 43 Notes to Financial Statements 47 EXPENSE EXAMPLE 66
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202741-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA HIGH INCOME FUND (THE FUND) SEEKS TO PROVIDE AN ATTRACTIVE TOTAL RETURN PRIMARILY THROUGH HIGH CURRENT INCOME AND SECONDARILY THROUGH CAPITAL APPRECIATION. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund primarily invests its assets in a broad range of U.S. dollar- denominated high-yield securities, including bonds (often referred to as "junk" bonds), convertible securities, leveraged loans, or preferred stocks, with an emphasis on non-investment-grade debt securities. Although the Fund will invest primarily in U.S. securities, it may invest without limit in dollar-denominated foreign securities and to a limited extent in non-dollar-denominated foreign securities, including in each case emerging markets securities. The Fund also may use derivatives or various other investment techniques to increase or decrease its exposure to changing security prices or other factors that affect security prices. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF R. MATTHEW FREUND] [PHOTO OF JULIANNE BASS] R. MATTHEW FREUND, CFA JULIANNE BASS, CFA USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD? Longer-term interest rates fell during the reporting period ended January 31, 2016, pushed lower by economic uncertainty. China was at the epicenter of concern, as that country's slowing pace of growth threatened to hinder the broader global economy. Investors also worried about plummeting oil and commodity prices, which are widely considered to be evidence of global economic weakness. In the United States, economic data was mixed during the reporting period, with slower-than-expected growth in the fourth quarter of 2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from 2.85% to 2.74%, during the reporting period. These lower yields tend to reflect changing expectations about the U.S. economy. Shorter-term interest rates, which are more correlated to action by the Federal Reserve (the Fed), rose during the reporting period in anticipation of an interest rate increase. In December 2015, the Fed lifted the target federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it intended to proceed gradually with interest rate increases based on the performance of the U.S. economy. In January 2016, the Fed chose not to raise interest rates amid increased uncertainty about financial and economic conditions. In this environment, the U.S. Treasury yield curve experienced a "bear flattening." In a bear flattening, short-term interest rates increase faster than longer-term interest rates (though during the reporting period, ================================================================================ 2 | USAA HIGH INCOME FUND ================================================================================ o 10-YEAR TREASURY YIELDS o [CHART OF 10-YEAR TREASURY YIELDS]
DATE YIELD IN PERCENT 7/31/2015 2.18 8/3/2015 2.15 8/4/2015 2.22 8/5/2015 2.27 8/6/2015 2.22 8/7/2015 2.16 8/10/2015 2.23 8/11/2015 2.14 8/12/2015 2.15 8/13/2015 2.19 8/14/2015 2.20 8/17/2015 2.17 8/18/2015 2.19 8/19/2015 2.13 8/20/2015 2.07 8/21/2015 2.04 8/24/2015 2.00 8/25/2015 2.07 8/26/2015 2.18 8/27/2015 2.18 8/28/2015 2.18 8/31/2015 2.22 9/1/2015 2.15 9/2/2015 2.18 9/3/2015 2.16 9/4/2015 2.12 9/7/2015 2.12 9/8/2015 2.18 9/9/2015 2.20 9/10/2015 2.22 9/11/2015 2.19 9/14/2015 2.18 9/15/2015 2.29 9/16/2015 2.29 9/17/2015 2.19 9/18/2015 2.13 9/21/2015 2.20 9/22/2015 2.13 9/23/2015 2.15 9/24/2015 2.13 9/25/2015 2.16 9/28/2015 2.09 9/29/2015 2.05 9/30/2015 2.04 10/1/2015 2.04 10/2/2015 1.99 10/5/2015 2.06 10/6/2015 2.03 10/7/2015 2.07 10/8/2015 2.10 10/9/2015 2.09 10/12/2015 2.09 10/13/2015 2.04 10/14/2015 1.97 10/15/2015 2.02 10/16/2015 2.03 10/19/2015 2.02 10/20/2015 2.07 10/21/2015 2.02 10/22/2015 2.03 10/23/2015 2.09 10/26/2015 2.06 10/27/2015 2.04 10/28/2015 2.10 10/29/2015 2.17 10/30/2015 2.14 11/2/2015 2.17 11/3/2015 2.21 11/4/2015 2.23 11/5/2015 2.23 11/6/2015 2.33 11/9/2015 2.34 11/10/2015 2.34 11/11/2015 2.33 11/12/2015 2.31 11/13/2015 2.27 11/16/2015 2.27 11/17/2015 2.27 11/18/2015 2.27 11/19/2015 2.25 11/20/2015 2.26 11/23/2015 2.24 11/24/2015 2.24 11/25/2015 2.23 11/26/2015 2.23 11/27/2015 2.22 11/30/2015 2.21 12/1/2015 2.14 12/2/2015 2.18 12/3/2015 2.31 12/4/2015 2.27 12/7/2015 2.23 12/8/2015 2.22 12/9/2015 2.22 12/10/2015 2.23 12/11/2015 2.13 12/14/2015 2.22 12/15/2015 2.27 12/16/2015 2.30 12/17/2015 2.22 12/18/2015 2.20 12/21/2015 2.19 12/22/2015 2.24 12/23/2015 2.25 12/24/2015 2.24 12/25/2015 2.24 12/28/2015 2.23 12/29/2015 2.31 12/30/2015 2.29 12/31/2015 2.27 1/1/2016 2.27 1/4/2016 2.24 1/5/2016 2.24 1/6/2016 2.17 1/7/2016 2.15 1/8/2016 2.12 1/11/2016 2.18 1/12/2016 2.10 1/13/2016 2.09 1/14/2016 2.09 1/15/2016 2.03 1/18/2016 2.03 1/19/2016 2.06 1/20/2016 1.98 1/21/2016 2.03 1/22/2016 2.05 1/25/2016 2.00 1/26/2016 1.99 1/27/2016 2.00 1/28/2016 1.98 1/29/2016 1.92
[END CHART] Source: Bloomberg Finance L.P. longer-term interest rates actually trended down), thereby creating a flatter yield curve. This generally indicates that investor sentiment is becoming more "bearish." As longer-term interest rates fell, the prices of longer-maturity securities edged up (bond prices and yields move in opposite directions). Credit spreads widened across the credit spectrum, with single A, BBB, and below investment-grade "high-yield" spreads widening 19 basis points, 58 basis points, and 221 basis points, respectively. A basis point is 1/100th of a percent. Spreads (yield differentials versus U.S. Treasury securities of comparable maturity) generally are considered an indication of risk; the wider the spread, the greater the risk. High-yield bond prices, which have historically weakened when economic growth decelerates, dropped during the reporting period. Interestingly, a decline in the high-yield bond market often precedes a fall in U.S. stock prices. As can be seen in the comparative returns chart, ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ o U.S. TREASURY YIELD CURVE o [CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD --------------------------------- (CHANGE IN MATURITY 7/01/15 1/31/16 BASIS POINTS) 1M 0.008 0.221 21.4 3M 0.018 0.313 29.5 6M 0.114 0.428 31.3 1Y 0.273 0.451 17.9 2Y 0.69 0.776 8.5 3Y 1.064 0.968 -9.7 5Y 1.706 1.329 -37.7 7Y 2.146 1.668 -47.7 10Y 2.423 1.922 -50.1 30Y 3.202 2.744 -45.8
[END CHART] Source: Bloomberg Finance L.P. high-yield bonds underperformed stocks until January 2016, when stocks fell and began to exhibit performance similar to high-yield bonds. Overall, during the reporting period, high-yield securities underperformed both stocks and intermediate-term treasury bonds - a departure from the asset class' long-term track record. Historically, high-yield securities tend to perform between stocks and high-quality bonds, with generally less volatility. High-yield bonds were pressured by the steep drop in oil prices and the deteriorating outlook for energy companies, especially exploration and production companies. Weakness in the metals and mining sector, driven by falling commodity prices, also negatively affected the performance of high-yield bonds. ================================================================================ 4 | USAA HIGH INCOME FUND ================================================================================ o THREE-YEAR COMPARATIVE RETURNS o [CHART OF THREE-YEAR COMPARATIVE RETURNS]
CITI U.S. TREASURY S&P 500 10-YEAR USAA HIGH DATE INDEX DATE INDEX DATE INCOME FUND 1/31/2016 0.00% 1/31/2013 0.00% 1/31/2013 0.00% 2/1/2013 1.01 2/1/2013 -0.24 2/1/2013 0.23 2/4/2013 -0.16 2/4/2013 0.14 2/4/2013 0 2/5/2013 0.9 2/5/2013 -0.21 2/5/2013 0.11 2/6/2013 0.96 2/6/2013 0.21 2/6/2013 0.11 2/7/2013 0.82 2/7/2013 0.35 2/7/2013 0 2/8/2013 1.39 2/8/2013 0.32 2/8/2013 0 2/11/2013 1.34 2/11/2013 0.4 2/11/2013 0 2/12/2013 1.5 2/12/2013 0.08 2/12/2013 0.11 2/13/2013 1.61 2/13/2013 -0.23 2/13/2013 0.23 2/14/2013 1.69 2/14/2013 0.19 2/14/2013 0.34 2/15/2013 1.6 2/15/2013 0.15 2/15/2013 0.46 2/21/2013 0.48 2/21/2013 0.44 2/21/2013 0.46 2/22/2013 1.37 2/22/2013 0.52 2/22/2013 0.57 2/25/2013 -0.48 2/25/2013 1.17 2/25/2013 0.57 2/26/2013 0.14 2/26/2013 1.32 2/26/2013 0.62 2/27/2013 1.44 2/27/2013 1.11 2/27/2013 0.74 2/28/2013 1.36 2/28/2013 1.26 2/28/2013 0.85 3/1/2013 1.59 3/1/2013 1.58 3/1/2013 0.97 3/4/2013 2.06 3/4/2013 1.39 3/4/2013 0.97 3/5/2013 3.04 3/5/2013 1.24 3/5/2013 1.08 3/6/2013 3.18 3/6/2013 0.84 3/6/2013 1.2 3/7/2013 3.38 3/7/2013 0.36 3/7/2013 1.31 3/8/2013 3.85 3/8/2013 -0.21 3/8/2013 1.43 3/11/2013 4.2 3/11/2013 -0.21 3/11/2013 1.54 3/12/2013 3.95 3/12/2013 0.1 3/12/2013 1.65 3/13/2013 4.13 3/13/2013 0.14 3/13/2013 1.65 3/14/2013 4.71 3/14/2013 0 3/14/2013 1.88 3/15/2013 4.54 3/15/2013 0.34 3/15/2013 1.88 3/18/2013 3.97 3/18/2013 0.75 3/18/2013 1.88 3/19/2013 3.72 3/19/2013 1.18 3/19/2013 1.88 3/20/2013 4.41 3/20/2013 0.92 3/20/2013 1.88 3/21/2013 3.55 3/21/2013 0.98 3/21/2013 1.88 3/22/2013 4.29 3/22/2013 1.15 3/22/2013 2 3/25/2013 3.94 3/25/2013 1.15 3/25/2013 2 3/26/2013 4.79 3/26/2013 1.23 3/26/2013 2 3/27/2013 4.73 3/27/2013 1.74 3/27/2013 2.01 3/28/2013 5.16 3/28/2013 1.66 3/28/2013 2.13 4/1/2013 4.69 4/1/2013 1.86 4/1/2013 2.13 4/3/2013 4.15 4/3/2013 2.12 4/3/2013 2.24 4/5/2013 4.13 4/5/2013 3.22 4/5/2013 2.36 4/8/2013 4.82 4/8/2013 2.87 4/8/2013 2.36 4/9/2013 5.19 4/9/2013 2.74 4/9/2013 2.47 4/10/2013 6.48 4/10/2013 2.24 4/10/2013 2.7 4/11/2013 6.87 4/11/2013 2.37 4/11/2013 2.93 4/12/2013 6.56 4/12/2013 2.99 4/12/2013 2.93 4/15/2013 4.12 4/15/2013 3.19 4/15/2013 2.7 4/16/2013 5.61 4/16/2013 3.05 4/16/2013 2.82 4/17/2013 4.09 4/17/2013 3.21 4/17/2013 2.7 4/18/2013 3.4 4/18/2013 3.38 4/18/2013 2.7 4/19/2013 4.32 4/19/2013 3.19 4/19/2013 2.82 4/22/2013 4.81 4/22/2013 3.26 4/22/2013 2.93 4/23/2013 5.9 4/23/2013 3.26 4/23/2013 3.05 4/24/2013 5.91 4/24/2013 3.28 4/24/2013 3.28 4/25/2013 6.34 4/25/2013 3.16 4/25/2013 3.39 4/26/2013 6.15 4/26/2013 3.58 4/26/2013 3.53 4/29/2013 6.92 4/29/2013 3.58 4/29/2013 3.76 4/30/2013 7.18 4/30/2013 3.52 4/30/2013 3.88 5/1/2013 6.19 5/1/2013 3.89 5/1/2013 4.11 5/2/2013 7.2 5/2/2013 3.95 5/2/2013 4.22 5/3/2013 8.34 5/3/2013 2.92 5/3/2013 4.45 5/6/2013 8.55 5/6/2013 2.66 5/6/2013 4.57 5/7/2013 9.12 5/7/2013 2.57 5/7/2013 4.8 5/8/2013 9.62 5/8/2013 2.77 5/8/2013 4.92 5/9/2013 9.27 5/9/2013 2.72 5/9/2013 5.03 5/10/2013 9.74 5/10/2013 1.95 5/10/2013 4.92 5/13/2013 9.76 5/13/2013 1.78 5/13/2013 4.8 5/14/2013 10.89 5/14/2013 1.48 5/14/2013 4.8 5/15/2013 11.49 5/15/2013 1.59 5/15/2013 4.8 5/16/2013 10.94 5/16/2013 2.26 5/16/2013 4.8 5/17/2013 12.09 5/17/2013 1.52 5/17/2013 4.92 5/20/2013 12.01 5/20/2013 1.44 5/20/2013 4.92 5/21/2013 12.2 5/21/2013 1.64 5/21/2013 5.03 5/22/2013 11.29 5/22/2013 0.89 5/22/2013 4.92 5/23/2013 10.98 5/23/2013 0.92 5/23/2013 4.69 5/24/2013 10.92 5/24/2013 1.04 5/24/2013 4.69 5/28/2013 11.63 5/28/2013 -0.03 5/28/2013 4.57 5/29/2013 10.86 5/29/2013 0.02 5/29/2013 4.16 5/31/2013 9.69 5/31/2013 -0.31 5/31/2013 3.93 6/3/2013 10.35 6/3/2013 -0.02 6/3/2013 3.69 6/5/2013 8.26 6/5/2013 0.28 6/5/2013 3 6/6/2013 9.2 6/6/2013 0.53 6/6/2013 3 6/7/2013 10.6 6/7/2013 -0.24 6/7/2013 3.35 6/10/2013 10.57 6/10/2013 -0.71 6/10/2013 3.23 6/11/2013 9.45 6/11/2013 -0.51 6/11/2013 2.65 6/12/2013 8.56 6/12/2013 -0.83 6/12/2013 2.42 6/13/2013 10.18 6/13/2013 -0.34 6/13/2013 2.42 6/14/2013 9.53 6/14/2013 0.13 6/14/2013 2.65 6/17/2013 10.36 6/17/2013 -0.3 6/17/2013 2.88 6/18/2013 11.22 6/18/2013 -0.38 6/18/2013 3 6/19/2013 9.68 6/19/2013 -1.57 6/19/2013 2.77 6/20/2013 6.96 6/20/2013 -2.45 6/20/2013 1.61 6/21/2013 7.24 6/21/2013 -3.29 6/21/2013 1.26 6/24/2013 5.94 6/24/2013 -3.53 6/24/2013 0.45 6/25/2013 6.96 6/25/2013 -3.92 6/25/2013 0.33 6/26/2013 8 6/26/2013 -3.48 6/26/2013 0.57 6/27/2013 8.68 6/27/2013 -2.94 6/27/2013 1.04 6/28/2013 8.22 6/28/2013 -2.92 6/28/2013 1.27 7/1/2013 8.81 7/1/2013 -2.97 7/1/2013 1.39 7/2/2013 8.78 7/2/2013 -2.83 7/2/2013 1.39 7/3/2013 8.87 7/3/2013 -3.09 7/3/2013 1.39 7/5/2013 9.98 7/5/2013 -4.91 7/5/2013 1.15 7/8/2013 10.59 7/8/2013 -4.31 7/8/2013 1.15 7/9/2013 11.39 7/9/2013 -4.15 7/9/2013 1.39 7/11/2013 12.94 7/11/2013 -3.68 7/11/2013 2.08 7/12/2013 13.29 7/12/2013 -3.9 7/12/2013 2.2 7/15/2013 13.44 7/15/2013 -3.46 7/15/2013 2.43 7/17/2013 13.35 7/17/2013 -2.92 7/17/2013 2.78 7/18/2013 13.93 7/18/2013 -3.29 7/18/2013 3.02 7/19/2013 14.12 7/19/2013 -2.89 7/19/2013 3.13 7/22/2013 14.35 7/22/2013 -2.88 7/22/2013 3.25 7/23/2013 14.14 7/23/2013 -3.1 7/23/2013 3.37 7/24/2013 13.71 7/24/2013 -3.71 7/24/2013 3.13 7/25/2013 14 7/25/2013 -3.85 7/25/2013 2.9 7/26/2013 14.1 7/26/2013 -3.44 7/26/2013 2.9 7/29/2013 13.68 7/29/2013 -3.65 7/29/2013 2.98 7/30/2013 13.72 7/30/2013 -3.79 7/30/2013 2.98 7/31/2013 13.72 7/31/2013 -3.66 7/31/2013 2.98 8/1/2013 15.16 8/1/2013 -4.8 8/1/2013 2.98 8/2/2013 15.35 8/2/2013 -3.75 8/2/2013 2.98 8/5/2013 15.19 8/5/2013 -4.05 8/5/2013 2.98 8/6/2013 14.54 8/6/2013 -4.07 8/6/2013 2.98 8/7/2013 14.14 8/7/2013 -3.71 8/7/2013 2.86 8/8/2013 14.61 8/8/2013 -3.51 8/8/2013 2.98 8/9/2013 14.22 8/9/2013 -3.48 8/9/2013 2.98 8/12/2013 14.09 8/12/2013 -3.69 8/12/2013 2.98 8/13/2013 14.43 8/13/2013 -4.63 8/13/2013 2.86 8/14/2013 13.86 8/14/2013 -4.61 8/14/2013 2.86 8/15/2013 12.26 8/15/2013 -4.96 8/15/2013 2.51 8/16/2013 11.89 8/16/2013 -5.64 8/16/2013 2.51 8/19/2013 11.24 8/19/2013 -6.12 8/19/2013 2.28 8/20/2013 11.67 8/20/2013 -5.53 8/20/2013 2.28 8/21/2013 11.03 8/21/2013 -5.86 8/21/2013 2.04 8/22/2013 11.99 8/22/2013 -6.23 8/22/2013 2.04 8/23/2013 12.45 8/23/2013 -5.56 8/23/2013 2.16 8/26/2013 11.99 8/26/2013 -5.44 8/26/2013 2.28 8/27/2013 10.21 8/27/2013 -4.71 8/27/2013 2.16 8/28/2013 10.54 8/28/2013 -5.2 8/28/2013 2.22 8/29/2013 10.77 8/29/2013 -4.9 8/29/2013 2.22 8/30/2013 10.43 8/30/2013 -4.9 8/30/2013 2.22 9/3/2013 10.9 9/3/2013 -5.7 9/3/2013 2.34 9/4/2013 11.82 9/4/2013 -6.07 9/4/2013 2.22 9/5/2013 11.96 9/5/2013 -6.73 9/5/2013 2.1 9/6/2013 11.98 9/6/2013 -6.4 9/6/2013 2.22 9/10/2013 13.94 9/10/2013 -6.53 9/10/2013 2.34 9/11/2013 14.3 9/11/2013 -6.2 9/11/2013 2.34 9/12/2013 13.95 9/12/2013 -6.11 9/12/2013 2.45 9/13/2013 14.26 9/13/2013 -6.01 9/13/2013 2.57 9/17/2013 15.39 9/17/2013 -5.62 9/17/2013 2.81 9/18/2013 16.8 9/18/2013 -4.34 9/18/2013 3.16 9/19/2013 16.6 9/19/2013 -4.74 9/19/2013 3.4 9/20/2013 15.76 9/20/2013 -4.6 9/20/2013 3.4 9/23/2013 15.22 9/23/2013 -4.43 9/23/2013 3.28 9/24/2013 14.93 9/24/2013 -3.93 9/24/2013 3.28 9/25/2013 14.62 9/25/2013 -3.59 9/25/2013 3.28 9/26/2013 15.04 9/26/2013 -3.83 9/26/2013 3.3 9/27/2013 14.58 9/27/2013 -3.61 9/27/2013 3.19 9/30/2013 13.89 9/30/2013 -3.58 9/30/2013 3.07 10/1/2013 14.81 10/1/2013 -3.83 10/1/2013 3.19 10/2/2013 14.76 10/2/2013 -3.65 10/2/2013 3.19 10/3/2013 13.73 10/3/2013 -3.49 10/3/2013 3.19 10/4/2013 14.53 10/4/2013 -3.82 10/4/2013 3.3 10/7/2013 13.56 10/7/2013 -3.67 10/7/2013 3.3 10/8/2013 12.19 10/8/2013 -3.66 10/8/2013 3.3 10/9/2013 12.27 10/9/2013 -3.8 10/9/2013 3.3 10/10/2013 14.74 10/10/2013 -4.09 10/10/2013 3.42 10/11/2013 15.46 10/11/2013 -4.05 10/11/2013 3.66 10/14/2013 15.93 10/14/2013 -4.03 10/14/2013 3.66 10/15/2013 15.11 10/15/2013 -4.34 10/15/2013 3.66 10/16/2013 16.71 10/16/2013 -3.92 10/16/2013 3.9 10/17/2013 17.51 10/17/2013 -3.21 10/17/2013 4.25 10/18/2013 18.28 10/18/2013 -3.21 10/18/2013 4.49 10/21/2013 18.29 10/21/2013 -3.36 10/21/2013 4.61 10/22/2013 18.97 10/22/2013 -2.55 10/22/2013 4.84 10/23/2013 18.41 10/23/2013 -2.33 10/23/2013 4.84 10/24/2013 18.8 10/24/2013 -2.6 10/24/2013 4.96 10/25/2013 19.32 10/25/2013 -2.44 10/25/2013 5.2 10/28/2013 19.48 10/28/2013 -2.53 10/28/2013 5.2 10/29/2013 20.15 10/29/2013 -2.46 10/29/2013 5.27 10/30/2013 19.58 10/30/2013 -2.63 10/30/2013 5.27 10/31/2013 19.13 10/31/2013 -2.75 10/31/2013 5.27 11/1/2013 19.47 11/1/2013 -3.38 11/1/2013 5.27 11/4/2013 19.9 11/4/2013 -3.19 11/4/2013 5.27 11/5/2013 19.58 11/5/2013 -3.7 11/5/2013 5.15 11/6/2013 20.15 11/6/2013 -3.53 11/6/2013 5.27 11/7/2013 18.6 11/7/2013 -3.26 11/7/2013 5.27 11/8/2013 20.19 11/8/2013 -4.36 11/8/2013 5.04 11/11/2013 20.28 11/11/2013 -4.35 11/11/2013 5.04 11/12/2013 20 11/12/2013 -4.52 11/12/2013 4.92 11/13/2013 21.01 11/13/2013 -4.18 11/13/2013 4.92 11/14/2013 21.62 11/14/2013 -3.82 11/14/2013 5.04 11/15/2013 22.13 11/15/2013 -3.85 11/15/2013 5.15 11/18/2013 21.68 11/18/2013 -3.59 11/18/2013 5.39 11/19/2013 21.46 11/19/2013 -3.84 11/19/2013 5.39 11/20/2013 21.02 11/20/2013 -4.45 11/20/2013 5.27 11/21/2013 22.01 11/21/2013 -4.4 11/21/2013 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12.1 11/18/2014 42.26 11/18/2014 2.5 11/18/2014 11.97 11/19/2014 42.05 11/19/2014 2.26 11/19/2014 11.85 11/20/2014 42.34 11/20/2014 2.43 11/20/2014 11.72 11/21/2014 43.1 11/21/2014 2.61 11/21/2014 12.1 11/24/2014 43.51 11/24/2014 2.67 11/24/2014 12.1 11/25/2014 43.36 11/25/2014 3.07 11/25/2014 12.3 11/26/2014 43.8 11/26/2014 3.34 11/26/2014 12.3 11/28/2014 43.44 11/28/2014 3.76 11/28/2014 12.17 12/1/2014 42.47 12/1/2014 3.52 12/1/2014 11.53 12/2/2014 43.38 12/2/2014 2.91 12/2/2014 11.27 12/3/2014 43.96 12/3/2014 2.92 12/3/2014 11.27 12/4/2014 43.8 12/4/2014 3.2 12/4/2014 11.14 12/5/2014 44.04 12/5/2014 2.74 12/5/2014 11.14 12/8/2014 43.01 12/8/2014 3.21 12/8/2014 10.8 12/9/2014 42.98 12/9/2014 3.56 12/9/2014 10.41 12/10/2014 40.65 12/10/2014 4.05 12/10/2014 10.02 12/11/2014 41.33 12/11/2014 3.96 12/11/2014 9.89 12/12/2014 39.04 12/12/2014 4.67 12/12/2014 9.25 12/15/2014 38.16 12/15/2014 4.55 12/15/2014 8.99 12/17/2014 39.78 12/17/2014 4.28 12/17/2014 8.75 12/18/2014 43.16 12/18/2014 3.77 12/18/2014 9.53 12/19/2014 43.82 12/19/2014 4.02 12/19/2014 9.79 12/22/2014 44.39 12/22/2014 4.19 12/22/2014 10.05 12/23/2014 44.65 12/23/2014 3.29 12/23/2014 10.05 12/24/2014 44.63 12/24/2014 3.28 12/24/2014 10.05 12/26/2014 45.1 12/26/2014 3.42 12/26/2014 10.18 12/29/2014 45.25 12/29/2014 3.8 12/29/2014 10.18 12/30/2014 44.56 12/30/2014 3.96 12/30/2014 10.31 12/31/2014 43.07 12/31/2014 4.15 12/31/2014 10.18 1/2/2015 43.04 1/2/2015 4.58 1/2/2015 10.31 1/5/2015 40.44 1/5/2015 5.4 1/5/2015 10.05 1/7/2015 40.85 1/7/2015 6.19 1/7/2015 10.05 1/8/2015 43.37 1/8/2015 5.62 1/8/2015 10.31 1/9/2015 42.17 1/9/2015 6.06 1/9/2015 10.44 1/12/2015 41.02 1/12/2015 6.64 1/12/2015 10.31 1/13/2015 40.67 1/13/2015 6.81 1/13/2015 10.18 1/14/2015 39.86 1/14/2015 7.35 1/14/2015 9.92 1/15/2015 38.57 1/15/2015 7.92 1/15/2015 9.92 1/16/2015 40.43 1/16/2015 7.55 1/16/2015 10.05 1/20/2015 40.65 1/20/2015 7.66 1/20/2015 10.05 1/21/2015 41.33 1/21/2015 7.23 1/21/2015 10.05 1/22/2015 43.49 1/22/2015 6.84 1/22/2015 10.18 1/23/2015 42.7 1/23/2015 7.57 1/23/2015 10.31 1/26/2015 43.07 1/26/2015 7.47 1/26/2015 10.44 1/27/2015 41.16 1/27/2015 7.54 1/27/2015 10.31 1/28/2015 39.26 1/28/2015 8.48 1/28/2015 10.33 1/29/2015 40.6 1/29/2015 8.22 1/29/2015 10.46 1/30/2015 38.78 1/30/2015 8.97 1/30/2015 10.46 2/2/2015 40.58 2/2/2015 9.03 2/2/2015 10.46 2/3/2015 42.61 2/3/2015 7.99 2/3/2015 10.59 2/4/2015 42.06 2/4/2015 7.84 2/4/2015 10.72 2/5/2015 43.55 2/5/2015 7.65 2/5/2015 10.85 2/9/2015 42.5 2/9/2015 6.45 2/9/2015 10.98 2/10/2015 44.03 2/10/2015 6.04 2/10/2015 11.11 2/11/2015 44.07 2/11/2015 6.09 2/11/2015 11.11 2/12/2015 45.5 2/12/2015 6.07 2/12/2015 11.24 2/13/2015 46.1 2/13/2015 5.73 2/13/2015 11.37 2/17/2015 46.36 2/17/2015 4.63 2/17/2015 11.37 2/18/2015 46.32 2/18/2015 5.32 2/18/2015 11.5 2/19/2015 46.19 2/19/2015 4.9 2/19/2015 11.5 2/20/2015 47.1 2/20/2015 4.74 2/20/2015 11.63 2/23/2015 47.06 2/23/2015 5.42 2/23/2015 11.77 2/24/2015 47.47 2/24/2015 6.11 2/24/2015 11.9 2/25/2015 47.38 2/25/2015 6.28 2/25/2015 12.13 2/26/2015 47.19 2/26/2015 5.86 2/26/2015 12.26 3/2/2015 47.66 3/2/2015 5.26 3/2/2015 12.26 3/3/2015 46.99 3/3/2015 4.87 3/3/2015 12.26 3/4/2015 46.38 3/4/2015 4.89 3/4/2015 12.13 3/5/2015 46.56 3/5/2015 5.01 3/5/2015 12 3/6/2015 44.5 3/6/2015 3.81 3/6/2015 11.73 3/10/2015 42.63 3/10/2015 4.88 3/10/2015 11.47 3/11/2015 42.38 3/11/2015 5.03 3/11/2015 11.47 3/12/2015 44.21 3/12/2015 5.17 3/12/2015 11.6 3/13/2015 43.34 3/13/2015 5.03 3/13/2015 11.34 3/16/2015 45.28 3/16/2015 5.18 3/16/2015 11.21 3/17/2015 44.8 3/17/2015 5.58 3/17/2015 11.08 3/18/2015 46.56 3/18/2015 6.61 3/18/2015 11.21 3/19/2015 45.85 3/19/2015 6.37 3/19/2015 11.34 3/20/2015 47.16 3/20/2015 6.79 3/20/2015 11.47 3/23/2015 46.91 3/23/2015 6.96 3/23/2015 11.47 3/24/2015 46.02 3/24/2015 7.31 3/24/2015 11.6 3/25/2015 43.89 3/25/2015 6.94 3/25/2015 11.47 3/26/2015 43.56 3/26/2015 6.1 3/26/2015 11.34 3/27/2015 43.92 3/27/2015 6.68 3/27/2015 11.33 3/31/2015 44.43 3/31/2015 6.86 3/31/2015 11.6 4/1/2015 43.88 4/1/2015 7.46 4/1/2015 11.46 4/2/2015 44.39 4/2/2015 7.12 4/2/2015 11.6 4/6/2015 45.34 4/6/2015 7.17 4/6/2015 11.73 4/7/2015 45.05 4/7/2015 7.26 4/7/2015 11.86 4/8/2015 45.49 4/8/2015 7.23 4/8/2015 12.12 4/9/2015 46.14 4/9/2015 6.64 4/9/2015 11.99 4/10/2015 46.9 4/10/2015 6.72 4/10/2015 12.26 4/13/2015 46.24 4/13/2015 6.87 4/13/2015 12.26 4/14/2015 46.48 4/14/2015 7.2 4/14/2015 12.26 4/15/2015 47.23 4/15/2015 7.24 4/15/2015 12.65 4/16/2015 47.12 4/16/2015 7.46 4/16/2015 12.65 4/17/2015 45.46 4/17/2015 7.72 4/17/2015 12.52 4/20/2015 46.81 4/20/2015 7.32 4/20/2015 12.65 4/21/2015 46.59 4/21/2015 7.13 4/21/2015 12.65 4/22/2015 47.34 4/22/2015 6.59 4/22/2015 12.65 4/23/2015 47.7 4/23/2015 6.84 4/23/2015 12.65 4/24/2015 48.04 4/24/2015 7.13 4/24/2015 12.78 4/28/2015 47.84 4/28/2015 6.61 4/28/2015 12.79 4/29/2015 47.3 4/29/2015 6.03 4/29/2015 12.79 4/30/2015 45.82 4/30/2015 5.97 4/30/2015 12.79 5/1/2015 47.41 5/1/2015 5.3 5/1/2015 12.79 5/4/2015 47.84 5/4/2015 5.13 5/4/2015 12.93 5/5/2015 46.11 5/5/2015 4.78 5/5/2015 12.79 5/6/2015 45.51 5/6/2015 4.22 5/6/2015 12.66 5/7/2015 46.1 5/7/2015 4.72 5/7/2015 12.66 5/8/2015 48.07 5/8/2015 5.04 5/8/2015 12.93 5/11/2015 47.34 5/11/2015 3.92 5/11/2015 12.79 5/12/2015 46.91 5/12/2015 4.04 5/12/2015 12.66 5/13/2015 46.9 5/13/2015 3.85 5/13/2015 12.79 5/14/2015 48.5 5/14/2015 4.19 5/14/2015 12.93 5/15/2015 48.63 5/15/2015 5.1 5/15/2015 13.06 5/18/2015 49.09 5/18/2015 4.29 5/18/2015 12.93 5/20/2015 48.91 5/20/2015 4.11 5/20/2015 12.79 5/21/2015 49.28 5/21/2015 4.73 5/21/2015 12.93 5/22/2015 48.94 5/22/2015 4.34 5/22/2015 12.93 5/26/2015 47.41 5/26/2015 5.19 5/26/2015 12.79 5/27/2015 48.79 5/27/2015 5.2 5/27/2015 12.99 5/28/2015 48.63 5/28/2015 5.26 5/28/2015 12.85 5/29/2015 47.69 5/29/2015 5.62 5/29/2015 12.85 6/1/2015 48.01 6/1/2015 4.7 6/1/2015 12.72 6/2/2015 47.87 6/2/2015 4.02 6/2/2015 12.72 6/3/2015 48.21 6/3/2015 3.1 6/3/2015 12.59 6/4/2015 46.93 6/4/2015 3.65 6/4/2015 12.32 6/5/2015 46.73 6/5/2015 2.79 6/5/2015 12.19 6/8/2015 45.8 6/8/2015 3 6/8/2015 12.05 6/9/2015 45.87 6/9/2015 2.7 6/9/2015 11.79 6/10/2015 47.64 6/10/2015 2.14 6/10/2015 11.79 6/11/2015 47.94 6/11/2015 3 6/11/2015 11.92 6/12/2015 46.91 6/12/2015 3.03 6/12/2015 11.92 6/15/2015 46.23 6/15/2015 3.26 6/15/2015 11.65 6/16/2015 47.07 6/16/2015 3.64 6/16/2015 11.65 6/18/2015 48.84 6/18/2015 3.34 6/18/2015 11.65 6/19/2015 48.05 6/19/2015 4.14 6/19/2015 11.79 6/22/2015 48.95 6/22/2015 3.29 6/22/2015 11.79 6/23/2015 49.06 6/23/2015 2.86 6/23/2015 11.65 6/24/2015 47.97 6/24/2015 3.22 6/24/2015 11.65 6/25/2015 47.53 6/25/2015 3.01 6/25/2015 12 6/26/2015 47.5 6/26/2015 2.26 6/26/2015 11.46 6/29/2015 44.44 6/29/2015 3.61 6/29/2015 11.06 6/30/2015 44.83 6/30/2015 3.6 6/30/2015 11.06 7/1/2015 45.87 7/1/2015 2.81 7/1/2015 11.19 7/2/2015 45.83 7/2/2015 3.08 7/2/2015 11.19 7/6/2015 45.27 7/6/2015 4.14 7/6/2015 11.06 7/7/2015 46.15 7/7/2015 4.56 7/7/2015 10.79 7/8/2015 43.76 7/8/2015 4.8 7/8/2015 10.66 7/9/2015 44.09 7/9/2015 3.95 7/9/2015 10.66 7/10/2015 45.87 7/10/2015 2.88 7/10/2015 10.79 7/14/2015 48.15 7/14/2015 3.09 7/14/2015 10.79 7/15/2015 48.05 7/15/2015 3.56 7/15/2015 10.92 7/16/2015 49.24 7/16/2015 3.51 7/16/2015 10.92 7/17/2015 49.4 7/17/2015 3.55 7/17/2015 10.79 7/20/2015 49.52 7/20/2015 3.36 7/20/2015 10.52 7/21/2015 48.89 7/21/2015 3.66 7/21/2015 10.26 7/22/2015 48.55 7/22/2015 3.83 7/22/2015 9.99 7/23/2015 47.72 7/23/2015 4.26 7/23/2015 9.85 7/24/2015 46.13 7/24/2015 4.3 7/24/2015 9.72 7/27/2015 45.29 7/27/2015 4.73 7/27/2015 9.32 7/28/2015 47.09 7/28/2015 4.54 7/28/2015 9.45 7/30/2015 48.2 7/30/2015 4.39 7/30/2015 9.74 7/31/2015 47.87 7/31/2015 4.97 7/31/2015 9.88 8/3/2015 47.46 8/3/2015 5.5 8/3/2015 9.88 8/4/2015 47.13 8/4/2015 4.96 8/4/2015 9.74 8/5/2015 47.65 8/5/2015 4.42 8/5/2015 9.61 8/6/2015 46.54 8/6/2015 4.73 8/6/2015 9.2 8/7/2015 46.13 8/7/2015 5.29 8/7/2015 9.07 8/10/2015 48 8/10/2015 4.72 8/10/2015 9.07 8/11/2015 46.62 8/11/2015 5.63 8/11/2015 8.67 8/12/2015 46.79 8/12/2015 5.7 8/12/2015 8.4 8/13/2015 46.62 8/13/2015 5.17 8/13/2015 8.4 8/14/2015 47.2 8/14/2015 5.09 8/14/2015 8.4 8/17/2015 47.99 8/17/2015 5.49 8/17/2015 8.4 8/18/2015 47.63 8/18/2015 5.08 8/18/2015 8.26 8/19/2015 46.42 8/19/2015 5.69 8/19/2015 8.13 8/20/2015 43.33 8/20/2015 6.12 8/20/2015 7.86 8/21/2015 38.79 8/21/2015 6.42 8/21/2015 7.59 8/25/2015 31.52 8/25/2015 5.66 8/25/2015 6.78 8/26/2015 36.67 8/26/2015 5.3 8/26/2015 6.92 8/27/2015 40 8/27/2015 5.33 8/27/2015 7.4 8/28/2015 40.11 8/28/2015 5.2 8/28/2015 7.53 8/31/2015 38.95 8/31/2015 5.1 8/31/2015 7.53 9/1/2015 34.84 9/1/2015 5.35 9/1/2015 7.4 9/2/2015 37.33 9/2/2015 5.17 9/2/2015 7.4 9/3/2015 37.5 9/3/2015 5.4 9/3/2015 7.67 9/4/2015 35.4 9/4/2015 5.82 9/4/2015 7.53 9/8/2015 38.82 9/8/2015 5.19 9/8/2015 7.8 9/9/2015 36.9 9/9/2015 5.33 9/9/2015 7.94 9/10/2015 37.63 9/10/2015 4.95 9/10/2015 7.8 9/11/2015 38.29 9/11/2015 5.33 9/11/2015 7.94 9/14/2015 37.74 9/14/2015 5.36 9/14/2015 7.8 9/15/2015 39.51 9/15/2015 4.43 9/15/2015 7.8 9/16/2015 40.73 9/16/2015 4.24 9/16/2015 7.53 9/17/2015 40.39 9/17/2015 5.03 9/17/2015 7.53 9/18/2015 38.12 9/18/2015 5.87 9/18/2015 7.4 9/21/2015 38.75 9/21/2015 5.1 9/21/2015 7.4 9/22/2015 37.05 9/22/2015 5.96 9/22/2015 6.86 9/23/2015 36.77 9/23/2015 5.76 9/23/2015 6.86 9/24/2015 36.31 9/24/2015 6 9/24/2015 6.32 9/25/2015 36.25 9/25/2015 5.56 9/25/2015 6.18 9/28/2015 32.79 9/28/2015 6.26 9/28/2015 5.28 9/29/2015 32.96 9/29/2015 6.65 9/29/2015 4.87 9/30/2015 35.51 9/30/2015 6.62 9/30/2015 5.14 10/1/2015 35.79 10/1/2015 6.75 10/1/2015 5 10/5/2015 40.27 10/5/2015 6.67 10/5/2015 5.41 10/6/2015 39.77 10/6/2015 6.88 10/6/2015 5.82 10/7/2015 40.94 10/7/2015 6.63 10/7/2015 6.23 10/8/2015 42.19 10/8/2015 6.19 10/8/2015 6.36 10/9/2015 42.29 10/9/2015 6.29 10/9/2015 6.77 10/12/2015 42.48 10/12/2015 6.31 10/12/2015 6.91 10/13/2015 41.52 10/13/2015 6.72 10/13/2015 6.63 10/14/2015 40.86 10/14/2015 7.42 10/14/2015 6.63 10/15/2015 42.96 10/15/2015 7.04 10/15/2015 6.63 10/16/2015 43.61 10/16/2015 7.02 10/16/2015 6.91 10/19/2015 43.65 10/19/2015 7.02 10/19/2015 6.91 10/20/2015 43.45 10/20/2015 6.62 10/20/2015 7.18 10/21/2015 42.63 10/21/2015 7.01 10/21/2015 7.18 10/22/2015 45.01 10/22/2015 7.07 10/22/2015 7.18 10/23/2015 46.61 10/23/2015 6.52 10/23/2015 7.45 10/26/2015 46.33 10/26/2015 6.76 10/26/2015 7.45 10/27/2015 45.96 10/27/2015 7.05 10/27/2015 7.04 10/28/2015 47.7 10/28/2015 6.45 10/28/2015 7.16 10/30/2015 46.94 10/30/2015 5.95 10/30/2015 7.02 11/2/2015 48.68 11/2/2015 5.61 11/2/2015 7.16 11/3/2015 49.09 11/3/2015 5.3 11/3/2015 7.29 11/4/2015 48.62 11/4/2015 5.21 11/4/2015 7.29 11/5/2015 48.48 11/5/2015 5.08 11/5/2015 7.02 11/6/2015 48.44 11/6/2015 4.28 11/6/2015 6.61 11/9/2015 47.02 11/9/2015 4.23 11/9/2015 6.34 11/10/2015 47.28 11/10/2015 4.41 11/10/2015 6.07 11/11/2015 46.8 11/11/2015 4.41 11/11/2015 6.07 11/12/2015 44.77 11/12/2015 4.37 11/12/2015 5.52 11/13/2015 43.15 11/13/2015 4.7 11/13/2015 5.25 11/16/2015 45.31 11/16/2015 4.79 11/16/2015 5.11 11/17/2015 45.15 11/17/2015 4.91 11/17/2015 5.25 11/18/2015 47.51 11/18/2015 4.82 11/18/2015 5.11 11/19/2015 47.35 11/19/2015 5.03 11/19/2015 4.84 11/20/2015 47.93 11/20/2015 4.89 11/20/2015 4.56 11/23/2015 47.75 11/23/2015 5.04 11/23/2015 4.29 11/24/2015 47.94 11/24/2015 5.11 11/24/2015 4.29 11/25/2015 47.93 11/25/2015 5.21 11/25/2015 4.4 11/27/2015 48.06 11/27/2015 5.31 11/27/2015 4.4 11/30/2015 47.38 11/30/2015 5.41 11/30/2015 4.4 12/1/2015 48.96 12/1/2015 6.01 12/1/2015 4.68 12/2/2015 47.36 12/2/2015 5.8 12/2/2015 4.54 12/3/2015 45.25 12/3/2015 4.4 12/3/2015 3.99 12/4/2015 48.23 12/4/2015 4.91 12/4/2015 3.72 12/7/2015 47.2 12/7/2015 5.41 12/7/2015 3.03 12/8/2015 46.26 12/8/2015 5.27 12/8/2015 2.21 12/9/2015 45.14 12/9/2015 5.55 12/9/2015 2.34 12/10/2015 45.48 12/10/2015 5.28 12/10/2015 2.07 12/11/2015 42.68 12/11/2015 6.22 12/11/2015 0.97 12/14/2015 43.37 12/14/2015 5.42 12/14/2015 -0.26 12/15/2015 44.89 12/15/2015 5.05 12/15/2015 0.33 12/16/2015 47 12/16/2015 4.86 12/16/2015 0.74 12/17/2015 44.81 12/17/2015 5.34 12/17/2015 0.47 12/18/2015 42.24 12/18/2015 5.72 12/18/2015 -0.09 12/21/2015 43.36 12/21/2015 5.73 12/21/2015 -0.22 12/22/2015 44.64 12/22/2015 5.36 12/22/2015 0.05 12/23/2015 46.44 12/23/2015 5.12 12/23/2015 0.47 12/28/2015 45.89 12/28/2015 5.51 12/28/2015 0.47 12/29/2015 47.46 12/29/2015 4.75 12/29/2015 0.61 12/30/2015 46.42 12/30/2015 4.78 12/30/2015 0.61 12/31/2015 45.04 12/31/2015 5.09 12/31/2015 0.74 1/4/2016 42.85 1/4/2016 5.41 1/4/2016 0.47 1/5/2016 43.14 1/5/2016 5.37 1/5/2016 0.74 1/6/2016 41.31 1/6/2016 6.03 1/6/2016 0.61 1/7/2016 37.97 1/7/2016 6.25 1/7/2016 0.19 1/8/2016 36.47 1/8/2016 6.45 1/8/2016 0.33 1/11/2016 36.59 1/11/2016 6.24 1/11/2016 -0.09 1/12/2016 37.65 1/12/2016 6.77 1/12/2016 -0.36 1/13/2016 34.23 1/13/2016 7.11 1/13/2016 -0.91 1/14/2016 36.48 1/14/2016 6.79 1/14/2016 -1.33 1/15/2016 33.54 1/15/2016 7.43 1/15/2016 -2.3 1/19/2016 33.61 1/19/2016 7.42 1/19/2016 -2.3 1/20/2016 32.06 1/20/2016 7.91 1/20/2016 -3.54 1/21/2016 32.75 1/21/2016 7.6 1/21/2016 -3.26 1/22/2016 35.45 1/22/2016 7.31 1/22/2016 -2.43 1/25/2016 33.33 1/25/2016 7.6 1/25/2016 -2.43 1/27/2016 33.76 1/27/2016 7.77 1/27/2016 -2.09 1/28/2016 34.51 1/28/2016 7.94 1/28/2016 -1.95 1/29/2016 37.84 1/29/2016 8.52 1/29/2016 -1.4
[END CHART] Source: Bloomberg L.P. At the end of the reporting period, default expectations remained relatively low, with the high-yield default rate below the 20-year average. The trailing 12-month high-yield default rate, according to J.P. Morgan, was 1.90% at the end of January 2016. That said, default risk in commodity-related sectors is expected to increase as long as commodity prices remain low. o HOW DID THE USAA HIGH INCOME FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares had total returns of -10.26%, -10.33%, and -10.51%, respectively. This compares to ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ returns of -8.50% for the Credit Suisse High Yield Index*, -7.75% for the Barclays U.S. High Yield 2% Issuer Capped Bond Index (the Index) and -8.53% for the Lipper High Yield Bond Funds Index. At the same time, the Fund Shares, Institutional Shares, and Adviser Shares provided a one-year dividend yield of 6.66%, 6.79%, and 6.33%, respectively, compared to 5.90% for the Lipper High Yield Bond Funds Average. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? In keeping with our investment approach, we sought to maximize the Fund's income while maintaining an acceptable level of price volatility. We have always believed the Fund should be adequately compensated for any risk taken. However, allocations to and selection among energy-related and metals and mining high-yield bonds detracted from Fund performance. Many of these securities were affected negatively by the continued drop in oil and commodity prices during the reporting period. Although we reduced some of these holdings, we believe that over the long-term the Fund's positions in these industries will generate attractive total returns. During the reporting period, we continued to seek relative value opportunities within the high-yield market while continuing to maintain a diversified, liquid portfolio. The portfolio also has positions in high- yield exchange-traded funds (ETFs), investment-grade bonds, and high- quality equities so it can meet any potential investment outflows with minimal impact to the Fund's performance. This liquidity strategy helps to prevent the Fund from being a forced seller due to investment outflows. Refer to page 10 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond Index replaced the Credit Suisse High Yield Index as the Fund's broad-based securities market index as it more closely represents the securities held by the Fund. ================================================================================ 6 | USAA HIGH INCOME FUND ================================================================================ To identify attractive opportunities, we continued to work with our in- house team of analysts, building the portfolio bond-by-bond, through fundamental analysis. We seek ideas where our fundamental understanding of the credit risk is different than the market. In addition, our analysts continue to analyze and monitor every holding in the portfolio. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Diversification is a technique to help reduce risk and does not guarantee a profit or prevent a loss. o Non-investment-grade securities are considered speculative and are subject to significant credit risk. They are sometimes referred to as "junk" bonds since they represent a greater risk of default than more creditworthy investment-grade securities. o Exchange-traded funds (ETFs) are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 7 ================================================================================ INVESTMENT OVERVIEW USAA HIGH INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USHYX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $978.0 Million $1.3 Billion Net Asset Value Per Share $7.10 $8.17 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -10.26% -10.73% 3.33% 5.65% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -8.56% 4.17% 6.00% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 7.67% 0.89%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT usaa.com. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 8 | USAA HIGH INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. HIGH YIELD 2% CREDIT SUISSE USAA HIGH LIPPER HIGH ISSUER CAPPED HIGH YIELD INCOME FUND YIELD BOND BOND INDEX* INDEX SHARES FUNDS INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,097.70 10,100.42 10,091.18 10,083.84 3/31/2006 10,140.00 10,178.59 10,135.26 10,125.08 4/30/2006 10,203.26 10,247.16 10,190.14 10,183.42 5/31/2006 10,189.78 10,275.27 10,191.31 10,161.16 6/30/2006 10,132.88 10,217.75 10,144.41 10,104.46 7/31/2006 10,219.73 10,305.33 10,239.47 10,181.57 8/31/2006 10,370.58 10,448.82 10,410.27 10,320.24 9/30/2006 10,514.32 10,578.98 10,538.81 10,434.33 10/31/2006 10,657.68 10,725.07 10,692.25 10,585.15 11/30/2006 10,826.13 10,919.90 10,855.10 10,767.90 12/31/2006 10,945.91 11,049.42 10,963.70 10,876.52 1/31/2007 11,071.31 11,176.33 11,061.97 10,993.03 2/28/2007 11,233.02 11,349.39 11,226.03 11,135.58 3/31/2007 11,252.11 11,381.89 11,253.42 11,170.99 4/30/2007 11,398.84 11,543.25 11,405.87 11,325.25 5/31/2007 11,477.82 11,632.95 11,472.52 11,421.77 6/30/2007 11,269.70 11,455.66 11,337.40 11,236.20 7/31/2007 10,877.78 11,095.57 11,045.14 10,871.94 8/31/2007 11,040.61 11,211.43 11,147.48 10,976.78 9/30/2007 11,314.99 11,460.86 11,340.49 11,241.36 10/31/2007 11,391.35 11,550.56 11,385.67 11,338.17 11/30/2007 11,151.41 11,336.06 11,129.74 11,097.17 12/31/2007 11,194.09 11,341.91 11,102.99 11,108.09 1/31/2008 11,023.02 11,162.19 10,849.51 10,881.74 2/29/2008 10,886.77 11,038.85 10,729.91 10,735.16 3/31/2008 10,861.31 11,013.34 10,661.68 10,718.89 4/30/2008 11,307.88 11,446.24 10,921.34 11,120.62 5/31/2008 11,353.55 11,489.30 11,001.27 11,177.96 6/30/2008 11,073.18 11,212.56 10,743.58 10,883.76 7/31/2008 10,934.31 11,061.44 10,599.70 10,742.58 8/31/2008 10,967.62 11,091.83 10,624.96 10,757.52 9/30/2008 10,125.77 10,311.35 9,890.35 9,954.38 10/31/2008 8,496.35 8,677.59 8,582.82 8,349.87 11/30/2008 7,751.08 7,928.96 7,884.33 7,634.82 12/31/2008 8,296.84 8,373.39 7,984.09 7,904.08 1/31/2009 8,849.34 8,865.27 8,278.19 8,248.96 2/28/2009 8,609.40 8,683.76 8,048.17 8,058.10 3/31/2009 8,845.59 8,859.91 8,116.04 8,177.46 4/30/2009 9,888.83 9,753.00 8,833.71 8,971.04 5/31/2009 10,552.13 10,283.24 9,612.58 9,492.63 6/30/2009 10,862.44 10,652.27 10,033.19 9,812.09 7/31/2009 11,514.13 11,298.69 10,630.87 10,433.82 8/31/2009 11,735.35 11,507.82 10,923.74 10,608.61 9/30/2009 12,405.39 12,155.71 11,577.99 11,163.26 10/31/2009 12,630.36 12,377.35 11,845.18 11,327.95 11/30/2009 12,754.26 12,549.93 11,999.71 11,472.31 12/31/2009 13,172.37 12,913.60 12,312.31 11,815.89 1/31/2010 13,344.56 13,078.05 12,593.36 11,965.65 2/28/2010 13,361.78 13,117.86 12,647.62 11,983.69 3/31/2010 13,766.80 13,491.28 13,092.07 12,364.56 4/30/2010 14,095.08 13,804.09 13,417.19 12,633.38 5/31/2010 13,590.49 13,364.53 12,876.63 12,165.72 6/30/2010 13,758.19 13,519.07 13,003.47 12,262.23 7/31/2010 14,241.81 13,936.85 13,410.75 12,700.35 8/31/2010 14,246.30 13,954.73 13,465.46 12,692.74 9/30/2010 14,667.79 14,324.90 13,854.07 13,079.23 10/31/2010 15,042.86 14,663.55 14,222.31 13,442.78 11/30/2010 14,871.05 14,508.69 14,138.66 13,307.44 12/31/2010 15,139.81 14,775.67 14,422.53 13,577.73 1/31/2011 15,474.45 15,073.21 14,700.20 13,861.25 2/28/2011 15,678.08 15,269.83 14,989.90 14,084.59 3/31/2011 15,729.37 15,332.07 15,076.00 14,113.55 4/30/2011 15,972.30 15,545.26 15,351.72 14,334.96 5/31/2011 16,050.53 15,612.38 15,430.96 14,366.61 6/30/2011 15,894.44 15,491.31 15,215.64 14,207.22 7/31/2011 16,077.86 15,703.86 15,326.20 14,325.20 8/31/2011 15,431.78 15,122.77 14,626.81 13,681.33 9/30/2011 14,924.20 14,698.32 14,137.41 13,197.86 10/31/2011 15,819.95 15,488.39 14,739.97 13,967.26 11/30/2011 15,478.57 15,207.75 14,469.27 13,652.67 12/31/2011 15,891.07 15,583.61 14,786.76 13,964.67 1/31/2012 16,373.20 15,998.47 15,223.45 14,429.52 2/29/2012 16,762.49 16,363.61 15,575.81 14,763.26 3/31/2012 16,741.16 16,366.69 15,644.10 14,766.16 4/30/2012 16,913.35 16,536.51 15,748.98 14,897.35 5/31/2012 16,688.00 16,317.78 15,525.99 14,654.94 6/30/2012 17,040.24 16,621.98 15,780.43 14,930.26 7/31/2012 17,364.40 16,914.31 16,091.68 15,203.47 8/31/2012 17,567.66 17,117.44 16,378.28 15,395.85 9/30/2012 17,812.09 17,332.26 16,632.36 15,608.98 10/31/2012 17,968.93 17,480.78 16,880.39 15,743.67 11/30/2012 18,112.67 17,612.90 16,934.97 15,869.67 12/31/2012 18,397.90 17,876.31 17,231.48 16,120.52 1/31/2013 18,644.58 18,108.52 17,563.01 16,354.53 2/28/2013 18,739.28 18,213.00 17,712.85 16,440.75 3/31/2013 18,930.19 18,401.01 17,936.38 16,612.39 4/30/2013 19,272.32 18,739.66 18,243.94 16,924.88 5/31/2013 19,160.77 18,631.60 18,252.52 16,829.29 6/30/2013 18,658.43 18,147.03 17,785.80 16,391.14 7/31/2013 19,011.79 18,508.26 18,086.13 16,713.04 8/31/2013 18,896.50 18,401.66 17,952.60 16,594.36 9/30/2013 19,084.03 18,581.39 18,101.71 16,770.90 10/31/2013 19,560.92 19,031.02 18,489.26 17,176.22 11/30/2013 19,659.74 19,105.93 18,574.22 17,247.62 12/31/2013 19,766.42 19,222.93 18,691.05 17,351.27 1/31/2014 19,904.92 19,369.34 18,899.52 17,459.96 2/28/2014 20,306.56 19,759.99 19,226.59 17,803.50 3/31/2014 20,354.85 19,813.13 19,340.83 17,855.13 4/30/2014 20,483.62 19,940.69 19,504.30 17,944.73 5/31/2014 20,671.15 20,120.90 19,717.38 18,111.97 6/30/2014 20,844.46 20,290.71 19,921.61 18,266.42 7/31/2014 20,567.46 20,034.94 19,776.86 18,030.46 8/31/2014 20,894.25 20,326.13 19,970.48 18,270.45 9/30/2014 20,456.29 19,896.65 19,683.36 17,918.54 10/31/2014 20,698.85 20,085.31 19,778.44 18,116.39 11/30/2014 20,549.12 19,923.14 19,700.31 18,008.91 12/31/2014 20,252.29 19,580.92 19,351.12 17,739.35 1/31/2015 20,385.54 19,665.09 19,399.43 17,835.86 2/28/2015 20,876.65 20,176.64 19,716.36 18,250.10 3/31/2015 20,762.49 20,088.40 19,599.43 18,177.34 4/30/2015 21,013.66 20,352.30 19,810.11 18,390.10 5/31/2015 21,077.29 20,431.11 19,820.48 18,467.66 6/30/2015 20,763.98 20,149.01 19,505.79 18,195.59 7/31/2015 20,643.45 20,008.12 19,298.18 18,133.00 8/31/2015 20,281.86 19,598.30 18,886.29 17,812.81 9/30/2015 19,760.80 19,108.05 18,466.30 17,334.01 10/31/2015 20,302.45 19,597.49 18,796.88 17,745.19 11/30/2015 19,854.38 19,181.17 18,336.79 17,343.07 12/31/2015 19,354.29 18,615.19 17,694.30 16,876.49 1/31/2016 19,043.23 18,306.60 17,318.32 16,586.29
[END CHART] Data from 1/31/06 through 1/31/16. See next page for benchmark definitions. *As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond Index replaced the Credit Suisse High Yield Index as it more closely represents the securities held by the Fund. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper High Yield Bond Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ The graph on page 9 illustrates the comparison of a $10,000 hypothetical investment in the USAA High Income Fund Shares to the following benchmarks: o The unmanaged Barclays U.S. High Yield 2% Issuer Capped Bond Index is an index comprised of fixed rate, non-investment grade debt securities that are dollar denominated and non-convertible. The index limits the maximum exposure to any one issuer to 2%. o The unmanaged Credit Suisse High Yield Index is a trader-priced portfolio constructed to mirror the high-yield debt market. o The unmanaged Lipper High Yield Bond Funds Index tracks the total return performance of the 30 largest funds in the Lipper High Yield Funds category. ================================================================================ 10 | USAA HIGH INCOME FUND ================================================================================ USAA HIGH INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIHIX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $879.3 Million $811.0 Million Net Asset Value Per Share $7.09 $8.17 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -10.33% -10.65% 3.47% 6.97% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -8.47% 4.34% 7.38% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 7.81% 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT usaa.com. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. HIGH YIELD 2% USAA HIGH INCOME CREDIT SUISSE LIPPER HIGH ISSUER CAPPED FUND INSTITUTIONAL HIGH YIELD YIELD BOND BOND INDEX* SHARES INDEX FUNDS INDEX 7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,030.47 10,026.02 10,027.47 10,013.91 9/30/2008 9,260.55 9,335.20 9,321.88 9,266.29 10/31/2008 7,770.36 8,103.33 7,844.90 7,772.69 11/30/2008 7,088.77 7,445.43 7,168.10 7,107.07 12/31/2008 7,587.89 7,543.33 7,569.89 7,357.71 1/31/2009 8,093.18 7,823.87 8,014.57 7,678.75 2/28/2009 7,873.75 7,609.28 7,850.48 7,501.09 3/31/2009 8,089.76 7,676.57 8,009.73 7,612.19 4/30/2009 9,043.85 8,357.89 8,817.12 8,350.92 5/31/2009 9,650.47 9,096.76 9,296.47 8,836.46 6/30/2009 9,934.27 9,497.08 9,630.09 9,133.84 7/31/2009 10,530.28 10,065.93 10,214.48 9,712.59 8/31/2009 10,732.60 10,345.72 10,403.55 9,875.29 9/30/2009 11,345.38 10,968.20 10,989.26 10,391.60 10/31/2009 11,551.13 11,223.91 11,189.64 10,544.91 11/30/2009 11,664.44 11,372.72 11,345.65 10,679.29 12/31/2009 12,046.83 11,671.04 11,674.43 10,999.13 1/31/2010 12,204.31 11,939.80 11,823.10 11,138.53 2/28/2010 12,220.05 11,993.82 11,859.09 11,155.32 3/31/2010 12,590.46 12,402.89 12,196.68 11,509.86 4/30/2010 12,890.69 12,729.23 12,479.47 11,760.10 5/31/2010 12,429.22 12,219.38 12,082.09 11,324.77 6/30/2010 12,582.59 12,327.95 12,221.80 11,414.61 7/31/2010 13,024.89 12,733.43 12,599.49 11,822.45 8/31/2010 13,029.00 12,772.39 12,615.65 11,815.36 9/30/2010 13,414.47 13,143.99 12,950.30 12,175.14 10/31/2010 13,757.49 13,512.55 13,256.45 12,513.55 11/30/2010 13,600.36 13,435.99 13,116.45 12,387.57 12/31/2010 13,846.15 13,709.37 13,357.82 12,639.18 1/31/2011 14,152.20 13,976.04 13,626.80 12,903.10 2/28/2011 14,338.43 14,254.25 13,804.56 13,111.00 3/31/2011 14,385.33 14,339.23 13,860.82 13,137.96 4/30/2011 14,607.51 14,587.46 14,053.56 13,344.06 5/31/2011 14,679.06 14,665.36 14,114.23 13,373.53 6/30/2011 14,536.30 14,463.99 14,004.79 13,225.15 7/31/2011 14,704.05 14,588.71 14,196.94 13,334.98 8/31/2011 14,113.18 13,926.64 13,671.61 12,735.61 9/30/2011 13,648.97 13,445.71 13,287.89 12,285.56 10/31/2011 14,468.18 14,021.53 14,002.14 13,001.78 11/30/2011 14,155.97 13,766.01 13,748.44 12,708.93 12/31/2011 14,533.22 14,070.91 14,088.23 12,999.37 1/31/2012 14,974.15 14,488.88 14,463.28 13,432.09 2/29/2012 15,330.18 14,844.97 14,793.38 13,742.76 3/31/2012 15,310.67 14,912.45 14,796.17 13,745.45 4/30/2012 15,468.14 15,014.83 14,949.68 13,867.58 5/31/2012 15,262.06 14,804.97 14,751.95 13,641.93 6/30/2012 15,584.20 15,050.08 15,026.96 13,898.22 7/31/2012 15,880.66 15,349.07 15,291.24 14,152.54 8/31/2012 16,066.55 15,606.31 15,474.87 14,331.62 9/30/2012 16,290.09 15,869.23 15,669.08 14,530.02 10/31/2012 16,433.53 16,093.89 15,803.35 14,655.40 11/30/2012 16,564.99 16,168.58 15,922.79 14,772.69 12/31/2012 16,825.85 16,455.70 16,160.92 15,006.20 1/31/2013 17,051.45 16,774.76 16,370.85 15,224.03 2/28/2013 17,138.06 16,920.46 16,465.31 15,304.29 3/31/2013 17,312.65 17,116.97 16,635.28 15,464.07 4/30/2013 17,625.55 17,432.33 16,941.43 15,754.96 5/31/2013 17,523.54 17,442.77 16,843.74 15,665.98 6/30/2013 17,064.12 16,998.05 16,405.66 15,258.11 7/31/2013 17,387.29 17,267.67 16,732.24 15,557.76 8/31/2013 17,281.85 17,161.63 16,635.87 15,447.29 9/30/2013 17,453.36 17,286.37 16,798.34 15,611.62 10/31/2013 17,889.49 17,679.02 17,204.83 15,988.93 11/30/2013 17,979.87 17,762.06 17,272.55 16,055.39 12/31/2013 18,077.44 17,875.99 17,378.33 16,151.88 1/31/2014 18,204.10 18,056.69 17,510.69 16,253.06 2/28/2014 18,571.43 18,391.93 17,863.85 16,572.84 3/31/2014 18,615.59 18,481.69 17,911.89 16,620.90 4/30/2014 18,733.35 18,639.83 18,027.21 16,704.31 5/31/2014 18,904.86 18,865.99 18,190.13 16,860.00 6/30/2014 19,063.37 19,041.80 18,343.64 17,003.77 7/31/2014 18,810.04 18,926.50 18,112.41 16,784.12 8/31/2014 19,108.89 19,113.39 18,375.67 17,007.52 9/30/2014 18,708.36 18,818.71 17,987.40 16,679.94 10/31/2014 18,930.20 18,911.20 18,157.95 16,864.11 11/30/2014 18,793.26 18,837.81 18,011.34 16,764.06 12/31/2014 18,521.79 18,527.14 17,701.96 16,513.13 1/31/2015 18,643.66 18,552.88 17,778.06 16,602.97 2/28/2015 19,092.80 18,857.73 18,240.51 16,988.57 3/31/2015 18,988.39 18,747.30 18,160.74 16,920.84 4/30/2015 19,218.10 18,950.57 18,399.32 17,118.89 5/31/2015 19,276.30 18,962.08 18,470.57 17,191.10 6/30/2015 18,989.76 18,662.32 18,215.54 16,937.84 7/31/2015 18,879.53 18,487.09 18,088.17 16,879.57 8/31/2015 18,548.83 18,094.12 17,717.68 16,581.51 9/30/2015 18,072.30 17,670.94 17,274.46 16,135.82 10/31/2015 18,567.66 17,989.11 17,716.94 16,518.57 11/30/2015 18,157.88 17,574.72 17,340.57 16,144.25 12/31/2015 17,700.52 16,957.56 16,828.90 15,709.92 1/31/2016 17,416.04 16,577.53 16,549.93 15,439.78
[END CHART] Data from 7/31/08 through 1/31/16.** The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA High Income Fund Institutional Shares to the Fund's benchmarks listed above (see page 10 for benchmark definitions). *As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond Index replaced the Credit Suisse High Yield Index as it more closely represents the securities held by the Fund. **The performance of the Barclays U.S. High Yield 2% Issuer Capped Bond Index, Credit Suisse High Yield Index, and the Lipper High Yield Bond Funds Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper High Yield Bond Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA HIGH INCOME FUND ================================================================================ USAA HIGH INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UHYOX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $8.4 Million $12.5 Million Net Asset Value Per Share $7.11 $8.19 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -10.51% -10.98% 3.09% 4.49% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -8.79% 3.96% 5.01% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 -------------------------------------------------------------------------------- UNSUBSIDIZED 7.23% SUBSIDIZED 7.29% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 7/31/15*** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 1.21% AFTER REIMBURSEMENT 1.15%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and are calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through December 1, 2016, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Adviser Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.15% of the Adviser Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after December 1, 2016. If the total annual operating expense ratio of the Adviser Shares is lower than 1.15%, the Adviser Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. HIGH YIELD 2% CREDIT SUISSE LIPPER HIGH USAA HIGH ISSUER CAPPED HIGH YIELD YIELD BOND INCOME FUND BOND INDEX* INDEX FUNDS INDEX ADVISER SHARES 7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00 8/31/2010 10,003.15 10,012.83 9,994.01 10,030.71 9/30/2010 10,299.10 10,278.43 10,298.32 10,316.99 10/31/2010 10,562.46 10,521.42 10,584.57 10,588.61 11/30/2010 10,441.82 10,410.30 10,478.01 10,524.02 12/31/2010 10,630.54 10,601.87 10,690.83 10,732.48 1/31/2011 10,865.51 10,815.36 10,914.07 10,937.44 2/28/2011 11,008.49 10,956.44 11,089.92 11,150.86 3/31/2011 11,044.50 11,001.10 11,112.72 11,212.33 4/30/2011 11,215.08 11,154.07 11,287.05 11,402.05 5/31/2011 11,270.01 11,202.22 11,311.98 11,458.62 6/30/2011 11,160.41 11,115.36 11,186.47 11,296.48 7/31/2011 11,289.19 11,267.87 11,279.37 11,389.73 8/31/2011 10,835.54 10,850.92 10,772.40 10,867.67 9/30/2011 10,479.14 10,546.37 10,391.72 10,488.62 10/31/2011 11,108.10 11,113.26 10,997.53 10,935.08 11/30/2011 10,868.40 10,911.90 10,749.83 10,744.35 12/31/2011 11,158.04 11,181.59 10,995.50 10,977.63 1/31/2012 11,496.57 11,479.26 11,361.51 11,300.22 2/29/2012 11,769.92 11,741.25 11,624.29 11,573.59 3/31/2012 11,754.93 11,743.46 11,626.57 11,622.25 4/30/2012 11,875.84 11,865.31 11,729.87 11,698.18 5/31/2012 11,717.61 11,708.37 11,539.01 11,530.79 6/30/2012 11,964.94 11,926.64 11,755.79 11,703.61 7/31/2012 12,192.55 12,136.39 11,970.90 11,932.28 8/31/2012 12,335.27 12,282.14 12,122.38 12,142.34 9/30/2012 12,506.90 12,436.28 12,290.19 12,342.50 10/31/2012 12,617.02 12,542.85 12,396.25 12,510.75 11/30/2012 12,717.95 12,637.64 12,495.46 12,549.54 12/31/2012 12,918.23 12,826.64 12,692.97 12,766.88 1/31/2013 13,091.44 12,993.26 12,877.22 13,025.23 2/28/2013 13,157.93 13,068.23 12,945.11 13,118.86 3/31/2013 13,291.98 13,203.13 13,080.26 13,281.44 4/30/2013 13,532.21 13,446.12 13,326.30 13,506.02 5/31/2013 13,453.88 13,368.58 13,251.04 13,523.71 6/30/2013 13,101.16 13,020.89 12,906.05 13,160.55 7/31/2013 13,349.28 13,280.09 13,159.51 13,379.59 8/31/2013 13,268.33 13,203.60 13,066.07 13,293.36 9/30/2013 13,400.00 13,332.56 13,205.07 13,385.58 10/31/2013 13,734.85 13,655.18 13,524.21 13,684.01 11/30/2013 13,804.24 13,708.93 13,580.43 13,743.82 12/31/2013 13,879.15 13,792.88 13,662.04 13,826.14 1/31/2014 13,976.40 13,897.93 13,747.62 13,961.33 2/28/2014 14,258.42 14,178.23 14,018.11 14,216.55 3/31/2014 14,292.32 14,216.36 14,058.76 14,282.69 4/30/2014 14,382.74 14,307.88 14,129.31 14,417.38 5/31/2014 14,514.42 14,437.19 14,261.00 14,570.63 6/30/2014 14,636.11 14,559.03 14,382.61 14,716.84 7/31/2014 14,441.61 14,375.51 14,196.82 14,604.62 8/31/2014 14,671.06 14,584.45 14,385.78 14,744.01 9/30/2014 14,363.55 14,276.29 14,108.70 14,528.89 10/31/2014 14,533.86 14,411.65 14,264.48 14,595.51 11/30/2014 14,428.73 14,295.29 14,179.85 14,535.31 12/31/2014 14,220.30 14,049.74 13,967.61 14,290.31 1/31/2015 14,313.87 14,110.14 14,043.60 14,307.20 2/28/2015 14,658.71 14,477.18 14,369.76 14,538.26 3/31/2015 14,578.55 14,413.87 14,312.47 14,449.25 4/30/2015 14,754.91 14,603.22 14,479.99 14,601.30 5/31/2015 14,799.59 14,659.77 14,541.06 14,605.55 6/30/2015 14,579.60 14,457.36 14,326.84 14,370.85 7/31/2015 14,494.96 14,356.27 14,277.56 14,231.58 8/31/2015 14,241.07 14,062.22 14,025.45 13,925.14 9/30/2015 13,875.21 13,710.44 13,648.46 13,612.80 10/31/2015 14,255.52 14,061.63 13,972.21 13,835.00 11/30/2015 13,940.91 13,762.91 13,655.59 13,510.92 12/31/2015 13,589.77 13,356.81 13,288.21 13,034.07 1/31/2016 13,371.36 13,135.39 13,059.71 12,736.51
[END CHART] Data from 7/31/10 through 1/31/16.** The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA High Income Fund Adviser Shares to the Fund's benchmarks listed above (see page 10 for benchmark definitions). *As of December 1, 2015, the Barclays U.S. High Yield 2% Issuer Capped Bond Index replaced the Credit Suisse High Yield Index as it more closely represents the securities held by the Fund. **The performance of the Barclays U.S. High Yield 2% Issuer Capped Bond Index, Credit Suisse High Yield Index, and the Lipper High Yield Bond Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper High Yield Bond Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 14 | USAA HIGH INCOME FUND ================================================================================ o TOP 10 HOLDINGS - 1/31/16 o (% of Net Assets)
% OF NET ASSETS --------------- SPDR Barclays High Yield Bond ETF* .......................... 3.1% iShares iBoxx High Yield Corporate Bond ETF* ...................................... 1.6% NuStar Logistics, LP, 7.63% ................................. 1.5% Neptune Finco Corp. ......................................... 1.4% St. Barbara Ltd. ............................................ 1.3% Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual ......................... 1.1% Frontier Communications Corp. ............................... 1.0% Hawaiian Airlines Pass-Through Trust ........................ 0.9% QBE Capital Funding III Ltd. ................................ 0.9% ILFC E-Capital Trust II ..................................... 0.8%
You will find a complete list of securities that the Fund owns on pages 17-38. *The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] FINANCIALS 18.6% CONSUMER DISCRETIONARY 13.6% ENERGY 12.8% MATERIALS 12.1% TELECOMMUNICATION SERVICES 8.6% INDUSTRIALS 8.3% UTILITIES 6.1% HEALTH CARE 5.5% MONEY MARKET INSTRUMENTS 1.1% EXCHANGE-TRADED FUNDS* 4.8% CONSUMER STAPLES 3.9% INFORMATION TECHNOLOGY 2.9% MUNICIPAL BONDS 0.1%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. *The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. ================================================================================ 16 | USAA HIGH INCOME FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- BONDS (88.1%) CORPORATE OBLIGATIONS (63.5%) CONSUMER DISCRETIONARY (11.9%) ------------------------------ ADVERTISING (0.8%) $ 1,000 Acosta, Inc.(a) 7.75% 10/01/2022 $ 825 1,000 Advantage Sales & Marketing, Inc.(b) 7.50 7/25/2022 889 5,000 Checkout Holding Corp.(b) 7.75 4/11/2022 2,881 5,000 Clear Channel Worldwide Holdings, Inc. 7.63 3/15/2020 4,144 2,240 iHeartCommunications, Inc.(b) 7.18 1/30/2019 1,492 4,310 iHeartCommunications, Inc.(b) 7.93 7/30/2019 2,870 1,000 Lamar Media Corp.(a) 5.75 2/01/2026 1,033 --------- 14,134 --------- APPAREL RETAIL (0.9%) 2,000 Caleres, Inc. 6.25 8/15/2023 1,985 10,000 L Brands, Inc. 6.95 3/01/2033 10,056 2,362 L Brands, Inc. 7.60 7/15/2037 2,492 3,000 The Men's Wearhouse, Inc. 7.00 7/01/2022 2,160 --------- 16,693 --------- AUTO PARTS & EQUIPMENT (0.1%) 3,000 Omega US Sub, LLC(a) 8.75 7/15/2023 2,707 --------- BROADCASTING (0.2%) 4,000 Univision Communications, Inc.(a) 8.50 5/15/2021 3,985 --------- CABLE & SATELLITE (2.8%) 5,000 Cablevision Systems Corp. 8.00 4/15/2020 4,738 5,000 CCO Holdings, LLC & CCO Holdings Capital Corp. 6.63 1/31/2022 5,313 5,000 CCO Holdings, LLC & CCO Holdings Capital Corp. 5.75 1/15/2024 5,156 5,000 CCOH Safari, LLC(a) 5.75 2/15/2026 4,984 5,000 Neptune Finco Corp.(a) 10.13 1/15/2023 5,300 25,000 Neptune Finco Corp.(a) 10.88 10/15/2025 26,500 --------- 51,991 --------- CASINOS & GAMING (2.4%) 4,000 Caesar's Entertainment Operating Co., Inc.(c) 8.50 2/15/2020 3,020 9,800 Caesar's Entertainment Resort Properties, LLC(b) 7.00 10/11/2020 8,590 2,000 Eldorado Resorts, Inc.(a) 7.00 8/01/2023 1,980
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 7,500 Golden Nugget Escrow, Inc.(a) 8.50% 12/01/2021 $ 7,312 2,472 Inn of the Mountain Gods Resort & Casino(a) 9.25 11/30/2020 2,299 4,000 Isle of Capri Casinos 8.88 6/15/2020 4,240 7,000 MGM Resorts International 8.63 2/01/2019 7,805 5,000 Pinnacle Entertainment, Inc. 8.75 5/15/2020 5,225 5,000 Scientific Games International, Inc. 6.25 9/01/2020 2,400 3,000 Scientific Games International, Inc.(a) 7.00 1/01/2022 2,835 --------- 45,706 --------- DEPARTMENT STORES (0.9%) 10,346 J.C. Penney Corp., Inc.(b) 6.00 5/22/2018 10,126 2,100 Macy's Retail Holdings, Inc. 7.88 8/15/2036 2,164 5,000 Neiman Marcus Group Ltd., LLC(b),(d) 4.25 10/25/2020 4,352 --------- 16,642 --------- HOMEBUILDING (0.6%) 4,000 Beazer Homes USA, Inc.(e) 9.13 5/15/2019 3,900 2,000 CalAtlantic Group, Inc. 5.88 11/15/2024 2,085 3,000 KB Home 7.50 9/15/2022 2,856 3,000 M/I Homes, Inc.(a) 6.75 1/15/2021 2,925 --------- 11,766 --------- HOTELS, RESORTS & CRUISE LINES (0.2%) 3,000 Royal Caribbean Cruises Ltd. 5.25 11/15/2022 3,090 --------- LEISURE FACILITIES (0.1%) 3,000 Clubcorp Club Operations(a) 8.25 12/15/2023 2,880 --------- MOVIES & ENTERTAINMENT (0.1%) 2,000 Production Resource Group, Inc. 8.88 5/01/2019 1,450 --------- PUBLISHING (0.7%) 195 American Media, Inc.(a) 13.50 6/15/2018 193 4,834 Cengage Learning Acquisitions, Inc.(b) 7.00 3/31/2020 4,723 7,500 McGraw-Hill Global Education Holdings, LLC 9.75 4/01/2021 8,006 --------- 12,922 --------- RESTAURANTS (0.2%) 4,000 NPC International, Inc. & NPC Operating Co., Inc. 10.50 1/15/2020 4,125 --------- SPECIALIZED CONSUMER SERVICES (0.2%) 4,927 Weight Watchers International, Inc.(b) 4.00 4/02/2020 3,438 --------- SPECIALTY STORES (1.4%) 7,000 Guitar Center, Inc.(a) 6.50 4/15/2019 5,933 2,000 Guitar Center, Inc.(a) 9.63 4/15/2020 1,380 4,762 Toys R Us Property Co. I, LLC(b) 6.00 8/21/2019 4,293 15,000 Toys R Us Property Co. II, LLC 8.50 12/01/2017 13,957 --------- 25,563 ---------
================================================================================ 18 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- TIRES & RUBBER (0.3%) $ 5,000 Goodyear Tire & Rubber Co. 6.50% 3/01/2021 $ 5,269 --------- Total Consumer Discretionary 222,361 --------- CONSUMER STAPLES (1.2%) ----------------------- DRUG RETAIL (0.1%) 2,000 Rite Aid Corp.(a) 6.13 4/01/2023 2,118 --------- HOUSEHOLD PRODUCTS (0.2%) 3,000 Central Garden & Pet Co. 6.13 11/15/2023 3,082 --------- PACKAGED FOODS & MEAT (0.9%) 5,000 B&G Foods, Inc. 4.63 6/01/2021 5,006 2,250 Chiquita Brands International, Inc. 7.88 2/01/2021 2,386 6,000 Post Holdings, Inc.(a) 8.00 7/15/2025 6,465 3,000 Smithfield Foods, Inc.(a) 5.88 8/01/2021 3,052 --------- 16,909 --------- Total Consumer Staples 22,109 --------- ENERGY (10.6%) -------------- COAL & CONSUMABLE FUELS (0.1%) 6,500 Peabody Energy Corp. 6.00 11/15/2018 585 --------- OIL & GAS DRILLING (0.4%) 10,000 Noble Holding International Ltd. 5.95 4/01/2025 5,043 1,000 Paragon Offshore plc(a) 7.25 8/15/2024 129 5,212 Schahin II Finance Co. SPV Ltd.(a),(c) 5.88 9/25/2023 1,068 3,000 Transocean, Inc.(e) 7.13 12/15/2021 1,770 --------- 8,010 --------- OIL & GAS EQUIPMENT & SERVICES (0.5%) 3,000 Archrock Partners, LP & Archrock Partners Finance Corp. 6.00 4/01/2021 2,250 3,000 Basic Energy Services(e) 7.75 2/15/2019 813 2,000 Brand Energy & Infrastructure Service, Inc.(a) 8.50 12/01/2021 1,640 1,500 CSI Compressco, LP & CSI Compressco Finance, Inc. 7.25 8/15/2022 983 5,880 Weatherford International Ltd. 5.13 9/15/2020 4,219 --------- 9,905 --------- OIL & GAS EXPLORATION & PRODUCTION (2.1%) 4,000 Alta Mesa Holdings, LP & Alta Mesa Finance Services Corp.(f) 9.63 10/15/2018 1,140 1,500 Approach Resources, Inc. 7.00 6/15/2021 304 6,000 Bill Barrett Corp. 7.00 10/15/2022 3,375 3,000 BreitBurn Energy Partners, LP 7.88 4/15/2022 502 6,162 California Resources Corp.(a) 8.00 12/15/2022 2,465 2,297 California Resources Corp. 6.00 11/15/2024 442
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 2,887 Chesapeake Energy Corp.(a) 8.00% 12/15/2022 $ 1,249 500 Clayton Williams Energy, Inc. 7.75 4/01/2019 268 3,000 Comstock Resources, Inc. 7.75 4/01/2019 382 3,000 Comstock Resources, Inc.(a) 10.00 3/15/2020 1,177 5,000 Devon Energy Corp. 5.85 12/15/2025 4,678 3,000 EP Energy, LLC & Everest Acquisition Finance, Inc. 9.38 5/01/2020 1,290 3,000 EV Energy Partners, LP & EV Energy Finance Corp.(e) 8.00 4/15/2019 1,005 3,000 Fieldwood Energy, LLC(b) 8.38 9/30/2020 519 3,000 Goodrich Petroleum Corp. 8.88 3/15/2019 150 1,000 Halcon Resources Corp.(a) 8.63 2/01/2020 634 1,950 Halcon Resources Corp.(a) 12.00 2/15/2022 1,160 6,500 Linn Energy, LLC & Linn Energy Finance Corp. 6.50 9/15/2021 764 5,000 Newfield Exploration Co. 5.38 1/01/2026 4,050 500 Northern Oil and Gas, Inc. 8.00 6/01/2020 283 1,000 Northern Oil and Gas, Inc. 8.00 6/01/2020 565 2,000 PDC Energy, Inc. 7.75 10/15/2022 1,910 5,000 Quicksilver Resources, Inc.(b),(c) 7.00 6/21/2019 1,335 3,000 Resolute Energy Corp. 8.50 5/01/2020 1,301 5,000 Rex Energy Corp. 8.88 12/01/2020 625 5,000 Sabine Oil & Gas, LLC(b),(c) 8.75 12/31/2018 167 6,000 Samson Investment Co.(b),(c) 5.00 9/25/2018 165 4,000 SandRidge Energy, Inc.(a) 8.75 6/01/2020 760 7,000 SandRidge Energy, Inc. 7.50 2/15/2023 22 5,000 Southwestern Energy Co. 4.95 1/23/2025 3,106 2,000 Swift Energy Co.(c) 7.88 3/01/2022 158 1,000 Triangle USA Petroleum Corp.(a) 6.75 7/15/2022 175 4,000 Ultra Petroleum Corp.(a) 6.13 10/01/2024 580 2,500 WPX Energy, Inc. 8.25 8/01/2023 1,606 --------- 38,312 --------- OIL & GAS REFINING & MARKETING (0.7%) 4,000 CITGO Petroleum Corp.(a) 6.25 8/15/2022 3,850 5,000 Northern Tier Energy, LLC & Northern Tier Finance Corp. 7.13 11/15/2020 4,782 5,000 PBF Holding Co., LLC(a) 7.00 11/15/2023 4,581 --------- 13,213 --------- OIL & GAS STORAGE & TRANSPORTATION (6.8%) 5,000 Blue Racer Midstream, LLC & Blue Racer Finance Corp.(a) 6.13 11/15/2022 3,762 10,000 Boardwalk Pipelines, LP 4.95 12/15/2024 8,483 5,000 Crestwood Midstream Partners, LP 6.00 12/15/2020 3,194 15,000 DCP Midstream, LLC(a) 5.85 5/21/2043 8,625 2,500 Energy Transfer Equity, LP 7.50 10/15/2020 2,212 5,000 Energy Transfer Partners, LP 3.35(g) 11/01/2066 2,950
================================================================================ 20 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 12,915 Enterprise Products Operating, LLC 7.00% 6/01/2067 $ 10,364 9,000 Enterprise Products Operating, LLC 7.03 1/15/2068 9,022 5,061 Kinder Morgan Inc. 7.80 8/01/2031 4,862 5,000 Martin Midstream Partners, LP & Martin Midstream Finance Corp. 7.25 2/15/2021 4,300 3,000 NGL Energy Partners, LP & NGL Energy Finance Corp. 6.88 10/15/2021 2,115 12,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 11,340 3,000 NGPL PipeCo, LLC(a) 9.63 6/01/2019 2,820 5,000 ONEOK, Inc. 4.25 2/01/2022 3,475 5,000 Regency Energy Partners, LP & Regency Energy Finance Corp. 5.88 3/01/2022 4,584 13,000 Sabine Pass Liquefaction, LLC 5.63 2/01/2021 11,960 5,000 Southern Union Co. 3.35(g) 11/01/2066 2,537 2,000 Sunoco, LP & Sunoco Finance Corp.(a) 5.50 8/01/2020 1,878 2,000 Sunoco, LP & Sunoco Finance Corp.(a) 6.38 4/01/2023 1,855 5,000 Targa Pipeline Partners, LP & Atlas Pipeline Finance Corp. 6.63 10/01/2020 4,175 3,000 Targa Resources Partners, LP 6.88 2/01/2021 2,610 3,000 Targa Resources Partners, LP 5.25 5/01/2023 2,340 3,000 TEPPCO Partners, LP 7.00 6/01/2067 2,362 5,000 Tesoro Logistics, LP & Tesoro Logistics Finance Corp. 6.13 10/15/2021 4,550 1,000 Tesoro Logistics, LP & Tesoro Logistics Finance Corp.(a) 6.25 10/15/2022 915 3,000 Transcontinental Gas Pipe Line Co., LLC(a) 7.85 2/01/2026 3,134 10,000 Williams Companies, Inc. 4.55 6/24/2024 6,565 --------- 126,989 --------- Total Energy 197,014 --------- FINANCIALS (9.4%) ----------------- ASSET MANAGEMENT & CUSTODY BANKS (0.5%) 10,000 Prospect Capital Corp. 5.00 7/15/2019 10,050 --------- CONSUMER FINANCE (1.5%) 5,000 Ally Financial, Inc. 5.75 11/20/2025 5,000 4,000 American Express Co. 6.80 9/01/2066 3,955 5,000 Credit Acceptance Corp. 6.13 2/15/2021 4,806 15,000 Navient Corp. 7.25 1/25/2022 13,407 1,000 Navient Corp. 6.13 3/25/2024 825 --------- 27,993 --------- INVESTMENT BANKING & BROKERAGE (0.0%) 1,000 Lehman Brothers Holdings, Inc.(c) 5.75 4/25/2011 84 1,500 Lehman Brothers Treasury Co. B.V.(c) 6.88 12/29/2010 191 --------- 275 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- LIFE & HEALTH INSURANCE (1.8%) $ 3,000 American Equity Investment Life Holding Co. 6.63% 7/15/2021 $ 3,135 3,000 Forethought Financial Group(a) 8.63 4/15/2021 3,461 8,000 Lincoln National Corp. 7.00(g) 5/17/2066 5,980 2,000 MetLife, Inc. 10.75 8/01/2069 3,076 10,000 Prudential Financial, Inc. 5.20 3/15/2044 9,712 10,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 8,150 --------- 33,514 --------- MULTI-LINE INSURANCE (1.2%) 20,000 Genworth Holdings, Inc. 6.15 11/15/2066 5,400 8,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 6,180 10,000 Nationwide Mutual Insurance Co.(a) 2.80(g) 12/15/2024 9,695 --------- 21,275 --------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.0%) 1,000 Washington Mutual Bank(c) 5.55 6/16/2010 213 --------- PROPERTY & CASUALTY INSURANCE (1.3%) 10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,686 3,780 Hanover Insurance Group, Inc. 8.21 2/03/2027 4,724 5,400 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 6,278 2,000 Zenith National Insurance Capital Trust I(a) 8.55 8/01/2028 1,965 --------- 23,653 --------- REGIONAL BANKS (1.1%) 5,000 Banc of California, Inc. 5.25 4/15/2025 5,020 10,409 Regions Bank 6.45 6/26/2037 12,693 1,790 Regions Financial Corp. 7.38 12/10/2037 2,323 --------- 20,036 --------- REINSURANCE (0.1%) 2,000 Alterra USA Holdings Ltd.(a) 7.20 4/14/2017 2,104 --------- REITs - HEALTH CARE (0.2%) 4,000 Sabra Health Care, LP & Sabra Capital Corp. 5.50 2/01/2021 4,090 --------- REITs - SPECIALIZED (0.2%) 1,000 Communications Sales & Leasing, Inc.(a) 6.00 4/15/2023 958 2,000 Communications Sales & Leasing, Inc. 8.25 10/15/2023 1,775 --------- 2,733 --------- SPECIALIZED FINANCE (0.5%) 10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 9,650 --------- THRIFTS & MORTGAGE FINANCE (1.0%) 5,000 Ocwen Financial Corp. 6.63 5/15/2019 4,437 5,000 PHH Corp. 6.38 8/15/2021 4,362
================================================================================ 22 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 8,031 Walter Investment Management Corp.(b) 4.75% 12/19/2020 $ 6,280 5,000 Walter Investment Management Corp. 7.88 12/15/2021 3,638 --------- 18,717 --------- Total Financials 174,303 --------- HEALTH CARE (5.2%) ------------------ HEALTH CARE EQUIPMENT (0.2%) 5,000 Universal Hospital Services, Inc. 7.63 8/15/2020 4,425 --------- HEALTH CARE FACILITIES (2.5%) 10,000 HCA, Inc. 5.25 4/15/2025 10,275 13,500 HCA, Inc. 5.88 2/15/2026 13,804 2,000 HealthSouth Corp.(a) 5.75 11/01/2024 1,984 2,000 HealthSouth Corp.(a) 5.75 9/15/2025 1,950 5,000 Kindred Healthcare, Inc. 6.38 4/15/2022 4,087 3,000 LifePoint Health, Inc. 5.88 12/01/2023 3,120 2,000 Tenet Healthcare Corp. 8.00 8/01/2020 2,015 11,000 Tenet Healthcare Corp. 6.75 6/15/2023 10,230 --------- 47,465 --------- HEALTH CARE SERVICES (0.3%) 1,500 Centene Escrow Corp.(d) 5.63 2/15/2021 1,530 1,500 Centene Escrow Corp.(d) 6.13 2/15/2024 1,545 2,000 DaVita HealthCare Partners, Inc. 5.13 7/15/2024 2,015 --------- 5,090 --------- HEALTH CARE SUPPLIES (0.4%) 2,930 DJO Finance, LLC. & DJO Finance Corp.(a) 8.13 6/15/2021 2,476 1,000 DJO Finance, LLC. & DJO Finance Corp.(e) 9.75 10/15/2017 1,003 3,000 Halyard Health, Inc. 6.25 10/15/2022 2,919 --------- 6,398 --------- PHARMACEUTICALS (1.8%) 5,000 Endo Finance, LLC & Endo Ltd.(a) 6.00 7/15/2023 5,050 9,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 7,853 10,000 Valeant Pharmaceuticals International, Inc.(a) 6.38 10/15/2020 9,650 13,000 Valeant Pharmaceuticals International, Inc.(a) 6.13 4/15/2025 11,716 --------- 34,269 --------- Total Health Care 97,647 --------- INDUSTRIALS (6.5%) ------------------ AEROSPACE & DEFENSE (0.7%) 3,000 Constellis Holdings, LLC & Constellis Finance Corp.(a) 9.75 5/15/2020 2,306 15,000 Textron Financial Corp.(a) 6.00 2/15/2067 10,688 --------- 12,994 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- AIRLINES (2.6%) $ 221 America West Airlines, Inc. Pass-Through Trust 6.87% 7/02/2018 $ 221 4,280 American Airlines, Inc. Pass-Through Trust 5.63 1/15/2021 4,318 5,000 Continental Airlines, Inc. Pass-Through Trust 6.13 4/29/2018 5,231 2,465 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 2,588 17,641 Hawaiian Airlines Pass-Through Trust 4.95 1/15/2022 16,635 5,000 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 5,031 5,000 US Airways Group, Inc. Pass-Through Trust 5.45 6/03/2018 4,994 2,224 US Airways Group, Inc. Pass-Through Trust(f) 9.75 4/22/2020 2,502 5,950 Virgin Australia Holdings Ltd. Pass-Through Trust(a) 7.13 10/23/2018 5,980 --------- 47,500 --------- COMMERCIAL PRINTING (0.1%) 3,000 R.R. Donnelley & Sons Co. 6.00 4/01/2024 2,546 --------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%) 5,000 Navistar International Corp. 8.25 11/01/2021 3,137 --------- ELECTRICAL COMPONENTS & EQUIPMENT (0.2%) 5,079 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 4,444 --------- INDUSTRIAL CONGLOMERATES (0.6%) 4,000 GE Capital Trust I 6.38 11/15/2067 4,313 5,921 General Electric Co. 5.00 -(h) 6,091 --------- 10,404 --------- MARINE (0.1%) 1,000 Navios Maritime Acquisition Corp. & Navios Acquisition Finance U.S., Inc.(a) 8.13 11/15/2021 799 5,000 Navios Maritime Holdings, Inc. & Navios Maritime Finance II U.S., Inc.(a) 7.38 1/15/2022 1,819 --------- 2,618 --------- TRADING COMPANIES & DISTRIBUTORS (1.4%) 6,034 ILFC E-Capital Trust I(a) 4.49(g) 12/21/2065 5,430 16,362 ILFC E-Capital Trust II(a) 4.74(g) 12/21/2065 14,808 4,000 United Rentals North America, Inc. 5.75 11/15/2024 3,710 3,000 United Rentals North America, Inc. 5.50 7/15/2025 2,689 --------- 26,637 --------- TRUCKING (0.6%) 3,000 Ahern Rentals, Inc.(a) 7.38 5/15/2023 2,205 4,000 Avis Budget Car Rental, LLC & Avis Budget Finance, Inc.(a) 5.13 6/01/2022 3,793 6,860 YRC Worldwide, Inc.(b) 8.00 2/13/2019 5,719 --------- 11,717 --------- Total Industrials 121,997 ---------
================================================================================ 24 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (2.5%) ----------------------------- APPLICATION SOFTWARE (0.3%) $ 5,000 Informatica, LLC(a) 7.13% 7/15/2023 $ 4,500 --------- COMMUNICATIONS EQUIPMENT (0.3%) 3,500 Avaya, Inc.(a) 7.00 4/01/2019 2,345 3,500 Avaya, Inc.(a) 10.50 3/01/2021 892 3,000 CommScope Technologies Finance, LLC(a) 6.00 6/15/2025 2,925 --------- 6,162 --------- DATA PROCESSING & OUTSOURCED SERVICES (0.6%) 5,000 First Data Corp.(a) 5.38 8/15/2023 5,112 6,000 First Data Corp.(a) 7.00 12/01/2023 6,060 --------- 11,172 --------- HOME ENTERTAINMENT SOFTWARE (0.3%) 5,000 Activision Blizzard, Inc.(a) 5.63 9/15/2021 5,263 --------- SEMICONDUCTORS (0.2%) 5,000 Micron Technology, Inc.(a) 5.63 1/15/2026 3,888 --------- SYSTEMS SOFTWARE (0.5%) 3,781 BMC Software Finance, Inc.(b) 5.00 9/10/2020 3,034 2,000 BMC Software Finance, Inc.(a) 8.13 7/15/2021 1,233 6,000 Ensemble S Merger Sub, Inc.(a) 9.00 9/30/2023 5,617 --------- 9,884 --------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%) 5,000 Denali Borrower, LLC & Denali Finance Corp.(a) 5.63 10/15/2020 5,275 --------- Total Information Technology 46,144 --------- MATERIALS (4.6%) ---------------- ALUMINUM (0.3%) 3,000 Alcoa, Inc. 5.13 10/01/2024 2,475 4,000 Aleris International, Inc.(e) 7.63 2/15/2018 3,500 --------- 5,975 --------- COMMODITY CHEMICALS (0.4%) 5,000 Hexion U.S. Finance Corp. 8.88 2/01/2018 3,425 5,000 Hexion U.S. Finance Corp. 6.63 4/15/2020 3,900 --------- 7,325 --------- DIVERSIFIED METALS & MINING (1.1%) 5,000 Compass Minerals International, Inc.(a) 4.88 7/15/2024 4,600 15,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 6,450 20,000 Freeport-McMoRan, Inc. 5.45 3/15/2043 7,990 4,000 Thompson Creek Metals Co., Inc.(e) 7.38 6/01/2018 620 --------- 19,660 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- METAL & GLASS CONTAINERS (1.5%) $ 2,000 Ardagh Packaging Finance plc & Ardagh MP Holdings USA, Inc.(a) 6.25% 1/31/2019 $ 1,945 4,000 Ardagh Packaging Finance plc(a) 9.13 10/15/2020 4,020 4,925 BWAY Holding Co.(b) 5.50 8/14/2020 4,663 8,500 Reynolds Group Issuer, Inc. & Reynolds Group Issuer, LLC 7.88 8/15/2019 8,829 9,000 Reynolds Group Issuer, Inc. & Reynolds Group Issuer, LLC 9.88 8/15/2019 8,809 --------- 28,266 --------- PAPER PACKAGING (0.4%) 7,000 Sealed Air Corp.(a) 6.88 7/15/2033 7,219 --------- STEEL (0.9%) 10,456 Allegheny Ludlum Corp. 6.95 12/15/2025 5,437 10,000 Cliffs Natural Resources, Inc.(a) 8.25 3/31/2020 7,250 3,000 Fortescue Metals Group Ltd.(b),(d) 4.25 6/30/2019 2,089 4,000 JMC Steel Group(a) 8.25 3/15/2018 3,000 --------- 17,776 --------- Total Materials 86,221 --------- TELECOMMUNICATION SERVICES (7.5%) --------------------------------- ALTERNATIVE CARRIERS (0.5%) 5,000 Cogent Communications Finance, Inc.(a) 5.63 4/15/2021 4,775 5,000 Level 3 Financing, Inc. 6.13 1/15/2021 5,250 --------- 10,025 --------- INTEGRATED TELECOMMUNICATION SERVICES (3.7%) 10,000 CenturyLink, Inc. 5.80 3/15/2022 9,287 5,000 CenturyLink, Inc. 6.75 12/01/2023 4,750 5,000 Frontier Communications Corp.(a) 10.50 9/15/2022 4,881 20,000 Frontier Communications Corp.(a) 11.00 9/15/2025 19,350 9,000 Frontier Communications Corp. 9.00 8/15/2031 7,200 10,000 Verizon Communications, Inc. 4.50 9/15/2020 10,839 13,000 Windstream Corp. 7.50 6/01/2022 10,075 3,000 Windstream Corp. 6.38 8/01/2023 2,183 --------- 68,565 --------- WIRELESS TELECOMMUNICATION SERVICES (3.3%) 12,000 Sprint Communications, Inc. 7.00 8/15/2020 8,880 20,000 Sprint Corp. 7.25 9/15/2021 14,500 20,000 Sprint Corp. 7.63 2/15/2025 13,762 4,000 T-Mobile USA, Inc. 6.63 11/15/2020 4,134 4,500 T-Mobile USA, Inc. 6.13 1/15/2022 4,601
================================================================================ 26 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 10,000 T-Mobile USA, Inc. 6.50% 1/15/2024 $ 10,150 5,000 Zayo Group, LLC & Zayo Capital, Inc. 6.38 5/15/2025 4,863 ----------- 60,890 ----------- Total Telecommunication Services 139,480 ----------- UTILITIES (4.1%) ---------------- ELECTRIC UTILITIES (1.2%) 34 FPL Energy National Wind Portfolio, LLC(a) 6.13 3/25/2019 35 67 FPL Energy Wind Funding, LLC(a) 6.88 6/27/2017 65 2,000 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 1,370 2,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 1,503 2,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 1,865 10,000 PPL Capital Funding, Inc. 6.70 3/30/2067 7,702 5,000 Talen Energy Supply, LLC 6.50 6/01/2025 3,425 16,960 Texas Competitive Electric Holdings Co., LLC(b) 4.91 10/10/2017 5,182 3,000 Texas Competitive Electric Holdings Co., LLC & Tech Finance, Inc.(a),(c) 11.50 10/01/2020 975 ----------- 22,122 ----------- GAS UTILITIES (0.2%) 4,000 Southern Star Central Corp.(a) 5.13 7/15/2022 3,380 ----------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (1.8%) 7,000 AES Corp. 7.38 7/01/2021 7,245 5,000 Calpine Corp. 5.75 1/15/2025 4,513 4,000 DPL, Inc. 6.75 10/01/2019 4,060 5,000 Dynegy, Inc. 7.38 11/01/2022 4,450 5,000 Dynegy, Inc. 5.88 6/01/2023 4,075 15,000 GenOn Energy, Inc. 9.88 10/15/2020 10,275 ----------- 34,618 ----------- MULTI-UTILITIES (0.9%) 10,790 Integrys Holding, Inc. 6.11 12/01/2066 7,878 11,025 Puget Sound Energy, Inc. 6.97 6/01/2067 8,462 ----------- 16,340 ----------- Total Utilities 76,460 ----------- Total Corporate Obligations (cost: $1,393,485) 1,183,736 ----------- CONVERTIBLE SECURITIES (0.0%) MATERIALS (0.0%) ---------------- GOLD (0.0%) 467 Hycroft Mining Corp.(i) (cost: $447) 15.00 10/22/2020 565 -----------
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- EURODOLLAR AND YANKEE OBLIGATIONS (15.8%) CONSUMER DISCRETIONARY (1.3%) ----------------------------- CABLE & SATELLITE (0.9%) $ 2,000 Altice Luxembourg S.A.(a) 7.75% 5/15/2022 $ 1,875 7,000 Altice Luxembourg S.A.(a) 7.63 2/15/2025 6,247 3,000 Numericable Group S.A.(a) 4.88 5/15/2019 2,993 5,000 Numericable Group S.A.(a) 6.00 5/15/2022 4,950 --------- 16,065 --------- HOMEBUILDING (0.1%) 3,000 Brookfield Residential Properties, Inc.(a) 6.38 5/15/2025 2,543 --------- RESTAURANTS (0.3%) 5,000 1011778 B.C. ULC & New Red Finance, Inc.(a) 4.63 1/15/2022 5,037 --------- Total Consumer Discretionary 23,645 --------- CONSUMER STAPLES (0.5%) ----------------------- PACKAGED FOODS & MEAT (0.5%) 1,000 JBS Investments GmbH(a) 7.25 4/03/2024 817 8,000 JBS USA, LLC & JBS USA Finance, Inc.(a) 5.88 7/15/2024 6,480 3,000 Minerva Luxembourg S.A. 7.75 1/31/2023 2,813 --------- 10,110 --------- Total Consumer Staples 10,110 --------- ENERGY (0.6%) ------------- OIL & GAS STORAGE & TRANSPORTATION (0.6%) 13,000 TransCanada Trust 5.63 5/20/2075 11,715 --------- FINANCIALS (2.2%) ----------------- DIVERSIFIED BANKS (0.8%) 3,500 BayernLB Capital Trust l 6.20 -(h) 3,478 5,000 Royal Bank of Scotland Group plc 7.64 -(h) 5,163 5,000 Royal Bank of Scotland Group plc 9.50 3/16/2022 5,333 --------- 13,974 --------- DIVERSIFIED CAPITAL MARKETS (0.3%) 5,000 Deutsche Bank Capital Trust IV 4.59(g) -(h) 5,002 --------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%) 2,000 ING Capital Funding Trust III 4.21(g) -(h) 1,977 --------- PROPERTY & CASUALTY INSURANCE (1.0%) 15,000 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 16,556 4,000 XLIT Ltd. 6.50 -(h) 2,912 --------- 19,468 --------- Total Financials 40,421 ---------
================================================================================ 28 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- INDUSTRIALS (1.7%) ------------------ AEROSPACE & DEFENSE (0.4%) $ 12,000 Bombardier, Inc.(a) 7.50% 3/15/2025 $ 8,310 --------- AIRLINES (1.0%) 1,000 Air Canada(a) 7.75 4/15/2021 1,005 2,500 Air Canada Pass-Through Trust(a) 6.63 5/15/2018 2,509 5,000 Air Canada Pass-Through Trust(a) 5.00 9/15/2020 4,613 10,156 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 9,991 --------- 18,118 --------- TRADING COMPANIES & DISTRIBUTORS (0.3%) 5,250 Ashtead Capital, Inc.(a) 6.50 7/15/2022 5,381 --------- Total Industrials 31,809 --------- INFORMATION TECHNOLOGY (0.1%) ----------------------------- SEMICONDUCTOR EQUIPMENT (0.1%) 4,000 Global A&T Electronics(a) 10.00 2/01/2019 2,950 --------- MATERIALS (7.0%) ---------------- COMMODITY CHEMICALS (0.5%) 10,000 Braskem Finance Ltd. 6.45 2/03/2024 8,825 --------- CONSTRUCTION MATERIALS (0.5%) 1,000 CEMEX Finance, LLC(a) 9.38 10/12/2022 1,015 1,500 CEMEX Finance, LLC(a) 6.00 4/01/2024 1,286 3,000 CEMEX SAB de C.V.(a) 6.50 12/10/2019 2,839 5,000 CEMEX SAB de C.V.(a) 6.13 5/05/2025 4,292 --------- 9,432 --------- DIVERSIFIED METALS & MINING (1.5%) 5,000 First Quantum Minerals Ltd.(a) 7.25 5/15/2022 2,275 10,000 Glencore Funding, LLC(a) 4.13 5/30/2023 6,810 1,000 Imperial Metals Corp.(a) 7.00 3/15/2019 880 15,000 Teck Resources Ltd. 4.75 1/15/2022 8,287 15,000 Teck Resources Ltd. 6.13 10/01/2035 6,975 5,000 Vedanta Resources plc(a) 8.25 6/07/2021 2,908 --------- 28,135 --------- GOLD (2.6%) 3,000 Alamos Gold, Inc.(a) 7.75 4/01/2020 2,513 10,000 Eldorado Gold Corp.(a) 6.13 12/15/2020 8,425 2,975 Kinross Gold Corp. 5.95 3/15/2024 1,859 10,000 New Gold, Inc.(a) 6.25 11/15/2022 7,525 4,000 Newcrest Finance Property Ltd.(a) 4.20 10/01/2022 3,429 25,000 St. Barbara Ltd.(a) 8.88 4/15/2018 24,375 --------- 48,126 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- METAL & GLASS CONTAINERS (0.2%) $ 5,000 Ardagh Packaging Finance plc & Ardagh MP Holdings USA, Inc.(a) 6.00% 6/30/2021 $ 4,538 --------- PAPER PACKAGING (0.4%) 6,200 Smurfit Kappa Treasury Funding Ltd. 7.50 11/20/2025 6,851 --------- PAPER PRODUCTS (0.3%) 5,000 Sappi Papier Holding GmbH(a) 6.63 4/15/2021 5,100 --------- PRECIOUS METALS & MINERALS (0.3%) 5,000 Fresnillo plc(a) 5.50 11/13/2023 5,050 --------- STEEL (0.7%) 20,000 ArcelorMittal 8.00 10/15/2039 14,200 --------- Total Materials 130,257 --------- TELECOMMUNICATION SERVICES (0.6%) --------------------------------- ALTERNATIVE CARRIERS (0.1%) 3,000 Intelsat Jackson Holdings S.A. 7.25 10/15/2020 2,595 --------- WIRELESS TELECOMMUNICATION SERVICES (0.5%) 2,000 Altice Finco S.A.(a) 7.63 2/15/2025 1,850 5,000 Digicel Ltd.(a) 6.00 4/15/2021 4,381 3,000 Digicel Ltd.(a) 6.75 3/01/2023 2,595 --------- 8,826 --------- Total Telecommunication Services 11,421 --------- UTILITIES (1.8%) ---------------- ELECTRIC UTILITIES (1.4%) 5,000 EDP Finance B.V.(a) 5.25 1/14/2021 5,146 10,000 Electricite De France S.A.(a) 5.25 -(h) 9,000 10,975 Enel S.p.A.(a) 8.75 9/24/2073 12,100 --------- 26,246 --------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.4%) 7,000 AES Gener S.A.(a) 8.38 12/18/2073 6,877 --------- Total Utilities 33,123 --------- Total Eurodollar and Yankee Obligations (cost: $317,623) 295,451 --------- COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%) FINANCIALS (0.3%) ----------------- 4,483 Countrywide Home Loans 1.39(g) 2/25/2035 2,732 2,455 Wells Fargo Mortgage Backed Securities Trust 2.73(g) 4/25/2035 2,321 --------- Total Financials 5,053 --------- Total Collateralized Mortgage Obligations (cost: $5,092) 5,053 ---------
================================================================================ 30 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- COMMERCIAL MORTGAGE SECURITIES (3.6%) FINANCIALS (3.6%) ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (3.6%) $ 6,900 Banc of America Commercial Mortgage, Inc. 5.42% 10/10/2045 $ 6,887 5,000 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 5,169 8,610 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 8,566 5,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.57 1/12/2045 5,009 2,500 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 2,491 2,997 Citigroup Commercial Mortgage Trust 6.34 12/10/2049 2,568 15,000 Credit Suisse Commercial Mortgage Pass-Through Trust 0.62 2/15/2040 14,251 5,000 FHLMC Multifamily Structured Pass-Through Certificates(d) 3.15 11/25/2025 5,150 5,000 GE Capital Commercial Mortgage Corp. 5.61 11/10/2045 4,983 1,008 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 1,022 1,608 Merrill Lynch Mortgage Trust 5.68 7/12/2038 1,608 5,000 Merrill Lynch Mortgage Trust 5.05 8/12/2039 4,964 4,000 Morgan Stanley Capital I Trust 5.68 3/12/2044 3,983 --------- 66,651 --------- INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%) 2,444 Banc of America Commercial Mortgage, Inc.(a) 5.43 12/10/2042 132 488 Credit Suisse First Boston Corp., acquired 6/13/2003; cost $24(j) 1.91 5/17/2040 15 --------- 147 --------- Total Financials 66,798 --------- Total Commercial Mortgage Securities (cost: $68,265) 66,798 --------- U.S. TREASURY SECURITIES (0.0%) NOTES (0.0%) 550 2.00%, 2/15/2025(k) (cost: $541) 2.00 2/15/2025 554 --------- MUNICIPAL BONDS (0.1%) CASINOS & GAMING (0.0%) 5,193 Mashantucket (Western) Pequot Tribe(i) 7.35 7/01/2026 428 --------- GENERAL OBLIGATION (0.1%) 1,500 Atlantic City 7.00 3/01/2028 1,553 --------- Total Municipal Bonds (cost: $4,514) 1,981 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 31 ================================================================================
--------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------------------- EXCHANGE-TRADED FUNDS (4.8%) 383 iShares iBoxx High Yield Corporate Bond ETF $ 30,328 1,752 SPDR Barclays High Yield Bond ETF 58,174 ---------- Total Exchange-Traded Funds (cost: $96,394) 88,502 ---------- Total Bonds (cost: $1,886,361) 1,642,640 ---------- EQUITY SECURITIES (9.2%) COMMON STOCKS (3.0%) CONSUMER DISCRETIONARY (0.4%) ----------------------------- AUTO PARTS & EQUIPMENT (0.1%) 10,001 Lear Corp. 1,038 ---------- CABLE & SATELLITE (0.1%) 38,950 Comcast Corp. "A" 2,170 ---------- CASINOS & GAMING (0.0%) 13,500 Las Vegas Sands Corp. 609 ---------- GENERAL MERCHANDISE STORES (0.1%) 15,215 Target Corp. 1,102 ---------- HOME FURNISHINGS (0.1%) 27,070 Tempur Sealy International, Inc.* 1,633 ---------- HOTELS, RESORTS & CRUISE LINES (0.0%) 25,400 Hyatt Hotels Corp. "A"* 983 ---------- Total Consumer Discretionary 7,535 ---------- CONSUMER STAPLES (0.2%) ----------------------- DRUG RETAIL (0.1%) 18,400 CVS Health Corp. 1,777 ---------- HOUSEHOLD PRODUCTS (0.1%) 11,242 Kimberly-Clark Corp. 1,444 ---------- Total Consumer Staples 3,221 ---------- ENERGY (0.1%) ------------- INTEGRATED OIL & GAS (0.1%) 8,522 Chevron Corp. 737 32,263 Royal Dutch Shell plc ADR "A" 1,417 ---------- 2,154 ---------- OIL & GAS EQUIPMENT & SERVICES (0.0%) 88,602 Deepocean Group Holdings AS, acquired 6/28/2011; cost $1,636*(j),(l) 572 ----------
================================================================================ 32 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION (0.0%) 22,883 Thunderbird Resources Equity, Inc., acquired 5/27/2014; cost $1,821*(j),(l) $ 22 ---------- Total Energy 2,748 ---------- FINANCIALS (0.8%) ----------------- ASSET MANAGEMENT & CUSTODY BANKS (0.1%) 202,000 Prospect Capital Corp. 1,226 ---------- CONSUMER FINANCE (0.0%) 13,639 Synchrony Financial* 388 ---------- DIVERSIFIED BANKS (0.1%) 18,507 JPMorgan Chase & Co. 1,101 ---------- LIFE & HEALTH INSURANCE (0.1%) 21,952 MetLife, Inc. 980 ---------- REGIONAL BANKS (0.2%) 27,800 BB&T Corp. 908 151,918 KeyCorp 1,695 193,207 Regions Financial Corp. 1,569 ---------- 4,172 ---------- REITs - MORTGAGE (0.1%) 70,100 Hatteras Financial Corp. 859 129,100 MFA Financial, Inc. 820 180,900 Two Harbors Investment Corp. 1,375 ---------- 3,054 ---------- REITs - SPECIALIZED (0.1%) 29,000 Crown Castle International Corp. 2,500 ---------- SPECIALIZED FINANCE (0.1%) 24,700 CME Group, Inc. 2,220 ---------- Total Financials 15,641 ---------- HEALTH CARE (0.3%) ------------------ BIOTECHNOLOGY (0.1%) 22,300 AbbVie, Inc. 1,224 ---------- HEALTH CARE EQUIPMENT (0.0%) 3,407 Diagnostic Services Holdings, acquired 6/01/2009; cost $756*(j),(l) 109 ---------- PHARMACEUTICALS (0.2%) 16,562 Johnson & Johnson 1,730 30,900 Merck & Co., Inc. 1,565 14,607 Novartis AG ADR 1,139 ---------- 4,434 ---------- Total Health Care 5,767 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 33 ================================================================================
--------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------------------- INDUSTRIALS (0.1%) ------------------ AIRLINES (0.1%) 23,000 United Continental Holdings, Inc.* $ 1,110 ---------- INDUSTRIAL CONGLOMERATES (0.0%) 35,316 General Electric Co. 1,028 ---------- Total Industrials 2,138 ---------- INFORMATION TECHNOLOGY (0.3%) ----------------------------- COMMUNICATIONS EQUIPMENT (0.0%) 18,500 QUALCOMM, Inc. 839 ---------- DATA PROCESSING & OUTSOURCED SERVICES (0.1%) 13,899 Automatic Data Processing, Inc. 1,155 ---------- SEMICONDUCTORS (0.1%) 42,500 Intel Corp. 1,318 ---------- SYSTEMS SOFTWARE (0.1%) 33,200 Microsoft Corp. 1,829 ---------- Total Information Technology 5,141 ---------- MATERIALS (0.5%) ---------------- COMMODITY CHEMICALS (0.1%) 25,915 LyondellBasell Industries N.V. "A" 2,020 ---------- CONSTRUCTION MATERIALS (0.1%) 596 Panolam Holdings Co., acquired 1/20/2010; cost $315*(j),(l) 1,010 ---------- GOLD (0.1%) 245,000 Alamos Gold, Inc. "A" 794 107,726 AuRico Metals, Inc.* 45 56,750 Goldcorp, Inc. 643 33,650 Newmont Mining Corp. 672 ---------- 2,154 ---------- PAPER PRODUCTS (0.1%) 54,650 Clearwater Paper Corp.* 2,140 534 Resolute Forest Products* 3 ---------- 2,143 ---------- SPECIALTY CHEMICALS (0.1%) 172,882 MPM Holdings, Inc.*(l) 1,383 ---------- Total Materials 8,710 ---------- TELECOMMUNICATION SERVICES (0.3%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (0.3%) 50,503 AT&T, Inc. 1,821 63,000 CenturyLink, Inc.(e) 1,601
================================================================================ 34 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE $(000)/SHARES SECURITY (000) --------------------------------------------------------------------------------------------------------------- 28,650 Verizon Communications, Inc.(e) $ 1,432 ---------- 4,854 ---------- Total Telecommunication Services 4,854 ---------- Total Common Stocks (cost: $57,338) 55,755 ---------- PREFERRED STOCKS (6.2%) CONSUMER STAPLES (2.0%) ----------------------- AGRICULTURAL PRODUCTS (2.0%) 400,000 CHS, Inc., 7.10%, cumulative redeemable, perpetual 10,745 200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 5,660 200,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a) 21,331 ---------- 37,736 ---------- Total Consumer Staples 37,736 ---------- ENERGY (1.5%) ------------- OIL & GAS EXPLORATION & PRODUCTION (0.0%) 3,800 Chesapeake Energy Corp., 5.75%, perpetual(a) 587 ---------- OIL & GAS STORAGE & TRANSPORTATION (1.5%) 1,327,328 NuStar Logistics, LP, 7.63% 26,920 ---------- Total Energy 27,507 ---------- FINANCIALS (2.3%) ----------------- DIVERSIFIED BANKS (0.4%) 36,000 ING Groep N.V., 7.20%, perpetual 941 8,000 US Bancorp, 3.50%, perpetual 6,335 ---------- 7,276 ---------- LIFE & HEALTH INSURANCE (0.4%) 274,059 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(f) 6,792 ---------- PROPERTY & CASUALTY INSURANCE (0.1%) $ 3,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(a) 2,347 ---------- REGIONAL BANKS (0.1%) 1,515 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 1,548 ---------- REINSURANCE (0.0%) 3,000 American Overseas Group Ltd., 7.50%, non-cumulative, acquired 1/23/2007 - 3/02/2007; cost $3,109*(j),(l) 750 ---------- REITs - INDUSTRIAL (0.6%) 185,741 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual 11,586 ---------- REITs - OFFICE (0.3%) 240,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 6,185 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 35 ================================================================================
--------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------------------- REITs - RESIDENTIAL (0.4%) 100,000 Equity Residential Properties Trust, depositary shares, Series K, 8.29%, cumulative redeemable, perpetual $ 6,572 --------- THRIFTS & MORTGAGE FINANCE (0.0%) 20,000 Freddie Mac, 6.02%, perpetual* 44 80,000 Freddie Mac, 8.38%, perpetual* 245 --------- 289 --------- Total Financials 43,345 --------- TELECOMMUNICATION SERVICES (0.2%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (0.2%) 187,000 Qwest Corp., 7.38% 4,793 --------- UTILITIES (0.2%) ---------------- ELECTRIC UTILITIES (0.2%) 29,100 Southern California Edison, Series D, 6.50%, cumulative redeemable, perpetual 3,024 --------- Total Preferred Stocks (cost: $124,184) 116,405 --------- Total Equity Securities (cost: $181,522) 172,160 --------- --------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON (000) RATE MATURITY --------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (1.1%) COMMERCIAL PAPER (0.8%) ENERGY (0.3%) ------------- OIL & GAS EXPLORATION & PRODUCTION (0.3%) $ 4,671 Encana Corp.(a),(m) 1.15% 2/01/2016 4,671 --------- MATERIALS (0.5%) ---------------- SPECIALTY CHEMICALS (0.5%) 5,710 Albemarle Corp.(a),(m) 1.15 2/02/2016 5,710 4,251 Albemarle Corp.(a),(m) 1.15 2/05/2016 4,250 --------- 9,960 --------- Total Materials 9,960 --------- Total Commercial Paper 14,631 ---------
================================================================================ 36 | USAA HIGH INCOME FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------------------------------- MONEY MARKET FUNDS (0.3%) 6,497,500 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(n) $ 6,498 ---------- Total Money Market Instruments (cost: $21,129) 21,129 ---------- TOTAL INVESTMENTS (COST: $2,089,012) $1,835,929 ========== --------------------------------------------------------------------------------------------------------------- UNREALIZED NUMBER OF APPRECIATION/ CONTRACTS EXPIRATION CONTRACT (DEPRECIATION) LONG/(SHORT) DATE VALUE (000) (000) --------------------------------------------------------------------------------------------------------------- FUTURES (0.6%) (100) Russell 2000 Mini 3/18/2016 $(10,314) $ 759 ======== ========== --------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY --------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 3) QUOTED PRICES (LEVEL 2) SIGNIFICANT IN ACTIVE MARKETS OTHER SIGNIFICANT UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS OBSERVABLE INPUTS INPUTS TOTAL --------------------------------------------------------------------------------------------------------------- Bonds: Corporate Obligations $ - $1,183,736 $ - $1,183,736 Convertible Securities - - 565 565 Eurodollar and Yankee Obligations - 295,451 - 295,451 Collateralized Mortgage Obligations - 5,053 - 5,053 Commercial Mortgage Securities - 66,798 - 66,798 U.S. Treasury Securities 554 - - 554 Municipal Bonds - 1,981 - 1,981 Exchange-Traded Funds 88,502 - - 88,502 Equity Securities: Common Stocks 52,659 1,383 1,713 55,755 Preferred Stocks 4,793 110,862 750 116,405 Money Market Instruments: Commercial Paper - 14,631 - 14,631 Money Market Funds 6,498 - - 6,498 Futures(1) 759 - - 759 --------------------------------------------------------------------------------------------------------------- Total $153,765 $1,679,895 $3,028 $1,836,688 ---------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the investment. Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. ================================================================================ PORTFOLIO OF INVESTMENTS | 37 ================================================================================ Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
--------------------------------------------------------------------------------------------------------------- CORPORATE CONVERTIBLE COMMON PREFERRED OBLIGATIONS SECURITIES STOCKS STOCKS --------------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $ 425 $ - $ 4,273 $750 Purchases 3 446 - - Sales (398) - - - Transfers into Level 3 - - - - Transfers out of Level 3 - - - - Net realized gain (loss) on investments 2 - - - Change in net unrealized appreciation/(depreciation) of investments (32) 119 (2,560) - --------------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $ - $565 $ 1,713 $750 ---------------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 38 | USAA HIGH INCOME FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 16.8% of net assets at January 31, 2016. The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. o CATEGORIES AND DEFINITIONS EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S. dollar- denominated instruments that are issued outside the U.S. capital markets by foreign corporations and financial institutions and by foreign branches of U.S. corporations and financial institutions. Yankee obligations are dollar-denominated instruments that are issued by foreign issuers in the U.S. capital markets. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage obligations are debt obligations of a legal entity that are fully collateralized by a portfolio of mortgages or mortgage-related securities. CMOs are issued in multiple classes (tranches), with specific adjustable or fixed ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 39 ================================================================================ interest rates, varying maturities, and must be fully retired no later than its final distribution date. The cash flow from the underlying mortgages is used to pay off each tranche separately. CMOs are designed to provide investors with more predictable maturities than regular mortgage securities but such maturities can be difficult to predict because of the effect of prepayments. ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed securities represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets. Commercial mortgage-backed securities reflect an interest in, and are secured by, mortgage loans on commercial real property. These securities represent ownership in a pool of loans and are divided into pieces (tranches) with varying maturities. The stated final maturity of such securities represents the date the final principal payment will be made for the last outstanding loans in the pool. The weighted average life is the average time for principal to be repaid, which is calculated by assuming prepayment rates of the underlying loans. The weighted average life is likely to be substantially shorter than the stated final maturity as a result of scheduled principal payments and unscheduled principal prepayments. Stated interest rates on commercial mortgage-backed securities may change slightly over time as underlying mortgages pay down. INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent the right to receive only the interest payments on an underlying pool of commercial mortgage loans. The purchase yield reflects an anticipated yield based upon interest rates at the time of purchase and the estimated timing and amount of future cash flows. Coupon rates after purchase vary from period to period. The principal amount represents the notional amount of the underlying pool on which current interest is calculated. CMBS IOs are backed by loans that have various forms of prepayment protection, which include lock-out provisions, yield maintenance provisions, and prepayment penalties. This serves to moderate their prepayment risk. CMBS IOs are subject to default-related prepayments that may have a negative impact on yield. ================================================================================ 40 | USAA HIGH INCOME FUND ================================================================================ o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. REIT Real estate investment trust o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Senior loan (loan) - is not registered under the Securities Act of 1933. The loan contains certain restrictions on resale and cannot be sold publicly. The stated interest rate represents the weighted average interest rate of all contracts within the senior loan facility. The interest rate is adjusted periodically, and the rate disclosed represents the current rate at January 31, 2016. The weighted average life of the loan is likely to be shorter than the stated final maturity date due to mandatory or optional prepayments. The loan is deemed liquid by the Manager, under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (c) At January 31, 2016, the issuer was in default with respect to interest and/or principal payments. (d) At January 31, 2016, the aggregate market value of securities purchased on a delayed delivery basis was $14,666,000, which included when-issued securities of $8,225,000. (e) At January 31, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (f) The security, or a portion thereof, is segregated to cover the value of open futures contracts at January 31, 2016. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 41 ================================================================================ (g) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at January 31, 2016. (h) Security is perpetual and has no final maturity date but may be subject to calls at various dates in the future. (i) Pay-in-kind (PIK) - security in which the issuer will have or has the option to make all or a portion of the interest or dividend payments in additional securities. (j) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at January 31, 2016, was $2,478,000, which represented 0.1% of the Fund's net assets. (k) Securities with a value of $554,000 are segregated as collateral for initial margin requirements on open futures contracts. (l) Security was fair valued at January 31, 2016, by the Manager in accordance with valuation procedures approved by the Board. The total value of all such securities was $3,846,000, which represented 0.2% of the Fund's net assets. (m) Commercial paper issued in reliance on the "private placement" exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (Section 4(2) Commercial Paper). Unless this commercial paper is subsequently registered, a resale of this commercial paper in the United States must be effected in a transaction exempt from registration under the Securities Act of 1933. Section 4(2) commercial paper is normally resold to other investors through or with the assistance of the issuer or an investment dealer who makes a market in this security, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (n) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 42 | USAA HIGH INCOME FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $2,089,012) $1,835,929 Receivables: Capital shares sold 810 Dividends and interest 31,443 Securities sold 15,592 Variation margin on futures contracts 759 ---------- Total assets 1,884,533 ---------- LIABILITIES Payables: Securities purchased 14,651 Capital shares redeemed 2,772 Bank overdraft 813 Accrued management fees 705 Accrued transfer agent's fees 96 Other accrued expenses and payables 263 ---------- Total liabilities 19,300 ---------- Net assets applicable to capital shares outstanding $1,865,233 ========== NET ASSETS CONSIST OF: Paid-in capital $2,162,798 Accumulated undistributed net investment income 1,640 Accumulated net realized loss on investments and futures transactions (46,881) Net unrealized depreciation of investments and futures contracts (252,324) ---------- Net assets applicable to capital shares outstanding $1,865,233 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $977,552/137,705 shares outstanding) $ 7.10 ========== Institutional Shares (net assets of $879,282/123,976 shares outstanding) $ 7.09 ========== Adviser Shares (net assets of $8,399/1,181 shares outstanding) $ 7.11 ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 43 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $11) $ 7,923 Interest 65,404 ---------- Total income 73,327 ---------- EXPENSES Management fees 4,833 Administration and servicing fees: Fund Shares 903 Institutional Shares 419 Adviser Shares 8 Transfer agent's fees: Fund Shares 1,075 Institutional Shares 419 Adviser Shares 5 Distribution and service fees (Note 6E): Adviser Shares 13 Custody and accounting fees: Fund Shares 99 Institutional Shares 68 Adviser Shares 1 Postage: Fund Shares 51 Institutional Shares 69 Shareholder reporting fees: Fund Shares 20 Institutional Shares 14 Trustees' fees 13 Registration fees: Fund Shares 28 Institutional Shares 66 Adviser Shares 11 Professional fees 64 Other 19 ---------- Total expenses 8,198 Expenses reimbursed: Adviser Shares (3) ---------- Net expenses 8,195 ---------- NET INVESTMENT INCOME 65,132 ----------
================================================================================ 44 | USAA HIGH INCOME FUND ================================================================================ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS Net realized gain (loss) on: Unaffiliated transactions (36,218) Affiliated transactions (Note 8) 272 Futures transactions 1,436 Change in net unrealized appreciation/(depreciation) of: Investments (251,055) Futures contracts 485 --------- Net realized and unrealized loss (285,080) --------- Decrease in net assets resulting from operations $(219,948) =========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 45 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
-------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 -------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 65,132 $ 121,930 Net realized loss on investments (35,946) (10,436) Net realized loss on foreign currency transactions - (3) Net realized gain (loss) on futures transactions 1,436 (607) Change in net unrealized appreciation/(depreciation) of: Investments (251,055) (166,361) Futures contracts 485 274 --------------------------- Decrease in net assets resulting from operations (219,948) (55,203) --------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (37,334) (77,570) Institutional Shares (27,470) (43,723) Adviser Shares (300) (616) --------------------------- Total distributions of net investment income (65,104) (121,909) --------------------------- Net realized gains: Fund Shares - (10,575) Institutional Shares - (5,700) Adviser Shares - (84) --------------------------- Total distributions of net realized gains - (16,359) --------------------------- Distributions to shareholders (65,104) (138,268) --------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (176,570) (75,824) Institutional Shares 183,925 122,335 Adviser Shares (2,733) 4,353 --------------------------- Total net increase in net assets from capital share transactions 4,622 50,864 --------------------------- Net decrease in net assets (280,430) (142,607) NET ASSETS Beginning of period 2,145,663 2,288,270 --------------------------- End of period $1,865,233 $2,145,663 =========================== Accumulated undistributed net investment income: End of period $ 1,640 $ 1,612 ===========================
See accompanying notes to financial statements. ================================================================================ 46 | USAA HIGH INCOME FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA High Income Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek to provide an attractive total return primarily through high current income and secondarily through capital appreciation. The Fund consists of three classes of shares: High Income Fund Shares (Fund Shares), High Income Fund Institutional Shares (Institutional Shares), and High Income Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). The ================================================================================ NOTES TO FINANCIAL STATEMENTS | 47 ================================================================================ Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of ================================================================================ 48 | USAA HIGH INCOME FUND ================================================================================ yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 2. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 3. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 49 ================================================================================ 4. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 5. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 6. Repurchase agreements are valued at cost. 7. Futures are valued at the last sale price at the close of market on the principal exchange on which they are traded or, in the absence of any transactions that day, the last sale price on the prior trading date if it is within the spread between the closing bid and asked prices closest to the last reported sale price. 8. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker- dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy ================================================================================ 50 | USAA HIGH INCOME FUND ================================================================================ disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include certain preferred stocks, which are valued based on methods discussed in Note 1A3, and certain common stocks, valued using market inputs and other observable factors deemed by the Manager to appropriately reflect fair value. Additionally, certain bonds are valued based on methods discussed in Note 1A1, and commercial paper, which is valued at amortized cost. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are supported by: values ascribed to the stock in a prior equity compensation award and considers the movement for comparable companies, discounted price derived from the use of inputs such as the price movements of comparable companies and other relevant information related to the security, and discounted prior tender offer. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. The methods used may include valuation models that rely on significant assumptions and/or unobservable inputs to determine the fair value measurement for the securities. A market-based approach may be employed using related or comparable securities, recent transactions, market multiples, book values and other relevant information or an income-based approach may be employed whereby estimated future cash flows are discounted to determine the fair value. In some cases discounts may be applied due to market liquidity limitations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 51 ================================================================================ Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value.
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS FAIR VALUE AT SIGNIFICANT JANUARY 31, 2016 VALUATION UNOBSERVABLE ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE -------------------------------------------------------------------------------------------------------- EQUITY SECURITIES: Common Stocks $1,119 Market Revenue Multiple(a) 0.3x-1.1x Comparables EBITDA Multiple(a) 2.1x-11.2x Discount for lack of marketability(b) 25%
(a) Represents amounts used when the reporting entity has determined that market participants would use such multiples when pricing the security. (b) Represents amounts used when the reporting entity has determined that market participants would take into account these discounts when pricing the security. Increases in the earnings before interest depreciation and amortization (EBITDA), revenue multiples, or earnings per share will increase the value of the security while an increase in the discount for lack of marketability will decrease the value of the security. C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and enter into certain types of derivatives, including, but not limited to futures contracts, options, and options on futures contracts, under circumstances in which such instruments are expected by the portfolio manager to aid in achieving the Fund's investment objective. The Fund also may use derivatives in circumstances where the portfolio manager believes they offer an economical means of gaining exposure to a particular asset class or securities market or to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the market. With exchange-listed futures contracts and options, counterparty credit risk to the Fund is limited to the exchange's clearinghouse which, as counterparty to all exchange-traded futures contracts and options, guarantees the transactions against default from the actual counterparty to the trade. The Fund's derivative agreements held at January 31, 2016, did not include master netting provisions. ================================================================================ 52 | USAA HIGH INCOME FUND ================================================================================ FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against, changes in the value of equities, interest rates, or foreign currencies. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Upon entering into such contracts, the Fund is required to deposit with the broker in either cash or securities an initial margin in an amount equal to a certain percentage of the contract amount. Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Upon entering into such contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly in an unfavorable direction, in which case, the Fund may not achieve the anticipated benefits of the futures contracts. FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JANUARY 31, 2016* (IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES ---------------------------------------------------------------------------------------------------- STATEMENT OF STATEMENT OF ASSETS AND ASSETS AND DERIVATIVES NOT ACCOUNTED LIABILITIES LIABILITIES FOR AS HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE ---------------------------------------------------------------------------------------------------- Equity contracts Net unrealized $759** - $- depreciation of investments and futures contracts ----------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2016, see the Portfolio of Investments, which also is indicative of activity for the six-month period ended January 31, 2016. ** Includes cumulative appreciation of futures as reported on the Portfolio of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 53 ================================================================================ THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2016 (IN THOUSANDS)
CHANGE IN UNREALIZED DERIVATIVES NOT REALIZED GAIN APPRECIATION/ ACCOUNTED FOR AS STATEMENT OF (LOSS) ON (DEPRECIATION) HEDGING INSTRUMENTS OPERATIONS LOCATION DERIVATIVES ON DERIVATIVES --------------------------------------------------------------------------------------- Equity contracts Net realized gain (loss) $1,436 $485 on Futures transactions/ Change in net unrealized appreciation/(depreciation) of Futures contracts ---------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. ================================================================================ 54 | USAA HIGH INCOME FUND ================================================================================ The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis or for delayed draws on loans can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund receives a commitment fee for delayed draws on loans. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis and delayed-draw loan commitments may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases and commitments while remaining substantially fully invested. As of January 31, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $14,647,000; which included when-issued securities of $8,150,000. H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 55 ================================================================================ I. REDEMPTION FEES - All share classes held in the Fund less than 180 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares charged redemption fees of $113,000, less than $500, and $2,000, respectively. J. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. K. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the Funds based on their respective average net assets for the period. ================================================================================ 56 | USAA HIGH INCOME FUND ================================================================================ The Funds may request an optional increase of the committed loan agreement up to $750 million. If the Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $6,000, which represents 2.9% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income are made monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. For the year ended July 31, 2015, the Fund had capital loss carryforwards of $3,381,000, for federal income tax purposes. It is unlikely that the Board will authorize distribution of capital gains realized in the future until the capital loss carryforwards have been used. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $450,532,000 and $395,382,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 57 ================================================================================ Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $72,343,000 and $325,426,000, respectively, resulting in net unrealized depreciation of $253,083,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 ---------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------- FUND SHARES: Shares sold 12,756 $ 97,805 38,813 $ 333,461 Shares issued from reinvested dividends 4,574 34,600 9,610 81,962 Shares redeemed* (41,462) (308,975) (57,316) (491,247) --------------------------------------------------- Net decrease from capital share transactions (24,132) $(176,570) (8,893) $ (75,824) =================================================== INSTITUTIONAL SHARES: Shares sold 30,782 $ 231,033 27,578 $ 236,540 Shares issued from reinvested dividends 3,549 26,746 5,663 48,225 Shares redeemed* (9,704) (73,854) (18,915) (162,430) --------------------------------------------------- Net increase from capital share transactions 24,627 $ 183,925 14,326 $ 122,335 =================================================== ADVISER SHARES: Shares sold 27 $ 217 784 $ 6,763 Shares issued from reinvested dividends 19 142 42 362 Shares redeemed* (398) (3,092) (326) (2,772) --------------------------------------------------- Net increase (decrease) from capital share transactions (352) $ (2,733) 500 $ 4,353 ===================================================
*Net of redemption fees. ================================================================================ 58 | USAA HIGH INCOME FUND ================================================================================ (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. For the six-month period ended January 31, 2016, the Fund had no subadviser(s). The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.50% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper High Yield Bond Funds Index. The Lipper High Yield Bond Funds Index tracks the total return performance of the 30 largest funds within the Lipper High Yield Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in ================================================================================ NOTES TO FINANCIAL STATEMENTS | 59 ================================================================================ the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance) or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper High Yield Bond Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $4,833,000, which included a performance adjustment for the Fund Shares, Institutional Shares, and Adviser Shares of $(204,000), $(95,000), and $(2,000), respectively. For the Fund Shares, Institutional Shares, and Adviser Shares the performance adjustments were (0.03)%, (0.02)%, and (0.04)%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and Adviser Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $903,000, $419,000, and $8,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $26,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager agreed, through December 1, 2016, to limit the total annual operating expenses of the Adviser Shares to 1.15% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Adviser Shares for all expenses in excess of that amount. This expense limitation arrangement may ================================================================================ 60 | USAA HIGH INCOME FUND ================================================================================ not be changed or terminated through December 1, 2016, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended January 31, 2016, the Adviser Shares incurred reimbursable expenses of $3,000, of which less than $500 was receivable from the Manager. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $1,075,000, $419,000, and $5,000, respectively. E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $13,000. F. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of ================================================================================ NOTES TO FINANCIAL STATEMENTS | 61 ================================================================================ exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- USAA Cornerstone Conservative 1.0 USAA Target Retirement Income 1.2 USAA Target Retirement 2020 1.8 USAA Target Retirement 2030 3.1 USAA Target Retirement 2040 2.3 USAA Target Retirement 2050 0.9 USAA Target Retirement 2060 0.0*
*Represents less than 0.1% The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 617,000 Adviser Shares, which represents 52.3% of the Adviser Shares and 0.2% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS During the six-month period ended January 31, 2016, in accordance with affiliated transaction procedures approved by the Board, purchases and sales of security transactions were executed between the Fund and the following affiliated USAA Funds at the then-current market price with no brokerage commissions incurred.
NET REALIZED COST TO GAIN (LOSS) SELLER PURCHASER PURCHASER TO SELLER ---------------------------------------------------------------------------------- USAA High Income USAA Income $ 4,994,000 $ (6,000) USAA High Income USAA Short-Term Bond 13,823,000 278,000 USAA Real Return USAA High Income 1,053,000 95,000 USAA Target Managed Allocation USAA High Income 2,201,000 (36,000)
================================================================================ 62 | USAA HIGH INCOME FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 8.17 $ 8.91 $ 8.79 $ 8.42 $ 8.60 $ 8.08 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .25 .47 .50 .55 .57 .60 Net realized and unrealized gain (loss) (1.08) (.68) .29 .46 (.18) .52 ----------------------------------------------------------------------------------- Total from investment operations (.83) (.21) .79 1.01 .39 1.12 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.24) (.47) (.51) (.53) (.57) (.60) Realized capital gains - (.06) (.16) (.11) - - ----------------------------------------------------------------------------------- Total distributions (.24) (.53) (.67) (.64) (.57) (.60) Redemption fees added to beneficial interests .00(c) .00(c) .00(c) - - - ----------------------------------------------------------------------------------- Net asset value at end of period $ 7.10 $ 8.17 $ 8.91 $ 8.79 $ 8.42 $ 8.60 =================================================================================== Total return (%)* (10.26) (2.42) 9.35 12.39 4.99 14.28 Net assets at end of period (000) $977,552 $1,322,058 $1,521,633 $1,250,728 $1,464,070 $1,482,706 Ratios to average net assets:** Expenses (%)(a) .84(d) .89 .89 .94 .95 .90 Net investment income (%) 6.30(d) 5.46 5.71 6.15 6.96 7.06 Portfolio turnover (%) 20 16 21 47 52 54(b) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,195,471,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (b) Reflects overall decrease in purchases and sales of securities. (c) Represents less than $0.01 per share. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 63 ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 8.16 $ 8.91 $ 8.78 $ 8.41 $ 8.60 $ 8.08 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .25 .48 .52 .54 .58 .62 Net realized and unrealized gain (loss) (1.07) (.69) .29 .49 (.18) .52 ----------------------------------------------------------------------------------- Total from investment operations (.82) (.21) .81 1.03 .40 1.14 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.25) (.48) (.52) (.55) (.59) (.62) Realized capital gains - (.06) (.16) (.11) - - ----------------------------------------------------------------------------------- Total distributions (.25) (.54) (.68) (.66) (.59) (.62) Redemption fees added to beneficial interests .00(d) .00(d) - - - - ----------------------------------------------------------------------------------- Net asset value at end of period $ 7.09 $ 8.16 $ 8.91 $ 8.78 $ 8.41 $ 8.60 =================================================================================== Total return (%)* (10.22) (2.44) 9.61 12.63 5.09 14.57 Net assets at end of period (000) $879,282 $811,060 $757,419 $764,558 $264,540 $146,535 Ratios to average net assets:** Expenses (%)(b) .74(e) .80 .76 .76 .76 .65(a) Net investment income (%) 6.42(e) 5.55 5.87 6.22 7.09 7.30 Portfolio turnover (%) 20 16 21 47 52 54(c) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $834,974,000. (a) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to .65% of the Institutional Shares' average net assets. (b) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Reflects overall decrease in purchases and sales of securities. (d) Represents less than $0.01 per share. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 64 | USAA HIGH INCOME FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, JULY 31, ------------------------------------------------------------------------------------ 2016 2015 2014 2013 2012 2011*** ------------------------------------------------------------------------------------ Net asset value at beginning of period $ 8.18 $ 8.92 $ 8.79 $ 8.42 $ 8.60 $ 8.09 --------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .23 .45 .49 .52 .55 .55 Net realized and unrealized gain (loss) (1.07) (.69) .27 .47 (.19) .54 --------------------------------------------------------------------------------- Total from investment operations (.84) (.24) .76 .99 .36 1.09 --------------------------------------------------------------------------------- Less distributions from: Net investment income (.23) (.45) (.48) (.51) (.55) (.58) Realized capital gains - (.06) (.16) (.11) - - --------------------------------------------------------------------------------- Total distributions (.23) (.51) (.64) (.62) (.55) (.58) --------------------------------------------------------------------------------- Redemption fees added to beneficial interests .00(e) .01 .01 .00(e) .01 - --------------------------------------------------------------------------------- Net asset value at end of period $ 7.11 $ 8.18 $ 8.92 $ 8.79 $ 8.42 $ 8.60 ================================================================================= Total return (%)* (10.40) (2.67) 9.16 12.13 4.76 13.90 Net assets at end of period (000) $ 8,399 $12,545 $9,218 $7,108 $5,711 $5,533 Ratios to average net assets:** Expenses (%)(b) 1.15(a) 1.16(d) 1.19 1.20 1.20 1.20(a) Expenses, excluding reimbursements (%)(b) 1.21(a) 1.21 1.19 1.34 1.45 1.86(a) Net investment income (%) 5.97(a) 5.19 5.41 5.85 6.71 6.77(a) Portfolio turnover (%) 20 16 21 47 52 54(c) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $10,188,000. *** Adviser Shares were initiated on August 1, 2010. (a) Annualized. The ratio is not necessarily indicative of 12 months of operations. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Reflects overall increase in purchases and sales of securities. (d) Prior to December 1, 2014, the Manager voluntarily agreed to reimburse the Adviser Shares for expenses in excess of 1.20% of their annual average net assets. (e) Represents less than $0.01 per share.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 65 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ 66 | USAA HIGH INCOME FUND ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015- AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 -------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 897.40 $4.01 Hypothetical (5% return before expenses) 1,000.00 1,020.91 4.27 INSTITUTIONAL SHARES Actual 1,000.00 897.80 3.53 Hypothetical (5% return before expenses) 1,000.00 1,021.42 3.76 ADVISER SHARES Actual 1,000.00 896.00 6.17 Hypothetical (5% return before expenses) 1,000.00 1,019.16 6.11
*Expenses are equal to the annualized expense ratio of 0.84% for Fund Shares, 0.74% for Institutional Shares, and 1.15% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (10.26)% for Fund Shares, (10.22)% for Institutional Shares, and (10.40)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 67 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 40051-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA INCOME FUND] ============================================================== SEMIANNUAL REPORT USAA INCOME FUND FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 7 FINANCIAL INFORMATION Portfolio of Investments 19 Notes to Portfolio of Investments 51 Financial Statements 57 Notes to Financial Statements 61 EXPENSE EXAMPLE 80
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202376-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA INCOME FUND (THE FUND) SEEKS MAXIMUM CURRENT INCOME WITHOUT UNDUE RISK TO PRINCIPAL. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests its assets primarily in U.S. dollar-denominated debt securities, including, among others, obligations of U.S., state and local governments, their agencies and instrumental mortgage-and asset-backed securities, corporate debt securities and repurchase agreements that have been selected for their high yields relative to the risk involved. The Fund will invest primarily in investment-grade securities but also may invest up to 10% of its net assets in below-investment-grade securities, which are sometimes referred as high-yield or "junk" bonds. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company R. MATTHEW FREUND, CFA JULIANNE BASS, CFA BRIAN W. SMITH, CFA, CPA -------------------------------------------------------------------------------- o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD? Longer-term interest rates fell during the reporting period ended January 31, 2016, pushed lower by economic uncertainty. China was at the epicenter of concern, as that country's slowing pace of growth threatened to hinder the broader global economy. Investors also worried about plummeting oil and commodity prices, which are widely considered to be evidence of global economic weakness. In the United States, economic data was mixed during the reporting period, with slower-than-expected growth in the fourth quarter of 2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from 2.85% to 2.74%, during the reporting period. These lower yields tend to reflect changing expectations about the U.S. economy. Shorter-term interest rates, which are more correlated to action by the Federal Reserve (the Fed), rose during the reporting period in anticipation of an interest rate increase. In December 2015, the Fed lifted the target federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it intended to proceed gradually with interest rate increases based on the performance of the U.S. economy. In January 2016, the Fed chose not to raise interest rates amid increased uncertainty about financial and economic conditions. ================================================================================ 2 | USAA INCOME FUND ================================================================================ o 10-YEAR U.S. TREASURY YIELDS o [CHART OF 10-YEAR U.S. TREASURY YIELDS]
YIELD IN PERCENT 7/31/2015 2.18% 8/3/2015 2.15 8/4/2015 2.22 8/5/2015 2.27 8/6/2015 2.22 8/7/2015 2.16 8/10/2015 2.23 8/11/2015 2.14 8/12/2015 2.15 8/13/2015 2.19 8/14/2015 2.20 8/17/2015 2.17 8/18/2015 2.19 8/19/2015 2.13 8/20/2015 2.07 8/21/2015 2.04 8/24/2015 2.00 8/25/2015 2.07 8/26/2015 2.18 8/27/2015 2.18 8/28/2015 2.18 8/31/2015 2.22 9/1/2015 2.15 9/2/2015 2.18 9/3/2015 2.16 9/4/2015 2.12 9/7/2015 2.12 9/8/2015 2.18 9/9/2015 2.20 9/10/2015 2.22 9/11/2015 2.19 9/14/2015 2.18 9/15/2015 2.29 9/16/2015 2.29 9/17/2015 2.19 9/18/2015 2.13 9/21/2015 2.20 9/22/2015 2.13 9/23/2015 2.15 9/24/2015 2.13 9/25/2015 2.16 9/28/2015 2.09 9/29/2015 2.05 9/30/2015 2.04 10/1/2015 2.04 10/2/2015 1.99 10/5/2015 2.06 10/6/2015 2.03 10/7/2015 2.07 10/8/2015 2.10 10/9/2015 2.09 10/12/2015 2.09 10/13/2015 2.04 10/14/2015 1.97 10/15/2015 2.02 10/16/2015 2.03 10/19/2015 2.02 10/20/2015 2.07 10/21/2015 2.02 10/22/2015 2.03 10/23/2015 2.09 10/26/2015 2.06 10/27/2015 2.04 10/28/2015 2.10 10/29/2015 2.17 10/30/2015 2.14 11/2/2015 2.17 11/3/2015 2.21 11/4/2015 2.23 11/5/2015 2.23 11/6/2015 2.33 11/9/2015 2.34 11/10/2015 2.34 11/11/2015 2.33 11/12/2015 2.31 11/13/2015 2.27 11/16/2015 2.27 11/17/2015 2.27 11/18/2015 2.27 11/19/2015 2.25 11/20/2015 2.26 11/23/2015 2.24 11/24/2015 2.24 11/25/2015 2.23 11/26/2015 2.23 11/27/2015 2.22 11/30/2015 2.21 12/1/2015 2.14 12/2/2015 2.18 12/3/2015 2.31 12/4/2015 2.27 12/7/2015 2.23 12/8/2015 2.22 12/9/2015 2.22 12/10/2015 2.23 12/11/2015 2.13 12/14/2015 2.22 12/15/2015 2.27 12/16/2015 2.30 12/17/2015 2.22 12/18/2015 2.20 12/21/2015 2.19 12/22/2015 2.24 12/23/2015 2.25 12/24/2015 2.24 12/25/2015 2.24 12/28/2015 2.23 12/29/2015 2.31 12/30/2015 2.29 12/31/2015 2.27 1/1/2016 2.27 1/4/2016 2.24 1/5/2016 2.24 1/6/2016 2.17 1/7/2016 2.15 1/8/2016 2.12 1/11/2016 2.18 1/12/2016 2.10 1/13/2016 2.09 1/14/2016 2.09 1/15/2016 2.03 1/18/2016 2.03 1/19/2016 2.06 1/20/2016 1.98 1/21/2016 2.03 1/22/2016 2.05 1/25/2016 2.00 1/26/2016 1.99 1/27/2016 2.00 1/28/2016 1.98 1/29/2016 1.92
[END CHART] Source: Bloomberg Finance L.P. In this environment, the U.S. Treasury yield curve experienced a "bear flattening." In a bear flattening, short-term interest rates increase faster than longer-term interest rates (though during the reporting period, longer-term interest rates actually trended down), thereby creating a flatter yield curve. This generally indicates that investor sentiment is becoming more "bearish." As longer-term interest rates fell, the prices of longer-maturity securities edged up (bond prices and yields move in opposite directions). Credit spreads widened across the credit spectrum, with single A, BBB, and below investment-grade "high-yield" spreads widening 19 basis points, 58 basis points, and 221 basis points, respectively. A basis point is 1/100th of a percent. Spreads (yield differentials versus U.S. Treasury securities of comparable maturity) are generally considered an indication of risk; the wider the spread, the greater the risk. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ o U.S. TREASURY YIELD CURVE o [CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD --------------------------------- (CHANGE IN MATURITY 7/01/15 1/31/16 BASIS POINTS) 1M 0.008 0.221 21.4 3M 0.018 0.313 29.5 6M 0.114 0.428 31.3 1Y 0.273 0.451 17.9 2Y 0.69 0.776 8.5 3Y 1.064 0.968 -9.7 5Y 1.706 1.329 -37.7 7Y 2.146 1.668 -47.7 10Y 2.423 1.922 -50.1 30Y 3.202 2.744 -45.8
[END CHART] Source: Bloomberg Finance L.P. o HOW DID THE USAA INCOME FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares had total returns of -0.77%, -0.82%, and -0.98%, respectively. This compares to returns of 1.33% for the Barclays U.S. Aggregate Bond Index (the Index) and 0.09% for the Lipper A Rated Bond Funds Index. At the same time, the Refer to page 10 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ 4 | USAA INCOME FUND ================================================================================ Fund Shares, Institutional Shares, and Adviser Shares provided a one-year dividend yield of 3.65%, 3.77%, and 3.41%, respectively, compared to 2.75% for the Lipper Corporate Debt Funds A Rated Average. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus on generating an attractive yield with an acceptable level of price volatility. During the reporting period, the Fund's 30-day SEC yield continued to trend up. In addition, we sought to manage the portfolio's sensitivity to interest rates by maintaining a neutral duration position relative to the Lipper peer group (duration is a measure of a portfolio's interest-rate sensitivity). Underweight positions in U.S. Treasury securities and agency mortgage- backed securities dampened Fund returns during the reporting period. The portfolio also was hampered by its overweight in corporate bonds, which underperformed as credit spreads widened. In addition, allocations to and security selection among oil and gas exploration and production bonds as well as metals and mining bonds detracted from the Fund's performance. Many of these securities were negatively affected by the continued drop in oil and commodity prices during the reporting period. Although we reduced some of these holdings, we believe that over the long-term the Fund's positions in these industries will generate attractive total returns. During the reporting period, we continued to seek relative values across the fixed-income market. Our team of analysts help us evaluate each potential investment individually, rather than on the basis of thematic trends. We seek ideas where our fundamental understanding of the credit risk is different than the market, building the Fund bond-by-bond through fundamental bottom-up analysis. Due to uncertain times, we continued to emphasize liquidity in the Fund. Our liquidity strategy helps to prevent the Fund from being a forced seller due to investment outflows. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ Our analysts continue to analyze and monitor every holding in the Fund. We are committed to building a portfolio diversified among multiple asset classes and across a large number of issuers. To minimize the Fund's exposure to potential surprises, we limit the positions we take in any one issuer. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Mortgage-backed securities have prepayment, extension, credit, and interest rate risks. Generally, when interest rates decline, prepayments accelerate beyond the initial pricing assumptions and may cause the average life of the securities to shorten. Also the market value may decline when interest rates rise because prepayments decrease beyond the initial pricing assumptions and may cause the average life of the securities to extend. ================================================================================ 6 | USAA INCOME FUND ================================================================================ INVESTMENT OVERVIEW USAA INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USAIX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $3.1 Billion $3.5 Billion Net Asset Value Per Share $12.65 $12.99 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -0.77% -2.32% 3.68% 4.93% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -1.11% 3.63% 4.86% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 3.54% 0.53%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED JANUARY 31, 2016
--------------------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE --------------------------------------------------------------------------------------------- 10 YEARS 4.93% = 4.49% + 0.44% 5 YEARS 3.68% = 3.78% + -0.10% 1 YEAR -2.32% = 3.42% + -5.74%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED JANUARY 31, 2007 - JANUARY 31, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE 1/31/2007 4.23% 4.89% -0.66% 1/31/2008 6.75% 5.26% 1.49% 1/31/2009 -6.65% 4.94% -11.59% 1/31/2010 22.04% 6.53% 15.51% 1/31/2011 6.56% 4.56% 2.00% 1/31/2012 7.64% 4.11% 3.53% 1/31/2013 5.87% 3.72% 2.15% 1/31/2014 1.34% 3.98% -2.64% 1/31/2015 6.23% 3.75% 2.48% 1/31/2016 -2.32% 3.42% -5.74%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 8 | USAA INCOME FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME LIPPER CORPORATE DEBT FUND SHARES FUNDS A RATED AVERAGE 1/31/2007 4.79% 4.38% 1/31/2008 4.98 4.59 1/31/2009 5.80 5.46 1/31/2010 5.16 4.34 1/31/2011 4.37 3.82 1/31/2012 3.83 3.36 1/31/2013 3.55 2.83 1/31/2014 3.96 3.21 1/31/2015 3.63 2.76 1/31/2016 3.65 2.75
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 1/31/07 through 1/31/16. The Lipper Corporate Debt Funds A Rated Average is the average performance level of all corporate A rated debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND BARCLAYS U.S. AGGREGATE LIPPER A RATED SHARES BOND INDEX BOND FUNDS INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,036.30 10,033.20 10,037.01 3/31/2006 9,945.41 9,934.74 9,923.25 4/30/2006 9,900.74 9,916.73 9,883.43 5/31/2006 9,900.63 9,906.15 9,878.92 6/30/2006 9,920.95 9,927.15 9,885.77 7/31/2006 10,046.99 10,061.38 10,016.43 8/31/2006 10,197.97 10,215.41 10,176.00 9/30/2006 10,291.87 10,305.14 10,265.68 10/31/2006 10,366.83 10,373.30 10,339.44 11/30/2006 10,477.00 10,493.65 10,464.59 12/31/2006 10,420.56 10,432.75 10,395.34 1/31/2007 10,423.30 10,428.47 10,390.54 2/28/2007 10,591.85 10,589.28 10,565.44 3/31/2007 10,581.42 10,589.60 10,543.44 4/30/2007 10,615.50 10,646.70 10,598.89 5/31/2007 10,519.39 10,566.01 10,515.98 6/30/2007 10,477.32 10,534.76 10,467.37 7/31/2007 10,558.46 10,622.63 10,524.47 8/31/2007 10,674.53 10,752.83 10,605.16 9/30/2007 10,743.13 10,834.40 10,690.50 10/31/2007 10,825.99 10,931.73 10,770.27 11/30/2007 10,967.88 11,128.31 10,895.08 12/31/2007 10,944.64 11,159.57 10,868.51 1/31/2008 11,126.53 11,347.03 11,007.00 2/29/2008 11,117.05 11,362.78 10,976.85 3/31/2008 11,128.23 11,401.55 10,922.84 4/30/2008 11,143.19 11,377.72 10,963.21 5/31/2008 11,114.62 11,294.29 10,890.67 6/30/2008 11,073.09 11,285.16 10,852.52 7/31/2008 11,020.28 11,275.96 10,767.55 8/31/2008 11,097.24 11,382.97 10,797.93 9/30/2008 10,783.23 11,230.08 10,435.46 10/31/2008 10,189.48 10,965.00 9,885.47 11/30/2008 10,185.86 11,321.91 9,988.57 12/31/2008 10,392.98 11,744.32 10,358.14 1/31/2009 10,386.92 11,640.70 10,329.67 2/28/2009 10,371.13 11,596.76 10,207.40 3/31/2009 10,532.20 11,757.97 10,328.81 4/30/2009 10,775.64 11,814.19 10,534.70 5/31/2009 11,199.83 11,899.88 10,817.45 6/30/2009 11,405.63 11,967.56 11,007.05 7/31/2009 11,723.07 12,160.60 11,338.95 8/31/2009 12,003.94 12,286.51 11,476.49 9/30/2009 12,226.50 12,415.58 11,759.84 10/31/2009 12,337.55 12,476.88 11,855.19 11/30/2009 12,502.70 12,638.41 11,995.33 12/31/2009 12,444.56 12,440.86 11,883.49 1/31/2010 12,676.00 12,630.90 12,078.85 2/28/2010 12,731.41 12,678.07 12,113.79 3/31/2010 12,773.50 12,662.48 12,159.49 4/30/2010 12,942.66 12,794.29 12,336.20 5/31/2010 12,945.94 12,901.96 12,336.89 6/30/2010 13,095.38 13,104.28 12,541.08 7/31/2010 13,247.59 13,244.09 12,702.86 8/31/2010 13,459.42 13,414.50 12,926.62 9/30/2010 13,551.24 13,428.80 12,966.09 10/31/2010 13,635.25 13,476.61 12,990.00 11/30/2010 13,577.08 13,399.16 12,906.10 12/31/2010 13,459.09 13,254.67 12,809.57 1/31/2011 13,507.11 13,270.09 12,823.74 2/28/2011 13,570.93 13,303.29 12,912.90 3/31/2011 13,610.66 13,310.64 12,917.58 4/30/2011 13,772.75 13,479.60 13,106.05 5/31/2011 13,923.84 13,655.51 13,268.57 6/30/2011 13,892.17 13,615.53 13,173.44 7/31/2011 14,088.06 13,831.59 13,403.76 8/31/2011 14,178.27 14,033.67 13,478.49 9/30/2011 14,170.05 14,135.75 13,548.49 10/31/2011 14,258.15 14,150.94 13,663.80 11/30/2011 14,230.21 14,138.66 13,552.71 12/31/2011 14,383.63 14,294.06 13,739.13 1/31/2012 14,539.10 14,419.57 13,955.57 2/29/2012 14,595.43 14,416.26 14,013.19 3/31/2012 14,583.48 14,337.27 13,920.27 4/30/2012 14,736.12 14,496.22 14,095.54 5/31/2012 14,830.92 14,627.38 14,237.96 6/30/2012 14,852.28 14,633.12 14,264.14 7/31/2012 15,052.67 14,834.96 14,582.15 8/31/2012 15,120.79 14,844.65 14,615.60 9/30/2012 15,219.96 14,865.08 14,647.57 10/31/2012 15,333.34 14,894.32 14,750.01 11/30/2012 15,401.53 14,917.82 14,772.20 12/31/2012 15,390.80 14,896.58 14,740.05 1/31/2013 15,392.22 14,792.39 14,646.32 2/28/2013 15,504.37 14,866.53 14,747.65 3/31/2013 15,549.36 14,878.41 14,760.59 4/30/2013 15,742.68 15,028.96 15,025.54 5/31/2013 15,516.64 14,760.81 14,649.69 6/30/2013 15,178.12 14,532.48 14,244.17 7/31/2013 15,247.82 14,552.35 14,292.51 8/31/2013 15,153.14 14,477.96 14,169.37 9/30/2013 15,281.44 14,615.03 14,290.58 10/31/2013 15,446.10 14,733.19 14,497.95 11/30/2013 15,429.93 14,678.02 14,438.70 12/31/2013 15,363.26 14,595.08 14,380.38 1/31/2014 15,597.76 14,810.72 14,727.76 2/28/2014 15,715.14 14,889.47 14,881.46 3/31/2014 15,725.98 14,864.11 14,919.61 4/30/2014 15,882.41 14,989.54 15,094.14 5/31/2014 16,060.26 15,160.20 15,306.87 6/30/2014 16,111.98 15,168.04 15,349.56 7/31/2014 16,076.18 15,130.00 15,340.12 8/31/2014 16,229.41 15,297.02 15,581.16 9/30/2014 16,114.04 15,193.16 15,383.76 10/31/2014 16,233.31 15,342.49 15,553.44 11/30/2014 16,298.67 15,451.34 15,689.65 12/31/2014 16,268.04 15,465.83 15,759.54 1/31/2015 16,568.99 15,790.10 16,295.68 2/28/2015 16,488.01 15,641.66 15,994.70 3/31/2015 16,533.96 15,714.26 16,051.22 4/30/2015 16,495.50 15,657.89 15,926.71 5/31/2015 16,465.93 15,620.17 15,811.84 6/30/2015 16,245.80 15,449.83 15,553.36 7/31/2015 16,309.68 15,557.25 15,700.81 8/31/2015 16,200.54 15,534.88 15,574.58 9/30/2015 16,245.33 15,639.96 15,672.83 10/31/2015 16,305.46 15,642.63 15,747.81 11/30/2015 16,237.30 15,601.27 15,696.19 12/31/2015 16,087.12 15,550.87 15,574.51 1/31/2016 16,184.22 15,764.83 15,714.47
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Income Fund Shares to the following benchmarks: o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S. investment-grade rated bond market, including government and credit securities, agency mortgage pass-through securities, asset-backed securities, and commercial mortgage-backed securities that have remaining maturities of more than one year. o The unmanaged Lipper A Rated Bond Funds Index tracks the total return performance of the 30 largest funds within the Lipper Corporate Debt Funds A Rated category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly into an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper A Rated Bond Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 10 | USAA INCOME FUND ================================================================================ USAA INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIINX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $2.6 Billion $2.2 Billion Net Asset Value Per Share $12.63 $12.99 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -0.82% -2.29% 3.78% 5.39% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -1.05% 3.77% 5.38% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 3.63% 0.46%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT usaa.com. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER CORPORATE USAA INCOME FUND DEBT FUNDS INSTITUTIONAL SHARES A RATED AVERAGE 1/31/2010 5.40% 4.34% 1/31/2011 4.60 3.82 1/31/2012 4.00 3.36 1/31/2013 3.68 2.83 1/31/2014 4.09 3.21 1/31/2015 3.71 2.76 1/31/2016 3.77 2.75
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 1/31/10 through 1/31/16. The Lipper Corporate Debt Funds A Rated Average is the average performance level of all corporate A rated debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ 12 | USAA INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND LIPPER A RATED BARCLAYS U.S. INSTITUTIONAL SHARES BOND FUNDS INDEX AGGREGATE BOND INDEX 7/31/2008 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,055.01 10,028.22 10,094.91 9/30/2008 9,773.05 9,691.59 9,959.32 10/31/2008 9,237.79 9,180.80 9,724.23 11/30/2008 9,236.65 9,276.55 10,040.76 12/31/2008 9,427.63 9,619.78 10,415.37 1/31/2009 9,415.64 9,593.33 10,323.47 2/28/2009 9,411.92 9,479.78 10,284.50 3/31/2009 9,560.51 9,592.54 10,427.47 4/30/2009 9,783.97 9,783.75 10,477.33 5/31/2009 10,171.39 10,046.35 10,553.32 6/30/2009 10,360.57 10,222.43 10,613.35 7/31/2009 10,652.16 10,530.67 10,784.54 8/31/2009 10,900.47 10,658.41 10,896.20 9/30/2009 11,105.20 10,921.56 11,010.66 10/31/2009 11,217.48 11,010.12 11,065.03 11/30/2009 11,370.44 11,140.26 11,208.28 12/31/2009 11,309.79 11,036.39 11,033.08 1/31/2010 11,531.30 11,217.83 11,201.62 2/28/2010 11,574.58 11,250.28 11,243.45 3/31/2010 11,624.81 11,292.72 11,229.63 4/30/2010 11,781.04 11,456.84 11,346.52 5/31/2010 11,786.08 11,457.48 11,442.00 6/30/2010 11,915.28 11,647.11 11,621.43 7/31/2010 12,065.96 11,797.36 11,745.42 8/31/2010 12,261.25 12,005.17 11,896.55 9/30/2010 12,347.04 12,041.82 11,909.23 10/31/2010 12,425.80 12,064.03 11,951.63 11/30/2010 12,365.74 11,986.12 11,882.94 12/31/2010 12,261.04 11,896.47 11,754.80 1/31/2011 12,316.56 11,909.62 11,768.48 2/28/2011 12,377.14 11,992.42 11,797.92 3/31/2011 12,406.22 11,996.78 11,804.44 4/30/2011 12,556.24 12,171.81 11,954.28 5/31/2011 12,705.90 12,322.75 12,110.29 6/30/2011 12,669.48 12,234.39 12,074.83 7/31/2011 12,850.45 12,448.30 12,266.44 8/31/2011 12,945.08 12,517.70 12,445.65 9/30/2011 12,938.91 12,582.71 12,536.18 10/31/2011 13,010.56 12,689.80 12,549.65 11/30/2011 12,996.48 12,586.63 12,538.76 12/31/2011 13,128.02 12,759.76 12,676.57 1/31/2012 13,281.25 12,960.77 12,787.88 2/29/2012 13,334.15 13,014.29 12,784.95 3/31/2012 13,314.58 12,927.99 12,714.90 4/30/2012 13,455.34 13,090.77 12,855.86 5/31/2012 13,543.31 13,223.03 12,972.18 6/30/2012 13,574.18 13,247.35 12,977.27 7/31/2012 13,747.80 13,542.69 13,156.26 8/31/2012 13,810.98 13,573.75 13,164.86 9/30/2012 13,902.20 13,603.45 13,182.98 10/31/2012 14,009.00 13,698.58 13,208.91 11/30/2012 14,072.75 13,719.19 13,229.75 12/31/2012 14,075.26 13,689.34 13,210.92 1/31/2013 14,067.78 13,602.29 13,118.52 2/28/2013 14,171.56 13,696.39 13,184.27 3/31/2013 14,224.22 13,708.41 13,194.80 4/30/2013 14,391.52 13,954.47 13,328.31 5/31/2013 14,196.33 13,605.42 13,090.51 6/30/2013 13,877.48 13,228.80 12,888.02 7/31/2013 13,943.43 13,273.70 12,905.64 8/31/2013 13,858.26 13,159.34 12,839.67 9/30/2013 13,977.33 13,271.90 12,961.22 10/31/2013 14,130.02 13,464.49 13,066.01 11/30/2013 14,116.77 13,409.46 13,017.09 12/31/2013 14,068.49 13,355.30 12,943.53 1/31/2014 14,273.39 13,677.92 13,134.78 2/28/2014 14,382.12 13,820.67 13,204.61 3/31/2014 14,393.06 13,856.09 13,182.12 4/30/2014 14,537.52 14,018.19 13,293.36 5/31/2014 14,701.37 14,215.75 13,444.71 6/30/2014 14,749.47 14,255.40 13,451.66 7/31/2014 14,728.51 14,246.63 13,417.92 8/31/2014 14,867.63 14,470.49 13,566.04 9/30/2014 14,762.80 14,287.16 13,473.93 10/31/2014 14,862.00 14,444.74 13,606.37 11/30/2014 14,933.76 14,571.25 13,702.90 12/31/2014 14,907.37 14,636.15 13,715.75 1/31/2015 15,175.82 15,134.08 14,003.33 2/28/2015 15,103.46 14,854.55 13,871.68 3/31/2015 15,145.21 14,907.04 13,936.07 4/30/2015 15,121.13 14,791.40 13,886.08 5/31/2015 15,079.94 14,684.73 13,852.63 6/30/2015 14,890.83 14,444.67 13,701.56 7/31/2015 14,950.99 14,581.61 13,796.83 8/31/2015 14,840.40 14,464.38 13,776.99 9/30/2015 14,882.44 14,555.62 13,870.18 10/31/2015 14,950.11 14,625.26 13,872.54 11/30/2015 14,888.27 14,577.32 13,835.87 12/31/2015 14,751.13 14,464.31 13,791.17 1/31/2016 14,828.30 14,594.30 13,980.91
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Income Fund Institutional Shares to the Fund's benchmarks listed above (see page 10 for benchmark definitions). *The performance of the Lipper A Rated Bond Funds Index and the Barclays U.S. Aggregate Bond Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper A Rated Bond Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ USAA INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UINCX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $188.5 Million $222.5 Million Net Asset Value Per Share $12.61 $12.96 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -0.98% -2.64% 3.37% 3.41% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -1.36% 3.34% 3.37% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 3.18% 0.79%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 14 | USAA INCOME FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME FUND LIPPER CORPORATE DEBT ADVISER SHARES FUNDS A RATED AVERAGE 1/31/2012 3.58% 3.36% 1/31/2013 3.26 2.83 1/31/2014 3.69 3.21 1/31/2015 3.42 2.76 1/31/2016 3.41 2.75
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 1/31/12 through 1/31/16. The Lipper Corporate Debt Funds A Rated Average is the average performance level of all corporate A rated debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER A RATED BOND USAA INCOME FUND BARCLAYS U.S. FUNDS INDEX ADVISER SHARES AGGREGATE BOND INDEX 7/31/2010 $10,000.00 $10,000.00 $10,000.00 8/31/2010 10,176.15 10,162.09 10,128.67 9/30/2010 10,207.22 10,236.32 10,139.47 10/31/2010 10,226.04 10,297.51 10,175.57 11/30/2010 10,160.00 10,243.44 10,117.09 12/31/2010 10,084.01 10,151.81 10,007.99 1/31/2011 10,095.16 10,186.50 10,019.64 2/28/2011 10,165.34 10,232.86 10,044.70 3/31/2011 10,169.04 10,260.68 10,050.25 4/30/2011 10,317.40 10,373.18 10,177.83 5/31/2011 10,445.34 10,493.60 10,310.65 6/30/2011 10,370.45 10,459.46 10,280.46 7/31/2011 10,551.77 10,605.46 10,443.59 8/31/2011 10,610.59 10,678.79 10,596.17 9/30/2011 10,665.70 10,670.09 10,673.26 10/31/2011 10,756.47 10,725.79 10,684.72 11/30/2011 10,669.02 10,710.40 10,675.45 12/31/2011 10,815.78 10,814.83 10,792.78 1/31/2012 10,986.16 10,938.11 10,887.55 2/29/2012 11,031.53 10,978.09 10,885.05 3/31/2012 10,958.38 10,958.31 10,825.41 4/30/2012 11,096.35 11,070.64 10,945.43 5/31/2012 11,208.47 11,139.03 11,044.46 6/30/2012 11,229.08 11,160.94 11,048.79 7/31/2012 11,479.42 11,300.09 11,201.19 8/31/2012 11,505.75 11,348.41 11,208.51 9/30/2012 11,530.92 11,419.79 11,223.94 10/31/2012 11,611.57 11,502.01 11,246.01 11/30/2012 11,629.03 11,550.18 11,263.76 12/31/2012 11,603.73 11,539.02 11,247.72 1/31/2013 11,529.94 11,537.85 11,169.05 2/28/2013 11,609.71 11,619.18 11,225.04 3/31/2013 11,619.89 11,649.96 11,234.00 4/30/2013 11,828.47 11,791.82 11,347.67 5/31/2013 11,532.59 11,618.75 11,145.21 6/30/2013 11,213.36 11,362.36 10,972.81 7/31/2013 11,251.41 11,412.37 10,987.81 8/31/2013 11,154.47 11,339.19 10,931.64 9/30/2013 11,249.89 11,433.14 11,035.13 10/31/2013 11,413.14 11,553.80 11,124.35 11/30/2013 11,366.49 11,539.62 11,082.70 12/31/2013 11,320.58 11,486.42 11,020.07 1/31/2014 11,594.05 11,650.77 11,182.90 2/28/2014 11,715.05 11,745.73 11,242.36 3/31/2014 11,745.08 11,751.25 11,223.21 4/30/2014 11,882.48 11,857.24 11,317.91 5/31/2014 12,049.94 11,988.67 11,446.77 6/30/2014 12,083.55 12,025.10 11,452.69 7/31/2014 12,076.11 11,995.29 11,423.96 8/31/2014 12,265.87 12,108.43 11,550.08 9/30/2014 12,110.47 12,020.91 11,471.65 10/31/2014 12,244.04 12,108.34 11,584.41 11/30/2014 12,351.27 12,155.37 11,666.59 12/31/2014 12,406.29 12,129.26 11,677.53 1/31/2015 12,828.36 12,350.95 11,922.38 2/28/2015 12,591.42 12,279.13 11,810.29 3/31/2015 12,635.91 12,320.19 11,865.12 4/30/2015 12,537.89 12,288.94 11,822.55 5/31/2015 12,447.47 12,254.94 11,794.07 6/30/2015 12,243.99 12,097.58 11,665.46 7/31/2015 12,360.06 12,143.11 11,746.57 8/31/2015 12,260.69 12,050.06 11,729.67 9/30/2015 12,338.03 12,090.36 11,809.01 10/31/2015 12,397.06 12,132.91 11,811.03 11/30/2015 12,356.42 12,079.89 11,779.80 12/31/2015 12,260.63 11,964.73 11,741.75 1/31/2016 12,370.81 12,024.37 11,903.29
[END CHART] Data from 7/31/10 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Income Fund Adviser Shares to the Fund's benchmarks listed above (see page 10 for benchmark definitions). *The performance of the Lipper A Rated Bond Funds Index and the Barclays U.S. Aggregate Bond Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper A Rated Bond Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 16 | USAA INCOME FUND ================================================================================ o PORTFOLIO RATINGS MIX - 1/31/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 22.0% AA 11.8% A 29.2% BBB 27.8% BELOW INVESTMENT-GRADE 6.7% UNRATED 2.5%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 19-50. ================================================================================ INVESTMENT OVERVIEW | 17 ================================================================================ o TOP 10 HOLDINGS* - 1/31/16 o (% of Net Assets)
COUPON RATE % MATURITY DATE % OF NET ASSETS ---------------------------------------------------- U.S. Treasury Notes ................... 2.00 2/15/2025 1.4 U.S. Treasury Notes ................... 3.63 2/15/2020 1.3 U.S. Treasury Bonds ................... 2.50 2/15/2045 1.1 U.S. Treasury Inflation-Indexed Notes . 2.38 1/15/2025 1.1 U.S. Treasury Notes ................... 2.63 11/15/2020 1.0 U.S. Treasury Notes ................... 3.50 5/15/2020 0.8 U.S. Treasury Bonds ................... 3.00 11/15/2044 0.7 U.S. Treasury Bonds ................... 2.75 8/15/2042 0.7 U.S. Treasury Bonds ................... 3.88 5/15/2040 0.6 Electricite De France S.A. ............ 5.25 - 0.4
o ASSET ALLOCATION** - 1/31/16 o [PIE CHART OF ASSET ALLOCATION] CORPORATE OBLIGATIONS 47.4% EURODOLLAR AND YANKEE OBLIGATIONS 15.6% U.S. TREASURY SECURITIES 11.8% MUNICIPAL BONDS 8.6% COMMERCIAL MORTGAGE SECURITIES 6.3% ASSET-BACKED SECURITIES 3.2% U.S. GOVERNMENT AGENCY ISSUES 2.3% PREFERRED STOCKS 1.8% COMMON STOCKS 0.8% MONEY MARKET INSTRUMENTS 0.8% FOREIGN GOVERNMENT OBLIGATIONS 0.4%
[END CHART] *Excludes futures and money market instruments. **Excludes futures. Percentages are of net assets of the Fund and may not equal 100%. ================================================================================ 18 | USAA INCOME FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- BONDS (95.6%) CORPORATE OBLIGATIONS (47.4%) CONSUMER DISCRETIONARY (2.7%) ----------------------------- APPAREL RETAIL (0.3%) $ 10,000 L Brands, Inc. 5.63% 2/15/2022 $ 10,760 5,000 Mens Wearhouse, Inc.(a) 5.00 6/18/2021 4,419 ---------- 15,179 ---------- APPAREL, ACCESSORIES & LUXURY GOODS (0.0%) 1,985 Hanesbrands, Inc.(a) 3.25 4/29/2022 1,993 ---------- AUTOMOTIVE RETAIL (0.3%) 15,048 Advance Auto Parts, Inc. 4.50 12/01/2023 15,441 5,000 CST Brands, Inc. 5.00 5/01/2023 5,012 ---------- 20,453 ---------- CABLE & SATELLITE (1.1%) 20,000 CCO Safari II, LLC(b) 6.38 10/23/2035 20,139 5,000 CCOH Safari, LLC(b) 5.75 2/15/2026 4,985 3,500 Charter Communications Operating, LLC(a),(c),(d) -(e) 5/31/2016 3,500 10,000 NBCUniversal Enterprise, Inc.(b) 1.97 4/15/2019 10,055 10,000 NBCUniversal Media, LLC(f) 5.15 4/30/2020 11,242 3,750 Neptune Finco Corp.(a) 5.00 10/09/2022 3,750 10,000 Time Warner Cable, Inc. 6.75 7/01/2018 10,929 ---------- 64,600 ---------- CASINOS & GAMING (0.1%) 3,000 International Game Technology 7.50 6/15/2019 3,223 ---------- CATALOG RETAIL (0.1%) 4,000 QVC, Inc. 3.13 4/01/2019 3,970 ---------- GENERAL MERCHANDISE STORES (0.0%) 2,076 Dollar Tree, Inc.(a) 3.50 7/06/2022 2,073 ---------- HOME FURNISHINGS (0.1%) 4,428 Serta Simmons Holdings, LLC(a) 4.25 10/01/2019 4,409 493 Tempur Sealy International, Inc.(a) 3.50 3/18/2020 493 ---------- 4,902 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- HOMEBUILDING (0.1%) $ 7,000 Lennar Corp. 4.50% 11/15/2019 $ 7,227 2,000 Lennar Corp. 4.88 12/15/2023 1,970 ---------- 9,197 ---------- HOTELS, RESORTS & CRUISE LINES (0.1%) 5,000 Hyatt Hotels Corp. 3.38 7/15/2023 4,787 ---------- MOVIES & ENTERTAINMENT (0.1%) 1,105 Metropolitan Opera Assoc., Inc. 1.79 10/01/2017 1,109 2,235 Metropolitan Opera Assoc., Inc. 2.14 10/01/2018 2,248 2,285 Metropolitan Opera Assoc., Inc. 2.39 10/01/2019 2,309 ---------- 5,666 ---------- RESTAURANTS (0.1%) 3,793 1011778 B.C. Unlimited Liability Co.(a) 3.75 12/10/2021 3,775 ---------- SPECIALTY STORES (0.3%) 7,905 Harbor Freight Tools USA, Inc.(a) 4.75 7/26/2019 7,917 2,978 PetSmart, Inc.(a) 4.25 3/11/2022 2,891 7,300 Staples, Inc.(a),(c) 4.94 4/07/2021 7,259 ---------- 18,067 ---------- Total Consumer Discretionary 157,885 ---------- CONSUMER STAPLES (2.5%) ----------------------- AGRICULTURAL PRODUCTS (0.1%) 4,000 Bunge Ltd. Finance Co. 8.50 6/15/2019 4,663 ---------- DRUG RETAIL (0.5%) 7,340 CVS Pass-Through Trust 6.04 12/10/2028 8,184 4,316 CVS Pass-Through Trust(b) 7.51 1/10/2032 5,199 4,500 CVS Pass-Through Trust(b) 5.93 1/10/2034 4,972 10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 9,862 ---------- 28,217 ---------- FOOD RETAIL (0.1%) 3,850 Albertson's, LLC(a) 5.13 12/21/2022 3,774 2,000 Albertson's, LLC(a) 5.50 8/25/2019 1,960 ---------- 5,734 ---------- HOUSEHOLD PRODUCTS (0.3%) 4,975 Energizer Holdings, Inc.(a) 3.25 6/30/2022 4,896 10,000 SC Johnson & Son, Inc.(b) 4.35 9/30/2044 9,948 ---------- 14,844 ---------- HYPERMARKETS & SUPER CENTERS (0.3%) 20,000 Costco Wholesale Corp. 1.70 12/15/2019 20,137 ----------
================================================================================ 20 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- PACKAGED FOODS & MEAT (0.7%) $ 10,000 J.M. Smucker Co. 3.50% 10/15/2021 $ 10,388 5,000 J.M. Smucker Co. 4.25 3/15/2035 4,947 10,000 Kraft Foods Group, Inc. 3.50 6/06/2022 10,240 3,899 Kraft Heinz Foods Co.(b) 4.88 2/15/2025 4,175 10,000 Kraft Heinz Foods Co.(b) 3.95 7/15/2025 10,270 3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,595 ---------- 43,615 ---------- PERSONAL PRODUCTS (0.0%) 1,489 Prestige Brands, Inc.(a) 3.50 9/03/2021 1,489 ---------- SOFT DRINKS (0.2%) 5,000 PepsiCo, Inc. 7.90 11/01/2018 5,838 5,000 PepsiCo, Inc. 4.25 10/22/2044 4,999 ---------- 10,837 ---------- TOBACCO (0.3%) 5,000 Reynolds American, Inc. 2.30 8/21/2017 5,053 10,000 Reynolds American, Inc. 4.00 6/12/2022 10,595 ---------- 15,648 ---------- Total Consumer Staples 145,184 ---------- ENERGY (6.5%) ------------- COAL & CONSUMABLE FUELS (0.0%) 3,500 Peabody Energy Corp. 6.00 11/15/2018 315 ---------- INTEGRATED OIL & GAS (0.1%) 10,000 ConocoPhillips Co. 4.15 11/15/2034 7,980 ---------- OIL & GAS DRILLING (0.4%) 3,000 Nabors Industries, Inc. 9.25 1/15/2019 3,046 7,000 Nabors Industries, Inc. 4.63 9/15/2021 5,211 10,000 Noble Holding International Ltd. 4.90 8/01/2020 6,031 5,000 Noble Holding International Ltd. 5.95 4/01/2025 2,521 5,000 Rowan Companies, Inc. 7.88 8/01/2019 4,085 5,000 Rowan Companies, Inc. 4.88 6/01/2022 3,309 ---------- 24,203 ---------- OIL & GAS EQUIPMENT & SERVICES (0.7%) 5,000 Baker Hughes, Inc. 7.50 11/15/2018 5,620 20,000 Halliburton Co. 3.80 11/15/2025 18,771 10,000 Schlumberger Holdings Corp.(b) 4.00 12/21/2025 9,758 5,000 Weatherford Bermuda 9.63 3/01/2019 3,950 5,000 Weatherford Bermuda 4.50 4/15/2022 3,312 ---------- 41,411 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION (1.1%) $ 5,000 Anadarko Petroleum Corp. 5.95% 9/15/2016 $ 5,076 460 California Resources Corp. 5.00 1/15/2020 94 1,232 California Resources Corp.(b) 8.00 12/15/2022 493 7,575 Chesapeake Energy Corp.(b) 8.00 12/15/2022 3,276 5,000 Denbury Resources, Inc. 4.63 7/15/2023 1,675 15,000 EOG Resources, Inc. 3.90 4/01/2035 12,814 4,000 EQT Corp. 8.13 6/01/2019 4,324 5,000 Hess Corp. 8.13 2/15/2019 5,157 6,730 Newfield Exploration Co. 5.63 7/01/2024 5,670 5,000 Newfield Exploration Co. 5.38 1/01/2026 4,050 5,000 Noble Energy, Inc. 8.25 3/01/2019 5,447 5,000 QEP Resources, Inc. 6.88 3/01/2021 3,825 10,000 Southwestern Energy Co. 4.05 1/23/2020 6,762 2,000 Southwestern Energy Co. 4.95 1/23/2025 1,243 3,000 WPX Energy, Inc. 5.25 1/15/2017 2,888 ---------- 62,794 ---------- OIL & GAS REFINING & MARKETING (0.6%) 14,000 EnLink Midstream Partners, LP 4.15 6/01/2025 9,598 10,000 Marathon Petroleum Corp. 4.75 9/15/2044 7,618 10,000 Phillips 66 4.65 11/15/2034 8,778 5,000 Valero Energy Corp. 9.38 3/15/2019 5,876 ---------- 31,870 ---------- OIL & GAS STORAGE & TRANSPORTATION (3.6%) 15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 12,724 10,000 Buckeye Partners, LP 2.65 11/15/2018 9,687 10,000 Buckeye Partners, LP 5.60 10/15/2044 7,411 15,000 Columbia Pipeline Group, Inc.(b) 4.50 6/01/2025 13,555 15,000 DCP Midstream, LLC(b) 5.85 5/21/2043 8,625 4,000 Enbridge Energy Partners, LP 8.05 10/01/2077 2,830 3,000 Energy Transfer Partners, LP 9.00 6/1/2077 3,144 7,000 Energy Transfer Partners, LP 5.20 3/29/2067 6,279 5,000 Energy Transfer Partners, LP 4.75 6/15/2027 4,233 20,010 Energy Transfer Partners, LP 3.35(g) 3/15/2067 11,806 10,000 Enterprise Products Operating, LLC 6.30 7/02/2018 10,489 5,000 Enterprise Products Operating, LLC 3.90 11/23/2017 4,654 9,250 Enterprise Products Operating, LLC 7.03 7/31/2019 9,273 6,437 EQT Midstream Partners, LP 4.00 4/01/2028 4,988 7,500 MPLX, LP 4.00 3/22/2029 5,556 5,000 NGPL PipeCo, LLC(b) 7.12 1/08/2018 4,725 10,000 NuStar Logistics, LP 8.15 1/02/2020 9,850 5,000 ONEOK Partners, LP 8.63 4/29/2022 5,361 10,000 ONEOK Partners, LP 4.90 10/11/2025 8,046
================================================================================ 22 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 5,000 Plains All American Pipeline, LP 6.50% 4/29/2026 $ 5,046 3,000 Plains All American Pipeline, LP 8.75 1/30/2029 3,304 5,000 Questar Pipeline Co. 5.83 10/01/2029 5,387 7,000 Regency Energy Partners 4.50 6/01/2024 5,608 10,000 Sabine Pass LNG, LP 7.50 2/15/2027 10,338 4,000 Targa Resources Partners, LP 5.00 3/03/2028 3,755 1,000 Targa Resources Partners, LP 4.13 10/22/2024 845 10,000 TC PipeLines, LP 4.65 5/15/2027 9,650 3,000 Transcontinental Gas Pipe Line Co., LLC(b) 7.85 10/10/2034 3,134 10,000 Western Gas Partners, LP 5.38 11/15/2026 9,346 15,000 Williams Companies, Inc. 4.55 9/15/2028 9,847 ---------- 209,496 ---------- Total Energy 378,069 ---------- FINANCIALS (17.0%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (0.9%) 10,000 Ares Capital Corp. 4.88 6/15/2029 10,317 5,000 Bank of New York Mellon(f) 2.40 11/15/2022 5,060 10,000 Bank of New York Mellon 1.30 12/20/2025 9,981 5,000 Main Street Capital Corp. 4.50 9/15/2028 5,104 10,000 Prospect Capital Corp. 5.00 4/23/2022 10,050 15,000 State Street Capital Trust IV 1.51(g) 6/01/2077 11,801 ---------- 52,313 ---------- CONSUMER FINANCE (0.6%) 5,000 Capital One Bank USA, N.A. 3.38 7/15/2023 4,892 5,000 Capital One Financial Corp.(f) 4.75 5/15/2042 5,437 10,000 Capital One Financial Corp. 3.75 4/24/2024 10,068 10,000 Citizens Bank, N.A. 2.45 12/04/2019 10,012 5,000 Discover Bank 3.10 6/04/2020 5,029 ---------- 35,438 ---------- DIVERSIFIED BANKS (1.5%) 6,000 Bank of America Corp. 8.00 -(h) 6,066 9,000 Bank of America Corp. 4.00 4/01/2024 9,193 10,000 Bank of America Corp. 4.20 8/26/2024 9,944 5,000 Bank of America Corp. 3.95 4/21/2025 4,884 5,000 Bank of America, N.A. 6.10 6/15/2017 5,288 20,000 Citigroup, Inc. 4.40 6/10/2025 20,011 5,000 Citigroup, Inc. 4.45 9/29/2027 4,946 3,000 JPMorgan Chase & Co. 7.90 -(h) 3,032 5,000 JPMorgan Chase & Co. 4.25 10/01/2027 4,996 2,610 JPMorgan Chase Bank, N.A. 6.00 10/01/2017 2,780 16,800 USB Realty Corp.(b) 1.77(g) -(h) 14,322 ---------- 85,462 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- INVESTMENT BANKING & BROKERAGE (0.2%) $ 10,000 Morgan Stanley 4.88% 11/01/2022 $ 10,651 ---------- LIFE & HEALTH INSURANCE (1.8%) 10,000 Forethought Financial Group(b) 8.63 4/15/2021 11,536 10,000 Lincoln National Corp. 4.20 3/15/2022 10,459 15,000 Lincoln National Corp. 7.00(g) 5/17/2066 11,213 10,000 MetLife, Inc. 4.13 8/13/2042 9,148 4,000 Ohio National Financial Services, Inc.(b) 6.38 4/30/2020 4,507 5,000 Ohio National Financial Services, Inc.(b) 6.63 5/01/2031 6,079 10,000 Primerica, Inc. 4.75 7/15/2022 10,842 10,000 Prudential Financial, Inc. 5.63 6/15/2043 10,125 17,050 StanCorp Financial Group, Inc. 5.00 8/15/2022 18,201 6,625 StanCorp Financial Group, Inc. 6.90 6/01/2067 5,399 5,000 TIAA Asset Management Finance Co., LLC(b) 4.13 11/01/2024 5,107 ---------- 102,616 ---------- MULTI-LINE INSURANCE (1.4%) 10,000 American International Group, Inc. 3.88 1/15/2035 8,268 17,500 Genworth Holdings, Inc. 6.15 11/15/2066 4,725 14,000 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 10,815 20,500 Kemper Corp. 4.35 2/15/2025 20,918 10,000 Loews Corp. 2.63 5/15/2023 9,665 10,000 MassMutual Global Funding II(b) 3.60 4/09/2024 10,395 19,505 Nationwide Mutual Insurance Co.(b) 2.80(g) 12/15/2024 18,911 ---------- 83,697 ---------- MULTI-SECTOR HOLDINGS (0.3%) 10,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 10,026 5,000 Lubrizol Corp. 8.88 2/01/2019 6,010 ---------- 16,036 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%) 5,000 Icahn Enterprises, LP 3.50 3/15/2017 4,975 ---------- PROPERTY & CASUALTY INSURANCE (1.9%) 15,000 ACE INA Holdings, Inc. 3.35 5/15/2024 15,369 5,000 Allstate Corp. 5.75 8/15/2053 5,103 10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,686 20,050 Chubb Corp. 6.38 3/29/2067 18,827 10,000 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 11,626 19,300 Oil Insurance Ltd.(b) 3.59(g) -(h) 17,177 10,000 ProAssurance Corp. 5.30 11/15/2023 10,841 14,538 Progressive Corp. 6.70 6/15/2067 14,538 5,000 Travelers Companies, Inc. 6.25 3/15/2067 4,975 ---------- 109,142 ----------
================================================================================ 24 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- REGIONAL BANKS (4.2%) $ 5,000 AmSouth Bancorp. 6.75% 11/01/2025 $ 5,828 15,000 Banc of California, Inc. 5.25 4/15/2025 15,061 5,000 BankUnited, Inc. 4.88 11/17/2025 4,963 15,000 Citizens Financial Group, Inc.(b) 4.15 9/28/2022 15,431 8,000 CoBiz Financial, Inc. 5.63 6/25/2030 8,452 20,000 Compass Bank 3.88 4/10/2025 18,557 10,000 Cullen/Frost Capital Trust II 1.96(g) 3/01/2034 8,799 5,000 Fifth Third Bancorp 2.30 3/01/2019 5,021 3,500 First Maryland Capital Trust I 1.62(g) 1/15/2027 2,953 10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,933 10,000 First Republic Bank 2.38 6/17/2019 10,020 10,000 FirstMerit Bank, N.A. 4.27 11/25/2026 10,342 10,000 FirstMerit Corp. 4.35 2/04/2023 10,270 10,000 Fulton Financial Corp. 4.50 11/15/2024 10,179 5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 4,962 20,000 MUFG Americas Holdings Corp. 3.00 2/10/2025 19,577 10,000 MUFG Union Bank, N.A. 2.25 5/06/2019 10,008 22,685 People's United Financial, Inc. 3.65 12/06/2022 22,425 7,000 PNC Bank, N.A. 4.20 11/01/2025 7,579 10,000 PNC Financial Services 2.85 11/09/2022 10,003 10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,853 6,021 Susquehanna Bancshares, Inc. 5.38 8/15/2022 6,751 10,000 TCF National Bank 6.25 6/08/2022 10,933 5,000 Webster Financial Corp. 4.38 2/15/2024 5,121 ---------- 245,021 ---------- REINSURANCE (0.2%) 10,000 Alterra Finance, LLC 6.25 9/30/2020 11,358 ---------- REITs - DIVERSIFIED (0.3%) 5,000 Liberty Property, LP 6.63 10/01/2017 5,345 15,000 Washington REIT 3.95 10/15/2022 15,036 ---------- 20,381 ---------- REITs - HEALTH CARE (0.4%) 10,000 Ventas Realty, LP 4.00 4/30/2019 10,499 10,000 Welltower, Inc. 6.13 4/15/2020 11,325 ---------- 21,824 ---------- REITs - INDUSTRIAL (0.1%) 5,000 ProLogis, LP 7.38 10/30/2019 5,849 ---------- REITs - OFFICE (1.2%) 5,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 5,347 5,000 Alexandria Real Estate Equities, Inc. 4.50 7/30/2029 5,037 5,000 BioMed Realty, LP 6.13 4/15/2020 5,814
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 8,034 Boston Properties, LP(f) 3.70% 11/15/2018 $ 8,365 10,000 Boston Properties, LP 5.88 10/15/2019 11,171 10,000 Boston Properties, LP 3.85 2/01/2023 10,357 11,000 Columbia Property Trust Operating Partnership, LP(i) 5.88 4/01/2018 11,775 3,000 Mack-Cali Realty, LP 7.75 8/15/2019 3,352 10,000 VEREIT Operating Partnership, LP 3.00 2/06/2019 9,500 ---------- 70,718 ---------- REITs - RESIDENTIAL (0.3%) 5,000 AvalonBay Communities, Inc. 3.63 10/01/2020 5,263 5,000 AvalonBay Communities, Inc. 3.45 6/01/2025 5,050 7,000 UDR, Inc. 4.63 1/10/2022 7,620 ---------- 17,933 ---------- REITs - RETAIL (0.8%) 3,000 Federal Realty Investment Trust 5.90 4/01/2020 3,438 7,000 Federal Realty Investment Trust 3.00 8/01/2022 7,076 10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,789 5,000 National Retail Properties, Inc. 6.88 10/15/2017 5,394 5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,027 5,000 Realty Income Corp. 4.13 10/15/2026 5,178 2,000 Regency Centers, LP 6.00 6/15/2020 2,264 10,000 Simon Property Group, LP 4.13 12/01/2021 10,909 ---------- 49,075 ---------- REITs - SPECIALIZED (0.3%) 4,478 Communications Sales & Leasing, Inc.(a) 5.00 10/24/2022 4,209 10,000 Crown Castle International Corp. 5.25 1/15/2023 10,688 4,000 EPR Properties 7.75 7/15/2020 4,723 ---------- 19,620 ---------- SPECIALIZED FINANCE (0.3%) 10,000 McGraw Hill Financial, Inc. 4.00 6/15/2025 10,109 10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 9,650 ---------- 19,759 ---------- THRIFTS & MORTGAGE FINANCE (0.2%) 3,250 Chittenden Corp. 1.05(g) 2/14/2017 3,225 10,000 EverBank Financial Corp. 5.75 7/02/2025 10,362 ---------- 13,587 ---------- Total Financials 995,455 ----------
================================================================================ 26 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- HEALTH CARE (2.1%) ------------------ BIOTECHNOLOGY (0.7%) $ 10,000 AbbVie, Inc. 1.75% 11/06/2017 $ 9,991 5,000 AbbVie, Inc. 3.20 11/06/2022 5,009 10,000 AbbVie, Inc. 3.60 5/14/2025 10,026 15,000 Baxalta, Inc.(b) 4.00 6/23/2025 14,938 ---------- 39,964 ---------- HEALTH CARE EQUIPMENT (0.3%) 10,000 Covidien International Finance S.A. 2.95 6/15/2023 10,040 10,000 Medtronic, Inc. 4.38 3/15/2035 10,228 ---------- 20,268 ---------- HEALTH CARE FACILITIES (0.4%) 5,000 HCA, Inc. 5.00 3/15/2024 5,075 15,000 HCA, Inc. 5.25 4/15/2025 15,412 2,000 Tenet Healthcare Corp. 4.50 4/01/2021 1,970 ---------- 22,457 ---------- PHARMACEUTICALS (0.7%) 15,000 Actavis Funding SCS 3.80 3/15/2025 15,248 20,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 17,450 5,000 Mylan N.V.(b) 3.75 12/15/2020 5,062 5,000 Valeant Pharmaceuticals International, Inc.(b) 6.75 8/15/2021 4,875 ---------- 42,635 ---------- Total Health Care 125,324 ---------- INDUSTRIALS (5.8%) ------------------ AEROSPACE & DEFENSE (0.3%) 10,000 Lockheed Martin Corp. 3.60 3/01/2035 9,136 10,000 Raytheon Co. 4.20 12/15/2044 10,474 ---------- 19,610 ---------- AIR FREIGHT & LOGISTICS (0.2%) 10,000 FedEx Corp. 3.90 2/01/2035 9,190 ---------- AIRLINES (2.2%) 662 America West Airlines, Inc. Pass-Through Trust 6.87 7/02/2018 664 1,350 American Airlines, Inc. Pass-Through Trust 7.38 11/23/2017 1,350 5,370 American Airlines, Inc. Pass-Through Trust(b) 7.00 7/31/2019 5,592 9,418 American Airlines, Inc. Pass-Through Trust 3.70 4/01/2028 9,418 10,000 American Airlines, Inc. Pass-Through Trust 4.00 3/22/2029 9,813 3,255 Continental Airlines, Inc. Pass-Through Trust 9.00 1/08/2018 3,356 608 Continental Airlines, Inc. Pass-Through Trust 7.88 1/02/2020 636 2,447 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 2,524 8,770 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 9,044 4,485 Continental Airlines, Inc. Pass-Through Trust 4.00 4/29/2026 4,596
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 9,000 Delta Air Lines Pass-Through Trust 3.88% 1/30/2029 $ 9,056 15,792 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 1/15/2026 15,377 15,000 Spirit Airlines, Inc. Pass-Through Trust 4.10 10/01/2029 14,831 7,000 United Airlines, Inc. Pass-Through Trust 3.70 6/01/2024 7,079 4,760 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,968 20,000 United Airlines, Inc. Pass-Through Trust 3.75 3/03/2028 20,250 3,547 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,907 9,046 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 9,171 ---------- 131,632 ---------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%) 10,000 Caterpillar Financial Services, Corp. 1.25 11/06/2017 9,985 6,500 CNH Industrial Capital, LLC 3.38 7/15/2019 6,012 4,962 Terex Corp.(a) 3.50 8/13/2021 4,913 ---------- 20,910 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (0.3%) 15,000 Eaton Corp. 2.75 11/02/2022 14,683 ---------- INDUSTRIAL CONGLOMERATES (0.7%) 10,000 Danaher Corp. 5.63 1/15/2018 10,813 9,000 General Electric Capital Corp. 6.38 11/15/2067 9,563 15,000 General Electric Capital Corp./LJ VP Holdings, LLC(b) 3.80 6/18/2019 16,001 5,921 General Electric Co. 5.00 -(h) 6,091 ---------- 42,468 ---------- INDUSTRIAL MACHINERY (0.4%) 10,000 CNH Industrial Capital, LLC 3.88 7/16/2018 9,725 5,000 Hillenbrand, Inc. 5.50 7/15/2020 5,476 1,500 Ingersoll-Rand Co. 9.00 8/15/2021 1,914 1,500 SPX Flow, Inc. 6.88 9/01/2017 1,592 5,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 5,235 ---------- 23,942 ---------- RAILROADS (0.8%) 8,000 Burlington Northern Santa Fe, LLC 3.75 4/01/2024 8,311 10,000 Burlington Northern Santa Fe, LLC 3.65 9/01/2025 10,192 5,000 TTX Co.(b) 4.15 1/15/2024 5,265 10,000 TTX Co.(b) 3.60 1/15/2025 10,083 5,000 Union Pacific Corp. 7.88 1/15/2019 5,814 10,000 Union Pacific Corp. 3.38 2/01/2035 9,115 ---------- 48,780 ---------- TRADING COMPANIES & DISTRIBUTORS (0.3%) 10,000 ILFC E-Capital Trust I(b) 4.49(g) 12/21/2065 9,000 5,000 International Lease Finance Corp.(b) 7.13 9/01/2018 5,425
================================================================================ 28 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 4,000 United Rentals North America, Inc. 6.13% 6/15/2023 $ 3,870 ---------- 18,295 ---------- TRUCKING (0.2%) 5,000 J.B. Hunt Transport Services, Inc. 3.85 3/15/2024 5,179 5,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 3.38 3/15/2018 5,088 ---------- 10,267 ---------- Total Industrials 339,777 ---------- INFORMATION TECHNOLOGY (1.4%) ----------------------------- COMMUNICATIONS EQUIPMENT (0.3%) 5,000 Cisco Systems, Inc. 2.90 3/04/2021 5,225 3,000 Commscope, Inc.(b) 4.38 6/15/2020 3,060 10,000 Qualcomm, Inc. 4.65 5/20/2035 9,356 ---------- 17,641 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%) 5,000 FLIR Systems, Inc.(f) 3.75 9/01/2016 5,064 ---------- ELECTRONIC MANUFACTURING SERVICES (0.1%) 10,000 Molex Electronic Technologies, LLC(b) 3.90 4/15/2025 9,485 ---------- HOME ENTERTAINMENT SOFTWARE (0.1%) 3,738 Activision Blizzard, Inc.(a) 3.25 10/12/2020 3,743 ---------- INTERNET SOFTWARE & SERVICES (0.1%) 4,250 Verisign, Inc. 5.25 4/01/2025 4,214 ---------- IT CONSULTING & OTHER SERVICES (0.1%) 5,000 IBM Corp. 7.63 10/15/2018 5,763 ---------- SEMICONDUCTOR EQUIPMENT (0.2%) 10,000 Applied Materials, Inc. 5.10 10/01/2035 10,187 ---------- SYSTEMS SOFTWARE (0.3%) 20,000 Microsoft Corp. 4.20 11/03/2035 20,313 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.1%) 4,829 Dell International, LLC(a) 4.00 4/29/2020 4,825 ---------- Total Information Technology 81,235 ---------- MATERIALS (2.4%) ---------------- ALUMINUM (0.2%) 15,000 Alcoa, Inc. 5.13 10/01/2024 12,375 ---------- DIVERSIFIED CHEMICALS (0.6%) 20,000 Dow Chemical Co. 4.25 10/01/2034 18,021 10,000 E.I. du Pont de Nemours & Co. 2.80 2/15/2023 9,470 8,028 E.I. du Pont de Nemours & Co. 4.90 1/15/2041 7,958 ---------- 35,449 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- DIVERSIFIED METALS & MINING (0.1%) $ 5,000 Freeport-McMoRan, Inc.(a) 2.18% 5/31/2018 $ 3,850 5,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 2,337 5,000 Freeport-McMoRan, Inc. 4.00 11/14/2021 2,225 ---------- 8,412 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%) 5,000 Monsanto Co. 3.38 7/15/2024 4,726 5,000 Monsanto Co. 3.95 4/15/2045 3,832 ---------- 8,558 ---------- METAL & GLASS CONTAINERS (0.5%) 4,000 Ball Corp. 4.38 12/15/2020 4,151 3,000 Ball Corp. 5.00 3/15/2022 3,120 5,000 Ball Corp. 5.25 7/01/2025 5,156 4,868 Berry Plastics Group, Inc.(a) 4.00 10/01/2022 4,854 3,883 Greif, Inc. 6.75 2/01/2017 4,024 9,553 Reynolds Group Holdings, Inc.(a) 4.50 12/01/2018 9,523 ---------- 30,828 ---------- PAPER PACKAGING (0.2%) 5,000 International Paper Co. 3.80 1/15/2026 4,872 5,000 Sealed Air Corp.(b) 6.88 7/15/2033 5,156 ---------- 10,028 ---------- SPECIALTY CHEMICALS (0.4%) 3,321 Albemarle Corp. 3.00 12/01/2019 3,300 2,505 Cytec Industries, Inc. 8.95 7/01/2017 2,721 15,000 RPM International, Inc. 6.13 10/15/2019 16,662 ---------- 22,683 ---------- STEEL (0.2%) 5,000 Allegheny Ludlum Corp. 6.95 12/15/2025 2,600 5,000 Allegheny Technologies, Inc. 9.38 6/01/2019 3,715 10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 6,350 ---------- 12,665 ---------- Total Materials 140,998 ---------- TELECOMMUNICATION SERVICES (1.7%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (1.6%) 25,000 AT&T, Inc. 4.50 5/15/2035 22,617 10,000 Centel Capital Corp. 9.00 10/15/2019 11,571 10,000 CenturyLink, Inc. 5.80 3/15/2022 9,288 2,000 CenturyLink, Inc. 6.75 12/01/2023 1,900 10,000 Frontier Communications Corp.(b) 11.00 9/15/2025 9,675 8,409 Frontier Communications Corp. 7.88 1/15/2027 6,517 5,000 Qwest Corp.(f) 6.75 12/01/2021 5,225
================================================================================ 30 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 15,000 Verizon Communications, Inc. 4.50% 9/15/2020 $ 16,258 10,000 Verizon Communications, Inc. 4.40 11/01/2034 9,137 ---------- 92,188 ---------- WIRELESS TELECOMMUNICATION SERVICES (0.1%) 4,887 Grain Spectrum Funding II(b) 3.29 10/10/2034 4,893 ---------- Total Telecommunication Services 97,081 ---------- UTILITIES (5.3%) ---------------- ELECTRIC UTILITIES (2.3%) 5,000 Atlantic City Electric Co. 3.38 9/01/2024 5,029 5,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 5,883 10,000 Duke Energy Progress, Inc. 4.15 12/01/2044 10,061 3,500 Duquesne Light Holdings, Inc.(b) 5.90 12/01/2021 3,973 4,000 Entergy Arkansas, Inc. 3.05 6/01/2023 4,001 7,000 Entergy Louisiana, LLC 4.95 1/15/2045 7,131 582 FPL Energy American Wind, LLC(b) 6.64 6/20/2023 584 3,168 Mississippi Power Co. 4.25 3/15/2042 2,364 10,000 Monongahela Power Co.(b) 4.10 4/15/2024 10,371 5,000 Nevada Power Co. 7.13 3/15/2019 5,723 4,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 3,006 5,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 4,662 5,000 Oglethorpe Power Corp. 6.10 3/15/2019 5,569 5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 4,380 26,130 PPL Capital Funding, Inc. 6.70 3/30/2067 20,125 5,000 South Carolina Electric & Gas Co. 5.30 5/15/2033 5,618 10,000 Southern California Edison Co. 6.25 -(h) 11,025 2,534 Tri-State Generation & Transmission Association Pass-Through Trust(b) 6.04 1/31/2018 2,626 10,000 Tri-State Generation & Transmission Association, Inc. 4.70 11/01/2044 10,445 10,000 Xcel Energy, Inc. 3.30 6/01/2025 10,078 ---------- 132,654 ---------- GAS UTILITIES (1.0%) 8,000 AGL Capital Corp. 6.38 7/15/2016 8,186 4,000 Atmos Energy Corp. 8.50 3/15/2019 4,703 10,000 Atmos Energy Corp. 4.13 10/15/2044 9,958 10,000 Florida Gas Transmission Co.(b) 5.45 7/15/2020 10,773 10,000 National Fuel Gas Co.(f) 4.90 12/01/2021 10,480 10,000 National Fuel Gas Co. 5.20 7/15/2025 9,036 5,000 Southern Star Central Gas Pipeline, Inc.(b) 6.00 6/01/2016 5,043 ---------- 58,179 ---------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%) 2,500 AES Corp. 3.41(g) 6/01/2019 2,319 5,000 AES Corp. 4.88 5/15/2023 4,450
================================================================================ PORTFOLIO OF INVESTMENTS | 31 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 10,000 AES Corp. 5.50% 4/15/2025 $ 9,025 4,975 Calpine Corp.(a) 3.50 5/27/2022 4,735 ---------- 20,529 ---------- MULTI-UTILITIES (1.5%) 5,000 Ameren Illinois Co. 9.75 11/15/2018 6,027 15,000 Berkshire Hathaway Energy Co. 4.50 2/01/2045 14,751 5,000 Black Hills Corp. 5.88 7/15/2020 5,581 10,000 Black Hills Corp. 4.25 11/30/2023 10,422 12,387 Integrys Holding, Inc. 6.11 12/01/2066 9,044 5,000 NiSource Finance Corp. 10.75 3/15/2016 5,051 15,000 Northern States Power Co. 4.00 8/15/2045 15,246 5,000 Northwestern Corp. 6.34 4/01/2019 5,675 8,000 Puget Sound Energy, Inc. 6.97 6/01/2067 6,140 15,000 WEC Energy Group, Inc. 6.25 5/15/2067 10,875 ---------- 88,812 ---------- WATER UTILITIES (0.2%) 10,000 Aquarion Co., Inc.(b) 4.00 8/15/2024 9,963 ---------- Total Utilities 310,137 ---------- Total Corporate Obligations (cost: $2,860,539) 2,771,145 ---------- EURODOLLAR AND YANKEE OBLIGATIONS (15.6%) CONSUMER DISCRETIONARY (0.5%) ----------------------------- AUTOMOBILE MANUFACTURERS (0.3%) 10,000 American Honda Finance Corp.(b) 7.63 10/01/2018 11,487 5,000 Daimler Finance, N.A., LLC(b) 1.88 1/11/2018 4,986 5,000 Daimler Finance, N.A., LLC(b) 2.25 7/31/2019 4,989 ---------- 21,462 ---------- PUBLISHING (0.2%) 10,000 Pearson Funding Four plc(b) 3.75 5/08/2022 10,022 ---------- Total Consumer Discretionary 31,484 ---------- CONSUMER STAPLES (1.4%) ----------------------- BREWERS (0.3%) 20,000 Anheuser-Busch InBev S.A./N.V. 4.70 2/01/2036 20,301 ---------- DISTILLERS & VINTNERS (0.2%) 10,000 Pernod Ricard S.A.(b) 4.25 7/15/2022 10,547 ---------- PACKAGED FOODS & MEAT (0.2%) 6,471 JBS S.A. 10.50 8/04/2016 6,600 4,000 Kerry Group Financial Services(b) 3.20 4/09/2023 3,877 ---------- 10,477 ----------
================================================================================ 32 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- TOBACCO (0.7%) $ 20,000 BAT International Finance plc(b) 3.95% 6/15/2025 $ 20,859 20,000 Imperial Tobacco Finance plc(b) 4.25 7/21/2025 20,564 ---------- 41,423 ---------- Total Consumer Staples 82,748 ---------- ENERGY (1.0%) ------------- INTEGRATED OIL & GAS (0.5%) 10,000 BP Capital Markets plc 1.63 8/17/2017 9,989 4,000 Husky Energy, Inc. 7.25 12/15/2019 4,170 10,000 Petrobras Global Finance B.V. 3.00 1/15/2019 7,625 10,000 Shell International Finance B.V. 3.63 8/21/2042 8,130 ---------- 29,914 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.3%) 3,500 Repsol Oil & Gas Canada, Inc. 7.75 6/01/2019 3,245 10,000 Woodside Finance Ltd.(b) 8.75 3/01/2019 11,532 ---------- 14,777 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.2%) 6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 5,895 12,124 TransCanada PipeLines Ltd. 6.35 5/15/2067 8,123 ---------- 14,018 ---------- Total Energy 58,709 ---------- FINANCIALS (6.5%) ----------------- DIVERSIFIED BANKS (4.1%) 5,000 Abbey National Treasury Services plc 4.00 3/13/2024 5,321 15,000 ABN AMRO Bank N.V.(b) 4.75 7/28/2025 14,946 4,000 Banco Santander Chile(b) 1.52(g) 4/11/2017 3,980 10,000 Bank of Montreal 2.50 1/11/2017 10,132 10,000 Bank of Nova Scotia 4.50 12/16/2025 9,904 5,000 Barclays Bank plc(b) 6.05 12/04/2017 5,336 10,000 BBVA Bancomer S.A. Texas Agency(b) 4.38 4/10/2024 9,897 5,000 BNP Paribas(b) 7.20 -(h) 5,637 5,000 BNP Paribas Co. S.A.(b) 4.38 9/28/2025 4,862 4,089 Canadian Imperial Bank of Commerce(b) 7.26 4/10/2032 4,835 5,000 Caribbean Development Bank(b) 4.38 11/09/2027 5,236 10,000 Cooperatieve Rabobank U.A. 3.38 1/19/2017 10,211 10,000 Cooperatieve Rabobank U.A. 3.88 2/08/2022 10,616 10,000 Cooperatieve Rabobank U.A. 3.95 11/09/2022 10,252 15,000 DNB Bank ASA(b) 3.20 4/03/2017 15,300 10,000 DNB Boligkreditt AS(b) 2.90 3/29/2016 10,028 5,000 HBOS plc(b) 6.75 5/21/2018 5,477 15,000 HSBC Bank plc 1.13(g) -(h) 8,924
================================================================================ PORTFOLIO OF INVESTMENTS | 33 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 5,000 National Australia Bank Ltd. 3.00% 1/20/2023 $ 5,042 11,000 Nordea Bank AB(b) 4.88 5/13/2021 11,914 10,000 Royal Bank of Canada 0.85 3/08/2016 10,003 20,000 Royal Bank of Canada 4.65 1/27/2026 20,072 5,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 5,405 10,000 Santander UK plc(b) 5.00 11/07/2023 10,445 4,355 Standard Chartered Bank(b) 6.40 9/26/2017 4,641 10,000 Swedbank AB(b) 1.75 3/12/2018 10,028 10,000 Westpac Banking Corp.(b),(f) 2.45 11/28/2016 10,127 ---------- 238,571 ---------- LIFE & HEALTH INSURANCE (0.2%) 8,500 Great-West Life & Annuity Insurance Capital, LP(b) 7.15(g) 5/16/2046 8,521 ---------- MULTI-LINE INSURANCE (0.3%) 19,072 ZFS Finance USA Trust II(b) 6.45(g) 12/15/2065 19,191 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%) 15,000 ING Bank N.V.(b) 3.75 3/07/2017 15,375 5,500 ING Bank N.V. 4.13 11/21/2023 5,593 5,000 ING Capital Funding Trust III 4.21(g) -(h) 4,944 ---------- 25,912 ---------- PROPERTY & CASUALTY INSURANCE (0.5%) 20,000 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 22,075 5,000 XLIT Ltd. 6.50 -(h) 3,640 5,000 XLIT Ltd. 4.45 3/31/2025 4,946 ---------- 30,661 ---------- REGIONAL BANKS (0.0%) 5,000 Kaupthing Bank hf, acquired 6/22/2006; cost $4,942(b),(d),(j),(k) 7.13 5/19/2016 - ---------- REINSURANCE (0.3%) 15,000 Swiss Re Capital I, LP(b) 6.85(g) -(h) 15,160 ---------- REITs - RESIDENTIAL (0.1%) 5,000 Vonovia Finance B.V.(b) 3.20 10/02/2017 5,056 ---------- REITs - RETAIL (0.6%) 5,000 Scentre Group Trust(b) 2.38 4/28/2021 4,913 10,000 Scentre Group Trust(b) 3.25 10/28/2025 9,634 20,000 WEA Finance, LLC/Westfield UK & Europe Finance plc(b) 3.75 9/17/2024 20,170 ---------- 34,717 ---------- Total Financials 377,789 ----------
================================================================================ 34 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- GOVERNMENT (0.3%) ----------------- FOREIGN GOVERNMENT (0.3%) $ 15,000 Italy Government International Bond 5.38% 6/15/2033 $ 17,568 ---------- HEALTH CARE (0.2%) ------------------ PHARMACEUTICALS (0.2%) 10,000 GlaxoSmithKline Capital, Inc. 4.20 3/18/2043 10,134 2,222 Roche Holdings, Inc.(b) 6.00 3/01/2019 2,512 ---------- 12,646 ---------- Total Health Care 12,646 ---------- INDUSTRIALS (3.1%) ------------------ AEROSPACE & DEFENSE (0.1%) 5,000 Bombardier, Inc.(b) 5.50 9/15/2018 4,462 ---------- AIRLINES (1.4%) 23,081 Air Canada Pass-Through Trust(b) 4.13 11/15/2026 23,225 10,000 Air Canada Pass-Through Trust(b) 3.60 9/15/2028 9,637 6,000 Air Canada Pass-Through Trust(b) 3.75 6/15/2029 6,023 5,016 Air Canada Pass-Through Trust(b) 5.38 11/15/2022 4,935 18,717 British Airways Pass-Through Trust(b) 4.63 12/20/2025 19,583 9,772 Turkish Airlines Pass-Through Trust(b) 4.20 9/15/2028 9,344 3,197 Virgin Australia Trust(b) 6.00 4/23/2022 3,233 7,028 Virgin Australia Trust(b) 5.00 4/23/2025 7,248 ---------- 83,228 ---------- AIRPORT SERVICES (0.5%) 10,000 Heathrow Funding Ltd.(b) 4.88 7/15/2023 11,116 15,000 Sydney Airport Finance Co. Proprietary Ltd.(b) 3.90 3/22/2023 15,274 ---------- 26,390 ---------- DIVERSIFIED SUPPORT SERVICES (0.1%) 5,500 Brambles USA, Inc.(b) 4.13 10/23/2025 5,627 ---------- INDUSTRIAL CONGLOMERATES (0.9%) 10,000 Hutchison Whampoa International Ltd.(b) 2.00 11/08/2017 10,070 5,000 Hutchison Whampoa International Ltd.(b) 4.63 1/13/2022 5,449 10,000 Hutchison Whampoa International Ltd.(b) 3.63 10/31/2024 10,112 20,000 Siemens Financieringsmaatschappij N.V.(b) 3.25 5/27/2025 20,433 7,000 Smiths Group plc(b) 3.63 10/12/2022 6,933 ---------- 52,997 ---------- TRADING COMPANIES & DISTRIBUTORS (0.1%) 7,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 6,825 ---------- Total Industrials 179,529 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 35 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (0.0%) ----------------------------- SEMICONDUCTORS (0.0%) $ 2,000 NXP B.V.(a) 3.75% 12/07/2020 $ 1,999 ---------- MATERIALS (2.0%) ---------------- COMMODITY CHEMICALS (0.1%) 10,000 Braskem Finance Ltd. 6.45 2/03/2024 8,825 ---------- CONSTRUCTION MATERIALS (0.2%) 10,000 Holcim US Finance Sarl & Cie SCS(b) 6.00 12/30/2019 11,167 ---------- DIVERSIFIED METALS & MINING (0.5%) 5,000 Anglo American Capital plc(b) 2.63 9/27/2017 4,375 10,000 Anglo American Capital plc(b) 4.88 5/14/2025 6,000 10,000 Glencore Funding, LLC(b) 2.50 1/15/2019 7,630 5,000 Glencore Funding, LLC(b) 4.13 5/30/2023 3,405 5,000 Rio Tinto Finance (USA) Ltd. 9.00 5/01/2019 5,804 ---------- 27,214 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%) 10,000 Potash Corp. of Saskatchewan, Inc. 3.00 4/01/2025 9,325 2,000 Yara International ASA(b) 7.88 6/11/2019 2,289 ---------- 11,614 ---------- GOLD (0.6%) 10,000 Barrick North America Finance, LLC 6.80 9/15/2018 10,538 20,000 Goldcorp, Inc. 3.70 3/15/2023 18,257 10,000 Kinross Gold Corp. 5.95 3/15/2024 6,250 ---------- 35,045 ---------- PRECIOUS METALS & MINERALS (0.2%) 10,000 Fresnillo plc(b) 5.50 11/13/2023 10,100 ---------- STEEL (0.2%) 10,000 ArcelorMittal 7.25 2/25/2022 8,175 5,000 Vale Overseas Ltd. 4.38 1/11/2022 3,500 ---------- 11,675 ---------- Total Materials 115,640 ---------- UTILITIES (0.6%) ---------------- ELECTRIC UTILITIES (0.4%) 30,000 Electricite De France S.A.(b) 5.25 -(h) 27,000 ---------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%) 10,200 Transalta Corp. 6.90 5/15/2018 10,054 ---------- Total Utilities 37,054 ---------- Total Eurodollar and Yankee Obligations (cost: $929,216) 915,166 ----------
================================================================================ 36 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000)(L) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- FOREIGN GOVERNMENT OBLIGATIONS (0.4%) CAD15,000 Province of Alberta 2.55% 12/15/2022 $ 11,135 CAD20,000 Province of Ontario 2.85 6/02/2023 15,142 ---------- Total Foreign Government Obligations (cost: $34,603) 26,277 ---------- ASSET-BACKED SECURITIES (3.2%) FINANCIALS (2.7%) ----------------- ASSET-BACKED FINANCING (2.7%) $ 1,231 Access Group, Inc. 0.88(g) 4/25/2029 1,214 588 ACS Pass-Through Trust(b) 0.72(g) 6/14/2037 568 10,000 AESOP Funding II, LLC(b) 3.41 11/20/2017 10,110 2,672 ARL First, LLC(b) 2.18(g) 12/15/2042 2,669 1,230 Arran Residential Mortgages Funding plc(b),(f) 1.82(g) 11/19/2047 1,232 10,000 Babson CLO Ltd.(b) 2.01(g) 10/17/2026 9,815 7,474 CIT Education Loan Trust(b) 0.90(g) 6/25/2042 6,230 8,500 CIT Equipment Collateral(b) 2.15 2/20/2020 8,575 2,000 Citibank Credit Card Issuance Trust 5.35 2/07/2020 2,162 5,000 Credit Acceptance Auto Loan Trust(b) 2.29 4/15/2022 5,004 3,000 Credit Acceptance Auto Loan Trust(b) 3.30 7/17/2023 2,990 5,000 Drive Auto Receivables Trust "B"(b) 2.28 6/17/2019 5,007 7,500 Dryden Senior Loan Fund(b) 2.12(g) 4/15/2027 7,419 7,000 Element Rail Leasing I, LLC(b) 3.67 4/19/2044 7,179 10,000 Exeter Automobile Receivables Trust(b) 2.42 1/15/2019 10,010 5,000 Exeter Automobile Receivables Trust(b) 2.17 5/15/2019 4,972 2,623 First Investors Auto Owner Trust(b) 0.86 8/15/2018 2,620 3,000 First Investors Auto Owner Trust(b) 2.26 3/15/2019 3,014 5,000 Loomis Sayles Ltd.(b) 1.96(g) 10/15/2027 4,890 20,000 Louisiana Environmental Facilities and Community Dev. 3.24 8/01/2028 21,020 10,000 MMAF Equipment Finance, LLC(b) 2.49 2/19/2036 10,252 5,000 SBA Tower Trust(b) 2.90 10/15/2044 5,025 2,727 SLM Student Loan Trust 1.17(g) 10/25/2038 2,372 7,161 SLM Student Loan Trust 0.85(g) 1/25/2041 5,631 3,750 TCF Auto Receivables Owner Trust(b) 2.89 7/15/2021 3,714 10,000 Trip Rail Master Funding, LLC(b) 4.09 4/15/2044 10,061 4,725 Westlake Automobile Receivables Trust(b) 2.24 4/15/2020 4,701 2,000 Westlake Automobile Receivables Trust(b) 2.45 1/15/2021 1,987 ---------- 160,443 ---------- Total Financials 160,443 ---------- TELECOMMUNICATION SERVICES (0.2%) --------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.2%) 10,000 Crown Castle Towers, LLC(b) 3.22 5/15/2042 10,013 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 37 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- UTILITIES (0.3%) ---------------- ELECTRIC UTILITIES (0.3%) $ 15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24% 1/01/2031 $ 15,334 ---------- Total Asset-Backed Securities (cost: $184,404) 185,790 ---------- COMMERCIAL MORTGAGE SECURITIES (6.3%) FINANCIALS (6.3%) ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (5.3%) 1,258 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 1,256 5,000 Banc of America Commercial Mortgage, Inc. 6.04 7/10/2044 5,041 710 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 711 878 CD Commercial Mortgage Trust 5.48 7/15/2044 878 10,000 Citigroup Commercial Mortgage Trust 3.36 7/10/2047 10,310 2,500 Citigroup Commercial Mortgage Trust 3.62 7/10/2047 2,615 4,000 Citigroup Commercial Mortgage Trust 3.86 7/10/2047 4,127 23,957 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 23,869 8,600 Commercial Mortgage Trust 3.25 10/15/2045 8,724 5,925 Commercial Mortgage Trust(b) 3.42 10/15/2045 6,072 6,000 Commercial Mortgage Trust 2.77 12/10/2045 6,050 4,000 Commercial Mortgage Trust 3.61 6/10/2046 4,209 10,000 Commercial Mortgage Trust 5.35 12/10/2046 10,212 7,500 Commercial Mortgage Trust 4.08 8/10/2047 7,917 507 Credit Suisse Commercial Mortgage Trust 5.72 2/15/2039 507 10,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 10,198 3,667 GMAC Commercial Mortgage Securities, Inc. 5.29 11/10/2045 3,664 6,000 GS Mortgage Securities Corp. II 3.21 5/10/2045 6,198 5,000 GS Mortgage Securities Corp. II 3.38 5/10/2045 5,239 3,188 GS Mortgage Securities Trust 5.83 4/10/2038 3,186 5,000 GS Mortgage Securities Trust 3.28 2/10/2046 5,083 5,000 GS Mortgage Securities Trust(b) 3.68 2/10/2046 4,980 5,000 GS Mortgage Securities Trust 4.24 8/10/2046 5,478 6,000 GS Mortgage Securities Trust 3.76 7/10/2048 6,290 967 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.84 7/15/2042 966 1,856 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.81 6/12/2043 1,859 15,000 J.P. Morgan Chase Commercial Mortgage Securities Corp.(b) 5.74 11/15/2043 15,977 5,697 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.82 5/15/2045 6,098 5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.48 5/15/2045 5,067 10,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.27 6/15/2045 10,783
================================================================================ 38 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 10,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.37% 5/15/2047 $ 10,095 9,000 J.P. Morgan Chase Commercial Mortgage Securities Trust 4.44 2/15/2047 9,710 5,000 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 5,101 7,000 Morgan Stanley Capital I, Inc. 4.16 5/15/2048 7,450 8,499 Morgan Stanley Capital I, Inc. 5.37 12/15/2043 8,648 2,750 Morgan Stanley Capital I, Inc.(b) 5.20 6/15/2044 3,025 3,000 Morgan Stanley Capital I, Inc. 3.77 3/15/2045 3,138 5,000 Timberstar Trust(b) 5.88 10/15/2036 5,082 9,375 UBS Commercial Mortgage Trust 4.17 5/10/2045 10,073 15,000 UBS Commercial Mortgage Trust 4.82 5/10/2045 15,917 2,313 UBS-Barclays Commercial Mortgage Trust(b) 4.18 5/10/2063 2,469 4,089 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 4,144 1,500 WF-RBS Commercial Mortgage Trust(b),(f) 5.43 6/15/2044 1,637 5,000 WF-RBS Commercial Mortgage Trust 3.35 5/15/2045 5,071 10,000 WF-RBS Commercial Mortgage Trust 4.09 6/15/2045 10,655 5,000 WF-RBS Commercial Mortgage Trust 3.24 12/15/2045 5,113 20,000 WF-RBS Commercial Mortgage Trust 3.65 12/15/2046 21,016 ---------- 311,908 ---------- INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.0%) 45,109 Commercial Mortgage Pass-Through Certificates, acquired 5/22/2012; cost $6,252(j) 2.26 5/15/2045 3,867 71,165 Commercial Mortgage Pass-Through Certificates, acquired 11/06/2012; cost $9,540(j) 2.09 10/15/2045 6,116 70,811 Freddie Mac(+) 1.71 10/25/2018 2,621 68,397 Freddie Mac(+) 1.66 3/25/2019 2,811 60,574 Freddie Mac(+) 1.55 1/25/2022 4,085 95,864 Freddie Mac(+) 1.59 5/25/2022 7,181 73,142 Freddie Mac(+) 1.63 6/25/2022 5,558 71,043 Freddie Mac(+) 1.02 10/25/2022 3,370 97,105 Freddie Mac(+) 1.16 11/25/2022 5,407 38,498 GS Mortgage Securities Corp. II, acquired 5/18/2012; cost $5,882(j) 2.70 5/10/2045 3,427 190,667 GS Mortgage Securities Trust, acquired 6/27/2013; cost $4,998(b),(j) 0.39 5/03/2032 4,103 58,465 UBS Commercial Mortgage Trust, acquired 9/26/2012; cost $9,007(b),(j) 2.36 5/10/2045 5,798 34,112 WF Commercial Mortgage Trust, acquired 9/21/2012; cost $4,732(b),(j) 2.22 10/15/2045 2,954 ---------- 57,298 ---------- Total Financials 369,206 ---------- Total Commercial Mortgage Securities (cost: $358,782) 369,206 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 39 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY ISSUES (2.3%)(m) MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.3%) $ 13,438 Fannie Mae(+) 2.50% 2/01/2028 $ 13,810 2,625 Fannie Mae(+) 5.00 6/01/2033 2,915 730 Fannie Mae(+) 5.50 7/01/2021 790 2,717 Fannie Mae(+) 5.50 9/01/2035 3,098 1,344 Fannie Mae(+) 5.50 10/01/2035 1,512 362 Fannie Mae(+) 5.50 1/01/2036 406 1,533 Fannie Mae(+) 5.50 4/01/2036 1,725 1,613 Fannie Mae(+) 5.50 2/01/2037 1,807 1,621 Fannie Mae(+) 5.50 3/01/2037 1,828 859 Fannie Mae(+) 5.50 11/01/2037 963 2,355 Fannie Mae(+) 5.50 5/01/2038 2,641 1,598 Fannie Mae(+) 6.00 5/01/2036 1,811 1,228 Fannie Mae(+) 6.00 6/01/2036 1,401 1,328 Fannie Mae(+) 6.00 8/01/2037 1,514 355 Fannie Mae(+) 6.50 4/01/2031 406 6 Fannie Mae(+) 6.50 7/01/2031 7 620 Fannie Mae(+) 6.50 3/01/2032 727 15 Fannie Mae(+) 7.00 10/01/2022 16 8 Fannie Mae(+) 7.00 3/01/2023 9 33 Fannie Mae(+) 7.00 4/01/2023 34 14,541 Freddie Mac(+) 3.50 5/01/2042 15,220 425 Freddie Mac(+) 5.00 6/01/2020 442 1,050 Freddie Mac(+) 5.00 1/01/2021 1,115 1,335 Freddie Mac(+) 5.50 11/01/2020 1,436 374 Freddie Mac(+) 5.50 12/01/2020 400 1,229 Freddie Mac(+) 5.50 12/01/2035 1,385 1,059 Freddie Mac(+) 5.50 4/01/2036 1,180 4,246 Government National Mortgage Assn. I 5.00 8/15/2033 4,784 103 Government National Mortgage Assn. I 6.00 8/15/2028 116 60 Government National Mortgage Assn. I 6.00 9/15/2028 68 290 Government National Mortgage Assn. I 6.00 9/15/2028 333 1,852 Government National Mortgage Assn. I 6.00 9/15/2028 2,128 310 Government National Mortgage Assn. I 6.00 10/15/2028 357 145 Government National Mortgage Assn. I 6.00 1/15/2029 164 36 Government National Mortgage Assn. I 6.00 1/15/2029 41 246 Government National Mortgage Assn. I 6.00 1/15/2029 281 307 Government National Mortgage Assn. I 6.00 1/15/2033 353 16 Government National Mortgage Assn. I 6.50 6/15/2023 18 183 Government National Mortgage Assn. I 6.50 7/15/2023 210 8 Government National Mortgage Assn. I 6.50 7/15/2023 9 38 Government National Mortgage Assn. I 6.50 9/15/2023 44 178 Government National Mortgage Assn. I 6.50 10/15/2023 204
================================================================================ 40 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 167 Government National Mortgage Assn. I 6.50% 10/15/2023 $ 191 25 Government National Mortgage Assn. I 6.50 10/15/2023 29 273 Government National Mortgage Assn. I 6.50 12/15/2023 313 156 Government National Mortgage Assn. I 6.50 12/15/2023 179 66 Government National Mortgage Assn. I 6.50 1/15/2024 75 116 Government National Mortgage Assn. I 6.50 2/15/2024 133 68 Government National Mortgage Assn. I 6.50 4/15/2026 78 327 Government National Mortgage Assn. I 6.50 5/15/2028 384 565 Government National Mortgage Assn. I 6.50 10/15/2031 652 52 Government National Mortgage Assn. I 7.00 5/15/2023 57 43 Government National Mortgage Assn. I 7.00 5/15/2023 47 27 Government National Mortgage Assn. I 7.00 5/15/2023 28 27 Government National Mortgage Assn. I 7.00 5/15/2023 29 127 Government National Mortgage Assn. I 7.00 6/15/2023 138 103 Government National Mortgage Assn. I 7.00 6/15/2023 112 91 Government National Mortgage Assn. I 7.00 8/15/2023 98 16 Government National Mortgage Assn. I 7.00 8/15/2023 17 56 Government National Mortgage Assn. I 7.00 8/15/2023 59 31 Government National Mortgage Assn. I 7.00 8/15/2023 34 71 Government National Mortgage Assn. I 7.00 9/15/2023 76 27 Government National Mortgage Assn. I 7.00 1/15/2026 30 27 Government National Mortgage Assn. I 7.00 3/15/2026 30 13 Government National Mortgage Assn. I 7.00 3/15/2026 14 226 Government National Mortgage Assn. I 7.00 10/15/2027 267 175 Government National Mortgage Assn. I 7.00 6/15/2029 197 343 Government National Mortgage Assn. I 7.00 6/15/2029 387 21 Government National Mortgage Assn. I 7.00 7/15/2029 21 239 Government National Mortgage Assn. I 7.00 8/15/2031 264 129 Government National Mortgage Assn. I 7.00 7/15/2032 151 122 Government National Mortgage Assn. I 7.50 7/15/2023 134 155 Government National Mortgage Assn. I 7.50 6/15/2026 174 114 Government National Mortgage Assn. I 7.50 6/15/2026 128 100 Government National Mortgage Assn. I 7.50 7/15/2026 112 179 Government National Mortgage Assn. I 7.50 5/15/2027 205 183 Government National Mortgage Assn. I 7.50 2/15/2028 218 146 Government National Mortgage Assn. I 7.50 12/15/2028 177 122 Government National Mortgage Assn. I 7.50 8/15/2029 145 757 Government National Mortgage Assn. II 5.50 4/20/2033 848 704 Government National Mortgage Assn. II 6.00 8/20/2032 801 518 Government National Mortgage Assn. II 6.00 9/20/2032 602 233 Government National Mortgage Assn. II 6.50 8/20/2031 277 ---------- 75,619 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 41 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (0.7%) $ 15,500 Freddie Mac(+) 3.51% 4/25/2030 $ 16,068 8,000 Freddie Mac(+) 3.01 7/25/2025 8,257 17,000 Freddie Mac(+) 2.77 5/25/2025 17,194 ---------- 41,519 ---------- OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.3%) 9,740 Totem Ocean Trailer Express, Inc., Title XI 6.37 4/15/2028 11,363 6,092 Washington Aircraft 1 Co. Ltd. (NBGA) 2.64 9/15/2026 6,276 ---------- 17,639 ---------- Total U.S. Government Agency Issues (cost: $126,458) 134,777 ---------- U.S. TREASURY SECURITIES (11.8%) BONDS (4.0%) 30,000 3.88%, 8/15/2040 36,737 20,000 4.25%, 11/15/2040 25,886 40,000 2.75%, 8/15/2042 40,241 10,000 2.75%, 11/15/2042 10,038 5,000 3.38%, 5/15/2044 5,643 40,000 3.00%, 11/15/2044 41,961 70,000 2.50%, 2/15/2045 66,266 5,000 3.00%, 11/15/2045 5,248 ---------- 232,020 ---------- INFLATION-INDEXED NOTES (1.1%) 56,663 2.38%, 1/15/2025 65,691 ---------- NOTES (6.7%) 5,000 3.38%, 11/15/2019 5,411 70,000 3.63%, 2/15/2020 76,642 45,000 3.50%, 5/15/2020 49,179 25,000 2.63%, 8/15/2020 26,446 55,000 2.63%, 11/15/2020 58,223 25,000 2.00%, 2/15/2022 25,699 20,000 1.63%, 8/15/2022 20,023 20,000 1.63%, 11/15/2022 19,978 10,000 2.00%, 2/15/2023 10,224 5,000 2.50%, 5/15/2024 5,261 10,000 2.25%, 11/15/2024 10,302 80,000 2.00%, 2/15/2025 80,664 5,000 2.25%, 11/15/2025 5,143 ---------- 393,195 ---------- Total U.S. Treasury Securities (cost: $653,573) 690,906 ----------
================================================================================ 42 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (8.6%) AIRPORT/PORT (1.1%) $ 6,500 Chicago Midway Airport 5.00% 1/01/2025 $ 7,682 8,000 Chicago Midway Airport 5.00 1/01/2026 9,366 5,000 Chicago O'Hare International Airport 5.00 1/01/2021 5,784 12,570 Dallas-Fort Worth International Airport Facilities 4.00 11/01/2021 14,003 2,265 Dallas-Fort Worth International Airport Facilities(f) 4.44 11/01/2021 2,511 1,700 Port of Corpus Christi Auth. 3.29 12/01/2023 1,761 1,500 Port of Corpus Christi Auth. 3.39 12/01/2024 1,554 1,000 Port of Corpus Christi Auth. 3.49 12/01/2025 1,038 5,000 Port of Oakland 4.50 5/01/2030 5,526 11,700 Port of Oakland 4.50 5/01/2032 12,799 4,350 Port of Seattle 4.00 8/01/2016 4,428 ---------- 66,452 ---------- APPROPRIATED DEBT (1.0%) 5,600 Brevard County School Board 1.70 7/01/2017 5,655 4,955 Indiana Finance Auth. 4.36 7/15/2029 5,265 4,260 Indiana Finance Auth. 4.53 7/15/2031 4,487 3,250 Jacksonville 2.00 10/01/2019 3,311 3,000 Jacksonville 2.37 10/01/2020 3,089 5,000 Kannapolis 7.28 3/01/2027 5,454 10,000 Kansas Dev. Finance Auth. 4.73 4/15/2037 10,317 2,000 McLennan County Public Facility 3.90 6/01/2029 2,045 10,000 Miami-Dade County School Board (INS) 5.38 5/01/2031 11,621 6,000 Palm Beach County School Board 5.40 8/01/2025 7,000 850 Placentia Yorba Linda USD 5.40 8/01/2021 976 ---------- 59,220 ---------- CASINOS & GAMING (0.0%) 6,491 Mashantucket (Western) Pequot Tribe(n) 7.35 7/01/2026 535 ---------- COMMUNITY SERVICE (0.0%) 2,750 Art Institute of Chicago 3.23 3/01/2022 2,888 ---------- EDUCATION (0.8%) 2,000 Austin Texas Community College District Public Auth. 6.91 8/01/2035 2,598 5,000 El Paso County 4.47 10/01/2035 5,208 9,520 Indiana State 2.13 7/15/2019 9,771 5,000 New Jersey EDA 2.42 6/15/2018 5,023 14,310 New Jersey EDA 4.45 6/15/2020 14,570 2,700 New Jersey EDA 5.25 9/01/2022 2,980 1,625 State Public School Building Auth. 2.84 12/01/2019 1,710 1,300 State Public School Building Auth. 4.08 12/01/2023 1,474 2,000 Torrance USD 5.52 8/01/2021 2,315 ---------- 45,649 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 43 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- EDUCATION SERVICES (0.2%) $ 6,080 Princeton Theological Seminary 4.11% 7/01/2023 $ 6,596 5,000 Univ. of Notre Dame 3.44 2/15/2045 4,822 ---------- 11,418 ---------- ELECTRIC UTILITIES (0.2%) 5,000 Appling County Dev. Auth 2.40 1/01/2038(o) 5,127 3,000 Hawaii Department of Budget and Finance 3.25 1/01/2025 3,116 5,000 Ohio Water Dev. Auth. 4.00 12/01/2033(o) 5,199 ---------- 13,442 ---------- ELECTRIC/GAS UTILITIES (0.8%) 10,000 Cleveland Public Power 5.50 11/15/2038 10,373 2,000 Jackson Energy Auth. 2.90 4/01/2022 2,013 2,745 Jackson Energy Auth. 3.05 4/01/2023 2,759 3,915 Jackson Energy Auth. 3.20 4/01/2024 3,935 10,000 Long Island Power Auth. 5.25 5/01/2022 11,082 2,500 Long Island Power Auth. 3.98 9/01/2025 2,627 2,500 Long Island Power Auth. 4.13 9/01/2026 2,621 5,682 Pedernales Electric Cooperative, Inc.(b) 5.95 11/15/2022 6,417 3,680 Piedmont Municipal Power Agency 4.34 1/01/2017 3,759 ---------- 45,586 ---------- ESCROWED BONDS (0.1%) 7,300 New Jersey EDA (PRE) 5.25 9/01/2022 8,749 ---------- GENERAL OBLIGATION (1.3%) 1,250 City and County of Honolulu 2.51 11/01/2022 1,302 5,000 City and County of Honolulu 2.51 11/01/2022 5,072 900 City and County of Honolulu 2.81 11/01/2023 912 730 City and County of Honolulu 2.91 11/01/2024 738 680 City and County of Honolulu 3.06 11/01/2025 691 775 City and County of Honolulu 3.16 11/01/2026 790 625 City and County of Honolulu 3.26 11/01/2027 641 690 City and County of Honolulu 3.36 11/01/2028 709 1,250 Las Virgenes USD 5.54 8/01/2025 1,470 2,200 Marin County (INS) 4.89 8/01/2016 2,240 4,250 Riverside Community College District 3.49 8/01/2023 4,503 3,000 Riverside Community College District 3.61 8/01/2024 3,159 10,000 Scranton School District(b) 4.00 12/01/2025 10,051 1,800 State of Mississippi 2.83 12/01/2024 1,841 2,000 State of Mississippi 3.03 12/01/2025 2,046 10,000 State of Mississippi 3.73 10/01/2032 9,971 10,000 State of Washington 5.25 2/01/2036 11,732
================================================================================ 44 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 3,845 Town of Hamden 4.93% 8/15/2030 $ 3,879 10,000 Town of Stratford 5.75 8/15/2030 11,523 ---------- 73,270 ---------- HOSPITAL (0.8%) 7,000 Baylor Scott & White Holdings 3.10 11/15/2025 6,952 10,000 Community Hospitals of Indiana 4.24 5/01/2025 10,492 15,000 Mercy Healthcare System 3.38 11/01/2025 14,989 10,000 Rochester Health Care Facilities 4.50 11/15/2038(o) 11,692 ---------- 44,125 ---------- MULTI-UTILITIES (0.1%) 5,000 New York Energy Research and Dev. Auth. 2.38 7/01/2026(o) 5,097 ---------- MUNICIPAL FINANCE (0.2%) 10,000 Pennsylvania State IDA(b) 3.56 7/01/2024 10,014 ---------- REAL ESTATE TAX/FEE (0.4%) 5,000 Industry Public Facilities Auth. (INS) 3.47 1/01/2021 5,228 5,000 Industry Public Facilities Auth. (INS) 3.82 1/01/2022 5,336 5,250 San Marcos Redevelopment Agency 4.02 10/01/2025 5,466 6,500 San Marcos Redevelopment Agency 4.47 10/01/2029 6,781 2,590 Vista Redevelopment Agency 4.13 9/01/2030 2,591 ---------- 25,402 ---------- SALES TAX (0.1%) 3,500 Arizona School Facilities Board 2.38 9/01/2019 3,550 ---------- SEMICONDUCTORS (0.0%) 1,250 Sandoval County 2.32 6/01/2019 1,270 1,000 Sandoval County 2.72 6/01/2020 1,026 ---------- 2,296 ---------- SPECIAL ASSESSMENT/TAX/FEE (0.9%) 9,000 Colony Local Dev. Corp. (INS) 4.38 10/01/2033 9,050 5,000 Maine Municipal Bond Bank 4.25 6/01/2023 5,517 5,000 New Jersey Transportation Trust Fund Auth. 1.76 12/15/2018 4,983 3,320 New Jersey Transportation Trust Fund Auth. 5.50 12/15/2022 3,827 5,000 New Jersey Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,733 5,000 New York City Transitional Finance Auth. 5.00 2/01/2035 5,778 7,000 New York MTA (ETM) 1.47 7/01/2018 7,082 10,000 South Carolina Public Service Auth. 4.77 12/01/2045 10,727 ---------- 52,697 ---------- TOLL ROADS (0.1%) 3,000 North Texas Tollway Auth. 5.00 9/01/2031 3,512 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 45 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- WATER/SEWER UTILITY (0.5%) $ 6,500 Chicago Wastewater Transmission 5.84% 1/01/2035 $ 6,937 5,000 Houston Utility System 5.00 11/15/2033 5,764 10,825 New York Municipal Water Finance Auth. 5.25 6/15/2040 12,267 2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,949 ---------- 27,917 ---------- Total Municipal Bonds (cost: $473,141) 501,819 ---------- Total Bonds (cost: $5,620,716) 5,595,086 ---------- ------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES ------------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (2.6%) COMMON STOCKS (0.8%) CONSUMER STAPLES (0.1%) ----------------------- HOUSEHOLD PRODUCTS (0.1%) 24,000 Kimberly-Clark Corp. 3,082 ---------- ENERGY (0.1%) ------------- INTEGRATED OIL & GAS (0.1%) 41,780 Chevron Corp. 3,613 55,000 Royal Dutch Shell plc ADR "A" 2,416 ---------- 6,029 ---------- Total Energy 6,029 ---------- FINANCIALS (0.2%) ----------------- ASSET MANAGEMENT & CUSTODY BANKS (0.0%) 202,000 Prospect Capital Corp. 1,226 ---------- CONSUMER FINANCE (0.0%) 24,649 Synchrony Financial* 701 ---------- DIVERSIFIED BANKS (0.0%) 50,000 Bank of Montreal 2,676 25,000 Canadian Imperial Bank of Commerce 1,621 ---------- 4,297 ---------- REGIONAL BANKS (0.1%) 260,336 KeyCorp 2,906 282,414 Regions Financial Corp. 2,293 ---------- 5,199 ----------
================================================================================ 46 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- REITs - MORTGAGE (0.1%) 89,000 American Capital Agency Corp. $ 1,519 135,000 Annaly Capital Management, Inc. 1,282 80,000 Hatteras Financial Corp. 981 199,850 MFA Financial, Inc. 1,269 292,200 Two Harbors Investment Corp. 2,221 ---------- 7,272 ---------- Total Financials 18,695 ---------- HEALTH CARE (0.1%) ------------------ PHARMACEUTICALS (0.1%) 59,920 Merck & Co., Inc. 3,036 ---------- INDUSTRIALS (0.0%) ------------------ INDUSTRIAL CONGLOMERATES (0.0%) 91,835 General Electric Co. 2,672 ---------- INFORMATION TECHNOLOGY (0.1%) ----------------------------- COMMUNICATIONS EQUIPMENT (0.0%) 18,500 QUALCOMM, Inc. 839 ---------- SEMICONDUCTORS (0.1%) 91,943 Intel Corp. 2,852 ---------- Total Information Technology 3,691 ---------- TELECOMMUNICATION SERVICES (0.1%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (0.1%) 70,050 AT&T, Inc. 2,526 21,000 Verizon Communications, Inc. 1,049 ---------- 3,575 ---------- Total Telecommunication Services 3,575 ---------- UTILITIES (0.1%) ---------------- ELECTRIC UTILITIES (0.0%) 46,500 Southern Co. 2,275 ---------- MULTI-UTILITIES (0.1%) 65,000 CMS Energy Corp.(f) 2,527 15,200 Dominion Resources, Inc.(f) 1,097 ---------- 3,624 ---------- Total Utilities 5,899 ---------- Total Common Stocks (cost: $44,762) 46,679 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 47 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE $(000)/SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS (1.8%) CONSUMER STAPLES (0.4%) ----------------------- AGRICULTURAL PRODUCTS (0.4%) 200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual $ 5,660 172,520 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 18,400 ---------- 24,060 ---------- Total Consumer Staples 24,060 ---------- FINANCIALS (1.1%) ----------------- DIVERSIFIED BANKS (0.0%) 80,000 Citigroup Capital XIII, 7.88% 2,051 ---------- PROPERTY & CASUALTY INSURANCE (0.1%) $5,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(b) 3,913 ---------- REGIONAL BANKS (0.2%) 10,800 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 11,034 ---------- REITs - INDUSTRIAL (0.3%) 344,500 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual 21,488 ---------- REITs - OFFICE (0.1%) 200,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 5,154 ---------- REITs - RESIDENTIAL (0.4%) 142,500 Equity Residential Properties Trust, depositary shares, Series K, 8.29%, cumulative redeemable, perpetual 9,365 250,000 Post Properties, Inc., Series A, 8.50%, cumulative redeemable, perpetual 16,078 ---------- 25,443 ---------- Total Financials 69,083 ---------- INDUSTRIALS (0.1%) ------------------ OFFICE SERVICES & SUPPLIES (0.1%) 3,000 Pitney Bowes International Holdings, Series F, 6.13%, cumulative redeemable, perpetual(b) 3,108 ---------- UTILITIES (0.2%) ---------------- ELECTRIC UTILITIES (0.2%) 200,000 Entergy Texas, Inc., 5.63% 5,395 50,000 Southern California Edison, Series D, 6.50%, cumulative redeemable, perpetual 5,195 ---------- 10,590 ---------- Total Utilities 10,590 ---------- Total Preferred Stocks (cost: $92,579) 106,841 ---------- Total Equity Securities (cost: $137,341) 153,520 ----------
================================================================================ 48 | USAA INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (0.8%) COMMERCIAL PAPER (0.7%) FINANCIALS (0.5%) ----------------- ASSET-BACKED FINANCING (0.0%) $ 1,010 Hannover Funding Co., LLC(b),(p) 0.55% 2/03/2016 $ 1,010 ---------- SPECIALIZED FINANCE (0.5%) 9,775 Intercontinental Exchange, Inc.(b),(p) 0.60 2/02/2016 9,775 22,268 Intercontinental Exchange, Inc.(b),(p) 0.42 2/05/2016 22,267 ---------- 32,042 ---------- Total Financials 33,052 ---------- UTILITIES (0.2%) ---------------- ELECTRIC UTILITIES (0.2%) 10,000 MidAmerican Energy Co. 0.38 2/02/2016 10,000 ---------- Total Commercial Paper 43,052 ---------- ------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES ------------------------------------------------------------------------------------------------------------- MONEY MARKET FUNDS (0.1%) 6,758,977 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(q) 6,759 ---------- Total Money Market Instruments (cost: $49,811) 49,811 ---------- TOTAL INVESTMENTS (COST: $5,807,868) $5,798,417 ========== ------------------------------------------------------------------------------------------------------------- UNREALIZED NUMBER OF APPRECIATION/ CONTRACTS EXPIRATION CONTRACT (DEPRECIATION) LONG/(SHORT) DATE VALUE (000) (000) ------------------------------------------------------------------------------------------------------------- FUTURES (1.0%)(R) 218 U.S. Treasury Bond Futures 3/21/2016 $35,105 $ 149 194 10YR U.S. Treasury Note Futures 3/21/2016 25,138 123 ------- ----------- TOTAL FUTURES $60,243 $ 272 ======= ===========
================================================================================ PORTFOLIO OF INVESTMENTS | 49 ================================================================================
-------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY -------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL -------------------------------------------------------------------------------------------------------------- Bonds: Corporate Obligations $ - $2,767,645 $3,500 $2,771,145 Eurodollar and Yankee Obligations - 915,166 - 915,166 Foreign Government Obligations - 26,277 - 26,277 Asset-Backed Securities - 185,790 - 185,790 Commercial Mortgage Securities - 369,206 - 369,206 U.S. Government Agency Issues - 134,777 - 134,777 U.S. Treasury Securities 690,906 - - 690,906 Municipal Bonds - 501,819 - 501,819 Equity Securities: Common Stocks 46,679 - - 46,679 Preferred Stocks - 106,841 - 106,841 Money Market Instruments: Commercial Paper - 43,052 - 43,052 Money Market Funds 6,759 - - 6,759 Futures(1) 272 - - 272 -------------------------------------------------------------------------------------------------------------- Total $744,616 $5,050,573 $3,500 $5,798,689 --------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the investment. Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
COMMERCIAL CORPORATE MORTGAGE OBLIGATIONS SECURITIES -------------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $11,200 $ 6,250 Purchases (7,700) - Sales - - Transfers into Level 3 - - Transfers out of Level 3 - $(6,250) Net realized gain (loss) on investments - - Change in net unrealized appreciation/(depreciation) of investments - - -------------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $ 3,500 $ - --------------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, commercial mortgage securities with a fair value of $6,250,000 were transferred from Level 3 to Level 2 as a result of these securities being priced during the period by the Fund's pricing service. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 50 | USAA INCOME FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 16.9% of net assets at January 31, 2016. o CATEGORIES AND DEFINITIONS EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S. dollar-denominated instruments that are issued outside the U.S. capital markets by foreign corporations and financial institutions and by foreign branches of U.S. corporations and financial institutions. Yankee obligations are dollar-denominated instruments that are issued by foreign issuers in the U.S. capital markets. ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed securities represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets. Commercial mortgage-backed securities reflect an interest in, and are secured by, mortgage loans on commercial real property. These securities represent ownership in a pool of loans and are divided into pieces (tranches) with varying maturities. The stated final maturity of such securities represents the date the final principal payment will be made for the last outstanding loans in the pool. The weighted average life is the average time for ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 51 ================================================================================ principal to be repaid, which is calculated by assuming prepayment rates of the underlying loans. The weighted average life is likely to be substantially shorter than the stated final maturity as a result of scheduled principal payments and unscheduled principal prepayments. Stated interest rates on commercial mortgage-backed securities may change slightly over time as underlying mortgages pay down. INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent the right to receive only the interest payments on an underlying pool of commercial mortgage loans. The purchase yield reflects an anticipated yield based upon interest rates at the time of purchase and the estimated timing and amount of future cash flows. Coupon rates after purchase vary from period to period. The principal amount represents the notional amount of the underlying pool on which current interest is calculated. CMBS IOs are backed by loans that have various forms of prepayment protection, which include lock-out provisions, yield maintenance provisions, and prepayment penalties. This serves to moderate their prepayment risk. CMBS IOs are subject to default-related prepayments that may have a negative impact on yield. U.S. TREASURY INFLATION-INDEXED NOTES - Designed to provide a real rate of return after being adjusted over time to reflect the impact of inflation. Their principal value periodically adjusts to the rate of inflation. They trade at the prevailing real, or after-inflation, interest rates. The U.S. Treasury guarantees repayment of these securities of at least their face value in the event of sustained deflation or a drop in prices. Inflation adjustments to the face value of these securities are included in interest income. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. CAD Canadian dollars CLO Collateralized Loan Obligation EDA Economic Development Authority ETM Escrowed to final maturity IDA Industrial Development Authority/Agency ================================================================================ 52 | USAA INCOME FUND ================================================================================ MTA Metropolitan Transportation Authority PRE Pre-refunded to a date prior to maturity REIT Real estate investment trust Title XI The Title XI Guarantee Program provides a guarantee of payment of principal and interest of debt obligations issued by U.S. merchant marine and U.S. shipyards by enabling owners of eligible vessels and shipyards to obtain financing at attractive terms. The guarantee carries the full faith and credit of the U.S. government. USD Unified School District CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: AMBAC Assurance Corp., Assured Guaranty Corp., Berkshire Hathaway Assurance Corp., or National Public Finance Guarantee Corp. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (NBGA) Principal and interest payments are guaranteed by a nonbank guarantee agreement from Export-Import Bank of the United States. o SPECIFIC NOTES (a) Senior loan (loan) - is not registered under the Securities Act of 1933. The loan contains certain restrictions on resale and cannot be sold publicly. The stated interest rate represents the weighted average interest rate of all contracts within the senior loan facility. The interest rate is adjusted periodically, and the rate disclosed represents the ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 53 ================================================================================ current rate at January 31, 2016. The weighted average life of the loan is likely to be shorter than the stated final maturity date due to mandatory or optional prepayments. The loan is deemed liquid by USAA Asset Management Company (the Manager), under liquidity guidelines approved by the Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (c) At January 31, 2016, the aggregate market value of securities purchased on a delayed delivery basis was $10,759,000, all of which were when-issued securities. (d) Security was fair valued at January 31, 2016, by the Manager in accordance with valuation procedures approved by the Board. The total value of all such securities was $3,500,000, which represented 0.1% of the Fund's net assets. (e) The senior loan will settle after January 31, 2016, at which time the interest rate will be determined. (f) The security, or a portion thereof, is segregated to cover the value of open futures contracts at January 31, 2016. (g) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at January 31, 2016. (h) Security is perpetual and has no final maturity date but may be subject to calls at various dates in the future. (i) At January 31, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. ================================================================================ 54 | USAA INCOME FUND ================================================================================ (j) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at January 31, 2016, was $26,265,000, which represented 0.4% of the Fund's net assets. (k) At January 31, 2016, the issuer was in default with respect to interest and/or principal payments. (l) In U.S. dollars unless otherwise noted. (m) U.S. government agency issues - Mortgage-backed securities issued by certain U.S. Government Sponsored Enterprises (GSEs) such as the Government National Mortgage Association (GNMA or Ginnie Mae) and certain other U.S. government guaranteed securities are supported by the full faith and credit of the U.S. government. Securities issued by other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) and Fannie Mae (Federal National Mortgage Association or FNMA), indicated with a "+", are supported only by the right of the GSE to borrow from the U.S. Treasury, the discretionary authority of the U.S. government to purchase the GSEs' obligations, or only by the credit of the issuing agency, instrumentality, or corporation, and are neither issued nor guaranteed by the U.S. Treasury. In September of 2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship and appointed the Federal Housing Finance Agency (FHFA) to act as conservator and oversee their daily operations. In addition, the U.S. Treasury entered into purchase agreements with Fannie Mae and Freddie Mac to provide them with capital in exchange for senior preferred stock. While these arrangements are intended to ensure that Fannie Mae and Freddie Mac can continue to meet their obligations, it is possible that actions by the U.S. Treasury, FHFA, or others could adversely impact the value of the Fund's investments in securities issued by Fannie Mae and Freddie Mac. (n) Pay-in-kind (PIK) - security in which the issuer will have or has the option to make all or a portion of the interest or dividend payments in additional securities. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 55 ================================================================================ (o) Put bond - provides the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. (p) Commercial paper issued in reliance on the "private placement" exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (Section 4(2) Commercial Paper). Unless this commercial paper is subsequently registered, a resale of this commercial paper in the United States must be effected in a transaction exempt from registration under the Securities Act of 1933. Section 4(2) commercial paper is normally resold to other investors through or with the assistance of the issuer or an investment dealer who makes a market in this security, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (q) Rate represents the money market fund annualized seven-day yield at January 31, 2016. (r) Cash of $1,310,000 is segregated as collateral for initial margin requirements on open futures contracts. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 56 | USAA INCOME FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $5,807,868) $5,798,417 Cash 1,880 Receivables: Capital shares sold 3,976 Dividends and interest 58,453 Securities sold 25,647 Variation margin on futures contracts 275 ---------- Total assets 5,888,648 ---------- LIABILITIES Payables: Securities purchased 10,744 Capital shares redeemed 22,116 Accrued management fees 974 Accrued transfer agent's fees 254 Other accrued expenses and payables 213 ---------- Total liabilities 34,301 ---------- Net assets applicable to capital shares outstanding $5,854,347 ========== NET ASSETS CONSIST OF: Paid-in capital $5,869,390 Accumulated overdistribution of net investment income (2,397) Accumulated net realized loss on investments (3,467) Net unrealized depreciation of investments and futures contracts (9,179) ---------- Net assets applicable to capital shares outstanding $5,854,347 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $3,083,288/243,804 shares outstanding) $ 12.65 ========== Institutional Shares (net assets of $2,582,592/204,440 shares outstanding) $ 12.63 ========== Adviser Shares (net assets of $188,467/14,941 shares outstanding) $ 12.61 ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 57 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $44) $ 5,567 Interest 121,047 --------- Total income 126,614 --------- EXPENSES Management fees 6,727 Administration and servicing fees: Fund Shares 2,639 Institutional Shares 1,120 Adviser Shares 157 Transfer agent's fees: Fund Shares 2,288 Institutional Shares 1,120 Adviser Shares 96 Distribution and service fees (Note 6D): Adviser Shares 262 Custody and accounting fees: Fund Shares 209 Institutional Shares 129 Adviser Shares 12 Postage: Fund Shares 98 Institutional Shares 71 Adviser Shares 4 Shareholder reporting fees: Fund Shares 38 Institutional Shares 12 Adviser Shares 1 Trustees' fees 13 Registration fees: Fund Shares 89 Institutional Shares 79 Adviser Shares 50 Professional fees 131 Other 47 --------- Total expenses 15,392 --------- NET INVESTMENT INCOME 111,222 ---------
================================================================================ 58 | USAA INCOME FUND ================================================================================ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY, AND FUTURES CONTRACTS ----------------------------------------------------------------------------------------- Net realized gain (loss) on: Unaffiliated transactions $ (2,993) Affiliated transactions (Note 8) 79 Foreign currency transactions (16) Change in net unrealized appreciation/(depreciation) of: Investments (156,141) Foreign currency translations 4 Futures contracts 272 --------- Net realized and unrealized loss (158,795) --------- Decrease in net assets resulting from operations $ (47,573) =========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 59 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
--------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 --------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 111,222 $ 189,148 Net realized gain (loss) on investments (2,914) 5,614 Net realized loss on foreign currency transactions (16) (27) Change in net unrealized appreciation/(depreciation) of: Investments (156,141) (122,886) Foreign currency translations 4 (2) Futures contracts 272 - ---------------------------- Increase (decrease) in net assets resulting from operations (47,573) 71,847 ---------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (65,045) (113,440) Institutional Shares (44,991) (76,086) Adviser Shares (3,612) (4,771) ---------------------------- Total distributions of net investment income (113,648) (194,297) ---------------------------- Net realized gains: Fund Shares - (1,257) Institutional Shares - (845) Adviser Shares - (47) ---------------------------- Total distributions of net realized gains - (2,149) Tax return of capital: Fund Shares - (5,337) Institutional Shares - (3,389) Adviser Shares - (307) ---------------------------- Total distributions of tax return of capital - (9,033) ---------------------------- Distributions to shareholders (113,648) (205,479) ---------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (365,479) 764,619 Institutional Shares 415,402 178,024 Adviser Shares (28,414) 185,044 ---------------------------- Total net increase in net assets from capital share transactions 21,509 1,127,687 ---------------------------- Net increase (decrease) in net assets (139,712) 994,055 NET ASSETS Beginning of period 5,994,059 5,000,004 ---------------------------- End of period $5,854,347 $5,994,059 ============================ Accumulated undistributed (overdistribution of) net investment income: End of period $ (2,397) $ 29 ============================
See accompanying notes to financial statements. ================================================================================ 60 | USAA INCOME FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Income Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek maximum current income without undue risk to principal. The Fund consists of three classes of shares: Income Fund Shares (Fund Shares), Income Fund Institutional Shares (Institutional Shares), and Income Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 61 ================================================================================ foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the ================================================================================ 62 | USAA INCOME FUND ================================================================================ Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 2. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 3. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund's foreign securities and, if necessary, the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuations procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices ================================================================================ NOTES TO FINANCIAL STATEMENTS | 63 ================================================================================ of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 4. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 5. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 6. Repurchase agreements are valued at cost. 7. Futures are valued at the last sale price at the close of market on the principal exchange on which they are traded or, in the absence of any transactions that day, the last sale price on the prior trading date if it is within the spread between the closing bid and asked prices closest to the last reported sale price. 8. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and ================================================================================ 64 | USAA INCOME FUND ================================================================================ duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include preferred stocks, which are valued based on methods discussed in Note 1A3. Additionally, certain bonds are valued based on methods discussed in Note 1A1, and commercial paper, which is valued at amortized cost. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are valued at the purchase price. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 65 ================================================================================ C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and enter into certain types of derivatives, including, but not limited to futures contracts, options, and options on futures contracts, under circumstances in which such instruments are expected by the portfolio manager to aid in achieving the Fund's investment objective. The Fund also may use derivatives in circumstances where the portfolio manager believes they offer an economical means of gaining exposure to a particular asset class or securities market or to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the market. With exchange-listed futures contracts and options, counterparty credit risk to the Fund is limited to the exchange's clearinghouse which, as counterparty to all exchange-traded futures contracts and options, guarantees the transactions against default from the actual counterparty to the trade. The Fund's derivative agreements held at January 31, 2016, did not include master netting provisions. FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against, changes in the value of equities, interest rates, or foreign currencies. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Upon entering into such contracts, the Fund is required to deposit with the broker in either cash or securities an initial margin in an amount equal to a certain percentage of the contract amount. Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Upon entering into such contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly in an unfavorable direction, in which case, the Fund may not achieve the anticipated benefits of the futures contracts. ================================================================================ 66 | USAA INCOME FUND ================================================================================ FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JANUARY 31, 2016* (IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES ------------------------------------------------------------------------------------------------- STATEMENT OF STATEMENT OF DERIVATIVES NOT ASSETS AND ASSETS AND ACCOUNTED FOR AS LIABILITIES LIABILITIES HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE ------------------------------------------------------------------------------------------------- Interest rate contracts Net unrealized depreciation of investments and Futures contracts $272** $- -------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2016, see the Portfolio of Investments, which also is indicative of activity for the six-month period ended January 31, 2016. ** Includes cumulative appreciation of futures as reported on the Portfolio of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities. THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2016 (IN THOUSANDS)
CHANGE IN UNREALIZED DERIVATIVES NOT STATEMENT OF REALIZED GAIN APPRECIATION/ ACCOUNTED FOR AS OPERATIONS (LOSS) ON (DEPRECIATION) HEDGING INSTRUMENTS LOCATION DERIVATIVES ON DERIVATIVES ------------------------------------------------------------------------------------------------- Interest rate contracts Change in net unrealized appreciation/ (depreciation) of Futures contracts $- $272 -------------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex- dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is ================================================================================ NOTES TO FINANCIAL STATEMENTS | 67 ================================================================================ recorded daily on the accrual basis. Discounts and premiums are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency ================================================================================ 68 | USAA INCOME FUND ================================================================================ exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis or for delayed draws on loans can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund receives a commitment fee for delayed draws on loans. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis and delayed-draw loan commitments may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases and commitments while remaining substantially fully invested. As of January 31, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $10,744,000. H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 69 ================================================================================ J. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $17,000, which represents 8.5% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. ================================================================================ 70 | USAA INCOME FUND ================================================================================ Distributions of net investment income are made monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $386,385,000 and $382,648,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $222,197,000 and $231,648,000, respectively, resulting in net unrealized depreciation of $9,451,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other ================================================================================ NOTES TO FINANCIAL STATEMENTS | 71 ================================================================================ persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 ------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------ FUND SHARES: Shares sold 25,528 $ 327,076 87,186 $1,156,870 Shares issued from reinvested dividends 4,864 62,075 8,609 113,776 Shares redeemed (59,423) (754,630) (38,241) (506,027) ----------------------------------------------- Net increase (decrease) from capital share transactions (29,031) $(365,479) 57,554 $ 764,619 =============================================== INSTITUTIONAL SHARES: Shares sold 47,072 $ 596,510 38,579 $ 510,760 Shares issued from reinvested dividends 3,451 43,989 5,966 78,816 Shares redeemed (17,591) (225,097) (31,075) (411,552) ----------------------------------------------- Net increase from capital share transactions 32,932 $ 415,402 13,470 $ 178,024 =============================================== ADVISER SHARES: Shares sold 925 $ 11,923 16,664 $ 220,527 Shares issued from reinvested dividends 276 3,519 375 4,936 Shares redeemed (3,431) (43,856) (3,078) (40,419) ----------------------------------------------- Net increase (decrease) from capital share transactions (2,230) $ (28,414) 13,961 $ 185,044 ===============================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board ================================================================================ 72 | USAA INCOME FUND ================================================================================ and without shareholder approval) one or more subadvisers to manage the day-to-day investment of the Fund's assets. For the six-month period ended January 31, 2016, the Fund had no subadviser(s). The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.24% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper A Rated Bond Funds Index. The Lipper A Rated Bond Funds Index tracks the total return performance of the 30 largest funds within the Lipper Corporate Debt Funds A Rated category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class ================================================================================ NOTES TO FINANCIAL STATEMENTS | 73 ================================================================================ outperforms the Lipper A Rated Bond Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $6,727,000, which included a performance adjustment for the Fund Shares, Institutional Shares, and Adviser Shares of $(329,000), $(90,000), and $(15,000), respectively. For the Fund Shares, Institutional Shares, and Adviser Shares, the performance adjustments were (0.02)%, (0.01)%, and (0.02)%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and Adviser Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $2,639,000, $1,120,000, and $157,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $77,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus ================================================================================ 74 | USAA INCOME FUND ================================================================================ out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $2,288,000, $1,120,000, and $96,000, respectively. D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $262,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of exercising management or control. As of January 31, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 75 ================================================================================ 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % ------------------------------------------------------------------------------ USAA Cornerstone Conservative 0.5 USAA Target Retirement Income 0.7 USAA Target Retirement 2020 1.0 USAA Target Retirement 2030 1.2 USAA Target Retirement 2040 0.7 USAA Target Retirement 2050 0.2 USAA Target Retirement 2060 0.0*
*Represents less than 0.1% The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 387,000 Adviser Shares, which represents 2.6% of the Adviser Shares and 0.1% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS During the six-month period ended January 31, 2016, in accordance with affiliated transaction procedures approved by the Board, purchases and sales of security transactions were executed between the Fund and the following affiliated USAA Funds at the then-current market price with no brokerage commissions incurred.
NET REALIZED COST TO GAIN (LOSS) SELLER PURCHASER PURCHASER TO SELLER ----------------------------------------------------------------------------------- USAA Income USAA Short-Term Bond $10,070,000 $79,000 USAA High Income USAA Income 4,994,000 (6,000) USAA Real Return USAA Income 644,000 44,000
================================================================================ 76 | USAA INCOME FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 12.99 $ 13.28 $ 13.10 $ 13.43 $ 13.05 $ 12.78 ------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .24 .47 .51 .49 .49 .52 Net realized and unrealized gain (loss) (.34) (.27) .18 (.32) .38 .27 ------------------------------------------------------------------------------------- Total from investment operations (.10) .20 .69 .17 .87 .79 ------------------------------------------------------------------------------------- Less distributions from: Net investment income (.24) (.46) (.51) (.47) (.49) (.52) Realized capital gains - (.01) (.00)(a) (.03) - - Return of capital - (.02) - - - - ------------------------------------------------------------------------------------- Total distributions (.24) (.49) (.51) (.50) (.49) (.52) ------------------------------------------------------------------------------------- Net asset value at end of period $ 12.65 $ 12.99 $ 13.28 $ 13.10 $ 13.43 $ 13.05 ===================================================================================== Total return (%)* (.77) 1.45 5.43 1.30 6.85 6.34 Net assets at end of period (000) $3,083,288 $3,544,344 $2,859,427 $2,659,263 $3,570,505 $3,144,378 Ratios to average net assets:** Expenses (%)(b) .53(c) .53 .59 .58 .59 .61 Net investment income (%) 3.71(c) 3.36 3.55 3.53 3.75 4.09 Portfolio turnover (%) 7 10 14 24 19 19 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $3,497,891,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 77 ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 12.99 $ 13.28 $ 13.09 $ 13.42 $ 13.04 $ 12.78 ------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .24 .49 .53 .48 .51 .56 Net realized and unrealized gain (loss) (.35) (.28) .19 (.29) .38 .25 ------------------------------------------------------------------------------------- Total from investment operations (.11) .21 .72 .19 .89 .81 ------------------------------------------------------------------------------------- Less distributions from: Net investment income (.25) (.47) (.53) (.49) (.51) (.55) Realized capital gains - (.01) (.00)(a) (.03) - - Return of capital - (.02) - - - - ------------------------------------------------------------------------------------- Total distributions (.25) (.50) (.53) (.52) (.51) (.55) ------------------------------------------------------------------------------------- Net asset value at end of period $ 12.63 $ 12.99 $ 13.28 $ 13.09 $ 13.42 $ 13.04 ===================================================================================== Total return (%)* (.82) 1.51 5.63 1.42 6.98 6.50 Net assets at end of period (000) $2,582,592 $2,227,221 $2,098,035 $1,847,503 $685,149 $318,276 Ratios to average net assets:** Expenses (%)(b) .46(d) .46 .48 .47 .48 .38(c) Net investment income (%) 3.78(d) 3.43 3.65 3.63 3.81 4.30 Portfolio turnover (%) 7 10 14 24 19 19 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $2,230,482,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to 0.40% of the Institutional Shares' average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 78 | USAA INCOME FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011*** ------------------------------------------------------------------------------- Net asset value at beginning of period $ 12.96 $ 13.25 $ 13.08 $13.41 $13.03 $12.77 ------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .22 .44 .37(a) .43 .46 .49(a) Net realized and unrealized gain (loss) (.35) (.27) .28(a) (.30) .38 .27(a) ------------------------------------------------------------------------------- Total from investment operations (.13) .17 .65(a) .13 .84 .76(a) ------------------------------------------------------------------------------- Less distributions from: Net investment income (.22) (.43) (.48) (.43) (.46) (.50) (.00)(b) Realized capital gains - (.01) (.03) - - Return of capital - (.02) - - - - ------------------------------------------------------------------------------- Total distributions (.22) (.46) (.48) (.46) (.46) (.50) ------------------------------------------------------------------------------- Net asset value at end of period $ 12.61 $ 12.96 $ 13.25 $13.08 $13.41 $13.03 =============================================================================== Total return (%)* (.98) 1.23 5.11 .99 6.55 6.05 Net assets at end of period (000) $188,467 $222,494 $42,542 $5,875 $5,880 $5,469 Ratios to average net assets:** Expenses (%)(d) .79(c) .79(e) .88 .90 .90 .90(c) Expenses, excluding reimbursements (%)(d) .79(c) .79 .88 1.08 1.12 1.62(c) Net investment income (%) 3.46(c) 3.10 3.13 3.21 3.45 3.82(c) Portfolio turnover (%) 7 10 14 24 19 19 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $208,112,000. *** Adviser Shares commenced operations on August 1, 2010. (a) Calculated using average shares. (b) Represents less than $0.01 per share. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. (d) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (e) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares' average net assets.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 79 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ 80 | USAA INCOME FUND ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 992.30 $2.65 Hypothetical (5% return before expenses) 1,000.00 1,022.47 2.69 INSTITUTIONAL SHARES Actual 1,000.00 991.80 2.30 Hypothetical (5% return before expenses) 1,000.00 1,022.82 2.34 ADVISER SHARES Actual 1,000.00 990.20 4.03 Hypothetical (5% return before expenses) 1,000.00 1,021.17 4.08
*Expenses are equal to the annualized expense ratio of 0.53% for Fund Shares, 0.46% for Institutional Shares, and 0.79% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (0.77)% for Fund Shares, (0.82)% for Institutional Shares, and (0.98)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 81 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ USAA -------------- 9800 Fredericksburg Road PRSRT STD San Antonio, TX 78288 U.S. Postage PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23424-0316 (C)2016, 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 JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 7 FINANCIAL INFORMATION Portfolio of Investments 12 Notes to Portfolio of Investments 20 Financial Statements 21 Notes to Financial Statements 24 EXPENSE EXAMPLE 39
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (c)2016, USAA. All rights reserved. 203451-0316 ================================================================================ ================================================================================ 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 set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company 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. Stocks finished notably lower for the reporting period ended January 31, 2016. Financial markets also exhibited lots of volatility over the reporting period as China's policy with regard to its currency, global central bank policies, disappointing economic growth, weakening global trade, lower oil prices, higher high-yield credit spreads, and impacts from the strength of the U.S. dollar dominated the headlines. China concerns drove the biggest moves during the reporting period as the government's mid-August 2015 devaluation of the renminbi in the face of the Chinese economy's slowing growth raised fears of a global currency war and helped drive investor risk aversion that led to a sell-off in equities and other risk assets. Uncertainty over China's future economic growth intensified through the end of September 2015, further weakening commodities markets and suppressing any recovery in stock prices. U.S. equities rebounded in October 2015 as worries over China eased momentarily. U.S. employment numbers exceeded expectations, and markets increasingly focused on the Federal Reserve's (the Fed) December 16, 2015, meeting as a likely candidate for the first increase in the benchmark federal funds rate. The Fed's 25 basis point rate increase to short-term interest rates during December 2015 was received as a positive sign with respect to the path of the U.S. economy, and investors anticipated an incremental but fairly steady pace with respect to future increases. ================================================================================ 2 | USAA INCOME STOCK FUND ================================================================================ However, the period of relatively optimistic sentiment proved short-lived. A resumption of the drop in oil prices as 2016 opened raised alarms that the global demand outlook had further deteriorated, leading to substantial losses for equities in January 2016. o HOW DID THE USAA INCOME STOCK FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Institutional Shares. For the reporting period ended January 31, 2016, the Fund Shares and Institutional Shares had total returns of -5.40% and -5.38%, respectively. This compares to returns of -8.63% for the Russell 1000(R) Value Index (the Index) and -7.37% for the Lipper Equity Income Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadviser. Epoch Investment Partners, Inc. (Epoch) is a subadviser to the Fund. The investment adviser and the subadviser each provide day-to-day discretionary management for a portion of the Fund's assets. o HOW DID THE MANAGER'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? For the reporting period, the portion of the Fund managed by the Manager slightly underperformed the Index. Relative performance was constrained by an underweight and stock selection within the utilities sector, as well as by stock selection within materials and health care sectors. Performance was helped by stock selection and an overweight in industrials, stock selection in consumer discretionary, and an underweight stock selection in the energy sector. Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ Within the Manager's portion of the Fund, leading positive contributors to the Fund's relative performance included technology giant Microsoft Corp., which has made strides under new management towards addressing the shift away from the desktop and towards mobile-and cloud-based computing. Multinational conglomerate General Electric Co. also outperformed, as the company has exceeded expectations with respect to the divestment of its finance-based businesses and correspondingly tighter focus within the industrials sector. Another holding within industrials, defense contractor Raytheon Co., saw its share price benefit from strong international sales results and an outlook for strengthened shareholder-friendly measures. Negative contributors to relative performance included a pair of pharmaceutical giants, AbbVie Inc. (AbbVie) and Novartis AG ADR (Novartis). AbbVie saw its shares decline on concerns over the potential for increased marketplace competition with respect to its blockbuster product Humira, the lead selling drug used to treat rheumatoid arthritis. Novartis shares lagged as issues with its eye treatment business caused the company to fall short on quarterly earnings expectations. Within information technology, data storage firm Seagate Technology plc shares declined on lower-than-expected hard disk drive sales and challenges around the company's efforts to gain market traction in cloud-based solutions. The Fund remains overweight in the financial sector, on the view that a number of its holdings are well-positioned to benefit as interest rates ultimately normalize. The Fund had below-benchmark exposure to consumer staples as the Manager believes that the slow growth rates for many of those companies that do not support their valuations. The Fund remains underweight in the energy sector, while the Manager closely monitors conditions in the beaten-down sector for a possible re-entry point. Going forward, the Manager will continue to closely monitor developments with respect to China and global growth prospects. Against this uncertain backdrop, the Manager will seek to take advantage of relative value opportunities within the dividend stock universe that may be created by elevated market volatility. ================================================================================ 4 | USAA INCOME STOCK FUND ================================================================================ o HOW DID EPOCH'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? The portion of the Fund managed by Epoch outperformed relative to the Index. Losses were substantially less than the Index because of the Fund's focus on companies with growing free cash flow and capital allocation policies that emphasize shareholder yield. The Fund's holdings in the consumer staples and utilities sectors performed better than other sectors generally. Positioning in the energy and materials sectors detracted modestly from relative performance. Within Epoch's portion of the Fund, leading individual contributors included a number of consumer staples holdings, most notably Molson Coors Brewing Co. "B" (Moslon Coors), Reynolds American, Inc. (Reynolds American), and Kimberly-Clark Corp. (Kimberly Clark). Molson Coors saw its valuation rise on merger and acquisition activity elsewhere in the beverage segment, and on its announced acquisition of SABMiller plc's share of the Miller Coors joint venture. Reynolds American acquired Lorillard, Inc. earlier in the year, thus solidifying its number two position in the U.S. tobacco market. Pricing power, cost savings, and relatively low capital expenditures drove attractive cash flow generation for the entire tobacco space, allowing for attractive and growing dividends. Shares of global personal care and paper products distributor Kimberly-Clark also outperformed, as the company continued to deliver strong organic sales growth and margin improvement. The company consistently generates attractive levels of free cash flow and returns cash to shareholders through a combination of dividends and share repurchases. Leading detractors included a number of commodity-sensitive companies, including Kinder Morgan, Inc. (Kinder Morgan)*, Potash Corporation of Saskatchewan Inc. (Potash Corp.)*, and ConocoPhillips. Kinder Morgan is an energy pipeline and terminal storage operator, which chose to significantly reduce its cash dividend and redirect the cash flow to fund growth. The position was sold in response to the company's *Kinder Morgan, Inc. and Potash Corporation of Saskatchewan, Inc. were sold out of the Fund prior to January 31, 2016. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ reversal in strategy. Materials company Potash Corp. is one of the world's largest providers of crop nutrients including potash, nitrogen, and phosphate. The company saw its shares drop along with the overall downturn in commodities prices. ConocoPhillips is involved in the exploration, production, and marketing of crude oil, natural gas, and liquid natural gas globally. The company's shares were hindered by the collapse in energy prices during the reporting period. In Epoch's view, the global economy is likely to produce modest growth in the coming year, restraining corporate revenues. While self-sustaining recoveries are visibly underway in the United States and Europe, China's slowdown in economic activity casts a long shadow, as witnessed in the past year. The accumulation of debt globally is another drag on economic activity. In this environment, Epoch believes free cash flow growth rates will differentiate the winners from the losers. A longer-term theme Epoch is exploring the impact of new disruptive technologies on corporations. For some, it will make their business models obsolete. For many others, however, taking advantage of big data, artificial intelligence, robotics, and the sharing economy will be the path to maintaining strong profit margins. Thank you for allowing us to help you with your investment needs. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. o Dividends are not guaranteed. In any year, dividends may be higher, lower, or not paid at all. ================================================================================ 6 | USAA INCOME STOCK FUND ================================================================================ INVESTMENT OVERVIEW USAA INCOME STOCK FUND SHARES (FUND SHARES) (Ticker Symbol: USISX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.4 Billion $1.7 Billion Net Asset Value Per Share $16.07 $17.78 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -5.40% -2.88% 9.27% 4.19% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -3.26% 10.64% 4.93% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 0.79% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EQUITY USAA INCOME INCOME FUNDS RUSSELL 1000 STOCK FUND INDEX VALUE INDEX SHARES 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,045.17 10,061.04 10,044.33 3/31/2006 10,169.58 10,197.34 10,135.80 4/30/2006 10,394.28 10,456.48 10,326.57 5/31/2006 10,127.74 10,192.35 10,002.27 6/30/2006 10,163.50 10,257.54 10,061.04 7/31/2006 10,295.61 10,506.84 10,291.01 8/31/2006 10,493.45 10,682.70 10,482.65 9/30/2006 10,715.71 10,895.65 10,736.22 10/31/2006 11,058.05 11,252.29 11,044.07 11/30/2006 11,273.20 11,509.17 11,217.24 12/31/2006 11,480.90 11,767.52 11,456.15 1/31/2007 11,635.24 11,918.01 11,612.25 2/28/2007 11,502.49 11,732.21 11,354.35 3/31/2007 11,631.51 11,913.59 11,478.05 4/30/2007 12,115.91 12,353.84 11,907.45 5/31/2007 12,547.88 12,799.43 12,323.22 6/30/2007 12,338.96 12,500.36 12,024.63 7/31/2007 11,865.46 11,922.29 11,395.00 8/31/2007 11,994.30 12,055.89 11,525.03 9/30/2007 12,347.55 12,469.98 11,846.07 10/31/2007 12,481.15 12,471.36 11,811.69 11/30/2007 11,930.81 11,861.83 11,179.17 12/31/2007 11,822.69 11,747.13 11,077.41 1/31/2008 11,284.64 11,276.62 10,645.92 2/29/2008 10,917.92 10,804.15 10,169.80 3/31/2008 10,808.73 10,722.92 10,029.81 4/30/2008 11,299.18 11,245.61 10,486.05 5/31/2008 11,400.20 11,227.76 10,448.66 6/30/2008 10,376.75 10,153.03 9,453.74 7/31/2008 10,298.01 10,116.38 9,423.65 8/31/2008 10,409.54 10,288.23 9,596.63 9/30/2008 9,587.17 9,532.34 8,974.36 10/31/2008 8,022.19 7,882.18 7,438.28 11/30/2008 7,483.89 7,316.95 6,976.70 12/31/2008 7,637.06 7,418.51 7,131.15 1/31/2009 6,947.56 6,565.46 6,421.85 2/28/2009 6,182.82 5,688.25 5,621.03 3/31/2009 6,688.40 6,174.61 6,027.64 4/30/2009 7,321.94 6,836.48 6,549.78 5/31/2009 7,754.28 7,259.22 6,879.95 6/30/2009 7,738.80 7,205.61 6,835.10 7/31/2009 8,326.92 7,795.40 7,344.26 8/31/2009 8,698.25 8,203.14 7,652.84 9/30/2009 8,958.45 8,520.07 7,891.40 10/31/2009 8,813.18 8,259.32 7,744.26 11/30/2009 9,281.05 8,724.84 8,154.70 12/31/2009 9,458.78 8,879.24 8,311.79 1/31/2010 9,156.28 8,629.52 8,070.76 2/28/2010 9,402.17 8,901.92 8,288.47 3/31/2010 9,934.61 9,481.43 8,772.57 4/30/2010 10,063.81 9,726.77 8,881.74 5/31/2010 9,307.19 8,927.27 8,156.54 6/30/2010 8,850.32 8,424.71 7,692.47 7/31/2010 9,477.84 8,995.05 8,208.43 8/31/2010 9,110.39 8,610.16 7,903.55 9/30/2010 9,839.47 9,278.16 8,589.72 10/31/2010 10,133.48 9,556.56 8,942.40 11/30/2010 10,086.67 9,505.99 8,864.03 12/31/2010 10,786.51 10,256.05 9,394.79 1/31/2011 11,022.54 10,488.06 9,677.81 2/28/2011 11,382.28 10,874.91 10,078.76 3/31/2011 11,417.79 10,918.10 10,079.01 4/30/2011 11,786.72 11,208.83 10,465.15 5/31/2011 11,679.21 11,090.41 10,346.95 6/30/2011 11,476.87 10,863.01 10,191.13 7/31/2011 11,141.93 10,502.70 9,898.83 8/31/2011 10,575.95 9,847.26 9,330.02 9/30/2011 9,865.93 9,103.07 8,719.11 10/31/2011 10,851.40 10,145.30 9,622.73 11/30/2011 10,872.99 10,092.72 9,654.44 12/31/2011 11,073.24 10,296.10 9,749.59 1/31/2012 11,425.90 10,685.61 10,099.78 2/29/2012 11,835.57 11,111.57 10,513.64 3/31/2012 12,101.16 11,440.96 10,812.21 4/30/2012 12,056.77 11,324.30 10,716.39 5/31/2012 11,368.18 10,660.23 10,109.50 6/30/2012 11,845.12 11,189.50 10,529.62 7/31/2012 12,038.88 11,305.30 10,625.78 8/31/2012 12,237.32 11,550.76 10,834.13 9/30/2012 12,507.93 11,917.41 11,032.88 10/31/2012 12,428.00 11,858.91 10,880.09 11/30/2012 12,450.98 11,853.98 10,904.21 12/31/2012 12,590.06 12,098.82 10,987.62 1/31/2013 13,266.11 12,885.20 11,601.63 2/28/2013 13,415.62 13,070.15 11,738.98 3/31/2013 13,922.89 13,587.94 12,183.99 4/30/2013 14,244.03 13,793.41 12,508.47 5/31/2013 14,429.57 14,147.43 12,784.27 6/30/2013 14,275.60 14,022.73 12,635.21 7/31/2013 14,932.72 14,779.87 13,270.64 8/31/2013 14,467.88 14,219.18 12,855.17 9/30/2013 14,869.45 14,575.38 13,190.82 10/31/2013 15,477.69 15,213.68 13,795.98 11/30/2013 15,833.99 15,638.11 14,065.85 12/31/2013 16,203.36 16,034.17 14,394.82 1/31/2014 15,584.57 15,464.73 13,916.12 2/28/2014 16,237.79 16,133.47 14,394.82 3/31/2014 16,534.15 16,518.63 14,743.23 4/30/2014 16,700.24 16,675.60 14,921.57 5/31/2014 16,989.89 16,919.82 15,142.38 6/30/2014 17,372.41 17,361.78 15,504.01 7/31/2014 16,995.63 17,065.91 15,136.70 8/31/2014 17,574.53 17,693.17 15,691.94 9/30/2014 17,264.08 17,328.20 15,410.57 10/31/2014 17,593.08 17,717.48 15,737.00 11/30/2014 17,984.25 18,080.26 16,132.14 12/31/2014 17,935.96 18,191.16 16,100.29 1/31/2015 17,363.62 17,464.00 15,525.28 2/28/2015 18,205.83 18,309.07 16,206.45 3/31/2015 17,933.62 18,059.84 15,794.10 4/30/2015 18,144.96 18,228.68 16,123.70 5/31/2015 18,266.79 18,447.75 16,230.59 6/30/2015 17,824.91 18,079.40 15,679.36 7/31/2015 18,043.12 18,158.67 15,939.34 8/31/2015 16,986.27 17,077.21 15,087.68 9/30/2015 16,532.40 16,561.64 14,802.67 10/31/2015 17,748.23 17,811.27 15,902.50 11/30/2015 17,727.72 17,879.44 15,848.41 12/31/2015 17,405.26 17,494.93 15,575.13 1/31/2016 16,712.56 16,590.96 15,077.86
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Income Stock Fund Shares to the following benchmarks: o The unmanaged Lipper Equity Income Funds Index tracks the total return performance of the 30 largest funds within the Lipper Equity Income Funds category. o The unmanaged Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Equity Income Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA INCOME STOCK FUND ================================================================================ USAA INCOME STOCK FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIISX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.0 Billion $1.1 Billion Net Asset Value Per Share $16.06 $17.77 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -5.38% -2.83% 9.41% 6.65% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -3.22% 10.76% 7.19% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 0.73% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME LIPPER EQUITY STOCK FUND RUSSELL 1000 INCOME FUNDS INSTITUTIONAL VALUE INDEX INDEX SHARES 7/31/2008 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,169.88 10,108.31 10,208.00 9/30/2008 9,422.68 9,309.73 9,549.79 10/31/2008 7,791.50 7,790.03 7,915.22 11/30/2008 7,232.78 7,267.31 7,424.04 12/31/2008 7,333.17 7,416.05 7,586.24 1/31/2009 6,489.93 6,746.50 6,838.98 2/28/2009 5,622.81 6,003.90 5,986.14 3/31/2009 6,103.58 6,494.84 6,424.15 4/30/2009 6,757.83 7,110.06 6,972.46 5/31/2009 7,175.71 7,529.88 7,332.54 6/30/2009 7,122.72 7,514.85 7,281.29 7/31/2009 7,705.72 8,085.95 7,832.53 8/31/2009 8,108.77 8,446.54 8,153.40 9/30/2009 8,422.06 8,699.21 8,412.89 10/31/2009 8,164.31 8,558.14 8,264.14 11/30/2009 8,624.47 9,012.47 8,702.14 12/31/2009 8,777.09 9,185.06 8,872.16 1/31/2010 8,530.25 8,891.31 8,606.58 2/28/2010 8,799.51 9,130.08 8,847.27 3/31/2010 9,372.36 9,647.12 9,360.58 4/30/2010 9,614.87 9,772.58 9,477.17 5/31/2010 8,824.57 9,037.86 8,702.68 6/30/2010 8,327.80 8,594.20 8,211.94 7/31/2010 8,891.57 9,203.56 8,763.31 8/31/2010 8,511.11 8,846.75 8,437.50 9/30/2010 9,171.43 9,554.73 9,176.45 10/31/2010 9,446.62 9,840.24 9,553.57 11/30/2010 9,396.63 9,794.78 9,478.14 12/31/2010 10,138.07 10,474.37 10,040.92 1/31/2011 10,367.40 10,703.56 10,343.66 2/28/2011 10,749.80 11,052.90 10,772.54 3/31/2011 10,792.50 11,087.38 10,778.44 4/30/2011 11,079.88 11,445.63 11,191.70 5/31/2011 10,962.82 11,341.23 11,065.19 6/30/2011 10,738.04 11,144.74 10,913.10 7/31/2011 10,381.87 10,819.50 10,591.63 8/31/2011 9,733.98 10,269.90 9,990.99 9/30/2011 8,998.35 9,580.43 9,341.93 10/31/2011 10,028.59 10,537.38 10,301.60 11/30/2011 9,976.61 10,558.35 10,335.57 12/31/2011 10,177.66 10,752.80 10,441.32 1/31/2012 10,562.68 11,095.25 10,816.66 2/29/2012 10,983.74 11,493.07 11,268.78 3/31/2012 11,309.35 11,750.97 11,584.37 4/30/2012 11,194.02 11,707.87 11,481.63 5/31/2012 10,537.59 11,039.21 10,839.48 6/30/2012 11,060.78 11,502.35 11,293.95 7/31/2012 11,175.25 11,690.49 11,388.49 8/31/2012 11,417.89 11,883.19 11,611.96 9/30/2012 11,780.32 12,145.97 11,828.64 10/31/2012 11,722.49 12,068.35 11,673.34 11/30/2012 11,717.62 12,090.67 11,699.22 12/31/2012 11,959.64 12,225.73 11,786.92 1/31/2013 12,736.97 12,882.21 12,446.09 2/28/2013 12,919.80 13,027.39 12,593.54 3/31/2013 13,431.63 13,519.99 13,074.51 4/30/2013 13,634.74 13,831.83 13,414.22 5/31/2013 13,984.68 14,012.00 13,719.09 6/30/2013 13,861.42 13,862.49 13,562.04 7/31/2013 14,609.85 14,500.59 14,244.52 8/31/2013 14,055.60 14,049.20 13,798.29 9/30/2013 14,407.70 14,439.15 14,153.78 10/31/2013 15,038.66 15,029.79 14,812.71 11/30/2013 15,458.21 15,375.78 15,102.64 12/31/2013 15,849.72 15,734.46 15,450.25 1/31/2014 15,286.83 15,133.58 14,935.84 2/28/2014 15,947.87 15,767.89 15,450.25 3/31/2014 16,328.60 16,055.68 15,826.55 4/30/2014 16,483.77 16,216.96 16,018.22 5/31/2014 16,725.18 16,498.23 16,264.65 6/30/2014 17,162.05 16,869.68 16,655.87 7/31/2014 16,869.59 16,503.80 16,261.05 8/31/2014 17,489.63 17,065.96 16,857.87 9/30/2014 17,128.86 16,764.48 16,549.32 10/31/2014 17,513.67 17,083.97 16,909.48 11/30/2014 17,872.27 17,463.82 17,334.30 12/31/2014 17,981.90 17,416.93 17,293.88 1/31/2015 17,263.10 16,861.15 16,685.08 2/28/2015 18,098.45 17,678.98 17,417.55 3/31/2015 17,852.08 17,414.65 16,966.59 4/30/2015 18,018.99 17,619.88 17,330.64 5/31/2015 18,235.53 17,738.19 17,445.60 6/30/2015 17,871.43 17,309.09 16,845.29 7/31/2015 17,949.78 17,520.98 17,134.57 8/31/2015 16,880.76 16,494.71 16,218.54 9/30/2015 16,371.13 16,053.99 15,914.09 10/31/2015 17,606.38 17,234.63 17,097.22 11/30/2015 17,673.76 17,214.71 17,029.34 12/31/2015 17,293.68 16,901.58 16,737.79 1/31/2016 16,400.11 16,228.93 16,212.84
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Income Stock Fund Institutional Shares to the Fund's benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Russell 1000 Value Index and the Lipper Equity Income Funds Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Equity Income Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 10 | USAA INCOME STOCK FUND ================================================================================ o TOP 10 HOLDINGS* - 1/31/16 o (% of Net Assets) AbbVie, Inc. .............................................................. 2.8% Microsoft Corp. ........................................................... 2.6% Johnson & Johnson ......................................................... 2.4% Occidental Petroleum Corp. ................................................ 2.0% General Electric Co. ...................................................... 2.0% Pfizer, Inc. .............................................................. 1.9% Verizon Communications, Inc. .............................................. 1.8% Raytheon Co. .............................................................. 1.8% JPMorgan Chase & Co. ...................................................... 1.7% Merck & Co., Inc. ......................................................... 1.7%
o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] INDUSTRIALS 15.0% FINANCIALS 14.9% CONSUMER STAPLES 12.8% INFORMATION TECHNOLOGY 12.5% HEALTH CARE 11.6% UTILITIES 10.1% ENERGY 6.8% TELECOMMUNICATION SERVICES 5.5% CONSUMER DISCRETIONARY 5.2% MONEY MARKET INSTRUMENTS 3.1% MATERIALS 2.6%
[END CHART] *Does not include money market instruments. Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 12-19. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (97.0%) COMMON STOCKS (97.0%) CONSUMER DISCRETIONARY (5.2%) ----------------------------- ADVERTISING (0.5%) 150,200 Omnicom Group, Inc. $ 11,017 ---------- AUTO PARTS & EQUIPMENT (0.5%) 351,300 Johnson Controls, Inc. 12,601 ---------- AUTOMOBILE MANUFACTURERS (0.4%) 804,000 Ford Motor Co. 9,600 ---------- DISTRIBUTORS (0.5%) 145,100 Genuine Parts Co. 12,503 ---------- HOME IMPROVEMENT RETAIL (0.5%) 101,000 Home Depot, Inc. 12,702 ---------- HOTELS, RESORTS & CRUISE LINES (0.6%) 303,589 Carnival Corp. 14,612 ---------- MOVIES & ENTERTAINMENT (0.7%) 471,200 Regal Entertainment Group "A" 8,128 112,615 Time Warner, Inc. 7,933 ---------- 16,061 ---------- RESTAURANTS (0.8%) 187,640 Brinker International, Inc. 9,333 86,740 McDonald's Corp. 10,737 ---------- 20,070 ---------- SPECIALIZED CONSUMER SERVICES (0.7%) 468,900 H&R Block, Inc. 15,966 ---------- Total Consumer Discretionary 125,132 ---------- CONSUMER STAPLES (12.8%) ------------------------ BREWERS (0.5%) 143,202 Molson Coors Brewing Co. "B" 12,957 ----------
================================================================================ 12 | USAA INCOME STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- DRUG RETAIL (0.8%) 99,240 CVS Health Corp. $ 9,586 133,900 Walgreens Boots Alliance, Inc. 10,674 ---------- 20,260 ---------- FOOD DISTRIBUTORS (0.2%) 141,000 Sysco Corp. 5,613 ---------- HOUSEHOLD PRODUCTS (2.8%) 114,275 Colgate-Palmolive Co. 7,717 224,344 Kimberly-Clark Corp. 28,810 366,880 Procter & Gamble Co. 29,971 ---------- 66,498 ---------- HYPERMARKETS & SUPER CENTERS (0.7%) 263,400 Wal-Mart Stores, Inc. 17,479 ---------- PACKAGED FOODS & MEAT (2.0%) 77,000 B&G Foods, Inc. 2,804 291,900 Campbell Soup Co. 16,466 93,400 Hershey Co. 8,230 271,900 Kraft Heinz Co. 21,225 ---------- 48,725 ---------- PERSONAL PRODUCTS (0.7%) 374,200 Unilever N.V. 16,618 ---------- SOFT DRINKS (1.6%) 347,800 Coca-Cola Co. 14,927 261,050 Coca-Cola Enterprises, Inc. 12,118 110,914 PepsiCo, Inc. 11,014 ---------- 38,059 ---------- TOBACCO (3.5%) 382,825 Altria Group, Inc. 23,394 410,860 Philip Morris International, Inc. 36,982 483,728 Reynolds American, Inc. 24,162 ---------- 84,538 ---------- Total Consumer Staples 310,747 ---------- ENERGY (6.8%) ------------- INTEGRATED OIL & GAS (5.4%) 342,100 Chevron Corp. 29,581 186,827 Exxon Mobil Corp. 14,545 711,795 Occidental Petroleum Corp. 48,993 871,574 Royal Dutch Shell plc ADR "A" 38,288 ---------- 131,407 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- OIL & GAS DRILLING (0.2%) 585,100 Transocean Ltd. $ 6,096 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.5%) 216,100 ConocoPhillips 8,445 408,800 Marathon Oil Corp. 3,978 ---------- 12,423 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.7%) 338,335 Enterprise Products Partners, LP 8,090 301,100 Spectra Energy Corp. 8,265 ---------- 16,355 ---------- Total Energy 166,281 ---------- FINANCIALS (14.9%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (0.8%) 37,520 BlackRock, Inc. 11,791 127,100 State Street Corp. 7,083 ---------- 18,874 ---------- CONSUMER FINANCE (0.3%) 289,413 Synchrony Financial* 8,225 ---------- DIVERSIFIED BANKS (4.5%) 482,200 Bank of America Corp. 6,818 115,940 Commonwealth Bank of Australia ADR 6,538 676,200 HSBC Holdings plc ADR 23,937 720,200 JPMorgan Chase & Co. 42,852 580,650 Wells Fargo & Co. 29,166 ---------- 109,311 ---------- INSURANCE BROKERS (1.1%) 399,500 Arthur J. Gallagher & Co. 15,037 222,670 Marsh & McLennan Companies, Inc. 11,875 ---------- 26,912 ---------- INVESTMENT BANKING & BROKERAGE (0.2%) 182,600 Morgan Stanley 4,726 ---------- LIFE & HEALTH INSURANCE (1.2%) 633,400 MetLife, Inc. 28,281 ---------- MULTI-LINE INSURANCE (0.4%) 662,200 Allianz SE ADR 10,728 ---------- PROPERTY & CASUALTY INSURANCE (0.2%) 47,100 Chubb Ltd. 5,326 ----------
================================================================================ 14 | USAA INCOME STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- REGIONAL BANKS (3.4%) 686,500 BB&T Corp. $ 22,421 402,900 Fifth Third Bancorp 6,366 580,200 KeyCorp 6,475 85,900 M&T Bank Corp. 9,464 592,160 People's United Financial, Inc. 8,509 336,500 PNC Financial Services Group, Inc. 29,158 ---------- 82,393 ---------- REITs - HEALTH CARE (0.9%) 342,520 Welltower, Inc. 21,312 ---------- REITs - SPECIALIZED (1.0%) 275,245 Corrections Corp. of America 7,930 623,855 Iron Mountain, Inc. 17,181 ---------- 25,111 ---------- SPECIALIZED FINANCE (0.9%) 227,680 CME Group, Inc. 20,457 ---------- Total Financials 361,656 ---------- HEALTH CARE (11.6%) ------------------- BIOTECHNOLOGY (3.0%) 1,248,050 AbbVie, Inc. 68,518 64,800 Gilead Sciences, Inc. 5,378 ---------- 73,896 ---------- HEALTH CARE EQUIPMENT (1.1%) 348,580 Medtronic plc 26,464 ---------- MANAGED HEALTH CARE (0.7%) 152,636 UnitedHealth Group, Inc. 17,578 ---------- PHARMACEUTICALS (6.8%) 550,500 Johnson & Johnson 57,494 824,150 Merck & Co., Inc. 41,760 251,400 Novartis AG ADR 19,602 1,517,870 Pfizer, Inc. 46,280 ---------- 165,136 ---------- Total Health Care 283,074 ---------- INDUSTRIALS (15.0%) ------------------- AEROSPACE & DEFENSE (5.7%) 100,390 Boeing Co. 12,060 95,905 General Dynamics Corp. 12,829 131,750 Honeywell International, Inc. 13,597
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- 141,790 Lockheed Martin Corp. $ 29,918 341,150 Raytheon Co. 43,749 295,650 United Technologies Corp. 25,925 ---------- 138,078 ---------- AIR FREIGHT & LOGISTICS (0.7%) 193,810 United Parcel Service, Inc. "B" 18,063 ---------- COMMERCIAL PRINTING (1.1%) 281,900 Deluxe Corp. 15,758 713,100 R.R. Donnelley & Sons Co. 9,962 ---------- 25,720 ---------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%) 76,000 Caterpillar, Inc. 4,731 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (2.0%) 717,800 Eaton Corp. plc 36,256 271,900 Emerson Electric Co. 12,502 ---------- 48,758 ---------- ENVIRONMENTAL & FACILITIES SERVICES (2.0%) 621,550 Republic Services, Inc. 27,162 401,990 Waste Management, Inc. 21,285 ---------- 48,447 ---------- INDUSTRIAL CONGLOMERATES (2.8%) 133,450 3M Co. 20,151 1,617,603 General Electric Co. 47,072 ---------- 67,223 ---------- INDUSTRIAL MACHINERY (0.5%) 56,200 Parker-Hannifin Corp. 5,461 77,500 Stanley Black & Decker, Inc. 7,311 ---------- 12,772 ---------- Total Industrials 363,792 ---------- INFORMATION TECHNOLOGY (12.5%) ------------------------------ COMMUNICATIONS EQUIPMENT (1.8%) 1,492,400 Cisco Systems, Inc. 35,504 183,800 QUALCOMM, Inc. 8,334 ---------- 43,838 ---------- DATA PROCESSING & OUTSOURCED SERVICES (1.2%) 206,850 Automatic Data Processing, Inc. 17,187 252,261 Paychex, Inc. 12,073 ---------- 29,260 ----------
================================================================================ 16 | USAA INCOME STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- SEMICONDUCTORS (4.0%) 1,306,900 Intel Corp. $ 40,540 190,180 Linear Technology Corp. 8,126 361,950 Microchip Technology, Inc. 16,219 608,400 Texas Instruments, Inc. 32,203 ---------- 97,088 ---------- SYSTEMS SOFTWARE (3.3%) 1,127,750 Microsoft Corp. 62,128 483,950 Oracle Corp. 17,572 ---------- 79,700 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.2%) 136,759 Apple, Inc. 13,312 803,600 Hewlett Packard Enterprise Co. 11,057 1,004,700 HP, Inc. 9,756 711,980 Seagate Technology plc 20,683 ---------- 54,808 ---------- Total Information Technology 304,694 ---------- MATERIALS (2.6%) ---------------- COMMODITY CHEMICALS (0.1%) 34,600 LyondellBasell Industries N.V. "A" 2,698 ---------- DIVERSIFIED CHEMICALS (0.8%) 313,570 Dow Chemical Co. 13,170 808,500 Huntsman Corp. 6,977 ---------- 20,147 ---------- DIVERSIFIED METALS & MINING (0.6%) 640,400 Freeport-McMoRan, Inc. 2,946 414,920 Rio Tinto plc ADR 10,227 ---------- 13,173 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%) 92,560 Agrium, Inc. 8,041 ---------- PAPER PACKAGING (0.8%) 417,310 Bemis Co., Inc. 19,977 ---------- Total Materials 64,036 ---------- TELECOMMUNICATION SERVICES (5.5%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (3.5%) 728,112 AT&T, Inc. 26,256 559,604 CenturyLink, Inc. 14,225 898,406 Verizon Communications, Inc. 44,893 ---------- 85,374 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
---------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (2.0%) 430,900 Rogers Communications, Inc. "B" $ 14,732 1,029,800 Vodafone Group plc ADR 33,160 ---------- 47,892 ---------- Total Telecommunication Services 133,266 ---------- UTILITIES (10.1%) ----------------- ELECTRIC UTILITIES (4.5%) 92,700 American Electric Power Co., Inc. 5,652 302,670 Duke Energy Corp. 22,791 101,500 Edison International 6,273 143,450 Entergy Corp. 10,125 342,760 Eversource Energy 18,440 723,680 PPL Corp. 25,372 209,350 Southern Co. 10,241 249,350 Westar Energy, Inc. 10,862 ---------- 109,756 ---------- GAS UTILITIES (0.5%) 168,450 WGL Holdings, Inc. 11,251 ---------- MULTI-UTILITIES (5.1%) 468,700 Ameren Corp. 21,054 332,900 CenterPoint Energy, Inc. 5,949 428,700 CMS Energy Corp. 16,668 184,300 Dominion Resources, Inc. 13,301 94,800 National Grid plc ADR 6,713 484,565 NiSource, Inc. 10,181 155,950 SCANA Corp. 9,817 277,860 TECO Energy, Inc. 7,535 241,850 Vectren Corp. 10,119 438,360 WEC Energy Group, Inc. 24,211 ---------- 125,548 ---------- Total Utilities 246,555 ---------- Total Common Stocks 2,359,233 ---------- Total Equity Securities (cost: $2,130,282) 2,359,233 ---------- MONEY MARKET INSTRUMENTS (3.1%) MONEY MARKET FUNDS (3.1%) 76,628,367 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a) (cost: $76,628) 76,628 ---------- TOTAL INVESTMENTS (COST: $2,206,910) $2,435,861 ==========
================================================================================ 18 | USAA INCOME STOCK FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ----------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS: FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL ----------------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $2,359,233 $- $- $2,359,233 Money Market Instruments: Money Market Funds 76,628 - - 76,628 ----------------------------------------------------------------------------------------------------------------- Total $2,435,861 $- $- $2,435,861 -----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 7.8% of net assets at January 31, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. REIT Real estate investment trust o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. As of January 31, 2016, 99.8% of the Fund's net assets were invested in dividend-paying stocks. See accompanying notes to financial statements. ================================================================================ 20 | USAA INCOME STOCK FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $2,206,910) $2,435,861 Receivables: Capital shares sold 1,137 Dividends and interest 4,919 Securities sold 4,955 ---------- Total assets 2,446,872 ---------- LIABILITIES Payables: Securities purchased 11,945 Capital shares redeemed 1,168 Accrued management fees 1,107 Accrued transfer agent's fees 73 Other accrued expenses and payables 184 ---------- Total liabilities 14,477 ---------- Net assets applicable to capital shares outstanding $2,432,395 ========== NET ASSETS CONSIST OF: Paid-in capital $2,224,388 Accumulated undistributed net investment income 5,549 Accumulated net realized loss on investments (26,493) Net unrealized appreciation of investments 228,951 ---------- Net assets applicable to capital shares outstanding $2,432,395 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,399,062/87,062 shares outstanding) $ 16.07 ========== Institutional Shares (net assets of $1,033,333/64,360 shares outstanding) $ 16.06 ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 21 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $407) $ 42,149 Interest 51 --------- Total income 42,200 --------- EXPENSES Management fees 6,504 Administration and servicing fees: Fund Shares 1,188 Institutional Shares 485 Transfer agent's fees: Fund Shares 902 Institutional Shares 485 Custody and accounting fees: Fund Shares 107 Institutional Shares 63 Postage: Fund Shares 47 Institutional Shares 23 Shareholder reporting fees: Fund Shares 18 Institutional Shares 4 Trustees' fees 13 Registration fees: Fund Shares 18 Institutional Shares 44 Professional fees 72 Other 23 --------- Total expenses 9,996 Expenses paid indirectly: Fund Shares (10) Institutional Shares (7) --------- Net expenses 9,979 --------- NET INVESTMENT INCOME 32,221 --------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY Net realized loss on: Investments (5,487) Foreign currency transactions (4) Change in net unrealized appreciation/(depreciation) (170,127) --------- Net realized and unrealized loss (175,618) --------- Decrease in net assets resulting from operations $(143,397) =========
See accompanying notes to financial statements. ================================================================================ 22 | USAA INCOME STOCK FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
----------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 ----------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 32,221 $ 67,901 Net realized gain (loss) on investments (5,487) 78,531 Net realized loss on foreign currency transactions (4) (10) Change in net unrealized appreciation/(depreciation) of investments (170,127) (1,404) -------------------------- Increase (decrease) in net assets resulting from operations (143,397) 145,018 -------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (17,725) (42,344) Institutional Shares (10,940) (29,505) -------------------------- Total distributions of net investment income (28,665) (71,849) -------------------------- Net realized gains: Fund Shares (53,051) (38,415) Institutional Shares (31,658) (26,651) -------------------------- Total distributions of net realized gains (84,709) (65,066) -------------------------- Distributions to shareholders (113,374) (136,915) -------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (95,306) 11,581 Institutional Shares 46,676 40,961 -------------------------- Total net increase (decrease) in net assets from capital share transactions (48,630) 52,542 -------------------------- Capital contribution from USAA Transfer Agency Company: Fund Shares - 3 -------------------------- Net increase (decrease) in net assets (305,401) 60,648 NET ASSETS Beginning of period 2,737,796 2,677,148 -------------------------- End of period $2,432,395 $2,737,796 ========================== Accumulated undistributed net investment income: End of period $ 5,549 $ 1,993 ==========================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 23 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Income Stock Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek current income with the prospect of increasing dividend income and the potential for capital appreciation. The Fund consists of two classes of shares: Income Stock Fund Shares (Fund Shares) and Income Stock Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may ================================================================================ 24 | USAA INCOME STOCK FUND ================================================================================ approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser(s) will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser(s) have agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. ================================================================================ 26 | USAA INCOME STOCK FUND ================================================================================ 5. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 6. Repurchase agreements are valued at cost. 7. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. ================================================================================ 28 | USAA INCOME STOCK FUND ================================================================================ E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. F. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by the custodian to directly reduce expenses paid by the Fund. In addition, through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, brokerage commission recapture credits reduced the expenses of the Fund Shares and Institutional Shares by $10,000 and $7,000, respectively. Additionally, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed ================================================================================ 30 | USAA INCOME STOCK FUND ================================================================================ loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $7,000, which represents 3.6% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income are made quarterly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $248,596,000 and $368,608,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $423,583,000 and $194,632,000, respectively, resulting in net unrealized appreciation of $228,951,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 --------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------- FUND SHARES: Shares sold 3,063 $ 51,496 7,646 $ 137,783 Shares issued from reinvested dividends 4,108 68,129 4,303 77,509 Shares redeemed (13,291) (214,931) (11,300) (203,711) -------------------------------------------------- Net increase (decrease) from capital share transactions (6,120) $ (95,306) 649 $ 11,581 ================================================== INSTITUTIONAL SHARES: Shares sold 10,440 $ 166,552 12,512 $ 225,584 Shares issued from reinvested dividends 2,572 42,597 3,120 56,149 Shares redeemed (9,458) (162,473) (13,377) (240,772) -------------------------------------------------- Net increase from capital share transactions 3,554 $ 46,676 2,255 $ 40,961 ==================================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment ================================================================================ 32 | USAA INCOME STOCK FUND ================================================================================ of portion of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.50% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Equity Income Funds Index. The Lipper Equity Income Funds Index tracks the total return performance of the 30 largest funds in the Lipper Equity Income Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Equity Income Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $6,504,000, which included a performance adjustment for the Fund Shares and Institutional Shares of $53,000 and $68,000, respectively. For the Fund Shares and Institutional Shares, the performance adjustments were each 0.01%. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory Agreement with Epoch Investment Partners, Inc. (Epoch), under which Epoch directs the investment and reinvestment of a portion of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays Epoch a subadvisory fee in the annual amount of 0.30% of the Fund's average net assets for the first $600 million of assets that Epoch manages, plus 0.20% on the next $900 million of assets, and 0.18% on assets over $1.5 billion that Epoch manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Epoch of $1,675,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized ================================================================================ 34 | USAA INCOME STOCK FUND ================================================================================ rate of 0.15% of average net assets of the Fund Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,188,000 and $485,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $33,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of $902,000 and $485,000, respectively. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ funds for the purpose of exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % ------------------------------------------------------------------------------- USAA Cornerstone Conservative 0.1 USAA Cornerstone Equity 0.4 USAA Target Retirement Income 0.4 USAA Target Retirement 2020 1.1 USAA Target Retirement 2030 2.7 USAA Target Retirement 2040 3.3 USAA Target Retirement 2050 1.9 USAA Target Retirement 2060 0.1
The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 36 | USAA INCOME STOCK FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 17.79 $ 17.72 $ 16.29 $ 13.26 $ 12.53 $ 10.50 ------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .21 .44 .47 .24 .18 .13 Net realized and unrealized gain (loss) (1.16) .51 1.77 3.03 .73 2.03 ------------------------------------------------------------------------------------- Total from investment operations (.95) .95 2.24 3.27 .91 2.16 ------------------------------------------------------------------------------------- Less distributions from: Net investment income (.19) (.46) (.45) (.24) (.18) (.13) Realized capital gains (.58) (.42) (.36) - - - ------------------------------------------------------------------------------------- Total distributions (.77) (.88) (.81) (.24) (.18) (.13) ------------------------------------------------------------------------------------- Net asset value at end of period $ 16.07 $ 17.79 $ 17.72 $ 16.29 $ 13.26 $ 12.53 ===================================================================================== Total return (%)* (5.46) 5.36 14.06 24.89 7.34 20.59 Net assets at end of period (000) $1,399,062 $1,657,268 $1,640,134 $1,453,425 $1,680,648 $1,440,420 Ratios to average net assets:** Expenses (%)(a) .81(b) .79 .80 .85 .85 .84 Net investment income (%) 2.50(b) 2.38 2.77 1.67 1.43 1.08 Portfolio turnover (%) 10 12(c) 57 64 42 38(c) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,572,388,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: (.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. (c) Reflects overall decrease in purchases and sales of securities.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 17.77 $ 17.71 $ 16.28 $ 13.25 $ 12.52 $ 10.49 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .22 .45 .49 .26 .20 .16 Net realized and unrealized gain (loss) (1.16) .50 1.76 3.03 .73 2.02 ----------------------------------------------------------------------------------- Total from investment operations (.94) .95 2.25 3.29 .93 2.18 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.19) (.47) (.46) (.26) (.20) (.15) Realized capital gains (.58) (.42) (.36) - - - ----------------------------------------------------------------------------------- Total distributions (.77) (.89) (.82) (.26) (.20) (.15) ----------------------------------------------------------------------------------- Net asset value at end of period $ 16.06 $ 17.77 $ 17.71 $ 16.28 $ 13.25 $ 12.52 =================================================================================== Total return (%)* (5.38) 5.37 14.16 25.08 7.52 20.86 Net assets at end of period (000) $1,033,333 $1,080,528 $1,037,014 $880,414 $249,551 $144,236 Ratios to average net assets:** Expenses (%)(a) .75(b) .73 .73 .73 .71 .61 Expenses, excluding reimbursements (%)(a) .75(b) .73 .73 .73 .71 .61(c) Net investment income (%) 2.57(b) 2.45 2.85 1.83 1.56 1.29 Portfolio turnover (%) 10 12(d) 57 64 42 38(d)
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $962,807,000. (a) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to .62% of the Institutional Shares' average net assets. (d) Reflects overall decrease in purchases and sales of securities. ================================================================================ 38 | USAA INCOME STOCK FUND ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ EXPENSE EXAMPLE | 39 ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 945.40 $3.91 Hypothetical (5% return before expenses) 1,000.00 1,021.11 4.06 INSTITUTIONAL SHARES Actual 1,000.00 946.20 3.67 Hypothetical (5% return before expenses) 1,000.00 1,021.37 3.81
*Expenses are equal to the annualized expense ratio of 0.80% for Fund Shares and 0.75% for Institutional Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (5.46)% for Fund Shares and (5.38)% for Institutional Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ 40 | USAA INCOME STOCK FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or OR CALL select 'I want to...' and select (800) 531-USAA (8722) the desired action. (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ USAA -------------- 9800 Fredericksburg Road PRSRT STD San Antonio, TX 78288 U.S. Postage PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23422-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA INTERMEDIATE-TERM BOND FUND] ============================================================== SEMIANNUAL REPORT USAA INTERMEDIATE-TERM BOND FUND FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 7 FINANCIAL INFORMATION Portfolio of Investments 19 Notes to Portfolio of Investments 44 Financial Statements 49 Notes to Financial Statements 53 EXPENSE EXAMPLE 72
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202730-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA INTERMEDIATE-TERM BOND FUND (THE FUND) SEEKS HIGH CURRENT INCOME WITHOUT UNDUE RISK TO PRINCIPAL. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund normally invests at least 80% of its assets in a broad range of debt securities that have a dollar-weighted average portfolio maturity between three to 10 years. The Fund will invest primarily in investment-grade securities, but also may invest up to 10% of its net assets in below-investment-grade securities which are sometimes referred to as high-yield or "junk" bonds. The Fund's 80% policy may be changed upon at least 60 days' written notice to shareholders. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company R. MATTHEW FREUND, CFA JULIANNE BASS, CFA BRIAN W. SMITH, CFA, CPA -------------------------------------------------------------------------------- o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD? Longer-term interest rates fell during the reporting period ended January 31, 2016, pushed lower by economic uncertainty. China was at the epicenter of concern, as the country's slowing pace of growth threatened to hinder the broader global economy. Investors also worried about plummeting oil and commodity prices, which are widely considered to be evidence of global economic weakness. In the United States, economic data was mixed during the reporting period, with slower-than-expected growth in the fourth quarter of 2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from 2.85% to 2.74%, during reporting period. These lower yields tend to reflect changing expectations about the U.S. economy. Shorter-term interest rates, which are more correlated to action by the Federal Reserve (the Fed), rose during the reporting period in anticipation of an interest rate increase. In December 2015, the Fed lifted the target federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it intended to proceed gradually with interest rate increases based on the performance of the U.S. economy. In January 2016, the Fed chose not to raise interest rates amid increased uncertainty about financial and economic conditions. In this environment, the U.S. Treasury yield curve experienced a "bear flattening." In a bear flattening, short-term interest rates increase faster than longer-term interest rates (though during the reporting period, longer-term ================================================================================ 2 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ o 10-YEAR TREASURY YIELDS o [CHART OF 10-YEAR TREASURY YIELDS]
DATE YIELD IN PERCENT 7/31/2015 2.18 8/3/2015 2.15 8/4/2015 2.22 8/5/2015 2.27 8/6/2015 2.22 8/7/2015 2.16 8/10/2015 2.23 8/11/2015 2.14 8/12/2015 2.15 8/13/2015 2.19 8/14/2015 2.20 8/17/2015 2.17 8/18/2015 2.19 8/19/2015 2.13 8/20/2015 2.07 8/21/2015 2.04 8/24/2015 2.00 8/25/2015 2.07 8/26/2015 2.18 8/27/2015 2.18 8/28/2015 2.18 8/31/2015 2.22 9/1/2015 2.15 9/2/2015 2.18 9/3/2015 2.16 9/4/2015 2.12 9/7/2015 2.12 9/8/2015 2.18 9/9/2015 2.20 9/10/2015 2.22 9/11/2015 2.19 9/14/2015 2.18 9/15/2015 2.29 9/16/2015 2.29 9/17/2015 2.19 9/18/2015 2.13 9/21/2015 2.20 9/22/2015 2.13 9/23/2015 2.15 9/24/2015 2.13 9/25/2015 2.16 9/28/2015 2.09 9/29/2015 2.05 9/30/2015 2.04 10/1/2015 2.04 10/2/2015 1.99 10/5/2015 2.06 10/6/2015 2.03 10/7/2015 2.07 10/8/2015 2.10 10/9/2015 2.09 10/12/2015 2.09 10/13/2015 2.04 10/14/2015 1.97 10/15/2015 2.02 10/16/2015 2.03 10/19/2015 2.02 10/20/2015 2.07 10/21/2015 2.02 10/22/2015 2.03 10/23/2015 2.09 10/26/2015 2.06 10/27/2015 2.04 10/28/2015 2.10 10/29/2015 2.17 10/30/2015 2.14 11/2/2015 2.17 11/3/2015 2.21 11/4/2015 2.23 11/5/2015 2.23 11/6/2015 2.33 11/9/2015 2.34 11/10/2015 2.34 11/11/2015 2.33 11/12/2015 2.31 11/13/2015 2.27 11/16/2015 2.27 11/17/2015 2.27 11/18/2015 2.27 11/19/2015 2.25 11/20/2015 2.26 11/23/2015 2.24 11/24/2015 2.24 11/25/2015 2.23 11/26/2015 2.23 11/27/2015 2.22 11/30/2015 2.21 12/1/2015 2.14 12/2/2015 2.18 12/3/2015 2.31 12/4/2015 2.27 12/7/2015 2.23 12/8/2015 2.22 12/9/2015 2.22 12/10/2015 2.23 12/11/2015 2.13 12/14/2015 2.22 12/15/2015 2.27 12/16/2015 2.30 12/17/2015 2.22 12/18/2015 2.20 12/21/2015 2.19 12/22/2015 2.24 12/23/2015 2.25 12/24/2015 2.24 12/25/2015 2.24 12/28/2015 2.23 12/29/2015 2.31 12/30/2015 2.29 12/31/2015 2.27 1/1/2016 2.27 1/4/2016 2.24 1/5/2016 2.24 1/6/2016 2.17 1/7/2016 2.15 1/8/2016 2.12 1/11/2016 2.18 1/12/2016 2.10 1/13/2016 2.09 1/14/2016 2.09 1/15/2016 2.03 1/18/2016 2.03 1/19/2016 2.06 1/20/2016 1.98 1/21/2016 2.03 1/22/2016 2.05 1/25/2016 2.00 1/26/2016 1.99 1/27/2016 2.00 1/28/2016 1.98 1/29/2016 1.92
[END CHART] Source: Bloomberg Finance L.P. interest rates actually trended down), thereby creating a flatter yield curve. This generally indicates that investor sentiment is becoming more "bearish." As longer-term interest rates fell, the prices of longer-maturity securities edged up (bond prices and yields move in opposite directions). Credit spreads widened across the credit spectrum, with single A, BBB, and below investment-grade "high-yield" spreads widening 19 basis points, 58 basis points, and 221 basis points, respectively. A basis point is 1/100(th) of a percent. Spreads (yield differentials versus U.S. Treasury securities of comparable maturity) are generally considered an indication of risk; the wider the spread, the greater the risk. o HOW DID THE USAA INTERMEDIATE-TERM BOND FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended January 31, 2016, the ============================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ============================================================================ o U.S. TREASURY YIELD CURVE o [CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD --------------------------------- (CHANGE IN MATURITY 7/01/15 1/31/16 BASIS POINTS) 1M 0.008 0.221 21.4 3M 0.018 0.313 29.5 6M 0.114 0.428 31.3 1Y 0.273 0.451 17.9 2Y 0.69 0.776 8.5 3Y 1.064 0.968 -9.7 5Y 1.706 1.329 -37.7 7Y 2.146 1.668 -47.7 10Y 2.423 1.922 -50.1 30Y 3.202 2.744 -45.8
[END CHART] Source: Bloomberg Finance L.P. Fund Shares, Institutional Shares, and Adviser Shares had total returns of -1.94%, -1.90%, and -2.15%, respectively. This compares to returns of 1.33% for the Barclays U.S. Aggregate Bond Index (the Index) and 0.40% for the Lipper Index.* At the same time, the Fund Shares, *The Lipper Index tracks the performance of funds that invest primarily in investment-grade debt issues (rated in top four grades) with dollar-weighted average maturities of five to ten years. SOURCE: LIPPER, A THOMSON REUTERS COMPANY. Refer to page 9 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ 4 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ Institutional Shares, and Adviser Shares provided a one-year dividend yield of 4.21%, 4.31%, and 3.98%, respectively, compared to 2.96% for the Lipper Core Plus Bond Funds Average. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus on generating an attractive yield with an acceptable level of price volatility. During the reporting period, the Fund's SEC yield continued to trend up. In addition, we sought to manage the portfolio's sensitivity to interest rates by maintaining a neutral duration position relative to the Lipper peer group. (Duration is a measure of a portfolio's interest-rate sensitivity.) The Fund was hindered by its investment in corporate bonds, which underperformed as credit spreads widened. In addition, allocations to and security selection among oil and gas exploration and production bonds, metals and mining bonds, and pipeline junior subordinated debt detracted from the Fund's performance. Many of these securities were negatively affected by the continued drop in oil and commodity prices during the reporting period. Although we reduced some of these holdings, we believe that over the long-term the Fund's positions in these industries will help to generate attractive total returns. During the reporting period, we continued to seek relative values across the fixed-income market. Our team of analysts helps us evaluate each potential investment individually, rather than on the basis of thematic trends. We seek ideas where our fundamental understanding of the credit risk is different than the market, building the Fund bond-by-bond through fundamental bottom-up analysis. Due to uncertain times, we continued to emphasize liquidity in the Fund. Our liquidity strategy helps to prevent the Fund from being forced to sell due to investment outflows. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ Our analysts continue to analyze and monitor every holding in the Fund. We are committed to building a portfolio diversified among multiple asset classes and across a large number of issuers. To minimize the Fund's exposure to potential surprises, we limit the positions we take in any one issuer. Thank you for allowing us to help you with your investment needs. Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. ================================================================================ 6 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ INVESTMENT OVERVIEW USAA INTERMEDIATE-TERM BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USIBX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.7 Billion $2.1 Billion Net Asset Value Per Share $10.15 $10.58 Dollar-Weighted Average Portfolio Maturity(+) 7.3 Years 7.3 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -1.94% -3.36% 4.16% 5.42% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -2.32% 4.36% 5.38% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 4.20% 0.68%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED JANUARY 31, 2016
------------------------------------------------------------------------------------------ TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE ------------------------------------------------------------------------------------------ 10 YEARS 5.42% = 5.22% + 0.20% 5 YEARS 4.16% = 4.54% + -0.38% 1 YEAR -3.36% = 3.84% + -7.20%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED JANUARY 31, 2007 - JANUARY 31, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE 1/31/2007 4.92% 5.02% -0.10% 1/31/2008 4.20% 5.30% -1.10% 1/31/2009 -15.58% 5.07% -20.65% 1/31/2010 34.12% 8.61% 25.51% 1/31/2011 11.73% 6.04% 5.69% 1/31/2012 7.27% 3.33% 3.94% 1/31/2013 9.59% 7.54% 2.05% 1/31/2014 2.43% 4.30% -1.87% 1/31/2015 5.70% 4.17% 1.53% 1/31/2016 -3.36% 3.84% -7.20%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 8 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERMEDIATE-TERM BARCLAYS U.S. BOND FUND AGGREGATE BOND SHARES INDEX LIPPER INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,030.21 10,033.20 10,029.51 3/31/2006 9,963.50 9,934.74 9,932.57 4/30/2006 9,932.53 9,916.73 9,918.79 5/31/2006 9,933.93 9,906.15 9,907.99 6/30/2006 9,947.34 9,927.15 9,918.59 7/31/2006 10,067.67 10,061.38 10,056.20 8/31/2006 10,222.02 10,215.41 10,207.37 9/30/2006 10,337.61 10,305.14 10,292.80 10/31/2006 10,409.04 10,373.30 10,362.32 11/30/2006 10,535.68 10,493.65 10,482.34 12/31/2006 10,483.50 10,432.75 10,433.24 1/31/2007 10,492.40 10,428.47 10,422.64 2/28/2007 10,663.00 10,589.28 10,591.41 3/31/2007 10,655.74 10,589.60 10,587.75 4/30/2007 10,720.52 10,646.70 10,641.04 5/31/2007 10,626.97 10,566.01 10,550.79 6/30/2007 10,602.42 10,534.76 10,507.78 7/31/2007 10,616.96 10,622.63 10,565.74 8/31/2007 10,699.43 10,752.83 10,661.06 9/30/2007 10,774.63 10,834.40 10,775.20 10/31/2007 10,841.94 10,931.73 10,845.90 11/30/2007 10,903.78 11,128.31 10,986.17 12/31/2007 10,885.78 11,159.57 10,999.49 1/31/2008 10,933.54 11,347.03 11,183.00 2/29/2008 10,851.97 11,362.78 11,127.07 3/31/2008 10,787.18 11,401.55 11,011.87 4/30/2008 10,768.90 11,377.72 11,069.31 5/31/2008 10,799.24 11,294.29 10,982.56 6/30/2008 10,714.83 11,285.16 10,891.30 7/31/2008 10,608.33 11,275.96 10,786.79 8/31/2008 10,606.83 11,382.97 10,851.36 9/30/2008 10,189.21 11,230.08 10,513.57 10/31/2008 9,484.92 10,965.00 10,122.30 11/30/2008 9,303.29 11,321.91 10,105.64 12/31/2008 9,198.38 11,744.32 10,481.57 1/31/2009 9,231.76 11,640.70 10,465.69 2/28/2009 9,170.44 11,596.76 10,348.52 3/31/2009 9,357.34 11,757.97 10,544.17 4/30/2009 9,581.52 11,814.19 10,726.18 5/31/2009 10,228.45 11,899.88 10,983.21 6/30/2009 10,519.89 11,967.56 11,115.28 7/31/2009 10,899.89 12,160.60 11,437.54 8/31/2009 11,247.84 12,286.51 11,600.89 9/30/2009 11,616.13 12,415.58 11,813.27 10/31/2009 11,826.71 12,476.88 11,920.81 11/30/2009 11,994.47 12,638.41 12,068.22 12/31/2009 12,036.79 12,440.86 11,980.55 1/31/2010 12,379.30 12,630.90 12,196.98 2/28/2010 12,464.54 12,678.07 12,258.45 3/31/2010 12,654.72 12,662.48 12,326.85 4/30/2010 12,897.61 12,794.29 12,497.90 5/31/2010 12,751.04 12,901.96 12,503.23 6/30/2010 12,866.59 13,104.28 12,704.95 7/31/2010 13,109.39 13,244.09 12,880.60 8/31/2010 13,334.18 13,414.50 13,074.50 9/30/2010 13,526.21 13,428.80 13,151.88 10/31/2010 13,728.71 13,476.61 13,231.31 11/30/2010 13,694.39 13,399.16 13,127.27 12/31/2010 13,655.99 13,254.67 13,012.94 1/31/2011 13,831.62 13,270.09 13,081.67 2/28/2011 13,946.44 13,303.29 13,135.13 3/31/2011 14,011.69 13,310.64 13,150.68 4/30/2011 14,238.64 13,479.60 13,345.30 5/31/2011 14,406.90 13,655.51 13,486.37 6/30/2011 14,293.12 13,615.53 13,420.76 7/31/2011 14,476.41 13,831.59 13,608.70 8/31/2011 14,334.75 14,033.67 13,665.22 9/30/2011 14,210.38 14,135.75 13,633.48 10/31/2011 14,408.82 14,150.94 13,746.85 11/30/2011 14,346.16 14,138.66 13,658.57 12/31/2011 14,522.34 14,294.06 13,830.36 1/31/2012 14,788.57 14,419.57 14,066.61 2/29/2012 14,920.99 14,416.26 14,119.80 3/31/2012 14,955.83 14,337.27 14,085.82 4/30/2012 15,099.76 14,496.22 14,252.22 5/31/2012 15,134.97 14,627.38 14,348.91 6/30/2012 15,213.26 14,633.12 14,402.19 7/31/2012 15,529.47 14,834.96 14,652.26 8/31/2012 15,655.54 14,844.65 14,703.55 9/30/2012 15,809.64 14,865.08 14,795.12 10/31/2012 16,025.20 14,894.32 14,859.22 11/30/2012 16,106.41 14,917.82 14,906.73 12/31/2012 16,148.50 14,896.58 14,911.76 1/31/2013 16,206.45 14,792.39 14,855.72 2/28/2013 16,340.00 14,866.53 14,936.31 3/31/2013 16,429.24 14,878.41 14,963.49 4/30/2013 16,649.13 15,028.96 15,126.46 5/31/2013 16,467.57 14,760.81 14,860.88 6/30/2013 16,061.56 14,532.48 14,539.55 7/31/2013 16,163.74 14,552.35 14,592.51 8/31/2013 16,072.79 14,477.96 14,486.56 9/30/2013 16,160.68 14,615.03 14,663.83 10/31/2013 16,370.38 14,733.19 14,802.09 11/30/2013 16,385.72 14,678.02 14,774.84 12/31/2013 16,360.46 14,595.08 14,688.51 1/31/2014 16,599.96 14,810.72 14,899.37 2/28/2014 16,735.98 14,889.47 14,996.08 3/31/2014 16,794.38 14,864.11 14,969.88 4/30/2014 16,960.16 14,989.54 15,090.29 5/31/2014 17,125.89 15,160.20 15,265.91 6/30/2014 17,183.61 15,168.04 15,289.62 7/31/2014 17,192.97 15,130.00 15,245.64 8/31/2014 17,329.85 15,297.02 15,405.66 9/30/2014 17,230.54 15,193.16 15,290.24 10/31/2014 17,303.27 15,342.49 15,427.50 11/30/2014 17,377.44 15,451.34 15,532.00 12/31/2014 17,299.43 15,465.83 15,506.42 1/31/2015 17,546.40 15,790.10 15,840.51 2/28/2015 17,491.16 15,641.66 15,728.84 3/31/2015 17,532.25 15,714.26 15,788.42 4/30/2015 17,524.61 15,657.89 15,747.87 5/31/2015 17,484.74 15,620.17 15,707.00 6/30/2015 17,283.79 15,449.83 15,530.44 7/31/2015 17,291.93 15,557.25 15,638.37 8/31/2015 17,137.61 15,534.88 15,570.06 9/30/2015 17,150.30 15,639.96 15,629.02 10/31/2015 17,207.63 15,642.63 15,674.87 11/30/2015 17,119.10 15,601.27 15,637.75 12/31/2015 16,898.82 15,550.87 15,544.48 1/31/2016 16,956.75 15,764.83 15,701.70
[END CHART] Data from 1/31/06 through 1/31/2016. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Intermediate-Term Bond Fund Shares to the following benchmarks: o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S. investment-grade rated bond market, including government and credit securities, agency mortgage pass-through securities, asset-backed securities, and commercial mortgage-backed securities that have remaining maturities of more than one year. o The Lipper Index tracks the performance of funds that invest primarily in investment-grade debt issues (rated in top four grades) with dollar- weighted average maturities of five to ten years. SOURCE: LIPPER, A THOMSON REUTERS COMPANY. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA LIPPER CORE INTERMEDIATE-TERM PLUS BOND BOND FUND FUNDS SHARES AVERAGE 1/31/2007 4.79% 4.48% 1/31/2008 4.98 4.60 1/31/2009 5.80 5.63 1/31/2010 5.16 4.60 1/31/2011 4.37 3.71 1/31/2012 3.83 3.62 1/31/2013 4.60 3.06 1/31/2014 4.31 2.83 1/31/2015 4.02 3.15 1/31/2016 4.21 2.96
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The net asset value is adjusted for a portion of the capital gains distributed during the previous nine months. The graph represents data for periods ending 1/31/07 through 1/31/16. The Lipper Core Plus Bond Funds Average is the average performance level of all investment-grade debt funds, as reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ 10 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ USAA INTERMEDIATE-TERM BOND FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIITX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.4 Billion $1.3 Billion Net Asset Value Per Share $10.15 $10.58 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -1.90% -3.27% 4.27% 6.59% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -2.22% 4.47% 6.62% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 4.26% 0.58%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERMEDIATE-TERM BOND FUND BARCLAYS U.S. INSTITUTIONAL AGGREGATE SHARES LIPPER INDEX BOND INDEX 7/31/2008 $10,000.00 $10,000.00 $10,000.00 8/31/2008 9,995.51 10,059.87 10,094.91 9/30/2008 9,603.48 9,746.71 9,959.32 10/31/2008 8,941.32 9,383.98 9,724.23 11/30/2008 8,771.29 9,368.53 10,040.76 12/31/2008 8,673.92 9,717.05 10,415.37 1/31/2009 8,706.83 9,702.33 10,323.47 2/28/2009 8,650.28 9,593.70 10,284.50 3/31/2009 8,827.96 9,775.08 10,427.47 4/30/2009 9,040.93 9,943.81 10,477.33 5/31/2009 9,652.88 10,182.10 10,553.32 6/30/2009 9,929.45 10,304.54 10,613.35 7/31/2009 10,289.85 10,603.29 10,784.54 8/31/2009 10,619.91 10,754.73 10,896.20 9/30/2009 10,969.35 10,951.61 11,010.66 10/31/2009 11,170.03 11,051.31 11,065.03 11/30/2009 11,330.16 11,187.97 11,208.28 12/31/2009 11,372.15 11,106.69 11,033.08 1/31/2010 11,697.42 11,307.34 11,201.62 2/28/2010 11,779.67 11,364.32 11,243.45 3/31/2010 11,949.41 11,427.73 11,229.63 4/30/2010 12,193.02 11,586.31 11,346.52 5/31/2010 12,056.28 11,591.25 11,442.00 6/30/2010 12,167.42 11,778.25 11,621.43 7/31/2010 12,399.30 11,941.09 11,745.42 8/31/2010 12,613.97 12,120.85 11,896.55 9/30/2010 12,797.72 12,192.59 11,909.23 10/31/2010 12,991.55 12,266.22 11,951.63 11/30/2010 12,961.29 12,169.77 11,882.94 12/31/2010 12,927.36 12,063.78 11,754.80 1/31/2011 13,095.79 12,127.49 11,768.48 2/28/2011 13,206.51 12,177.05 11,797.92 3/31/2011 13,270.59 12,191.48 11,804.44 4/30/2011 13,474.88 12,371.90 11,954.28 5/31/2011 13,649.10 12,502.68 12,110.29 6/30/2011 13,543.39 12,441.86 12,074.83 7/31/2011 13,719.21 12,616.09 12,266.44 8/31/2011 13,587.04 12,668.48 12,445.65 9/30/2011 13,470.13 12,639.06 12,536.18 10/31/2011 13,659.13 12,744.16 12,549.65 11/30/2011 13,600.79 12,662.31 12,538.76 12/31/2011 13,768.99 12,821.58 12,676.57 1/31/2012 14,022.38 13,040.59 12,787.88 2/29/2012 14,148.83 13,089.91 12,784.95 3/31/2012 14,182.91 13,058.41 12,714.90 4/30/2012 14,320.11 13,212.66 12,855.86 5/31/2012 14,354.33 13,302.31 12,972.18 6/30/2012 14,429.43 13,351.70 12,977.27 7/31/2012 14,730.70 13,583.53 13,156.26 8/31/2012 14,851.51 13,631.08 13,164.86 9/30/2012 14,998.77 13,715.97 13,182.98 10/31/2012 15,204.39 13,775.39 13,208.91 11/30/2012 15,283.23 13,819.44 13,229.75 12/31/2012 15,324.47 13,824.10 13,210.92 1/31/2013 15,380.41 13,772.15 13,118.52 2/28/2013 15,508.42 13,846.86 13,184.27 3/31/2013 15,594.54 13,872.06 13,194.80 4/30/2013 15,804.67 14,023.14 13,328.31 5/31/2013 15,633.59 13,776.93 13,090.51 6/30/2013 15,263.30 13,479.04 12,888.02 7/31/2013 15,346.95 13,528.13 12,905.64 8/31/2013 15,261.84 13,429.91 12,839.67 9/30/2013 15,360.79 13,594.26 12,961.22 10/31/2013 15,546.78 13,722.43 13,066.01 11/30/2013 15,562.59 13,697.17 13,017.09 12/31/2013 15,539.84 13,617.14 12,943.53 1/31/2014 15,769.19 13,812.61 13,134.78 2/28/2014 15,900.11 13,902.27 13,204.61 3/31/2014 15,957.39 13,877.98 13,182.12 4/30/2014 16,116.67 13,989.61 13,293.36 5/31/2014 16,276.00 14,152.42 13,444.71 6/30/2014 16,347.03 14,174.40 13,451.66 7/31/2014 16,342.55 14,133.62 13,417.92 8/31/2014 16,474.27 14,281.98 13,566.04 9/30/2014 16,381.37 14,174.98 13,473.93 10/31/2014 16,452.05 14,302.22 13,606.37 11/30/2014 16,523.95 14,399.10 13,702.90 12/31/2014 16,451.14 14,375.39 13,715.75 1/31/2015 16,687.57 14,685.11 14,003.33 2/28/2015 16,636.38 14,581.58 13,871.68 3/31/2015 16,676.78 14,636.82 13,936.07 4/30/2015 16,670.89 14,599.22 13,886.08 5/31/2015 16,634.32 14,561.34 13,852.63 6/30/2015 16,444.58 14,397.66 13,701.56 7/31/2015 16,453.47 14,497.72 13,796.83 8/31/2015 16,307.92 14,434.38 13,776.99 9/30/2015 16,321.22 14,489.04 13,870.18 10/31/2015 16,377.03 14,531.55 13,872.54 11/30/2015 16,293.80 14,497.14 13,835.87 12/31/2015 16,085.36 14,410.67 13,791.17 1/31/2016 16,141.38 14,556.42 13,980.91
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Intermediate-Term Bond Fund Institutional Shares to the Fund's benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Lipper Index and the Barclays U.S. Aggregate Bond Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INTERMEDIATE-TERM LIPPER CORE BOND FUND PLUS BOND INSTITUTIONAL FUNDS SHARES AVERAGE 1/31/2010 6.15% 4.60% 1/31/2011 5.64 3.71 1/31/2012 5.37 3.62 1/31/2013 4.69 3.06 1/31/2014 4.41 2.83 1/31/2015 4.13 3.15 1/31/2016 4.31 2.96
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The net asset value is adjusted for a portion of the capital gains distributed during the previous nine months. The graph represents data for periods ending 1/31/10 through 1/31/16. The Lipper Core Plus Bond Funds Average is the average performance level of all investment-grade debt funds, as reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 13 ================================================================================ USAA INTERMEDIATE-TERM BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UITBX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $94.6 Million $118.8 Million Net Asset Value Per Share $10.14 $10.58 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 -2.15% -3.59% 3.88% 4.50% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 -2.53% 4.10% 4.54% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 3.92% 0.89%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 14 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERMEDIATE-TERM BARCLAYS BOND FUND U.S. AGGREGATE ADVISER SHARES LIPPER INDEX BOND INDEX 7/31/2010 $10,000.00 $10,000.00 $10,000.00 8/31/2010 10,167.97 10,150.54 10,128.67 9/30/2010 10,321.93 10,210.61 10,139.47 10/31/2010 10,473.75 10,272.28 10,175.57 11/30/2010 10,444.97 10,191.51 10,117.09 12/31/2010 10,402.80 10,102.74 10,007.99 1/31/2011 10,534.01 10,156.10 10,019.64 2/28/2011 10,629.23 10,197.61 10,044.70 3/31/2011 10,666.05 10,209.68 10,050.25 4/30/2011 10,836.23 10,360.78 10,177.83 5/31/2011 10,961.69 10,470.30 10,310.65 6/30/2011 10,882.66 10,419.36 10,280.46 7/31/2011 11,019.42 10,565.27 10,443.59 8/31/2011 10,898.39 10,609.15 10,596.17 9/30/2011 10,800.87 10,584.51 10,673.26 10/31/2011 10,949.26 10,672.52 10,684.72 11/30/2011 10,909.42 10,603.98 10,675.45 12/31/2011 11,040.42 10,737.36 10,792.78 1/31/2012 11,240.16 10,920.77 10,887.55 2/29/2012 11,327.45 10,962.07 10,885.05 3/31/2012 11,350.95 10,935.69 10,825.41 4/30/2012 11,468.29 11,064.87 10,945.43 5/31/2012 11,492.11 11,139.94 11,044.46 6/30/2012 11,537.81 11,181.31 11,048.79 7/31/2012 11,774.97 11,375.45 11,201.19 8/31/2012 11,867.33 11,415.27 11,208.51 9/30/2012 11,981.60 11,486.36 11,223.94 10/31/2012 12,142.42 11,536.12 11,246.01 11/30/2012 12,211.85 11,573.01 11,263.76 12/31/2012 12,240.84 11,576.91 11,247.72 1/31/2013 12,270.24 11,533.41 11,169.05 2/28/2013 12,379.76 11,595.97 11,225.04 3/31/2013 12,444.20 11,617.08 11,234.00 4/30/2013 12,596.42 11,743.60 11,347.67 5/31/2013 12,455.72 11,537.42 11,145.21 6/30/2013 12,156.60 11,287.95 10,972.81 7/31/2013 12,219.48 11,329.06 10,987.81 8/31/2013 12,147.56 11,246.80 10,931.64 9/30/2013 12,222.46 11,384.43 11,035.13 10/31/2013 12,377.93 11,491.77 11,124.35 11/30/2013 12,386.38 11,470.61 11,082.70 12/31/2013 12,352.59 11,403.60 11,020.07 1/31/2014 12,531.20 11,567.29 11,182.90 2/28/2014 12,643.21 11,642.38 11,242.36 3/31/2014 12,672.93 11,622.04 11,223.21 4/30/2014 12,795.45 11,715.52 11,317.91 5/31/2014 12,917.79 11,851.87 11,446.77 6/30/2014 12,970.20 11,870.27 11,452.69 7/31/2014 12,962.55 11,836.12 11,423.96 8/31/2014 13,075.34 11,960.36 11,550.08 9/30/2014 12,986.88 11,870.76 11,471.65 10/31/2014 13,051.48 11,977.32 11,584.41 11/30/2014 13,093.40 12,058.45 11,666.59 12/31/2014 13,044.24 12,038.59 11,677.53 1/31/2015 13,216.24 12,297.96 11,922.38 2/28/2015 13,172.46 12,211.26 11,810.29 3/31/2015 13,200.97 12,257.52 11,865.12 4/30/2015 13,192.98 12,226.04 11,822.55 5/31/2015 13,172.94 12,194.31 11,794.07 6/30/2015 13,006.82 12,057.24 11,665.46 7/31/2015 13,022.14 12,141.03 11,746.57 8/31/2015 12,903.60 12,087.99 11,729.67 9/30/2015 12,898.53 12,133.76 11,809.01 10/31/2015 12,939.27 12,169.37 11,811.03 11/30/2015 12,882.46 12,140.55 11,779.80 12/31/2015 12,714.05 12,068.13 11,741.75 1/31/2016 12,742.08 12,190.19 11,903.29
[END CHART] Data from 7/31/10 to 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Intermediate-Term Bond Fund Adviser Shares to the Fund's benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Lipper Index and the Barclays U.S. Aggregate Bond Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INTERMEDIATE-TERM LIPPER CORE BOND FUND PLUS BOND ADVISER SHARES FUNDS AVERAGE 1/31/2012 4.93% 3.62% 1/31/2013 4.31 3.06 1/31/2014 4.02 2.83 1/31/2015 3.80 3.15 1/31/2016 3.98 2.96
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The net asset value is adjusted for a portion of the capital gains distributed during the previous nine months. The graph represents data for periods ending 1/31/12 through 1/31/16. The Lipper Core Plus Bond Funds Average is the average performance level of all investment-grade debt funds, as reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ 16 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ o PORTFOLIO RATINGS MIX - 1/31/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 13.6% AA 6.0% A 20.4% BBB 48.2% BELOW INVESTMENT-GRADE 9.8% UNRATED 2.0%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 19-43. ================================================================================ INVESTMENT OVERVIEW | 17 ================================================================================ o ASSET ALLOCATION - 1/31/16 o [PIE CHART OF ASSET ALLOCATION] CORPORATE OBLIGATIONS 57.0% EURODOLLAR AND YANKEE OBLIGATIONS 16.7% COMMERCIAL MORTGAGE SECURITIES 8.8% U.S. TREASURY SECURITIES 7.5% MUNICIPAL BONDS 4.2% PREFERRED STOCKS 2.6% ASSET-BACKED SECURITIES 1.1% U.S. GOVERNMENT AGENCY ISSUES 0.4% FOREIGN GOVERNMENT OBLIGATIONS 0.3% COLLATERALIZED MORTGAGE OBLIGATIONS 0.1% MONEY MARKET INSTRUMENTS 0.1%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ 18 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- CORPORATE OBLIGATIONS (57.0%) CONSUMER DISCRETIONARY (3.2%) ----------------------------- AUTO PARTS & EQUIPMENT (0.1%) $ 2,000 Lear Corp. 4.75% 1/15/2023 $ 2,030 ---------- AUTOMOTIVE RETAIL (0.5%) 10,302 Advance Auto Parts, Inc. 4.50 12/01/2023 10,571 5,500 CST Brands, Inc. 5.00 5/01/2023 5,514 ---------- 16,085 ---------- CABLE & SATELLITE (0.9%) 20,000 CCO Safari II, LLC(a) 4.91 7/23/2025 20,050 1,000 Comcast Corp. 6.50 1/15/2017 1,051 5,000 NBCUniversal Enterprise, Inc.(a) 1.97 4/15/2019 5,028 3,750 Neptune Finco Corp.(b) 0.05 10/09/2022 3,750 ---------- 29,879 ---------- DEPARTMENT STORES (0.5%) 3,200 Dillard's, Inc. 7.13 8/01/2018 3,502 10,346 J.C. Penney Corp., Inc.(b) 0.06 5/22/2018 10,126 851 Macy's Retail Holdings, Inc. 5.90 12/01/2016 883 2,000 Macy's Retail Holdings, Inc. 7.45 7/15/2017 2,152 ---------- 16,663 ---------- GENERAL MERCHANDISE STORES (0.1%) 1,730 Dollar Tree, Inc.(b) 0.04 7/06/2022 1,728 ---------- HOME FURNISHINGS (0.2%) 4,428 Serta Simmons Holdings, LLC(b) 0.04 10/01/2019 4,409 ---------- HOMEBUILDING (0.2%) 2,000 D.R. Horton, Inc. 5.75 8/15/2023 2,115 5,000 Lennar Corp. 4.50 11/15/2019 5,163 ---------- 7,278 ---------- HOUSEHOLD APPLIANCES (0.0%) 1,000 Whirlpool Corp. 7.75 7/15/2016 1,029 ---------- RESTAURANTS (0.1%) 3,793 1011778 B.C. Unlimited Liability Co.(b) 0.04 12/10/2021 3,775 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- SPECIALIZED CONSUMER SERVICES (0.1%) $ 1,000 Service Corp. International 7.63% 10/01/2018 $ 1,124 2,000 Service Corp. International 5.38 5/15/2024 2,125 ---------- 3,249 ---------- SPECIALTY STORES (0.5%) 4,392 Harbor Freight Tools USA, Inc.(b) 0.05 7/26/2019 4,398 2,978 PetSmart, Inc.(b) 0.04 3/11/2022 2,891 2,000 Sally Holdings, LLC / Sally Capital, Inc. 5.75 6/01/2022 2,098 6,000 Staples, Inc.(b),(c) 4.75 1/29/2022 5,966 ---------- 15,353 ---------- Total Consumer Discretionary 101,478 ---------- CONSUMER STAPLES (2.2%) ----------------------- AGRICULTURAL PRODUCTS (0.1%) 2,000 Cargill, Inc.(a) 6.00 11/27/2017 2,144 ---------- DRUG RETAIL (0.8%) 5,000 CVS Health Corp. 4.88 7/20/2035 5,207 9,000 CVS Pass-Through Trust(a),(d) 5.93 1/10/2034 9,945 10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 9,862 ---------- 25,014 ---------- FOOD RETAIL (0.1%) 3,850 Albertson's, LLC(b) 0.05 8/25/2019 3,773 ---------- PACKAGED FOODS & MEAT (1.2%) 10,000 J.M. Smucker Co. 4.25 3/15/2035 9,894 15,000 Kraft Foods Group, Inc. 3.50 6/06/2022 15,360 1,799 Kraft Heinz Foods Co(a) 4.88 2/15/2025 1,926 3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,595 10,000 Tyson Foods, Inc. 3.95 8/15/2024 10,371 ---------- 41,146 ---------- Total Consumer Staples 72,077 ---------- ENERGY (8.4%) ------------- OIL & GAS DRILLING (0.7%) 10,000 Nabors Industries, Inc. 4.63 9/15/2021 7,445 5,000 Noble Holding International Ltd. 2.50 3/15/2017 4,401 1,000 Noble Holding International Ltd. 4.90 8/01/2020 603 3,000 Noble Holding International Ltd. 3.95 3/15/2022 1,524 5,000 Noble Holding International Ltd. 5.95 4/01/2025 2,522 5,000 Transocean, Inc.(d) 5.80 12/15/2016 4,869 ---------- 21,364 ----------
================================================================================ 20 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- OIL & GAS EQUIPMENT & SERVICES (0.2%) $ 3,079 SEACOR Holdings, Inc. 7.38% 10/01/2019 $ 2,756 2,000 SESI, LLC 7.13 12/15/2021 1,425 2,000 Weatherford Bermuda 9.63 3/01/2019 1,580 3,180 Weatherford International Ltd. 5.13 9/15/2020 2,281 ---------- 8,042 ---------- OIL & GAS EXPLORATION & PRODUCTION (1.5%) 8,000 Anadarko Petroleum Corp. 6.38 9/15/2017 8,084 1,830 Chesapeake Energy Corp.(a) 8.00 12/15/2022 791 4,000 Denbury Resources, Inc. 6.38 8/15/2021 1,460 2,000 Devon Energy Corp. 6.30 1/15/2019 1,865 5,000 Devon Energy Corp. 5.85 12/15/2025 4,678 2,000 EQT Corp. 6.50 4/01/2018 2,093 1,000 EQT Corp. 8.13 6/01/2019 1,081 3,000 EQT Corp. 4.88 11/15/2021 2,713 2,000 Hess Corp. 8.13 2/15/2019 2,063 5,000 Newfield Exploration Co. 5.38 1/01/2026 4,050 2,000 Noble Energy, Inc. 8.25 3/01/2019 2,179 5,000 Pioneer Natural Resource 3.95 7/15/2022 4,658 1,000 Polar Tankers, Inc.(a) 5.95 5/10/2037 1,154 900 QEP Resources, Inc. 6.80 3/01/2020 763 5,000 QEP Resources, Inc. 6.88 3/01/2021 3,825 10,000 Southwestern Energy Co. 4.10 3/15/2022 6,387 2,000 Southwestern Energy Co. 4.95 1/23/2025 1,242 ---------- 49,086 ---------- OIL & GAS REFINING & MARKETING (0.2%) 5,000 Marathon Petroleum Corp. 4.75 9/15/2044 3,809 2,000 Motiva Enterprises, LLC(a) 5.75 1/15/2020 2,167 ---------- 5,976 ---------- OIL & GAS STORAGE & TRANSPORTATION (5.8%) 15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 12,724 250 Buckeye Partners, LP 5.13 7/01/2017 255 10,000 Buckeye Partners, LP 2.65 11/15/2018 9,687 10,000 Buckeye Partners, LP 4.35 10/15/2024 8,235 10,000 Columbia Pipeline Group, Inc.(a) 4.50 6/01/2025 9,037 3,000 DCP Midstream Operating, LP 4.95 4/01/2022 2,256 4,000 DCP Midstream Operating, LP 3.88 3/15/2023 2,697 18,000 DCP Midstream, LLC(a) 5.85 5/21/2043 10,350 19,000 Enbridge Energy Partners, LP 8.05 10/01/2077 13,442 1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,082 16,000 Energy Transfer Partners, LP 3.35(e) 11/01/2066 9,440 6,000 EnLink Midstream Partners, LP 4.15 6/01/2025 4,114
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 1,000 Enterprise Products Operating, LLC 8.38% 8/01/2066 $ 803 5,000 Enterprise Products Operating, LLC 7.00 6/01/2067 4,013 11,800 Enterprise Products Operating, LLC 7.03 1/15/2068 11,829 5,000 EQT Midstream Partners, LP 4.00 8/01/2024 3,874 3,000 Gulfstream Natural Gas System, LLC(a) 6.95 6/01/2016 3,048 2,000 Kinder Morgan Energy Partners 6.50 4/01/2020 2,043 7,000 Kinder Morgan Energy Partners(d) 5.00 10/01/2021 6,622 1,000 Kinder Morgan, Inc. 6.50 9/15/2020 1,002 6,000 Kinder Morgan, Inc.(a) 5.00 2/15/2021 5,728 7,500 MPLX, LP 4.00 2/15/2025 5,555 12,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 11,340 2,000 NuStar Logistics, LP 8.15 4/15/2018 1,970 5,000 NuStar Logistics, LP 4.80 9/01/2020 4,275 3,000 NuStar Logistics, LP 4.75 2/01/2022 2,475 2,000 ONEOK Partners, LP 8.63 3/01/2019 2,144 5,000 ONEOK Partners, LP 4.90 3/15/2025 4,023 8,000 ONEOK, Inc. 4.25 2/01/2022 5,560 1,000 Plains All American Pipeline, LP 8.75 5/01/2019 1,101 1,000 Questar Pipeline Co. 5.83 2/01/2018 1,077 2,000 Southern Union Co. 3.35(e) 11/01/2066 1,015 1,000 Spectra Energy Capital, LLC 8.00 10/01/2019 1,121 4,500 Targa Resources Partners, LP 5.00 1/15/2018 4,224 3,000 Targa Resources Partners, LP 6.88 2/01/2021 2,610 2,000 Tennessee Gas Pipeline Co. 7.00 10/15/2028 1,983 3,000 Transcontinental Gas Pipe Line Co., LLC(a) 7.85 2/01/2026 3,134 5,000 Western Gas Partners, LP 5.38 6/01/2021 4,673 10,000 Williams Companies, Inc. 4.55 6/24/2024 6,565 ---------- 187,126 ---------- Total Energy 271,594 ---------- FINANCIALS (24.7%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (1.4%) 10,000 Ares Capital Corp. 4.88 11/30/2018 10,317 10,000 FS Investment Corp. 4.00 7/15/2019 10,114 5,000 Main Street Capital Corp. 4.50 12/01/2019 5,104 11,400 Prospect Capital Corp. 5.00 7/15/2019 11,457 10,000 State Street Capital Trust IV 1.51(e) 6/01/2077 7,867 ---------- 44,859 ---------- CONSUMER FINANCE (0.3%) 8,000 American Express Co. 6.80 9/01/2066 7,910 ---------- DIVERSIFIED BANKS (2.2%) 1,000 Bank of America Corp. 8.00 -(f) 1,011 1,000 Bank of America Corp. 8.13 -(f) 1,016
================================================================================ 22 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 2,000 Bank of America Corp. 5.63% 10/14/2016 $ 2,061 2,000 Bank of America Corp. 5.75 12/01/2017 2,128 10,000 Bank of America Corp. 1.66(e) 3/22/2018 10,011 10,000 Bank of America Corp. 4.20 8/26/2024 9,945 15,000 Citigroup, Inc. 4.40 6/10/2025 15,009 1,000 Comerica Bank 5.20 8/22/2017 1,052 6,035 Compass Bank 6.40 10/01/2017 6,377 2,000 JPMorgan Chase Capital XIII 1.55(e) 9/30/2034 1,682 10,000 JPMorgan Chase Capital XXI 1.28(e) 1/15/2087 7,588 7,500 USB Realty Corp.(a) 1.77(e) -(f) 6,394 5,000 Wells Fargo & Co. 3.50 3/08/2022 5,228 ---------- 69,502 ---------- INVESTMENT BANKING & BROKERAGE (0.3%) 10,000 Morgan Stanley 4.88 11/01/2022 10,651 ---------- LIFE & HEALTH INSURANCE (2.1%) 3,000 American Equity Investment Life Holding Co. 6.63 7/15/2021 3,135 2,000 Forethought Financial Group(a) 8.63 4/15/2021 2,307 13,018 Lincoln National Corp. 7.00(e) 5/17/2066 9,731 5,000 MetLife Capital Trust X(a) 9.25 4/08/2068 6,712 8,000 MetLife, Inc. 6.40 12/15/2066 8,420 1,000 Ohio National Financial Services, Inc.(a) 6.38 4/30/2020 1,127 2,000 Ohio National Financial Services, Inc.(a) 6.63 5/01/2031 2,432 5,000 Primerica, Inc. 4.75 7/15/2022 5,421 3,000 Principal Financial Global Fund, LLC 1.14(e) 1/10/2031 2,692 2,000 Prudential Financial, Inc. 6.00 12/01/2017 2,157 10,000 Prudential Financial, Inc. 5.88 9/15/2042 10,500 16,271 StanCorp Financial Group, Inc. 6.90 6/01/2067 13,261 ---------- 67,895 ---------- MULTI-LINE INSURANCE (1.4%) 2,000 American International Group, Inc. 8.18 5/15/2068 2,608 10,000 Genworth Holdings, Inc. 6.15 11/15/2066 2,700 14,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 10,815 10,000 Kemper Corp. 4.35 2/15/2025 10,204 20,235 Nationwide Mutual Insurance Co.(a) 2.80(e) 12/15/2024 19,618 ---------- 45,945 ---------- MULTI-SECTOR HOLDINGS (0.5%) 5,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 5,013 10,000 BNSF Funding Trust I 6.61 12/15/2055 11,175 ---------- 16,188 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%) 5,000 Icahn Enterprises, LP 3.50 3/15/2017 4,975 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- PROPERTY & CASUALTY INSURANCE (4.8%) $ 2,000 Allied World Assurance Holdings Ltd. 7.50% 8/01/2016 $ 2,059 2,000 Allied World Assurance Holdings Ltd. 5.50 11/15/2020 2,206 5,000 Allied World Assurance Holdings Ltd. 4.35 10/29/2025 4,987 15,000 Allstate Corp. 5.75 8/15/2053 15,309 5,000 Allstate Corp.(d) 6.13 5/15/2067 4,950 7,500 AmTrust Financial Services, Inc. 6.13 8/15/2023 8,015 1,535 Assured Guaranty U.S. Holdings, Inc. 7.00 6/01/2034 1,668 1,000 Assured Guaranty U.S. Holdings, Inc. 6.40 12/15/2066 693 25,000 Chubb Corp. 6.38 3/29/2067 23,475 9,760 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 11,346 4,000 Markel Corp. 3.63 3/30/2023 4,005 5,000 Navigators Group, Inc. 5.75 10/15/2023 5,451 15,000 Oil Insurance Ltd.(a) 3.59(e) -(f) 13,350 10,025 OneBeacon U.S. Holdings, Inc. 4.60 11/09/2022 10,346 10,000 ProAssurance Corp. 5.30 11/15/2023 10,840 20,010 Progressive Corp. 6.70 6/15/2067 20,010 5,000 RLI Corp. 4.88 9/15/2023 5,290 5,000 Sirius International Group(a) 6.38 3/20/2017 5,158 5,000 Travelers Companies, Inc.(d) 6.25 3/15/2067 4,975 ---------- 154,133 ---------- REGIONAL BANKS (5.4%) 10,000 Associated Banc-Corp. 4.25 1/15/2025 10,236 10,000 Banc of California, Inc. 5.25 4/15/2025 10,041 1,750 Bank of Oklahoma, N.A.(d) 1.05(e) 5/15/2017 1,739 5,000 BankUnited, Inc. 4.88 11/17/2025 4,963 15,000 Citizens Financial Group, Inc.(a) 4.15 9/28/2022 15,431 4,750 CoBiz Financial, Inc. 5.63 6/25/2030 5,018 2,000 Cullen/Frost Bankers, Inc. 0.89(e) 2/15/2017 1,989 10,000 Cullen/Frost Capital Trust II 1.96(e) 3/01/2034 8,799 5,000 First Financial Bancorp 5.13 8/25/2025 5,066 1,000 First Maryland Capital Trust I 1.62(e) 1/15/2027 844 10,000 First Niagara Financial Group, Inc.(d) 7.25 12/15/2021 11,933 3,000 First Tennessee Bank, N.A. 5.65 4/01/2016 3,016 5,000 FirstMerit Bank, N.A. 4.27 11/25/2026 5,171 10,000 FirstMerit Corp. 4.35 2/04/2023 10,270 10,000 Fulton Financial Corp. 4.50 11/15/2024 10,179 1,000 Hancock Holding Co. 5.88 4/01/2017 1,034 5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 4,963 2,000 Key Bank, N.A. 5.45 3/03/2016 2,009 750 KeyCorp Capital II 6.88 3/17/2029 876 16,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 15,720 5,000 MUFG Americas Holdings Corp. 3.50 6/18/2022 5,201
================================================================================ 24 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 10,000 People's United Bank 4.00% 7/15/2024 $ 9,874 10,000 People's United Financial, Inc. 3.65 12/06/2022 9,886 5,000 SunTrust Capital I 1.03(e) 5/15/2027 4,038 2,000 TCF National Bank 5.50 2/01/2016 2,000 5,000 TCF National Bank 4.60 2/27/2025 5,020 5,000 Webster Financial Corp. 4.38 2/15/2024 5,121 1,000 Wilmington Trust Corp. 8.50 4/02/2018 1,129 3,500 Wintrust Financial Corp. 5.00 6/13/2024 3,520 ---------- 175,086 ---------- REINSURANCE (0.5%) 5,000 Alleghany Corp. 5.63 9/15/2020 5,526 6,259 Alterra USA Holdings Ltd.(a) 7.20 4/14/2017 6,584 5,000 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 5,336 ---------- 17,446 ---------- REITs - DIVERSIFIED (0.2%) 1,000 Liberty Property, LP 6.63 10/01/2017 1,069 5,000 Washington REIT 3.95 10/15/2022 5,012 ---------- 6,081 ---------- REITs - HEALTH CARE (0.7%) 2,000 Nationwide Health Properties, Inc. 6.90 10/01/2037 2,564 10,000 Omega Healthcare Investors, Inc. 4.95 4/01/2024 10,167 2,000 Senior Housing Properties Trust(d) 6.75 12/15/2021 2,277 2,000 Welltower, Inc. 4.70 9/15/2017 2,089 3,000 Welltower, Inc. 6.13 4/15/2020 3,397 2,000 Welltower, Inc. 4.95 1/15/2021 2,176 ---------- 22,670 ---------- REITs - OFFICE (1.2%) 7,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 7,486 2,000 BioMed Realty, LP 6.13 4/15/2020 2,326 3,000 BioMed Realty, LP 4.25 7/15/2022 3,353 2,000 Boston Properties, LP 5.88 10/15/2019 2,234 8,000 Boston Properties, LP 3.85 2/01/2023 8,285 1,000 Brandywine Operating Partnership, LP 6.00 4/01/2016 1,007 6,000 Columbia Property Trust Operating Partnership, LP(d) 5.88 4/01/2018 6,423 92 Duke Realty, LP 5.95 2/15/2017 96 932 Duke Realty, LP 6.50 1/15/2018 1,011 2,000 Equity Commonwealth 6.25 8/15/2016 2,003 1,000 Equity Commonwealth 6.65 1/15/2018 1,060 1,000 Mack-Cali Realty, LP 7.75 8/15/2019 1,117 1,000 Reckson Operating Partnership, LP 6.00 3/31/2016 1,007 ---------- 37,408 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- REITs - RESIDENTIAL (0.5%) $ 5,550 AvalonBay Communities, Inc. 2.85% 3/15/2023 $ 5,460 10,000 UDR, Inc. 4.63 1/10/2022 10,886 ---------- 16,346 ---------- REITs - RETAIL (1.1%) 5,000 CBL & Associates, LP 5.25 12/01/2023 4,915 3,000 Federal Realty Investment Trust 3.00 8/01/2022 3,033 10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,789 1,000 National Retail Properties, Inc. 6.88 10/15/2017 1,079 5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,027 2,000 Realty Income Corp. 5.95 9/15/2016 2,055 2,000 Realty Income Corp. 5.75 1/15/2021 2,252 2,100 Realty Income Corp. 3.25 10/15/2022 2,061 5,000 Realty Income Corp. 4.13 10/15/2026 5,178 1,500 Regency Centers, LP 5.88 6/15/2017 1,582 ---------- 36,971 ---------- REITs - SPECIALIZED (1.3%) 5,000 American Tower Corp. 3.45 9/15/2021 5,018 5,000 American Tower Corp.(d) 5.90 11/01/2021 5,675 21,204 CC Holdings GS V, LLC / Crown Castle III Corp. 3.85 4/15/2023 21,345 3,980 Communications Sales & Leasing, Inc.(b) 0.05 10/24/2022 3,742 6,000 EPR Properties 7.75 7/15/2020 7,084 ---------- 42,864 ---------- SPECIALIZED FINANCE (0.3%) 10,000 McGraw Hill Financial, Inc. 4.00 6/15/2025 10,109 ---------- THRIFTS & MORTGAGE FINANCE (0.3%) 10,000 EverBank Financial Corp. 5.75 7/02/2025 10,362 ---------- Total Financials 797,401 ---------- HEALTH CARE (1.2%) ------------------ BIOTECHNOLOGY (0.1%) 5,000 Baxalta, Inc.(a) 4.00 6/23/2025 4,979 ---------- PHARMACEUTICALS (1.1%) 10,000 Actavis Funding SCS 3.80 3/15/2025 10,165 5,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 4,363 5,000 Mylan N.V.(a) 3.75 12/15/2020 5,062 1,000 Pfizer, Inc. 6.05 3/30/2017 1,059 15,000 Zoetis, Inc. 3.25 2/01/2023 14,348 ---------- 34,997 ---------- Total Health Care 39,976 ----------
================================================================================ 26 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- INDUSTRIALS (6.0%) ------------------ AEROSPACE & DEFENSE (0.9%) $ 10,000 L-3 Communications Corp. 5.20% 10/15/2019 $ 10,674 15,000 Lockheed Martin Corp. 3.60 3/01/2035 13,704 5,000 United Technologies Corp. 3.10 6/01/2022 5,176 ---------- 29,554 ---------- AIR FREIGHT & LOGISTICS (0.3%) 10,000 FedEx Corp. 3.90 2/01/2035 9,190 ---------- AIRLINES (1.9%) 55 America West Airlines, Inc. Pass-Through Trust 6.87 7/02/2018 55 744 America West Airlines, Inc. Pass-Through Trust (INS)(d) 7.93 7/02/2020 795 8,754 American Airlines, Inc. Pass-Through Trust 4.00 1/15/2027 8,886 3,255 Continental Airlines, Inc. Pass-Through Trust 9.00 1/08/2018 3,356 633 Continental Airlines, Inc. Pass-Through Trust 6.55 8/02/2020 671 709 Continental Airlines, Inc. Pass-Through Trust (INS) 6.24 9/15/2021 752 9,646 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 9,949 9,016 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 1/15/2026 8,779 7,000 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 7,044 4,760 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,968 1,098 US Airways Group, Inc. Pass-Through Trust (INS) 7.08 9/20/2022 1,173 3,547 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,907 2,263 US Airways Group, Inc. Pass-Through Trust(d) 7.13 4/22/2025 2,603 9,046 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 9,171 ---------- 62,109 ---------- BUILDING PRODUCTS (0.1%) 1,000 USG Corp. 6.30 11/15/2016 1,027 1,000 USG Corp. 9.75 1/15/2018 1,105 ---------- 2,132 ---------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.6%) 5,000 CNH Industrial Capital, LLC 3.88 7/16/2018 4,863 10,000 CNH Industrial Capital, LLC 3.38 7/15/2019 9,250 4,938 Terex Corp.(b) 0.04 8/13/2021 4,888 ---------- 19,001 ---------- INDUSTRIAL CONGLOMERATES (0.7%) 6,440 GE Capital Trust I 6.38 11/15/2067 6,943 9,000 General Electric Capital Corp. 6.38 11/15/2067 9,563 5,921 General Electric Co. 5.00 -(f) 6,091 ---------- 22,597 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- INDUSTRIAL MACHINERY (0.2%) $ 1,500 SPX Flow, Inc. 6.88% 9/01/2017 $ 1,592 6,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 6,282 ---------- 7,874 ---------- TRADING COMPANIES & DISTRIBUTORS (0.4%) 7,000 ILFC E-Capital Trust I(a) 4.49(e) 12/21/2065 6,300 2,000 ILFC E-Capital Trust II(a) 4.74(e) 12/21/2065 1,810 6,000 International Lease Finance Corp.(a) 7.13 9/01/2018 6,510 ---------- 14,620 ---------- TRUCKING (0.9%) 1,000 ERAC USA Finance, LLC(a) 6.20 11/01/2016 1,035 5,000 ERAC USA Finance, LLC(a) 3.30 10/15/2022 4,976 20,000 Penske Truck Leasing Co., LP(a) 4.25 1/17/2023 20,231 1,960 YRC Worldwide, Inc.(b) 0.08 2/13/2019 1,634 ---------- 27,876 ---------- Total Industrials 194,953 ---------- INFORMATION TECHNOLOGY (0.5%) ----------------------------- COMMUNICATIONS EQUIPMENT (0.3%) 10,000 QUALCOMM, Inc. 3.45 5/20/2025 9,744 ---------- ELECTRONIC MANUFACTURING SERVICES (0.2%) 5,000 Molex Electronic Technologies, LLC(a) 3.90 4/15/2025 4,742 ---------- Total Information Technology 14,486 ---------- MATERIALS (2.3%) ---------------- ALUMINUM (0.3%) 10,000 Alcoa, Inc. 5.40 4/15/2021 8,993 ---------- CONSTRUCTION MATERIALS (0.3%) 3,000 CRH America, Inc. 5.75 1/15/2021 3,383 5,000 Martin Marietta Materials, Inc. 4.25 7/02/2024 5,002 ---------- 8,385 ---------- DIVERSIFIED CHEMICALS (0.0%) 1,000 E.I. du Pont de Nemours & Co. 6.00 7/15/2018 1,093 ---------- DIVERSIFIED METALS & MINING (0.1%) 10,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 4,300 ---------- METAL & GLASS CONTAINERS (0.1%) 1,000 Ball Corp. 5.00 3/15/2022 1,040 2,500 Ball Corp. 5.25 7/01/2025 2,578 ---------- 3,618 ----------
================================================================================ 28 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- PAPER PACKAGING (0.3%) $ 5,000 Rock-Tenn Co. 4.45% 3/01/2019 $ 5,257 5,153 Sealed Air Corp.(a) 6.88 7/15/2033 5,314 ---------- 10,571 ---------- PAPER PRODUCTS (0.6%) 3,000 Georgia-Pacific, LLC 7.25 6/01/2028 3,835 3,000 International Paper Co. 7.50 8/15/2021 3,600 5,000 International Paper Co.(d) 4.75 2/15/2022 5,374 5,000 International Paper Co. 3.80 1/15/2026 4,872 ---------- 17,681 ---------- STEEL (0.6%) 2,000 Allegheny Technologies, Inc. 9.38 6/01/2019 1,486 10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 6,350 3,000 Allegheny Technologies, Inc. 7.63 8/15/2023 1,995 2,000 Carpenter Technology Corp.(d) 5.20 7/15/2021 2,047 8,000 Worthington Industries, Inc. 4.55 4/15/2026 8,097 ---------- 19,975 ---------- Total Materials 74,616 ---------- MUNICIPAL BONDS (0.4%) ---------------------- EDUCATION (0.1%) 3,000 Rensselaer Polytechnic Institute 5.60 9/01/2020 3,413 ---------- HOSPITAL (0.3%) 5,000 Bon Secours Charity Health System, Inc. 5.25 11/01/2025 5,138 3,000 Novant Health, Inc. 5.35 11/01/2016 3,096 ---------- 8,234 ---------- MISCELLANEOUS (0.0%) 511 Keenan Dev. Association of Tennessee, LLC (INS)(a) 5.02 7/15/2028 559 ---------- Total Municipal Bonds 12,206 ---------- TELECOMMUNICATION SERVICES (1.3%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (1.1%) 10,000 AT&T, Inc. 4.50 5/15/2035 9,047 2,000 CenturyLink, Inc. 6.45 6/15/2021 1,959 5,000 CenturyLink, Inc. 5.80 3/15/2022 4,644 2,000 CenturyLink, Inc. 6.75 12/01/2023 1,900 3,301 Frontier Communications Corp. 8.25 4/15/2017 3,470 3,000 Frontier Communications Corp. 6.25 9/15/2021 2,543 5,000 Frontier Communications Corp.(a) 11.00 9/15/2025 4,837 6,000 Qwest Corp.(g) 6.75 12/01/2021 6,270 2,000 Windstream Corp. 7.88 11/01/2017 2,100 ---------- 36,770 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.2%) $ 4,887 Grain Spectrum Funding II(a) 3.29% 10/10/2034 $ 4,893 1,500 SBA Telecommunications, Inc. 5.75 7/15/2020 1,562 ---------- 6,455 ---------- Total Telecommunication Services 43,225 ---------- UTILITIES (6.8%) ---------------- ELECTRIC UTILITIES (3.2%) 7,876 Bruce Mansfield Unit Pass-Through Trust 6.85 6/01/2034 7,878 2,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 2,353 2,000 Commonwealth Edison Co. 5.80 3/15/2018 2,172 1,045 Duke Energy Progress, Inc. 6.13 9/15/2033 1,280 13,000 Duquesne Light Holdings, Inc.(a) 6.40 9/15/2020 14,888 3,500 Duquesne Light Holdings, Inc.(a) 5.90 12/01/2021 3,973 164 FPL Energy National Wind, LLC(a) 5.61 3/10/2024 165 3,000 Great Plains Energy, Inc. 6.88 9/15/2017 3,193 2,000 Indiana Michigan Power Co. 7.00 3/15/2019 2,287 12,500 IPALCO Enterprises, Inc.(d) 5.00 5/01/2018 13,125 2,000 Metropolitan Edison Co. 7.70 1/15/2019 2,251 1,000 Nevada Power Co. 6.50 5/15/2018 1,118 14,000 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 9,590 1,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 933 3,000 NV Energy, Inc. 6.25 11/15/2020 3,467 2,000 Oglethorpe Power Corp. 6.10 3/15/2019 2,227 5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 4,380 15,000 PPL Capital Funding, Inc. 6.70 3/30/2067 11,553 3,000 Public Service Co. of New Mexico 7.95 5/15/2018 3,383 6,900 Southern California Edison Co. 6.25 -(f) 7,607 4,000 Texas - New Mexico Power Co.(a) 9.50 4/01/2019 4,825 ---------- 102,648 ---------- GAS UTILITIES (1.0%) 2,000 Atmos Energy Corp. 6.35 6/15/2017 2,129 1,000 Atmos Energy Corp. 8.50 3/15/2019 1,176 2,000 Florida Gas Transmission Co.(a) 7.90 5/15/2019 2,270 3,000 Florida Gas Transmission Co.(a) 5.45 7/15/2020 3,232 4,000 National Fuel Gas Co.(d) 4.90 12/01/2021 4,192 10,000 National Fuel Gas Co. 3.75 3/01/2023 8,508 1,000 National Fuel Gas Co. 7.38 6/13/2025 1,058 8,110 SourceGas, LLC(a) 5.90 4/01/2017 8,430 2,000 Southern Natural Gas Co., LLC(a) 5.90 4/01/2017 2,029 1,000 Southern Star Central Gas Pipeline, Inc.(a) 6.00 6/01/2016 1,009 ---------- 34,033 ----------
================================================================================ 30 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%) $ 2,000 DPL, Inc. 6.50% 10/15/2016 $ 2,050 ---------- MULTI-UTILITIES (2.2%) 1,000 Ameren Illinois Co. 6.13 11/15/2017 1,081 2,000 Ameren Illinois Co. 9.75 11/15/2018 2,411 3,000 Black Hills Corp. 5.88 7/15/2020 3,348 5,000 Black Hills Corp. 3.95 1/15/2026 5,140 2,000 CMS Energy Corp. 6.25 2/01/2020 2,275 3,000 CMS Energy Corp. 5.05 3/15/2022 3,334 5,000 Consumers Energy Co. 2.85 5/15/2022 5,063 6,050 Dominion Resources, Inc. 7.50(e) 6/30/2066 5,074 10,000 Dominion Resources, Inc. 2.90(e) 9/30/2066 6,949 19,663 Integrys Holding, Inc. 6.11 12/01/2066 14,356 13,500 Puget Sound Energy, Inc. 6.97 6/01/2067 10,361 2,000 Sempra Energy 9.80 2/15/2019 2,408 14,500 WEC Energy Group, Inc. 6.25 5/15/2067 10,513 ---------- 72,313 ---------- WATER UTILITIES (0.3%) 10,000 Aquarion Co., Inc.(a) 4.00 8/15/2024 9,963 ---------- Total Utilities 221,007 ---------- Total Corporate Obligations (cost: $1,898,375) 1,843,019 ---------- EURODOLLAR AND YANKEE OBLIGATIONS (16.7%) CONSUMER DISCRETIONARY (0.3%) ----------------------------- AUTOMOBILE MANUFACTURERS (0.2%) 5,000 Daimler Finance, N.A., LLC(a) 2.25 7/31/2019 4,989 ---------- PUBLISHING (0.1%) 4,622 Pearson Funding Four plc(a) 3.75 5/08/2022 4,632 ---------- Total Consumer Discretionary 9,621 ---------- CONSUMER STAPLES (2.1%) ----------------------- AGRICULTURAL PRODUCTS (0.2%) 8,000 Viterra, Inc.(a) 5.95 8/01/2020 6,486 ---------- BREWERS (0.6%) 15,000 Anheuser-Busch InBev Worldwide, Inc. 3.65 2/01/2026 15,221 5,000 SABMiller Holdings, Inc.(a) 3.75 1/15/2022 5,187 ---------- 20,408 ---------- DISTILLERS & VINTNERS (0.5%) 10,000 JB y Co. S.A. De C.V.(a) 3.75 5/13/2025 9,673 5,000 Pernod Ricard S.A.(a) 2.95 1/15/2017 5,052 ---------- 14,725 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 31 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- FOOD RETAIL (0.0%) $ 535 Ahold Lease USA, Inc. Pass-Through Trust 7.82% 1/02/2020 $ 579 ---------- PACKAGED FOODS & MEAT (0.2%) 4,713 JBS S.A. 10.50 8/04/2016 4,807 ---------- TOBACCO (0.6%) 10,000 BAT International Finance plc(a) 3.25 6/07/2022 10,308 10,000 Imperial Tobacco Finance plc(a) 4.25 7/21/2025 10,282 ---------- 20,590 ---------- Total Consumer Staples 67,595 ---------- ENERGY (1.0%) -------------- INTEGRATED OIL & GAS (0.4%) 1,000 Husky Energy, Inc. 7.25 12/15/2019 1,043 10,000 Petrobras Global Finance B.V. 4.88 3/17/2020 7,562 5,000 Petroleos Mexicanos(a) 4.50 1/23/2026 4,313 ---------- 12,918 ---------- OIL & GAS DRILLING (0.0%) 1,115 QGOG Atlantic/Alaskan Rigs Ltd.(a),(d) 5.25 7/30/2019 725 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.1%) 1,500 Repsol Oil & Gas Canada, Inc. 7.75 6/01/2019 1,391 2,000 Woodside Finance Ltd.(a) 4.60 5/10/2021 2,024 ---------- 3,415 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.5%) 5,000 APT Pipelines Ltd.(a) 4.20 3/23/2025 4,822 1,275 Nakilat, Inc.(a) 6.07 12/31/2033 1,345 2,000 TransCanada PipeLines Ltd. 7.13 1/15/2019 2,217 11,860 TransCanada PipeLines Ltd. 6.35 5/15/2067 7,946 ---------- 16,330 ---------- Total Energy 33,388 ---------- FINANCIALS (5.5%) ----------------- DIVERSIFIED BANKS (2.9%) 10,000 Abbey National Treasury Services plc 3.05 8/23/2018 10,310 10,000 ABN AMRO Bank N.V.(a) 4.75 7/28/2025 9,964 2,450 Barclays Bank plc 1.13(e) -(f) 1,470 3,000 BayernLB Capital Trust I 6.20 -(f) 2,981 10,000 HSBC Bank plc 1.13(e) -(f) 5,950 5,000 Lloyds Bank plc 4.20 3/28/2017 5,163 10,000 Nordea Bank AB(a) 4.25 9/21/2022 10,436 4,500 Rabobank Nederland 1.70 3/19/2018 4,515 10,000 Rabobank Nederland 3.88 2/08/2022 10,616
================================================================================ 32 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 5,000 Rabobank Nederland 3.95% 11/09/2022 $ 5,126 4,000 Royal Bank of Scotland Group plc 7.64 -(f) 4,130 10,000 Royal Bank of Scotland Group plc 9.50 3/16/2022 10,665 6,560 Santander Bank, N.A. 8.75 5/30/2018 7,427 5,000 Santander UK plc(a) 5.00 11/07/2023 5,223 1,000 Westpac Capital Trust IV(a) 5.26(e) -(f) 1,004 ---------- 94,980 ---------- DIVERSIFIED REAL ESTATE ACTIVITIES (0.1%) 4,500 Brookfield Asset Management, Inc. 5.80 4/25/2017 4,663 ---------- LIFE & HEALTH INSURANCE (0.3%) 10,000 Great-West Life & Annuity Insurance Capital, LP(a),(d) 7.15(e) 5/16/2046 10,025 ---------- MULTI-LINE INSURANCE (0.5%) 15,000 ZFS Finance USA Trust II(a) 6.45(e) 12/15/2065 15,094 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%) 7,000 ING Bank N.V.(a) 3.75 3/07/2017 7,175 ---------- PROPERTY & CASUALTY INSURANCE (1.0%) 20,056 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 22,137 5,000 XLIT Ltd. 6.50 -(f) 3,640 5,000 XLIT Ltd. 4.45 3/31/2025 4,946 ---------- 30,723 ---------- REINSURANCE (0.2%) 5,000 Swiss Re Capital I, LP(a) 6.85(e) -(f) 5,053 ---------- REITs-RETAIL (0.3%) 10,750 WEA Finance, LLC/Westfield UK & Europe Finance plc(a) 3.75 9/17/2024 10,841 ---------- Total Financials 178,554 ---------- GOVERNMENT (0.4%) ----------------- FOREIGN GOVERNMENT (0.4%) 10,000 Italy Government International Bond 5.38 6/15/2033 11,712 ---------- INDUSTRIALS (3.7%) ------------------ AEROSPACE & DEFENSE (0.3%) 10,000 BAE Systems Holdings, Inc.(a) 3.85 12/15/2025 10,118 ---------- AIRLINES (1.6%) 9,046 Air Canada Pass-Through Trust(a) 4.13 11/15/2026 9,103 6,000 Air Canada Pass-Through Trust(a) 3.75 6/15/2029 6,022 10,000 Air Canada Pass-Through Trust(a) 3.88 9/15/2024 9,437 4,232 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 4,163
================================================================================ PORTFOLIO OF INVESTMENTS | 33 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 5,000 Air Canada Pass-Through Trust(a) 5.00% 9/15/2020 $ 4,613 14,038 British Airways Pass-Through Trust(a) 4.63 12/20/2025 14,687 3,197 Virgin Australia Trust(a) 6.00 4/23/2022 3,233 ---------- 51,258 ---------- AIRPORT SERVICES (0.7%) 10,000 Heathrow Funding Ltd.(a) 4.88 7/15/2023 11,116 10,000 Sydney Airport Finance Co. Proprietary Ltd.(a) 3.90 3/22/2023 10,183 ---------- 21,299 ---------- DIVERSIFIED SUPPORT SERVICES (0.2%) 5,500 Brambles USA, Inc.(a) 4.13 10/23/2025 5,626 ---------- INDUSTRIAL CONGLOMERATES (0.7%) 2,000 Hutchison Whampoa International Ltd.(a) 4.63 1/13/2022 2,179 20,000 Siemens Financieringsmaatschappij N.V.(a) 3.25 5/27/2025 20,433 1,000 Siemens Financieringsmaatschappij N.V.(a) 6.13 8/17/2026 1,256 ---------- 23,868 ---------- RAILROADS (0.1%) 4,261 Asciano Finance Ltd.(a) 4.63 9/23/2020 4,371 ---------- TRADING COMPANIES & DISTRIBUTORS (0.1%) 3,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 2,925 ---------- Total Industrials 119,465 ---------- INFORMATION TECHNOLOGY (0.2%) ------------------------------ ELECTRONIC MANUFACTURING SERVICES (0.2%) 5,000 Tyco Electronics Group S.A. 3.50 2/03/2022 5,168 ---------- MATERIALS (3.0%) ---------------- COMMODITY CHEMICALS (0.3%) 10,000 Braskem Finance Ltd. 6.45 2/03/2024 8,825 ---------- DIVERSIFIED CHEMICALS (0.1%) 3,000 Incitec Pivot Finance, LLC(a) 6.00 12/10/2019 3,249 ---------- DIVERSIFIED METALS & MINING (0.6%) 5,000 Anglo American Capital plc(a) 2.63 9/27/2017 4,375 5,000 Anglo American Capital plc(a) 4.13 4/15/2021 3,162 10,000 Glencore Funding, LLC(a) 2.50 1/15/2019 7,630 3,000 Southern Copper Corp. 3.88 4/23/2025 2,679 5,000 Teck Resources Ltd. 3.75 2/01/2023 2,688 ---------- 20,534 ----------
================================================================================ 34 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000)(n) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%) $ 10,000 Potash Corp. of Saskatchewan, Inc. 3.00% 4/01/2025 $ 9,325 ---------- GOLD (0.9%) 2,000 Barrick Gold Corp. 6.95 4/01/2019 2,085 3,605 Barrick North America Finance, LLC 6.80 9/15/2018 3,799 20,000 Goldcorp, Inc. 3.70 3/15/2023 18,257 10,000 Kinross Gold Corp. 5.95 3/15/2024 6,250 ---------- 30,391 ---------- PAPER PACKAGING (0.1%) 3,000 Smurfit Kappa Acquisitions(a) 4.88 9/15/2018 3,086 ---------- PRECIOUS METALS & MINERALS (0.3%) 10,000 Fresnillo plc(a) 5.50 11/13/2023 10,100 ---------- STEEL (0.4%) 3,000 ArcelorMittal 6.13 6/01/2018 2,745 2,000 ArcelorMittal 6.50 3/01/2021 1,635 4,000 ArcelorMittal 7.25 2/25/2022 3,270 2,000 Vale Overseas Ltd. 4.63 9/15/2020 1,603 5,000 Vale Overseas Ltd. 4.38 1/11/2022 3,500 ---------- 12,753 ---------- Total Materials 98,263 ---------- UTILITIES (0.5%) ---------------- ELECTRIC UTILITIES (0.5%) 6,000 EDP Finance B.V.(a) 4.13 1/15/2020 6,043 10,000 Electricite De France S.A.(a) 5.25 -(f) 9,000 ---------- 15,043 ---------- Total Utilities 15,043 ---------- Total Eurodollar and Yankee Obligations (cost: $556,455) 538,809 ---------- FOREIGN GOVERNMENT OBLIGATIONS (0.3%) CAD15,000 Province of Alberta (cost: $14,583) 2.55 12/15/2022 11,135 ---------- ASSET-BACKED SECURITIES (1.1%) FINANCIALS (0.6%) ----------------- ASSET-BACKED FINANCING (0.6%) 1,000 Citibank Credit Card Issuance Trust 5.65 9/20/2019 1,072 5,000 GE Capital Credit Card Master Note Trust 4.47 3/15/2020 5,182 2,000 Hertz Vehicle Financing, LLC(a) 6.44 2/25/2019 2,103 5,289 SLM Student Loan Trust 0.98(e) 4/25/2025 5,046
================================================================================ PORTFOLIO OF INVESTMENTS | 35 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 1,091 SLM Student Loan Trust 1.17%(e) 10/25/2038 $ 949 1,220 Trinity Rail Leasing, LP (INS)(a) 5.27 8/14/2027 1,284 3,211 Trinity Rail Leasing, LP(a),(h) 5.90 5/14/2036 3,427 ---------- 19,063 ---------- Total Financials 19,063 ---------- UTILITIES (0.5%) ---------------- ELECTRIC UTILITIES (0.5%) 15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24 1/01/2031 15,334 ---------- Total Asset-Backed Securities (cost: $33,503) 34,397 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%) FINANCIALS (0.1%) ----------------- 2,592 Structured Asset Mortgage Investments, Inc. (cost: $2,388) 0.93(e) 7/19/2035 2,381 ---------- COMMERCIAL MORTGAGE SECURITIES (8.8%) FINANCIALS (8.8%) ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (7.8%) 820 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 819 1,000 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 998 2,000 Banc of America Commercial Mortgage, Inc. 5.87 5/10/2045 2,012 4,920 Banc of America Commercial Mortgage, Inc. 5.87 5/10/2045 4,922 4,200 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 4,192 5,980 Banc of America Commercial Mortgage, Inc. 6.27 2/10/2051 6,438 3,000 BCRR Trust(a) 5.86 7/17/2040 3,122 645 Bear Stearns Commercial Mortgage Securities, Inc. 5.00 2/11/2041 645 3,867 Bear Stearns Commercial Mortgage Securities, Inc. 5.21 2/11/2041 3,866 266 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 267 5,007 Bear Stearns Commercial Mortgage Securities, Inc. 5.33 2/11/2044 5,137 7,000 CFCRE Commercial Mortgage Trust(a) 5.76 12/15/2047 8,050 4,705 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 4,730 5,000 Citigroup Commercial Mortgage Trust 6.34 12/10/2049 5,316 2,234 Citigroup/Deutsche Bank Commercial Mortgage Trust 5.58 1/15/2046 2,232 6,000 Commercial Mortgage Trust 5.38 12/10/2046 5,951 3,000 Commercial Mortgage Trust(a) 5.54 12/11/2049 3,086 5,000 Commercial Mortgage Trust(a) 5.54 12/11/2049 5,100 507 Credit Suisse Commercial Mortgage Trust 5.72 2/15/2039 507 3,889 Credit Suisse Commercial Mortgage Trust 5.38 2/15/2040 3,964 1,950 DB-UBS Mortgage Trust(a),(d) 5.63 8/10/2044 2,177 5,000 GE Capital Commercial Mortgage Corp. 5.61 11/10/2045 4,983
================================================================================ 36 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 2,469 GE Capital Commercial Mortgage Corp. 5.61% 11/10/2045 $ 2,468 1,632 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 1,563 5,000 Greenwich Capital Commercial Funding Corp. 6.05 7/10/2038 5,015 1,687 Greenwich Capital Commercial Funding Corp. 5.44 3/10/2039 1,728 1,347 GS Mortgage Securities Trust 5.83 4/10/2038 1,346 3,000 GS Mortgage Securities Trust(a) 4.95 1/10/2045 3,328 1,682 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.99 9/12/2037 1,686 1,071 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.84 7/15/2042 1,071 4,000 J.P. Morgan Chase Commercial Mortgage Securities Corp.(a) 5.74 11/15/2043 4,261 221 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.42 12/12/2043 221 5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.46 12/12/2043 5,028 58 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.69 12/15/2044 58 5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 6.11 4/15/2045 4,399 3,465 J.P. Morgan Chase Commercial Mortgage Securities Corp. 6.11 4/15/2045 3,488 10,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 3.51 5/15/2045 10,554 4,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.48 5/15/2045 4,054 5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp.(a) 5.50 8/15/2046 5,683 8,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.37 5/15/2047 8,076 2,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 6.21 2/15/2051 2,103 2,000 LB-UBS Commercial Mortgage Trust(d) 5.35 11/15/2038 2,030 7,750 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 7,906 6,000 LB-UBS Commercial Mortgage Trust 5.41 9/15/2039 6,108 4,449 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 4,431 858 Merrill Lynch Mortgage Trust 5.68 7/12/2038 858 3,000 Merrill Lynch Mortgage Trust 5.91 5/12/2039 2,957 2,000 Merrill Lynch Mortgage Trust(a) 6.48 2/12/2051 2,118 2,000 Merrill Lynch Mortgage Trust 6.48 2/12/2051 2,113 2,000 Merrill Lynch-Countrywide Commercial Mortgage Trust 6.08 6/12/2046 2,019 2,531 Merrill Lynch-Countrywide Commercial Mortgage Trust 5.38 8/12/2048 2,588
================================================================================ PORTFOLIO OF INVESTMENTS | 37 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 5,000 Morgan Stanley Capital I, Inc. 5.37% 12/15/2043 $ 5,118 6,000 Morgan Stanley Capital I, Inc. 5.79 7/12/2044 6,059 2,217 Morgan Stanley Capital I, Inc. 4.77 7/15/2056 2,219 5,000 Royal Bank of Scotland Trust(a) 6.11 6/16/2049 5,262 3,000 TimberStar Trust(a) 5.75 10/15/2036 3,055 10,000 UBS Commercial Mortgage Trust 3.40 5/10/2045 10,385 4,756 UBS-Citigroup Commercial Mortgage Trust(a) 5.15 1/10/2045 5,411 5,000 Wachovia Bank Commercial Mortgage Trust 5.95 5/15/2043 5,002 2,216 Wachovia Bank Commercial Mortgage Trust 5.61 3/15/2045 2,215 5,000 Wachovia Bank Commercial Mortgage Trust 5.80 7/15/2045 5,067 843 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 854 3,000 Wachovia Bank Commercial Mortgage Trust 5.60 10/15/2048 3,058 5,000 Wachovia Bank Commercial Mortgage Trust 5.34 11/15/2048 5,093 5,000 Wachovia Bank Commercial Mortgage Trust 5.90 6/15/2049 5,132 3,000 Wells Fargo Commercial Mortgage Trust(a) 5.28 11/15/2043 3,251 6,000 WF-RBS Commercial Mortgage Trust(a) 5.17 2/15/2044 6,489 ---------- 251,442 ---------- INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.0%) 183,776 Fannie Mae(+) 0.75 4/25/2022 5,489 42,744 Freddie Mac(+) 1.56 12/25/2021 2,843 23,233 Freddie Mac(+) 1.86 3/25/2022 1,974 72,494 Freddie Mac(+) 1.43 8/25/2022 4,951 71,043 Freddie Mac(+) 1.02 10/25/2022 3,370 33,099 J.P. Morgan Chase Commercial Mortgage Securities Corp., acquired 9/28/2012; cost $4,518(i) 2.20 10/15/2045 2,813 36,192 Morgan Stanley-BAML Trust, acquired 10/05/2012; cost $4,702(a),(i) 2.23 11/15/2045 2,735 29,736 UBS Commercial Mortgage Trust, acquired 5/01/2012; cost $4,502(a),(i) 2.36 5/10/2045 2,949 75,746 WF-RBS Commercial Mortgage Trust, acquired 12/04/2012; cost $9,451(a),(i) 1.89 12/15/2045 6,251 ---------- 33,375 ---------- Total Financials 284,817 ---------- Total Commercial Mortgage Securities (cost: $277,177) 284,817 ---------- U.S. GOVERNMENT AGENCY ISSUES (0.4%)(j) MORTGAGE-BACKED PASS-THROUGH SECURITIES (0.4%) 11,257 Fannie Mae(+) 2.50 7/01/2027 11,583 324 Freddie Mac(+)(k) 5.00 9/01/2020 342 176 Freddie Mac(+) 5.50 4/01/2036 196 ---------- 12,121 ---------- Total U.S. Government Agency Issues (cost: $11,874) 12,121 ----------
================================================================================ 38 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- U.S. TREASURY SECURITIES (7.5%) BONDS (4.7%) $ 25,775 4.50%, 2/15/2036 $ 34,528 10,000 3.00%, 5/15/2042 10,582 20,000 2.75%, 8/15/2042 20,121 5,000 2.75%, 11/15/2042 5,019 5,000 3.13%, 8/15/2044 5,381 28,000 3.00%, 11/15/2044 29,373 50,000 2.50%, 2/15/2045 47,333 ---------- 152,337 ---------- NOTES (2.8%) 35,000 2.00%, 2/15/2025 35,291 10,000 2.00%, 8/15/2025 10,064 45,000 2.25%, 11/15/2025 46,287 ---------- 91,642 ---------- Total U.S. Treasury Securities (cost: $243,993) 243,979 ---------- MUNICIPAL BONDS (4.2%) AIRPORT/PORT (0.3%) 4,975 Chicago Midway Airport 5.00% 1/01/2024 5,915 2,470 Chicago Midway Airport 5.00 1/01/2025 2,919 410 Riverside (INS) 5.19 8/01/2017 416 ---------- 9,250 ---------- APPROPRIATED DEBT (0.5%) 3,000 Baltimore Board of School Commissioners 5.69 12/15/2025 3,651 710 Escondido Joint Powers Financing Auth. (INS) 5.53 9/01/2018 747 3,000 Kannapolis 7.28 3/01/2027 3,273 5,000 Miami-Dade County School Board (INS) 5.38 5/01/2031 5,811 4,000 Palm Beach County School Board 5.40 8/01/2025 4,666 ---------- 18,148 ---------- CASINOS & GAMING (0.0%) 1,298 Mashantucket (Western) Pequot Tribe(l) 7.35 7/01/2026 107 ---------- DIVERSIFIED REAL ESTATE ACTIVITIES (0.0%) 380 American Eagle Northwest, LLC(a) 4.97 12/15/2018 403 ---------- EDUCATION (1.1%) 3,430 Austin CCD 6.76 8/01/2030 4,293 485 California State Univ. (INS) 5.27 11/01/2017 507 1,000 Colorado State Board of Governors Univ. Enterprise System 4.90 3/01/2021 1,114
================================================================================ PORTFOLIO OF INVESTMENTS | 39 ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------- $ 3,000 Los Alamitos USD No. 1 6.19% 2/01/2026 $ 3,645 3,000 Miami Univ. 6.67 9/01/2028 3,825 10,000 New Jersey EDA 4.45 6/15/2020 10,181 10,000 New Jersey EDA 5.25 9/01/2026 10,957 ---------- 34,522 ---------- GENERAL OBLIGATION (1.1%) 1,250 Las Virgenes USD 5.54 8/01/2025 1,470 3,000 Long Beach USD 5.91 8/01/2025 3,603 5,000 New York City 6.27 12/01/2037 6,594 10,000 Scranton School District(a) 4.00 12/01/2025 10,051 5,000 State of Washington 5.25 2/01/2036 5,866 4,045 Will County, Illinois 3.83 11/15/2016 4,127 1,520 Will County, Illinois 4.08 11/15/2017 1,584 1,405 Will County, Illinois 4.28 11/15/2018 1,495 ---------- 34,790 ---------- MULTIFAMILY HOUSING (0.1%) 5,000 New York State Mortgage Agency 4.20 10/01/2027 5,208 ---------- SALES TAX (0.1%) 3,300 Miami-Dade County Transit System 4.59 7/01/2021 3,612 ---------- SPECIAL ASSESSMENT/TAX/FEE (0.8%) 2,000 Florida State Department of Environmental Protection 5.76 7/01/2020 2,310 4,700 Harris County 4.45 11/15/2031 4,729 1,745 Metropolitan Nashville Airport Auth. (INS) 5.14 7/01/2018 1,901 3,000 MTA 5.20 11/15/2018 3,284 5,000 MTA 6.73 11/15/2030 6,456 3,000 New Jersey Transportation Trust Fund Auth. 5.75 12/15/2028 3,220 2,500 New York City Transitional Finance Auth. 5.00 2/01/2035 2,889 ---------- 24,789 ---------- WATER UTILITIES (0.1%) 3,000 Connecticut Dev. Auth. 5.50 4/01/2021 3,470 ---------- WATER/SEWER UTILITY (0.1%) 2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,950 ---------- Total Municipal Bonds (cost: $123,165) 137,249 ----------
================================================================================ 40 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT MARKET $(000)/ VALUE SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (2.6%) PREFERRED STOCKS (2.6%) CONSUMER STAPLES (0.8%) ----------------------- AGRICULTURAL PRODUCTS (0.8%) 400,000 CHS, Inc., 7.10%, cumulative redeemable, perpetual $ 10,745 150,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a),(d) 15,998 ---------- 26,743 ---------- Total Consumer Staples 26,743 ---------- FINANCIALS (1.1%) ----------------- DIVERSIFIED BANKS (0.3%) 175,000 Citigroup Capital XIII, 7.88% 4,487 50,000 HSBC Holdings plc, 6.20%, perpetual(d) 1,277 36,000 ING Groep N.V., 7.20%, perpetual(d) 941 5,000 US Bancorp, 3.50%, perpetual(d) 3,960 ---------- 10,665 ---------- LIFE & HEALTH INSURANCE (0.3%) 369,987 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(d) 9,169 ---------- PROPERTY & CASUALTY INSURANCE (0.1%) $3,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(a) 2,347 ---------- REGIONAL BANKS (0.1%) 2 CoBank ACB, 1.46%, perpetual(a) 1,327 ---------- REINSURANCE (0.0%) 2,000 American Overseas Group Ltd., 7.50%, non-cumulative, perpetual, acquired 1/23/2007 - 3/02/2007; cost $2,058*(h),(i) 500 ---------- REITs - OFFICE (0.1%) 160,000 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 4,124 ---------- REITs - RESIDENTIAL (0.2%) 100,000 Equity Residential Properties Trust, depositary shares, Series K, 8.29%, cumulative redeemable, perpetual(d) 6,572 ---------- Total Financials 34,704 ---------- INDUSTRIALS (0.1%) ------------------ OFFICE SERVICES & SUPPLIES (0.1%) 4,000 Pitney Bowes International Holdings, Series F, 6.13%, cumulative redeemable, perpetual(a),(d) 4,144 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 41 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER OF VALUE SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (0.3%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (0.2%) 200,000 Qwest Corp., 7.38% $ 5,126 ---------- WIRELESS TELECOMMUNICATION SERVICES (0.1%) 2,000 Centaur Funding Corp., 9.08%(a),(d) 2,418 ---------- Total Telecommunication Services 7,544 ---------- UTILITIES (0.3%) ---------------- ELECTRIC UTILITIES (0.3%) 109,000 Southern California Edison, Series D, 6.50%, cumulative redeemable, perpetual 11,326 ---------- Total Preferred Stocks 84,461 ---------- Total Equity Securities (cost: $81,600) 84,461 ---------- MONEY MARKET INSTRUMENTS (0.1%) MONEY MARKET FUNDS (0.1%) 2,185,256 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(m) (cost: $2,185) 2,185 ---------- TOTAL INVESTMENTS (COST: $3,245,298) $3,194,553 ========== ------------------------------------------------------------------------------------------------------------- UNREALIZED NUMBER OF CONTRACT APPRECIATION/ CONTRACTS EXPIRATION VALUE (DEPRECIATION) LONG/(SHORT) DATE (000) (000) ------------------------------------------------------------------------------------------------------------- FUTURES (4.4%) 1,056 10YR U.S. Treasury Note 3/21/2016 $136,834 $1,782 30 U.S. Treasury Bond 3/21/2016 4,831 216 -------- ------ TOTAL FUTURES $141,665 $1,998 ======== ======
================================================================================ 42 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL ------------------------------------------------------------------------------------------------------------- Bonds: Corporate Obligations $ - $1,843,019 $ - $1,843,019 Eurodollar and Yankee Obligations - 538,809 - 538,809 Foreign Government Obligations - 11,135 - 11,135 Asset-Backed Securities - 30,970 3,427 34,397 Collateralized Mortgage Obligations - 2,381 - 2,381 Commercial Mortgage Securities - 284,817 - 284,817 U.S. Government Agency Issues - 12,121 - 12,121 U.S. Treasury Securities 243,979 - - 243,979 Municipal Bonds - 137,249 - 137,249 Equity Securities: Preferred Stocks 6,403 77,558 500 84,461 Money Market Instruments: Money Market Funds 2,185 - - 2,185 Futures(1) 1,998 - - 1,998 ------------------------------------------------------------------------------------------------------------- Total $254,565 $2,938,059 $3,927 $3,196,551 -------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the investment Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
------------------------------------------------------------------------------------------------------------- ASSET-BACKED PREFERRED SECURITIES STOCKS ------------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $3,596 $500 Purchases - - Sales (136) - Transfers into Level 3 - - Transfers out of Level 3 - - Net realized gain (loss) on investments 3 - Change in net unrealized appreciation/(depreciation) of investments (36) - ------------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $3,427 $500 -------------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 43 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 17.3% of net assets at January 31, 2016. o CATEGORIES AND DEFINITIONS EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S. dollar-denominated instruments that are issued outside the U.S. capital markets by foreign corporations and financial institutions and by foreign branches of U.S. corporations and financial institutions. Yankee obligations are dollar-denominated instruments that are issued by foreign issuers in the U.S. capital markets. ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed securities represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets. Commercial mortgage-backed securities reflect an interest in, and are secured by, mortgage loans on commercial real property. These securities represent ownership in a pool of loans and are divided into pieces (tranches) with varying maturities. The stated final maturity of such securities represents the date the final principal payment will be made for the last outstanding loans in the pool. The weighted average life is the average time for principal ================================================================================ 44 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ to be repaid, which is calculated by assuming prepayment rates of the underlying loans. The weighted average life is likely to be substantially shorter than the stated final maturity as a result of scheduled principal payments and unscheduled principal prepayments. Stated interest rates on commercial mortgage-backed securities may change slightly over time as underlying mortgages pay down. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage obligations are debt obligations of a legal entity that are fully collateralized by a portfolio of mortgages or mortgage-related securities. CMOs are issued in multiple classes (tranches), with specific adjustable or fixed interest rates, varying maturities, and must be fully retired no later than its final distribution date. The cash flow from the underlying mortgages is used to pay off each tranche separately. CMOs are designed to provide investors with more predictable maturities than regular mortgage securities but such maturities can be difficult to predict because of the effect of prepayments. INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent the right to receive only the interest payments on an underlying pool of commercial mortgage loans. The purchase yield reflects an anticipated yield based upon interest rates at the time of purchase and the estimated timing and amount of future cash flows. Coupon rates after purchase vary from period to period. The principal amount represents the notional amount of the underlying pool on which current interest is calculated. CMBS IOs are backed by loans that have various forms of prepayment protection, which include lock-out provisions, yield maintenance provisions, and prepayment penalties. This serves to moderate their prepayment risk. CMBS IOs are subject to default-related prepayments that may have a negative impact on yield. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CAD Canadian dollars CCD Community College District EDA Economic Development Authority MTA Metropolitan Transportation Authority ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 45 ================================================================================ REIT Real estate investment trust USD Unified School District CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: AMBAC Assurance Corp., Assured Guaranty Municipal Corp., MBIA Insurance Corp., National Public Finance Guarantee Corp., or XL Capital Assurance. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Senior loan (loan) - is not registered under the Securities Act of 1933. The loan contains certain restrictions on resale and cannot be sold publicly. The stated interest rate represents the weighted average interest rate of all contracts within the senior loan facility. The interest rate is adjusted periodically, and the rate disclosed represents the current rate at January 31, 2016. The weighted average life of the loan is likely to be shorter than the stated final maturity date due to ================================================================================ 46 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ mandatory or optional prepayments. The loan is deemed liquid by the Manager, under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (c) At January 31, 2016, the aggregate market value of securities purchased on a when-issued basis was $5,966,000. (d) The security, or a portion thereof, is segregated to cover the value of open futures contracts at January 31, 2016. (e) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at January 31, 2016. (f) Security is perpetual and has no final maturity date but may be subject to calls at various dates in the future. (g) At January 31, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (h) Security was fair valued at January 31, 2016, by the Manager in accordance with valuation procedures approved by the Board. The total value of all such securities was $3,927,000, which represented 0.1% of the Fund's net assets. (i) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at January 31, 2016, was $15,248,000, which represented 0.5% of the Fund's net assets. (j) U.S. government agency issues - Mortgage-backed securities issued by certain U.S. Government Sponsored Enterprises (GSEs) such as the Government National Mortgage Association (GNMA or Ginnie Mae) and certain other U.S. government guaranteed securities are supported by the full faith and credit of the U.S. government. Securities issued by other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) and Fannie Mae (Federal National Mortgage Association or FNMA), indicated with a "+", are supported only by the right of the GSE to borrow from the U.S. Treasury, the discretionary authority of the U.S. government ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 47 ================================================================================ to purchase the GSEs' obligations, or only by the credit of the issuing agency, instrumentality, or corporation, and are neither issued nor guaranteed by the U.S. Treasury. In September of 2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship and appointed the Federal Housing Finance Agency (FHFA) to act as conservator and oversee their daily operations. In addition, the U.S. Treasury entered into purchase agreements with Fannie Mae and Freddie Mac to provide them with capital in exchange for senior preferred stock. While these arrangements are intended to ensure that Fannie Mae and Freddie Mac can continue to meet their obligations, it is possible that actions by the U.S. Treasury, FHFA, or others could adversely impact the value of the Fund's investments in securities issued by Fannie Mae and Freddie Mac. (k) Securities with a value of $342,000 are segregated as collateral for initial margin requirements on open futures contracts. (l) Pay-in-kind (PIK) - security in which the issuer will have or has the option to make all or a portion of the interest or dividend payments in additional securities. (m) Rate represents the money market fund annualized seven-day yield at January 31, 2016. (n) In U.S. dollars unless otherwise noted. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 48 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $3,245,298) $3,194,553 Cash 478 Receivables: Capital shares sold 1,804 Dividends and interest 36,522 Securities sold 19,035 Variation margin on futures contracts 2,003 ---------- Total assets 3,254,395 ---------- LIABILITIES Payables: Securities purchased 5,950 Capital shares redeemed 13,983 Dividends on capital shares 627 Accrued management fees 732 Accrued transfer agent's fees 160 Other accrued expenses and payables 258 ---------- Total liabilities 21,710 ---------- Net assets applicable to capital shares outstanding $3,232,685 ========== NET ASSETS CONSIST OF: Paid-in capital $3,296,918 Undistributed net investment income 217 Accumulated net realized loss on investments and futures transactions (15,703) Net unrealized depreciation of investments and futures contracts (48,747) ---------- Net assets applicable to capital shares outstanding $3,232,685 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,697,887/167,332 shares outstanding) $ 10.15 ========== Institutional Shares (net assets of $1,440,226/141,925 shares outstanding) $ 10.15 ========== Adviser Shares (net assets of $94,572/9,327 shares outstanding) $ 10.14 ========== See accompanying notes to financial statements.
================================================================================ FINANCIAL STATEMENTS | 49 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 2,702 Interest 78,415 ---------- Total income 81,117 ---------- EXPENSES Management fees 5,607 Administration and servicing fees: Fund Shares 1,515 Institutional Shares 622 Adviser Shares 80 Transfer agent's fees: Fund Shares 1,404 Institutional Shares 622 Adviser Shares 55 Distribution and service fees (Note 6D): Adviser Shares 134 Custody and accounting fees: Fund Shares 136 Institutional Shares 81 Adviser Shares 7 Postage: Fund Shares 63 Institutional Shares 33 Adviser Shares 2 Shareholder reporting fees: Fund Shares 30 Institutional Shares 8 Adviser Shares 1 Trustees' fees 13 Registration fees: Fund Shares 85 Institutional Shares 53 Adviser Shares 29 Professional fees 91 Other 33 ---------- Total expenses 10,704 ---------- NET INVESTMENT INCOME 70,413 ----------
================================================================================ 50 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY, AND FUTURES CONTRACTS Net realized gain (loss) on: Unaffiliated transactions (13,172) Affiliated transactions (Note 8) 572 Foreign currency transactions (8) Futures transactions 299 Change in net unrealized appreciation/(depreciation) of: Investments (127,548) Foreign currency translations 1 Futures contracts 1,737 --------- Net realized and unrealized loss (138,119) --------- Decrease in net assets resulting from operations $ (67,706) =========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 51 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
--------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 --------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 70,413 $ 136,759 Net realized gain (loss) on investments (12,600) 1,484 Net realized loss on foreign currency transactions (8) (10) Net realized gain on futures transactions 299 261 Change in net unrealized appreciation/(depreciation) of: Investments (127,548) (118,922) Foreign currency translations 1 - Futures contracts 1,737 145 ------------------------------- Increase (decrease) in net assets resulting from operations (67,706) 19,717 ------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (41,788) (81,293) Institutional Shares (26,322) (51,845) Adviser Shares (2,087) (3,708) ------------------------------- Total distributions of net investment income (70,197) (136,846) ------------------------------- Net realized gains: Fund Shares (2,192) (2,835) Institutional Shares (1,328) (1,745) Adviser Shares (110) (128) ------------------------------- Total distributions of net realized gains (3,630) (4,708) ------------------------------- Distributions to shareholders (73,827) (141,554) ------------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (295,536) 226,113 Institutional Shares 210,268 40,948 Adviser Shares (19,681) 80,042 ------------------------------- Total net increase (decrease) in net assets from capital share transactions (104,949) 347,103 ------------------------------- Net increase (decrease) in net assets (246,482) 225,266 NET ASSETS Beginning of period 3,479,167 3,253,901 ------------------------------- End of period $3,232,685 $3,479,167 =============================== Undistributed net investment income: End of period $ 217 $ 1 ===============================
See accompanying notes to financial statements. ================================================================================ 52 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Intermediate-Term Bond Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek high current income without undue risk to principal. The Fund consists of three classes of shares: Intermediate-Term Bond Fund Shares (Fund Shares), Intermediate-Term Bond Fund Institutional Shares (Institutional Shares), and Intermediate-Term Bond Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 53 ================================================================================ as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the ================================================================================ 54 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 2. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 3. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 55 ================================================================================ information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 4. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 5. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 6. Repurchase agreements are valued at cost. 7. Futures are valued at the last sale price at the close of market on the principal exchange on which they are traded or, in the absence of any transactions that day, the last sale price on the prior trading date if it is within the spread between the closing bid and asked prices closest to the last reported sale price. 8. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation ================================================================================ 56 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include certain preferred stocks, which are valued based on methods discussed in Note 1A3. Additionally, certain bonds are valued based on methods discussed in Note 1A1. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by discounted prior tender offer or quoted prices obtained from broker-dealers participating in the market for these securities. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 57 ================================================================================ Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and enter into certain types of derivatives, including, but not limited to futures contracts, options, and options on futures contracts, under circumstances in which such instruments are expected by the portfolio manager to aid in achieving the Fund's investment objective. The Fund also may use derivatives in circumstances where the portfolio manager believes they offer an economical means of gaining exposure to a particular asset class or securities market or to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the market. With exchange-listed futures contracts and options, counterparty credit risk to the Fund is limited to the exchange's clearinghouse which, as counterparty to all exchange-traded futures contracts and options, guarantees the transactions against default from the actual counterparty to the trade. The Fund's derivative agreements held at January 31, 2016, did not include master netting provisions. FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against, changes in the value of equities, interest rates, or foreign currencies. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Upon entering into such contracts, the Fund is required to deposit with the broker in either cash or securities an initial margin in an amount equal to a certain percentage of the contract amount. Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Upon entering into such contracts, the Fund bears the risk of interest or ================================================================================ 58 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ exchange rates or securities prices moving unexpectedly in an unfavorable direction, in which case, the Fund may not achieve the anticipated benefits of the futures contracts. FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JANUARY 31, 2016* (IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES -------------------------------------------------------------------------------------------------- STATEMENT OF STATEMENT OF DERIVATIVES NOT ASSETS AND ASSETS AND ACCOUNTED FOR AS LIABILITIES LIABILITIES HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE -------------------------------------------------------------------------------------------------- Interest rate contracts Net unrealized $1,998** - $- depreciation of investments and futures contracts --------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2016, see the Portfolio of Investments, which also is indicative of activity for the six-month period ended January 31, 2016. ** Includes cumulative appreciation of futures as reported on the Portfolio of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities. THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2016 (IN THOUSANDS)
CHANGE IN DERIVATIVES NOT UNREALIZED ACCOUNTED FOR STATEMENT OF REALIZED APPRECIATION/ AS HEDGING OPERATIONS GAIN ON (DEPRECIATION) INSTRUMENTS LOCATION DERIVATIVES ON DERIVATIVES -------------------------------------------------------------------------------------------------- Interest rate contracts Net realized gain (loss) $299 $1,737 on Futures transactions/ Change in net unrealized appreciation/(depreciation) of Futures contracts --------------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost ================================================================================ NOTES TO FINANCIAL STATEMENTS | 59 ================================================================================ basis. Dividend income, less foreign taxes, if any, is recorded on the ex- dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency ================================================================================ 60 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis or for delayed draws on loans can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund receives a commitment fee for delayed draws on loans. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis and delayed-draw loan commitments may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases and commitments while remaining substantially fully invested. As of January 31, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $5,950,000; all of which were when-issued securities. H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 61 ================================================================================ J. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $10,000, which represents 4.8% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. ================================================================================ 62 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $227,981,000 and $313,906,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $108,457,000 and $159,202,000, respectively, resulting in net unrealized depreciation of $50,745,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 63 ================================================================================ Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 ------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------- FUND SHARES: Shares sold 16,978 $ 175,877 54,712 $ 594,158 Shares issued from reinvested dividends 4,019 41,492 7,369 79,868 Shares redeemed (50,172) (512,905) (41,362) (447,913) -------------------------------------------------------- Net increase (decrease) from capital share transactions (29,175) $(295,536) 20,719 $ 226,113 ======================================================== INSTITUTIONAL SHARES: Shares sold 38,828 $ 396,319 27,965 $ 303,345 Shares issued from reinvested dividends 2,563 26,450 4,680 50,722 Shares redeemed (20,488) (212,501) (28,861) (313,119) -------------------------------------------------------- Net increase from capital share transactions 20,903 $ 210,268 3,784 $ 40,948 ======================================================== ADVISER SHARES: Shares sold 523 $ 5,453 11,174 $ 121,445 Shares issued from reinvested dividends 203 2,093 323 3,490 Shares redeemed (2,627) (27,227) (4,177) (44,893) -------------------------------------------------------- Net increase (decrease) from capital share transactions (1,901) $ (19,681) 7,320 $ 80,042 ========================================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the ================================================================================ 64 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ Board. The Manager also is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. For the six-month period ended January 31, 2016, the Fund had no subadviser(s). The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee, accrued daily and paid monthly, is computed as a percentage of the Fund's average net assets at annualized rates of 0.50% of the first $50 million of average net assets, 0.40% of that portion of average net assets over $50 million but not over $100 million, and 0.30% of that portion of average net assets over $100 million. For the six-month period ended January 31, 2016, the Fund's effective annualized base fee was 0.30% of the Fund's average net assets for the same period. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Index. The Index tracks the performance of funds in that invest primarily in investment-grade debt issues (rated in top four grades) with dollar-weighted average maturities of five to ten years. The share performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ----------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance ================================================================================ NOTES TO FINANCIAL STATEMENTS | 65 ================================================================================ period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $5,607,000, which included a performance adjustment for the Fund Shares, Institutional Shares, and Adviser Shares of $254,000, $214,000, and $5,000, respectively. For the Fund Shares, Institutional Shares, and Adviser Shares, the performance adjustments were 0.03%, 0.03%, and 0.01%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and Adviser Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,515,000, $622,000, and $80,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $44,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. ================================================================================ 66 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $1,404,000, $622,000, and $55,000, respectively. D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $134,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the ================================================================================ NOTES TO FINANCIAL STATEMENTS | 67 ================================================================================ underlying funds for the purpose of exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- USAA Cornerstone Conservative 1.5 USAA Target Retirement Income 0.7 USAA Target Retirement 2020 1.6 USAA Target Retirement 2030 3.2 USAA Target Retirement 2040 1.9 USAA Target Retirement 2050 0.5 USAA Target Retirement 2060 0.0*
*Represents less than 0.1% The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 490,000 Adviser Shares, which represents 5.3% of the Adviser Shares and 0.2% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS During the six-month period ended January 31, 2016, in accordance with affiliated transaction procedures approved by the Board, purchases and sales of security transactions were executed between the Fund and the following affiliated USAA Funds at the then-current market price with no brokerage commissions incurred.
NET REALIZED COST TO GAIN TO SELLER PURCHASER PURCHASER SELLER --------------------------------------------------------------------------------- USAA Intermediate-Term Bond USAA Short-Term Bond $14,461,000 $572,000
================================================================================ 68 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60 $ 10.12 ------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .22 .43 .46 .48 .53 .56 Net realized and unrealized gain (loss) (.42) (.36) .21 (.04) .21 .47 ------------------------------------------------------------------------------------- Total from investment operations (.20) .07 .67 .44 .74 1.03 ------------------------------------------------------------------------------------- Less distributions from: Net investment income (.22) (.43) (.46) (.48) (.53) (.55) Realized capital gains (.01) (.02) (.00)(a) (.02) - - ------------------------------------------------------------------------------------- Total distributions (.23) (.45) (.46) (.50) (.53) (.55) ------------------------------------------------------------------------------------- Net asset value at end of period $ 10.15 $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60 ===================================================================================== Total return (%)* (1.94) .58 6.37 4.08 7.27 10.44 Net assets at end of period (000) $1,697,887 $2,079,610 $1,926,334 $1,775,162 $2,117,767 $1,731,646 Ratios to average net assets:** Expenses (%)(b) .66(e) .68 .68(d) .65(d) .65 .65 Expenses, excluding reimbursements (%)(b) .66(e) .68 .70 .71 .72 .72 Net investment income (%) 4.15(e) 3.96 4.21 4.38 5.07 5.33 Portfolio turnover (%) 7 13 8 10 17 16(c) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $2,007,583,000. (a) Represents less than $0.01 per share. (b) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Reflects overall decrease in purchases and sales of securities. (d) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the annual expenses of the Fund Shares to 0.65% of the Fund Shares' average net assets. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 69 ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60 $ 10.12 ------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .22 .44 .47 .49 .54 .58 Net realized and unrealized gain (loss) (.42) (.36) .21 (.04) .21 .48 ------------------------------------------------------------------------------------- Total from investment operations (.20) .08 .68 .45 .75 1.06 ------------------------------------------------------------------------------------- Less distributions from: Net investment income (.22) (.44) (.47) (.49) (.54) (.58) Realized capital gains (.01) (.02) (.00)(a) (.02) - - ------------------------------------------------------------------------------------- Total distributions (.23) (.46) (.47) (.51) (.54) (.58) ------------------------------------------------------------------------------------- Net asset value at end of period $ 10.15 $ 10.58 $ 10.96 $ 10.75 $ 10.81 $ 10.60 ===================================================================================== Total return (%)* (1.90) .68 6.49 4.18 7.37 10.66 Net assets at end of period (000) $1,440,226 $1,280,804 $1,284,768 $1,132,579 $336,501 $194,889 Ratios to average net assets:** Expenses (%)(b) .57(e) .58 .56 .55 .56 .45(c) Net investment income (%) 4.24(e) 4.07 4.32 4.41 5.13 5.53 Portfolio turnover (%) 7 13 8 10 17 16(d) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,239,171,000. (a) Represents less than $0.01 per share. (b) Reflects total operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to 0.91% of the Institutional Shares' average net assets. (d) Reflects overall decrease in purchases and sales of securities. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 70 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, JULY 31, --------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011*** --------------------------------------------------------------------------- Net asset value at beginning of period $ 10.58 $ 10.95 $ 10.74 $10.80 $10.60 $10.11 ------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .20 .41 .39(a) .45 .50 .52 Net realized and unrealized gain (loss) (.43) (.35) .25(a) (.04) .20 .49 ------------------------------------------------------------------------ Total from investment operations (.23) .06 .64(a) .41 .70 1.01 ------------------------------------------------------------------------ Less distributions from: Net investment income (.20) (.41) (.43) (.45) (.50) (.52) Realized capital gains (.01) (.02) (.00)(b) (.02) - - ------------------------------------------------------------------------ Total distributions (.21) (.43) (.43) (.47) (.50) (.52) ------------------------------------------------------------------------ Net asset value at end of period $ 10.14 $ 10.58 $ 10.95 $10.74 $10.80 $10.60 ======================================================================== Total return (%)* (2.15) .46 6.08 3.77 6.86 10.19 Net assets at end of period (000) $94,572 $118,753 $42,799 $8,890 $7,929 $6,109 Ratios to average net assets:** Expenses (%)(c) .90(d) .89(f) .94 .95 .95 .95(d) Expenses, excluding reimbursements (%)(c) .90(d) .89 .94 1.06 1.14 1.70(d) Net investment income (%) 3.92(d) 3.74 3.83 4.07 4.76 5.02(d) Portfolio turnover (%) 7 13 8 10 17 16(e) * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $106,092,000. *** Adviser Shares commenced operations on August 1, 2010. (a) Calculated using average shares. (b) Represents less than $0.01 per share. (c) Reflects total operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios as follows: - - - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. (e) Reflects overall decrease in purchases and sales of securities. (f) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to .95% of the Adviser Shares' average net assets.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 71 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ================================================================================ 72 | USAA INTERMEDIATE-TERM BOND FUND ================================================================================ ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 -------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 980.60 $3.29 Hypothetical (5% return before expenses) 1,000.00 1,021.82 3.35 INSTITUTIONAL SHARES Actual 1,000.00 981.00 2.84 Hypothetical (5% return before expenses) 1,000.00 1,022.27 2.90 ADVISER SHARES Actual 1,000.00 978.50 4.48 Hypothetical (5% return before expenses) 1,000.00 1,020.61 4.57
*Expenses are equal to the annualized expense ratio of 0.66% for Fund Shares, 0.57% for Institutional Shares, and 0.90% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (1.94)% for Fund Shares, (1.90)% for Institutional Shares, and (2.15)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 73 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ USAA -------------- 9800 Fredericksburg Road PRSRT STD San Antonio, TX 78288 U.S. Postage PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on usaa.com select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 40049-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA MONEY MARKET FUND] ============================================================ SEMIANNUAL REPORT USAA MONEY MARKET FUND JANUARY 31, 2016 ============================================================ ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGER'S COMMENTARY 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 9 Notes to Portfolio of Investments 26 Financial Statements 29 Notes to Financial Statements 32 EXPENSE EXAMPLE 41
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202727-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA MONEY MARKET FUND (THE FUND) SEEKS THE HIGHEST INCOME CONSISTENT WITH PRESERVATION OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests its assets in high-quality, U.S. dollar-denominated, short-term debt securities of domestic and foreign issuers that have been determined to present minimal credit risk and comply with strict Securities and Exchange Commission (SEC) guidelines applicable to money market funds. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGER'S COMMENTARY ON THE FUND ANTHONY M. ERA, Jr. [PHOTO OF ANTHONY M. ERA, Jr.] USAA Asset Management Company -------------------------------------------------------------------------------- o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD? Longer-term interest rates fell during the reporting period ended January 31, 2016, pushed lower by economic uncertainty. China was at the epicenter of concern, as the country's slowing pace of growth threatened to hinder the broader global economy. Investors also worried about dropping oil and commodity prices, which are widely considered to be evidence of global economic weakness. In the United States, economic data was mixed during the reporting period, with slower-than-expected growth in the fourth quarter of 2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from 2.85% to 2.74%. These lower yields tend to reflect changing expectations about the U.S. economy. In a move that had been anticipated for months, the Federal Reserve (the Fed) raised interest rates during the reporting period, lifting the target federal funds rate by 0.25% to a range between 0.25% and 0.5%. The federal funds rate had been anchored near zero since 2008. The Fed's action, which ultimately occurred on December 16, 2015, had a slightly positive impact on taxable money market securities' interest rates. Nevertheless, yields on money market funds remained near zero. Although money market funds provided very low absolute yields, investors continued to rely on them for the low risk and liquidity they offered. ================================================================================ 2 | USAA MONEY MARKET FUND ================================================================================ o HOW DID THE USAA MONEY MARKET FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended January 31, 2016, the seven-day yield on the Fund remained at 0.01%. The total return for the same period was less than 0.01%, compared to an average of 0.01% for all money market funds ranked by iMoneyNet, Inc. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? During the reporting period, we continued to invest the proceeds of maturing securities into commercial paper, Yankee certificates of deposit, and corporate notes. We also continued to invest in variable-rate demand notes (VRDNs), which we believe are likely to benefit when interest rates rise because of the frequency of their interest rate reset feature. We anticipate shorter-term yields rising gradually in response to any further Fed increases in the target federal funds rate, whenever they may occur in the future. The VRDNs owned by the Fund also give us flexibility because they can be sold at par (100% of face value) upon notice of seven days or less. In addition, most of these VRDNs are guaranteed by a bank letter of credit for the payment of both principal and interest, providing the Fund with a degree of safety and liquidity. Refer to page 6 for the benchmark definition. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGER'S COMMENTARY ON THE FUND | 3 ================================================================================ As always, we relied on our team of analysts to help us identify securities that represented relative value. These specialists continue to analyze and monitor every holding in the portfolio. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Variable-rate demand notes (VRDNs) are securities which the interest rate is reset periodically; typically weekly, although reset intervals may vary. ================================================================================ 4 | USAA MONEY MARKET FUND ================================================================================ INVESTMENT OVERVIEW USAA MONEY MARKET FUND (THE FUND) (Ticker Symbol: USAXX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $5.4 Billion $5.3 Billion Net Asset Value Per Share $1.00 $1.00 Dollar-Weighted Average Portfolio Maturity(+) 29 Days 51 Days (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS 0.01% 0.01% 0.01% 1.28% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS 0.01% 0.01% 1.31% -------------------------------------------------------------------------------- 7-DAY YIELD AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- SUBSIDIZED 0.01% 0.65% UNSUBSIDIZED -0.23%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. YOU COULD LOSE MONEY BY INVESTING IN A MONEY MARKET FUND. ALTHOUGH THIS FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE TO DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN INVESTMENT IN THIS FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions or reinvested net investment income. Yields and returns fluctuate. The seven-day yield quotation more closely reflects current earnings of the Fund than the total return quotation. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o 7-DAY YIELD COMPARISON o [CHART OF 7-DAY YIELD COMPARISON]
iMONEYNET USAA MONEY AVERAGE MARKET FUND 1/27/2015 0.01% 0.01% 2/24/2015 0.01% 0.01% 3/31/2015 0.01% 0.01% 4/28/2015 0.01% 0.01% 5/26/2015 0.01% 0.01% 6/30/2015 0.01% 0.01% 7/28/2015 0.01% 0.01% 8/25/2015 0.01% 0.01% 9/29/2015 0.01% 0.01% 10/27/2015 0.01% 0.01% 11/24/2015 0.01% 0.01% 12/29/2015 0.03% 0.01% 1/26/2016 0.04% 0.01%
[END CHART] Data represents the last Tuesday of each month. Ending date 1/26/16. The graph tracks the USAA Money Market Fund's seven-day yield against an average of first-tier major money market fund yields calculated by iMoneyNet, Inc. iMoneyNet, Inc. is an organization that tracks the performance of money market funds. Past performance is no guarantee of future results. ================================================================================ 6 | USAA MONEY MARKET FUND ================================================================================ o CUMULATIVE PERFORMANCE OF $10,000 o [CHART OF CUMULATIVE PERFORMANCE OF $10,000]
USAA MONEY MARKET FUND 1/31/2006 $10,000.00 2/28/2006 10,031.12 3/31/2006 10,068.99 4/30/2006 10,102.31 5/31/2006 10,140.60 6/30/2006 10,181.43 7/31/2006 10,219.84 8/31/2006 10,261.75 9/30/2006 10,303.79 10/31/2006 10,344.62 11/30/2006 10,385.64 12/31/2006 10,431.04 1/31/2007 10,471.05 2/28/2007 10,509.69 3/31/2007 10,553.91 4/30/2007 10,594.05 5/31/2007 10,637.16 6/30/2007 10,680.20 7/31/2007 10,722.06 8/31/2007 10,770.45 9/30/2007 10,809.30 10/31/2007 10,851.40 11/30/2007 10,892.68 12/31/2007 10,932.26 1/31/2008 10,967.88 2/29/2008 10,997.00 3/31/2008 11,022.65 4/30/2008 11,048.10 5/31/2008 11,074.13 6/30/2008 11,096.17 7/31/2008 11,118.33 8/31/2008 11,141.33 9/30/2008 11,169.86 10/31/2008 11,208.22 11/30/2008 11,228.79 12/31/2008 11,247.40 1/31/2009 11,261.24 2/28/2009 11,272.31 3/31/2009 11,283.96 4/30/2009 11,294.47 5/31/2009 11,305.99 6/30/2009 11,316.27 7/31/2009 11,325.32 8/31/2009 11,331.24 9/30/2009 11,335.25 10/31/2009 11,338.06 11/30/2009 11,339.50 12/31/2009 11,342.15 1/31/2010 11,342.33 2/28/2010 11,342.42 3/31/2010 11,342.51 4/30/2010 11,342.61 5/31/2010 11,342.70 6/30/2010 11,342.79 7/31/2010 11,342.89 8/31/2010 11,342.99 9/30/2010 11,343.08 10/31/2010 11,343.18 11/30/2010 11,343.27 12/31/2010 11,344.64 1/31/2011 11,344.73 2/28/2011 11,344.82 3/31/2011 11,344.92 4/30/2011 11,345.01 5/31/2011 11,345.11 6/30/2011 11,345.20 7/31/2011 11,345.29 8/31/2011 11,345.39 9/30/2011 11,345.49 10/31/2011 11,345.58 11/30/2011 11,345.67 12/31/2011 11,345.77 1/31/2012 11,347.82 2/29/2012 11,347.91 3/31/2012 11,348.01 4/30/2012 11,348.10 5/31/2012 11,348.19 6/30/2012 11,348.29 7/31/2012 11,348.38 8/31/2012 11,348.49 9/30/2012 11,348.57 10/31/2012 11,348.67 11/30/2012 11,348.77 12/31/2012 11,349.20 1/31/2013 11,349.29 2/28/2013 11,349.38 3/31/2013 11,349.48 4/30/2013 11,349.57 5/31/2013 11,349.66 6/30/2013 11,349.76 7/31/2013 11,349.85 8/31/2013 11,349.95 9/30/2013 11,350.04 10/31/2013 11,350.15 11/30/2013 11,350.25 12/31/2013 11,350.40 1/31/2014 11,350.49 2/28/2014 11,350.58 3/31/2014 11,350.67 4/30/2014 11,350.77 5/31/2014 11,350.86 6/30/2014 11,350.95 7/31/2014 11,351.05 8/31/2014 11,351.15 9/30/2014 11,351.24 10/31/2014 11,351.34 11/30/2014 11,351.43 12/31/2014 11,351.59 1/31/2015 11,351.69 2/28/2015 11,351.78 3/31/2015 11,351.87 4/30/2015 11,351.97 5/31/2015 11,352.06 6/30/2015 11,352.16 7/31/2015 11,352.25 8/31/2015 11,352.35 9/30/2015 11,352.44 10/31/2015 11,352.54 11/30/2015 11,352.63 12/31/2015 11,352.73 1/31/2016 11,352.82
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the performance of a hypothetical $10,000 investment in the USAA Money Market Fund. Past performance is no guarantee of future results. The cumulative performance quoted assumes reinvestment of all net investment income and realized capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. For seven- day yield information, please refer to the Fund's investment overview page. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o PORTFOLIO MIX - 1/31/16 o [PIE CHART OF PORTFOLIO MIX] VARIABLE-RATE DEMAND NOTES 36.2% COMMERCIAL PAPER 35.3% FIXED-RATE INSTRUMENTS 15.5% ADJUSTABLE-RATE NOTES 8.8% REPURCHASE AGREEMENTS 3.8% PUT BONDS 0.9%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 9-25. ================================================================================ 8 | USAA MONEY MARKET FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS (15.5%) DIVERSIFIED BANKS (10.9%) $ 25,000 Bank of Nova Scotia 0.51% 4/14/2016 $ 25,000 25,000 Canadian Imperial Bank of Commerce 0.56 4/21/2016 25,000 25,000 Canadian Imperial Bank of Commerce 0.77 6/17/2016 25,000 25,000 DnB NOR Bank ASA 0.38 2/24/2016 25,000 25,000 DnB NOR Bank ASA 0.70 6/14/2016 25,000 64,516 JPMorgan Chase & Co. 3.45 3/01/2016 64,652 25,000 Landesbank Hessen Thuringen 0.34 2/04/2016 25,000 25,000 Landesbank Hessen Thuringen 0.41 2/17/2016 25,000 25,000 Mizuho Bank Ltd. 0.65 4/08/2016 25,000 25,000 Natixis 0.40 2/10/2016 25,000 25,000 Natixis 0.59 3/17/2016 25,000 25,000 Norinchukin Bank 0.60 3/17/2016 25,000 25,000 Norinchukin Bank 0.63 4/07/2016 25,000 25,000 Norinchukin Bank 0.57 4/22/2016 25,000 25,000 Rabobank Nederland N.V. 0.40 2/04/2016 25,000 25,000 Skandinaviska Enskilda Banken AB 0.32 2/19/2016 25,000 25,000 Skandinaviska Enskilda Banken AB 0.53 4/19/2016 25,000 25,000 Skandinaviska Enskilda Banken AB 0.62 5/09/2016 25,000 25,000 Standard Chartered Bank 0.46 2/08/2016 25,000 25,000 Sumitomo Mitsui Banking Corp. 0.65 4/13/2016 25,000 25,000 Svenska Handelsbanken 0.46 4/29/2016 25,000 25,000 Swedbank AB 0.28 2/16/2016 25,000 ---------- 589,652 ---------- DIVERSIFIED CAPITAL MARKETS (0.9%) 25,000 Credit Suisse AG 0.58 5/04/2016 25,000 25,000 Credit Suisse AG 0.86 7/06/2016 25,000 ---------- 50,000 ---------- GENERAL OBLIGATION (0.7%) 26,670 Frontier CSD 1.50 6/28/2016 26,761 13,000 Yorkshire-Pioneer CSD 1.50 6/29/2016 13,044 ---------- 39,805 ---------- INVESTMENT BANKING & BROKERAGE (1.1%) 33,910 Morgan Stanley 1.75 2/25/2016 33,932
================================================================================ PORTFOLIO OF INVESTMENTS | 9 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 23,459 Morgan Stanley 3.80% 4/29/2016 $ 23,622 ---------- 57,554 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.9%) 25,000 Toronto-Dominion Bank 0.35 2/02/2016 25,000 25,000 Toronto-Dominion Bank 0.52 5/05/2016 25,000 ---------- 50,000 ---------- REGIONAL BANKS (1.0%) 25,000 MUFG Union Bank, N.A. 0.29 3/16/2016 25,000 25,000 MUFG Union Bank, N.A. 0.36 4/13/2016 25,000 5,405 MUFG Union Bank, N.A. 3.00 6/06/2016 5,443 ---------- 55,443 ---------- Total Fixed-Rate Instruments (cost: $842,454) 842,454 ---------- COMMERCIAL PAPER (35.3%) ASSET-BACKED FINANCING (18.6%) 25,000 Barton Capital, LLC(a),(b) 0.29 2/02/2016 25,000 25,000 Barton Capital, LLC(a),(b) 0.60 3/02/2016 24,988 25,011 Cedar Springs Capital Co.(a) 0.33 2/11/2016 25,009 16,038 Cedar Springs Capital Co.(a) 0.60 2/16/2016 16,034 25,000 Cedar Springs Capital Co.(a) 0.65 4/07/2016 24,970 30,000 Crown Point Capital Co.(a) 0.35 2/09/2016 29,998 30,000 Crown Point Capital Co.(a) 0.60 4/20/2016 29,961 25,000 Crown Point Capital Co.(a) 0.64 5/09/2016 24,956 25,000 Fairway Finance Corp.(a),(b) 0.28 2/08/2016 24,999 10,000 Fairway Finance Corp.(a),(b) 0.30 2/10/2016 9,999 20,000 Fairway Finance Corp.(a),(b) 0.30 2/24/2016 19,996 35,000 Fairway Finance Corp.(a),(b) 0.37 3/01/2016 34,990 51,502 Gotham Funding Corp.(a),(b) 0.45 3/04/2016 51,481 25,000 Gotham Funding Corp.(a),(b) 0.50 3/09/2016 24,987 45,000 Hannover Funding Co. LLC(a),(b) 0.40 2/01/2016 45,000 30,000 Liberty Street Funding LLC(a),(b) 0.60 4/04/2016 29,968 10,000 LMA Americas, LLC(a),(b) 0.37 2/05/2016 10,000 18,000 LMA Americas, LLC(a),(b) 0.44 2/29/2016 17,994 30,000 LMA Americas, LLC(a),(b) 0.39 2/01/2016 30,000 31,600 LMA Americas, LLC(a),(b) 0.38 2/04/2016 31,599 40,000 Manhattan Asset Funding Co.(a),(b) 0.45 2/01/2016 40,000 31,636 Manhattan Asset Funding Co.(a),(b) 0.45 2/05/2016 31,634 25,000 Manhattan Asset Funding Co.(a),(b) 0.46 2/19/2016 24,994 8,982 Nieuw Amsterdam Receivable Corp.(a),(b) 0.40 2/16/2016 8,981 20,000 Nieuw Amsterdam Receivable Corp.(a),(b) 0.37 2/23/2016 19,995 5,647 Nieuw Amsterdam Receivable Corp.(a),(b) 0.45 3/16/2016 5,644 20,000 Old Line Funding LLC(a),(b) 0.47 3/28/2016 19,985
================================================================================ 10 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 33,650 Old Line Funding LLC(a),(b) 0.73% 5/04/2016 $ 33,587 30,000 Ridgefield Funding Co., LLC(a) 0.38 2/11/2016 29,997 30,000 Ridgefield Funding Co., LLC(a) 0.43 2/18/2016 29,994 30,000 Ridgefield Funding Co., LLC(a) 0.60 3/17/2016 29,977 30,000 Ridgefield Funding Co., LLC(a) 0.62 4/05/2016 29,967 30,000 Sheffield Receivables(a),(b) 0.61 3/11/2016 29,980 45,000 Victory Receivables(a),(b) 0.45 2/05/2016 44,998 40,000 Working Capital Management Co.(a),(b) 0.45 2/02/2016 39,999 30,000 Working Capital Management Co.(a),(b) 0.41 2/03/2016 29,999 6,350 Working Capital Management Co.(a),(b) 0.46 2/16/2016 6,349 18,300 Working Capital Management Co.(a),(b) 0.47 2/23/2016 18,295 ---------- 1,006,304 ---------- AUTOMOBILE MANUFACTURERS (0.4%) 2,580 Hyundai Capital America(a),(b) 0.65 2/02/2016 2,580 4,000 Hyundai Capital America(a),(b) 0.68 2/03/2016 4,000 12,000 Hyundai Capital America(a),(b) 0.78 2/19/2016 11,995 5,000 Hyundai Capital America(a),(b) 0.80 2/23/2016 4,997 ---------- 23,572 ---------- AUTOMOTIVE RETAIL (0.4%) 22,000 Autozone Inc.(a),(b) 0.60 2/10/2016 21,997 ---------- CONSUMER FINANCE (1.1%) 30,000 American Honda Finance 0.40 3/16/2016 29,985 28,000 American Honda Finance 0.47 4/27/2016 27,969 ---------- 57,954 ---------- DIVERSIFIED CHEMICALS (0.4%) 18,750 BASF SE(a),(b) 0.50 3/29/2016 18,735 5,000 LyondellBasell Investment, LLC(a),(b) 0.70 2/16/2016 4,999 ---------- 23,734 ---------- EDUCATION (3.1%) 8,690 DeKalb County Development Auth. 0.38 2/17/2016 8,690 36,870 Emory Univ. 0.31 2/01/2016 36,870 34,500 Emory Univ. 0.35 2/16/2016 34,499 26,000 Emory Univ. 0.40 3/10/2016 26,000 25,000 Univ. of Texas System 0.25 3/01/2016 24,999 37,000 Yale Univ. 0.35 2/09/2016 36,997 ---------- 168,055 ---------- EDUCATION SERVICES (0.3%) 15,000 Baylor Univ. 0.38 3/10/2016 14,994 ---------- ELECTRIC UTILITIES (0.4%) 22,000 Pacific Gas & Electric Co.(a),(b) 0.62 2/09/2016 21,997 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- ELECTRIC/GAS UTILITIES (3.8%) $ 30,000 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.32% 2/11/2016 $ 30,000 5,000 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.38 3/03/2016 5,000 25,000 Long Island Power Auth. (LOC - Royal Bank of Canada) 0.38 3/17/2016 25,000 42,107 South Carolina Public Service Auth. 0.25 2/10/2016 42,107 12,500 South Carolina Public Service Auth. 0.45 2/22/2016 12,500 9,558 South Carolina Public Service Auth. 0.43 2/23/2016 9,558 42,674 South Carolina Public Service Auth. 0.40 2/29/2016 42,674 37,832 South Carolina Public Service Auth. 0.45 3/21/2016 37,832 ---------- 204,671 ---------- HEALTH CARE FACILITIES (0.5%) 25,000 Trinity Health Corp. 0.48 2/16/2016 24,995 ---------- HOSPITAL (3.5%) 30,000 Catholic Health Initiatives 0.65 2/22/2016 29,989 20,000 Catholic Health Initiatives 0.60 3/14/2016 19,986 30,000 Inova Health Systems Foundation 0.20 2/16/2016 29,998 40,000 Inova Health Systems Foundation 0.45 3/03/2016 39,984 30,000 Inova Health Systems Foundation 0.50 4/05/2016 29,973 40,036 Kaiser Foundation Hospital 0.48 3/07/2016 40,017 ---------- 189,947 ---------- INTEGRATED OIL & GAS (1.2%) 25,000 Exxon Mobil Corp. 0.29 2/03/2016 25,000 20,000 Exxon Mobil Corp. 0.33 2/12/2016 19,998 20,000 Exxon Mobil Corp. 0.40 3/01/2016 19,993 ---------- 64,991 ---------- OIL & GAS REFINING & MARKETING (0.1%) 5,000 Motiva Enterprises LLC 0.75 2/08/2016 4,999 ---------- SOFT DRINKS (1.5%) 17,250 Coca-Cola Co.(a),(b) 0.28 2/17/2016 17,248 25,000 Coca-Cola Co.(a),(b) 0.34 2/25/2016 24,994 20,000 Coca-Cola Co.(a),(b) 0.42 3/24/2016 19,988 19,900 Coca-Cola Co.(a),(b) 0.48 4/25/2016 19,878 ---------- 82,108 ---------- Total Commercial Paper (cost: $1,910,318) 1,910,318 ---------- PUT BONDS (0.9%) ELECTRIC UTILITIES (0.9%) 50,000 Mobile IDB (cost: $50,000) 0.65 6/01/2034 50,000 ----------
================================================================================ 12 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- VARIABLE-RATE DEMAND NOTES (36.2%) AEROSPACE & DEFENSE (0.6%) $ 9,595 Albertville IDB (LOC - JPMorgan Chase Bank, N.A.) 0.13% 3/01/2018 $ 9,595 23,060 GBG, LLC (LOC - Bank of New York Mellon)(a) 0.32 9/01/2027 23,060 ---------- 32,655 ---------- AGRICULTURAL PRODUCTS (1.2%) 15,000 Indiana Finance Auth. 0.04 6/01/2041 15,000 10,045 Iowa Finance Auth. 0.04 6/01/2036 10,045 35,000 Iowa Finance Auth. 0.04 6/01/2039 35,000 2,730 Washington Economic Dev. Finance Auth. (LOC - Bank of the West) 0.05 9/01/2032 2,730 ---------- 62,775 ---------- AIRLINES (0.7%) 38,900 Chicago-O'Hare International Airport (LOC - Bayerische Landesbank) 0.02 5/01/2035 38,900 ---------- AIRPORT SERVICES (0.0%) 1,800 San Antonio Airport System (LOC - Bank of America, N.A.) 0.20 4/01/2020 1,800 ---------- AIRPORT/PORT (1.1%) 47,025 Broward County (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.15 10/01/2033 47,025 13,300 Denver City and County (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.15 11/15/2032 13,300 ---------- 60,325 ---------- ALUMINUM (0.1%) 7,815 Hancock County (LOC - Wells Fargo Bank, N.A.) 0.21 4/01/2028 7,815 ---------- APPAREL, ACCESSORIES & LUXURY GOODS (0.1%) 4,635 St. Charles Parish (LOC - Federal Home Loan Bank of Atlanta) 0.45 9/01/2024 4,635 ---------- ASSET-BACKED FINANCING (0.0%) 2,210 Capital Markets Access Co., LLC (LOC - Federal Home Loan Bank of Atlanta) 0.41 8/01/2031 2,210 ---------- AUTO PARTS & EQUIPMENT (0.2%) 1,600 Elkhart County (LOC - Fifth Third Bank) 0.14 12/01/2027 1,600 4,115 Illinois Finance Auth. (LOC - Federal Home Loan Bank of Chicago) 0.52 7/01/2040 4,115 3,400 Savanna (LOC - Bank of America, N.A.) 0.08 5/01/2019 3,400 1,175 Tippecanoe County (LOC - Fifth Third Bank) 0.14 11/01/2025 1,175 ---------- 10,290 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- AUTOMOTIVE RETAIL (0.0%) $ 765 Kenwood Lincoln-Mercury, Inc. (LOC - PNC Bank, N.A.) 0.60% 3/01/2021 $ 765 ---------- BUILDING PRODUCTS (1.0%) 2,465 Atchison (LOC - Key Bank, N.A.) 0.17 1/01/2033 2,465 3,945 Cornell Iron Works, Inc. (LOC - Bank of America, N.A.) 0.62 4/01/2019 3,945 1,950 Delaware EDA (LOC - Key Bank, N.A.) 0.17 4/01/2023 1,950 3,200 Manhattan IDB (LOC - JPMorgan Chase Bank, N.A.) 0.32 4/01/2028 3,200 4,285 Moondance Enterprises, LP (LOC - PNC Bank, N.A.) 0.43 11/01/2020 4,285 750 Tazewell County IDA (LOC - PNC Bank, N.A.) 0.11 2/01/2017 750 28,750 Union County (LOC - SunTrust Bank) 0.40 10/01/2027 28,750 9,400 Warren County (LOC - JPMorgan Chase Bank, N.A.) 0.18 12/01/2031 9,400 ---------- 54,745 ---------- COMMERCIAL PRINTING (0.1%) 1,465 Colorado Housing and Finance Auth. (LOC - Wells Fargo Bank, N.A.) 0.20 5/01/2027 1,465 1,989 Fairway, LLC (LOC - Federal Home Loan Bank of San Francisco) 0.43 12/01/2023 1,989 2,300 Summit County Port Auth. (LOC - Key Bank, N.A.) 0.17 7/01/2023 2,300 ---------- 5,754 ---------- COMMUNITY SERVICE (0.3%) 16,010 Wisconsin Public Finance Auth. (LOC - Fifth Third Bank) 0.09 2/01/2042 16,010 ---------- CONSTRUCTION MATERIALS (0.2%) 1,855 Franklin IDB (LOC - Federal Home Loan Bank of Chicago) 0.10 7/01/2032 1,855 10,000 Yavapai County IDA (LOC - Bank of Nova Scotia) 0.38 9/01/2035 10,000 ---------- 11,855 ---------- DISTILLERS & VINTNERS (0.0%) 100 Kentucky Rural EDA (LOC - PNC Bank, N.A.) 0.14 10/01/2016 100 ---------- DISTRIBUTORS (0.3%) 15,110 Bhavnani, LLC (LOC - U.S. Bank, N.A.) 0.38 5/01/2038 15,110 ---------- DIVERSIFIED CHEMICALS (0.1%) 6,500 Port of Port Arthur Navigation District 0.06 4/01/2033 6,500 ---------- DIVERSIFIED REAL ESTATE ACTIVITIES (2.6%) 5,000 Fiore Capital, LLC (LOC - Wells Fargo Bank, N.A.) 0.28 8/01/2045 5,000 7,000 Fiore Capital, LLC (LOC - Wells Fargo Bank, N.A.) 0.28 8/01/2045 7,000 13,955 Kansas City Tax Financing Commission (LOC - Key Bank, N.A.) 0.44 6/01/2024 13,955
================================================================================ 14 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 58,400 New York Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.08% 5/01/2042 $ 58,400 27,710 Paca-Pratt Associates, Inc. (LOC - Manufacturers & Traders Trust Co.) 0.78 1/01/2038 27,710 13,288 Pinnacle Properties Dev. Group, LLC (LOC - Federal Home Loan Bank of Cincinnati) 0.41 6/15/2041 13,288 1,880 Stice-Hill Holdings, LC (LOC - Hancock Bank) 1.50 12/01/2023 1,880 12,525 Stobro Co., LP (LOC - Federal Home Loan Bank of Pittsburgh) 0.38 1/01/2032 12,525 ---------- 139,758 ---------- EDUCATION (0.5%) 6,595 Colorado Educational and Cultural Facilities Auth. (LOC - Fifth Third Bank) 0.03 1/01/2029 6,595 10,000 Massachusetts Dev. Finance Agency (LOC - RBS Citizens, N.A.) 0.50 7/01/2043 10,000 5,000 Michigan State Finance Auth. (LOC - Bank of Montreal) 0.32 9/01/2050 5,000 7,670 Missouri Health and Educational Facilities Auth. (LOC - Fifth Third Bank) 0.09 7/15/2037 7,670 ---------- 29,265 ---------- EDUCATION SERVICES (0.6%) 6,426 Cornerstone Funding Corp. I (LOC - TD Bank, N.A.) 0.91 1/01/2025 6,426 5,170 Harvest Time Tabernacle, Inc. (LOC - Federal Home Loan Bank of Dallas) 0.43 8/01/2037 5,170 3,570 Manhattan Christian College, Inc. (LOC - Federal Home Loan Bank of Topeka) 0.43 5/01/2036 3,570 12,985 Saddleback Valley Community Church (LOC - Federal Home Loan Bank of San Francisco) 0.41 11/01/2038 12,985 2,255 Summit Country Day School (LOC - U.S. Bank, N.A.) 0.70 2/01/2019 2,255 ---------- 30,406 ---------- ELECTRIC UTILITIES (3.8%) 11,000 Appling County Dev. Auth. 0.18 9/01/2041 11,000 6,000 Dade County IDA 0.01 6/01/2021 6,000 38,300 Garfield County Industrial Auth. 0.05 1/01/2025 38,300 21,200 Indiana Dev. Finance Auth. 0.30 12/01/2038 21,200 15,000 Miami-Dade County IDA 0.02 2/01/2023 15,000 7,250 Mobile IDB 0.02 9/01/2031 7,250 20,000 Muskogee Industrial Trust 0.05 6/01/2027 20,000 30,000 St. Lucie County 0.02 5/01/2024 30,000 58,400 St. Lucie County 0.01 9/01/2028 58,400 ---------- 207,150 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- ELECTRIC/GAS UTILITIES (0.2%) $ 10,000 Central Plains Energy Project (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.26% 9/01/2037 $ 10,000 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (0.0%) 995 Colorado Housing and Finance Auth. (LOC - Wells Fargo Bank, N.A.) 0.20 10/01/2032 995 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%) 4,785 Putnam County IDA (LOC - RBS Citizens, N.A.) 0.41 7/01/2032 4,785 ---------- FOOD RETAIL (0.5%) 18,750 Altoona-Blair County Dev. Corp. (LOC - PNC Bank, N.A.)(a) 0.38 4/01/2035 18,750 1,555 Food Supply, Inc. (LOC - SunTrust Bank) 0.42 5/01/2024 1,555 6,420 Saubels Market, Inc. (LOC - Fulton Bank) 1.00 5/01/2034 6,420 ---------- 26,725 ---------- FOREST PRODUCTS (0.1%) 4,200 Rex Lumber, LLC (LOC - Federal Home Loan Bank of Dallas) 0.41 2/01/2022 4,200 ---------- GENERAL MERCHANDISE STORES (0.2%) 9,445 Marion EDA (LOC - Key Bank, N.A.) 0.48 2/01/2035 9,445 ---------- GENERAL OBLIGATION (2.1%) 7,500 Bridgeview (LOC - Harris Bank, N.A.) 0.40 12/01/2038 7,500 7,500 Bridgeview (LOC - Harris Bank, N.A.) 0.40 12/01/2038 7,500 28,465 McHenry County (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.16 1/15/2026 28,465 5,550 Michigan Charter Township of Commerce (LOC - Comerica Bank, N.A.) 0.39 10/01/2018 5,550 34,445 Michigan Charter Township of Commerce (LOC - PNC Bank, N.A.) 0.39 10/01/2034 34,445 29,800 Will County Community High School District (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.19 1/01/2026 29,800 ---------- 113,260 ---------- HEALTH CARE EQUIPMENT (0.2%) 1,440 Labcon North America (LOC - Bank of the West) 0.37 1/01/2040 1,440 8,110 Labcon North America (LOC - Bank of the West) 0.37 6/01/2044 8,110 ---------- 9,550 ---------- HEALTH CARE FACILITIES (3.0%) 7,065 Alexandria IDA (LOC - Bank of America, N.A.) 0.41 7/01/2030 7,065 9,120 Bronson Lifestyle Improvement & Research Center (LOC - Fifth Third Bank) 0.52 9/01/2030 9,120 1,920 Columbia County IDA (LOC - HSBC Bank USA) 0.41 7/01/2027 1,920 4,865 Crozer Keystone Health System (LOC - TD Bank, N.A.) 0.38 12/15/2021 4,865
================================================================================ 16 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 480 District of Columbia (LOC - Manufacturers & Traders Trust Co.) 0.78% 7/01/2032 $ 480 3,715 Dunn Nursing Home, Inc. (LOC - Federal Home Loan Bank of Dallas) 0.41 2/01/2024 3,715 7,845 Genoa Medical Dev., LLC (LOC - Fifth Third Bank) 0.37 12/01/2045 7,845 1,695 HP LRHS Land, LLC (LOC - U.S. Bank, N.A.) 0.37 10/01/2030 1,695 4,730 IHA Capital Dev., LLC (LOC - Fifth Third Bank) 0.37 6/01/2053 4,730 3,640 Louisiana Public Facilities Auth. (LOC - Capital One, N.A.) 0.50 7/01/2028 3,640 1,100 MBE Investment Co., LLC (LOC - Comerica Bank, N.A.) 0.43 2/01/2051 1,100 3,275 MCE MOB IV, LP (LOC - PNC Bank, N.A.) 0.43 8/01/2022 3,275 3,370 Medical Center of Athens (LOC - Federal Home Loan Bank of Atlanta) 0.48 9/01/2032 3,370 6,780 Medical Properties Investment Co. (LOC - Fifth Third Bank) 0.37 11/01/2035 6,780 7,390 MediLucent MOB I, LP (LOC - PNC Bank, N.A.) 0.43 8/01/2030 7,390 11,895 MMC Corp. (LOC - JPMorgan Chase Bank, N.A.) 0.50 11/01/2035 11,895 3,405 Onondaga County IDA (LOC - HSBC Bank USA) 0.41 1/01/2023 3,405 24,170 OSF Finance Co., LLC (LOC - PNC Bank, N.A.) 0.38 12/01/2037 24,170 2,960 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,960 3,805 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 3,805 6,565 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 6,565 4,575 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 4,575 2,125 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,125 2,515 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,515 2,495 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 2,495 22,860 Premier Senior Living, LLC (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2037 22,860 5,160 Sawmill Creek Lodge Co. (LOC - Fifth Third Bank) 0.42 10/01/2026 5,160 2,500 Syracuse IDA (LOC - HSBC Bank USA) 0.41 1/01/2023 2,500 ---------- 162,020 ---------- HEALTH CARE SERVICES (0.3%) 6,360 Central Ohio Medical Textiles (LOC - PNC Bank, N.A.) 0.43 3/01/2023 6,360
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 6,000 Kaneville Road Joint Venture (LOC - Federal Home Loan Bank of Chicago) 0.41% 11/01/2032 $ 6,000 5,910 Vold Vision Ventures, LLC (LOC - Federal Home Loan Bank of Dallas) 0.43 10/01/2039 5,910 ---------- 18,270 ---------- HOME FURNISHINGS (0.2%) 3,020 Caddo Parish IDB (LOC - Capital One, N.A.) 0.66 7/01/2024 3,020 4,000 Fulton County Dev. Auth. (LOC - Wells Fargo Bank, N.A.) 0.35 6/01/2027 4,000 2,300 Jasper County IDA (LOC - JPMorgan Chase Bank, N.A.) 0.24 8/01/2016 2,300 1,500 Michigan Strategic Fund Ltd. (LOC - JPMorgan Chase Bank, N.A.) 0.11 9/01/2030 1,500 2,300 Walton County Industrial Building Auth. (LOC - Wells Fargo Bank, N.A.) 0.35 10/01/2017 2,300 ---------- 13,120 ---------- HOME IMPROVEMENT RETAIL (0.1%) 5,415 Brookhaven IDA (LOC - Capital One, N.A.) 0.55 1/01/2025 5,415 ---------- HOSPITAL (1.3%) 3,170 Albany IDA (LOC - RBS Citizens, N.A.) 0.93 5/01/2035 3,170 1,730 Johnson City Health and Educational Facilities Board (LOC - U.S. Bank, N.A.) 0.38 7/01/2033 1,730 10,035 Lee Memorial Health System (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.16 4/01/2037 10,035 22,800 Maryland Health and Higher Educational Facilities Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.20 8/15/2042 22,800 24,805 Missouri Health and Educational Facilities Board (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.20 11/15/2048 24,805 7,730 Nassau Health Care Corp. (LOC - JPMorgan Chase Bank, N.A.) 0.40 8/01/2022 7,730 ---------- 70,270 ---------- HOTELS, RESORTS & CRUISE LINES (0.3%) 3,240 Connecticut Dev. Auth. (LOC - TD Bank, N.A.) 0.47 12/01/2028 3,240 1,700 Doghouse Properties, LLC (LOC - Federal Home Loan Bank of Atlanta) 0.47 5/01/2027 1,700 7,940 Forward Corp. (LOC - Fifth Third Bank) 0.37 12/01/2030 7,940 2,461 Merger Hospitality, LLC (LOC - Fifth Third Bank) 0.42 4/01/2026 2,461 ---------- 15,341 ---------- HOUSEHOLD APPLIANCES (0.0%) 1,250 Stark County (LOC - Key Bank, N.A.) 0.17 6/01/2018 1,250 ----------
================================================================================ 18 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- HOUSEWARES & SPECIALTIES (0.0%) $ 1,710 Schulte Corp. (LOC - Fifth Third Bank) 0.37% 9/01/2024 $ 1,710 ---------- INDUSTRIAL GASES (0.1%) 4,000 Louisiana Public Facilities Auth. 0.01 12/01/2042 4,000 ---------- INDUSTRIAL MACHINERY (0.2%) 2,000 Allegheny County IDA (LOC - PNC Bank, N.A.) 0.52 11/01/2027 2,000 3,040 Fulton County Dev. Auth. (LOC - Federal Home Loan Bank of Atlanta) 0.09 5/01/2030 3,040 500 Henderson County (LOC - Wells Fargo Bank, N.A.) 0.08 11/01/2019 500 2,075 Lynchburg IDA (LOC - PNC Bank, N.A.) 0.11 3/01/2029 2,075 600 Michigan Strategic Fund Ltd. (LOC - Fifth Third Bank) 0.14 3/01/2023 600 1,230 Sheboygan Falls (LOC - U.S. Bank, N.A.) 0.54 1/01/2032 1,230 1,245 South Carolina Jobs EDA (LOC - Key Bank, N.A.) 0.17 4/01/2022 1,245 860 Trumbull County (LOC - Key Bank, N.A.) 0.17 4/01/2017 860 ---------- 11,550 ---------- INTEGRATED OIL & GAS (0.4%) 20,000 Calhoun County Navigation IDA 0.03 1/01/2024 20,000 ---------- LEISURE FACILITIES (0.5%) 4,630 Cattail Creek Country Club, Inc. (LOC - Manufacturers & Traders Trust Co.) 0.78 3/01/2031 4,630 10,365 CEI Capital, LLC (LOC - Fifth Third Bank) 0.36 3/01/2033 10,365 9,400 Turfway Park, LLC (LOC - Fifth Third Bank) 0.50 7/01/2022 9,400 ---------- 24,395 ---------- LEISURE PRODUCTS (0.1%) 5,450 Charter Lakes Capital, LLC (LOC - U.S. Bank, N.A.) 0.35 10/01/2046 5,450 1,570 Rhode Island Industrial Facilities Corp. (LOC - TD Bank, N.A.) 0.15 2/01/2021 1,570 ---------- 7,020 ---------- LIFE & HEALTH INSURANCE (1.9%) 2,130 Christian Sendra Irrevocable Trust (LOC - Bank of Oklahoma, N.A.) 0.41 8/01/2035 2,130 2,150 Craig Moran Irrevocable Life Insurance Trust (LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 2,150 1,890 Frank Moran Irrevocable Life Insurance Trust (LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 1,890 6,460 Harry M. Rubin 2014 Insurance Trust (LOC - Wells Fargo Bank, N.A.) 0.41 9/01/2034 6,460 2,450 Kevin Moran Irrevocable Life Insurance Trust (LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 2,450
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 9,825 KVR Insurance Trust (LOC - Bank of Oklahoma, N.A.) 0.41% 6/01/2034 $ 9,825 5,305 Larry L. Henry 2013 Family Trust II (LOC - Bank of Oklahoma, N.A.) 0.41 12/01/2035 5,305 3,950 Lavonia O. Frick Family Trust (LOC - Wells Fargo Bank, N.A.) 0.41 8/01/2028 3,950 13,355 Lavonne Johnson Life Insurance Trust (LOC - Federal Home Loan Bank of Atlanta) 0.41 6/01/2031 13,355 8,870 Lynette J. Keane Insurance Trust (LOC - Wells Fargo Bank, N.A.) 0.41 10/01/2033 8,870 3,405 Moran Enterprises Corp. (LOC - Bank of Oklahoma, N.A.) 0.41 1/01/2035 3,405 5,565 Raymon Lee Ince Irrevocable Trust (LOC - Bank of Oklahoma, N.A.) 0.41 7/01/2033 5,565 12,000 RBS Insurance Trust (LOC - Bank of Oklahoma, N.A.) 0.41 9/01/2035 12,000 9,470 Sendra Family Irrevocable Trust (LOC - Bank of Oklahoma, N.A.) 0.41 8/01/2035 9,470 2,130 Stacy A. Sendra Irrevocable Trust (LOC - Bank of Oklahoma, N.A.) 0.41 8/01/2035 2,130 5,375 Sullivan Irrevocable Trust (LOC - Wells Fargo Bank, N.A.) 0.41 2/01/2035 5,375 7,305 Tuttle Insurance Trust No. 2 (LOC - Bank of Oklahoma, N.A.) 0.41 12/01/2035 7,305 ---------- 101,635 ---------- MOVIES & ENTERTAINMENT (0.3%) 14,110 Esplanade Theatres, LLC (LOC - Federal Home Loan Bank of Dallas) 0.45 11/01/2042 14,110 2,500 Kenner Theatres, LLC (LOC - Federal Home Loan Bank of Dallas) 0.46 2/01/2042 2,500 ---------- 16,610 ---------- MULTIFAMILY HOUSING (1.7%) 8,190 Alabama Housing Finance Auth. (LOC - U.S. Bank, N.A.) 0.03 4/01/2037 8,190 7,680 Florida Housing Finance Corp. (LOC - SunTrust Bank) 0.25 4/01/2034 7,680 7,100 Florida Housing Finance Corp. (LOC - SunTrust Bank) 0.25 6/01/2034 7,100 7,205 Gwinnett County Housing Auth. (LOC - SunTrust Bank) 0.22 3/01/2041 7,205 10,000 Nebraska Investment Finance Auth. (LOC - Citibank, N.A.) 0.04 10/01/2042 10,000 4,735 Nevada Housing Division (LOC - Citibank, N.A.) 0.02 10/01/2035 4,735
================================================================================ 20 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 3,685 New York Housing Finance Agency (LOC - Citibank, N.A.) 0.02% 5/01/2039 $ 3,685 24,150 New York Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.01 5/01/2041 24,150 6,600 New York Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.20 5/01/2041 6,600 10,000 New York Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.02 5/01/2042 10,000 935 Vermont Housing Finance Agency (LOC - Key Bank, N.A.) 0.17 1/01/2038 935 ---------- 90,280 ---------- NURSING/CCRC (0.1%) 2,255 Berks County Municipal Auth. (LOC - Citizens Bank of Pennsylvania) 0.61 5/15/2022 2,255 525 Roanoke County EDA (LOC - Branch Banking & Trust Co.) 1.43 10/01/2028 525 ---------- 2,780 ---------- OIL & GAS REFINING & MARKETING (0.1%) 3,000 Port of Port Arthur Navigation District 0.21 12/01/2039 3,000 ---------- PACKAGED FOODS & MEAT (0.4%) 2,815 Brewster Dairy, Inc. (LOC - Bank of Montreal) 0.52 4/03/2023 2,815 2,200 Indiana Finance Auth. (LOC - Bank of America, N.A.) 0.15 12/01/2027 2,200 2,055 Lancaster IDA (LOC - Fulton Bank) 1.00 6/01/2027 2,055 2,800 Michigan Strategic Fund Ltd. (LOC - AgriBank, FCB) 0.05 6/01/2024 2,800 7,500 Premier Mushrooms, Inc. (LOC - CoBank, ACB) 0.41 12/01/2037 7,500 2,660 St. Tammany Parish (LOC - Federal Home Loan Bank of Dallas) 0.43 7/01/2022 2,660 ---------- 20,030 ---------- PAPER PACKAGING (0.0%) 255 Washington Finance EDA (LOC - Wells Fargo Bank, N.A.) 0.47 4/01/2033 255 ---------- PAPER PRODUCTS (0.1%) 870 Jackson Paper Co. (LOC - Federal Home Loan Bank of Atlanta) 0.47 4/01/2027 870 5,600 Willacoochee Dev. Auth. (LOC - Federal Home Loan Bank of Atlanta) 0.11 5/01/2021 5,600 ---------- 6,470 ---------- PHARMACEUTICALS (1.4%) 7,000 Montgomery County IDA (LOC - Landesbank Hessen-Thuringen) 0.06 4/01/2022 7,000
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 20,000 New Hampshire Business Finance Auth. (LOC - Landesbank Hessen-Thuringen) 0.06% 11/01/2020 $ 20,000 19,500 New Hampshire Business Finance Auth. (LOC - Landesbank Hessen-Thuringen) 0.06 9/01/2025 19,500 30,000 New Hampshire Business Finance Auth. (LOC - Landesbank Hessen-Thuringen) 0.06 4/01/2030 30,000 ---------- 76,500 ---------- PUBLISHING (0.0%) 1,800 Washington Economic Dev. Finance Auth. (LOC - U.S. Bank, N.A.) 0.15 1/01/2033 1,800 ---------- REAL ESTATE OPERATING COMPANIES (4.0%) 1,120 AM Investment Partners, LLC (LOC - Federal Home Loan Bank of Indianapolis) 0.43 6/01/2056 1,120 2,580 Beavercreek Enterprises, Inc. (LOC - PNC Bank, N.A.) 0.52 3/02/2020 2,580 2,525 Cain Capital Investments, LLC (LOC - Branch Banking & Trust Co.) 0.50 10/01/2046 2,525 44,490 Carew Realty, Inc. (LOC - Fifth Third Bank) 0.37 5/01/2037 44,490 11,295 Delos, LLC (LOC - Wells Fargo Bank, N.A.) 0.45 3/01/2037 11,295 3,110 Dennis Wesley Co., Inc. (LOC - Federal Home Loan Bank of Indianapolis) 0.41 6/15/2034 3,110 7,000 Desert Vistas, LP (LOC - Federal Home Loan Bank of San Francisco) 0.39 9/01/2055 7,000 3,915 East Hempfield IDA (LOC - Fulton Bank) 0.65 10/15/2026 3,915 15,680 Elsinore Properties, LP (LOC - Fifth Third Bank) 0.37 2/01/2037 15,680 4,090 EMF, LLC (LOC - Comerica Bank, N.A.) 0.37 6/01/2042 4,090 4,000 Forsyth County (LOC - Fifth Third Bank) 0.12 1/01/2037 4,000 3,910 Herman & Kittle Capital, LLC (LOC - Federal Home Loan Bank of Cincinnati) 0.41 2/01/2037 3,910 6,220 Herman & Kittle Capital, LLC (LOC - Federal Home Loan Bank of Cincinnati) 0.41 7/01/2037 6,220 9,345 Housing Venture I (LOC - Federal Home Loan Bank of San Francisco) 0.39 12/01/2055 9,345 995 ICON Finance, LLC (LOC - Fifth Third Bank) 0.42 5/15/2026 995 715 Indianapolis (LOC - RBS Citizens, N.A.) 0.50 11/01/2042 715 12,000 MB N4P3, LLC (LOC - Federal Home Loan Bank of San Francisco) 0.39 2/01/2055 12,000 4,000 Michigan Equity Group, LLC (LOC - Fifth Third Bank) 0.37 4/01/2034 4,000 4,000 Michigan Equity Group, LLC (LOC - Fifth Third Bank) 0.37 12/01/2034 4,000 3,450 New York City Housing Dev. Corp. (LOC - Landesbank Hessen-Thuringen) 0.33 12/01/2036 3,450 3,745 Partisan Property, Inc. (LOC - Wells Fargo Bank, N.A.) 0.35 9/01/2044 3,745
================================================================================ 22 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 2,800 Pennsylvania Economic Dev. Financing Auth. (LOC - PNC Bank, N.A.) 0.43% 4/01/2035 $ 2,800 14,835 Pineview Estates, LC (LOC - Fifth Third Bank) 0.36 4/01/2038 14,835 1,030 Science & Tech Campus (LOC - Fifth Third Bank) 0.42 11/01/2020 1,030 16,200 Sugar Creek Finance Co., LLC (LOC - Northern Trust Co.) 0.39 6/01/2042 16,200 31,245 Sunroad Centrum Apartments 23 (LOC - Comerica Bank, N.A.) 0.44 5/01/2055 31,245 3,565 Syracuse IDA (LOC - Key Bank, N.A.) 0.17 10/01/2039 3,565 ---------- 217,860 ---------- REAL ESTATE TAX/FEE (0.2%) 3,200 Jasper, Morgan, Newton, & Walton County (LOC - JPMorgan Chase Bank, N.A.) 0.42 12/01/2020 3,200 9,473 Traer Creek Metropolitan District (LOC - BNP Paribas) 0.42 10/01/2030 9,473 ---------- 12,673 ---------- REGIONAL BANKS (0.0%) 2,250 Cobb County IDA (LOC - Federal Home Loan Bank of Atlanta) 0.41 2/01/2030 2,250 ---------- SINGLE FAMILY HOUSING (0.1%) 3,975 Montgomery County (LOC - PNC Bank, N.A.) 0.38 7/01/2039 3,975 ---------- SOLID WASTE DISPOSAL (0.0%) 2,005 Marion County IDA (LOC - SunTrust Bank) 0.20 10/01/2026 2,005 ---------- SPECIAL ASSESSMENT/TAX/FEE (0.1%) 3,000 Sheridan Redevelopment Agency (LOC - JPMorgan Chase Bank, N.A.) 0.40 12/01/2029 3,000 ---------- SPECIALTY STORES (0.6%) 31,000 Bass Pro Rossford Development Co., LLC (LOC - Fifth Third Bank) 0.42 11/01/2027 31,000 2,550 Nextgen Automotive, LLC (LOC - Fifth Third Bank) 0.37 4/01/2048 2,550 ---------- 33,550 ---------- STEEL (1.6%) 2,500 Berkeley County 0.42 9/01/2028 2,500 11,000 Berkeley County 0.39 4/01/2031 11,000 522 Decatur IDB 0.42 8/01/2036 522 3,505 Klein Steel Services, Inc. (LOC - Manufacturers & Traders Trust Co.)(a) 0.78 8/01/2025 3,505 2,500 Mississippi Business Finance Corp. (LOC - Federal Home Loan Bank of Dallas) 0.35 7/01/2020 2,500 20,000 SSAB AB (LOC - Swedbank AB) 0.41 4/01/2034 20,000
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 15,000 SSAB AB (LOC - Credit Agricole Corp. Inv. Bank) 0.41% 5/01/2034 $ 15,000 15,000 SSAB AB (LOC - DNB Bank ASA) 0.41 6/01/2035 15,000 15,000 SSAB AB (LOC - NORDEA AB) 0.41 8/01/2035 15,000 ---------- 85,027 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.0%) 1,110 Alameda County IDA (LOC - Bank of the West) 0.37 12/01/2040 1,110 ---------- WATER UTILITIES (0.1%) 4,000 Indiana Finance Auth. (LOC - Fifth Third Bank) 0.12 12/01/2028 4,000 930 Iowa Finance Auth. (LOC - Societe Generale) 0.42 11/01/2017 930 1,207 L3 Corp. (LOC - Fifth Third Bank) 0.42 10/01/2034 1,207 ---------- 6,137 ---------- WATER/SEWER UTILITY (0.1%) 4,795 Hesperia Public Financing Auth. (LOC - Bank of the West) 0.40 6/01/2026 4,795 ---------- Total Variable-Rate Demand Notes (cost: $1,963,886) 1,963,886 ---------- ADJUSTABLE-RATE NOTES (8.8%) DIVERSIFIED BANKS (6.7%) 77,806 Bank of America Corp. 1.41 3/22/2016 77,856 21,230 Bank of America Corp. 0.88 10/14/2016 21,176 16,000 Bank of America Corp. 0.83 11/14/2016 16,002 60,698 Citigroup, Inc. 1.40 4/01/2016 60,730 57,021 Citigroup, Inc. 1.58 7/25/2016 57,124 16,000 Citigroup, Inc. 1.04 11/15/2016 16,015 68,073 JPMorgan Chase & Co. 1.03 2/26/2016 68,089 19,125 JPMorgan Chase & Co. 0.81 11/18/2016 19,123 29,604 Wells Fargo & Co. 1.15 7/20/2016 29,645 ---------- 365,760 ---------- INVESTMENT BANKING & BROKERAGE (1.7%) 61,302 Goldman Sachs Group, Inc. 1.04 3/22/2016 61,301 31,196 Morgan Stanley 1.64 2/25/2016 31,215 ---------- 92,516 ---------- REGIONAL BANKS (0.4%) 21,040 Fifth Third Bank 0.82 2/26/2016 21,041 ---------- Total Adjustable-Rate Notes (cost: $479,317) 479,317 ----------
================================================================================ 24 | USAA MONEY MARKET FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE (000) SECURITY (000) -------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS (3.8%) $ 45,000 Bank of America, N.A., 0.32%, acquired 1/29/2016 and due on 2/01/2016 at $45,000 (collateralized by $44,959 of U.S. Treasury, 2.00%(c), due 11/30/2022; market value $45,900) $ 45,000 55,000 Credit Agricole Corp. Inv. Bank, 0.33%, acquired 1/29/2016 and due on 2/01/2016 at $55,000 (collateralized by $55,144 of U.S. Treasury, 2.00%(c), due 2/15/2025; market value $56,102) 55,000 45,000 Credit Suisse First Boston, LLC, 0.34%, acquired 1/29/2016 and due on 2/01/2016 at $45,000 (collateralized by $42,400 of U.S. Treasury, 3.13%(c), due 8/15/2044; market value $45,905) 45,000 58,000 HSBC Bank USA, Inc., 0.30%, acquired 1/29/2016 and due on 2/01/2016 at $58,000 (collateralized by $58,700 of U.S. Treasury, 1.25%(c), due 12/15/2018; market value $59,162) 58,000 ---------- Total Repurchase Agreements (cost: $203,000) 203,000 ---------- TOTAL INVESTMENTS (COST: $5,448,975) $5,448,975 ========== -------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY -------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL -------------------------------------------------------------------------------------------------------- Fixed-Rate Instruments $- $ 842,454 $- $ 842,454 Commercial Paper - 1,910,318 - 1,910,318 Put Bonds - 50,000 - 50,000 Variable-Rate Demand Notes - 1,963,886 - 1,963,886 Adjustable-Rate Notes - 479,317 - 479,317 Repurchase Agreements - 203,000 - 203,000 -------------------------------------------------------------------------------------------------------- Total $- $5,448,975 $- $5,448,975 --------------------------------------------------------------------------------------------------------
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The cost of securities at January 31, 2016, for federal income tax purposes, was approximately the same as reported in the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with maturities ranging from one to 270 days, issued mainly by corporations. Commercial paper is usually purchased at a discount and matures at par value; however, it also may be interest-bearing. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. ================================================================================ 26 | USAA MONEY MARKET FUND ================================================================================ VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. The effective maturity of these instruments is deemed to be less than 397 days in accordance with detailed regulatory requirements. ADJUSTABLE-RATE NOTES - Similar to variable-rate demand notes in the fact that the interest rate is adjusted periodically to reflect current market conditions. These interest rates are adjusted at a given time, such as monthly or quarterly. However, these securities do not offer the right to sell the security at face value prior to maturity. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CSD Central School District EDA Economic Development Authority IDA Industrial Development Authority/Agency IDB Industrial Development Board CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the values of the securities. The Fund's purchases consist of securities meeting the requirements to qualify as "eligible securities" under the Securities and Exchange Commission (SEC) rules applicable to money market funds. With respect to quality, eligible securities generally are rated or subject to a guarantee that is rated in one of the two highest categories for short-term securities by at least two Nationally Recognized Statistical Rating Organizations (NRSROs), or by one NRSRO if the security is rated by only one NRSRO, or if unrated, determined by USAA Asset Management Company (the Manager) to be of comparable quality. In addition, the Manager must consider whether a particular investment presents minimal credit risk in accordance with SEC guidelines applicable to money market funds. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 27 ================================================================================ (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from Deutsche Bank A.G. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by the Manager under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Commercial paper issued in reliance on the "private placement" exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (Section 4(2) Commercial Paper). Unless this commercial paper is subsequently registered, a resale of this commercial paper in the United States must be effected in a transaction exempt from registration under the Securities Act of 1933. Section 4(2) commercial paper is normally resold to other investors through or with the assistance of the issuer or an investment dealer who makes a market in this security, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (c) Rates for U.S. Treasury notes or bonds represent the stated coupon payment rate at time of issuance. ================================================================================ 28 | USAA MONEY MARKET FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities (amortized cost approximates market value) $5,448,975 Cash 313 Receivables: Capital shares sold 8,608 USAA Asset Management Company (Note 4C) 144 Interest 3,842 Securities sold 66 ---------- Total assets 5,461,948 ---------- LIABILITIES Payables: Securities purchased 33,824 Capital shares redeemed 6,359 Dividends on capital shares 10 Accrued management fees 1,099 Accrued transfer agent's fees 918 Other accrued expenses and payables 204 ---------- Total liabilities 42,414 ---------- Net assets applicable to capital shares outstanding $5,419,534 ========== NET ASSETS CONSIST OF: Paid-in capital $5,419,565 Overdistribution of net investment income (31) ---------- Net assets applicable to capital shares outstanding $5,419,534 ========== Capital shares outstanding, unlimited number of shares authorized, no par value 5,420,087 ========== Net asset value, redemption price, and offering price per share $ 1.00 ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 29 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $ 8,738 ------- EXPENSES Management fees 6,421 Administration and servicing fees 2,676 Transfer agent's fees 8,033 Custody and accounting fees 286 Postage 214 Shareholder reporting fees 97 Trustees' fees 13 Registration fees 53 Professional fees 115 Other 44 ------- Total expenses 17,952 Expenses reimbursed (9,461) ------- Net expenses 8,491 ------- NET INVESTMENT INCOME 247 ------- Increase in net assets resulting from operations $ 247 =======
See accompanying notes to financial statements. ================================================================================ 30 | USAA MONEY MARKET FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
-------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 -------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 247 $ 528 Net realized gain on investments - 28 ----------------------------- Increase in net assets resulting from operations 247 556 ----------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (268) (528) Net realized gains (1) (32) ----------------------------- Distributions to shareholders (269) (560) ----------------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 1,623,836 3,405,162 Reinvested dividends 269 553 Cost of shares redeemed (1,493,801) (3,309,134) ----------------------------- Increase in net assets from capital share transactions 130,304 96,581 ----------------------------- Net increase in net assets 130,282 96,577 NET ASSETS Beginning of period 5,289,252 5,192,675 ----------------------------- End of period $ 5,419,534 $ 5,289,252 ============================= Overdistribution of net investment income: End of period $ (31) $ (10) ============================= CHANGE IN SHARES OUTSTANDING Shares sold 1,623,836 3,405,162 Shares issued for dividends reinvested 269 553 Shares redeemed (1,493,801) (3,309,134) ----------------------------- Increase in shares outstanding 130,304 96,581 =============================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 31 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Money Market Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek the highest income consistent with preservation of capital and the maintenance of liquidity. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA ================================================================================ 32 | USAA MONEY MARKET FUND ================================================================================ Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. All securities held in the Fund are short-term debt securities which are valued pursuant to Rule 2a-7 under the 1940 Act. This method values a security at its purchase price, and thereafter, assumes a constant amortization to maturity of any premiums or discounts. 2. Repurchase agreements are valued at cost. 3. Securities for which amortized cost valuations are considered unreliable or whose values have been materially affected by a significant event are valued in good faith at fair value, using methods determined by the Committee, under procedures to stabilize net assets and valuation procedures approved by the Board. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities using the straight-line method. E. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with commercial banks or recognized security dealers pursuant to the terms of a Master Repurchase Agreement. A repurchase agreement is an arrangement wherein the Fund purchases securities and the seller agrees to repurchase the securities at an agreed upon time and at an agreed upon price. The purchased securities are marked-to-market daily to ensure their value is equal to or in excess of the purchase price plus accrued interest and are held by the Fund, either through its regular custodian or through a special "tri-party" custodian that maintains separate accounts for both the Fund and its counterparty, until maturity of the repurchase agreement. Master Repurchase Agreements typically contain netting provisions, which provide for the net settlement of all transactions and collateral with the Fund through a single payment in ================================================================================ 34 | USAA MONEY MARKET FUND ================================================================================ the event of default or termination. Repurchase agreements are subject to credit risk, and the Fund's Manager monitors the creditworthiness of sellers with which the Fund may enter into repurchase agreements. Investments in repurchase agreements as presented on the Portfolio of Investments are not net settlement amounts but gross. At January 31, 2016, the value of the related collateral exceeded the value of the repurchase agreements, reducing the net settlement amount to zero. Details on the collateral are included on the Portfolio of Investments. F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $15,000, which represents 7.6% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. ================================================================================ 36 | USAA MONEY MARKET FUND ================================================================================ At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Fund's investment management fee is accrued daily and paid monthly at an annualized rate of 0.24% of the Fund's average net assets. For the six-month period ended January 31, 2016, the Fund incurred management fees, paid or payable to the Manager, of $6,421,000. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets. For the six-month period ended January 31, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $2,676,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $69,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. The Manager can modify or terminate this arrangement at any time without prior notice to shareholders. For the six-month period ended January 31, 2016, the Fund incurred reimbursable expenses of $9,461,000, of which $144,000 was receivable from the Manager. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended January 31, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $8,033,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (5) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 38 | USAA MONEY MARKET FUND ================================================================================ (6) REGULATORY MATTERS In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to the rules that govern money market mutual funds under the 1940 Act to reform the structure and operations of these funds. The amendments will require certain money market funds to sell and redeem shares at prices based on their market value (a floating net asset value). The amendments also will allow money market funds to impose liquidity fees and suspend redemptions temporarily, and will impose new requirements related to diversification, stress testing, and disclosure. Management continues to evaluate the impact of these amendments. The staggered compliance dates for the various amendments extend through October 2016. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ (7) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .00 .00 .00 .00 .00 .00 Net realized and unrealized gain(a) .00 .00 .00 .00 .00 .00 ------------------------------------------------------------------------------------- Total from investment operations(a) .00 .00 .00 .00 .00 .00 ------------------------------------------------------------------------------------- Less distributions from: Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00) Realized capital gains (.00)(a) - (.00)(a) (.00)(a) - - ------------------------------------------------------------------------------------- Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00) ------------------------------------------------------------------------------------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ===================================================================================== Total return (%)*,(d) .01 .01 .01 .01 .03(b) .02 Net assets at end of period (000) $5,419,534 $5,289,252 $5,192,675 $5,140,226 $4,879,905 $5,020,709 Ratios to average net assets:** Expenses (%)(c),(d) .32(e) .24 .22 .30 .34(b) .40 Expenses, excluding reimbursements (%)(c) .67(e) .65 .63 .63 .65(b) .65 Net investment income (%) .01(e) .01 .01 .01 .03 .01 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the iMoneyNet reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $5,322,155,000. (a) Represents less than $0.01 per share. (b) During the year ended July 31, 2012, SAS reimbursed the Fund $853,000 for corrections in fees paid for the administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense ratio by 0.02%. This decrease is excluded from the expense ratio in the Financial Highlights table. (c) Reflects total annual operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (d) The Manager voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 40 | USAA MONEY MARKET FUND ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account ================================================================================ EXPENSE EXAMPLE | 41 ================================================================================ balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ----------------------------------------------------------------- Actual $1,000.00 $1,000.10 $1.61 Hypothetical (5% return before expenses) 1,000.00 1,023.53 1.63
*Expenses are equal to the Fund's annualized expense ratio of 0.32%, which is net of any expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of 0.01% for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ 42 | USAA MONEY MARKET FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23428-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA SMALL CAP STOCK FUND] ============================================================== SEMIANNUAL REPORT USAA SMALL CAP STOCK FUND FUND SHARES o INSTITUTIONAL SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 6 FINANCIAL INFORMATION Portfolio of Investments 12 Notes to Portfolio of Investments 26 Financial Statements 28 Notes to Financial Statements 31 EXPENSE EXAMPLE 46
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202734-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA SMALL CAP STOCK FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund normally invests at least 80% of its assets in equity securities of companies with small market capitalizations. This 80% policy may be changed upon at least 60 days' written notice to shareholders. Although the Fund will invest primarily in U.S. securities, it may invest up to 20% of its total assets in foreign securities including securities issued in emerging markets. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND Wellington Management Company LLP Granahan Investment Management, Inc. TIMOTHY J. McCORMACK, CFA GARY C. HATTON, CFA SHAUN F. PEDERSEN JANE M. WHITE JENNIFER M. PAWLOSKI Cambiar Investors, LLC ANDREW L. BEJA, CFA BRIAN M. BARISH, CFA ANDREW P. BAUMBUSCH JEFFREY H. SUSMAN MARIA MENDELSBERG, CFA ANNA (ANIA) A. ALDRICH, CFA TIMOTHY A. BERANEK COLIN M. DUNN, CFA -------------------------------------------------------------------------------- o HOW DID THE SMALL-CAP MARKET PERFORM DURING THE REPORTING PERIOD? For the reporting period ended January 31, 2016, concerns regarding the possibility of a significant slowdown in China's economic growth dominated headlines. Fears were intensified in early August 2015 when China unexpectedly devalued its currency, the renminbi, triggering concerns regarding global disinflationary trends and a weaker than anticipated global growth backdrop. In September 2015, Chinese manufacturing activity fell to its lowest level since 2009. Investor risk tolerance also appeared to curtail due to the European Central Bank's downgrade of its Eurozone growth, inflation outlook and the cut in Brazil's credit rating to below investment grade. Global equities rallied in October 2015 amid increasing signs of extended monetary policy accommodations by major central banks. After much anticipation, on December 16, 2015, the Federal Reserve delivered its first interest rate increase since 2006, approving a small increase in the federal funds rate. The market initially reacted positively to the news, but remained volatile ================================================================================ 2 | USAA SMALL CAP STOCK FUND ================================================================================ through the end of the reporting period as the broad market S&P 500(R) Index was down 4.96% in January 2016 alone. o HOW DID THE USAA SMALL CAP STOCK FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Institutional Shares. For the reporting period ended January 31, 2016, the Fund Shares and Institutional Shares had total returns of -14.57% and -14.53%, respectively. This compares to returns of -15.80% for the Russell 2000 Index (the Index), -10.94% for the S&P SmallCap 600(R) Index, and -12.90% for the Lipper Small-Cap Core Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadvisers. Wellington Management Company LLP (Wellington Management), Cambiar Investors, LLC (Cambiar), and Granahan Investment Management, Inc. (GIMI) are subadvisers to the Fund. The subadvisers each provide day-to-day discretionary management for a portion of the Fund's assets. o HOW DID WELLINGTON MANAGEMENT'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? The Wellington Management portion of the Fund outperformed the Index during the reporting period. Outperformance was driven entirely by security selection, primarily within the health care, industrials, consumer staples, and financial sectors. Weaker selection within the information technology sector detracted from relative performance. Sector allocation also detracted from the Fund's relative return due primarily to an overweight position in the industrials sector and an underweight position in the utilities sector. Top individual contributors Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ included MedAssets, Inc. (health care), Mistras Group, Inc. (industrials), and Coherent, Inc. (information technology). Wellington Management eliminated the Fund's position in MedAssets, Inc. during the reporting period. Top detractors from relative performance included Scorpio Tankers, Inc. (energy), Stage Stores, Inc. (consumer discretionary), and Belden, Inc. (information technology). o HOW DID CAMBIAR'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD? For the reporting period ended January 31, 2016, the Cambiar portion of the Fund underperformed the Index. This reporting period encapsulated a tumultuous period for small-cap stocks as risk/reward skewed downwards, high-yield spreads ticked higher, and reduced liquidity led to a particularly difficult market for managers with a value bias, like Cambiar. Slight outperformance from security selection within the material and telecommunication sectors overshadowed by weaker selection within other sectors, including technology and health care. Technology was the leading detractor for the reporting period, which was attributable to negative stock selection. Two of the most significant detractors in technology were Lumentum Holdings* and Mentor Graphics. Poor selection in the health care sector was another area of weakness during the reporting period, based partly on Cambiar's ownership of AMAG Pharmaceuticals, Inc.*, which was the largest detractor in the sector. The stock lost ground on news that the FDA was delaying the approval of a drug in the company's development pipeline. o HOW DID GIMI'S PORTION OF THE FUND PERFORM DURING THE PERIOD? The GIMI growth portion of the Fund slightly underperformed the Index for the reporting period. Of the top 10 winners during the reporting period, seven were technology holdings, which came from the Core Growth and Special Situation LifeCycle categories. On an attribution basis, stock selection was strong in the technology (SuperMicro Computer, Inc., Perficient, Inc., and Inphi Corp.) and materials sectors (Schweitzer- ================================================================================ 4 | USAA SMALL CAP STOCK FUND ================================================================================ Manduit International, Inc., Comfort Systems USA, Inc.*, and Scotts Miracle-Gro Co. "A"). GIMI's underweight and stock selection in the energy sector also contributed positively to relative performance, while their portfolio's significant overweight in technology boosted relative attribution. On a sector basis, health care was by far the largest detractor from the Fund returns, as seven of the 10 largest individual detractors were from the sector (including Tetraphase Pharmaceuticals, Inc., Cardiovascular Systems, Inc., and Esperion Therapeutics, Inc.), and all but one of the seven were from the Pioneer Life Cycle category. Producer durables also posted negative attribution, primarily due to three Special Situation holdings (Power Solutions International Inc., Celadon Group, Inc., and Kennametal, Inc.). Thank you for allowing us to help you with your investment needs. *AMAG Pharmaceuticals, Inc., Lumentum Holdings, and Comfort Systems USA, Inc., were sold out of the Fund prior to January 31, 2016. Small-cap investing is subject to the risk that small-cap companies may be more vulnerable to adverse business or economic developments. Such securities may be less liquid and more volatile. o Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ INVESTMENT OVERVIEW USAA SMALL CAP STOCK FUND SHARES (FUND SHARES) (Ticker Symbol: USCAX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $520.5 Million $835.3 Million Net Asset Value Per Share $13.91 $17.76 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -14.57% -8.93% 6.84% 4.63% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -5.31% 8.51% 6.03% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.16% (includes acquired fund fees and expenses of 0.01%) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 6 | USAA SMALL CAP STOCK FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P SMALLCAP LIPPER SMALL-CAP USAA SMALL CAP 600 INDEX CORE FUNDS INDEX RUSSELL 2000 INDEX STOCK FUND SHARES 1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 2/28/2006 9,925.09 9,933.89 9,972.47 9,979.05 3/31/2006 10,412.08 10,371.45 10,456.30 10,370.11 4/30/2006 10,411.13 10,449.39 10,454.60 10,453.91 5/31/2006 9,935.70 9,944.99 9,867.47 9,923.18 6/30/2006 9,937.57 9,877.41 9,930.91 10,000.00 7/31/2006 9,596.13 9,541.96 9,607.77 9,769.55 8/31/2006 9,761.38 9,730.74 9,892.23 9,930.17 9/30/2006 9,850.11 9,776.19 9,974.59 10,083.80 10/31/2006 10,337.84 10,249.15 10,548.90 10,572.63 11/30/2006 10,624.19 10,547.99 10,826.39 10,956.70 12/31/2006 10,622.61 10,565.04 10,862.65 10,944.21 1/31/2007 10,841.30 10,753.81 11,044.43 11,203.73 2/28/2007 10,782.46 10,777.99 10,956.79 11,225.97 3/31/2007 10,963.24 10,896.75 11,074.08 11,463.25 4/30/2007 11,207.62 11,207.72 11,273.00 11,782.08 5/31/2007 11,723.55 11,691.48 11,734.69 12,293.70 6/30/2007 11,531.56 11,573.19 11,563.03 12,100.92 7/31/2007 10,949.63 10,966.70 10,772.18 11,337.19 8/31/2007 11,154.86 11,009.22 11,016.34 11,500.32 9/30/2007 11,321.12 11,244.20 11,205.43 11,611.54 10/31/2007 11,531.73 11,516.10 11,526.92 11,848.81 11/30/2007 10,675.87 10,744.57 10,699.22 10,981.28 12/31/2007 10,591.11 10,768.18 10,692.55 10,857.54 1/31/2008 10,073.15 10,055.74 9,963.38 10,148.00 2/29/2008 9,762.93 9,863.20 9,594.07 9,760.23 3/31/2008 9,800.73 9,778.63 9,634.25 9,619.98 4/30/2008 10,194.07 10,251.42 10,037.64 10,115.00 5/31/2008 10,644.36 10,757.96 10,498.74 10,585.28 6/30/2008 9,840.20 10,010.57 9,690.47 9,867.49 7/31/2008 10,043.33 10,037.22 10,049.08 9,958.24 8/31/2008 10,462.84 10,268.55 10,412.29 10,181.01 9/30/2008 9,756.07 9,309.32 9,582.63 9,298.21 10/31/2008 7,790.50 7,324.51 7,589.16 7,458.37 11/30/2008 6,880.30 6,560.93 6,691.47 6,526.07 12/31/2008 7,300.06 6,936.07 7,079.85 6,938.67 1/31/2009 6,372.92 6,310.49 6,292.42 6,186.98 2/28/2009 5,609.81 5,635.39 5,527.74 5,550.94 3/31/2009 6,070.62 6,142.00 6,021.18 6,079.60 4/30/2009 7,130.35 7,112.00 6,951.95 6,880.85 5/31/2009 7,245.27 7,443.81 7,161.55 7,062.58 6/30/2009 7,349.23 7,507.11 7,266.74 7,145.18 7/31/2009 8,108.07 8,169.97 7,966.60 7,839.05 8/31/2009 8,293.60 8,420.65 8,195.04 8,062.07 9/30/2009 8,720.50 8,928.18 8,667.70 8,499.87 10/31/2009 8,223.76 8,437.00 8,079.21 8,095.12 11/30/2009 8,438.33 8,729.32 8,332.82 8,318.14 12/31/2009 9,166.68 9,328.84 9,003.56 8,888.11 1/31/2010 8,856.49 8,996.89 8,672.13 8,739.42 2/28/2010 9,237.03 9,402.33 9,062.77 9,036.79 3/31/2010 9,955.80 10,041.03 9,800.37 9,722.40 4/30/2010 10,538.04 10,543.51 10,355.02 10,168.46 5/31/2010 9,777.25 9,773.42 9,569.56 9,532.41 6/30/2010 9,086.25 9,133.81 8,827.97 8,888.11 7/31/2010 9,662.50 9,716.99 9,434.63 9,425.03 8/31/2010 8,941.22 9,141.16 8,736.10 8,764.20 9/30/2010 9,960.52 10,162.51 9,824.59 9,771.96 10/31/2010 10,384.35 10,529.26 10,226.63 10,184.98 11/30/2010 10,754.48 10,886.42 10,581.22 10,573.21 12/31/2010 11,578.24 11,726.99 11,421.45 11,333.85 1/31/2011 11,595.80 11,736.80 11,392.02 11,292.48 2/28/2011 12,106.86 12,318.66 12,016.78 11,780.58 3/31/2011 12,471.15 12,623.70 12,328.21 12,094.95 4/30/2011 12,795.28 12,932.29 12,653.74 12,516.87 5/31/2011 12,680.01 12,691.14 12,416.50 12,301.78 6/30/2011 12,450.70 12,451.33 12,130.23 12,094.95 7/31/2011 12,051.21 12,075.60 11,691.78 11,722.67 8/31/2011 11,126.57 11,145.85 10,674.57 10,729.93 9/30/2011 9,981.75 9,904.53 9,477.93 9,505.54 10/31/2011 11,478.60 11,355.74 10,912.49 11,002.93 11/30/2011 11,551.10 11,312.84 10,872.71 11,002.93 12/31/2011 11,695.85 11,280.53 10,944.53 11,090.23 1/31/2012 12,465.21 12,034.72 11,717.77 11,826.82 2/29/2012 12,728.89 12,400.15 11,998.21 12,066.83 3/31/2012 13,097.90 12,625.04 12,305.63 12,339.95 4/30/2012 12,932.62 12,491.75 12,115.54 12,124.76 5/31/2012 12,121.69 11,627.91 11,313.62 11,288.86 6/30/2012 12,628.81 11,984.85 11,878.17 11,801.99 7/31/2012 12,532.04 11,934.44 11,714.02 11,710.95 8/31/2012 13,006.86 12,328.08 12,104.65 12,000.62 9/30/2012 13,310.22 12,683.77 12,502.15 12,348.22 10/31/2012 13,040.00 12,541.36 12,230.92 12,091.66 11/30/2012 13,170.16 12,686.42 12,295.90 12,265.46 12/31/2012 13,605.24 13,078.32 12,733.95 12,736.84 1/31/2013 14,391.43 13,862.37 13,531.00 13,489.55 2/28/2013 14,594.00 14,019.74 13,680.26 13,667.16 3/31/2013 15,212.17 14,627.96 14,311.93 14,199.97 4/30/2013 15,171.73 14,550.11 14,259.34 13,971.62 5/31/2013 15,831.35 15,088.02 14,829.26 14,639.76 6/30/2013 15,808.26 14,967.80 14,753.40 14,589.02 7/31/2013 16,890.28 15,929.71 15,785.89 15,451.67 8/31/2013 16,478.79 15,453.18 15,284.49 15,003.43 9/30/2013 17,504.86 16,362.94 16,259.70 15,866.08 10/31/2013 18,136.36 16,883.39 16,668.57 16,449.64 11/30/2013 18,951.71 17,480.16 17,336.38 17,126.24 12/31/2013 19,226.00 17,802.90 17,677.56 17,533.14 1/31/2014 18,484.48 17,162.56 17,188.25 16,922.16 2/28/2014 19,308.27 17,944.97 17,998.01 17,588.68 3/31/2014 19,443.05 18,020.25 17,875.33 17,634.97 4/30/2014 18,900.38 17,564.98 17,182.11 16,940.68 5/31/2014 18,951.40 17,677.19 17,319.79 17,042.51 6/30/2014 19,844.91 18,484.24 18,241.32 17,746.05 7/31/2014 18,754.50 17,451.87 17,137.19 16,792.56 8/31/2014 19,560.00 18,217.24 17,986.95 17,496.11 9/30/2014 18,510.07 17,210.07 16,898.84 16,616.67 10/31/2014 19,822.07 18,151.23 18,012.80 17,486.85 11/30/2014 19,767.59 18,176.93 18,028.94 17,597.94 12/31/2014 20,332.49 18,531.70 18,542.77 18,001.24 1/31/2015 19,621.96 17,865.45 17,946.32 17,265.44 2/28/2015 20,805.05 18,932.70 19,011.73 18,560.87 3/31/2015 21,138.45 19,226.87 19,342.94 18,726.68 4/30/2015 20,646.92 18,856.17 18,849.63 18,436.51 5/31/2015 20,963.24 19,115.10 19,279.97 18,716.32 6/30/2015 21,178.97 19,204.10 19,424.35 18,944.32 7/31/2015 20,999.54 19,008.35 19,198.61 18,405.42 8/31/2015 19,912.44 18,014.56 17,992.15 17,379.44 9/30/2015 19,215.74 17,264.37 17,109.40 16,457.10 10/31/2015 20,387.07 18,277.30 18,073.35 17,534.89 11/30/2015 20,933.12 18,716.40 18,661.25 17,949.43 12/31/2015 19,931.41 17,748.62 17,724.27 17,046.18 1/31/2016 18,702.07 16,555.92 16,165.70 15,723.63
[END CHART] Data from 1/31/06 through 1/31/16. See next page for benchmark definitions. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Small-Cap Core Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ The graph on page 7 illustrates the comparison of a $10,000 hypothetical investment in the USAA Small Cap Stock Fund Shares to the following benchmarks: o The unmanaged S&P SmallCap 600 Index is a market-value-weighted index consisting of 600 domestic stocks chosen for market size, liquidity, and industry group representation. o The unmanaged Lipper Small-Cap Core Funds Index tracks the total return performance of the 30 largest funds in the Lipper Small-Cap Core Funds category. o The unmanaged Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. ================================================================================ 8 | USAA SMALL CAP STOCK FUND ================================================================================ USAA SMALL CAP STOCK FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UISCX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $692.5 Million $676.5 Million Net Asset Value Per Share $14.01 $17.89 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -14.53% -8.76% 7.14% 6.57% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -5.16% 8.79% 7.81% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.00% (includes acquired fund fees and expenses of 0.01%) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA SMALL CAP S&P SMALLCAP LIPPER SMALL-CAP STOCK FUND 600 INDEX CORE FUNDS INDEX INSTITUTIONAL SHARES RUSSELL 2000 INDEX 7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,417.70 10,230.47 10,198.35 10,361.44 9/30/2008 9,713.98 9,274.80 9,314.05 9,535.84 10/31/2008 7,756.89 7,297.35 7,471.07 7,552.10 11/30/2008 6,850.62 6,536.60 6,537.19 6,658.79 12/31/2008 7,268.57 6,910.35 6,952.86 7,045.27 1/31/2009 6,345.43 6,287.09 6,197.84 6,261.69 2/28/2009 5,585.61 5,614.49 5,558.97 5,500.74 3/31/2009 6,044.43 6,119.22 6,098.28 5,991.78 4/30/2009 7,099.59 7,085.63 6,903.08 6,918.00 5/31/2009 7,214.01 7,416.20 7,093.91 7,125.92 6/30/2009 7,317.52 7,479.27 7,168.59 7,231.25 7/31/2009 8,073.09 8,139.67 7,882.13 7,927.69 8/31/2009 8,257.82 8,389.42 8,106.14 8,155.02 9/30/2009 8,682.88 8,895.07 8,545.88 8,625.37 10/31/2009 8,188.28 8,405.72 8,139.33 8,039.75 11/30/2009 8,401.93 8,696.95 8,371.65 8,292.13 12/31/2009 9,127.13 9,294.25 8,944.14 8,959.59 1/31/2010 8,818.28 8,963.52 8,794.79 8,629.78 2/28/2010 9,197.18 9,367.46 9,101.78 9,018.51 3/31/2010 9,912.84 10,003.80 9,790.43 9,752.52 4/30/2010 10,492.57 10,504.41 10,246.76 10,304.45 5/31/2010 9,735.06 9,737.17 9,607.90 9,522.83 6/30/2010 9,047.05 9,099.93 8,969.03 8,784.87 7/31/2010 9,620.82 9,680.95 9,508.33 9,388.55 8/31/2010 8,902.64 9,107.26 8,852.87 8,693.45 9/30/2010 9,917.55 10,124.83 9,865.10 9,776.62 10/31/2010 10,339.55 10,490.22 10,288.25 10,176.69 11/30/2010 10,708.09 10,846.05 10,678.21 10,529.55 12/31/2010 11,528.28 11,683.51 11,458.87 11,365.68 1/31/2011 11,545.77 11,693.27 11,417.17 11,336.40 2/28/2011 12,054.63 12,272.98 11,917.56 11,958.10 3/31/2011 12,417.35 12,576.89 12,234.47 12,268.01 4/30/2011 12,740.08 12,884.33 12,659.80 12,591.96 5/31/2011 12,625.30 12,644.08 12,451.30 12,355.87 6/30/2011 12,396.98 12,405.16 12,242.81 12,071.00 7/31/2011 11,999.22 12,030.82 11,867.52 11,634.69 8/31/2011 11,078.56 11,104.52 10,866.74 10,622.44 9/30/2011 9,938.69 9,867.80 9,632.45 9,431.65 10/31/2011 11,429.08 11,313.64 11,158.63 10,859.20 11/30/2011 11,501.26 11,270.90 11,158.63 10,819.62 12/31/2011 11,645.40 11,238.70 11,245.92 10,891.09 1/31/2012 12,411.43 11,990.09 11,999.56 11,660.56 2/29/2012 12,673.97 12,354.17 12,242.40 11,939.62 3/31/2012 13,041.39 12,578.22 12,527.10 12,245.54 4/30/2012 12,876.83 12,445.43 12,309.39 12,056.39 5/31/2012 12,069.39 11,584.79 11,463.64 11,258.38 6/30/2012 12,574.33 11,940.41 12,024.68 11,820.17 7/31/2012 12,477.98 11,890.18 11,924.20 11,656.83 8/31/2012 12,950.74 12,282.37 12,225.65 12,045.55 9/30/2012 13,252.80 12,636.74 12,585.72 12,441.10 10/31/2012 12,983.74 12,494.86 12,326.13 12,171.20 11/30/2012 13,113.34 12,639.38 12,510.36 12,235.86 12/31/2012 13,546.54 13,029.83 12,989.56 12,671.77 1/31/2013 14,329.34 13,810.97 13,755.17 13,464.93 2/28/2013 14,531.04 13,967.75 13,935.81 13,613.46 3/31/2013 15,146.54 14,573.72 14,486.37 14,242.05 4/30/2013 15,106.28 14,496.16 14,262.70 14,189.71 5/31/2013 15,763.05 15,032.07 14,942.29 14,756.85 6/30/2013 15,740.06 14,912.30 14,890.68 14,681.36 7/31/2013 16,817.41 15,870.64 15,776.72 15,708.81 8/31/2013 16,407.70 15,395.88 15,320.79 15,209.86 9/30/2013 17,429.34 16,302.27 16,206.84 16,180.30 10/31/2013 18,058.11 16,820.79 16,800.40 16,587.18 11/30/2013 18,869.94 17,415.35 17,497.19 17,251.73 12/31/2013 19,143.05 17,736.89 17,920.25 17,591.24 1/31/2014 18,404.73 17,098.92 17,299.06 17,104.32 2/28/2014 19,224.97 17,878.44 17,976.72 17,910.12 3/31/2014 19,359.16 17,953.44 18,023.78 17,788.04 4/30/2014 18,818.84 17,499.85 17,317.89 17,098.21 5/31/2014 18,869.64 17,611.64 17,421.42 17,235.21 6/30/2014 19,759.29 18,415.70 18,146.13 18,152.25 7/31/2014 18,673.58 17,387.15 17,167.30 17,053.51 8/31/2014 19,475.61 18,149.69 17,892.01 17,899.12 9/30/2014 18,430.21 17,146.26 16,997.88 16,816.32 10/31/2014 19,736.55 18,083.93 17,892.01 17,924.84 11/30/2014 19,682.30 18,109.53 18,004.95 17,940.91 12/31/2014 20,244.76 18,462.99 18,416.04 18,452.22 1/31/2015 19,537.30 17,799.21 17,667.58 17,858.69 2/28/2015 20,715.28 18,862.50 18,995.82 18,918.89 3/31/2015 21,047.24 19,155.58 19,164.48 19,248.49 4/30/2015 20,557.84 18,786.26 18,869.32 18,757.60 5/31/2015 20,872.79 19,044.22 19,164.48 19,185.83 6/30/2015 21,087.60 19,132.90 19,406.94 19,329.51 7/31/2015 20,908.93 18,937.87 18,858.78 19,104.86 8/31/2015 19,826.53 17,947.77 17,794.08 17,904.29 9/30/2015 19,132.84 17,200.36 16,866.43 17,025.86 10/31/2015 20,299.12 18,209.53 17,962.75 17,985.10 11/30/2015 20,842.80 18,647.00 18,394.95 18,570.13 12/31/2015 19,845.42 17,682.81 17,465.64 17,637.72 1/31/2016 18,621.38 16,494.53 16,119.48 16,086.76
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Small Cap Stock Fund Institutional Shares to the Fund's benchmarks listed above (see page 8 for benchmark definitions). *The performance of the S&P SmallCap 600 Index, Lipper Small-Cap Core Funds Index, and Russell 2000 Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Small-Cap Core Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 10 | USAA SMALL CAP STOCK FUND ================================================================================ o TOP 10 HOLDINGS - 1/31/16 o (% of Net Assets) Diebold, Inc. ............................................................ 1.4% RSP Permian, Inc. ........................................................ 1.4% Haemonetics Corp. ........................................................ 1.4% G & K Services, Inc. "A" ................................................. 1.2% DSW, Inc. "A" ............................................................ 1.2% Albany International Corp. "A" ........................................... 1.1% Mueller Industries, Inc. ................................................. 1.0% Webster Financial Corp. .................................................. 1.0% DiamondRock Hospitality Co. .............................................. 0.9% Microsemi Corp. .......................................................... 0.9%
o ASSET ALLOCATION - 1/31/16 o [PIE CHART OF ASSET ALLOCATION] INDUSTRIALS 21.2% INFORMATION TECHNOLOGY 18.7% FINANCIALS 17.3% CONSUMER DISCRETIONARY 11.2% HEALTH CARE 10.7% MATERIALS 4.0% ENERGY 3.3% CONSUMER STAPLES 2.9% UTILITIES 2.6% TELECOMMUNICATION SERVICES 1.4% MONEY MARKET INSTRUMENTS 5.6%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 12-25. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- EQUITY SECURITIES (93.3%) COMMON STOCKS (93.3%) CONSUMER DISCRETIONARY (11.2%) ------------------------------ APPAREL RETAIL (3.4%) 720,375 Ascena Retail Group, Inc.* $ 5,316 224,064 Cato Corp. "A" 9,037 583,800 DSW, Inc. "A" 14,017 141,000 Genesco, Inc.* 9,326 458,810 Stage Stores, Inc. 3,808 ---------- 41,504 ---------- APPAREL, ACCESSORIES & LUXURY GOODS (0.1%) 20,780 Cherokee, Inc.* 340 6,640 Oxford Industries, Inc. 464 ---------- 804 ---------- AUTO PARTS & EQUIPMENT (0.3%) 27,060 Fox Factory Holding Corp.* 400 3,939 Gentherm, Inc.* 158 81,600 Horizon Global Corp.* 779 254,200 Modine Manufacturing Co.* 1,632 ---------- 2,969 ---------- AUTOMOTIVE RETAIL (1.6%) 227,745 CST Brands, Inc. 8,823 85,300 Group 1 Automotive, Inc. 4,576 17,300 Lithia Motors, Inc. "A" 1,325 299,000 Sonic Automotive, Inc. "A" 5,119 ---------- 19,843 ---------- BROADCASTING (0.9%) 15,100 Nexstar Broadcasting Group, Inc. "A" 683 299,000 Sinclair Broadcast Group, Inc. "A" 9,867 ---------- 10,550 ---------- CABLE & SATELLITE (0.7%) 20,300 Cable One, Inc. 8,729 ----------
================================================================================ 12 | USAA SMALL CAP STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- CASINOS & GAMING (0.2%) 83,400 Boyd Gaming Corp.* $ 1,486 3,752 Churchill Downs, Inc. 518 ---------- 2,004 ---------- CONSUMER ELECTRONICS (0.0%) 112,664 Skullcandy, Inc.* 358 ---------- EDUCATION SERVICES (0.2%) 101,866 2U, Inc.* 2,057 ---------- FOOTWEAR (0.1%) 37,760 Crocs, Inc.* 348 12,079 Deckers Outdoor Corp.* 597 ---------- 945 ---------- GENERAL MERCHANDISE STORES (0.7%) 539,590 Fred's, Inc. "A" 8,903 ---------- HOTELS, RESORTS & CRUISE LINES (0.5%) 563,115 La Quinta Holdings, Inc.* 6,386 ---------- HOUSEHOLD APPLIANCES (0.7%) 85,570 Helen of Troy Ltd.* 7,647 82,040 SodaStream International Ltd.* 1,139 ---------- 8,786 ---------- LEISURE FACILITIES (0.1%) 48,500 ClubCorp Holdings, Inc. 580 30,400 International Speedway Corp. "A" 1,038 ---------- 1,618 ---------- LEISURE PRODUCTS (0.1%) 9,724 Brunswick Corp. 388 41,950 Callaway Golf Co. 365 37,063 Escalade, Inc. 448 61,525 Performance Sports Group Ltd.* 440 ---------- 1,641 ---------- MOVIES & ENTERTAINMENT (0.2%) 57,319 IMAX Corp.* 1,780 ---------- RESTAURANTS (0.7%) 4,791 BJ's Restaurants, Inc.* 206 91,860 Brinker International, Inc. 4,569 8,660 Buffalo Wild Wings, Inc.* 1,319 6,000 Dave & Buster's Entertainment* 218 27,050 Del Frisco's Restaurant Group, Inc.* 428
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 10,065 Fiesta Restaurant Group, Inc.* $ 366 74,100 Kona Grill, Inc.* 1,205 ---------- 8,311 ---------- SPECIALIZED CONSUMER SERVICES (0.6%) 301,000 Sotheby's 7,070 ---------- SPECIALTY STORES (0.1%) 14,052 Five Below, Inc.* 495 63,540 Sportsman's Warehouse Holdings, Inc.* 833 ---------- 1,328 ---------- Total Consumer Discretionary 135,586 ---------- CONSUMER STAPLES (2.9%) ----------------------- DISTILLERS & VINTNERS (0.6%) 1,862,195 C&C Group plc(a) 7,250 ---------- FOOD RETAIL (0.0%) 21,490 Natural Grocers by Vitamin Cottage, Inc.* 387 ---------- HOUSEHOLD PRODUCTS (0.7%) 260,000 Energizer Holdings, Inc. 8,331 ---------- HYPERMARKETS & SUPER CENTERS (0.0%) 6,000 PriceSmart, Inc. 459 ---------- PACKAGED FOODS & MEAT (1.5%) 309,585 Cranswick plc(a) 9,243 90,530 Freshpet, Inc.* 538 54,225 Landec Corp.* 652 131,680 Post Holdings, Inc.* 7,703 ---------- 18,136 ---------- PERSONAL PRODUCTS (0.1%) 22,500 Inter Parfums, Inc. 604 ---------- Total Consumer Staples 35,167 ---------- ENERGY (3.3%) ------------- OIL & GAS EQUIPMENT & SERVICES (0.9%) 8,400 Core Laboratories N.V. 827 255,800 Enservco Corp.* 110 243,389 Era Group, Inc.* 2,234 131,779 SEACOR Holdings, Inc.* 6,063 13,670 Superior Energy Services, Inc. 141 299,342 Tesco Corp. 2,035 ---------- 11,410 ----------
================================================================================ 14 | USAA SMALL CAP STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION (1.4%) 9,200 Diamondback Energy, Inc.* $ 695 713,120 RSP Permian, Inc.* 16,794 ---------- 17,489 ---------- OIL & GAS STORAGE & TRANSPORTATION (1.0%) 402,270 Dorian LPG Ltd.* 4,256 1,185,220 Scorpio Tankers, Inc. 7,230 ---------- 11,486 ---------- Total Energy 40,385 ---------- FINANCIALS (17.3%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (0.8%) 14,720 Affiliated Managers Group, Inc.* 1,975 17,347 Financial Engines, Inc. 468 257,886 Harris & Harris Group, Inc.* 451 143,988 Safeguard Scientifics, Inc.* 1,872 278,797 Solar Capital Ltd. 4,522 ---------- 9,288 ---------- CONSUMER FINANCE (0.1%) 30,511 PRA Group, Inc.* 908 ---------- INVESTMENT BANKING & BROKERAGE (0.1%) 68,900 BGC Partners, Inc. "A" 630 ---------- LIFE & HEALTH INSURANCE (0.7%) 197,480 Primerica, Inc. 8,889 ---------- PROPERTY & CASUALTY INSURANCE (1.1%) 56,260 AMERISAFE, Inc. 2,870 19,000 James River Group Holdings 644 188,180 ProAssurance Corp. 9,432 50,154 State National Companies, Inc. 494 ---------- 13,440 ---------- REGIONAL BANKS (8.6%) 546,000 BBCN Bancorp, Inc. 8,299 56,200 Customers Bancorp, Inc.* 1,411 265,522 First Busey Corp. 4,894 596,346 First Midwest Bancorp, Inc. 10,394 655,650 First Niagara Financial Group, Inc. 6,419 283,559 Flushing Financial Corp. 6,238 270,136 Great Western Bancorp, Inc. 7,056 282,010 Hancock Holding Co. 6,757 447,300 International Bancshares Corp. 10,373
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 282,240 MB Financial, Inc. $ 8,783 76,177 Opus Bank 2,513 34,000 Pacific Premier Bancorp, Inc.* 698 18,800 PrivateBancorp, Inc. 708 643,000 TCF Financial Corp. 7,722 9,100 Texas Capital Bancshares, Inc.* 325 657,000 Umpqua Holdings Corp. 9,513 375,070 Webster Financial Corp. 12,441 ---------- 104,544 ---------- REINSURANCE (0.6%) 661,000 Third Point Reinsurance Ltd.* 7,701 ---------- REITs - HOTEL & RESORT (1.3%) 1,348,384 DiamondRock Hospitality Co. 11,192 456,990 Summit Hotel Properties, Inc. 4,638 ---------- 15,830 ---------- REITs - INDUSTRIAL (0.2%) 147,100 STAG Industrial, Inc. 2,490 ---------- REITs - OFFICE (0.3%) 187,830 Corporate Office Properties Trust 4,189 ---------- REITs - RESIDENTIAL (1.3%) 370,000 Colony Starwood Homes 7,962 197,136 Education Realty Trust, Inc. 7,704 ---------- 15,666 ---------- REITs - SPECIALIZED (0.1%) 27,349 QTS Realty Trust, Inc. "A" 1,264 ---------- SPECIALIZED FINANCE (1.3%) 480,000 Aircastle Ltd. 8,241 165,970 Atlas Air Worldwide Holdings, Inc.* 6,096 10,500 MarketAxess Holdings, Inc. 1,220 ---------- 15,557 ---------- THRIFTS & MORTGAGE FINANCE (0.8%) 7,700 LendingTree, Inc.* 568 737,480 Northwest Bancshares, Inc. 9,270 ---------- 9,838 ---------- Total Financials 210,234 ---------- HEALTH CARE (10.7%) ------------------- BIOTECHNOLOGY (0.9%) 50,680 Acceleron Pharma, Inc.* 1,556 32,940 Alkermes plc* 1,054
================================================================================ 16 | USAA SMALL CAP STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 61,700 Cepheid, Inc.* $ 1,817 49,000 Enanta Pharmaceuticals, Inc.* 1,259 35,280 Esperion Therapeutics, Inc.* 525 24,280 Ligand Pharmaceuticals, Inc.* 2,427 22,450 PTC Therapeutics, Inc.* 535 32,316 Sage Therapeutics, Inc.* 1,085 9,067 Trevena, Inc.* 66 29,573 Zafgen, Inc.* 197 ---------- 10,521 ---------- HEALTH CARE EQUIPMENT (1.5%) 27,540 ABIOMED, Inc.* 2,350 81,900 AtriCure, Inc.* 1,432 67,300 Cardiovascular Systems, Inc.* 569 54,010 CONMED Corp. 1,995 82,912 Cutera, Inc.* 932 82,856 Cynosure, Inc. "A"* 2,999 13,500 DexCom, Inc.* 962 26,765 Inogen, Inc.* 890 84,501 LeMaitre Vascular, Inc. 1,234 213,330 Rockwell Medical, Inc.* 1,335 162,669 Syneron Medical Ltd.* 1,132 92,099 Zeltiq Aesthetics, Inc.* 2,138 ---------- 17,968 ---------- HEALTH CARE FACILITIES (0.4%) 18,100 Acadia Healthcare Co., Inc.* 1,104 56,930 AmSurg Corp.* 4,167 ---------- 5,271 ---------- HEALTH CARE SERVICES (0.5%) 111,898 CorVel Corp.* 5,105 34,700 ExamWorks Group, Inc.* 953 ---------- 6,058 ---------- HEALTH CARE SUPPLIES (2.8%) 518,820 Haemonetics Corp.* 16,416 275,000 Halyard Health, Inc.* 6,820 39,912 ICU Medical, Inc.* 3,842 82,382 LDR Holding Corp.* 1,513 120,900 Spectranetics Corp.* 1,457 52,088 Vascular Solutions, Inc.* 1,425 47,700 West Pharmaceutical Services, Inc. 2,729 ---------- 34,202 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- HEALTH CARE TECHNOLOGY (1.4%) 687,376 Allscripts Healthcare Solutions, Inc.* $ 9,472 85,240 Evolent Health, Inc.* 841 15,976 Medidata Solutions, Inc.* 683 512,780 Quality Systems, Inc. 6,723 ---------- 17,719 ---------- LIFE SCIENCES TOOLS & SERVICES (1.1%) 14,550 Bio-Rad Laboratories, Inc. "A"* 1,857 122,800 Charles River Laboratories International, Inc.* 9,116 235,452 Harvard Bioscience, Inc.* 699 282,306 NeoGenomics, Inc.* 1,925 ---------- 13,597 ---------- MANAGED HEALTH CARE (0.7%) 145,000 Magellan Health, Inc.* 8,265 ---------- PHARMACEUTICALS (1.4%) 271,770 AcelRx Pharmaceuticals, Inc.* 981 48,490 Akorn, Inc.* 1,260 66,500 Cempra, Inc.* 1,146 772,423 Durect Corp.* 927 51,625 Intersect ENT, Inc.* 920 65,575 Lannett Co., Inc.* 1,673 233,400 Nektar Therapeutics* 3,184 9,600 Pacira Pharmaceuticals, Inc.* 570 42,660 Paratek Pharmaceuticals, Inc.* 624 147,310 Phibro Animal Health Corp. "A" 4,942 65,791 Tetraphase Pharmaceuticals, Inc.* 358 ---------- 16,585 ---------- Total Health Care 130,186 ---------- INDUSTRIALS (21.2%) ------------------- AEROSPACE & DEFENSE (1.2%) 253,138 Cubic Corp. 10,115 53,315 Taser International, Inc.* 821 125,800 Triumph Group, Inc. 3,208 ---------- 14,144 ---------- AIR FREIGHT & LOGISTICS (0.3%) 37,500 Echo Global Logistics, Inc.* 825 66,830 Forward Air Corp. 2,885 ---------- 3,710 ----------
================================================================================ 18 | USAA SMALL CAP STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- AIRLINES (0.2%) 53,950 Hawaiian Holdings, Inc.* $ 1,899 13,800 Spirit Airlines, Inc.* 577 ---------- 2,476 ---------- BUILDING PRODUCTS (0.7%) 41,460 Apogee Enterprises, Inc. 1,649 1,839,029 Tyman plc(a) 6,918 ---------- 8,567 ---------- CONSTRUCTION & ENGINEERING (0.6%) 323,940 Primoris Services Corp. 6,605 ---------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%) 141,877 Douglas Dynamics, Inc. 2,818 ---------- DIVERSIFIED SUPPORT SERVICES (2.0%) 230,660 G & K Services, Inc. "A" 14,850 162,361 Matthews International Corp. "A" 8,103 60,350 Mobile Mini, Inc. 1,564 ---------- 24,517 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (2.6%) 174,000 EnerSys 8,427 287,000 Generac Holdings, Inc.* 8,156 146,000 Regal-Beloit Corp. 8,207 428,220 Thermon Group Holdings, Inc.* 7,203 ---------- 31,993 ---------- ENVIRONMENTAL & FACILITIES SERVICES (0.8%) 32,064 Hudson Technologies, Inc.* 95 402,077 SP Plus Corp.* 9,027 ---------- 9,122 ---------- HEAVY ELECTRICAL EQUIPMENT (0.6%) 317,737 Babcock & Wilcox Enterprises, Inc.* 6,561 83,091 Power Solutions International, Inc.* 993 ---------- 7,554 ---------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%) 2,989 WageWorks, Inc.* 134 ---------- INDUSTRIAL MACHINERY (5.1%) 384,319 Albany International Corp. "A" 13,036 123,820 CIRCOR International, Inc. 4,394 225,787 ESCO Technologies, Inc. 7,774 62,200 John Bean Technologies Corp. 2,850 76,229 Kennametal, Inc. 1,349
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 107,000 Kornit Digital, Ltd.* $ 1,226 394,196 Luxfer Holdings plc ADR 3,918 493,960 Mueller Industries, Inc. 12,571 14,800 Proto Labs, Inc.* 814 36,214 RBC Bearings, Inc.* 2,149 42,349 Tennant Co. 2,292 528,984 TriMas Corp.* 9,146 ---------- 61,519 ---------- OFFICE SERVICES & SUPPLIES (1.6%) 989,390 ACCO Brands Corp.* 6,006 323,980 Essendant, Inc. 9,674 320,070 Steelcase, Inc. "A" 4,084 ---------- 19,764 ---------- RAILROADS (0.1%) 23,600 Genesee & Wyoming, Inc. "A"* 1,170 ---------- RESEARCH & CONSULTING SERVICES (2.4%) 69,900 Advisory Board Co.* 3,199 72,725 CEB, Inc. 4,289 272,510 FTI Consulting, Inc.* 9,236 90,950 Huron Consulting Group, Inc.* 5,103 329,002 Mistras Group, Inc.* 7,432 ---------- 29,259 ---------- SECURITY & ALARM SERVICES (0.7%) 270,690 Brink's Co. 7,958 ---------- TRADING COMPANIES & DISTRIBUTORS (1.9%) 230,000 Beacon Roofing Supply, Inc.* 9,315 17,087 DXP Enterprises, Inc.* 268 204,120 GATX Corp. 8,365 70,013 Kaman Corp. 2,789 80,210 Rush Enterprises, Inc. "A"* 1,532 162,620 Titan Machinery, Inc.* 1,381 ---------- 23,650 ---------- TRUCKING (0.2%) 237,744 Celadon Group, Inc. 1,888 ---------- Total Industrials 256,848 ---------- INFORMATION TECHNOLOGY (18.7%) ------------------------------ APPLICATION SOFTWARE (2.7%) 69,423 BroadSoft, Inc.* 2,375 60,800 Cadence Design Systems, Inc.* 1,189
================================================================================ 20 | USAA SMALL CAP STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 5,700 Callidus Software, Inc.* $ 88 7,715 Digimarc Corp.* 276 33,900 Ebix, Inc. 1,157 22,339 Guidewire Software, Inc.* 1,230 23,400 Hubspot, Inc.* 950 380,000 Mentor Graphics Corp. 6,604 8,070 Paycom Software, Inc.* 243 25,082 Paylocity Holding Corp.* 781 91,528 PROS Holdings, Inc.* 1,124 28,276 PTC, Inc.* 837 56,450 Qlik Technologies, Inc.* 1,413 51,200 Synchronoss Technologies, Inc.* 1,569 874,823 TiVo, Inc.* 6,981 10,550 Tyler Technologies, Inc.* 1,657 23,952 Ultimate Software Group, Inc.* 4,207 ---------- 32,681 ---------- COMMUNICATIONS EQUIPMENT (0.7%) 334,690 Aerohive Networks, Inc.* 1,570 72,794 Finisar Corp.* 924 11,000 Infinera Corp.* 169 173,615 RADWARE Ltd.* 2,320 269,963 Ruckus Wireless, Inc.* 2,270 170,540 ShoreTel, Inc.* 1,400 ---------- 8,653 ---------- DATA PROCESSING & OUTSOURCED SERVICES (1.7%) 284,000 Cardtronics, Inc.* 8,750 63,867 Euronet Worldwide, Inc.* 5,094 454,785 EVERTEC, Inc. 6,249 26,316 WNS Holdings Ltd. ADR* 755 ---------- 20,848 ---------- ELECTRONIC COMPONENTS (1.0%) 236,150 Belden, Inc. 10,088 125,785 InvenSense, Inc.* 1,033 21,900 Rogers Corp.* 1,040 ---------- 12,161 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.8%) 100,480 Coherent, Inc.* 7,764 13,722 FEI Co. 994 22,249 OSI Systems, Inc.* 1,220 ---------- 9,978 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- ELECTRONIC MANUFACTURING SERVICES (0.4%) 278,830 CTS Corp. $ 4,392 9,780 IPG Photonics Corp.* 790 ---------- 5,182 ---------- INTERNET SOFTWARE & SERVICES (1.2%) 33,852 Constant Contact, Inc.* 1,070 16,894 CoStar Group, Inc.* 2,963 51,360 Demandware, Inc.* 2,179 89,100 GTT Communications, Inc.* 1,327 144,910 LivePerson, Inc.* 820 97,100 Pandora Media, Inc.* 944 19,200 Shopify, Inc. "A"* 446 65,371 SPS Commerce, Inc.* 4,267 10,030 Wix.Com Ltd.* 205 ---------- 14,221 ---------- IT CONSULTING & OTHER SERVICES (1.2%) 16,500 EPAM Systems, Inc.* 1,236 234,789 Forrester Research, Inc. 7,506 201,050 Perficient, Inc.* 3,830 31,463 Virtusa Corp.* 1,407 ---------- 13,979 ---------- SEMICONDUCTOR EQUIPMENT (0.6%) 287,472 Brooks Automation, Inc. 2,740 93,865 Rudolph Technologies, Inc.* 1,202 140,998 Teradyne, Inc. 2,740 ---------- 6,682 ---------- SEMICONDUCTORS (3.7%) 86,613 Ceva, Inc.* 2,005 56,196 Inphi Corp.* 1,559 123,200 Intersil Corp. "A" 1,602 1,309,000 Lattice Semiconductor Corp.* 6,362 59,993 Mellanox Technologies Ltd.* 2,727 337,090 Microsemi Corp.* 10,686 18,739 Monolithic Power Systems, Inc. 1,172 15,250 Power Integrations, Inc. 719 692,000 Rambus, Inc.* 8,470 29,442 Silicon Laboratories, Inc.* 1,342 113,000 Synaptics, Inc.* 8,284 ---------- 44,928 ----------
================================================================================ 22 | USAA SMALL CAP STOCK FUND ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- SYSTEMS SOFTWARE (2.2%) 142,700 Allot Communications Ltd.* $ 712 480,630 AVG Technologies N.V.* 9,069 42,100 Fleetmatics Group plc* 1,828 139,566 Gigamon, Inc.* 3,650 31,580 Imperva, Inc.* 1,628 207,383 Infoblox, Inc.* 3,347 30,574 Proofpoint, Inc.* 1,540 93,700 Qualys, Inc.* 2,435 33,750 Rapid7, Inc.* 442 31,600 Red Hat, Inc.* 2,214 24,960 Rubicon Project, Inc.* 337 ---------- 27,202 ---------- TECHNOLOGY DISTRIBUTORS (0.7%) 257,820 ScanSource, Inc.* 8,090 ---------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.8%) 607,430 Diebold, Inc. 16,838 42,434 Nimble Storage, Inc.* 279 178,500 Super Micro Computer, Inc.* 5,316 ---------- 22,436 ---------- Total Information Technology 227,038 ---------- MATERIALS (4.0%) ---------------- COMMODITY CHEMICALS (0.7%) 231,000 Cabot Corp. 9,319 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%) 9,253 Scotts Miracle-Gro Co. "A" 635 ---------- FOREST PRODUCTS (0.6%) 127,340 Deltic Timber Corp. 6,993 ---------- METAL & GLASS CONTAINERS (0.5%) 220,460 Greif, Inc. "A" 5,827 ---------- PAPER PRODUCTS (1.1%) 390,000 KapStone Paper & Packaging Corp. 5,764 177,632 Schweitzer-Mauduit International, Inc. 7,461 ---------- 13,225 ---------- SPECIALTY CHEMICALS (1.0%) 25,509 Quaker Chemical Corp. 1,913 174,854 Sensient Technologies Corp. 10,434 ---------- 12,347 ---------- Total Materials 48,346 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (1.4%) --------------------------------- ALTERNATIVE CARRIERS (0.7%) 234,155 Cogent Communications Holdings, Inc. $ 7,823 31,100 Inteliquent, Inc. 534 21,000 Vonage Holdings Corp.* 108 ---------- 8,465 ---------- WIRELESS TELECOMMUNICATION SERVICES (0.7%) 348,400 Telephone & Data Systems, Inc. 8,080 ---------- Total Telecommunication Services 16,545 ---------- UTILITIES (2.6%) ---------------- ELECTRIC UTILITIES (0.7%) 224,000 Portland General Electric Co. 8,707 ---------- GAS UTILITIES (1.9%) 138,810 Laclede Group, Inc. 8,876 150,320 New Jersey Resources Corp. 5,294 120,770 WGL Holdings, Inc. 8,066 ---------- 22,236 ---------- Total Utilities 30,943 ---------- Total Common Stocks (cost: $1,085,750) 1,131,278 ---------- RIGHTS (0.0%) HEALTH CARE (0.0%) ------------------ BIOTECHNOLOGY (0.0%) 73,000 Prosensa Holdings N.V., acquired 1/15/2015; cost $0*(b),(c) 72 ---------- PHARMACEUTICALS (0.0%) 133,709 NuPathe, Inc., acquired 2/19/2014; cost $80*(b),(c) 80 ---------- Total Health Care 152 ---------- Total Rights (cost: $80) 152 ---------- Total Equity Securities (cost: $1,085,830) 1,131,430 ---------- MONEY MARKET INSTRUMENTS (5.6%) MONEY MARKET FUNDS (5.6%) 67,913,039 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(d) (cost: $67,913) 67,913 ---------- TOTAL INVESTMENTS (cost: $1,153,743) $1,199,343 ==========
================================================================================ 24 | USAA SMALL CAP STOCK FUND ================================================================================
--------------------------------------------------------------------------------------------------------- VALUATION HIERARCHY --------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL --------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $1,107,867 $23,411 $ - $1,131,278 Rights - - 152 152 Money Market Instruments: Money Market Funds 67,913 - - 67,913 --------------------------------------------------------------------------------------------------------- Total $1,175,780 $23,411 $152 $1,199,343 ---------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
RIGHTS --------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $152 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 - Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments - --------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $152 ---------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, common stocks with a fair value of $19,109,000 were transferred from Level 1 to Level 2. Due to an assessment of events at the end of the current reporting period, these securities had adjustments to their foreign market closing prices to reflect changes in value that occurred after the close of foreign markets and prior to the close of the U.S. securities markets. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 5.0% at January 31, 2016. o CATEGORIES AND DEFINITIONS RIGHTS - Enable the holder to buy a specified number of shares of new issues of a common stock before it is offered to the public. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. REIT Real estate investment trust o SPECIFIC NOTES (a) Securities with a value of $23,411,000, which represented 1.9% of the Fund's net assets, were classified as Level 2 at January 31, 2016, due to the prices being adjusted to take into account significant market movements following the close of local trading. ================================================================================ 26 | USAA SMALL CAP STOCK FUND ================================================================================ (b) Security deemed illiquid by USAA Asset Management Company (the Manager), under liquidity guidelines approved by the USAA Mutual Funds Trust's Board of Trustees (the Board). The aggregate market value of these securities at January 31, 2016, was $152,000, which represented less than 0.1% of the Fund's net assets. (c) Security was fair valued at January 31, 2016, by the Manager in accordance with valuation procedures approved by the Board. The total value of all such securities was $152,000, which represented less than 0.1% of the Fund's net assets. (d) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 27 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $1,153,743) $1,199,343 Cash 3,934 Cash denominated in foreign currencies (identified cost of $50) 49 Receivables: Capital shares sold 12,287 Dividends and interest 249 Securities sold 8,729 ---------- Total assets 1,224,591 ---------- LIABILITIES Payables: Securities purchased 9,612 Capital shares redeemed 956 Unrealized depreciation on foreign currency contracts held, at value 2 Accrued management fees 767 Accrued transfer agent's fees 112 Other accrued expenses and payables 144 ---------- Total liabilities 11,593 ---------- Net assets applicable to capital shares outstanding $1,212,998 ========== NET ASSETS CONSIST OF: Paid-in capital $1,174,221 Accumulated overdistribution of net investment income (2,935) Accumulated net realized loss on investments (3,887) Net unrealized appreciation of investments 45,600 Net unrealized depreciation of foreign currency translations (1) ---------- Net assets applicable to capital shares outstanding $1,212,998 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $520,458/37,415 shares outstanding) $ 13.91 ========== Institutional Shares (net assets of $692,540/49,435 shares outstanding) $ 14.01 ==========
See accompanying notes to financial statements. ================================================================================ 28 | USAA SMALL CAP STOCK FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $8) $ 8,573 Interest 50 --------- Total income 8,623 --------- EXPENSES Management fees 5,009 Administration and servicing fees: Fund Shares 581 Institutional Shares 280 Transfer agent's fees: Fund Shares 841 Institutional Shares 280 Custody and accounting fees: Fund Shares 69 Institutional Shares 48 Postage: Fund Shares 34 Institutional Shares 30 Shareholder reporting fees: Fund Shares 15 Institutional Shares 9 Trustees' fees 13 Registration fees: Fund Shares 25 Institutional Shares 33 Professional fees 59 Other 12 --------- Total expenses 7,338 Expenses paid indirectly: Fund Shares (9) Institutional Shares (12) --------- Net expenses 7,317 --------- NET INVESTMENT INCOME 1,306 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized gain (loss) on: Investments 20,611 Foreign currency transactions (5) Change in net unrealized appreciation/(depreciation) of: Investments (229,392) Foreign currency translations (1) --------- Net realized and unrealized loss (208,787) --------- Decrease in net assets resulting from operations $(207,481) =========
See accompanying notes to financial statements ================================================================================ FINANCIAL STATEMENTS | 29 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
-------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 -------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 1,306 $ 1,978 Net realized gain on investments 20,611 96,759 Net realized loss on foreign currency transactions (5) (9) Change in net unrealized appreciation/(depreciation) of: Investments (229,392) 31,901 Foreign currency translations (1) 2 --------------------------- Increase (decrease) in net assets resulting from operations (207,481) 130,631 --------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (2,353) (1,091) Institutional Shares (2,311) (1,768) --------------------------- Total distributions of net investment income (4,664) (2,859) --------------------------- Net realized gains: Fund Shares (62,875) (78,944) Institutional Shares (43,424) (67,334) --------------------------- Total distributions of net realized gains (106,299) (146,278) --------------------------- Distributions to shareholders (110,963) (149,137) --------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (125,291) 136,242 Institutional Shares 144,987 22,347 --------------------------- Total net increase in net assets from capital share transactions 19,696 158,589 --------------------------- Net increase (decrease) in net assets (298,748) 140,083 NET ASSETS Beginning of period 1,511,746 1,371,663 =========================== End of period $1,212,998 $1,511,746 =========================== Accumulated undistributed (overdistribution of) net investment income: End of period $ (2,935) $ 423 ===========================
See accompanying notes to financial statements. ================================================================================ 30 | USAA SMALL CAP STOCK FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Small Cap Stock Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek long-term growth of capital. The Fund consists of two classes of shares: Small Cap Stock Fund Shares (Fund Shares) and Small Cap Stock Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according ================================================================================ 32 | USAA SMALL CAP STOCK FUND ================================================================================ to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser(s) will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser(s) have agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ 5. Repurchase agreements are valued at cost. 6. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities ================================================================================ 34 | USAA SMALL CAP STOCK FUND ================================================================================ include certain common stocks, which are valued based on methods discussed in Note 1A2. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by using inputs such as the last quoted price of the discounted underlying security. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. F. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by the custodian to directly reduce expenses paid by the Fund. In addition, ================================================================================ 36 | USAA SMALL CAP STOCK FUND ================================================================================ through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, brokerage commission recapture credits reduced the expenses of the Fund Shares and Institutional Shares by $9,000 and $12,000, respectively. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $4,000, which represents 1.9% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $283,160,000 and $381,815,000, respectively. ================================================================================ 38 | USAA SMALL CAP STOCK FUND ================================================================================ As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $183,442,000 and $137,842,000, respectively, resulting in net unrealized appreciation of $45,600,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 --------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------- FUND SHARES: Shares sold 3,905 $ 62,268 10,405 $ 186,545 Shares issued from reinvested dividends 4,205 64,677 4,676 79,175 Shares redeemed (17,712) (252,236) (7,199) (129,478) ----------------------------------------------------- Net increase (decrease) from capital share transactions (9,602) $(125,291) 7,882 $ 136,242 ===================================================== INSTITUTIONAL SHARES: Shares sold 16,576 $ 233,762 7,682 $ 139,379 Shares issued from reinvested dividends 2,952 45,726 4,048 69,079 Shares redeemed (7,913) (134,501) (10,195) (186,111) ----------------------------------------------------- Net increase from capital share transactions 11,615 $ 144,987 1,535 $ 22,347 =====================================================
================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.75% of the Fund's average net assets for the fiscal year. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Small-Cap Core Funds Index. The Lipper Small-Cap Core Funds Index tracks the total return performance of the 30 largest funds in the Lipper Small-Cap Core Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------ +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. ================================================================================ 40 | USAA SMALL CAP STOCK FUND ================================================================================ Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Small-Cap Core Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $5,009,000. For the six-month period ended January 31, 2016, the Fund did not incur any performance adjustment. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory Agreements with Wellington Management Company LLP (Wellington Management), Cambiar Investors (Cambiar), and Granahan Investment Management, Inc. (GIMI), under which Wellington Management, Cambiar, and GIMI each direct the investment and reinvestment of a portion of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays Wellington Management a subadvisory fee in the annual amount of 0.70% of the Fund's average net assets for the first $300 million in assets that Wellington Management manages, plus 0.65% of the Fund's average net assets over $300 million that Wellington Management manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Wellington Management of $1,955,000. The Manager (not the Fund) pays Cambiar a subadvisory fee in the annual amount of 0.67% of the Fund's average net assets for the first $300 million in assets that Cambiar manages, plus 0.65% of the Fund's ================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 ================================================================================ average net assets over $300 million that Cambiar manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Cambiar of $1,552,000. The Manager (not the Fund) pays GIMI a subadvisory fee in the annual amount of 0.55% of the Fund's average net assets for the first $300 million in assets that GIMI manages, plus 0.52% of the Fund's average net assets over $300 million that GIMI manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to GIMI of $798,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred administration and servicing fees, paid or payable to the Manager, of $581,000 and $280,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $17,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at ================================================================================ 42 | USAA SMALL CAP STOCK FUND ================================================================================ an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of $841,000 and $280,000, respectively. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fees or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds may invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- USAA Cornerstone Conservative 0.2 USAA Cornerstone Equity 0.8 USAA Target Retirement Income 0.0* USAA Target Retirement 2020 0.7 USAA Target Retirement 2030 2.3 USAA Target Retirement 2040 3.5 USAA Target Retirement 2050 2.0 USAA Target Retirement 2060 0.1
*Represents less than 0.1% The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 43 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------ 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------ Net asset value at beginning of period $ 17.77 $ 18.14 $ 18.27 $ 14.15 $ 14.17 $ 11.41 ------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income (loss) .00(a) .02 (.01) .05 .02 .02 Net realized and unrealized gain (loss) (2.46) 1.63 1.62 4.39 (.03) 2.76 ------------------------------------------------------------------------------ Total from investment operations (2.46) 1.65 1.61 4.44 (.01) 2.78 ------------------------------------------------------------------------------ Less distributions from: Net investment income (.05) (.02) - (.04) (.01) (.02) Realized capital gains (1.35) (2.00) (1.74) (.28) - - ------------------------------------------------------------------------------ Total distributions (1.40) (2.02) (1.74) (.32) (.01) (.02) ------------------------------------------------------------------------------ Net asset value at end of period $ 13.91 $ 17.77 $ 18.14 $ 18.27 $ 14.15 $ 14.17 ============================================================================== Total return (%)* (14.57) 9.67 8.68 31.94 (.10) 24.38 Net assets at end of period (000) $520,458 $835,256 $709,753 $645,220 $751,742 $700,636 Ratios to average net assets:** Expenses (%)(b) 1.17(d) 1.15 1.14 1.25 1.28(c) 1.26(c) Net investment income (loss) (%) .13(d) .06 (.03) .03 .16 .15 Portfolio turnover (%) 22 45 45 55 84(e) 41 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $768,768,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) (.00%)(+) (.01%) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Prior to December 1, 2011, the Manager had voluntarily agreed to limit the annual expenses of the Fund Shares to 1.40% of the Fund Shares' average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. (e) Reflects increased trading activity due to changes in subadviser(s) and asset allocation strategies.
================================================================================ 44 | USAA SMALL CAP STOCK FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------- Net asset value at beginning of period $ 17.89 $ 18.24 $ 18.34 $ 14.24 $ 14.23 $ 11.46 ------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .04 .05 .03 .04(a) .06 .06 Net realized and unrealized gain (loss) (2.50) 1.65 1.61 4.46(a) .00(b) 2.78 ------------------------------------------------------------------------------- Total from investment operations (2.46) 1.70 1.64 4.50(a) .06 2.84 ------------------------------------------------------------------------------- Less distributions from: Net investment income (.07) (.05) - (.12) (.05) (.07) Realized capital gains (1.35) (2.00) (1.74) (.28) - - ------------------------------------------------------------------------------- Total distributions (1.42) (2.05) (1.74) (.40) (.05) (.07) ------------------------------------------------------------------------------- Net asset value at end of period $ 14.01 $ 17.89 $ 18.24 $ 18.34 $ 14.24 $ 14.23 =============================================================================== Total return (%)* (14.53) 9.85 8.81 32.31 .48 24.81 Net assets at end of period (000) $692,540 $676,490 $661,910 $601,624 $190,828 $137,441 Ratios to average net assets:** Expenses (%)(e) 1.01(d) .99 .99 1.00 .99 .88(c) Net investment income (%) .28(d) .22 .12 .23 .47 .51 Portfolio turnover (%) 22 45 45 55 84(f) 41 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $557,508,000. (a) Calculated using average shares. (b) Represents less than $0.01 per share. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to 0.91% of the Institutional Shares' average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. (e) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: (.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (f) Reflects increased trading activity due to changes in subadviser(s) and asset allocation strategies.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 45 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual ================================================================================ 46 | USAA SMALL CAP STOCK FUND ================================================================================ return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 --------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 854.30 $5.45 Hypothetical (5% return before expenses) 1,000.00 1,019.25 5.94 INSTITUTIONAL SHARES Actual 1,000.00 854.70 4.66 Hypothetical (5% return before expenses) 1,000.00 1,020.11 5.08
*Expenses are equal to the annualized expense ratio of 1.17% for Fund Shares and 1.00% for Institutional Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (14.57)% for Fund Shares and (14.53)% for Institutional Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 47 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 40053-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA SHORT-TERM BOND FUND] =============================================================== SEMIANNUAL REPORT USAA SHORT-TERM BOND FUND FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES JANUARY 31, 2016 =============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO MAKE [PHOTO OF BROOKS ENGLEHARDT] HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 7 FINANCIAL INFORMATION Portfolio of Investments 20 Notes to Portfolio of Investments 44 Financial Statements 50 Notes to Financial Statements 53 EXPENSE EXAMPLE 69
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202728-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA SHORT-TERM BOND FUND (THE FUND) SEEKS HIGH CURRENT INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund normally invests at least 80% of its assets in a broad range of investment-grade debt securities that have a dollar-weighted average portfolio maturity of three years or less. The debt securities in which the Fund may invest include, among others, obligations of U.S., state, and local governments, their agencies and instrumentalities; mortgage-and asset-backed securities; corporate debt securities; repurchase agreements; and other securities believed to have debt-like characteristics. Although the Fund will invest primarily in investment grade securities, the Fund also may invest up to 10% of its net assets in below investment-grade securities, which are sometimes referred to as high-yield or "junk" bonds. The Fund's 80% policy may be changed upon at least 60 days' written notice to shareholders. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company R. MATTHEW FREUND, CFA JULIANNE BASS, CFA BRIAN W. SMITH, CFA, CPA -------------------------------------------------------------------------------- o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD? Longer-term interest rates fell during the reporting period ended January 31, 2016, pushed lower by economic uncertainty. China was at the epicenter of concern, as the country's slowing pace of growth threatened to hinder the broader global economy. Investors also worried about dropping oil and commodity prices, which are widely considered to be evidence of global economic weakness. In the United States, economic data was mixed during the reporting period, with slower-than-expected growth in the fourth quarter of 2015. Against this backdrop, the yield on the 10-year U.S. Treasury fell from 2.15% to 1.92%, while the 30-year U.S. Treasury yield dropped from 2.85% to 2.74%, during the reporting period. These lower yields tend to reflect changing expectations about the U.S. economy. Shorter-term interest rates, which are more correlated to action by the Federal Reserve (the Fed), rose during the reporting period in anticipation of an interest rate increase. In December 2015, the Fed lifted the target federal funds rate by 0.25% to a range between 0.25% and 0.50%, saying it intended to proceed gradually with interest rate increases based on the performance of the U.S. economy. In January 2016, the Fed chose not to raise interest rates amid increased uncertainty about financial and economic conditions. In this environment, the U.S. Treasury yield curve experienced a "bear flattening." In a bear flattening, short-term interest rates increase faster ================================================================================ 2 | USAA SHORT-TERM BOND FUND ================================================================================ o 10-YEAR U.S. TREASURY YIELDS o [CHART OF 10-YEAR U.S. TREASURY YIELDS]
DATE YIELD 7/31/2015 2.18% 8/3/2015 2.15 8/4/2015 2.22 8/5/2015 2.27 8/6/2015 2.22 8/7/2015 2.16 8/10/2015 2.23 8/11/2015 2.14 8/12/2015 2.15 8/13/2015 2.19 8/14/2015 2.20 8/17/2015 2.17 8/18/2015 2.19 8/19/2015 2.13 8/20/2015 2.07 8/21/2015 2.04 8/24/2015 2.00 8/25/2015 2.07 8/26/2015 2.18 8/27/2015 2.18 8/28/2015 2.18 8/31/2015 2.22 9/1/2015 2.15 9/2/2015 2.18 9/3/2015 2.16 9/4/2015 2.12 9/7/2015 2.12 9/8/2015 2.18 9/9/2015 2.20 9/10/2015 2.22 9/11/2015 2.19 9/14/2015 2.18 9/15/2015 2.29 9/16/2015 2.29 9/17/2015 2.19 9/18/2015 2.13 9/21/2015 2.20 9/22/2015 2.13 9/23/2015 2.15 9/24/2015 2.13 9/25/2015 2.16 9/28/2015 2.09 9/29/2015 2.05 9/30/2015 2.04 10/1/2015 2.04 10/2/2015 1.99 10/5/2015 2.06 10/6/2015 2.03 10/7/2015 2.07 10/8/2015 2.10 10/9/2015 2.09 10/12/2015 2.09 10/13/2015 2.04 10/14/2015 1.97 10/15/2015 2.02 10/16/2015 2.03 10/19/2015 2.02 10/20/2015 2.07 10/21/2015 2.02 10/22/2015 2.03 10/23/2015 2.09 10/26/2015 2.06 10/27/2015 2.04 10/28/2015 2.10 10/29/2015 2.17 10/30/2015 2.14 11/2/2015 2.17 11/3/2015 2.21 11/4/2015 2.23 11/5/2015 2.23 11/6/2015 2.33 11/9/2015 2.34 11/10/2015 2.34 11/11/2015 2.33 11/12/2015 2.31 11/13/2015 2.27 11/16/2015 2.27 11/17/2015 2.27 11/18/2015 2.27 11/19/2015 2.25 11/20/2015 2.26 11/23/2015 2.24 11/24/2015 2.24 11/25/2015 2.23 11/26/2015 2.23 11/27/2015 2.22 11/30/2015 2.21 12/1/2015 2.14 12/2/2015 2.18 12/3/2015 2.31 12/4/2015 2.27 12/7/2015 2.23 12/8/2015 2.22 12/9/2015 2.22 12/10/2015 2.23 12/11/2015 2.13 12/14/2015 2.22 12/15/2015 2.27 12/16/2015 2.30 12/17/2015 2.22 12/18/2015 2.20 12/21/2015 2.19 12/22/2015 2.24 12/23/2015 2.25 12/24/2015 2.24 12/25/2015 2.24 12/28/2015 2.23 12/29/2015 2.31 12/30/2015 2.29 12/31/2015 2.27 1/1/2016 2.27 1/4/2016 2.24 1/5/2016 2.24 1/6/2016 2.17 1/7/2016 2.15 1/8/2016 2.12 1/11/2016 2.18 1/12/2016 2.10 1/13/2016 2.09 1/14/2016 2.09 1/15/2016 2.03 1/18/2016 2.03 1/19/2016 2.06 1/20/2016 1.98 1/21/2016 2.03 1/22/2016 2.05 1/25/2016 2.00 1/26/2016 1.99 1/27/2016 2.00 1/28/2016 1.98 1/29/2016 1.92
[END CHART] Source: Bloomberg Finance L.P. than longer-term interest rates (though during the reporting period, longer-term interest rates actually trended down), thereby creating a flatter yield curve. This generally indicates that investor sentiment is becoming more "bearish." As longer-term interest rates fell, the prices of longer-maturity securities edged up (bond prices and yields move in opposite directions). Credit spreads widened across the credit spectrum, with single A, BBB, and below investment-grade "high-yield" spreads widening 19 basis points, 58 basis points, and 221 basis points, respectively. A basis point is 1/100th of a percent. Spreads (yield differentials versus U.S. Treasury securities of comparable maturity) are generally considered an indication of risk; the wider the spread, the greater the risk. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ o U.S. TREASURY YIELD CURVE o [CHART OF U.S. TREASURY YIELD CURVE]
YIELD (MID CONVENTIONAL %) YIELD --------------------------------- (CHANGE IN MATURITY 7/01/15 1/31/16 BASIS POINTS) 1M 0.008 0.221 21.4 3M 0.018 0.313 29.5 6M 0.114 0.428 31.3 1Y 0.273 0.451 17.9 2Y 0.69 0.776 8.5 3Y 1.064 0.968 -9.7 5Y 1.706 1.329 -37.7 7Y 2.146 1.668 -47.7 10Y 2.423 1.922 -50.1 30Y 3.202 2.744 -45.8
[END CHART] Source: Bloomberg Finance L.P. o HOW DID THE USAA SHORT-TERM BOND FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares had total returns of -0.37%, -0.43%, and -0.48%, respectively. This compares to returns of 0.39% for the Barclays 1-3 Year Government/Credit Index*, 0.30% for Refer to page 10 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *As of December 1, 2015, the Barclays 1-3 Year Credit Index replaces the Barclays 1-3 Government/Credit Index as the Fund's broad-based securities market index as it more closely represents the securities held by the Fund. ================================================================================ 4 | USAA SHORT-TERM BOND FUND ================================================================================ the Barclays 1-3 Year Credit Index (the Index), and -0.17% for the Lipper Short Investment Grade Debt Funds Index. At the same time, the Fund Shares, Institutional Shares, and Adviser Shares provided a one-year dividend yield of 1.68%, 1.79%, and 1.45%, respectively, compared to 1.47% for the Lipper Short Investment Grade Debt Funds Average. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus on generating an attractive yield with an acceptable level of price volatility. During the reporting period, the Fund's 30-day SEC yield continued to trend up. In addition, we sought to manage the portfolio's sensitivity to interest rates by maintaining a neutral duration position relative to the Lipper peer group (duration is a measure of a portfolio's interest-rate sensitivity). The Fund was negatively affected by its allocations to and security selection among oil and gas exploration and production bonds as well as metals and mining bonds. Many of these securities were hindered by the continued drop in oil and commodity prices during the reporting period. Although we reduced some of these holdings, we believe that over the long-term the Fund's positions in these industries will generate attractive total returns. The Fund also was hampered by its overweight in corporate bonds, which underperformed as credit spreads widened. On the positive side, the Fund benefited from its investments in municipal bonds and commercial mortgage-backed securities. During the reporting period, we continued to seek relative values across the fixed-income market. Our team of analysts help us evaluate each potential investment, rather than on the basis of thematic trends. We seek ideas where our fundamental understanding of the credit risk is different than the market, building the Fund bond-by-bond through fundamental bottom-up analysis. Due to uncertain times, we continued ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ to emphasize liquidity in the Fund. Our liquidity strategy helps to prevent the Fund from being a forced seller due to investment outflows. Our analysts continue to analyze and monitor every holding in the Fund. We are committed to building a portfolio diversified among multiple asset classes and across a large number of issuers. To minimize the Fund's exposure to potential surprises, we limit the positions we take in any one issuer. Thank you for allowing us to help you with your investment needs. Diversification is a technique to help reduce risk and does not guarantee a profit or prevent a loss. o As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Mortgage-backed securities have prepayment, credit, interest rate, and extension risks. Generally, when interest rates decline, prepayments accelerate beyond the initial pricing assumptions and may cause the average life of the securities to shorten. Also the market value may decline when interest rates rise because prepayments decrease beyond the initial pricing assumptions and may cause the average life of the securities to extend. ================================================================================ 6 | USAA SHORT-TERM BOND FUND ================================================================================ INVESTMENT OVERVIEW USAA SHORT-TERM BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USSBX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $1.4 Billion $1.8 Billion Net Asset Value Per Share $9.04 $9.15 Dollar-Weighted Average Portfolio Maturity(+) 2.2 Years 2.3 Years
(+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio.
-------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -0.37% -0.09% 1.82% 3.51% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS 0.01% 1.84% 3.51% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 2.15% 0.62%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED JANUARY 31, 2016
-------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE -------------------------------------------------------------------------------- 10 YEARS 3.51% = 3.27% + 0.24% 5 YEARS 1.82% = 2.14% + -0.32% 1 YEAR -0.09% = 1.65% + -1.74%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED JANUARY 31, 2007 - JANUARY 31, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
CHANGE IN SHARE TOTAL RETURN DIVIDEND RETURN PRICE 1/31/2007 4.68% 4.45% 0.23% 1/31/2008 6.28% 4.81% 1.47% 1/31/2009 -2.39% 4.51% -6.90% 1/31/2010 14.35% 5.14% 9.21% 1/31/2011 3.87% 3.21% 0.66% 1/31/2012 2.79% 2.90% -0.11% 1/31/2013 3.57% 2.47% 1.10% 1/31/2014 1.44% 1.98% -0.54% 1/31/2015 1.43% 1.71% -0.28% 1/31/2016 -0.09% 1.65% -1.74%
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 8 | USAA SHORT-TERM BOND FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS BARCLAYS 1-3 YEAR LIPPER SHORT 1-3 YEAR USAA SHORT-TERM GOVERNMENT/ INVESTMENT GRADE CREDIT INDEX* BOND FUND SHARES CREDIT INDEX FUNDS INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,016.09 10,021.84 10,011.80 10,021.76 3/31/2006 10,028.16 10,037.21 10,023.93 10,029.61 4/30/2006 10,064.93 10,071.62 10,057.75 10,061.16 5/31/2006 10,079.25 10,085.11 10,071.68 10,076.89 6/30/2006 10,100.30 10,112.45 10,091.35 10,092.46 7/31/2006 10,184.31 10,192.92 10,169.30 10,168.16 8/31/2006 10,267.02 10,264.38 10,245.23 10,242.18 9/30/2006 10,326.90 10,327.07 10,300.00 10,297.95 10/31/2006 10,373.40 10,374.73 10,343.39 10,344.29 11/30/2006 10,437.49 10,450.01 10,400.07 10,405.31 12/31/2006 10,445.26 10,442.41 10,405.07 10,412.47 1/31/2007 10,472.39 10,467.97 10,429.10 10,439.19 2/28/2007 10,568.10 10,577.02 10,513.86 10,525.03 3/31/2007 10,608.61 10,604.52 10,554.81 10,562.85 4/30/2007 10,650.53 10,644.54 10,593.62 10,604.03 5/31/2007 10,634.53 10,625.26 10,585.43 10,589.99 6/30/2007 10,678.88 10,656.16 10,629.99 10,618.50 7/31/2007 10,745.31 10,708.96 10,713.05 10,682.16 8/31/2007 10,790.59 10,766.93 10,800.36 10,695.24 9/30/2007 10,875.36 10,841.41 10,880.22 10,785.40 10/31/2007 10,936.45 10,884.13 10,929.46 10,810.05 11/30/2007 11,041.99 11,016.56 11,083.98 10,908.80 12/31/2007 11,067.72 11,045.15 11,116.20 10,912.02 1/31/2008 11,272.24 11,125.46 11,309.75 11,046.65 2/29/2008 11,357.10 11,120.91 11,410.78 11,066.14 3/31/2008 11,295.54 11,107.77 11,419.29 10,928.68 4/30/2008 11,281.79 11,099.97 11,353.89 10,928.13 5/31/2008 11,281.51 11,156.06 11,325.71 10,920.73 6/30/2008 11,283.94 11,159.40 11,346.44 10,899.67 7/31/2008 11,291.61 11,165.05 11,378.98 10,830.47 8/31/2008 11,356.26 11,184.83 11,432.05 10,868.24 9/30/2008 10,925.22 11,075.67 11,364.10 10,629.31 10/31/2008 10,772.07 10,790.07 11,388.45 10,422.94 11/30/2008 10,902.40 10,739.48 11,524.78 10,256.18 12/31/2008 11,101.31 10,761.97 11,668.99 10,408.94 1/31/2009 11,305.18 10,861.41 11,700.47 10,512.50 2/28/2009 11,213.58 10,922.85 11,680.26 10,539.03 3/31/2009 11,245.39 11,072.22 11,735.35 10,530.38 4/30/2009 11,498.57 11,239.22 11,801.81 10,663.86 5/31/2009 11,731.54 11,509.78 11,882.53 10,848.31 6/30/2009 11,862.15 11,638.87 11,902.74 10,931.56 7/31/2009 12,017.27 11,850.04 11,959.31 11,075.22 8/31/2009 12,138.15 11,989.03 12,022.91 11,206.16 9/30/2009 12,227.97 12,116.41 12,068.96 11,304.90 10/31/2009 12,304.13 12,209.73 12,107.45 11,430.53 11/30/2009 12,410.51 12,311.11 12,185.72 11,459.51 12/31/2009 12,387.96 12,273.99 12,115.32 11,476.88 1/31/2010 12,500.70 12,418.45 12,208.48 11,592.86 2/28/2010 12,535.69 12,456.84 12,236.24 11,620.70 3/31/2010 12,570.12 12,479.02 12,222.95 11,656.89 4/30/2010 12,624.30 12,558.21 12,259.74 11,752.74 5/31/2010 12,586.59 12,575.77 12,290.05 11,734.49 6/30/2010 12,654.98 12,649.42 12,351.52 11,803.13 7/31/2010 12,770.25 12,739.17 12,402.56 11,893.17 8/31/2010 12,819.46 12,798.71 12,431.17 11,959.90 9/30/2010 12,885.99 12,845.31 12,462.97 12,000.36 10/31/2010 12,939.97 12,890.30 12,498.49 12,051.73 11/30/2010 12,907.32 12,879.59 12,471.58 12,015.41 12/31/2010 12,902.55 12,856.96 12,454.57 11,998.86 1/31/2011 12,950.36 12,899.18 12,481.05 12,030.69 2/28/2011 12,973.65 12,916.77 12,478.81 12,062.36 3/31/2011 12,976.93 12,920.20 12,477.01 12,065.61 4/30/2011 13,065.25 13,008.57 12,538.47 12,139.35 5/31/2011 13,117.92 13,051.22 12,584.20 12,190.52 6/30/2011 13,114.93 13,055.00 12,585.90 12,172.92 7/31/2011 13,169.19 13,101.22 12,623.76 12,233.73 8/31/2011 13,135.04 13,090.14 12,647.05 12,171.77 9/30/2011 13,081.62 13,081.04 12,621.85 12,151.92 10/31/2011 13,159.18 13,138.22 12,649.50 12,183.13 11/30/2011 13,099.68 13,141.12 12,640.67 12,141.26 12/31/2011 13,128.59 13,173.71 12,653.01 12,183.34 1/31/2012 13,256.30 13,259.44 12,697.88 12,291.02 2/29/2012 13,310.75 13,305.23 12,697.57 12,335.95 3/31/2012 13,335.17 13,321.82 12,698.74 12,357.45 4/30/2012 13,359.97 13,379.59 12,724.26 12,401.26 5/31/2012 13,337.79 13,378.14 12,722.03 12,396.55 6/30/2012 13,373.16 13,421.98 12,726.92 12,427.97 7/31/2012 13,461.39 13,522.25 12,769.46 12,513.54 8/31/2012 13,508.07 13,566.22 12,780.94 12,555.75 9/30/2012 13,554.85 13,619.11 12,792.96 12,607.43 10/31/2012 13,587.23 13,674.52 12,795.40 12,633.71 11/30/2012 13,593.87 13,701.38 12,805.40 12,652.06 12/31/2012 13,612.77 13,710.96 12,812.74 12,665.77 1/31/2013 13,631.67 13,733.37 12,818.37 12,677.32 2/28/2013 13,657.77 13,774.09 12,832.62 12,704.94 3/31/2013 13,669.93 13,812.94 12,837.84 12,717.58 4/30/2013 13,708.01 13,867.12 12,856.76 12,757.69 5/31/2013 13,692.48 13,800.14 12,839.32 12,713.33 6/30/2013 13,645.79 13,688.54 12,821.78 12,618.80 7/31/2013 13,698.66 13,739.87 12,849.21 12,658.85 8/31/2013 13,692.67 13,717.63 12,838.26 12,638.49 9/30/2013 13,744.13 13,783.56 12,872.72 12,693.89 10/31/2013 13,791.00 13,850.46 12,894.31 12,743.87 11/30/2013 13,824.22 13,874.14 12,911.85 12,768.45 12/31/2013 13,810.28 13,850.33 12,895.26 12,752.16 1/31/2014 13,848.07 13,931.47 12,920.25 12,795.72 2/28/2014 13,881.01 13,967.77 12,937.16 12,830.90 3/31/2014 13,875.30 13,959.22 12,925.15 12,817.38 4/30/2014 13,906.92 14,010.69 12,946.10 12,852.79 5/31/2014 13,947.06 14,059.74 12,973.53 12,891.11 6/30/2014 13,941.07 14,064.67 12,967.47 12,899.15 7/31/2014 13,937.80 14,053.46 12,958.86 12,881.64 8/31/2014 13,967.08 14,087.89 12,982.36 12,899.60 9/30/2014 13,947.62 14,061.12 12,972.15 12,885.77 10/31/2014 13,985.61 14,095.96 13,008.95 12,910.07 11/30/2014 14,006.38 14,115.51 13,028.09 12,922.68 12/31/2014 13,964.28 14,079.98 12,994.38 12,878.89 1/31/2015 14,036.88 14,130.49 13,062.23 12,933.26 2/28/2015 14,033.51 14,134.50 13,040.75 12,943.23 3/31/2015 14,062.52 14,169.19 13,070.52 12,969.63 4/30/2015 14,086.84 14,173.36 13,081.47 12,987.94 5/31/2015 14,101.16 14,193.72 13,092.22 12,999.09 6/30/2015 14,078.61 14,167.80 13,088.17 12,978.88 7/31/2015 14,087.59 14,170.28 13,096.04 12,986.25 8/31/2015 14,070.00 14,143.38 13,087.54 12,964.39 9/30/2015 14,112.38 14,162.87 13,126.57 12,973.63 10/31/2015 14,125.76 14,166.64 13,122.21 12,988.05 11/30/2015 14,111.82 14,139.74 13,096.36 12,973.47 12/31/2015 14,083.47 14,081.47 13,079.35 12,935.95 1/31/2016 14,129.69 14,117.85 13,147.41 12,964.69
[END CHART] Data from 1/31/06 through 1/31/16. See next page for benchmark definitions. *As of December 1, 2015, the Barclays 1-3 Year Credit Index replaced the Barclays 1-3 Government/Credit Index as the Fund's broad-based securities market index as it more closely represents the securities held in the Fund. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Short Investment Grade Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ The graph on page 9 illustrates the comparison of a $10,000 hypothetical investment in the USAA Short-Term Bond Fund Shares to the following benchmarks: o The unmanaged broad-based Barclays 1-3 Year Credit Index measures the performance of investment grade corporate debt and sovereign, supranational, local authority, and non-U.S. agency bonds that have a remaining maturity of at least one year and less than three years. o The unmanaged broad-based Barclays 1-3 Year Government/Credit Index is made up of government, agency, corporate, and noncorporate bonds with maturities longer than one year and shorter than three years. o The unmanaged Lipper Short Investment Grade Debt Funds Index tracks the total return performance of the 30 largest funds in the Lipper Short Investment Grade Debt Funds category. ================================================================================ 10 | USAA SHORT-TERM BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER SHORT USAA SHORT-TERM INVESTMENT GRADE BOND FUND DEBT FUNDS SHARES AVERAGE 1/31/2007 4.35% 4.13% 1/31/2008 4.60 4.44 1/31/2009 4.92 4.56 1/31/2010 4.45 2.97 1/31/2011 3.14 2.27 1/31/2012 2.86 1.96 1/31/2013 2.40 1.67 1/31/2014 1.97 1.29 1/31/2015 1.70 1.33 1/31/2016 1.68 1.47
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The net asset value is adjusted for a portion of the capital gains distributed during the previous nine months. The graph represents data for periods ending 1/31/07 through 1/31/16. The Lipper Short Investment Grade Debt Funds Average is the average performance level of all short-term investment-grade debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ USAA SHORT-TERM BOND FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UISBX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $2.6 Billion $2.2 Billion Net Asset Value Per Share $9.03 $9.15 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -0.43% -0.10% 1.95% 3.35% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 0.23% 1.99% 3.37% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15*** -------------------------------------------------------------------------------- 2.24% 0.50%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ 12 | USAA SHORT-TERM BOND FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS USAA SHORT-TERM BARCLAYS LIPPER SHORT 1-3 YEAR BOND FUND 1-3 YEAR INVESTMENT GOVERNMENT/ INSTITUTIONAL CREDIT GRADE FUNDS CREDIT SHARES INDEX* INDEX INDEX 7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,016.15 10,057.26 10,034.87 10,046.64 9/30/2008 9,920.78 9,675.52 9,814.26 9,986.92 10/31/2008 9,667.70 9,539.88 9,623.72 10,008.32 11/30/2008 9,624.67 9,655.31 9,469.75 10,128.13 12/31/2008 9,647.65 9,831.47 9,610.79 10,254.86 1/31/2009 9,739.52 10,012.02 9,706.41 10,282.52 2/28/2009 9,797.00 9,930.90 9,730.91 10,264.77 3/31/2009 9,933.58 9,959.07 9,722.92 10,313.18 4/30/2009 10,085.90 10,183.29 9,846.16 10,371.59 5/31/2009 10,331.34 10,389.60 10,016.47 10,442.52 6/30/2009 10,449.65 10,505.27 10,093.33 10,460.28 7/31/2009 10,642.83 10,642.65 10,225.98 10,510.00 8/31/2009 10,769.72 10,749.71 10,346.88 10,565.89 9/30/2009 10,886.42 10,829.25 10,438.05 10,606.36 10/31/2009 10,972.54 10,896.70 10,554.05 10,640.19 11/30/2009 11,065.83 10,990.91 10,580.81 10,708.97 12/31/2009 11,033.88 10,970.94 10,596.84 10,647.10 1/31/2010 11,165.85 11,070.79 10,703.93 10,728.97 2/28/2010 11,202.39 11,101.78 10,729.64 10,753.37 3/31/2010 11,224.49 11,132.27 10,763.05 10,741.68 4/30/2010 11,297.84 11,180.24 10,851.55 10,774.02 5/31/2010 11,315.70 11,146.85 10,834.70 10,800.66 6/30/2010 11,384.53 11,207.42 10,898.07 10,854.67 7/31/2010 11,468.19 11,309.50 10,981.22 10,899.53 8/31/2010 11,523.95 11,353.09 11,042.82 10,924.67 9/30/2010 11,568.04 11,412.00 11,080.18 10,952.62 10/31/2010 11,610.74 11,459.81 11,127.61 10,983.83 11/30/2010 11,603.20 11,430.89 11,094.07 10,960.19 12/31/2010 11,585.16 11,426.67 11,078.79 10,945.24 1/31/2011 11,625.70 11,469.01 11,108.19 10,968.51 2/28/2011 11,643.82 11,489.64 11,137.42 10,966.54 3/31/2011 11,649.41 11,492.54 11,140.42 10,964.96 4/30/2011 11,731.38 11,570.76 11,208.51 11,018.97 5/31/2011 11,772.03 11,617.41 11,255.76 11,059.16 6/30/2011 11,777.76 11,614.76 11,239.51 11,060.66 7/31/2011 11,821.76 11,662.82 11,295.66 11,093.93 8/31/2011 11,814.16 11,632.57 11,238.45 11,114.39 9/30/2011 11,807.49 11,585.26 11,220.12 11,092.25 10/31/2011 11,860.50 11,653.95 11,248.94 11,116.54 11/30/2011 11,864.57 11,601.25 11,210.28 11,108.79 12/31/2011 11,895.71 11,626.86 11,249.13 11,119.63 1/31/2012 11,974.68 11,739.96 11,348.55 11,159.07 2/29/2012 12,017.53 11,788.18 11,390.04 11,158.79 3/31/2012 12,034.17 11,809.81 11,409.89 11,159.82 4/30/2012 12,087.64 11,831.77 11,450.34 11,182.25 5/31/2012 12,087.70 11,812.13 11,445.99 11,180.28 6/30/2012 12,128.70 11,843.45 11,475.00 11,184.58 7/31/2012 12,220.10 11,921.58 11,554.01 11,221.96 8/31/2012 12,261.40 11,962.93 11,592.99 11,232.06 9/30/2012 12,310.61 12,004.36 11,640.70 11,242.62 10/31/2012 12,349.14 12,033.03 11,664.96 11,244.77 11/30/2012 12,389.34 12,038.91 11,681.91 11,253.55 12/31/2012 12,399.89 12,055.65 11,694.57 11,260.00 1/31/2013 12,408.73 12,072.39 11,705.23 11,264.95 2/28/2013 12,460.39 12,095.50 11,730.74 11,277.48 3/31/2013 12,483.69 12,106.28 11,742.41 11,282.06 4/30/2013 12,534.21 12,140.00 11,779.44 11,298.69 5/31/2013 12,488.56 12,126.24 11,738.49 11,283.37 6/30/2013 12,389.25 12,084.90 11,651.21 11,267.94 7/31/2013 12,423.80 12,131.71 11,688.18 11,292.06 8/31/2013 12,418.70 12,126.41 11,669.38 11,282.43 9/30/2013 12,479.88 12,171.98 11,720.54 11,312.71 10/31/2013 12,528.45 12,213.50 11,766.68 11,331.68 11/30/2013 12,565.08 12,242.91 11,789.38 11,347.10 12/31/2013 12,545.25 12,230.56 11,774.34 11,332.52 1/31/2014 12,620.28 12,264.04 11,814.56 11,354.49 2/28/2014 12,654.49 12,293.21 11,847.04 11,369.35 3/31/2014 12,648.23 12,288.15 11,834.56 11,358.79 4/30/2014 12,696.28 12,316.16 11,867.25 11,377.20 5/31/2014 12,728.35 12,351.70 11,902.63 11,401.31 6/30/2014 12,747.90 12,346.40 11,910.06 11,395.98 7/31/2014 12,738.78 12,343.50 11,893.89 11,388.41 8/31/2014 12,771.43 12,369.43 11,910.47 11,409.07 9/30/2014 12,748.54 12,352.20 11,897.70 11,400.09 10/31/2014 12,781.53 12,385.84 11,920.14 11,432.43 11/30/2014 12,786.48 12,404.24 11,931.79 11,449.25 12/31/2014 12,755.39 12,366.95 11,891.35 11,419.63 1/31/2015 12,816.54 12,431.25 11,941.55 11,479.25 2/28/2015 12,821.19 12,428.26 11,950.75 11,460.38 3/31/2015 12,853.75 12,453.95 11,975.13 11,486.54 4/30/2015 12,858.47 12,475.49 11,992.04 11,496.17 5/31/2015 12,877.92 12,488.17 12,002.33 11,505.61 6/30/2015 12,855.39 12,468.20 11,983.67 11,502.06 7/31/2015 12,859.16 12,476.16 11,990.48 11,508.97 8/31/2015 12,835.94 12,460.58 11,970.29 11,501.50 9/30/2015 12,854.78 12,498.12 11,978.83 11,535.79 10/31/2015 12,845.32 12,509.96 11,992.14 11,531.96 11/30/2015 12,836.18 12,497.62 11,978.67 11,509.25 12/31/2015 12,784.45 12,472.51 11,944.03 11,494.30 1/31/2016 12,804.35 12,513.44 11,970.57 11,554.11
[END CHART] Data from 7/31/08 through 1/31/16.** The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Short-Term Bond Fund Institutional Shares to the Fund's benchmarks listed above (see page 10 for benchmark definitions). *As of December 1, 2015, the Barclays 1-3 Year Credit Index replaced the Barclays 1-3 Government/Credit Index as the Fund's broad-based securities market index as it more closely represents the securities held in the Fund. **The performance of the Barclays 1-3 Year Credit Index, Lipper Short Investment Grade Debt Funds Index, and the Barclays 1-3 Year Government/Credit Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Short Investment Grade Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA SHORT-TERM LIPPER SHORT BOND FUND INVESTMENT GRADE INSTITUTIONAL FUNDS INDEX SHARES AVERAGE 1/31/2010 4.71% 2.97% 1/31/2011 3.38 2.27 1/31/2012 3.07 1.96 1/31/2013 2.56 1.67 1/31/2014 2.12 1.29 1/31/2015 1.82 1.33 1/31/2016 1.79 1.47
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The net asset value is adjusted for a portion of the capital gains distributed during the previous nine months. The graph represents data for periods ending 1/31/10 through 1/31/16. The Lipper Short Investment Grade Debt Funds Average is the average performance level of all short-term investment-grade debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ 14 | USAA SHORT-TERM BOND FUND ================================================================================ USAA SHORT-TERM BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UASBX)
-------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $16.4 Million $13.3 Million Net Asset Value Per Share $9.04 $9.15 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -0.48% -0.32% 1.55% 1.63% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 -0.22% 1.59% 1.62% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 1/31/16 EXPENSE RATIO AS OF 7/31/15 *** -------------------------------------------------------------------------------- 1.90% 0.85%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS BARCLAYS USAA SHORT-TERM LIPPER SHORT 1-3 YEAR 1-3 YEAR BOND FUND INVESTMENT GOVERNMENT/ CREDIT ADVISER GRADE FUNDS CREDIT INDEX* SHARES INDEX INDEX 7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00 8/31/2010 10,038.54 10,043.84 10,056.10 10,023.07 9/30/2010 10,090.63 10,078.03 10,090.12 10,048.70 10/31/2010 10,132.90 10,121.71 10,133.32 10,077.34 11/30/2010 10,107.33 10,099.91 10,102.77 10,055.65 12/31/2010 10,103.60 10,079.47 10,088.86 10,041.93 1/31/2011 10,141.04 10,121.33 10,115.63 10,063.28 2/28/2011 10,159.28 10,122.02 10,142.25 10,061.48 3/31/2011 10,161.84 10,133.37 10,144.98 10,060.02 4/30/2011 10,231.00 10,189.21 10,206.99 10,109.58 5/31/2011 10,272.25 10,231.41 10,250.01 10,146.45 6/30/2011 10,269.91 10,221.09 10,235.21 10,147.82 7/31/2011 10,312.40 10,255.10 10,286.34 10,178.35 8/31/2011 10,285.66 10,244.10 10,234.25 10,197.13 9/30/2011 10,243.83 10,234.67 10,217.56 10,176.81 10/31/2011 10,304.56 10,277.32 10,243.80 10,199.10 11/30/2011 10,257.97 10,277.40 10,208.59 10,191.98 12/31/2011 10,280.60 10,300.58 10,243.98 10,201.93 1/31/2012 10,380.61 10,365.62 10,334.52 10,238.11 2/29/2012 10,423.25 10,399.25 10,372.29 10,237.86 3/31/2012 10,442.37 10,409.85 10,390.37 10,238.80 4/30/2012 10,461.79 10,452.76 10,427.21 10,259.38 5/31/2012 10,444.42 10,449.18 10,423.25 10,257.58 6/30/2012 10,472.12 10,480.97 10,449.67 10,261.52 7/31/2012 10,541.21 10,556.68 10,521.62 10,295.82 8/31/2012 10,577.77 10,588.18 10,557.11 10,305.08 9/30/2012 10,614.40 10,627.20 10,600.56 10,314.77 10/31/2012 10,639.75 10,656.49 10,622.65 10,316.74 11/30/2012 10,644.95 10,686.78 10,638.09 10,324.80 12/31/2012 10,659.75 10,692.26 10,649.62 10,330.72 1/31/2013 10,674.55 10,696.32 10,659.32 10,335.26 2/28/2013 10,694.99 10,737.32 10,682.55 10,346.75 3/31/2013 10,704.52 10,753.48 10,693.18 10,350.96 4/30/2013 10,734.34 10,804.75 10,726.90 10,366.22 5/31/2013 10,722.17 10,750.05 10,689.60 10,352.16 6/30/2013 10,685.61 10,661.01 10,610.13 10,338.01 7/31/2013 10,727.01 10,698.83 10,643.80 10,360.13 8/31/2013 10,722.32 10,678.99 10,626.67 10,351.30 9/30/2013 10,762.62 10,727.93 10,673.26 10,379.08 10/31/2013 10,799.32 10,777.68 10,715.28 10,396.49 11/30/2013 10,825.33 10,793.63 10,735.95 10,410.63 12/31/2013 10,814.41 10,772.78 10,722.25 10,397.26 1/31/2014 10,844.01 10,833.67 10,758.88 10,417.41 2/28/2014 10,869.80 10,860.85 10,788.46 10,431.04 3/31/2014 10,865.33 10,853.51 10,777.09 10,421.35 4/30/2014 10,890.10 10,892.83 10,806.86 10,438.24 5/31/2014 10,921.53 10,930.19 10,839.08 10,460.37 6/30/2014 10,916.84 10,931.61 10,845.85 10,455.48 7/31/2014 10,914.27 10,920.23 10,831.12 10,448.53 8/31/2014 10,937.21 10,944.56 10,846.22 10,467.48 9/30/2014 10,921.97 10,921.61 10,834.59 10,459.25 10/31/2014 10,951.71 10,946.49 10,855.03 10,488.92 11/30/2014 10,967.98 10,959.41 10,865.63 10,504.35 12/31/2014 10,935.01 10,929.46 10,828.81 10,477.17 1/31/2015 10,991.86 10,966.55 10,874.52 10,531.88 2/28/2015 10,989.22 10,968.08 10,882.90 10,514.56 3/31/2015 11,011.94 10,993.22 10,905.10 10,538.57 4/30/2015 11,030.98 10,994.56 10,920.50 10,547.40 5/31/2015 11,042.19 11,008.43 10,929.88 10,556.06 6/30/2015 11,024.54 10,985.56 10,912.88 10,552.80 7/31/2015 11,031.57 10,985.01 10,919.08 10,559.14 8/31/2015 11,017.80 10,961.71 10,900.70 10,552.28 9/30/2015 11,050.99 10,974.47 10,908.47 10,583.75 10/31/2015 11,061.46 10,975.57 10,920.60 10,580.24 11/30/2015 11,050.55 10,952.93 10,908.33 10,559.40 12/31/2015 11,028.35 10,905.88 10,876.78 10,545.68 1/31/2016 11,064.54 10,931.74 10,900.95 10,600.56
[END CHART] Data from 7/31/10 through 1/31/16.** The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Short-Term Bond Fund Adviser Shares to the Fund's benchmarks listed above (see page 10 for benchmark definitions). *As of December 1, 2015, the Barclays 1-3 Year Credit Index replaced the Barclays 1-3 Government/Credit Index as the Fund's broad-based securities market index as it more closely represents the securities held in the Fund. **The performance of the Barclays 1-3 Year Credit Index, Lipper Short Investment Grade Debt Funds Index, and the Barclays 1-3 Year Government/Credit Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Short Investment Grade Debt Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 16 | USAA SHORT-TERM BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA SHORT-TERM LIPPER SHORT BOND FUND INVESTMENT GRADE ADVISER FUNDS INDEX SHARES AVERAGE 1/31/2012 2.60% 1.96% 1/31/2013 2.14 1.67 1/31/2014 1.71 1.29 1/31/2015 1.50 1.33 1/31/2016 1.45 1.47
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The net asset value is adjusted for a portion of the capital gains distributed during the previous nine months. The graph represents data for periods ending 1/31/12 through 1/31/16. The Lipper Short Investment Grade Debt Funds Average is the average performance level of all short-term investment-grade debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 17 ================================================================================ o PORTFOLIO RATINGS MIX - 1/31/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 21.0% AA 10.3% A 21.1% BBB 41.5% BELOW INVESTMENT-GRADE 4.8% UNRATED 1.3%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 20-43. ================================================================================ 18 | USAA SHORT-TERM BOND FUND ================================================================================ o ASSET ALLOCATION - 1/31/16 o [PIE CHART OF ASSET ALLOCATION] CORPORATE OBLIGATIONS 43.3% EURODOLLAR AND YANKEE OBLIGATIONS 15.0% ASSET-BACKED SECURITIES 9.9% U.S. TREASURY SECURITIES 8.5% MONEY MARKET INSTRUMENTS 8.1% COMMERCIAL MORTGAGE SECURITIES 6.2% MUNICIPAL BONDS 5.7% U.S. GOVERNMENT AGENCY ISSUES 2.0% EXCHANGE-TRADED FUNDS* 0.9% PREFERRED STOCKS 0.1% COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART] *The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ INVESTMENT OVERVIEW | 19 ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- CORPORATE OBLIGATIONS (43.3%) CONSUMER DISCRETIONARY (3.1%) ----------------------------- APPAREL, ACCESSORIES & LUXURY GOODS (0.0%) $ 584 PVH Corp.(a) 3.25% 2/13/2020 $ 588 ---------- AUTOMOBILE MANUFACTURERS (0.5%) 5,000 Ford Motor Credit Co., LLC 1.70 5/09/2016 5,008 10,000 Ford Motor Credit Co., LLC 1.68 9/08/2017 9,898 5,000 Ford Motor Credit Co., LLC 2.38 1/16/2018 4,995 ---------- 19,901 ---------- CABLE & SATELLITE (0.9%) 18,000 CCO Safari II, LLC(b) 3.58 7/23/2020 18,116 1,850 CSC Holdings, LLC(a) 2.18 4/17/2018 1,843 15,000 NBCUniversal Enterprise(b) 1.31(c) 4/15/2018 14,988 ---------- 34,947 ---------- CASINOS & GAMING (0.3%) 9,849 Las Vegas Sands Corp.(a) 3.25 12/19/2020 9,809 ---------- CATALOG RETAIL (0.1%) 3,000 QVC, Inc. 3.13 4/01/2019 2,977 ---------- COMPUTER & ELECTRONICS RETAIL (0.1%) 2,816 Best Buy Co., Inc. 3.75 3/15/2016 2,821 ---------- GENERAL MERCHANDISE STORES (0.0%) 1,384 Dollar Tree, Inc.(a) 3.50 7/06/2022 1,382 ---------- HOME FURNISHINGS (0.0%) 493 Tempur Sealy International, Inc.(a) 3.50 3/18/2020 492 ---------- HOTELS, RESORTS & CRUISE LINES (0.1%) 5,450 Carnival Corp. 1.20 2/05/2016 5,450 ---------- HOUSEHOLD APPLIANCES (0.2%) 7,000 Whirlpool Corp. 1.35 3/01/2017 6,978 ---------- MOVIES & ENTERTAINMENT (0.1%) 4,788 Regal Cinemas Corp.(a) 3.80 4/01/2022 4,790 ---------- RESTAURANTS (0.3%) 12,868 ARAMARK Services, Inc.(a) 3.25 9/07/2019 12,848 ----------
================================================================================ 20 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- SPECIALTY STORES (0.5%) $ 1,985 PetSmart, Inc.(a) 4.25% 3/11/2022 $ 1,927 10,000 Staples, Inc. 2.75 1/12/2018 9,971 7,000 Staples, Inc.(a),(d) 3.50 4/07/2021 6,961 ---------- 18,859 ---------- Total Consumer Discretionary 121,842 ---------- CONSUMER STAPLES (2.6%) ----------------------- AGRICULTURAL PRODUCTS (0.1%) 5,000 Cargill, Inc.(b) 1.90 3/01/2017 5,036 ---------- DRUG RETAIL (0.9%) 20,000 CVS Health Corp. 1.90 7/20/2018 20,094 7,000 Walgreens Boots Alliance, Inc. 1.75 11/17/2017 6,985 8,000 Walgreens Boots Alliance, Inc. 2.70 11/18/2019 8,074 ---------- 35,153 ---------- HOUSEHOLD PRODUCTS (0.3%) 10,000 Church & Dwight Co., Inc. 2.45 12/15/2019 10,093 ---------- PACKAGED FOODS & MEAT (0.9%) 7,000 JM Smucker Co. 1.75 3/15/2018 7,007 5,000 JM Smucker Co. 2.50 3/15/2020 5,031 5,000 Kraft Foods Group, Inc. 2.25 6/05/2017 5,045 15,000 Kraft Heinz Foods Co.(b) 2.00 7/02/2018 14,996 5,000 Mead Johnson Nutrition Co. 3.00 11/15/2020 5,081 ---------- 37,160 ---------- SOFT DRINKS (0.0%) 1,000 Coca-Cola Co. 1.80 9/01/2016 1,006 ---------- TOBACCO (0.4%) 5,000 Reynolds American, Inc. 2.30 8/21/2017 5,053 10,000 Reynolds American, Inc. 2.30 6/12/2018 10,102 ---------- 15,155 ---------- Total Consumer Staples 103,603 ---------- ENERGY (6.7%) ------------- INTEGRATED OIL & GAS (0.4%) 15,000 ConocoPhillips Co. 1.50 5/15/2018 14,377 ---------- OIL & GAS DRILLING (0.4%) 5,000 Nabors Industries, Inc. 2.35 9/15/2016 4,932 4,000 Noble Holding International Ltd. 2.50 3/15/2017 3,521 5,000 Noble Holding International Ltd. 4.00 3/16/2018 3,990 5,000 Transocean, Inc. 5.80 12/15/2016 4,869 ---------- 17,312 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- OIL & GAS EQUIPMENT & SERVICES (1.0%) $ 20,000 Schlumberger Holdings Corp.(b) 1.90% 12/21/2017 $ 19,939 11,593 Weatherford International Ltd. 5.50 2/15/2016 11,612 5,000 Weatherford International Ltd. 6.00 3/15/2018 4,125 3,215 Weatherford International Ltd. 5.13 9/15/2020 2,307 ---------- 37,983 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.7%) 15,000 EQT Corp. 6.50 4/01/2018 15,696 3,400 Murphy Oil Corp. 2.50 12/01/2017 2,857 7,000 Southwestern Energy Co. 3.30 1/23/2018 5,546 6,950 Southwestern Energy Co. 4.05 1/23/2020 4,700 ---------- 28,799 ---------- OIL & GAS REFINING & MARKETING (0.1%) 5,000 Phillips 66 2.95 5/01/2017 5,073 ---------- OIL & GAS STORAGE & TRANSPORTATION (4.1%) 5,000 Boardwalk Pipelines, LLC 5.50 2/01/2017 4,960 5,040 Boardwalk Pipelines, LLC 5.75 9/15/2019 5,123 5,000 Columbia Pipeline Group, Inc.(b) 2.45 6/01/2018 4,856 10,000 Columbia Pipeline Group, Inc.(b) 3.30 6/01/2020 9,491 7,150 Copano Energy, LLC 7.13 4/01/2021 7,045 5,000 DCP Midstream, LLC(b) 5.35 3/15/2020 4,098 5,000 DCP Midstream, LLC(b) 4.75 9/30/2021 3,590 2,000 Enbridge Energy Partners, LP 9.88 3/01/2019 2,217 11,400 Enbridge Energy Partners, LP 8.05 10/01/2077 8,065 5,000 Energy Transfer Partners, LP 2.50 6/15/2018 4,578 1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,082 5,000 Energy Transfer Partners, LP 4.15 10/01/2020 4,430 12,000 Energy Transfer Partners, LP 3.35(c) 11/01/2066 7,080 1,025 Enterprise Products Operating, LLC 3.20 2/01/2016 1,025 10,000 Enterprise Products Operating, LLC 1.65 5/07/2018 9,727 7,000 Enterprise Products Operating, LLC 2.55 10/15/2019 6,704 10,000 Enterprise Products Operating, LLC 7.03 1/15/2068 10,025 5,000 Gulfstream Natural Gas System, LLC(b) 6.95 6/01/2016 5,080 3,218 Kern River Funding Corp.(b) 4.89 4/30/2018 3,353 5,000 Kinder Morgan Energy Partners, LP 3.50 3/01/2016 5,008 5,000 Kinder Morgan, Inc. 2.00 12/01/2017 4,825 4,000 NGPL PipeCo, LLC(b) 7.12 12/15/2017 3,780 16,968 NuStar Logistics, LP 8.15 4/15/2018 16,713 5,000 ONEOK Partners, LP 3.80 3/15/2020 4,619 10,000 Plains All American Pipeline, LP 2.60 12/15/2019 8,947 12,000 Sabine Pass LNG, LP 7.50 11/30/2016 12,405
================================================================================ 22 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 5,000 Spectra Energy Partners, LP 2.95% 6/15/2016 $ 5,017 1,000 Tennessee Gas Pipeline Co., LLC 8.00 2/01/2016 1,000 ---------- 164,843 ---------- Total Energy 268,387 ---------- FINANCIALS (14.8%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (0.6%) 8,765 Ares Capital Corp. 5.75 2/01/2016 8,765 10,000 FS Investment Corp. 4.00 7/15/2019 10,114 5,000 State Street Corp. 1.35 5/15/2018 4,978 ---------- 23,857 ---------- CONSUMER FINANCE (0.5%) 5,000 Capital One, N.A. 1.50 9/05/2017 4,976 5,000 Discover Bank 3.10 6/04/2020 5,029 10,000 Synchrony Financial 2.60 1/15/2019 9,992 ---------- 19,997 ---------- DIVERSIFIED BANKS (1.4%) 7,000 Bank of America, N.A. 6.10 6/15/2017 7,403 10,000 Citigroup, Inc. 1.55 8/14/2017 9,999 5,000 Citigroup, Inc. 1.85 11/24/2017 5,000 10,000 Comerica Bank 2.50 6/02/2020 10,014 2,000 JPMorgan Chase & Co. 1.03(c) 2/26/2016 2,000 5,000 JPMorgan Chase & Co. 1.35 2/15/2017 5,000 17,350 U.S. Bancorp 3.44 2/01/2016 17,350 ---------- 56,766 ---------- INVESTMENT BANKING & BROKERAGE (0.1%) 5,000 Goldman Sachs Group, Inc. 3.63 2/07/2016 5,001 ---------- LIFE & HEALTH INSURANCE (1.7%) 5,000 MetLife Global Funding I(b) 3.65 6/14/2018 5,215 10,000 New York Life Global Funding(b) 1.30 10/30/2017 9,997 20,000 New York Life Global Funding(b) 1.30 4/27/2018 19,901 11,800 Protective Life Corp. 6.40 1/15/2018 12,715 5,000 Reliance Standard Life Global Funding II(b) 2.15 10/15/2018 4,997 16,400 TIAA Asset Management Finance, LLC(b) 2.95 11/01/2019 16,352 ---------- 69,177 ---------- MULTI-LINE INSURANCE (0.3%) 2,545 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 1,966 9,000 MassMutual Global Funding, LLC(b) 2.10 8/02/2018 9,082 ---------- 11,048 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%) $ 4,201 AWAS Finance Luxembourg 2012 S.A.(a) 3.50% 7/16/2018 $ 4,201 7,000 Countrywide Financial Corp. 6.25 5/15/2016 7,100 3,959 Receipts on Corporate Securities Trust 6.50 8/01/2017 4,131 ---------- 15,432 ---------- PROPERTY & CASUALTY INSURANCE (2.0%) 12,000 Allstate Corp. 6.13 5/15/2067 11,880 22,016 Chubb Corp. 6.38 3/29/2067 20,673 12,420 Oil Insurance Ltd.(b) 3.59(c) -(e) 11,054 15,080 Progressive Corp. 6.70 6/15/2067 15,080 21,596 Sirius International Group(b) 6.38 3/20/2017 22,277 ---------- 80,964 ---------- REGIONAL BANKS (4.2%) 8,000 Allfirst Preferred Capital Trust 2.12(c) 7/15/2029 6,620 13,000 Associated Banc-Corp. 2.75 11/15/2019 13,065 2,000 BB&T Corp. 3.95 4/29/2016 2,016 8,000 BB&T Corp. 1.37(c) 6/15/2018 8,009 10,000 Compass Bank 1.85 9/29/2017 9,951 4,000 Compass Bank 6.40 10/01/2017 4,227 5,000 Compass Bank 2.75 9/29/2019 4,983 5,000 Cullen/Frost Bankers, Inc. 0.89(c) 2/15/2017 4,972 3,000 Fifth Third Bancorp 0.99(c) 12/20/2016 2,988 3,806 Fifth Third Bancorp 4.50 6/01/2018 4,017 5,000 First Niagara Financial Group, Inc. 6.75 3/19/2020 5,747 15,000 First Republic Bank 2.38 6/17/2019 15,030 5,247 First Tennessee Bank, N.A. 5.65 4/01/2016 5,275 8,500 Fulton Financial Corp. 5.75 5/01/2017 8,838 10,000 Huntington National Bank 1.35 8/02/2016 10,000 5,000 Huntington National Bank 1.38 4/24/2017 4,988 5,000 Manufacturers & Traders Trust Co. 1.25 1/30/2017 5,003 10,000 MUFG Americas Holdings Corp. 2.25 2/10/2020 9,914 5,000 MUFG Union Bank, N.A. 2.13 6/16/2017 5,043 5,000 MUFG Union Bank, N.A. 2.63 9/26/2018 5,077 9,500 People's United Financial, Inc. 3.65 12/06/2022 9,391 10,000 Regions Bank of Birmingham 2.25 9/14/2018 10,018 10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,853 ---------- 165,025 ---------- REINSURANCE (0.0%) 1,250 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 1,315 ---------- REITs - DIVERSIFIED (0.2%) 8,333 ARC Properties Operating Partnership, LP(a) 2.33 6/30/2018 8,083 ----------
================================================================================ 24 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- REITs - HEALTH CARE (0.4%) $ 2,000 HCP, Inc. 6.30% 9/15/2016 $ 2,058 5,000 Health Care REIT, Inc. 3.63 3/15/2016 5,014 2,505 Health Care REIT, Inc. 4.13 4/01/2019 2,627 2,950 Nationwide Health Properties, Inc. 6.90 10/01/2037 3,782 3,000 Ventas Realty, LP 4.00 4/30/2019 3,150 ---------- 16,631 ---------- REITs - HOTEL & RESORT (0.2%) 8,080 Hospitality Properties Trust 5.63 3/15/2017 8,336 ---------- REITs - INDUSTRIAL (0.2%) 7,300 First Industrial, LP 5.95 5/15/2017 7,654 ---------- REITs - OFFICE (1.0%) 7,000 BioMed Realty, LP 3.85 4/15/2016 7,038 9,000 Boston Properties, LP 3.70 11/15/2018 9,371 4,000 Equity Commonwealth 6.25 8/15/2016 4,006 3,700 Equity Commonwealth 6.25 6/15/2017 3,822 7,000 Mack-Cali Realty, LP 2.50 12/15/2017 7,022 7,680 Reckson Operating Partnership, LP 6.00 3/31/2016 7,732 ---------- 38,991 ---------- REITs - RESIDENTIAL (0.6%) 11,664 AvalonBay Communities, Inc. 5.70 3/15/2017 12,180 2,780 ERP Operating, LP 5.38 8/01/2016 2,838 8,425 Essex Portfolio, LP 5.50 3/15/2017 8,770 ---------- 23,788 ---------- REITs - RETAIL (0.3%) 11,355 Realty Income Corp. 2.00 1/31/2018 11,402 ---------- REITs - SPECIALIZED (0.4%) 10,000 American Tower Corp. 3.40 2/15/2019 10,253 3,980 Communications Sales & Leasing, Inc.(a) 5.00 10/24/2022 3,742 ---------- 13,995 ---------- SPECIALIZED FINANCE (0.1%) 5,000 McGraw Hill Financial, Inc. 2.50 8/15/2018 5,025 ---------- THRIFTS & MORTGAGE FINANCE (0.2%) 8,600 Chittenden Corp. 1.05(c) 2/14/2017 8,532 ---------- Total Financials 591,019 ---------- HEALTH CARE (2.4%) ------------------ BIOTECHNOLOGY (0.6%) 5,000 AbbVie, Inc. 1.75 11/06/2017 4,996 10,000 AbbVie, Inc. 1.80 5/14/2018 9,976
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 8,000 Baxalta, Inc.(b) 2.00% 6/22/2018 $ 7,907 ---------- 22,879 ---------- HEALTH CARE EQUIPMENT (0.4%) 10,000 Becton Dickinson and Co. 1.45 5/15/2017 9,992 5,000 Medtronic, Inc. 2.50 3/15/2020 5,081 ---------- 15,073 ---------- HEALTH CARE SERVICES (0.1%) 5,000 Express Scripts Holding Co. 2.65 2/15/2017 5,052 ---------- PHARMACEUTICALS (1.3%) 5,000 Actavis Funding SCS 2.35 3/12/2018 5,025 5,000 Actavis Funding SCS 3.00 3/12/2020 5,074 10,000 Mallinckrodt International Finance S.A. 3.50 4/15/2018 9,500 7,000 Mylan N.V.(b) 3.00 12/15/2018 7,019 5,970 Valeant Pharmaceuticals International, Inc.(a) 3.50 2/13/2019 5,755 853 Valeant Pharmaceuticals International, Inc.(a) 3.75 12/11/2019 823 8,667 Zoetis, Inc. 1.15 2/01/2016 8,667 11,278 Zoetis, Inc. 1.88 2/01/2018 11,205 ---------- 53,068 ---------- Total Health Care 96,072 ---------- INDUSTRIALS (4.8%) ------------------ AEROSPACE & DEFENSE (0.3%) 5,000 L-3 Communications Corp. 3.95 11/15/2016 5,070 3,477 TransDigm, Inc.(a) 3.75 2/28/2020 3,406 5,000 United Technologies Corp. 1.80 6/01/2017 5,046 ---------- 13,522 ---------- AIR FREIGHT & LOGISTICS (0.3%) 10,000 FedEx Corp. 2.30 2/01/2020 10,074 711 FedEx Corp. Pass-Through Trust(b) 2.63 1/15/2018 718 2,368 FedEx Corp. Pass-Through Trust 6.85 7/15/2020 2,525 ---------- 13,317 ---------- AIRLINES (1.8%) 462 America West Airlines, Inc. Pass-Through Trust 7.12 7/02/2018 477 6,361 American Airlines 2014-1 Pass-Through Trust 4.38 4/01/2024 6,274 5,000 American Airlines 2015-2 Pass-Through Trust 4.40 3/22/2025 4,919 14,800 Aviation Capital Group Corp.(b) 3.88 9/27/2016 14,962 2,745 Continental Airlines 1998-1 Pass-Through Trust 6.65 3/15/2019 2,798 11,461 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 11,820 970 United Airlines, Inc. Pass-Through Trust 9.75 7/15/2018 1,029 4,548 United Airlines, Inc. Pass-Through Trust 5.38 2/15/2023 4,622
================================================================================ 26 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 1,570 United Airlines, Inc. Pass-Through Trust 4.63% 3/03/2024 $ 1,580 4,115 US Airways Group, Inc. Pass-Through Trust 8.50 10/22/2018 4,285 6,550 US Airways Group, Inc. Pass-Through Trust 5.38 5/15/2023 6,607 1,098 US Airways Group, Inc. Pass-Through Trust (INS) 7.08 9/20/2022 1,173 4,900 US Airways, Inc.(a) 3.00 11/23/2016 4,902 4,900 US Airways, Inc.(a) 3.50 5/23/2019 4,862 ---------- 70,310 ---------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%) 3,000 CNH Industrial Capital, LLC 3.63 4/15/2018 2,925 4,583 CNH Industrial Capital, LLC 3.38 7/15/2019 4,239 9,850 Terex Corp.(a) 3.50 8/13/2021 9,752 ---------- 16,916 ---------- RAILROADS (0.3%) 10,000 TTX Co.(b) 5.40 2/15/2016 10,016 ---------- TRADING COMPANIES & DISTRIBUTORS (0.6%) 10,000 International Lease Finance Corp. 2.46(c) 6/15/2016 9,950 13,000 International Lease Finance Corp.(b) 7.13 9/01/2018 14,105 ---------- 24,055 ---------- TRUCKING (1.1%) 5,000 ERAC USA Finance, LLC(b) 1.40 4/15/2016 5,002 5,000 ERAC USA Finance, LLC(b) 2.75 3/15/2017 5,054 3,000 ERAC USA Finance, LLC(b) 6.38 10/15/2017 3,213 10,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 2.50 3/15/2016 10,002 4,970 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 3.38 3/15/2018 5,058 14,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(b) 2.88 7/17/2018 14,196 ---------- 42,525 ---------- Total Industrials 190,661 ---------- INFORMATION TECHNOLOGY (1.4%) ----------------------------- COMMUNICATIONS EQUIPMENT (0.2%) 5,000 Harris Corp. 2.70 4/27/2020 4,971 2,500 QUALCOMM, Inc. 2.25 5/20/2020 2,509 ---------- 7,480 ---------- DATA PROCESSING & OUTSOURCED SERVICES (0.5%) 10,000 Total System Services, Inc. 2.38 6/01/2018 9,956 6,650 Xerox Corp. 6.40 3/15/2016 6,689 3,000 Xerox Corp. 2.95 3/15/2017 3,006 ---------- 19,651 ---------- ELECTRONIC COMPONENTS (0.1%) 5,000 Amphenol Corp. 2.55 1/30/2019 5,035 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%) $ 3,000 FLIR Systems, Inc.(f) 3.75% 9/01/2016 $ 3,038 ---------- ELECTRONIC MANUFACTURING SERVICES (0.4%) 16,892 Molex Electronics Technologies, LLC(b) 2.88 4/15/2020 16,786 ---------- TECHNOLOGY DISTRIBUTORS (0.1%) 5,000 Tech Data Corp. 3.75 9/21/2017 5,135 ---------- Total Information Technology 57,125 ---------- MATERIALS (0.8%) ---------------- ALUMINUM (0.1%) 5,046 Alcoa, Inc. 6.75 7/15/2018 5,256 ---------- CONSTRUCTION MATERIALS (0.2%) 10,000 Martin Marietta Materials, Inc. 1.70(c) 6/30/2017 9,940 ---------- DIVERSIFIED METALS & MINING (0.3%) 3,000 Freeport-McMoRan, Inc. 2.30 11/14/2017 2,081 7,625 Freeport-McMoRan, Inc.(a) 2.43 5/31/2018 5,871 5,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 2,338 ---------- 10,290 ---------- SPECIALTY CHEMICALS (0.2%) 6,000 Albemarle Corp. 3.00 12/01/2019 5,962 ---------- Total Materials 31,448 ---------- TELECOMMUNICATION SERVICES (1.9%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (1.5%) 500 AT&T, Inc. 0.74(c) 2/12/2016 500 25,000 AT&T, Inc. 2.45 6/30/2020 24,748 5,000 Centel Capital Corp. 9.00 10/15/2019 5,786 3,600 CenturyLink, Inc. 6.45 6/15/2021 3,526 2,500 Frontier Communications Corp.(b) 8.88 9/15/2020 2,519 12,344 Verizon Communications, Inc. 2.50 9/15/2016 12,443 10,000 Verizon Communications, Inc. 1.35 6/09/2017 9,991 ---------- 59,513 ---------- WIRELESS TELECOMMUNICATION SERVICES (0.4%) 11,250 CC Holdings GS V, LLC / Crown Castle GS III Corp 2.38 12/15/2017 11,307 4,770 Grain Spectrum Funding, LLC(b) 4.00 10/10/2018 4,872 16,179 ---------- Total Telecommunication Services 75,692 ----------
================================================================================ 28 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- UTILITIES (4.8%) ---------------- ELECTRIC UTILITIES (3.0%) $ 1,000 Baltimore Gas and Electric Co. 5.90% 10/01/2016 $ 1,032 8,000 Duke Energy Corp. 2.10 6/15/2018 8,031 1,000 Duke Energy Indiana, Inc. 6.05 6/15/2016 1,019 6,700 Entergy Corp. 4.70 1/15/2017 6,847 10,000 Eversource Energy 1.60 1/15/2018 9,966 15,000 Exelon Corp. 1.55 6/09/2017 14,970 7,000 FirstEnergy Corp. 2.75 3/15/2018 7,047 12,000 IPALCO Enterprises, Inc. 5.00 5/01/2018 12,600 7,000 IPALCO Enterprises, Inc. 3.45 7/15/2020 6,948 10,000 NextEra Energy Capital Holding, Inc. 1.59 6/01/2017 9,985 10,000 NextEra Energy Capital Holding, Inc. 2.06 9/01/2017 10,046 7,000 Otter Tail Corp. 9.00 12/15/2016 7,363 9,000 PPL Energy Supply, LLC 6.20 5/15/2016 9,022 1,000 Public Service Co. of Oklahoma 6.15 8/01/2016 1,024 1,863 Tri-State Generation & Transmission Association Pass-Through Trust(b) 6.04 1/31/2018 1,930 10,000 Xcel Energy, Inc. 1.20 6/01/2017 9,960 ---------- 117,790 ---------- GAS UTILITIES (0.2%) 2,000 AGL Capital Corp. 6.38 7/15/2016 2,047 545 Alliance Pipeline, LP(b) 7.00 12/31/2019 593 5,000 SourceGas, LLC(b) 5.90 4/01/2017 5,197 ---------- 7,837 ---------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.9%) 7,975 Exelon Generation Co., LLC 4.00 10/01/2020 7,989 9,730 NRG Energy, Inc.(a) 2.75 7/02/2018 9,566 10,000 Southern Power Co. 1.50 6/01/2018 9,873 10,000 Southern Power Co. 2.38 6/01/2020 9,814 ---------- 37,242 ---------- MULTI-UTILITIES (0.7%) 10,000 Black Hills Corp. 2.50 1/11/2019 9,955 11,100 Integrys Holding, Inc. 6.11 12/01/2066 8,104 10,000 Sempra Energy 2.40 3/15/2020 9,772 ---------- 27,831 ---------- Total Utilities 190,700 ---------- Total Corporate Obligations (cost: $1,763,559) 1,726,549 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- EURODOLLAR AND YANKEE OBLIGATIONS (15.0%) CONSUMER DISCRETIONARY (1.0%) ----------------------------- AUTOMOBILE MANUFACTURERS (1.0%) $ 5,000 Daimler Finance, N.A., LLC(b) 1.88% 1/11/2018 $ 4,986 10,000 Hyundai Capital America(b) 1.88 8/09/2016 10,035 2,000 Hyundai Capital America(b) 1.45 2/06/2017 1,996 7,800 Hyundai Capital Services, Inc.(b) 1.33(c) 3/18/2017 7,783 13,235 Nissan Motor Acceptance Corp.(b) 0.97(c) 3/03/2017 13,208 ---------- 38,008 ---------- Total Consumer Discretionary 38,008 ---------- CONSUMER STAPLES (1.1%) ----------------------- BREWERS (0.4%) 5,000 SABMiller Holdings, Inc.(b) 2.45 1/15/2017 5,042 9,530 SABMiller Holdings, Inc.(b) 2.20 8/01/2018 9,589 ---------- 14,631 ---------- DISTILLERS & VINTNERS (0.1%) 5,000 Pernod Ricard S.A.(b) 2.95 1/15/2017 5,052 ---------- TOBACCO (0.6%) 5,000 B.A.T. International Finance plc(b) 2.13 6/07/2017 5,044 7,000 Imperial Tobacco Finance plc(b) 2.05 7/20/2018 7,013 10,000 Imperial Tobacco Finance plc(b) 2.95 7/21/2020 10,143 ---------- 22,200 ---------- Total Consumer Staples 41,883 ---------- ENERGY (1.6%) ------------- INTEGRATED OIL & GAS (1.1%) 8,000 BP Capital Markets plc 1.63 8/17/2017 7,991 12,820 Origin Energy Finance Ltd.(b) 3.50 10/09/2018 12,003 10,000 Petrobras Global Finance B.V. 2.00 5/20/2016 9,938 15,000 Shell International Finance B.V. 1.13 8/21/2017 14,939 ---------- 44,871 ---------- OIL & GAS EXPLORATION & PRODUCTION (0.2%) 7,000 Canadian Natural Resources Ltd. 0.98(c) 3/30/2016 6,969 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.3%) 7,500 Enbridge, Inc. 0.87(c) 6/02/2017 7,151 6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 5,895 ---------- 13,046 ---------- Total Energy 64,886 ----------
================================================================================ 30 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- FINANCIALS (7.4%) ----------------- DIVERSIFIED BANKS (4.7%) $ 5,000 Abbey National Treasury Services plc 2.35% 9/10/2019 $ 5,038 5,000 ANZ New Zealand International Ltd.(b) 2.60 9/23/2019 5,055 5,000 ANZ New Zealand International Ltd.(b) 2.85 8/06/2020 5,115 4,000 Banco Santander Chile(b) 1.52(c) 4/11/2017 3,980 10,000 Bank of Montreal 1.40 4/10/2018 9,955 7,500 Barclays Bank plc(b) 2.25 5/10/2017 7,606 5,000 BPCE S.A. 1.63 2/10/2017 5,003 2,000 Commonwealth Bank of Australia(b) 2.25 3/16/2017 2,024 5,000 DNB Bank ASA(b) 3.20 4/03/2017 5,100 5,000 Lloyds Bank plc 4.20 3/28/2017 5,163 7,000 National Australia Bank of New York 2.75 3/09/2017 7,125 10,000 Nordea Bank AB(b) 4.88 5/13/2021 10,831 16,000 Rabobank Nederland 1.01(c) 3/18/2016 16,003 5,000 Rabobank Nederland 3.38 1/19/2017 5,105 10,000 Royal Bank of Canada 0.85 3/08/2016 10,003 10,010 Royal Bank of Scotland Group plc 9.50(c) 3/16/2022 10,676 10,000 Santander Bank, N.A. 2.00 1/12/2018 9,925 14,350 Santander Bank, N.A. 8.75 5/30/2018 16,247 19,000 Standard Chartered Bank(b) 6.40 9/26/2017 20,249 5,000 Standard Chartered plc(b) 2.25 4/17/2020 4,962 5,000 Svenska Handelsbanken AB 2.88 4/04/2017 5,094 10,000 Swedbank AB(b) 1.75 3/12/2018 10,028 8,000 Toronto-Dominion Bank 1.40 4/30/2018 7,976 ---------- 188,263 ---------- DIVERSIFIED CAPITAL MARKETS (0.3%) 10,000 UBS Group Funding Ltd.(b) 2.95 9/24/2020 9,963 ---------- DIVERSIFIED REAL ESTATE ACTIVITIES (0.5%) 16,756 Brookfield Asset Management, Inc. 5.80 4/25/2017 17,364 ---------- MULTI-LINE INSURANCE (0.5%) 21,000 ZFS Finance USA Trust II(b) 6.45 12/15/2065 21,131 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%) 7,000 ING Bank N.V.(b) 3.75 3/07/2017 7,175 6,378 ING Bank N.V. 4.13 11/21/2023 6,486 2,000 ING Capital Funding Trust III 4.21(c) -(e) 1,977 ---------- 15,638 ---------- PROPERTY & CASUALTY INSURANCE (0.7%) 12,000 QBE Insurance Group Ltd.(b) 2.40 5/01/2018 12,031 17,000 Suncorp-Metway Ltd.(b) 1.70 3/28/2017 17,052 ---------- 29,083 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 31 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- REITs - RETAIL (0.3%) $ 5,000 Scentre Group Trust(b) 2.38% 4/28/2021 $ 4,913 7,000 WEA Finance, LLC(b) 1.75 9/15/2017 6,966 ---------- 11,879 ---------- Total Financials 293,321 ---------- INDUSTRIALS (1.8%) ------------------ AIRLINES (0.8%) 10,000 Air Canada Pass-Through Trust(b) 5.00 9/15/2020 9,225 11,827 British Airways Pass-Through Trust plc(b) 5.63 12/20/2021 12,167 11,702 Virgin Australia Trust(b) 5.00 4/23/2025 12,068 ---------- 33,460 ---------- INDUSTRIAL CONGLOMERATES (0.3%) 5,000 Hutchison Whampoa International Ltd.(b) 3.50 1/13/2017 5,088 6,600 Hutchison Whampoa International Ltd.(b) 2.00 11/08/2017 6,646 ---------- 11,734 ---------- MARINE (0.2%) 10,000 A.P. Moeller-Maersk A/S(b) 2.55 9/22/2019 9,957 ---------- RAILROADS (0.3%) 10,000 Asciano Finance(b) 5.00 4/07/2018 10,305 ---------- TRADING COMPANIES & DISTRIBUTORS (0.2%) 8,000 AerCap Ireland Capital Ltd. 2.75 5/15/2017 7,880 ---------- Total Industrials 73,336 ---------- MATERIALS (1.9%) ---------------- CONSTRUCTION MATERIALS (0.1%) 5,000 Holcim US Finance Sarl & Cie SCS(b) 6.00 12/30/2019 5,583 ---------- DIVERSIFIED METALS & MINING (1.4%) 10,000 Anglo American Capital plc(b) 1.57(c) 4/15/2016 9,923 5,000 Anglo American Capital plc(b) 2.63 9/27/2017 4,375 5,000 Anglo American Capital plc(b) 3.63 5/14/2020 3,334 10,000 Glencore Finance Canada Ltd.(b) 2.70 10/25/2017 8,978 10,000 Glencore Funding, LLC(b) 1.70 5/27/2016 9,825 17,000 Rio Tinto Finance USA plc 1.37(c) 6/17/2016 16,963 1,746 Teck Resources Ltd.(f) 3.15 1/15/2017 1,650 ---------- 55,048 ---------- GOLD (0.2%) 10,000 Barrick Gold Corp. 2.50 5/01/2018 9,508 ----------
================================================================================ 32 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- STEEL (0.2%) $ 4,000 ArcelorMittal 5.50% 2/25/2017 $ 3,930 4,500 ArcelorMittal 5.13 6/01/2020 3,645 ---------- 7,575 ---------- Total Materials 77,714 ---------- TELECOMMUNICATION SERVICES (0.0%) --------------------------------- WIRELESS TELECOMMUNICATION SERVICES (0.0%) 225 Vodafone Group plc 0.75(c) 2/19/2016 225 ---------- UTILITIES (0.2%) ---------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%) 10,000 TransAlta Corp. 1.90 6/03/2017 9,383 ---------- Total Eurodollar and Yankee Obligations (cost: $604,182) 598,756 ---------- ASSET-BACKED SECURITIES (9.9%) FINANCIALS (9.9%) ----------------- ASSET-BACKED FINANCING (9.9%) 2,462 Access Group, Inc. 0.88(c) 4/25/2029 2,429 420 ACS Pass-Through Trust(b) 0.72(c) 6/14/2037 405 1,995 American Credit Acceptance Receivables Trust(b) 1.43 8/12/2019 1,988 697 AmeriCredit Automobile Receivables Trust 1.31 11/08/2017 697 7,500 AmeriCredit Automobile Receivables Trust 1.93 8/08/2018 7,517 2,400 AmeriCredit Automobile Receivables Trust 1.57 1/08/2019 2,401 7,500 AmeriCredit Automobile Receivables Trust(b) 6.53 1/08/2019 7,509 6,000 AmeriCredit Automobile Receivables Trust 2.09 2/08/2019 6,023 6,681 ARL First, LLC(b) 2.18(c) 12/15/2042 6,673 1,000 Avis Budget Rental Car Funding, LLC(b) 5.94 3/20/2017 1,004 8,100 Avis Budget Rental Car Funding, LLC(b) 3.68 11/20/2017 8,133 12,000 Avis Budget Rental Car Funding, LLC(b) 2.62 9/20/2019 11,872 17,000 Babson CLO Ltd.(b) 1.60(c) 5/15/2023 16,995 5,000 Bank of The West Auto Trust(b) 1.65 3/16/2020 4,994 10,000 Bank of The West Auto Trust(b) 1.66 9/15/2020 9,963 4,200 California Republic Auto Receivables Trust 2.30 12/16/2019 4,185 9,425 California Republic Auto Receivables Trust 2.57 11/16/2020 9,383 9,662 Capital One Multi-asset Execution Trust 0.71(c) 1/15/2019 9,661 923 CenterPoint Energy Transition Bond Co. III, LLC 4.19 2/01/2020 938 7,474 CIT Education Loan Trust(b) 0.90(c) 6/25/2042 6,230 15,000 CIT Equipment Collateral(b) 1.50 10/21/2019 14,973 819 CNH Equipment Trust 0.48 8/15/2017 818 6,000 CNH Equipment Trust 1.27 11/16/2020 5,993 5,500 CNH Equipment Trust 2.14 8/15/2022 5,506 2,455 College Loan Corp. Trust 1.11(c) 1/15/2037 2,134
================================================================================ PORTFOLIO OF INVESTMENTS | 33 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 5,322 Collegiate Funding Services Education Loan Trust 0.92%(c) 3/28/2035 $ 4,839 3,600 Credit Acceptance Auto Loan Trust(b) 1.83 4/15/2021 3,600 13,000 Credit Acceptance Auto Loan Trust(b) 1.55 10/15/2021 12,971 4,000 Credit Acceptance Auto Loan Trust(b) 2.29 4/15/2022 4,003 5,000 Credit Acceptance Auto Loan Trust(b) 2.67 9/15/2022 5,028 5,000 Drive Auto Receivables Trust "B"(b) 2.28 6/17/2019 5,007 5,000 Drive Auto Receivables Trust "B"(b) 2.23 9/16/2019 4,996 7,500 Dryden Senior Loan Fund(b) 2.12(c) 4/15/2027 7,419 4,561 Element Rail Leasing I, LLC(b) 2.30 4/19/2044 4,536 10,000 Enterprise Fleet Financing, LLC(b) 1.59 2/22/2021 9,974 460 Exeter Automobile Receivables Trust(b) 1.29 5/15/2018 460 5,402 Exeter Automobile Receivables Trust(b) 3.09 7/16/2018 5,409 396 Exeter Automobile Receivables Trust(b) 1.06 8/15/2018 396 1,000 Exeter Automobile Receivables Trust(b) 2.42 1/15/2019 1,001 2,623 First Investors Auto Owner Trust(b) 0.86 8/15/2018 2,620 8,750 First Investors Auto Owner Trust(b) 3.04 8/15/2018 8,808 5,000 First Investors Auto Owner Trust(b) 2.26 3/15/2019 5,023 5,000 First Investors Auto Owner Trust(b) 1.49 6/15/2020 4,989 2,161 GE Equipment Midticket, LLC 0.64 4/24/2017 2,159 3,282 Hertz Vehicle Financing, LLC(b) 3.74 2/25/2017 3,289 10,000 Hertz Vehicle Financing, LLC(b) 1.86 8/25/2017 9,975 10,500 Hertz Vehicle Financing, LLC(b) 2.96 9/25/2019 10,524 3,000 Huntington Auto Trust "C" 2.15 6/15/2021 2,999 3,594 Iowa Student Loan Liquidity Corp. 0.95(c) 9/25/2037 3,110 15,000 Marine Park CLO Ltd.(b) 1.64(c) 10/12/2023 14,957 10,000 MMAF Equipment Finance, LLC(b) 1.93 7/16/2021 10,090 1,606 Nelnet Student Loan Trust 0.87(c) 9/22/2037 1,448 2,076 Prestige Auto Receivables Trust(b) 0.97 3/15/2018 2,073 5,000 Prestige Auto Receivables Trust(b) 1.52 4/15/2020 4,991 6,000 Prestige Auto Receivables Trust "B"(b) 1.74 5/15/2019 6,001 3,025 Santander Drive Auto Receivables Trust 1.95 3/15/2019 3,033 8,000 Santander Drive Auto Receivables Trust 1.45 5/15/2019 7,997 4,500 Santander Drive Auto Receivables Trust 2.73 10/15/2019 4,552 5,000 SBA Tower Trust(b) 2.90 10/15/2044 5,025 5,577 SLC Student Loan Trust 0.92(c) 7/15/2036 5,407 8,000 SLC Student Loan Trust 1.07(c) 7/15/2036 6,908 6,278 SLM Student Loan Trust 1.00(c) 1/27/2025 6,030 1,091 SLM Student Loan Trust 1.17(c) 10/25/2038 949 5,000 Suntrust Auto Receivables Trust "B"(b) 2.20 2/15/2021 5,069 8,000 Suntrust Auto Receivables Trust "C"(b) 2.50 4/15/2021 8,157 5,000 TCF Auto Receivables Owner Trust(b) 2.55 4/15/2021 5,049 7,500 TCF Auto Receivables Owner Trust "B"(b) 2.49 4/15/2021 7,473 5,213 Trinity Rail Leasing, LP(b) 2.27 1/15/2043 5,148 8,425 Trip Rail Master Funding, LLC(b) 2.86 4/15/2044 8,573
================================================================================ 34 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 1,260 Westlake Automobile Receivables Trust(b) 2.24% 4/15/2020 $ 1,254 5,150 Westlake Automobile Receivables Trust(b) 2.45 1/15/2021 5,116 ---------- 396,859 ---------- Total Financials 396,859 ---------- Total Asset-Backed Securities (cost: $398,028) 396,859 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%) FINANCIALS (0.1%) ----------------- 3,986 Sequoia Mortgage Trust(b) (cost: $4,046) 3.00(c) 5/25/2043 3,986 ---------- COMMERCIAL MORTGAGE SECURITIES (6.2%) FINANCIALS (6.2%) ----------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (4.5%) 640 Banc of America Commercial Mortgage, Inc. 5.52 11/10/2042 640 593 Banc of America Commercial Mortgage, Inc. 4.73 7/10/2043 593 5,000 Banc of America Commercial Mortgage, Inc. 5.36 10/10/2045 5,062 6,917 Banc of America Commercial Mortgage, Inc. 5.63 7/10/2046 6,966 2,400 Banc of America Commercial Mortgage, Inc. 5.68 7/10/2046 2,442 10,000 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 10,767 10,000 Barclays Commercial Mortgage Securities, LLC(b) 2.03 2/15/2028 9,778 129 Chase Commercial Mortgage Securities Corp.(b) 6.56 5/18/2030 129 4,640 Citigroup Commercial Mortgage Trust 1.39 7/10/2047 4,616 2,000 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 2,011 20,000 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 19,927 1,399 Citigroup Commercial Mortgage Trust 6.03 3/15/2049 1,402 4,300 Commercial Mortgage Trust(b) 2.02 2/13/2032 4,241 2,330 Credit Suisse Commercial Mortgage Trust 6.01 6/15/2038 2,332 3,889 Credit Suisse Commercial Mortgage Trust 5.38 2/15/2040 3,964 7,445 DB-UBS Mortgage Trust (f) 3.64 8/10/2044 7,469 1,107 DB-UBS Mortgage Trust(b) 3.74 11/10/2046 1,109 8,090 Greenwich Capital Commercial Funding Corp. 6.05 7/10/2038 8,115 4,843 GS Mortgage Securities Corp. II 2.54 1/10/2045 4,867 10,000 GS Mortgage Securities Corp. II 2.32 5/10/2045 10,064 6,446 GS Mortgage Securities Trust 1.21 7/10/2046 6,425 588 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.12 7/15/2041 589 1,238 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.81 6/12/2043 1,239 76 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.52 5/12/2045 76 1,650 J.P. Morgan Chase Commercial Mortgage Securities Corp.(b) 4.11 7/15/2046 1,726
================================================================================ PORTFOLIO OF INVESTMENTS | 35 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 11,653 LB Commercial Mortgage Trust 6.10% 7/15/2044 $ 12,221 5,000 LB-UBS Commercial Mortgage Trust 5.35 11/15/2038 5,075 4,000 LB-UBS Commercial Mortgage Trust 5.41 9/15/2039 4,072 3,776 LB-UBS Commercial Mortgage Trust 5.42 2/15/2040 3,826 6,000 LB-UBS Commercial Mortgage Trust 5.46 2/15/2040 6,171 6,320 Morgan Stanley Capital I, Inc. 5.57 12/15/2044 6,602 3,095 Morgan Stanley Capital I, Inc. 5.27 10/12/2052 3,095 2,914 Morgan Stanley Dean Witter Capital I, Inc.(b) 5.25 12/17/2043 2,911 7,676 UBS-Barclays Commercial Mortgage Trust 2.73 8/10/2049 7,828 843 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 854 4,752 Wachovia Bank Commercial Mortgage Trust 5.31 11/15/2048 4,812 5,000 Wachovia Bank Commercial Mortgage Trust 5.90 6/15/2049 5,132 237 WF-RBS Commercial Mortgage Trust(b),(f) 3.24 3/15/2044 237 ---------- 179,385 ---------- INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.7%) 71,035 Commercial Mortgage Trust, acquired 8/09/2012-8/27/2012; cost $9,125(g) 1.99 8/15/2045 5,929 71,165 Commercial Mortgage Trust, acquired 11/06/2012; cost $9,540(g) 2.09 10/15/2045 6,116 39,420 Fannie Mae(+) 4.21 12/25/2017 1,989 87,842 Fannie Mae(+) 2.24 12/25/2019 3,668 80,583 Fannie Mae(+) 0.87 5/25/2022 3,147 82,961 Fannie Mae(+) 0.72 8/25/2022 2,596 25,035 Freddie Mac(+) 1.70 4/25/2017 303 62,854 Freddie Mac(+) 3.27 1/25/2019 4,266 37,909 Freddie Mac(+) 1.90 5/25/2019 1,855 102,340 Freddie Mac(+) 1.82 7/25/2019 4,956 57,895 Freddie Mac(+) 1.48 11/25/2019 2,356 72,494 Freddie Mac(+) 1.43 8/25/2022 4,951 38,498 GS Mortgage Securities Corp. II, acquired 5/18/2012; cost $5,882(g) 2.70 5/10/2045 3,427 30,794 GS Mortgage Securities Trust, acquired 11/16/2012; cost $4,750(g) 2.48 11/10/2045 2,967 33,099 J.P. Morgan Chase Commercial Mortgage Securities Corp., acquired 9/28/2012; cost $4,518(g) 2.20 10/15/2045 2,813 36,192 Morgan Stanley-BAML Trust, acquired 10/05/2012; cost $4,702(b),(g) 2.23 11/15/2045 2,735 59,365 UBS Commercial Mortgage Trust, acquired 5/01/2012; cost $8,987(b),(g) 2.36 5/10/2045 5,887 33,067 UBS-Barclays Commercial Mortgage Trust, acquired 9/14/2012; cost $4,712(b),(g) 2.25 8/10/2049 3,034
================================================================================ 36 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 34,112 WF Commercial Mortgage Trust, acquired 9/21/2012; cost $4,732(b),(g) 2.22% 10/15/2045 $ 2,954 ---------- 65,949 ---------- Total Financials 245,334 ---------- Total Commercial Mortgage Securities (cost: $239,190) 245,334 ---------- U.S. GOVERNMENT AGENCY ISSUES (2.0%)(h) COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%) 7,275 Fannie Mae(+) 1.25 9/25/2027 7,116 ---------- MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.7%) 5,883 Fannie Mae(+) 2.50 4/01/2027 6,054 16,933 Fannie Mae(+) 2.50 5/01/2027 17,425 8,097 Fannie Mae(+) 2.50 8/01/2027 8,331 10,563 Fannie Mae(+) 2.50 8/01/2027 10,870 317 Fannie Mae(+) 4.50 5/01/2023 337 164 Fannie Mae(+) 4.50 2/01/2024 173 135 Fannie Mae(+) 5.00 12/01/2021 140 389 Fannie Mae(+) 5.00 6/01/2023 418 139 Fannie Mae(+) 5.00 9/01/2023 149 540 Fannie Mae(+) 5.00 2/01/2024 583 341 Fannie Mae(+) 5.50 12/01/2020 362 396 Fannie Mae(+) 5.50 2/01/2023 435 1,105 Fannie Mae(+) 5.50 6/01/2023 1,216 279 Fannie Mae(+) 5.50 9/01/2023 308 1,031 Fannie Mae(+) 5.50 6/01/2024 1,132 524 Fannie Mae(+) 6.00 10/01/2022 577 612 Fannie Mae(+) 6.00 1/01/2023 680 998 Fannie Mae(+) 6.00 1/01/2023 1,105 533 Fannie Mae(+) 6.00 7/01/2023 581 2,791 Freddie Mac(+) 1.56 10/25/2018 2,801 6,249 Freddie Mac(+) 1.78 10/25/2020 6,314 1,244 Freddie Mac(+) 2.29(c) 4/01/2035 1,293 8,000 Freddie Mac(+) 2.72 6/25/2022 8,258 256 Freddie Mac(+) 5.00 5/01/2020 270 352 Freddie Mac(+) 5.00 9/01/2020 371 49 Freddie Mac(+) 5.50 11/01/2018 50 504 Freddie Mac(+) 5.50 4/01/2021 541 ---------- 70,774 ---------- OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.1%) 3,000 Private Export Funding Corp. (NBGA) 1.38 2/15/2017 3,013 ---------- Total U.S. Government Agency Issues (cost: $79,580) 80,903 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 37 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- U.S. TREASURY SECURITIES (8.5%) NOTES (8.5%) $ 5,000 0.50%, 3/31/2017 $ 4,990 20,000 0.88%, 1/15/2018 20,029 20,000 1.00%, 3/15/2018 20,076 40,000 1.25%, 10/31/2018 40,329 25,000 1.25%, 1/31/2019 25,191 10,000 1.13%, 5/31/2019 10,022 10,000 1.25%, 1/31/2020 10,018 20,000 1.38%, 2/29/2020 20,125 80,000 1.38%, 3/31/2020 80,466 65,000 1.38%, 9/30/2020 65,213 25,000 1.63%, 11/30/2020 25,364 15,000 1.88%, 11/30/2021 15,311 ---------- 337,134 ---------- Total U.S. Treasury Securities (cost: $335,421) 337,134 ---------- MUNICIPAL BONDS (5.7%) AIRPORT/PORT (0.1%) 2,000 Chicago Midway Airport 1.80% 1/01/2017 2,017 150 Cleveland Airport System (INS) 5.24 1/01/2017 155 2,000 Port of Corpus Christi Auth. of Nueces County 1.24 12/01/2017 2,004 ---------- 4,176 ---------- APPROPRIATED DEBT (0.2%) 1,500 Jacksonville 1.16 10/01/2016 1,507 2,500 Jacksonville 1.41 10/01/2017 2,519 4,000 Jacksonville 1.70 10/01/2018 4,054 ---------- 8,080 ---------- COMMUNITY SERVICE (0.0%) 1,650 Art Institute of Chicago 2.48 3/01/2019 1,675 ---------- EDUCATION (1.4%) 29,600 New Jersey EDA (INS)(i) 1.00 2/15/2016 29,592 10,000 New Jersey EDA 2.42 6/15/2018 10,045 12,500 New Jersey EDA 4.45 6/15/2020 12,727 1,000 Pennsylvania Public School Building Auth. 1.97 12/01/2017 1,017 2,640 Pennsylvania Public School Building Auth. 2.41 12/01/2018 2,701 ---------- 56,082 ---------- ELECTRIC UTILITIES (1.3%) 16,530 Appling County Dev. Auth 2.40 1/01/2038(j) 16,951 5,000 Beaver County IDA 4.75 8/01/2033(j) 5,353 13,310 Beaver County IDA 2.50 12/01/2041(j) 13,375
================================================================================ 38 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 2,000 Burke County Dev. Auth. 1.38% 10/01/2032(j) $ 2,012 10,000 Missouri Environmental Improvement and Energy Resources Auth. 2.88 5/01/2038(j) 10,277 5,000 West Virginia EDA 2.25 1/01/2041(j) 5,027 ---------- 52,995 ---------- ELECTRIC/GAS UTILITIES (0.3%) 6,265 Long Island Power Auth. 2.36 9/01/2018 6,334 3,680 Piedmont Municipal Power Agency 4.34 1/01/2017 3,759 ---------- 10,093 ---------- ENVIRONMENTAL & FACILITIES SERVICES (0.7%) 3,000 Bucks County IDA 1.38 12/01/2022(j) 3,006 20,000 California Pollution Control Financing Auth.(b) 0.60 8/01/2023 20,000 800 Mississippi Business Finance Corp. 1.38 3/01/2027(j) 802 2,000 South Carolina Jobs EDA 1.88 11/01/2016 2,020 ---------- 25,828 ---------- GENERAL OBLIGATION (0.5%) 9,615 City & County of Honolulu 1.26 11/01/2017 9,680 3,700 City of West Haven 1.69 3/15/2016 3,702 3,000 City of West Haven 2.70 3/15/2018 3,026 3,000 San Bernardino CCD 2.14 8/01/2018 3,058 ---------- 19,466 ---------- MULTI-UTILITIES (0.1%) 5,000 New York Energy Research and Dev. Auth. 2.38 7/01/2026(j) 5,097 ---------- MUNICIPAL FINANCE (0.2%) 1,389 Kentucky Asset 3.17 4/01/2018 1,414 5,000 Pennsylvania IDA(b) 2.97 7/01/2021 5,001 ---------- 6,415 ---------- NURSING/CCRC (0.0%) 115 Waco Health Facilities Dev. Corp. (INS)(ETM) 5.27 2/01/2016 115 ---------- SALES TAX (0.0%) 1,500 Arizona School Facilities Board 1.47 9/01/2017 1,505 ---------- SEMICONDUCTORS (0.1%) 1,600 Sandoval County 0.88 6/01/2016 1,602 1,000 Sandoval County 1.95 6/01/2018 1,012 ---------- 2,614 ---------- SPECIAL ASSESSMENT/TAX/FEE (0.7%) 2,870 Channahon 4.00 1/01/2020 2,890 10,000 JobsOhio Beverage System 1.57 1/01/2017 10,072 5,000 New Jersey Transportation Trust Fund Auth. 1.76 12/15/2018 4,983 10,000 New York MTA (ETM) 1.47 7/01/2018 10,117
================================================================================ PORTFOLIO OF INVESTMENTS | 39 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $ 80 San Francisco City & County Redevelopment Agency (ETM) 5.62% 8/01/2016 $ 82 40 San Francisco City & County Redevelopment Agency 5.62 8/01/2016 41 ---------- 28,185 ---------- WATER/SEWER UTILITY (0.1%) 665 Chicago Wastewater Transmission 2.59 1/01/2018 664 535 Chicago Wastewater Transmission 3.38 1/01/2019 536 500 Chicago Wastewater Transmission 3.73 1/01/2020 501 2,520 Chicago Wastewater Transmission 4.31 1/01/2021 2,527 ---------- 4,228 ---------- Total Municipal Bonds (cost: $223,969) 226,554 ---------- ----------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES ----------------------------------------------------------------------------------------------------------------- EXCHANGE-TRADED FUNDS (0.9%) 458,200 Vanguard Short-Term Corporate Bond ETF (cost: $36,491) 36,267 ---------- EQUITY SECURITIES (0.1%) PREFERRED STOCKS (0.1%) FINANCIALS (0.1%) ----------------- DIVERSIFIED BANKS (0.1%) 200,000 Citigroup Capital XIII, 7.88% 5,128 ---------- Total Equity Securities (cost: $5,470) 5,128 ---------- ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT (000) ----------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (8.1%) COMMERCIAL PAPER (7.3%) CONSUMER DISCRETIONARY (0.4%) ----------------------------- BROADCASTING (0.4%) $ 15,000 Discovery Communications, LLC(b),(k) 1.15 2/12/2016 14,994 ---------- ENERGY (4.3%) ------------- OIL & GAS DRILLING (0.3%) 9,289 Nabors Industries, Inc.(b),(k) 1.00 2/05/2016 9,288 5,000 Nabors Industries, Inc.(b),(k) 1.05 2/17/2016 4,997 ---------- 14,285 ----------
================================================================================ 40 | USAA SHORT-TERM BOND FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION (2.4%) $ 7,105 Anadarko Petroleum Corp.(b),(k) 1.00% 2/04/2016 $ 7,104 30,000 Anadarko Petroleum Corp.(b),(k) 1.00 2/12/2016 29,991 20,049 Canadian Natural Resources Ltd.(b),(k) 0.90 2/09/2016 20,045 3,000 Encana Corp.(b),(k) 1.15 2/04/2016 3,000 15,000 Encana Corp.(b),(k) 1.25 2/09/2016 14,996 10,000 Encana Corp.(b),(k) 1.20 2/11/2016 9,997 10,000 Encana Corp.(b),(k) 1.20 2/12/2016 9,996 ---------- 95,129 ---------- OIL & GAS STORAGE & TRANSPORTATION (1.6%) 10,000 Enterprise Products Operating, LLC(b),(k) 0.83 2/22/2016 9,995 20,000 Spectra Energy Partners, LP(b),(k) 0.75 2/03/2016 19,999 8,932 Spectra Energy Partners, LP(b),(k) 0.85 2/23/2016 8,928 25,000 Enbridge Energy Partners, LP(b),(k) 1.25 2/16/2016 24,987 ---------- 63,909 ---------- Total Energy 173,323 ---------- INDUSTRIALS (0.9%) ------------------ INDUSTRIAL MACHINERY (0.9%) 21,000 Pentair Finance S.A.(b),(k) 1.10 2/02/2016 20,999 10,000 Pentair Finance S.A.(b),(k) 1.20 2/09/2016 9,997 5,000 Pentair Finance S.A.(b),(k) 1.17 2/11/2016 4,999 ---------- 35,995 ---------- Total Industrials 35,995 ---------- INFORMATION TECHNOLOGY (0.1%) ----------------------------- ELECTRONIC COMPONENTS (0.1%) 2,000 Amphenol Corp.(b),(k) 0.78 2/04/2016 2,000 ---------- MATERIALS (0.7%) ---------------- SPECIALTY CHEMICALS (0.7%) 10,000 Albemarle Corp.(b),(k) 1.25 2/03/2016 9,999 5,801 Albemarle Corp.(b),(k) 1.25 2/05/2016 5,800 14,341 Albemarle Corp.(b),(k) 1.25 2/08/2016 14,338 ---------- 30,137 ---------- Total Materials 30,137 ---------- UTILITIES (0.9%) ---------------- ELECTRIC UTILITIES (0.8%) 27,482 Duke Energy Corp.(b),(k) 0.80 2/10/2016 27,477 3,554 Duke Energy Corp.(b),(k) 0.80 2/11/2016 3,553 ---------- 31,030 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 41 ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES (0.1%) $ 3,966 Ameren Corp. 0.75% 2/24/2016 $ 3,964 ---------- Total Utilities 34,994 ---------- Total Commercial Paper 291,443 ---------- VARIABLE-RATE DEMAND NOTES (0.7%) INDUSTRIALS (0.6%) ------------------ AIRPORT SERVICES (0.1%) 2,465 Metropolitan Nashville Airport Auth. (LOC - Regions Bank) 2.12 4/01/2030 2,465 ---------- ENVIRONMENTAL & FACILITIES SERVICES (0.5%) 20,000 Pennsylvania Economic Dev. Financing Auth. 0.55 8/01/2045 20,000 ---------- Total Industrials 22,465 ---------- MATERIALS (0.1%) ---------------- STEEL (0.1%) 5,000 Illinois Finance Auth. (LOC - UniCredit Bank A.G.) 2.25 2/01/2037 5,000 ---------- Total Variable-Rate Demand Notes 27,465 ---------- ----------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES ----------------------------------------------------------------------------------------------------------------- MONEY MARKET FUNDS (0.1%) 3,095,978 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(l) 3,096 ---------- Total Money Market Instruments (cost: $322,004) 322,004 ---------- TOTAL INVESTMENTS (COST: $4,011,940) $3,979,474 ==========
================================================================================ 42 | USAA SHORT-TERM BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL ------------------------------------------------------------------------------------------------------------------------- Bonds: Corporate Obligations $ - $1,726,549 $- $1,726,549 Eurodollar and Yankee Obligations - 598,756 - 598,756 Asset-Backed Securities - 396,859 - 396,859 Collateralized Mortgage Obligations - 3,986 - 3,986 Commercial Mortgage Securities - 245,334 - 245,334 U.S. Government Agency Issues - 80,903 - 80,903 U.S. Treasury Securities 337,134 - - 337,134 Municipal Bonds - 226,554 - 226,554 Exchange-Traded Funds 36,267 - - 36,267 Equity Securities: Preferred Stocks - 5,128 - 5,128 Money Market Instruments: Commercial Paper - 291,443 - 291,443 Variable-Rate Demand Notes - 27,465 - 27,465 Money Market Funds 3,096 - - 3,096 ------------------------------------------------------------------------------------------------------------------------- Total $376,497 $3,602,977 $- $3,979,474 -------------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
ASSET-BACKED SECURITIES --------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $ 14,981 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 (14,981) Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments - --------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $ - ---------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, asset-backed securities with a fair value of $14,981,000 were transferred from Level 3 to Level 2 as a result of these securities being priced during the period by the Fund's pricing service. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 43 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 16.1% of net assets at January 31, 2016. o CATEGORIES AND DEFINITIONS EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S. dollar-denominated instruments that are issued outside the U.S. capital markets by foreign corporations and financial institutions and by foreign branches of U.S. corporations and financial institutions. Yankee obligations are dollar-denominated instruments that are issued by foreign issuers in the U.S. capital markets. ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed securities represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets. Commercial mortgage-backed securities reflect an interest in, and are secured by, mortgage loans on commercial real property. These securities represent ownership in a pool of loans and are divided into pieces (tranches) with varying maturities. The stated final maturity of such securities represents the date the final principal payment will be made for the last outstanding ================================================================================ 44 | USAA SHORT-TERM BOND FUND ================================================================================ loans in the pool. The weighted average life is the average time for principal to be repaid, which is calculated by assuming prepayment rates of the underlying loans. The weighted average life is likely to be substantially shorter than the stated final maturity as a result of scheduled principal payments and unscheduled principal prepayments. Stated interest rates on commercial mortgage-backed securities may change slightly over time as underlying mortgages pay down. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage obligations are debt obligations of a legal entity that are fully collateralized by a portfolio of mortgages or mortgage-related securities. CMOs are issued in multiple classes (tranches), with specific adjustable or fixed interest rates, varying maturities, and must be fully retired no later than its final distribution date. The cash flow from the underlying mortgages is used to pay off each tranche separately. CMOs are designed to provide investors with more predictable maturities than regular mortgage securities but such maturities can be difficult to predict because of the effect of prepayments. INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent the right to receive only the interest payments on an underlying pool of commercial mortgage loans. The purchase yield reflects an anticipated yield based upon interest rates at the time of purchase and the estimated timing and amount of future cash flows. Coupon rates after purchase vary from period to period. The principal amount represents the notional amount of the underlying pool on which current interest is calculated. CMBS IOs are backed by loans that have various forms of prepayment protection, which include lock-out provisions, yield maintenance provisions, and prepayment penalties. This serves to moderate their prepayment risk. CMBS IOs are subject to default-related prepayments that may have a negative impact on yield. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 45 ================================================================================ conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CCD Community College District CLO Collateralized Loan Obligation EDA Economic Development Authority ETM Escrowed to final maturity IDA Industrial Development Authority/Agency MTA Metropolitan Transportation Authority REIT Real estate investment trust CREDIT ENHANCEMENTS - Add the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: AMBAC Assurance Corp., MBIA Insurance Corp., or National Public Finance Guarantee Corp. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments are guaranteed by a nonbank guarantee agreement from the Export-Import Bank of the United States. ================================================================================ 46 | USAA SHORT-TERM BOND FUND ================================================================================ o SPECIFIC NOTES (a) Senior loan (loan) - is not registered under the Securities Act of 1933. The loan contains certain restrictions on resale and cannot be sold publicly. The stated interest rate represents the weighted average interest rate of all contracts within the senior loan facility. The interest rate is adjusted periodically, and the rate disclosed represents the current rate at January 31, 2016. The weighted average life of the loan is likely to be shorter than the stated final maturity date due to mandatory or optional prepayments. Security deemed liquid by USAA Asset Management Company (the Manager), under liquidity guidelines approved by the USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (c) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at January 31, 2016. (d) At January 31, 2016, the aggregate market value of securities purchased on a delayed delivery basis was $6,961,000. (e) Security is perpetual and has no final maturity date but may be subject to calls at various dates in the future. (f) At January 31, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (g) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at January 31, 2016, was $35,862,000, which represented 0.9% of the Fund's net assets. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 47 ================================================================================ (h) U.S. government agency issues - Mortgage-backed securities issued by certain U.S. Government Sponsored Enterprises (GSEs) such as the Government National Mortgage Association (GNMA or Ginnie Mae) and certain other U.S. government guaranteed securities are supported by the full faith and credit of the U.S. government. Securities issued by other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) and Fannie Mae (Federal National Mortgage Association or FNMA), indicated with a "+", are supported only by the right of the GSE to borrow from the U.S. Treasury, the discretionary authority of the U.S. government to purchase the GSEs' obligations, or only by the credit of the issuing agency, instrumentality, or corporation, and are neither issued nor guaranteed by the U.S. Treasury. In September of 2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship and appointed the Federal Housing Finance Agency (FHFA) to act as conservator and oversee their daily operations. In addition, the U.S. Treasury entered into purchase agreements with Fannie Mae and Freddie Mac to provide them with capital in exchange for senior preferred stock. While these arrangements are intended to ensure that Fannie Mae and Freddie Mac can continue to meet their obligations, it is possible that actions by the U.S. Treasury, FHFA, or others could adversely impact the value of the Fund's investments in securities issued by Fannie Mae and Freddie Mac. (i) Zero-coupon security. Rate represents the effective yield at the date of purchase. (j) Put bond - provides the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. (k) Commercial paper issued in reliance on the "private placement" exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (Section 4(2) Commercial Paper). Unless this commercial paper is subsequently registered, a ================================================================================ 48 | USAA SHORT-TERM BOND FUND ================================================================================ resale of this commercial paper in the United States must be effected in a transaction exempt from registration under the Securities Act of 1933. Section 4(2) commercial paper is normally resold to other investors through or with the assistance of the issuer or an investment dealer who makes a market in this security, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (l) Rate represents the money market fund annualized seven-day yield at January 31, 2016. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 49 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $4,011,940) $3,979,474 Cash 187 Receivables: Capital shares sold 2,386 Dividends and interest 25,594 Securities sold 704 ---------- Total assets 4,008,345 ---------- LIABILITIES Payables: Securities purchased 6,945 Capital shares redeemed 10,831 Dividends on capital shares 210 Variation margin on futures contracts 2 Accrued management fees 883 Accrued transfer agent's fees 166 Other accrued expenses and payables 196 ---------- Total liabilities 19,233 ---------- Net assets applicable to capital shares outstanding $3,989,112 ========== NET ASSETS CONSIST OF: Paid-in capital $4,022,534 Overdistribution of net investment income (7) Accumulated net realized loss on investments (949) Net unrealized depreciation of investments (32,466) ---------- Net assets applicable to capital shares outstanding $3,989,112 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,391,395/153,974 shares outstanding) $ 9.04 ========== Institutional Shares (net assets of $2,581,328/285,772 shares outstanding) $ 9.03 ========== Adviser Shares (net assets of $16,389/1,814 shares outstanding) $ 9.04 ==========
See accompanying notes to financial statements. ================================================================================ 50 | USAA SHORT-TERM BOND FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 398 Interest income 46,061 -------- Total income 46,459 -------- EXPENSES Management fees 5,486 Administration and servicing fees: Fund Shares 1,350 Institutional Shares 1,127 Adviser Shares 12 Transfer agent's fees: Fund Shares 1,415 Institutional Shares 1,127 Adviser Shares 6 Distribution and service fees (Note 6D): Adviser Shares 20 Custody and accounting fees: Fund Shares 116 Institutional Shares 137 Adviser Shares 1 Postage: Fund Shares 60 Institutional Shares 34 Shareholder reporting fees: Fund Shares 24 Institutional Shares 7 Trustees' fees 13 Registration fees: Fund Shares 71 Institutional Shares 90 Adviser Shares 8 Professional fees 92 Other 29 -------- Total expenses 11,225 -------- NET INVESTMENT INCOME 35,234 -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Investments (592) Long-term capital gain distributions from other investment companies 27 Change in net unrealized appreciation/(depreciation) (51,699) -------- Net realized and unrealized loss (52,264) -------- Decrease in net assets resulting from operations $(17,030) ========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 51 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
----------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 ----------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 35,234 $ 66,134 Net realized gain (loss) on investments (592) 832 Net realized gain on long-term capital gain distributions from other investment companies 27 - Net realized loss on futures transactions - (1,219) Change in net unrealized appreciation/(depreciation) of: Investments (51,699) (31,394) Futures contracts - (49) -------------------------- Increase (decrease) in net assets resulting from operations (17,030) 34,304 -------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (14,988) (28,728) Institutional Shares (20,085) (37,207) Adviser Shares (116) (205) -------------------------- Total distributions of net investment income (35,189) (66,140) -------------------------- Net realized gains: Fund Shares - (848) Institutional Shares - (1,033) Adviser Shares - (7) -------------------------- Total distributions of net realized gains - (1,888) -------------------------- Distributions to shareholders (35,189) (68,028) -------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (408,745) 156,175 Institutional Shares 371,786 278,763 Adviser Shares 3,293 374 -------------------------- Total net increase (decrease) in net assets from capital share transactions (33,666) 435,312 -------------------------- Capital contribution from USAA Transfer Agency Company: Fund Shares - 1 -------------------------- Net increase (decrease) in net assets (85,885) 401,589 NET ASSETS Beginning of period 4,074,997 3,673,408 -------------------------- End of period $3,989,112 $4,074,997 ========================== Overdistribution of net investment income: End of period $ (7) $ (52) ==========================
See accompanying notes to financial statements. ================================================================================ 52 | USAA SHORT-TERM BOND FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Short-Term Bond Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek high current income consistent with preservation of principal. The Fund consists of three classes of shares: Short-Term Bond Fund Shares (Fund Shares), Short-Term Bond Fund Institutional Shares (Institutional Shares), and Short-Term Bond Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that ================================================================================ NOTES TO FINANCIAL STATEMENTS | 53 ================================================================================ the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and ================================================================================ 54 | USAA SHORT-TERM BOND FUND ================================================================================ asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 2. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 3. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 55 ================================================================================ adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 4. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 5. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 6. Repurchase agreements are valued at cost. 7. Futures are valued at the last sale price at the close of market on the principal exchange on which they are traded or, in the absence of any transactions that day, the last sale price on the prior trading date if it is within the spread between the closing bid and asked prices closest to the last reported sale price. 8. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of ================================================================================ 56 | USAA SHORT-TERM BOND FUND ================================================================================ securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include preferred stocks, which are valued based on methods discussed in Note 1A3. Additionally, certain bonds, are valued based on methods discussed in Note 1A1, and commercial paper and variable-rate demand notes, which are valued at amortized cost. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from ================================================================================ NOTES TO FINANCIAL STATEMENTS | 57 ================================================================================ sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis or for delayed draws on loans can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund receives a commitment fee for delayed draws on loans. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis and delayed-draw loan commitments may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases and commitments while remaining substantially fully invested. As of January 31, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $6,945,000. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. ================================================================================ 58 | USAA SHORT-TERM BOND FUND ================================================================================ H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $12,000, which represents 5.8% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions ================================================================================ NOTES TO FINANCIAL STATEMENTS | 59 ================================================================================ not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had net capital loss carryforwards of $436,000, for federal income tax purposes. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $495,504,000 and $719,193,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $24,179,000 and $56,645,000, respectively, resulting in net unrealized depreciation of $32,466,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other ================================================================================ 60 | USAA SHORT-TERM BOND FUND ================================================================================ persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 --------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------- FUND SHARES: Shares sold 22,849 $ 207,765 69,188 $ 636,443 Shares issued from reinvested dividends 1,566 14,224 3,103 28,536 Shares redeemed (69,714) (630,734) (55,335) (508,804) -------------------------------------------------- Net increase (decrease) from capital share transactions (45,299) $(408,745) 16,956 $ 156,175 ================================================== INSTITUTIONAL SHARES: Shares sold 66,845 $ 604,702 68,153 $ 626,637 Shares issued from reinvested dividends 2,181 19,799 3,884 35,703 Shares redeemed (27,823) (252,715) (41,724) (383,577) -------------------------------------------------- Net increase from capital share transactions 41,203 $ 371,786 30,313 $ 278,763 ================================================== ADVISER SHARES: Shares sold 638 $ 5,820 517 $ 4,766 Shares issued from reinvested dividends 9 77 14 130 Shares redeemed (287) (2,604) (492) (4,522) -------------------------------------------------- Net increase from capital share transactions 360 $ 3,293 39 $ 374 ==================================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage ================================================================================ NOTES TO FINANCIAL STATEMENTS | 61 ================================================================================ the day-to-day investment of a portion of the Fund's assets. For the six-month period ended January 31, 2016, the Fund had no subadviser(s). The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.24% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Short Investment Grade Funds Index. The Lipper Short Investment Grade Funds Index tracks the total return performance of the 30 largest funds in the Lipper Short Investment Grade Debt Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------ +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Short Investment Grade Funds Index over that period, even if the class had overall negative returns during the performance period. ================================================================================ 62 | USAA SHORT-TERM BOND FUND ================================================================================ For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $5,486,000, which included a performance adjustment for the Fund Shares and Institutional Shares of $228,000 and $375,000, respectively. For the Fund Shares and Institutional Shares, the performance adjustments were 0.03% and 0.03%, respectively. The Adviser Shares had no performance adjustment during the six-month period ended January 31, 2016. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and Adviser Shares, and 0.10% of average net assets of the Institutional Shares. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,350,000, $1,127,000, and $12,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $53,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 63 ================================================================================ Institutional Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $1,415,000, $1,127,000, and $6,000, respectively. D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $20,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % ------------------------------------------------------------------------------- USAA Cornerstone Conservative 0.3 USAA Target Retirement Income 2.1 USAA Target Retirement 2020 1.9 USAA Target Retirement 2030 0.6 USAA Target Retirement 2040 0.0* USAA Target Retirement 2060 0.0*
*Represents less than 0.1% ================================================================================ 64 | USAA SHORT-TERM BOND FUND ================================================================================ The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 542,000 Adviser Shares, which represents 29.9% of the Adviser Shares and 0.1% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS During the six-month period ended January 31, 2016, in accordance with affiliated transaction procedures approved by the Board, purchases and sales of security transactions were executed between the Fund and the following affiliated USAA Funds at the then-current market price with no brokerage commissions incurred.
NET REALIZED COST TO GAIN (LOSS) SELLER PURCHASER PURCHASER TO SELLER -------------------------------------------------------------------------------- USAA Intermediate-Term Bond USAA Short-Term Bond $14,461,000 $572,000 USAA Income USAA Short-Term Bond 10,070,000 79,000 USAA High Income USAA Short-Term Bond 13,823,000 278,000 USAA Cornerstone Moderately Aggressive USAA Short-Term Bond 20,356,000 (15,000) USAA Cornerstone Aggressive USAA Short-Term Bond 1,187,000 (1,000) USAA Cornerstone Moderately Conservative USAA Short-Term Bond 3,273,000 (2,000) USAA Cornerstone Moderate USAA Short-Term Bond 11,675,000 (9,000)
================================================================================ NOTES TO FINANCIAL STATEMENTS | 65 ================================================================================ (9) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20 $ 9.21 ------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .08 .15 .17 .20 .25 .27 Net realized and unrealized gain (loss) (.11) (.08) .04 (.05) .04 (.01) ------------------------------------------------------------------------------------- Total from investment operations (.03) .07 .21 .15 .29 .26 ------------------------------------------------------------------------------------- Less distributions from: Net investment income (.08) (.15) (.17) (.20) (.25) (.27) Realized capital gains - (.00)(a) - (.00)(a) - - ------------------------------------------------------------------------------------- Total distributions (.08) (.15) (.17) (.20) (.25) (.27) ------------------------------------------------------------------------------------- Net asset value at end of period $ 9.04 $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20 ===================================================================================== Total return (%)* (.37) .83 2.28 1.61 3.21 2.85 Net assets at end of period (000) $1,391,395 $1,823,922 $1,683,052 $1,657,261 $2,246,096 $1,978,161 Ratios to average net assets:** Expenses (%)(b) .61(c) .62 .63 .64 .63 .62 Net investment income (%) 1.67(c) 1.65 1.83 2.14 2.73 2.92 Portfolio turnover (%) 13 31 28 25 36 26 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $1,787,479,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: - - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 66 | USAA SHORT-TERM BOND FUND ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ----------------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ----------------------------------------------------------------------------------- Net asset value at beginning of period $ 9.15 $ 9.23 $ 9.18 $ 9.24 $ 9.20 $ 9.21 ----------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .08 .16 .18 .21 .26 .29 Net realized and unrealized gain (loss) (.12) (.08) .05 (.06) .04 (.01) ----------------------------------------------------------------------------------- Total from investment operations (.04) .08 .23 .15 .30 .28 ----------------------------------------------------------------------------------- Less distributions from: Net investment income (.08) (.16) (.18) (.21) (.26) (.29) Realized capital gains - (.00)(a) - (.00)(a) - - ----------------------------------------------------------------------------------- Total distributions (.08) (.16) (.18) (.21) (.26) (.29) ----------------------------------------------------------------------------------- Net asset value at end of period $ 9.03 $ 9.15 $ 9.23 $ 9.18 $ 9.24 $ 9.20 =================================================================================== Total return (%)* (.43) .95 2.54 1.66 3.37 3.09 Net assets at end of period (000) $2,581,328 $2,237,771 $1,977,300 $1,697,847 $369,557 $118,103 Ratios to average net assets:** Expenses (%)(b) .50(d) .50 .49 .48 .49 .39(c) Net investment income (%) 1.78(d) 1.76 1.96 2.24 2.82 3.15 Portfolio turnover (%) 13 31 28 25 36 26 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $2,243,660,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: - - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to 0.41% of the Institutional Shares' average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 67 ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, JULY 31, ------------------------------------------------------------------------------------ 2016 2015 2014 2013 2012 2011*** ------------------------------------------------------------------------------------ Net asset value at beginning of period $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20 $ 9.21 --------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .07 .13 .15 .17 .23 .24 Net realized and unrealized gain (loss) (.11) (.08) .04 (.05) .04 (.01) --------------------------------------------------------------------------------- Total from investment operations (.04) .05 .19 .12 .27 .23 --------------------------------------------------------------------------------- Less distributions from: Net investment income (.07) (.13) (.15) (.17) (.23) (.24) Realized capital gains - (.00)(a) - (.00)(a) - - --------------------------------------------------------------------------------- Total distributions (.07) (.13) (.15) (.17) (.23) (.24) --------------------------------------------------------------------------------- Net asset value at end of period $ 9.04 $ 9.15 $ 9.23 $ 9.19 $ 9.24 $ 9.20 ================================================================================= Total return (%)* (.48) .59 2.07 1.35 2.94 2.55 Net assets at end of period (000) $ 16,389 $13,304 $13,056 $9,872 $6,992 $5,583 Ratios to average net assets:** Expenses (%)(b) .84(c) .85(d) .84 .90 .90 .90(c) Expenses, excluding reimbursements (%)(b) .84(c) .85 .84 1.01 1.11 1.65(c) Net investment income (%) 1.45(c) 1.41 1.62 1.85 2.46 2.64(c) Portfolio turnover (%) 13 31 28 25 36 26 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $15,914,000. *** Adviser Shares commenced operations on August 1, 2010. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios as follows: - - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. (d) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares' average net assets.
================================================================================ 68 | USAA SHORT-TERM BOND FUND ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ EXPENSE EXAMPLE | 69 ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ----------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 996.30 $3.06 Hypothetical (5% return before expenses) 1,000.00 1,022.07 3.10 INSTITUTIONAL SHARES Actual 1,000.00 995.70 2.51 Hypothetical (5% return before expenses) 1,000.00 1,022.62 2.54 ADVISER SHARES Actual 1,000.00 995.20 4.21 Hypothetical (5% return before expenses) 1,000.00 1,020.91 4.27
*Expenses are equal to the annualized expense ratio of 0.61% for Fund Shares, 0.50% for Institutional Shares, and 0.84% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (0.37)% for Fund Shares, (0.43)% for Institutional Shares, and (0.48)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ 70 | USAA SHORT-TERM BOND FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 23426-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA SCIENCE & TECHNOLOGY FUND] ============================================================== SEMIANNUAL REPORT USAA SCIENCE & TECHNOLOGY FUND FUND SHARES o ADVISER SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO [PHOTO OF BROOKS ENGLEHARDT] MAKE HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 11 Notes to Portfolio of Investments 19 Financial Statements 21 Notes to Financial Statements 24 EXPENSE EXAMPLE 40
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202726-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA SCIENCE & TECHNOLOGY FUND (THE FUND) SEEKS LONG-TERM CAPITAL APPRECIATION. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund normally invests at least 80% of its assets in equity securities of companies expected to benefit from the development and use of scientific and technological advances and improvements. This 80% policy may be changed upon at least 60 days' written notice to shareholders. The Fund may invest up to 50% of its assets in foreign securities purchased in either foreign or U.S. markets. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND Wellington Management Company LLP ROBERT L. DERESIEWICZ ANITA M. KILLIAN, CFA JOHN F. AVERILL, CFA MICHAEL T. MASDEA BRUCE L. GLAZER -------------------------------------------------------------------------------- o PLEASE CHARACTERIZE THE PERFORMANCE OF THE MARKET OVER THE REPORTING PERIOD. For the reporting period ended January 31, 2016, concerns regarding the possibility of a significant slowdown in China's economic growth dominated headlines. Fears intensified in early August 2015 when China unexpectedly devalued its currency, the renminbi, triggering concerns regarding global disinflationary trends and a weaker than anticipated global growth backdrop. In September 2015, Chinese manufacturing activity fell to its lowest level since 2009. Investor risk tolerance also appeared to curtail due to the European Central Bank's downgrade of its Eurozone growth, inflation outlook and the cut in Brazil's credit rating to below investment grade. Global equities rallied in October 2015 amid increasing signs of extended monetary policy accommodations by major central banks. After much anticipation, on December 16, 2015, the Federal Reserve delivered its first interest rate increase since 2006, approving a small increase in the federal funds rate. The market initially reacted positively to the news, but remained volatile through the end of the reporting period as the S&P 500(R) Index (the Index) was down 4.96% in January 2016 alone. Seven of the 10 sectors within the Index posted negative returns for the reporting period. Materials, energy, financials, and health care were the bottom-performing sectors, while telecommunication services, utilities, and consumer staples led the Index. ================================================================================ 2 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ o HOW DID THE USAA SCIENCE & TECHNOLOGY FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended January 31, 2016, the Fund Shares and Adviser Shares had total returns of -9.02% and -9.15%, respectively. This compares to returns of -6.77% for the Index, -3.39% for the S&P North American Technology Sector Index, -12.30% for the S&P 500(R) Health Care Sector Index, and -9.17% for the Lipper Science & Technology Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadviser. Wellington Management Company LLP (Wellington Management) is the subadviser to the Fund. The subadviser provides day-to-day discretionary management for the Fund's assets. o HOW DID THE FUND'S TECHNOLOGY PORTION PERFORM DURING THE REPORTING PERIOD? The technology portion of the Fund underperformed its benchmark, the S&P North American Technology Sector Index. Security selection drove relative underperformance, primarily due to unfavorable stock selection in semiconductors & semiconductor equipment, technology hardware, and communications equipment. Partially offsetting these negative results was strong selection within internet software & services sector. Industry allocation also detracted from relative performance as an underweight to software and an overweight to the poor-performing communications equipment industry detracted from results. The largest individual detractors included out-of-benchmark positions in GoPro, Inc. "A" (consumer durables & apparel) and Siltronic AG (semiconductors & semiconductor equipment), as well as Nimble Storage, Inc. (technology hardware & equipment). The managers eliminated the positions in GoPro, Refer to page 7 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ Inc. "A" and Nimble Storage, Inc., prior to the end of the reporting period. Top contributors to relative performance included Heartland Payment Systems, Inc. (software & services), Apple, Inc. (technology hardware & equipment), and a lack of holdings in the benchmark constituent IBM Corp. o HOW DID THE FUND'S HEALTH CARE PORTION PERFORM DURING THE REPORTING PERIOD? The health care portion of the Fund underperformed its benchmark, the S&P Health Care Sector Index, over the reporting period. Sector allocation was the largest detractor from relative Fund performance, driven primarily by overweight allocations to underperforming biopharmaceutical small- and mid-cap companies. Partially offsetting these negative results from sector allocation was strong security selection in both areas. The largest individual detractors from performance included an underweight to Johnson & Johnson, and overweights in the biopharmaceutical companies Alkermes plc and Tetraphase Pharmaceutical, Inc. The top individual contributors were the biopharmaceutical companies Shionogi & Co. Ltd. and Bristol-Myers Squibb Co., as well as the Fund's lack of holdings in Valeant Pharmaceuticals International Inc. Thank you for allowing us to help you with your investment needs. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. ================================================================================ 4 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ INVESTMENT OVERVIEW USAA SCIENCE & TECHNOLOGY FUND SHARES (FUND SHARES) (Ticker Symbol: USSCX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $824.9 Million $853.8 Million Net Asset Value Per Share $19.70 $23.07 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -9.02% 2.33% 14.47% 8.50% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS 11.01% 17.16% 10.12% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.18% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P 500 S&P NORTH AMERICAN USAA SCIENCE & LIPPER SCIENCE & HEALTH CARE SECTOR TECHNOLOGY SECTOR TECHNOLOGY FUND TECHNOLOGY FUNDS S&P 500 INDEX INDEX SHARES INDEX INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,093.65 9,846.16 9,752.21 9,835.83 10,027.14 3/31/2006 9,977.30 10,067.76 9,911.50 10,080.88 10,151.95 4/30/2006 9,664.07 10,001.79 10,000.00 10,079.45 10,288.27 5/31/2006 9,476.69 9,267.40 9,389.38 9,316.25 9,992.16 6/30/2006 9,479.66 9,139.53 9,212.39 9,146.17 10,005.70 7/31/2006 10,000.71 8,748.68 8,991.15 8,705.60 10,067.42 8/31/2006 10,300.86 9,433.16 9,460.18 9,190.73 10,306.96 9/30/2006 10,448.15 9,811.69 9,699.12 9,488.69 10,572.57 10/31/2006 10,499.77 10,204.50 9,946.90 9,741.40 10,917.09 11/30/2006 10,468.48 10,573.60 10,238.94 10,159.51 11,124.68 12/31/2006 10,595.80 10,508.19 10,247.79 10,054.61 11,280.74 1/31/2007 10,923.66 10,679.40 10,345.13 10,216.44 11,451.34 2/28/2007 10,676.34 10,460.74 10,247.79 10,142.46 11,227.37 3/31/2007 10,705.03 10,508.65 10,292.04 10,198.21 11,352.94 4/30/2007 11,473.88 11,035.01 10,743.36 10,547.90 11,855.83 5/31/2007 11,650.72 11,510.12 11,292.04 10,956.80 12,269.54 6/30/2007 11,239.07 11,601.22 11,292.04 11,094.37 12,065.70 7/31/2007 10,751.86 11,520.31 11,123.89 11,084.15 11,691.60 8/31/2007 11,025.43 11,853.51 11,389.38 11,317.00 11,866.86 9/30/2007 11,356.80 12,344.98 11,858.41 11,910.11 12,310.67 10/31/2007 11,577.85 13,170.04 12,283.19 12,635.14 12,506.49 11/30/2007 11,708.06 12,137.98 11,530.97 11,682.67 11,983.64 12/31/2007 11,353.49 12,287.98 11,433.63 11,739.30 11,900.50 1/31/2008 10,806.90 10,732.29 10,300.88 10,218.74 11,186.69 2/29/2008 10,562.98 10,365.14 9,938.05 9,966.73 10,823.28 3/31/2008 10,045.67 10,459.41 9,769.91 9,899.34 10,776.55 4/30/2008 10,199.33 11,220.22 10,566.37 10,657.34 11,301.40 5/31/2008 10,405.55 11,930.43 11,088.50 11,256.56 11,447.78 6/30/2008 9,921.36 10,794.14 10,283.19 10,270.54 10,482.69 7/31/2008 10,423.25 10,721.79 10,097.35 10,058.30 10,394.57 8/31/2008 10,635.77 10,954.00 10,265.49 10,246.33 10,544.93 9/30/2008 9,970.19 9,442.01 8,831.86 8,743.72 9,605.30 10/31/2008 8,804.18 7,709.62 6,982.30 7,162.25 7,992.11 11/30/2008 8,205.04 6,841.25 6,238.94 6,336.38 7,418.64 12/31/2008 8,763.75 6,963.25 6,486.73 6,562.52 7,497.57 1/31/2009 8,654.82 6,811.91 6,318.58 6,416.09 6,865.63 2/28/2009 7,573.31 6,520.71 5,823.01 6,166.99 6,134.59 3/31/2009 8,062.92 7,292.87 6,486.73 6,848.81 6,671.95 4/30/2009 8,003.34 8,277.32 7,123.89 7,696.73 7,310.52 5/31/2009 8,552.60 8,810.12 7,460.18 8,018.99 7,719.42 6/30/2009 8,778.94 8,789.84 7,690.27 8,173.24 7,734.73 7/31/2009 9,297.24 9,587.29 8,336.28 8,843.17 8,319.77 8/31/2009 9,516.39 9,823.03 8,575.22 9,062.10 8,620.15 9/30/2009 9,615.86 10,273.34 8,982.30 9,610.15 8,941.81 10/31/2009 9,401.63 10,187.68 8,690.27 9,284.39 8,775.70 11/30/2009 10,276.46 10,719.39 9,247.79 9,741.91 9,302.09 12/31/2009 10,490.10 11,363.12 9,778.76 10,362.20 9,481.77 1/31/2010 10,541.70 10,424.71 9,185.84 9,624.91 9,140.67 2/28/2010 10,570.80 10,876.67 9,477.88 10,014.84 9,423.83 3/31/2010 10,847.15 11,636.79 10,088.50 10,703.56 9,992.51 4/30/2010 10,431.43 11,837.08 10,176.99 10,942.95 10,150.27 5/31/2010 9,730.08 10,894.73 9,415.93 10,193.78 9,339.76 6/30/2010 9,568.00 10,181.96 8,893.81 9,582.98 8,850.84 7/31/2010 9,696.82 10,952.50 9,424.78 10,189.10 9,470.96 8/31/2010 9,552.55 10,225.17 8,938.05 9,670.25 9,043.40 9/30/2010 10,415.25 11,520.64 10,106.19 10,910.12 9,850.47 10/31/2010 10,636.98 12,237.73 10,513.27 11,528.32 10,225.27 11/30/2010 10,331.38 12,178.91 10,504.42 11,580.01 10,226.59 12/31/2010 10,794.34 12,800.92 11,106.19 12,212.05 10,910.04 1/31/2011 10,848.72 13,300.78 11,504.42 12,625.87 11,168.63 2/28/2011 11,189.03 13,610.97 11,876.11 13,071.56 11,551.25 3/31/2011 11,401.05 13,346.81 11,876.11 12,972.61 11,555.85 4/30/2011 12,143.99 13,759.08 12,398.23 13,441.69 11,898.08 5/31/2011 12,437.91 13,539.19 12,415.93 13,256.95 11,763.40 6/30/2011 12,298.49 13,187.80 12,115.04 12,822.60 11,567.31 7/31/2011 11,822.88 13,173.12 11,734.51 12,459.74 11,332.09 8/31/2011 11,577.62 12,343.59 10,929.20 11,525.58 10,716.51 9/30/2011 11,066.14 11,786.11 10,380.53 10,770.82 9,963.16 10/31/2011 11,702.76 13,182.37 11,469.03 12,106.33 11,052.06 11/30/2011 11,823.78 12,925.39 11,212.39 11,778.88 11,027.63 12/31/2011 12,168.82 12,688.85 11,044.25 11,502.53 11,140.44 1/31/2012 12,546.19 13,686.83 11,752.21 12,466.38 11,639.70 2/29/2012 12,707.81 14,504.64 12,362.83 13,276.95 12,143.03 3/31/2012 13,271.51 15,170.96 12,982.30 13,865.93 12,542.64 4/30/2012 13,242.76 14,969.24 12,946.90 13,491.07 12,463.91 5/31/2012 12,765.50 13,666.88 12,026.55 12,299.12 11,714.82 6/30/2012 13,503.43 14,105.93 12,548.67 12,690.59 12,197.50 7/31/2012 13,646.51 14,128.40 12,601.77 12,593.21 12,366.91 8/31/2012 13,788.43 14,752.69 13,044.25 13,175.77 12,645.45 9/30/2012 14,335.18 14,937.67 13,336.28 13,409.38 12,972.23 10/31/2012 14,291.09 14,082.22 12,539.82 12,613.42 12,732.71 11/30/2012 14,374.46 14,392.40 12,946.90 12,930.95 12,806.57 12/31/2012 14,345.51 14,621.93 13,044.25 13,172.93 12,923.30 1/31/2013 15,418.05 15,228.99 13,858.41 13,735.99 13,592.66 2/28/2013 15,616.11 15,356.08 14,017.70 13,775.42 13,777.18 3/31/2013 16,614.16 15,780.60 14,460.18 14,129.27 14,293.87 4/30/2013 17,095.54 15,859.95 14,557.52 14,020.12 14,569.26 5/31/2013 17,376.15 16,596.05 15,008.85 14,673.54 14,910.06 6/30/2013 17,251.28 16,173.22 14,743.36 14,503.02 14,709.84 7/31/2013 18,508.81 16,916.14 15,734.51 15,481.86 15,458.34 8/31/2013 17,862.71 16,749.22 15,548.67 15,415.18 15,010.64 9/30/2013 18,427.44 17,457.79 16,690.27 16,333.93 15,481.36 10/31/2013 19,221.81 18,159.13 17,053.10 16,667.96 16,193.01 11/30/2013 20,126.96 18,839.76 17,699.12 17,164.41 16,686.47 12/31/2013 20,293.25 19,677.09 18,411.39 18,019.59 17,108.91 1/31/2014 20,482.90 19,287.10 18,939.62 17,945.79 16,517.38 2/28/2014 21,747.45 20,252.96 20,149.76 18,968.93 17,272.95 3/31/2014 21,472.25 20,052.26 19,294.98 18,461.85 17,418.14 4/30/2014 21,365.55 19,749.43 18,805.16 17,770.95 17,546.90 5/31/2014 21,960.50 20,463.87 19,573.51 18,381.32 17,958.80 6/30/2014 22,441.34 21,055.95 20,380.27 19,157.04 18,329.78 7/31/2014 22,473.54 21,126.29 20,130.55 18,869.83 18,077.00 8/31/2014 23,564.60 22,004.71 21,004.54 19,647.94 18,800.17 9/30/2014 23,665.51 21,673.43 20,610.77 19,255.28 18,536.52 10/31/2014 24,932.40 21,943.45 21,263.86 19,672.53 18,989.28 11/30/2014 25,773.82 22,929.95 22,272.31 20,325.04 19,499.99 12/31/2014 25,434.85 22,684.19 22,083.36 20,228.07 19,450.87 1/31/2015 25,746.65 21,866.35 22,094.13 19,710.62 18,866.97 2/28/2015 26,859.80 23,698.61 23,419.13 21,258.17 19,951.28 3/31/2015 27,095.89 23,021.22 23,311.41 20,947.72 19,635.76 4/30/2015 26,732.65 23,593.13 23,451.45 21,039.30 19,824.13 5/31/2015 27,943.95 24,081.72 24,431.73 21,722.11 20,079.05 6/30/2015 27,865.89 23,205.44 24,043.93 21,041.94 19,690.36 7/31/2015 28,647.29 24,127.11 24,851.85 21,324.19 20,102.90 8/31/2015 26,389.58 22,824.19 23,203.68 19,981.69 18,890.01 9/30/2015 24,893.20 22,556.08 22,288.03 19,473.33 18,422.61 10/31/2015 26,822.72 25,068.83 24,453.28 21,255.95 19,976.63 11/30/2015 26,712.23 25,393.45 24,722.59 21,657.47 20,036.04 12/31/2015 27,187.50 24,931.57 24,514.15 21,194.07 19,720.03 1/31/2016 25,122.79 23,310.11 22,609.02 19,369.00 18,741.45
[END CHART] Data from 1/31/06 through 1/31/16. See next page for benchmark definitions. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Science & Technology Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 6 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ The graph on page 6 illustrates the comparison of a $10,000 hypothetical investment in the USAA Science & Technology Fund Shares to the following benchmarks: o The unmanaged S&P 500 Health Care Sector Index comprises U.S. traded stocks that are members of either the S&P Total Market Index (TMI) or the S&P/TSX Composite Index, and are classified within the health care sector of the Global Industry Classification System (GICS(R)). o The unmanaged S&P North American Technology Sector Index provides investors with a benchmark that represents U.S. securities classified under the GICS(R) technology sector and internet retail sub-industry. o The unmanaged Lipper Science & Technology Funds Index tracks the total return performance of the 30 largest funds in the Lipper Science & Technology Funds category. o The unmanaged, broad-based composite S&P 500 Index represents the weighted average performance of a group of 500 widely held, publicly traded stocks. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ USAA SCIENCE & TECHNOLOGY FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: USTCX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $115.6 Million $122.0 Million Net Asset Value Per Share $19.40 $22.77 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 -9.15% 2.01% 14.20% 16.59% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION 8/01/10 10.74% 16.89% 18.64% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.42% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 8 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P 500 HEALTH USAA SCIENCE & S&P NORTH AMERICAN LIPPER SCIENCE CARE SECTOR TECHNOLOGY TECHNOLOGY SECTOR S&P 500 & TECHNOLOGY INDEX ADVISER SHARES INDEX INDEX FUNDS INDEX 7/31/2010 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 8/31/2010 9,851.22 9,308.12 9,335.92 9,548.56 9,490.77 9/30/2010 10,740.89 10,525.83 10,518.72 10,400.72 10,707.64 10/31/2010 10,969.56 10,950.18 11,173.45 10,796.45 11,314.36 11/30/2010 10,654.40 10,940.96 11,119.75 10,797.84 11,365.09 12/31/2010 11,131.83 11,568.27 11,687.66 11,519.47 11,985.40 1/31/2011 11,187.91 11,974.17 12,144.05 11,792.50 12,391.54 2/28/2011 11,538.86 12,361.62 12,427.26 12,196.50 12,828.96 3/31/2011 11,757.51 12,352.40 12,186.08 12,201.36 12,731.84 4/30/2011 12,523.68 12,896.68 12,562.49 12,562.70 13,192.22 5/31/2011 12,826.79 12,905.90 12,361.73 12,420.50 13,010.91 6/30/2011 12,683.01 12,592.25 12,040.90 12,213.46 12,584.62 7/31/2011 12,192.53 12,195.57 12,027.50 11,965.10 12,228.49 8/31/2011 11,939.61 11,346.86 11,270.11 11,315.13 11,311.67 9/30/2011 11,412.13 10,784.13 10,761.11 10,519.69 10,570.92 10/31/2011 12,068.66 11,909.59 12,035.94 11,669.42 11,881.64 11/30/2011 12,193.46 11,642.07 11,801.31 11,643.64 11,560.27 12/31/2011 12,549.29 11,466.79 11,585.35 11,762.74 11,289.04 1/31/2012 12,938.46 12,195.57 12,496.54 12,289.89 12,235.01 2/29/2012 13,105.13 12,822.88 13,243.22 12,821.33 13,030.53 3/31/2012 13,686.45 13,468.63 13,851.59 13,243.27 13,608.59 4/30/2012 13,656.80 13,431.73 13,667.41 13,160.15 13,240.68 5/31/2012 13,164.63 12,472.32 12,478.32 12,369.21 12,070.86 6/30/2012 13,925.62 13,007.38 12,879.19 12,878.85 12,455.06 7/31/2012 14,073.18 13,062.73 12,899.70 13,057.72 12,359.49 8/31/2012 14,219.53 13,514.76 13,469.70 13,351.82 12,931.24 9/30/2012 14,783.38 13,819.19 13,638.59 13,696.85 13,160.52 10/31/2012 14,737.91 12,998.15 12,857.54 13,443.95 12,379.33 11/30/2012 14,823.89 13,404.06 13,140.74 13,521.94 12,690.96 12/31/2012 14,794.03 13,505.54 13,350.31 13,645.19 12,928.45 1/31/2013 15,900.10 14,354.24 13,904.58 14,351.94 13,481.06 2/28/2013 16,104.36 14,511.07 14,020.62 14,546.77 13,519.76 3/31/2013 17,133.61 14,972.32 14,408.21 15,092.32 13,867.05 4/30/2013 17,630.04 15,073.80 14,480.66 15,383.10 13,759.92 5/31/2013 17,919.43 15,535.06 15,152.75 15,742.94 14,401.21 6/30/2013 17,790.65 15,249.08 14,766.69 15,531.53 14,233.85 7/31/2013 19,087.50 16,273.06 15,445.00 16,321.84 15,194.53 8/31/2013 18,421.20 16,088.56 15,292.60 15,849.13 15,129.09 9/30/2013 19,003.58 17,260.15 15,939.55 16,346.15 16,030.79 10/31/2013 19,822.79 17,638.38 16,579.89 17,097.55 16,358.62 11/30/2013 20,756.24 18,293.36 17,201.33 17,618.58 16,845.85 12/31/2013 20,927.74 19,024.76 17,965.84 18,064.61 17,685.16 1/31/2014 21,123.31 19,564.89 17,609.77 17,440.04 17,612.73 2/28/2014 22,427.40 20,815.20 18,491.63 18,237.82 18,616.88 3/31/2014 22,143.60 19,934.98 18,308.38 18,391.12 18,119.21 4/30/2014 22,033.56 19,424.86 18,031.89 18,527.07 17,441.13 5/31/2014 22,647.11 20,225.06 18,684.20 18,961.97 18,040.17 6/30/2014 23,142.99 21,055.26 19,224.79 19,353.68 18,801.50 7/31/2014 23,176.20 20,785.19 19,289.01 19,086.78 18,519.63 8/31/2014 24,301.37 21,685.41 20,091.04 19,850.34 19,283.29 9/30/2014 24,405.44 21,275.31 19,788.56 19,571.97 18,897.92 10/31/2014 25,711.94 21,955.48 20,035.10 20,050.02 19,307.42 11/30/2014 26,579.66 22,995.74 20,935.80 20,589.26 19,947.83 12/31/2014 26,230.10 22,792.97 20,711.42 20,537.39 19,852.66 1/31/2015 26,551.65 22,804.21 19,964.71 19,920.87 19,344.80 2/28/2015 27,699.59 24,153.57 21,637.62 21,065.76 20,863.64 3/31/2015 27,943.07 24,052.37 21,019.14 20,732.61 20,558.95 4/30/2015 27,568.47 24,187.31 21,541.31 20,931.50 20,648.83 5/31/2015 28,817.64 25,188.08 21,987.41 21,200.67 21,318.97 6/30/2015 28,737.14 24,772.03 21,187.34 20,790.26 20,651.42 7/31/2015 29,542.98 25,604.14 22,028.86 21,225.85 20,928.44 8/31/2015 27,214.68 23,906.19 20,839.25 19,945.21 19,610.85 9/30/2015 25,671.51 22,961.64 20,594.45 19,451.70 19,111.92 10/31/2015 27,661.36 25,188.08 22,888.68 21,092.53 20,861.46 11/30/2015 27,547.41 25,446.71 23,185.06 21,155.25 21,255.53 12/31/2015 28,037.54 25,240.36 22,763.35 20,821.59 20,800.73 1/31/2016 25,908.27 23,261.90 21,282.91 19,788.34 19,009.53
[END CHART] Data from 7/31/10 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Science & Technology Fund Adviser Shares to the Fund's benchmarks listed above (see page 7 for benchmark definitions). *The performance of the S&P 500 Health Care Sector Index, S&P North American Technology Sector Index, S&P 500 Index, and the Lipper Science & Technology Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Science & Technology Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o TOP 10 HOLDINGS* - 1/31/16 o (% of Net Assets) Alphabet, Inc. "A" ........................................................ 8.6% Facebook, Inc. "A" ........................................................ 6.3% Microsoft Corp. ........................................................... 5.9% Amazon.com, Inc. .......................................................... 4.4% Visa, Inc. "A" ............................................................ 3.9% Apple, Inc. ............................................................... 3.8% Accenture plc "A" ......................................................... 1.9% Cognizant Technology Solutions Corp. "A" .................................. 1.5% Allergan plc .............................................................. 1.5% Genpact Ltd. .............................................................. 1.5%
o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] INFORMATION TECHNOLOGY 65.3% HEALTH CARE 24.0% CONSUMER DISCRETIONARY 6.3% INDUSTRIALS 3.2% CONSUMER STAPLES 0.3% MONEY MARKET INSTRUMENTS 1.0%
[END CHART] *Does not include money market instruments. Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 11-18. ================================================================================ 10 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (99.1%) COMMON STOCKS (98.1%) CONSUMER DISCRETIONARY (6.3%) ----------------------------- CONSUMER ELECTRONICS (0.3%) 118,900 Sony Corp.(a) $ 2,845 -------- INTERNET RETAIL (6.0%) 71,041 Amazon.com, Inc.* 41,701 56,476 Expedia, Inc. 5,706 8,654 Priceline Group, Inc.* 9,216 -------- 56,623 -------- Total Consumer Discretionary 59,468 -------- CONSUMER STAPLES (0.3%) ----------------------- DRUG RETAIL (0.3%) 19,380 CVS Health Corp. 1,872 12,013 Walgreens Boots Alliance, Inc. 958 -------- 2,830 -------- Total Consumer Staples 2,830 -------- HEALTH CARE (24.0%) ------------------- BIOTECHNOLOGY (4.8%) 18,550 Acorda Therapeutics, Inc.* 683 16,221 Alder BioPharmaceuticals, Inc.* 392 87,690 Alkermes plc* 2,807 26,700 Alnylam Pharmaceuticals, Inc.* 1,841 30,955 Anacor Pharmaceuticals, Inc.* 2,326 349,620 Arena Pharmaceuticals, Inc.* 528 115,116 BioCryst Pharmaceuticals, Inc.* 802 4,412 Biogen, Inc.* 1,205 55,020 Cepheid, Inc.* 1,620 1,800 Chiasma, Inc.* 19 81,744 Dicerna Pharmaceuticals, Inc.* 536 36,576 Five Prime Therapeutics, Inc.* 1,315 56,024 Galapagos N.V.* 2,792 104,018 Gilead Sciences, Inc. 8,633 59,694 GlycoMimetics, Inc.* 281
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- 38,211 Incyte Corp.* $ 2,696 24,349 Innate Pharma S.A.*(a) 325 65,760 Ironwood Pharmaceuticals, Inc.* 607 22,750 Nivalis Therapeutics, Inc.* 107 85,070 Otonomy, Inc.* 1,269 31,370 Portola Pharmaceuticals, Inc.* 1,036 16,290 PTC Therapeutics, Inc.* 388 14,361 Regeneron Pharmaceuticals, Inc.* 6,033 69,510 Regulus Therapeutics, Inc.* 402 134,530 Rigel Pharmaceuticals, Inc.* 370 11,916 Seattle Genetics, Inc.* 393 29,520 T2 Biosystems, Inc.* 262 53,088 TESARO, Inc.* 1,834 60,363 Trevena, Inc.* 439 23,972 Vertex Pharmaceuticals, Inc.* 2,175 51,800 Voyager Therapeutics, Inc.* 553 -------- 44,669 -------- HEALTH CARE DISTRIBUTORS (0.9%) 47,380 Cardinal Health, Inc. 3,855 30,840 McKesson Corp. 4,965 -------- 8,820 -------- HEALTH CARE EQUIPMENT (5.1%) 128,860 Abbott Laboratories 4,877 78,790 AtriCure, Inc.* 1,377 99,896 Baxter International, Inc. 3,656 27,521 Becton, Dickinson & Co. 4,001 322,960 Boston Scientific Corp.* 5,662 83,120 ConforMIS, Inc.* 914 37,810 EndoChoice Holdings, Inc.* 227 129,351 Globus Medical, Inc. "A"* 3,227 15,050 HeartWare International, Inc.* 604 21,528 Invuity, Inc.* 165 96,520 K2M Group Holdings, Inc.* 1,372 149,459 Medtronic plc 11,347 64,057 St. Jude Medical, Inc. 3,386 37,910 Stryker Corp. 3,759 13,531 Teleflex, Inc. 1,836 103,895 TriVascular Technologies, Inc.* 583 9,314 Zimmer Biomet Holdings, Inc. 925 -------- 47,918 -------- HEALTH CARE FACILITIES (0.8%) 19,310 Acadia Healthcare Co., Inc.* 1,178 198,357 Georgia Healthcare Group plc*(a),(b) 492
================================================================================ 12 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- 52,920 HCA Holdings, Inc.* $ 3,682 9,020 LifePoint Health, Inc.* 630 14,330 Universal Health Services, Inc. "B" 1,614 -------- 7,596 -------- HEALTH CARE SERVICES (0.5%) 82,950 Envision Healthcare Holdings, Inc.* 1,833 50,382 Team Health Holdings, Inc.* 2,059 57,934 Teladoc, Inc.* 941 -------- 4,833 -------- HEALTH CARE SUPPLIES (0.1%) 15,057 DENTSPLY International, Inc. 887 33,160 Endologix, Inc.* 236 -------- 1,123 -------- HEALTH CARE TECHNOLOGY (1.8%) 68,105 Allscripts Healthcare Solutions, Inc.* 938 12,050 athenahealth, Inc.* 1,709 51,786 Cerner Corp.* 3,004 37,059 Inovalon Holdings, Inc. "A"* 626 462,560 M3, Inc.(a) 10,625 -------- 16,902 -------- LIFE SCIENCES TOOLS & SERVICES (1.0%) 46,910 Agilent Technologies, Inc. 1,766 15,170 Illumina, Inc.* 2,396 22,330 PRA Health Sciences, Inc.* 962 1,120 Quintiles Transnational Holdings, Inc.* 68 34,010 Thermo Fisher Scientific, Inc. 4,492 -------- 9,684 -------- MANAGED HEALTH CARE (2.0%) 48,210 Aetna, Inc. 4,910 201,920 Qualicorp S.A. 681 100,740 UnitedHealth Group, Inc. 11,601 23,570 WellCare Health Plans, Inc.* 1,791 -------- 18,983 -------- PHARMACEUTICALS (7.0%) 73,411 Aerie Pharmaceuticals, Inc.* 1,214 50,550 Allergan plc* 14,378 191,100 AstraZeneca plc ADR 6,157 201,800 Bristol-Myers Squibb Co. 12,544 48,480 Daiichi Sankyo Co., Ltd.(a) 1,013 28,300 Eisai Co., Ltd.(a) 1,708 52,500 Eli Lilly and Co. 4,153
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- 39,460 Intersect ENT, Inc.* $ 704 12,620 Johnson & Johnson 1,318 61,655 Medicines Co.* 2,131 48,340 MediWound Ltd.* 327 57,670 Merck & Co., Inc. 2,922 107,180 Mylan N.V.* 5,647 52,600 MyoKardia, Inc.* 473 123,440 Nabriva Therapeutics AG ADR* 1,045 34,630 Ocular Therapeutix, Inc.* 212 8,210 Ono Pharmaceutical Co. Ltd.(a) 1,324 19,541 Revance Therapeutics, Inc.* 405 106,380 Shionogi & Co. Ltd.(a) 4,633 89,668 Tetraphase Pharmaceuticals, Inc.* 488 24,920 UCB S.A.(a) 2,135 85,057 XenoPort, Inc.* 423 -------- 65,354 -------- Total Health Care 225,882 -------- INDUSTRIALS (3.1%) ------------------ ELECTRICAL COMPONENTS & EQUIPMENT (0.7%) 93,780 Nidec Corp.(a) 6,391 -------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.4%) 78,070 WageWorks, Inc.* 3,493 -------- RESEARCH & CONSULTING SERVICES (2.0%) 76,229 Equifax, Inc. 8,065 110,333 Huron Consulting Group, Inc.* 6,191 191,473 TransUnion* 4,737 -------- 18,993 -------- Total Industrials 28,877 -------- INFORMATION TECHNOLOGY (64.4%) ------------------------------ APPLICATION SOFTWARE (1.0%) 14,815 Adobe Systems, Inc.* 1,320 117,641 Mobileye N.V.* 3,192 79,069 Workday, Inc. "A"* 4,982 -------- 9,494 -------- COMMUNICATIONS EQUIPMENT (1.3%) 77,155 Arista Networks, Inc.* 4,632 284,311 CIENA Corp.* 5,052 347,297 Ruckus Wireless, Inc.* 2,921 -------- 12,605 --------
================================================================================ 14 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- DATA PROCESSING & OUTSOURCED SERVICES (13.0%) 43,808 Alliance Data Systems Corp.* $ 8,752 110,497 Automatic Data Processing, Inc. 9,181 114,289 Cardtronics, Inc.* 3,521 594,629 Genpact Ltd.* 14,224 208,225 Global Payments, Inc. 12,275 136,287 Heartland Payment Systems, Inc. 12,549 108,866 PayPal Holdings, Inc.* 3,935 94,119 Vantiv, Inc. "A"* 4,428 356,357 VeriFone Systems, Inc.* 8,335 488,552 Visa, Inc. "A" 36,392 88,544 WEX, Inc.* 6,429 471,100 Worldpay Group plc*(a) 2,110 -------- 122,131 -------- ELECTRONIC COMPONENTS (2.9%) 223,300 Alps Electric Co. Ltd.(a) 4,410 91,380 Largan Precision Co. Ltd.(a) 6,653 43,290 Murata Manufacturing Co. Ltd.(a) 5,003 3,642,630 Sunny Optical Technology Group Co. Ltd.(a) 7,719 56,290 TDK Corp.(a) 3,086 -------- 26,871 -------- HOME ENTERTAINMENT SOFTWARE (1.3%) 118,982 Electronic Arts, Inc.* 7,679 29,300 Nintendo Co., Ltd.(a) 4,127 -------- 11,806 -------- INTERNET SOFTWARE & SERVICES (17.7%) 56,559 Alibaba Group Holding Ltd. ADR* 3,791 106,314 Alphabet, Inc. "A"* 80,942 16,055 Alphabet, Inc. "C"* 11,928 151,029 Dropbox, Inc., acquired 5/01/2012; cost $1,367*(c),(d),(e) 1,777 98,150 Everyday Health, Inc.* 452 525,556 Facebook, Inc. "A"* 58,973 440,565 Tencent Holdings Ltd.(a) 8,323 -------- 166,186 -------- IT CONSULTING & OTHER SERVICES (4.3%) 165,808 Accenture plc "A" 17,499 228,507 Cognizant Technology Solutions Corp. "A"* 14,467 194,300 SCSK Corp.(a) 8,512 -------- 40,478 --------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT (3.2%) 539,462 Applied Materials, Inc. $ 9,521 65,844 ASML Holding N.V. 6,047 30,900 Disco Corp.(a) 2,928 71,013 Lam Research Corp. 5,098 64,354 MKS Instruments, Inc. 2,281 166,214 Siltronic AG*(a) 3,028 194,130 SunEdison Semiconductor Ltd.* 1,204 -------- 30,107 -------- SEMICONDUCTORS (7.5%) 1,391,000 Advanced Semiconductor Engineering, Inc.(a) 1,490 89,371 Avago Technologies Ltd. 11,950 27,115 Cavium Networks, Inc.* 1,567 2,200,000 Inotera Memories, Inc.*(a) 1,901 229,501 Linear Technology Corp. 9,807 36,600 M/A-COM Technology Solutions Holdings, Inc.* 1,409 184,000 MediaTek, Inc.(a) 1,196 206,543 Microchip Technology, Inc. 9,255 78,178 NXP Semiconductors N.V.* 5,846 412,815 ON Semiconductor Corp.* 3,534 683,000 Powertech Technology, Inc.(a) 1,437 41,400 ROHM Co., Ltd.(a) 1,884 67,817 Silicon Motion Technology Corp. ADR 2,109 1,099,000 Siliconware Precision Industries Co., Ltd.(a) 1,699 109,298 Skyworks Solutions, Inc. 7,533 1,596,655 Taiwan Semiconductor Manufacturing Co. Ltd.(a) 6,813 1,006,000 Win Semiconductors Corp.(a) 1,599 -------- 71,029 -------- SYSTEMS SOFTWARE (7.2%) 60,245 Fleetmatics Group plc* 2,615 1,007,291 Microsoft Corp. 55,492 151,193 ServiceNow, Inc.* 9,406 -------- 67,513 -------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (5.0%) 366,335 Apple, Inc. 35,659 186,500 FUJIFILM Holdings Corp.(a) 7,200 263,960 Pure Storage, Inc. "A"* 3,434 94,942 Pure Storage, Inc. "B", acquired 4/16/2014; cost $1,493*(c),(d),(e) 1,235 -------- 47,528 -------- Total Information Technology 605,748 -------- Total Common Stocks (cost: $768,373) 922,805 --------
================================================================================ 16 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- PREFERRED STOCKS (1.0%) INDUSTRIALS (0.1%) ------------------ INDUSTRIAL MACHINERY (0.1%) 37,837 Cloudera, Inc. "F", acquired 2/05/2014; cost $551*(c),(d),(e) $ 793 -------- INFORMATION TECHNOLOGY (0.9%) ----------------------------- INTERNET SOFTWARE & SERVICES (0.7%) 133,140 Uber Technologies, Inc., acquired 6/05/2014; cost $2,065*(c),(d),(e) 6,494 -------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.2%) 151,427 Nutanix, Inc., acquired 8/25/2014; cost $2,029*(c),(d),(e) 1,932 -------- Total Information Technology 8,426 -------- Total Preferred Stocks (cost: $4,645) 9,219 -------- Total Equity Securities (cost: $773,018) 932,024 -------- MONEY MARKET INSTRUMENTS (1.0%) MONEY MARKET FUNDS (1.0%) 9,531,436 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(f) (cost: $9,531) 9,531 -------- TOTAL INVESTMENTS (COST: $782,549) $941,555 ======== -------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY -------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL -------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $807,184 $113,844 $ 1,777 $922,805 Preferred Stocks - - 9,219 9,219 Money Market Instruments: Money Market Funds 9,531 - - 9,531 -------------------------------------------------------------------------------------------------------- Total $816,715 $113,844 $10,996 $941,555 --------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ Reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
-------------------------------------------------------------------------------------------------------- COMMON STOCKS PREFERRED STOCKS -------------------------------------------------------------------------------------------------------- Balance as of July 31, 2015 $ 2,885 $10,575 Purchases - - Sales - (1,493) Transfers into Level 3 - - Transfers out of Level 3 - - Net realized gain (loss) on investments - - Change in net unrealized appreciation/(depreciation) of investments (1,108) 137 -------------------------------------------------------------------------------------------------------- Balance as of January 31, 2016 $ 1,777 $ 9,219 --------------------------------------------------------------------------------------------------------
For the period of August 1, 2015, through January 31, 2016, common stocks with a fair value of $98,886,000 were transferred from Level 1 to Level 2. Due to an assessment of events at the end of the current reporting period, these securities had adjustments to their foreign market closing prices to reflect changes in value that occurred after the close of foreign markets and prior to the close of the U.S. securities markets. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 18 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 16.4% of net assets at January 31, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. o SPECIFIC NOTES (a) Securities with a value of $112,609,000, which represented 12.0% of the Fund's net assets, were classified as Level 2 at January 31, 2016, due to the prices being adjusted to take into account significant market movements following the close of local trading. (b) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 19 ================================================================================ Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (c) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at January 31, 2016, was $12,231,000, which represented 1.3% of the Fund's net assets. (d) Security was fair valued at January 31, 2016, by the Manager in accordance with valuation procedures approved by the Board. The total value of all such securities was $12,231,000, which represented 1.3% of the Fund's net assets. (e) Restricted security that is not registered under the Securities Act of 1933. (f) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 20 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $782,549) $941,555 Receivables: Capital shares sold 1,316 Dividends and interest 171 Securities sold 11,601 Unrealized appreciation on foreign currency contracts held, at value 1 -------- Total assets 954,644 -------- LIABILITIES Payables: Securities purchased 12,777 Capital shares redeemed 618 Accrued management fees 631 Accrued transfer agent's fees 49 Other accrued expenses and payables 67 -------- Total liabilities 14,142 -------- Net assets applicable to capital shares outstanding $940,502 ======== NET ASSETS CONSIST OF: Paid-in capital $808,453 Accumulated undistributed net investment loss (2,697) Accumulated net realized loss on investments (24,259) Net unrealized appreciation of investments 159,006 Net unrealized depreciation of foreign currency translations (1) -------- Net assets applicable to capital shares outstanding $940,502 ======== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $824,882/41,876 shares outstanding) $ 19.70 ======== Adviser Shares (net assets of $115,620/5,959 shares outstanding) $ 19.40 ========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 21 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $68) $ 4,376 Interest 18 -------- Total income 4,394 -------- EXPENSES Management fees 3,773 Administration and servicing fees: Fund Shares 633 Adviser Shares 90 Transfer agent's fees: Fund Shares 719 Adviser Shares 93 Distribution and service fees (Note 6E): Adviser Shares 150 Custody and accounting fees: Fund Shares 90 Adviser Shares 12 Postage: Fund Shares 36 Adviser Shares 2 Shareholder reporting fees: Fund Shares 20 Adviser Shares 1 Trustees' fees 13 Registration fees: Fund Shares 44 Adviser Shares 32 Professional fees 54 Other 8 -------- Total expenses 5,770 Expenses paid indirectly: Fund Shares (7) Adviser Shares (1) -------- Net expenses 5,762 -------- NET INVESTMENT LOSS (1,368) -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized loss on: Investments (21,490) Foreign currency transactions (111) Change in net unrealized appreciation/(depreciation) of: Investments (69,995) Foreign currency translations 4 -------- Net realized and unrealized loss (91,592) -------- Decrease in net assets resulting from operations $(92,960) ========
See accompanying notes to financial statements. ================================================================================ 22 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
-------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 -------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss) $ (1,368) $ 4,043 Net realized gain (loss) on investments (21,490) 76,852 Net realized gain (loss) on foreign currency transactions (111) 350 Change in net unrealized appreciation/(depreciation) of: Investments (69,995) 77,988 Foreign currency translations 4 (21) --------------------- Increase (decrease) in net assets resulting from operations (92,960) 159,212 --------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares - (9,864) Adviser Shares - (804) --------------------- Total distributions of net investment income - (10,668) --------------------- Net realized gains: Fund Shares (54,146) (63,661) Adviser Shares (7,785) (4,386) --------------------- Total distributions of net realized gains (61,931) (68,047) --------------------- Distributions to shareholders (61,931) (78,715) --------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 106,038 191,076 Adviser Shares 13,581 96,674 --------------------- Total net increase in net assets from capital share transactions 119,619 287,750 --------------------- Capital contribution from USAA Transfer Agency Company Fund Shares - 11 --------------------- Net increase (decrease) in net assets (35,272) 368,258 NET ASSETS Beginning of period 975,774 607,516 --------------------- End of period $940,502 $975,774 ===================== Accumulated undistributed (overdistribution of) net investment income (loss): End of period $ (2,697) $ (1,329) =====================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 23 ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Science & Technology Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek long-term capital appreciation. The Fund consists of two classes of shares: Science & Technology Fund Shares (Fund Shares) and Science & Technology Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's ================================================================================ 24 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser has agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Repurchase agreements are valued at cost. 6. Forward foreign currency contracts are valued on a daily basis using forward foreign currency exchange rates obtained from an independent pricing service. ================================================================================ 26 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ 7. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include certain common stocks, which are valued based on methods ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ discussed in Note 1A2, and certain common stocks valued using market inputs and other observable factors deemed by the Manager to appropriately reflect fair value. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are valued at direct offering price. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. The methods used may include valuation models that rely on significant assumptions and/or unobservable inputs to determine the fair value measurement for the securities. A market-based approach may be employed using related or comparable securities, recent transactions, market multiples, book values and other relevant information or an income-based approach may be employed whereby estimated future cash flows are discounted to determine the fair value. In some cases discounts may be applied due to market liquidity limitations. The valuation methodology for certain level 3 securities changed during the period. Securities that were previously valued based on last quoted price, are now being fair valued using valuation models as a result of additional data becoming available subsequent to the date of purchase. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. ================================================================================ 28 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS FAIR VALUE AT SIGNIFICANT JANUARY 31, 2016 VALUATION UNOBSERVABLE ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE -------------------------------------------------------------------------------------------------------- EQUITY SECURITIES: Common Stocks $1,777 Market Revenue Multiple(a) 2.3x - 5.4x Comparables Comparable Premium Adjustment(a) 35% Discount for lack of marketability(b) 10% Preferred Stocks $2,725 Market Revenue Multiple(a) 3.1x - 6.9x Comparables Comparable Premium Adjustments(a) 0%-5% Discount for lack of marketability(b) 10% --------------------------------------------------------------------------------------------------------
(a) Represents amounts used when the reporting entity has determined that market participants would use such multiples when pricing the security. (b) Represents amounts used when the reporting entity has determined that market participants would take into account these discounts when pricing the security. Increases in the earnings before interest depreciation and amortization (EBITDA), revenue multiples, comparable premium adjustments, or earnings per share will increase the value of the security while an increase in the discount for lack of marketability will decrease the value of the security. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the Statement of Assets and Liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. F. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by ================================================================================ 30 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ the custodian to directly reduce expenses paid by the Fund. In addition, through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, brokerage commission recapture credits reduced the expenses of the Fund Shares and Adviser Shares by $7,000 and $1,000, respectively. Additionally, there were no custodian and other bank credits. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement up to $750 million. If the USAA Funds increase the committed loan agreement above the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $3,000, which represents 1.4% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $402,839,000 and $329,686,000, respectively. ================================================================================ 32 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $203,252,000 and $44,246,000, respectively, resulting in net unrealized appreciation of $159,006,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 ------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT -------------------------------------------- FUND SHARES: Shares sold 6,047 $130,554 10,176 $ 222,321 Shares issued from reinvested dividends 2,467 52,725 3,446 71,880 Shares redeemed (3,646) (77,241) (4,751) (103,125) -------------------------------------------- Net increase from capital share transactions 4,868 $106,038 8,871 $ 191,076 ============================================ ADVISER SHARES: Shares sold 1,817 $ 38,478 5,722 $ 122,931 Shares issued from reinvested dividends 332 6,995 190 3,923 Shares redeemed (1,548) (31,892) (1,415) (30,180) -------------------------------------------- Net increase from capital share transactions 601 $ 13,581 4,497 $ 96,674 ============================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund. The Manager is authorized to select (with approval ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.75% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Science & Technology Funds Index. The Lipper Science & Technology Funds Index tracks the total return performance of the 30 largest funds within the Lipper Science & Technology Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment: OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1) Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is ================================================================================ 34 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance) or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Science & Technology Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $3,773,000, which included a performance adjustment for the Fund Shares and Adviser Shares of $147,000 and $10,000, respectively. For the Fund Shares and Adviser Shares, the performance adjustments were 0.03% and 0.02%, respectively. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory Agreement with Wellington Management Company LLP (Wellington Management), under which Wellington Management directs the investment and reinvestment of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays Wellington Management a subadvisory fee in the annual amount of 0.45% of the Fund's average net assets for the first $100 million in assets that Wellington Management manages, plus 0.35% of the Fund's average net assets for assets over $100 million that Wellington Management manages. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to Wellington Management, of $1,741,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended January 31, 2016, the Fund Shares and Adviser Shares incurred ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ administration and servicing fees, paid or payable to the Manager, of $633,000 and $90,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $12,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended January 31, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $719,000 and $93,000, respectively. E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $150,000. ================================================================================ 36 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ F. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fees or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 483,000 Adviser Shares, which represents 8.1% of the Adviser Shares and 1.0% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, ------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 ------------------------------------------------------------------------- Net asset value at beginning of period $ 23.07 $ 20.96 $ 17.78 $ 14.24 $ 13.26 $ 10.65 ------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) (.02) .27 (.09)(a) .03(b) (.02) (.01)(a) Net realized and unrealized gain (loss) (1.95) 4.35 4.86(a) 3.51 1.00 2.62(a) ------------------------------------------------------------------------- Total from investment operations (1.97) 4.62 4.77(a) 3.54 .98 2.61(a) ------------------------------------------------------------------------- Less distributions from: Net investment income - (.31) (.40) - - - Realized capital gains (1.40) (2.20) (1.19) - - - ------------------------------------------------------------------------- Total distributions (1.40) (2.51) (1.59) - - - ------------------------------------------------------------------------- Net asset value at end of period $ 19.70 $ 23.07 $ 20.96 $ 17.78 $ 14.24 $ 13.26 ========================================================================= Total return (%)* (9.02) 23.45 27.94 24.86 7.39 24.51 Net assets at end of period (000) $824,882 $853,755 $589,615 $436,613 $354,495 $344,619 Ratios to average net assets:** Expenses (%)(c) 1.17(d) 1.18 1.24 1.34 1.38 1.36 Net investment income (loss) (%) (.25)(d) .52 (.44) (.08) (.30) (.10) Portfolio turnover (%) 35 73 91 93 77 109 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $839,611,000. (a) Calculated using average shares. (b) Reflected net investment income from investment operations per share, whereas the Statement of Operations reflected a net investment loss for the period. The difference in net investment income/loss from investment operations was due to the fiscal year-end tax reclassification adjustment. (c) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: (.01%) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (+)Represents less than 0.01% of average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 38 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED Period Ended JANUARY 31, YEAR ENDED JULY 31, July 31, -------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011*** -------------------------------------------------------------------------- Net asset value at beginning of period $ 22.77 $ 20.78 $ 17.64 $14.16 $13.22 $10.84 -------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) (.06) .13(a) (.12)(a) (.00)(b) (.05) (.06)(a) Net realized and unrealized gain (loss) (1.91) 4.39(a) 4.82(a) 3.48 .99 2.44(a) -------------------------------------------------------------------------- Total from investment operations (1.97) 4.52(a) 4.70(a) 3.48 .94 2.38(a) -------------------------------------------------------------------------- Less distributions from: Net investment income - (.33) (.37) - - - Realized capital gains (1.40) (2.20) (1.19) - - - -------------------------------------------------------------------------- Total distributions (1.40) (2.53) (1.56) - - - -------------------------------------------------------------------------- Net asset value at end of period $ 19.40 $ 22.77 $ 20.78 $17.64 $14.16 $13.22 ========================================================================== Total return (%)* (9.15) 23.18 27.73 24.58 7.11 21.96 Net assets at end of period (000) $115,620 $122,019 $17,901 $8,815 $6,940 $6,465 Ratios to average net assets:** Expenses (%)(c) 1.42(d) 1.42 1.41(e) 1.56 1.63 1.65(d) Expenses, excluding reimbursements (%)(c) 1.42(d) 1.42 1.41 1.56 1.63 2.02(d) Net investment income (loss) (%) (.51)(d) .59 (.61) (.30) (.55) (.44)(d) Portfolio turnover (%) 35 73 91 93 77 109 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $118,892,000. *** Adviser Shares commenced operations on August 1, 2010. (a) Calculated using average shares. (b) Represents less than $0.01 per share. (c) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. (e) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 1.65% of the Adviser Shares' average net assets.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the ================================================================================ 40 | USAA SCIENCE & TECHNOLOGY FUND ================================================================================ actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015- AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 --------------------------------------------------------------- FUND SHARES Actual $1,000.00 $ 909.80 $5.57 Hypothetical (5% return before expenses) 1,000.00 1,019.30 5.89 ADVISER SHARES Actual 1,000.00 908.50 6.81 Hypothetical (5% return before expenses) 1,000.00 1,018.00 7.20
*Expenses are equal to the Fund's annualized expense ratio of 1.16% for Fund Shares and 1.42% for Adviser Shares, which are net of any expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (9.02)% for Fund Shares and (9.15)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 41 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ USAA -------------- 9800 Fredericksburg Road PRSRT STD San Antonio, TX 78288 U.S. Postage PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 31704-0316 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA VALUE FUND] ============================================================== SEMIANNUAL REPORT USAA VALUE FUND FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES JANUARY 31, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "DURING VOLATILE PERIODS, WHEN EMOTIONS RUN HIGH, INVESTORS CAN BE TEMPTED TO [PHOTO OF BROOKS ENGLEHARDT] MAKE HASTY DECISIONS." -------------------------------------------------------------------------------- MARCH 2016 Uncertainty and pessimism--these emotions pervaded the financial markets when the reporting period came to an end on January 31, 2016. The declines in the global equity markets grabbed the lion's share of the headlines and turmoil was widespread, encompassing commodities and corporate bonds. Investor anxiety seemed to center on China, which experienced its slowest pace of growth in nearly a quarter century and is expected, by many, to slow even more in 2016. In addition, the price of oil, a measure of global economic growth expectations, dropped during the reporting period, driven by lower-than-anticipated demand and oversupply. Other commodities, such as copper, iron ore, and aluminum, also saw their prices tumble. At the same time, global trade appeared to be softening, as a decline in the Baltic Dry Index (a measure of global shipping rates) fell to a 28-year low. In this environment, many global central banks continued their efforts to boost economic growth, committing to lower-for-longer monetary policies and ongoing stimulative measures. In contrast, the Federal Reserve (the Fed) raised short-term interest rates a quarter-percent during December 2015. The following month, Fed policymakers left interest rates unchanged, citing "global economic and financial developments." Only days later, the U.S. Department of Commerce revealed that the U.S. economy had expanded at just 0.7% in the fourth quarter of 2015, compared to 2.0% in the third quarter of 2015 and 3.9% in the second quarter of 2015. Bond investors appeared to have anticipated this news as longer-term interest rates had trended down. Under these conditions, the increase in market volatility over the reporting period should not be all that surprising. At USAA Investments, we believe the financial markets are likely to be more volatile in 2016 than they were in 2015. During volatile periods, when emotions run high, investors can be tempted to make hasty decisions. Any investor who tries to respond to every twist and turn in the market could end up tied in a knot. ================================================================================ ================================================================================ That is why we encourage you to adhere to the long-term investment plan that you have crafted. An investment plan, based on your objectives, time horizon, and risk tolerance, can help you stay focused on your future. It also can keep you from getting distracted by short-term changes in market sentiment. Furthermore, if you have cash reserves, you may find opportunities in the coming months to put them to work. We tend to view volatility, not as a period of crisis, but rather, as a time of potential opportunity. The stock market declines in January 2016 were certainly uncomfortable, but we still believe U.S. equity valuations generally remain on the high side. Prices often fall until their fundamental ratios, such as price-to-earnings, attract attention from value-minded investors. In our opinion, the strength of the U.S. dollar will likely result in some earnings disappointments. Many large U.S. corporations rely on international markets for a significant portion of their revenue. When the U.S. dollar is strong, it makes U.S. exports more expensive. Meanwhile, credit spreads (yield differentials between corporate bonds and U.S. Treasuries of similar maturity) have widened. The widening spread began in the energy sector as oil prices fell, but expanded thereafter to metals and mining, shipping, and beyond. In our view, investors are pricing in the additional risk of an earnings decline, which could impact bond issuers' ability to meet their debt obligations. Rest assured that in the months ahead, our team of portfolio managers will continue working hard to stay abreast of changing market conditions as they strive to meet your investment goals. Meanwhile, if you are uneasy about the markets in general or are concerned about having too much exposure to specific asset classes, please contact one of our financial advisors. They will review your investment allocations and evaluate whether those allocations are properly aligned with your long-term goals, time horizon, and tolerance for risk. From all of us here at USAA Investments, thank you for your continued investment in our family of mutual funds. We look forward to continuing to help you with your investment needs. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers, and affiliates. o Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY 2 INVESTMENT OVERVIEW 6 FINANCIAL INFORMATION Portfolio of Investments 13 Notes to Portfolio of Investments 21 Financial Statements 22 Notes to Financial Statements 25 EXPENSE EXAMPLE 40
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 202729-0316 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA VALUE FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests its assets primarily in equity securities of companies that are considered to be undervalued. Although the Fund will invest primarily in U.S. securities, it may invest up to 20% of its total assets in foreign securities including securities issued in emerging markets. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND Barrow, Hanley, Mewhinney & Strauss, LLC MARK GIAMBRONE JAMES S. McCLURE, CFA JEFF G. FAHRENBRUCH, CFA JOHN P. HARLOE, CFA DAVID W. GANUCHEAU, CFA LEWIS ROPP TIMOTHY J. CULLER, CFA CORY L. MARTIN -------------------------------------------------------------------------------- o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD? Headlines out of China dominated the reporting period ended January 31, 2016, which ended with global equity markets generally lower. At the beginning of the reporting period, investors monitored U.S. growth for indications of the likely timing of changes in Federal Reserve (the Fed) interest rate policy. Global deflation fears were eased to a degree by ongoing European Central Bank and Bank of Japan efforts to support their respective economic regions. A number of emerging-market economies remained under duress due to the continued weakness in oil prices. In mid-August 2015, the Chinese government, faced with slowing growth as it attempted to engineer a restructuring of the country's economy, raised fears of a global currency war as it devalued the renminbi. In response, global equities and other risk assets dropped sharply. Uncertainty over China's economy negatively affected global equity market sentiment into late September 2015. U.S. equities rebounded in October 2015 as worries over China eased momentarily. U.S. employment numbers exceeded expectations, and markets increasingly focused on the Fed's December 16, 2015, meeting as a likely event for the first increase in the benchmark federal funds rate in almost a decade. Markets experienced heightened volatility in November and December 2015 as oil prices dropped further, but U.S. stocks managed to hold on to the bulk of their October 2015 gains. ================================================================================ 2 | USAA VALUE FUND ================================================================================ The Fed's December 16, 2015, 25.0 basis point rate increase generally was received as a positive sign with respect to the path of the U.S. economy, and investors anticipated an incremental but fairly steady pace with respect to future increases. However, the period of relatively optimistic sentiment proved short-lived. A resumption of the slide in oil prices as 2016 opened raised alarms that the global demand outlook had further deteriorated, leading to substantial losses for global equities in January 2016. o HOW DID THE USAA VALUE FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares had total returns of -10.94%, -10.91%, and -11.13%, respectively. This compares to returns of -8.89% for the Russell 3000(R) Value Index (the Index) and -11.93% for the Lipper Multi-Cap Value Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. As the investment adviser, the Manager employs dedicated resources to support the research, selection, and monitoring of the Fund's subadviser. Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS) is the subadviser to the Fund. The subadviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE THE PRINCIPAL FACTORS IN THE FUND'S PERFORMANCE RELATIVE TO THE INDEX DURING THE REPORTING PERIOD? In broad terms, the Fund has been positioned for some time to benefit from gradual economic improvement and an accompanying rise in market interest rate levels. In this manner, selection within the financials sector, where the Fund had a focus on lenders and an underweight to real estate investment trusts (REITs) based on valuation concerns, was the leading Refer to page 7 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ detractor from the Fund's performance relative to the benchmark. Selection within the industrials sector and an underweight to utilities also contributed to the underperformance on a relative basis. On the positive side, selection within the information technology sector was the leading contributor to performance on a relative basis, followed by an underweight to energy and selection within the telecommunications services sector. Within the financials sector, a leading individual detractor was the Fund's position in American Express Co., which saw its shares suffer on flat earnings driven largely by increased brand spending in the face of heightened competition within the consumer finance space. The Fund has maintained the position as American Express Co. has an exceptionally powerful global franchise and BHMS believes earnings growth can be expected to resume over time. Another straggler within the financials sector was investment manager and custodian bank State Street Corp., whose stock is highly sensitive to the stock market and interest rates. While State Street Corp. has seen its fee-based business impacted negatively by lower financial market levels, BHMS believes the company's shares are trading at a substantially discounted valuation and has maintained the position. Within the Fund's energy exposure, shares of liquefied natural gas shipping company Golar LNG Ltd. declined significantly, as the company has seen its volumes drop with competition from cheaper oil. BHMS believes the company remains positioned to benefit over time from a preference for cleaner sources of energy. The leading positive contributor was the Fund's position in telecommunications services giant Verizon Communications, Inc., which saw its shares benefit from the company's stable business model against a backdrop of heightened uncertainty. In a similar defensive vein, within the consumer staples sector, Reynolds American, Inc. outperformed over the reporting period. Both Verizon Communications, Inc. and Reynolds American, Inc. continue to offer strong cash flow and attractive dividends. The Fund's focus on valuation was rewarded as a position in chip industry pioneer Fairchild Semiconductor International, Inc. rose on news of a proposed acquisition. ================================================================================ 4 | USAA VALUE FUND ================================================================================ With markets on edge over faltering China's growth and the ripple effects from weakness in oil and other commodities, the outlook appears to be for the Fed to proceed even more incrementally in its normalization of short-term rates, and for there to be little upward pressure on long-term rates as well. While this scenario is not necessarily supportive of the Fund's focus on valuation, BHMS remains steadfast in its commitment to not overpay for utilities, REITs, and other dividend-oriented stocks. The Fund will continue to focus on broad measures of valuation, including low payout ratios and solid earnings prospects that together suggest the potential for long-term growth in dividends. Thank you for allowing us to help you with your investment needs. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the United States. Foreign securities also may be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries generally are less diverse and mature than more developed countries and may have less stable political systems. o Investing in REITs has some of the same risks associated with the direct ownership of real estate. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ INVESTMENT OVERVIEW USAA VALUE FUND SHARES (FUND SHARES) (Ticker Symbol: UVALX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $733.2 Million $960.9 Million Net Asset Value Per Share $17.31 $20.50 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS 10 YEARS -10.94% -5.85% 8.10% 5.43% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS 10 YEARS -3.49% 10.14% 6.39% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.09% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 6 | USAA VALUE FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA VALUE RUSSELL 3000 LIPPER MULTI-CAP FUND SHARES VALUE INDEX VALUE FUNDS INDEX 1/31/2006 $10,000.00 $10,000.00 $10,000.00 2/28/2006 10,029.54 10,055.46 10,015.72 3/31/2006 10,192.02 10,223.18 10,180.17 4/30/2006 10,480.06 10,461.34 10,382.15 5/31/2006 10,192.02 10,181.74 10,114.81 6/30/2006 10,155.10 10,252.24 10,094.38 7/31/2006 10,177.25 10,464.85 10,126.32 8/31/2006 10,347.12 10,652.42 10,321.29 9/30/2006 10,576.07 10,854.91 10,553.57 10/31/2006 10,886.26 11,228.08 10,925.56 11/30/2006 11,129.99 11,490.24 11,153.08 12/31/2006 11,335.53 11,733.65 11,333.38 1/31/2007 11,525.85 11,886.04 11,525.81 2/28/2007 11,442.11 11,704.32 11,328.74 3/31/2007 11,655.27 11,881.66 11,425.16 4/30/2007 12,043.52 12,292.06 11,894.48 5/31/2007 12,530.75 12,736.11 12,349.16 6/30/2007 12,317.59 12,438.70 12,130.45 7/31/2007 11,731.40 11,822.39 11,567.84 8/31/2007 11,792.30 11,963.37 11,590.98 9/30/2007 12,051.14 12,345.27 11,897.17 10/31/2007 12,134.88 12,357.18 11,946.22 11/30/2007 11,693.33 11,727.49 11,340.68 12/31/2007 11,481.89 11,615.09 11,215.63 1/31/2008 11,061.63 11,148.97 10,672.04 2/29/2008 10,601.72 10,683.74 10,294.03 3/31/2008 10,205.25 10,622.16 10,088.71 4/30/2008 10,712.73 11,125.56 10,604.24 5/31/2008 10,966.48 11,138.78 10,794.31 6/30/2008 9,927.72 10,073.06 9,797.79 7/31/2008 9,872.21 10,079.06 9,689.74 8/31/2008 10,022.87 10,275.18 9,798.86 9/30/2008 9,229.92 9,542.92 8,891.56 10/31/2008 7,572.66 7,868.95 7,261.73 11/30/2008 7,009.67 7,276.34 6,779.17 12/31/2008 7,339.35 7,404.43 6,993.07 1/31/2009 6,779.78 6,536.25 6,392.58 2/28/2009 5,936.36 5,660.18 5,689.55 3/31/2009 6,455.38 6,145.63 6,184.74 4/30/2009 7,193.37 6,829.70 6,857.28 5/31/2009 7,525.88 7,229.03 7,266.90 6/30/2009 7,598.86 7,178.60 7,217.46 7/31/2009 8,377.40 7,784.80 7,809.25 8/31/2009 8,742.34 8,188.94 8,146.27 9/30/2009 8,977.53 8,512.79 8,473.92 10/31/2009 8,774.78 8,227.65 8,261.74 11/30/2009 9,326.25 8,675.60 8,629.00 12/31/2009 9,596.34 8,867.66 8,852.30 1/31/2010 9,399.33 8,617.42 8,609.29 2/28/2010 9,744.10 8,899.78 8,888.57 3/31/2010 10,326.94 9,492.42 9,399.57 4/30/2010 10,548.59 9,773.27 9,624.58 5/31/2010 9,694.85 8,967.98 8,822.68 6/30/2010 9,029.92 8,439.70 8,276.75 7/31/2010 9,703.06 9,013.51 8,844.12 8/31/2010 9,112.01 8,604.84 8,418.16 9/30/2010 10,031.42 9,291.98 9,148.31 10/31/2010 10,285.90 9,577.19 9,458.53 11/30/2010 10,343.36 9,549.84 9,416.76 12/31/2010 11,141.70 10,306.62 10,139.46 1/31/2011 11,489.88 10,521.11 10,365.57 2/28/2011 11,854.63 10,920.98 10,738.65 3/31/2011 11,945.82 10,973.21 10,844.66 4/30/2011 12,285.71 11,255.91 11,133.26 5/31/2011 12,161.36 11,130.15 10,973.72 6/30/2011 11,962.40 10,898.11 10,741.23 7/31/2011 11,390.40 10,536.74 10,362.74 8/31/2011 10,611.14 9,856.81 9,556.06 9/30/2011 9,715.83 9,085.47 8,645.94 10/31/2011 10,926.16 10,146.40 9,726.80 11/30/2011 10,942.74 10,096.36 9,663.05 12/31/2011 11,094.77 10,296.21 9,722.08 1/31/2012 11,573.14 10,708.87 10,275.39 2/29/2012 12,085.07 11,114.27 10,756.66 3/31/2012 12,462.73 11,444.94 11,004.26 4/30/2012 12,236.14 11,324.36 10,868.38 5/31/2012 11,413.68 10,658.10 10,086.84 6/30/2012 11,850.09 11,185.90 10,487.82 7/31/2012 11,934.01 11,284.23 10,530.96 8/31/2012 12,219.35 11,536.95 10,848.14 9/30/2012 12,513.09 11,906.56 11,144.18 10/31/2012 12,454.34 11,841.21 11,103.33 11/30/2012 12,504.69 11,839.37 11,148.83 12/31/2012 12,703.81 12,102.98 11,397.58 1/31/2013 13,385.43 12,884.63 12,129.59 2/28/2013 13,555.84 13,066.68 12,282.92 3/31/2013 14,135.22 13,586.36 12,802.08 4/30/2013 14,382.31 13,774.89 12,963.20 5/31/2013 14,919.09 14,132.77 13,394.08 6/30/2013 14,816.85 14,013.33 13,222.41 7/31/2013 15,651.84 14,781.21 13,958.90 8/31/2013 15,174.70 14,213.16 13,534.26 9/30/2013 15,745.56 14,605.68 13,994.42 10/31/2013 16,324.94 15,232.01 14,601.56 11/30/2013 16,912.85 15,670.46 15,010.25 12/31/2013 17,257.99 16,059.12 15,362.16 1/31/2014 16,593.54 15,484.72 14,832.18 2/28/2014 17,346.58 16,157.45 15,478.49 3/31/2014 17,638.94 16,528.31 15,740.47 4/30/2014 17,506.05 16,638.81 15,780.18 5/31/2014 17,771.83 16,871.78 16,070.83 6/30/2014 18,197.08 17,336.20 16,490.71 7/31/2014 17,718.67 16,979.89 16,108.95 8/31/2014 18,338.83 17,612.84 16,703.12 9/30/2014 17,851.56 17,185.21 16,189.11 10/31/2014 18,303.39 17,632.32 16,475.35 11/30/2014 18,657.76 17,958.66 16,807.41 12/31/2014 18,708.11 18,097.96 16,881.31 1/31/2015 18,011.43 17,372.13 16,327.59 2/28/2015 19,144.69 18,210.11 17,231.54 3/31/2015 18,958.91 18,005.21 17,092.30 4/30/2015 19,107.53 18,129.47 17,218.19 5/31/2015 19,404.78 18,342.09 17,426.56 6/30/2015 19,126.11 18,005.75 17,089.94 7/31/2015 19,042.51 18,037.21 17,108.76 8/31/2015 18,048.58 16,977.96 16,155.86 9/30/2015 17,379.77 16,459.35 15,533.04 10/31/2015 18,605.93 17,675.50 16,647.65 11/30/2015 18,652.37 17,777.47 16,671.21 12/31/2015 18,055.93 17,350.45 16,116.56 1/31/2016 16,958.65 16,432.93 15,067.44
[END CHART] Data from 1/31/06 through 1/31/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Value Fund Shares to the following benchmarks: o The unmanaged Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index also are members of either the unmanaged Russell 1000(R) Value or the unmanaged Russell 2000(R) Value indexes. o The unmanaged Lipper Multi-Cap Value Funds Index tracks the total return performance of the 30 largest funds within the Lipper Multi-Cap Value Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Multi-Cap Value Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ USAA VALUE FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIVAX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $456.0 Million $300.0 Million Net Asset Value Per Share $17.29 $20.49 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -10.91% -5.76% 8.24% 7.68% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08 -3.35% 10.29% 8.69% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15 ** -------------------------------------------------------------------------------- 0.98% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ 8 | USAA VALUE FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA VALUE FUND RUSSELL 3000 LIPPER MULTI-CAP INSTITUTIONAL SHARES VALUE INDEX VALUE FUNDS INDEX 7/31/2008 $10,000.00 $10,000.00 $10,000.00 8/31/2008 10,177.13 10,194.58 10,112.61 9/30/2008 9,371.98 9,468.06 9,176.26 10/31/2008 7,689.21 7,807.23 7,494.25 11/30/2008 7,117.55 7,219.27 6,996.23 12/31/2008 7,454.67 7,346.36 7,216.98 1/31/2009 6,885.67 6,484.98 6,597.26 2/28/2009 6,036.30 5,615.78 5,871.72 3/31/2009 6,555.82 6,097.43 6,382.76 4/30/2009 7,306.24 6,776.13 7,076.84 5/31/2009 7,644.34 7,172.32 7,499.57 6/30/2009 7,726.80 7,122.29 7,448.56 7/31/2009 8,518.44 7,723.74 8,059.30 8/31/2009 8,897.78 8,124.71 8,407.11 9/30/2009 9,136.92 8,446.01 8,745.24 10/31/2009 8,930.76 8,163.12 8,526.27 11/30/2009 9,499.76 8,607.55 8,905.29 12/31/2009 9,771.02 8,798.10 9,135.74 1/31/2010 9,570.25 8,549.82 8,884.95 2/28/2010 9,921.61 8,829.97 9,173.17 3/31/2010 10,515.56 9,417.97 9,700.54 4/30/2010 10,749.80 9,696.61 9,932.75 5/31/2010 9,871.41 8,897.64 9,105.17 6/30/2010 9,202.16 8,373.50 8,541.76 7/31/2010 9,888.14 8,942.80 9,127.30 8/31/2010 9,285.82 8,537.34 8,687.70 9/30/2010 10,231.13 9,219.10 9,441.23 10/31/2010 10,490.47 9,502.06 9,761.38 11/30/2010 10,557.39 9,474.94 9,718.28 12/31/2010 11,371.72 10,225.77 10,464.12 1/31/2011 11,727.35 10,438.58 10,697.46 2/28/2011 12,108.38 10,835.32 11,082.49 3/31/2011 12,201.53 10,887.14 11,191.90 4/30/2011 12,548.69 11,167.62 11,489.74 5/31/2011 12,421.68 11,042.85 11,325.09 6/30/2011 12,218.46 10,812.63 11,085.16 7/31/2011 11,642.68 10,454.09 10,694.55 8/31/2011 10,846.74 9,779.49 9,862.04 9/30/2011 9,932.26 9,014.21 8,922.77 10/31/2011 11,168.50 10,066.81 10,038.25 11/30/2011 11,185.44 10,017.17 9,972.45 12/31/2011 11,350.72 10,215.45 10,033.37 1/31/2012 11,840.49 10,624.87 10,604.40 2/29/2012 12,364.63 11,027.09 11,101.08 3/31/2012 12,751.30 11,355.17 11,356.60 4/30/2012 12,519.30 11,235.54 11,216.37 5/31/2012 11,685.82 10,574.51 10,409.81 6/30/2012 12,124.04 11,098.16 10,823.63 7/31/2012 12,218.56 11,195.72 10,868.15 8/31/2012 12,510.71 11,446.46 11,195.49 9/30/2012 12,811.44 11,813.17 11,501.00 10/31/2012 12,751.30 11,748.33 11,458.85 11/30/2012 12,802.85 11,746.51 11,505.80 12/31/2012 13,012.21 12,008.05 11,762.52 1/31/2013 13,711.32 12,783.57 12,517.96 2/28/2013 13,886.10 12,964.19 12,676.21 3/31/2013 14,480.35 13,479.79 13,211.98 4/30/2013 14,733.77 13,666.84 13,378.26 5/31/2013 15,293.06 14,021.92 13,822.94 6/30/2013 15,179.46 13,903.41 13,645.77 7/31/2013 16,044.61 14,665.28 14,405.84 8/31/2013 15,546.49 14,101.68 13,967.60 9/30/2013 16,140.74 14,491.12 14,442.51 10/31/2013 16,734.98 15,112.54 15,069.08 11/30/2013 17,337.97 15,547.54 15,490.86 12/31/2013 17,702.51 15,933.16 15,854.03 1/31/2014 17,011.50 15,363.26 15,307.09 2/28/2014 17,784.34 16,030.71 15,974.09 3/31/2014 18,093.47 16,398.67 16,244.46 4/30/2014 17,957.09 16,508.30 16,285.44 5/31/2014 18,229.86 16,739.45 16,585.39 6/30/2014 18,666.28 17,200.22 17,018.72 7/31/2014 18,184.40 16,846.71 16,624.74 8/31/2014 18,811.76 17,474.70 17,237.94 9/30/2014 18,320.78 17,050.41 16,707.46 10/31/2014 18,784.48 17,494.02 17,002.88 11/30/2014 19,148.17 17,817.80 17,345.56 12/31/2014 19,198.69 17,956.00 17,421.83 1/31/2015 18,492.23 17,235.87 16,850.38 2/28/2015 19,656.94 18,067.27 17,783.27 3/31/2015 19,466.00 17,863.98 17,639.58 4/30/2015 19,618.75 17,987.28 17,769.50 5/31/2015 19,933.80 18,198.22 17,984.54 6/30/2015 19,637.85 17,864.52 17,637.14 7/31/2015 19,561.47 17,895.73 17,656.56 8/31/2015 18,539.96 16,844.79 16,673.15 9/30/2015 17,852.59 16,330.25 16,030.39 10/31/2015 19,122.32 17,536.87 17,180.69 11/30/2015 19,160.50 17,638.03 17,205.00 12/31/2015 18,555.51 17,214.36 16,632.59 1/31/2016 17,426.66 16,304.04 15,549.88
[END CHART] Data from 7/31/08 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Value Fund Institutional Shares to the Fund's benchmarks listed above (see page 7 for benchmark definitions). *The performance of the Russell 3000 Value Index and the Lipper Multi-Cap Value Funds Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, 2008. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Multi-Cap Value Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA VALUE FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UAVAX) -------------------------------------------------------------------------------- 1/31/16 7/31/15 -------------------------------------------------------------------------------- Net Assets $7.8 Million $9.3 Million Net Asset Value Per Share $17.26 $20.43 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/16 -------------------------------------------------------------------------------- 7/31/15-1/31/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 -11.13% -6.12% 7.69% 9.83% -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/15 -------------------------------------------------------------------------------- 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 -3.71% 9.73% 11.29% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 7/31/15** -------------------------------------------------------------------------------- 1.34% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated December 1, 2015, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gains distributions), redemption of shares, or reinvested net investment income. ================================================================================ 10 | USAA VALUE FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER MULTI-CAP USAA VALUE FUND VALUE INDEX VALUE FUNDS INDEX ADVISER SHARES 7/31/2010 $10,000.00 $10,000.00 $10,000.00 8/31/2010 9,546.60 9,518.37 9,188.07 9/30/2010 10,308.96 10,343.94 10,115.99 10/31/2010 10,625.37 10,694.71 10,364.54 11/30/2010 10,595.04 10,647.48 10,422.54 12/31/2010 11,434.64 11,464.64 11,223.33 1/31/2011 11,672.60 11,720.29 11,565.96 2/28/2011 12,116.24 12,142.13 11,933.66 3/31/2011 12,174.19 12,262.00 12,017.23 4/30/2011 12,487.83 12,588.32 12,351.51 5/31/2011 12,348.30 12,407.93 12,217.80 6/30/2011 12,090.87 12,145.05 12,017.23 7/31/2011 11,689.95 11,717.09 11,432.25 8/31/2011 10,935.60 10,804.98 10,655.06 9/30/2011 10,079.84 9,775.91 9,744.15 10/31/2011 11,256.88 10,998.04 10,955.91 11/30/2011 11,201.37 10,925.95 10,964.26 12/31/2011 11,423.10 10,992.71 11,111.07 1/31/2012 11,880.92 11,618.33 11,590.87 2/29/2012 12,330.68 12,162.50 12,095.92 3/31/2012 12,697.55 12,442.46 12,466.29 4/30/2012 12,563.77 12,288.82 12,239.02 5/31/2012 11,824.60 11,405.14 11,414.10 6/30/2012 12,410.16 11,858.52 11,843.39 7/31/2012 12,519.25 11,907.30 11,919.15 8/31/2012 12,799.63 12,265.94 12,196.93 9/30/2012 13,209.69 12,600.66 12,483.12 10/31/2012 13,137.19 12,554.48 12,424.20 11/30/2012 13,135.15 12,605.92 12,466.29 12/31/2012 13,427.61 12,887.18 12,666.85 1/31/2013 14,294.80 13,714.86 13,339.35 2/28/2013 14,496.78 13,888.23 13,509.60 3/31/2013 15,073.34 14,475.24 14,079.95 4/30/2013 15,282.50 14,657.41 14,318.30 5/31/2013 15,679.55 15,144.61 14,846.09 6/30/2013 15,547.04 14,950.50 14,735.42 7/31/2013 16,398.96 15,783.25 15,569.66 8/31/2013 15,768.74 15,303.11 15,084.44 9/30/2013 16,204.22 15,823.42 15,654.79 10/31/2013 16,899.10 16,509.90 16,216.63 11/30/2013 17,385.53 16,972.01 16,795.49 12/31/2013 17,816.73 17,369.90 17,142.69 1/31/2014 17,179.46 16,770.66 16,472.50 2/28/2014 17,925.82 17,501.45 17,213.23 3/31/2014 18,337.28 17,797.66 17,513.06 4/30/2014 18,459.87 17,842.56 17,371.96 5/31/2014 18,718.34 18,171.19 17,636.51 6/30/2014 19,233.58 18,645.95 18,059.79 7/31/2014 18,838.28 18,214.30 17,583.60 8/31/2014 19,540.51 18,886.13 18,192.06 9/30/2014 19,066.06 18,304.94 17,707.06 10/31/2014 19,562.11 18,628.59 18,147.97 11/30/2014 19,924.17 19,004.04 18,500.70 12/31/2014 20,078.71 19,087.61 18,538.90 1/31/2015 19,273.44 18,461.52 17,846.81 2/28/2015 20,203.14 19,483.61 18,972.61 3/31/2015 19,975.81 19,326.17 18,778.83 4/30/2015 20,113.68 19,468.51 18,917.25 5/31/2015 20,349.56 19,704.11 19,221.77 6/30/2015 19,976.41 19,323.50 18,935.70 7/31/2015 20,011.31 19,344.79 18,852.65 8/31/2015 18,836.14 18,267.35 17,856.03 9/30/2015 18,260.76 17,563.13 17,191.62 10/31/2015 19,610.02 18,823.41 18,400.48 11/30/2015 19,723.15 18,850.05 18,437.39 12/31/2015 19,249.39 18,222.91 17,851.30 1/31/2016 18,231.46 17,036.67 16,754.41
[END CHART] Data from 7/31/10 through 1/31/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Value Fund Adviser Shares to the Fund's benchmarks listed above (see page 7 for benchmark definitions). *The performance of the Russell 3000 Value Index and the Lipper Multi-Cap Value Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged, and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Multi-Cap Value Funds Index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o TOP 10 HOLDINGS* - 1/31/16 o (% of Net Assets) CRH plc ADR ............................................................... 2.3% Medtronic plc ............................................................. 2.3% Microsoft Corp. ........................................................... 2.2% Wells Fargo & Co. ......................................................... 2.1% Verizon Communications, Inc. .............................................. 2.1% JPMorgan Chase & Co. ...................................................... 2.1% Capital One Financial Corp. ............................................... 2.0% Philip Morris International, Inc. ......................................... 1.9% Pfizer, Inc. .............................................................. 1.9% Johnson & Johnson ......................................................... 1.9%
o SECTOR ALLOCATION - 1/31/16 o [PIE CHART OF SECTOR ALLOCATION] FINANCIALS 19.9% INDUSTRIALS 15.8% HEALTH CARE 15.8% INFORMATION TECHNOLOGY 12.7% CONSUMER DISCRETIONARY 10.8% ENERGY 6.9% MATERIALS 5.5% CONSUMER STAPLES 4.6% TELECOMMUNICATION SERVICES 2.7% UTILITIES 1.7% MONEY MARKET INSTRUMENTS 3.3%
[END CHART] *Does not include money market instruments. Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 13-20. ================================================================================ 12 | USAA VALUE FUND ================================================================================ PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (96.4%) COMMON STOCKS (96.4%) CONSUMER DISCRETIONARY (10.8%) ------------------------------ APPAREL RETAIL (0.9%) 103,400 L Brands, Inc. $ 9,942 104,443 Tailored Brands, Inc. 1,432 ---------- 11,374 ---------- APPAREL, ACCESSORIES & LUXURY GOODS (1.0%) 406,800 Hanesbrands, Inc. 12,436 ---------- AUTO PARTS & EQUIPMENT (2.1%) 238,323 American Axle & Manufacturing Holdings, Inc.* 3,055 71,600 Delphi Automotive plc 4,650 472,496 Johnson Controls, Inc. 16,949 ---------- 24,654 ---------- AUTOMOBILE MANUFACTURERS (0.9%) 952,404 Ford Motor Co. 11,372 ---------- GENERAL MERCHANDISE STORES (1.0%) 157,143 Target Corp. 11,380 ---------- HOME FURNISHINGS (0.6%) 110,800 Tempur Sealy International, Inc.* 6,686 ---------- HOTELS, RESORTS & CRUISE LINES (2.4%) 201,927 Carnival Corp. 9,718 168,300 Norwegian Cruise Line Holdings Ltd.* 7,636 140,700 Royal Caribbean Cruises Ltd. 11,532 ---------- 28,886 ---------- HOUSEHOLD APPLIANCES (1.0%) 91,847 Whirlpool Corp. 12,343 ---------- LEISURE FACILITIES (0.4%) 268,500 SeaWorld Entertainment, Inc. 5,118 ---------- PUBLISHING (0.1%) 21,400 Meredith Corp. 905 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- SPECIALTY STORES (0.4%) 140,400 Vitamin Shoppe, Inc.* $ 4,272 ---------- Total Consumer Discretionary 129,426 ---------- CONSUMER STAPLES (4.6%) ----------------------- TOBACCO (4.6%) 291,218 Altria Group, Inc. 17,796 254,587 Philip Morris International, Inc. 22,915 288,240 Reynolds American, Inc. 14,398 ---------- 55,109 ---------- Total Consumer Staples 55,109 ---------- ENERGY (6.9%) ------------- INTEGRATED OIL & GAS (3.0%) 528,756 BP plc ADR 17,116 273,449 Occidental Petroleum Corp. 18,822 ---------- 35,938 ---------- OIL & GAS EXPLORATION & PRODUCTION (1.8%) 356,366 ConocoPhillips 13,927 267,400 Memorial Resource Development Corp.* 4,254 154,400 RSP Permian, Inc.* 3,636 ---------- 21,817 ---------- OIL & GAS REFINING & MARKETING (1.7%) 193,700 PBF Energy, Inc. "A" 6,778 168,677 Phillips 66 13,519 ---------- 20,297 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.4%) 239,000 Golar LNG Ltd. 4,450 ---------- Total Energy 82,502 ---------- FINANCIALS (19.9%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (1.6%) 63,000 Ameriprise Financial, Inc. 5,711 250,689 State Street Corp. 13,971 ---------- 19,682 ---------- CONSUMER FINANCE (4.8%) 297,104 American Express Co. 15,895 363,835 Capital One Financial Corp. 23,875 164,500 Discover Financial Services 7,532 575,900 Navient Corp. 5,506 646,400 SLM Corp.* 4,137 ---------- 56,945 ----------
================================================================================ 14 | USAA VALUE FUND ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- DIVERSIFIED BANKS (6.7%) 1,043,366 Bank of America Corp. $ 14,753 362,253 Citigroup, Inc. 15,425 416,185 JPMorgan Chase & Co. 24,763 499,867 Wells Fargo & Co. 25,108 ---------- 80,049 ---------- INSURANCE BROKERS (0.6%) 65,907 Willis Towers Watson plc 7,544 ---------- MULTI-LINE INSURANCE (0.8%) 164,621 American International Group, Inc. 9,298 ---------- REGIONAL BANKS (4.0%) 420,700 Fifth Third Bancorp 6,647 211,900 First Niagara Financial Group, Inc. 2,074 80,200 Hanmi Financial Corp. 1,740 343,900 People's United Financial, Inc. 4,942 238,439 PNC Financial Services Group, Inc. 20,661 104,900 Prosperity Bancshares, Inc. 4,448 124,200 Texas Capital Bancshares, Inc.* 4,434 327,400 Valley National Bancorp 2,881 ---------- 47,827 ---------- REITs - HOTEL & RESORT (0.5%) 417,200 Host Hotels & Resorts, Inc. 5,778 ---------- REITs - OFFICE (0.3%) 172,000 Corporate Office Properties Trust 3,836 ---------- THRIFTS & MORTGAGE FINANCE (0.6%) 499,900 New York Community Bancorp, Inc. 7,739 ---------- Total Financials 238,698 ---------- HEALTH CARE (15.8%) ------------------- HEALTH CARE DISTRIBUTORS (0.9%) 132,300 Cardinal Health, Inc. 10,765 ---------- HEALTH CARE EQUIPMENT (2.9%) 357,679 Medtronic plc 27,155 144,500 St. Jude Medical, Inc. 7,638 ---------- 34,793 ---------- HEALTH CARE FACILITIES (0.4%) 129,180 HealthSouth Corp. 4,623 ---------- HEALTH CARE SUPPLIES (0.2%) 93,560 Haemonetics Corp.* 2,960 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- MANAGED HEALTH CARE (3.2%) 71,353 Anthem, Inc. $ 9,311 88,500 Cigna Corp. 11,824 144,261 UnitedHealth Group, Inc. 16,613 ---------- 37,748 ---------- PHARMACEUTICALS (8.2%) 213,302 Johnson & Johnson 22,277 324,429 Merck & Co., Inc. 16,439 733,375 Pfizer, Inc. 22,361 465,384 Sanofi ADR 19,379 278,451 Teva Pharmaceutical Industries Ltd. ADR 17,119 ---------- 97,575 ---------- Total Health Care 188,464 ---------- INDUSTRIALS (15.8%) ------------------- AEROSPACE & DEFENSE (5.5%) 109,733 General Dynamics Corp. 14,679 137,535 Honeywell International, Inc. 14,194 83,044 Raytheon Co. 10,649 169,600 Spirit AeroSystems Holdings, Inc. "A"* 7,191 216,269 United Technologies Corp. 18,965 ---------- 65,678 ---------- AGRICULTURAL & FARM MACHINERY (1.0%) 935,000 CNH Industrial N.V. 5,853 88,673 Deere & Co. 6,829 ---------- 12,682 ---------- BUILDING PRODUCTS (2.0%) 146,525 Gibraltar Industries, Inc.* 3,112 240,600 Owens Corning, Inc. 11,113 163,900 Simpson Manufacturing Co., Inc. 5,348 114,500 Trex Co., Inc.* 4,301 ---------- 23,874 ---------- CONSTRUCTION & ENGINEERING (1.4%) 183,221 Comfort Systems USA, Inc. 5,193 217,000 KBR, Inc. 3,094 251,800 Primoris Services Corp. 5,134 226,700 Tutor Perini Corp.* 2,995 ---------- 16,416 ----------
================================================================================ 16 | USAA VALUE FUND ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.7%) 101,100 Oshkosh Corp. $ 3,329 243,202 Terex Corp. 5,448 ---------- 8,777 ---------- DIVERSIFIED SUPPORT SERVICES (0.3%) 142,630 Mobile Mini, Inc. 3,697 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (0.8%) 110,600 Eaton Corp. plc 5,586 100,100 Encore Wire Corp. 3,725 ---------- 9,311 ---------- INDUSTRIAL MACHINERY (2.3%) 168,800 Barnes Group, Inc. 5,488 60,400 SPX Flow, Inc.* 1,440 201,188 Stanley Black & Decker, Inc. 18,980 38,900 Xylem, Inc. 1,398 ---------- 27,306 ---------- RAILROADS (0.6%) 100,700 Norfolk Southern Corp. 7,099 ---------- SECURITY & ALARM SERVICES (0.9%) 301,700 Tyco International plc 10,376 ---------- TRUCKING (0.3%) 62,600 Ryder System, Inc. 3,328 ---------- Total Industrials 188,544 ---------- INFORMATION TECHNOLOGY (12.7%) ------------------------------ APPLICATION SOFTWARE (0.2%) 156,400 Mentor Graphics Corp. 2,718 ---------- COMMUNICATIONS EQUIPMENT (1.3%) 329,519 QUALCOMM, Inc. 14,940 ---------- DATA PROCESSING & OUTSOURCED SERVICES (0.5%) 161,700 Total System Services, Inc. 6,494 ---------- ELECTRONIC COMPONENTS (1.1%) 331,100 II-VI, Inc.* 6,887 561,640 Vishay Intertechnology, Inc. 6,436 ---------- 13,323 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%) 119,000 FARO Technologies, Inc.* 3,055 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- ELECTRONIC MANUFACTURING SERVICES (0.8%) 177,600 Mercury Systems, Inc.* $ 3,390 97,400 Park Electrochemical Corp. 1,586 141,300 Plexus Corp.* 4,939 ---------- 9,915 ---------- SEMICONDUCTOR EQUIPMENT (0.9%) 435,100 Brooks Automation, Inc. 4,147 437,186 Photronics, Inc.* 5,220 300,000 Xcerra Corp.* 1,644 ---------- 11,011 ---------- SEMICONDUCTORS (3.6%) 258,430 Diodes, Inc.* 4,944 398,324 Fairchild Semiconductor International, Inc.* 8,162 287,161 Intel Corp. 8,908 145,200 Microchip Technology, Inc. 6,506 269,423 Texas Instruments, Inc. 14,260 ---------- 42,780 ---------- SYSTEMS SOFTWARE (4.0%) 483,521 Microsoft Corp. 26,637 591,266 Oracle Corp. 21,469 ---------- 48,106 ---------- Total Information Technology 152,342 ---------- MATERIALS (5.5%) ---------------- CONSTRUCTION MATERIALS (2.3%) 1,015,305 CRH plc ADR 27,332 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (1.0%) 210,500 FMC Corp. 7,519 61,731 Scotts Miracle-Gro Co. "A" 4,240 ---------- 11,759 ---------- INDUSTRIAL GASES (1.7%) 161,165 Air Products & Chemicals, Inc. 20,421 ---------- SPECIALTY CHEMICALS (0.5%) 190,700 Flotek Industries, Inc.* 1,274 184,000 PolyOne Corp. 4,979 ---------- 6,253 ---------- Total Materials 65,765 ----------
================================================================================ 18 | USAA VALUE FUND ================================================================================
-------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (2.7%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (2.7%) 218,314 AT&T, Inc. $ 7,872 497,242 Verizon Communications, Inc. 24,847 ---------- 32,719 ---------- Total Telecommunication Services 32,719 ---------- UTILITIES (1.7%) ---------------- ELECTRIC UTILITIES (1.5%) 84,677 Entergy Corp. 5,977 86,200 Pinnacle West Capital Corp. 5,716 169,000 Xcel Energy, Inc. 6,459 ---------- 18,152 ---------- MULTI-UTILITIES (0.2%) 144,800 CenterPoint Energy, Inc. 2,587 ---------- Total Utilities 20,739 ---------- Total Common Stocks 1,154,308 ---------- Total Equity Securities (cost: $946,082) 1,154,308 ---------- MONEY MARKET INSTRUMENTS (3.3%) MONEY MARKET FUNDS (3.3%) 39,079,851 State Street Institutional Liquid Reserves Fund Premier Class, 0.36%(a) (cost: $39,080) 39,080 ---------- TOTAL INVESTMENTS (COST: $985,162) $1,193,388 ==========
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
-------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY -------------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL -------------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $1,154,308 $- $- $1,154,308 Money Market Instruments: Money Market Funds 39,080 - - 39,080 -------------------------------------------------------------------------------------------------------- Total $1,193,388 $- $- $1,193,388 --------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of August 1, 2015, through January 31, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers into and out of the levels as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ 20 | USAA VALUE FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 8.0% of net assets at January 31, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. REIT Real estate investment trust o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at January 31, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 21 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) January 31, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $985,162) $1,193,388 Receivables: Capital shares sold 5,477 Dividends and interest 1,767 Securities sold 3,247 ---------- Total assets 1,203,879 ---------- LIABILITIES Payables: Securities purchased 5,429 Capital shares redeemed 508 Accrued management fees 756 Accrued transfer agent's fees 88 Other accrued expenses and payables 87 ---------- Total liabilities 6,868 ---------- Net assets applicable to capital shares outstanding $1,197,011 ========== NET ASSETS CONSIST OF: Paid-in capital $ 997,327 Accumulated undistributed net investment income 627 Accumulated net realized loss on investments (9,169) Net unrealized appreciation of investments 208,226 ---------- Net assets applicable to capital shares outstanding $1,197,011 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $733,210/42,368 shares outstanding) $ 17.31 ========== Institutional Shares (net assets of $456,014/26,373 shares outstanding) $ 17.29 ========== Adviser Shares (net assets of $7,787/451 shares outstanding) $ 17.26 ==========
See accompanying notes to financial statements. ================================================================================ 22 | USAA VALUE FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $35) $ 14,536 Interest 38 ---------- Total income 14,574 ---------- EXPENSES Management fees 4,708 Administration and servicing fees: Fund Shares 683 Institutional Shares 168 Adviser Shares 7 Transfer agent's fees: Fund Shares 765 Institutional Shares 168 Distribution and service fees (Note 6E): Adviser Shares 11 Custody and accounting fees: Fund Shares 58 Institutional Shares 19 Adviser Shares 1 Postage: Fund Shares 33 Shareholder reporting fees: Fund Shares 18 Trustees' fees 13 Registration fees: Fund Shares 24 Institutional Shares 10 Adviser Shares 8 Professional fees 59 Other 11 ---------- Total expenses 6,764 Expenses paid indirectly: Fund Shares (2) Institutional Shares (1) ---------- Net expenses 6,761 ---------- NET INVESTMENT INCOME 7,813 ---------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss (5,468) Change in net unrealized appreciation/(depreciation) (145,315) ---------- Net realized and unrealized loss (150,783) ---------- Decrease in net assets resulting from operations $ (142,970) ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 23 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended January 31, 2016 (unaudited), and year ended July 31, 2015
-------------------------------------------------------------------------------------------------------- 1/31/2016 7/31/2015 -------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 7,813 $ 15,063 Net realized gain (loss) on investments (5,468) 61,814 Change in net unrealized appreciation/(depreciation) of investments (145,315) 21,398 ------------------------ Increase (decrease) in net assets resulting from operations (142,970) 98,275 ------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (11,360) (11,218) Institutional Shares (4,726) (6,208) Adviser Shares (82) (92) ------------------------ Total distributions of net investment income (16,168) (17,518) ------------------------ Net realized gains: Fund Shares (36,580) (31,237) Institutional Shares (14,111) (15,427) Adviser Shares (351) (322) ------------------------ Total distributions of net realized gains (51,042) (46,986) ------------------------ Distributions to shareholders (67,210) (64,504) ------------------------ NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (71,417) 94,826 Institutional Shares 208,481 (41,701) Adviser Shares (57) 192 ------------------------ Total net increase in net assets from capital share transactions 137,007 53,317 ------------------------ Net increase (decrease) in net assets (73,173) 87,088 NET ASSETS Beginning of period 1,270,184 1,183,096 ------------------------ End of period $1,197,011 $1,270,184 ======================== Accumulated undistributed net investment income: End of period $ 627 $ 8,982 ========================
See accompanying notes to financial statements. ================================================================================ 24 | USAA VALUE FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS January 31, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Value Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek long-term growth of capital. The Fund consists of three classes of shares: Value Fund Shares (Fund Shares), Value Fund Institutional Shares (Institutional Shares), and Value Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ investment strategy (USAA fund-of-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which ================================================================================ 26 | USAA VALUE FUND ================================================================================ they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager and the Fund's subadviser will monitor for events that would materially affect the value of the Fund's foreign securities. The Fund's subadviser has agreed to notify the Manager of significant events they identify that would materially affect the value of the Fund's foreign securities. If the Manager determines that a particular event would materially affect the value of the Fund's foreign securities, then the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events that occur on a fairly regular basis (such as U.S. market movements) are significant. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Repurchase agreements are valued at cost. 6. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs ================================================================================ 28 | USAA VALUE FUND ================================================================================ that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are accrued as applicable, as a reduction to such income and realized gains. These foreign taxes have been provided for in accordance with the understanding of the applicable countries' tax rules and rates. E. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by the custodian to directly reduce expenses paid by the Fund. In addition, through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended January 31, 2016, brokerage commission recapture credits reduced the ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ expenses of the Fund Shares, Institutional Shares, and Adviser Shares by $2,000, $1,000, and less than $500, respectively. Additionally, there were no custodian and other bank credits. F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. G. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR). The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 9.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2015, the maximum annual facility fee was 7.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the Funds based on their respective average net assets for the period. The Funds may request an optional increase of the committed loan agreement up to $750 million. If the Funds increase the committed loan agreement above ================================================================================ 30 | USAA VALUE FUND ================================================================================ the $500 million, the assessed facility fee by CAPCO will be increased to 10.0 basis points. For the six-month period ended January 31, 2016, the Fund paid CAPCO facility fees of $4,000, which represents 1.8% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended January 31, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of July 31, 2016, in accordance with applicable tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At July 31, 2015, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended January 31, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax positions to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended January 31, 2016, were $182,717,000 and $120,023,000, respectively. As of January 31, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ Gross unrealized appreciation and depreciation of investments as of January 31, 2016, were $279,356,000 and $71,130,000, respectively, resulting in net unrealized appreciation of $208,226,000. (5) CAPITAL SHARE TRANSACTIONS At January 31, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED JANUARY 31, 2016 JULY 31, 2015 -------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------- FUND SHARES: Shares sold 3,745 $ 71,044 9,354 $ 190,743 Shares issued from reinvested dividends 2,535 47,490 2,065 41,980 Shares redeemed (10,776) (189,951) (6,755) (137,897) ---------------------------------------------- Net increase (decrease) from capital share transactions (4,496) $ (71,417) 4,664 $ 94,826 ============================================== INSTITUTIONAL SHARES: Shares sold 11,269 $ 199,992 6,490 $ 131,373 Shares issued from reinvested dividends 1,006 18,819 1,064 21,630 Shares redeemed (540) (10,330) (9,424) (194,704) ---------------------------------------------- Net increase (decrease) from capital share transactions 11,735 $ 208,481 (1,870) $ (41,701) ============================================== ADVISER SHARES: Shares sold 2 $ 45 11 $ 211 Shares issued from reinvested dividends -* 4 -* 3 Shares redeemed (5) (106) (1) (22) ---------------------------------------------- Net increase (decrease) from capital share transactions (3) $ (57) 10 $ 192 ============================================== *Represents less than 500 shares.
================================================================================ 32 | USAA VALUE FUND ================================================================================ (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically reports to the Board as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadviser(s). The allocation for each subadviser could range from 0% to 100% of the Fund's assets, and the Manager could change the allocations without shareholder approval. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.75% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class's performance over the performance period to that of the Lipper Multi-Cap Value Funds Index. The Lipper Multi-Cap Value Funds Index tracks the total return performance of the 30 largest funds within the Lipper Multi-Cap Value Funds category. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) -------------------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ Each class's annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Multi-Cap Value Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended January 31, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $4,708,000. For the six-month period ended January 31, 2016, the Fund had no performance adjustment. B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory Agreement with Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS), under which BHMS directs the investment and reinvestment of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays BHMS a subadvisory fee based on the aggregate average net assets that BHMS manages in the USAA Value Fund and the USAA Growth & Income Fund combined, in the annual amount of 0.75% on the first $15 million in assets, 0.55% on assets over $15 million and up to $25 million, 0.45% on assets over $25 million and up to $100 million, 0.35% on assets over $100 million and up to $200 million, 0.25% on assets over $200 million and up to $1 billion, and 0.15% on assets over $1 billion. For the six-month period ended January 31, 2016, the Manager incurred subadvisory fees with respect to the Fund, paid or payable to BHMS, of $1,406,000. C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized ================================================================================ 34 | USAA VALUE FUND ================================================================================ rate of 0.15% of average net assets of the Fund Shares and Adviser Shares, and 0.10% of average net assets of the Institutional Shares. For the six- month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $683,000, $168,000, and $7,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended January 31, 2016, the Fund reimbursed the Manager $16,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended January 31, 2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $765,000, $168,000, and less than $500, respectively. E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company, the distributor, for distribution and shareholder services. USAA Investment Management Company pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ charge or a contingent deferred sales charge. For the six-month period ended January 31, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $11,000. F. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Fund offers its Institutional Shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying funds for the purpose of exercising management or control. As of January 31, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- USAA Cornerstone Conservative 0.2 USAA Cornerstone Equity 0.8 USAA Target Retirement Income 1.1 USAA Target Retirement 2020 3.1 USAA Target Retirement 2030 7.3 USAA Target Retirement 2040 9.5 USAA Target Retirement 2050 5.1 USAA Target Retirement 2060 0.4
The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At January 31, 2016, USAA and its affiliates owned 441,000 Adviser Shares, which represents 97.7% of the Adviser Shares and 0.6% of the Fund. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 36 | USAA VALUE FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, -------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 -------------------------------------------------------------------------- Net asset value at beginning of period $ 20.50 $ 20.00 $ 18.37 $ 14.22 $ 13.74 $ 11.82 -------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .11 .20 .27 .21 .23 .14 Net realized and unrealized gain (loss) (2.29) 1.28 2.11 4.17 .41 1.91 -------------------------------------------------------------------------- Total investment operations (2.18) 1.48 2.38 4.38 .64 2.05 -------------------------------------------------------------------------- Less distributions from: Net investment income (.23) (.25) (.20) (.23) (.16) (.13) Realized capital gains (.78) (.73) (.55) - - - -------------------------------------------------------------------------- Total distributions (1.01) (.98) (.75) (.23) (.16) (.13) -------------------------------------------------------------------------- Net asset value at end of period $ 17.31 $ 20.50 $ 20.00 $ 18.37 $ 14.22 $ 13.74 ========================================================================== Total return (%)* (10.94) 7.47 13.21 31.15 4.77 17.39 Net assets at end of period (000) $733,210 $960,925 $844,121 $633,228 $425,071 $585,536 Ratios to average net assets:** Expenses (%)(a) 1.11(c) 1.09 1.11(b) 1.15(b) 1.15(b) 1.15(b) Expenses, excluding reimbursements (%)(a) 1.11(c) 1.09 1.11 1.25 1.31 1.25 Net investment income (%) 1.22(c) 1.06 1.55 1.40 1.48 1.10 Portfolio turnover (%) 10 30 20 26 20 22 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $903,927,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) - (.00%)(+) (.00%)(+) (.01%) (.01%) (+) Represents less than 0.01% of average net assets. (b) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the annual expenses of the Fund Shares to 1.15% of the Fund Shares' average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, -------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011 -------------------------------------------------------------------------- Net asset value at beginning of period $ 20.49 $ 20.00 $ 18.36 $ 14.22 $ 13.75 $ 11.82 -------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .12 .26(a) .29 .25 .21 .18 Net realized and unrealized gain (loss) (2.29) 1.24(a) 2.11 4.15 .45 1.91 -------------------------------------------------------------------------- Total from investment operations (2.17) 1.50(a) 2.40 4.40 .66 2.09 -------------------------------------------------------------------------- Less distributions from: Net investment income (.25) (.28) (.21) (.26) (.19) (.16) Realized capital gains (.78) (.73) (.55) - - - -------------------------------------------------------------------------- Total distributions (1.03) (1.01) (.76) (.26) (.19) (.16) -------------------------------------------------------------------------- Net asset value at end of period $ 17.29 $ 20.49 $ 20.00 $ 18.36 $ 14.22 $ 13.75 ========================================================================== Total return (%)* (10.91) 7.57 13.34 31.31 4.95 17.74 Net assets at end of period (000) $456,014 $299,990 $330,114 $214,855 $171,322 $141,668 Ratios to average net assets:** Expenses (%)(b) .98(d) .98 1.00 1.01 1.00 .90(c) Net investment income (%) 1.34(d) 1.23 1.59 1.54 1.61 1.35 Portfolio turnover (%) 10 30 20 26 20 22 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $334,584,000. (a) Calculated using average shares. (b) Reflects total annual operating expenses of the Institutional Shares before reductions of any expenses paid indirectly. The Institutional Shares' expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) - (.00%)(+) (.00%)(+) (.01%) (.01%) (+) Represents less than 0.01% of average net assets. (c) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the annual expenses of the Institutional Shares to 0.91% of the Institutional Shares' average net assets. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================ 38 | USAA VALUE FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED JANUARY 31, YEAR ENDED JULY 31, JULY 31, ------------------------------------------------------------------------- 2016 2015 2014 2013 2012 2011*** ------------------------------------------------------------------------- Net asset value at beginning of period $ 20.43 $19.94 $18.29 $14.16 $13.68 $12.07 ------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .09 .17 .25 .15 .13 .08(a) Net realized and unrealized gain (loss) (2.30) 1.26 2.08 4.15 .44 1.65(a) ------------------------------------------------------------------------- Total from investment operations (2.21) 1.43 2.33 4.30 .57 1.73(a) ------------------------------------------------------------------------- Less distributions from: Net investment income (.18) (.21) (.13) (.17) (.09) (.12) Realized capital gains (.78) (.73) (.55) - - - ------------------------------------------------------------------------- Total distributions (.96) (.94) (.68) (.17) (.09) (.12) ------------------------------------------------------------------------- Net asset value at end of period $ 17.26 $20.43 $19.94 $18.29 $14.16 $13.68 ========================================================================= Total return (%)* (11.13) 7.22 12.94 30.63 4.26 14.32 Net assets at end of period (000) $ 7,787 $9,269 $8,861 $8,237 $6,406 $6,161 Ratios to average net assets:** Expenses (%)(b) 1.38(c) 1.34 1.35(d) 1.57(d) 1.65(d) 1.65(c),(d) Expenses, excluding reimbursements (%)(b) 1.38(c) 1.34 1.35 1.57 1.66 2.00(c) Net investment income (%) .96(c) .82 1.30 .99 .97 .58(c) Portfolio turnover (%) 10 30 20 26 20 22 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended January 31, 2016, average net assets were $8,607,000. *** Adviser Shares commenced operations on August 1, 2010. (a) Calculated using average shares. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios as follows: (.00%)(+) - (.01%) (.00%)(+) (.01%) (.00%)(+) (+) Represents less than 0.01% of average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. (d) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 1.65% of the Adviser Shares' average net assets.
================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ EXPENSE EXAMPLE January 31, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of August 1, 2015, through January 31, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate ================================================================================ 40 | USAA VALUE FUND ================================================================================ of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2015 - AUGUST 1, 2015 JANUARY 31, 2016 JANUARY 31, 2016 ------------------------------------------------------------ FUND SHARES Actual $1,000.00 $ 890.60 $5.28 Hypothetical (5% return before expenses) 1,000.00 1,019.56 5.63 INSTITUTIONAL SHARES Actual 1,000.00 890.90 4.66 Hypothetical (5% return before expenses) 1,000.00 1,020.21 4.98 ADVISER SHARES Actual 1,000.00 888.70 6.55 Hypothetical (5% return before expenses) 1,000.00 1,018.20 7.00
*Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares, 0.98% for Institutional Shares, and 1.38% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 184 days/366 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (10.94)% for Fund Shares, (10.91)% for Institutional Shares, and (11.13)% for Adviser Shares for the six-month period of August 1, 2015, through January 31, 2016. ================================================================================ EXPENSE EXAMPLE | 41 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ USAA -------------- 9800 Fredericksburg Road PRSRT STD San Antonio, TX 78288 U.S. Postage PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 40847-0316 (C)2016, USAA. All rights reserved. ITEM 2. CODE OF ETHICS. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Filed as part of the report to shareholders. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Corporate Governance Committee selects and nominates candidates for membership on the Board as independent trustees. The Corporate Governance Committee has adopted procedures to consider Board candidates suggested by shareholders. The procedures are initiated by the receipt of nominations submitted by a fund shareholder sent to Board member(s) at the address specified in fund disclosure documents or as received by AMCO or a fund officer. Any recommendations for a nomination by a shareholder, to be considered by the Board, must include at least the following information: name; date of birth; contact information; education; business profession and other expertise; affiliations; experience relating to serving on the Board; and references. The Corporate Governance Committee gives shareholder recommendations the same consideration as any other candidate. ITEM 11. CONTROLS AND PROCEDURES The principal executive officer and principal financial officer of USAA Mutual Funds Trust (Trust) have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR/S was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. The only change to the procedures was to document the annual disclosure controls and procedures established for the new section of the shareholder reports detailing the factors considered by the Funds' Board in approving the Funds' advisory agreements. ITEM 12. EXHIBITS. (a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports. (a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (a)(3). Not Applicable. (b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: USAA MUTUAL FUNDS TRUST, Period Ended January 31, 2016 By:* /S/ DANIEL J. MAVICO ----------------------------------------------------------- Signature and Title: Daniel J. Mavico, Assistant Secretary Date: 03/22/2016 ------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By:* /S/ DANIEL S. MCNAMARA ----------------------------------------------------- Signature and Title: Daniel S. McNamara, President Date: 03/23/2016 ------------------------------ By:* /S/ ROBERTO GALINDO, JR. ----------------------------------------------------- Signature and Title: Roberto Galindo, Jr., Treasurer Date: 03/22/2016 ------------------------------ *Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 ncsrscert013116.txt USAA MUTUAL FUNDS TRUST - N-CSR/S CERT 01-31-2016 I, DANIEL S. MCNAMARA, certify that: ------------------ 1. I have reviewed the reports on Form N-CSR/S for the period ending January 31, 2016 for the following funds of USAA MUTUAL FUNDS TRUST: Aggressive Growth Fund Shares Aggressive Growth Fund Institutional Shares Growth & Income Fund Shares Growth & Income Fund Institutional Shares Growth & Income Fund Adviser Shares Income Stock Fund Shares Income Stock Fund Institutional Shares Income Fund Shares Income Fund Institutional Shares Income Fund Adviser Shares Science & Technology Fund Shares Science & Technology Fund Adviser Shares Short-Term Bond Fund Shares Short-Term Bond Fund Institutional Shares Short-Term Bond Fund Adviser Shares Intermediate-Term Bond Fund Shares Intermediate-Term Bond Fund Institutional Shares Intermediate-Term Bond Fund Adviser Shares High Income Fund Shares High Income Fund Institutional Shares High Income Fund Adviser Shares Small Cap Stock Fund Shares Small Cap Stock Fund Institutional Shares Capital Growth Fund Capital Growth Fund Institutional Shares First Start Growth Fund Growth Fund Shares Growth Fund Institutional Shares Money Market Fund Value Fund Shares Value Fund Institutional Shares Value Fund Adviser Shares 2. Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports; 3. Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in these reports; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in these reports any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: 03/23/2016 /s/ DANIEL S. MCNAMARA ------------------- ---------------------------------------- Daniel S. McNamara President I, ROBERTO GALINDO, JR., certify that: -------------------- 1. I have reviewed the reports on Form N-CSR/S for the period ending January 31, 2016 for the following funds of USAA MUTUAL FUNDS TRUST: Aggressive Growth Fund Shares Aggressive Growth Fund Institutional Shares Growth & Income Fund Shares Growth & Income Fund Institutional Shares Growth & Income Fund Adviser Shares Income Stock Fund Shares Income Stock Fund Institutional Shares Income Fund Shares Income Fund Institutional Shares Income Fund Adviser Shares Science & Technology Fund Shares Science & Technology Fund Adviser Shares Short-Term Bond Fund Shares Short-Term Bond Fund Institutional Shares Short-Term Bond Fund Adviser Shares Intermediate-Term Bond Fund Shares Intermediate-Term Bond Fund Institutional Shares Intermediate-Term Bond Fund Adviser Shares High Income Fund Shares High Income Fund Institutional Shares High Income Fund Adviser Shares Small Cap Stock Fund Shares Small Cap Stock Fund Institutional Shares Capital Growth Fund Capital Growth Fund Institutional Shares First Start Growth Fund Growth Fund Shares Growth Fund Institutional Shares Money Market Fund Value Fund Shares Value Fund Institutional Shares Value Fund Adviser Shares 2. Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports; 3. Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in these reports; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based such evaluation; and (d) disclosed in these reports any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: 03/22/2016 /s/ ROBERTO GALINDO, JR. ----------------- ------------------------------- Roberto Galindo, Jr. Treasurer EX-99.906 CERT 3 ncsrs906cert013116.txt USAA MUTUAL FUNDS TRUST - N-CSR/S 906 CERT 01-31-2016 SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Name of Issuer: USAA MUTUAL FUNDS TRUST Aggressive Growth Fund Shares Aggressive Growth Fund Institutional Shares Capital Growth Fund Capital Growth Fund Institutional Shares Growth Fund Shares Growth Fund Institutional Shares Growth & Income Fund Shares Growth & Income Fund Institutional Shares Growth & Income Fund Adviser Shares Income Stock Fund Shares Income Stock Fund Institutional Shares Income Fund Shares Income Fund Institutional Shares Income Fund Adviser Shares Science & Technology Fund Shares Science & Technology Fund Adviser Shares First Start Growth Fund Short-Term Bond Fund Shares Short-Term Bond Fund Institutional Shares Short-Term Bond Fund Adviser Shares Money Market Fund Intermediate-Term Bond Fund Shares Intermediate-Term Bond Fund Institutional Shares Intermediate-Term Bond Fund Adviser Shares High Income Fund Shares High Income Fund Institutional Shares High Income Fund Adviser Shares Small Cap Stock Fund Shares Small Cap Stock Fund Institutional Shares Value Fund Shares Value Fund Institutional Shares Value Fund Adviser Shares In connection with the Annual Reports on Form N-CSR/S (Reports) of the above-named issuer for the Funds listed above for the period ended January 31, 2016, the undersigned hereby certifies, that: 1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the issuer. Date: 03/23/2016 /s/ DANIEL S. MCNAMARA ----------------- -------------------------- Daniel S. McNamara President SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Name of Issuer: USAA MUTUAL FUNDS TRUST Aggressive Growth Fund Shares Aggressive Growth Fund Institutional Shares Capital Growth Fund Capital Growth Fund Institutional Shares Growth Fund Shares Growth Fund Institutional Shares Growth & Income Fund Shares Growth & Income Fund Institutional Shares Growth & Income Fund Adviser Shares Income Stock Fund Shares Income Stock Fund Institutional Shares Income Fund Shares Income Fund Institutional Shares Income Fund Adviser Shares Science & Technology Fund Shares Science & Technology Fund Adviser Shares First Start Growth Fund Short-Term Bond Fund Shares Short-Term Bond Fund Institutional Shares Short-Term Bond Fund Adviser Shares Money Market Fund Intermediate-Term Bond Fund Shares Intermediate-Term Bond Fund Institutional Shares Intermediate-Term Bond Fund Adviser Shares High Income Fund Shares High Income Fund Institutional Shares High Income Fund Adviser Shares Small Cap Stock Fund Shares Small Cap Stock Fund Institutional Shares Value Fund Shares Value Fund Institutional Shares Value Fund Adviser Shares In connection with the Annual Reports on Form N-CSR/S (Reports) of the above-named issuer for the Funds listed above for the period ended January 31, 2016, the undersigned hereby certifies, that: 1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the issuer. Date: 03/22/2016 /s/ ROBERTO GALINDO, JR. ---------------- --------------------------- Roberto Galindo, Jr. Treasurer