FORM N-CSR/S
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME FUND]
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SEMIANNUAL REPORT
USAA INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2014
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PRESIDENT'S MESSAGE
"IN MY OPINION, THE CONTINUATION OF
THE TAPER IS AN INDICATION THAT FED [PHOTO OF DANIEL S. McNAMARA]
POLICYMAKERS BELIEVE THE U.S. ECONOMIC
RECOVERY IS STRENGTHENING."
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FEBRUARY 2014
For much of the reporting period, market sentiment was driven by the potential
for -- and then the reality of -- Federal Reserve (the Fed) "tapering." The Fed
had hinted during the spring of 2013 that it might start reducing its asset
purchase program (also known as quantitative easing, or QE) if U.S. economic
conditions improved. (In September 2012, the U.S. central bank began purchasing
$85 billion of U.S. Treasury securities and mortgage-backed securities every
month to push down long-term interest rates and stimulate economic growth.) The
Fed also continued to reiterate its "forward guidance" -- the promise to hold
short-term interest rates near zero until unemployment falls below 6.5% and
inflation rises above 2.5%.
In general, equity investors seemed to like the Fed's promise of "low rates for
longer" more than they disliked the prospect of the taper. Though stocks had
briefly declined in response to the Fed's springtime "taper talk," they moved
higher overall during the reporting period, reaching new all-time highs in
mid-January 2014. In the bond market, longer-term yields -- especially in
five-year, 10-year, and 30-year maturities -- rose on expectations that the Fed
would begin tapering sooner rather than later. Bond prices, which move in the
opposite direction of yields, declined. However, not all bonds performed the
same way during the reporting period. The fixed-income market is, after all, a
market of bonds and not a single bond market. It comprises different types of
bonds with different maturities and risk characteristics, including U.S.
Treasuries, mortgage-backed securities, investment-grade bonds, high-yield
bonds, municipal securities and more. While U.S. Treasury securities
underperformed during the reporting period, bonds with more exposure to the U.S.
economy's health (I.E., those with credit risk) outperformed.
In December, the Fed announced it would taper its QE asset purchases by $10
billion beginning in January 2014. It subsequently announced additional tapering
of $10 billion in February and suggested it would continue reducing its asset
purchases in $10 billion increments through the end of 2014. In my opinion, the
continuation of the taper is an indication that Fed policymakers believe the
U.S. economic recovery is strengthening. Indeed, near the end of the reporting
period, the U.S. Department of Commerce estimated that fourth-quarter gross
domestic product growth was 3.2%, which was later revised downward to 2.4% on
February 28, 2014. Combined with a third-quarter
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growth rate of 4.1%, the U.S. economy experienced one of its strongest six-month
periods in a decade during the second half of 2013.
In mid-January, stocks underwent a sell-off. According to some observers, the
decline was a response to slowing global economic growth, especially in China
and Brazil, as well as currency weakness in Turkey and South Africa. However, in
my opinion, the predominant driver of market behavior is how investors interpret
macroeconomic data and future earnings trends. Some companies that met or beat
earnings expectations in the fourth-quarter 2013 have guided down forecasts for
coming quarters. Downward earnings guidance feeds into the belief held by many,
including USAA Asset Management Company, that it may be harder than the markets
expect for U.S. companies to find the earnings growth needed to support current
valuations.
Meanwhile, as stocks declined in late January, investors sought safety in U.S.
Treasuries and other conservative fixed-income securities. Though yields trended
down, they generally remained higher at the end of the reporting period than
they were at the beginning. Higher yields mean that investors have the
opportunity to reinvest at higher rates and can potentially earn more on new
investments.
Nevertheless, the shift in market sentiment during January underlines the
importance of diversification. Different asset classes, such as stocks and
bonds, move up and down at different rates and often at different times. I urge
all investors to hold diversified portfolios directly tied to their goals, risk
tolerance and time horizon. It is also a good idea to regularly reassess your
investment risk and rebalance your portfolio. Regular rebalancing can
potentially help you protect your gains and prepare for what happens next.
Looking ahead, I expect U.S. economic growth to continue getting stronger,
albeit slowly. While some investors may believe the economy is already on a
clear path to normalization, I believe the ride will be bumpier than many of us
would like. Rest assured we will continue to monitor economic trends, Fed
policy, geopolitical events, and other factors that could potentially affect
your investments. From all of us at USAA Asset Management Company, thank you for
allowing us to help you with your investment needs.
Sincerely,
/S/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
Past performance is no guarantee of future results. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened. o
Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Financial advice provided by USAA
Financial Planning Services Insurance Agency, Inc. (known as USAA Financial
Insurance Agency in California, License # 0E36312), and USAA Financial Advisors,
Inc., a registered broker-dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 15
Notes to Portfolio of Investments 42
Financial Statements 48
Notes to Financial Statements 51
EXPENSE EXAMPLE 68
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)2014, USAA. ALL RIGHTS RESERVED.
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FUND OBJECTIVE
THE USAA INCOME FUND (THE FUND) SEEKS MAXIMUM CURRENT INCOME WITHOUT UNDUE RISK
TO PRINCIPAL.
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TYPES OF INVESTMENTS
The Fund invests its assets primarily in U.S. dollar-denominated debt securities
that have been selected for their high yields relative to the risk involved.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
R. MATTHEW FREUND, CFA
JULIANNE BASS, CFA
BRIAN W. SMITH*, CFA, CPA
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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 six-month reporting period ended January 31, 2014,
the Fund Shares, Institutional Shares, and Adviser Shares had a total
return of 2.30%, 2.37%, and 2.09%, respectively. This compares to returns
of 3.05% for the Lipper A Rated Bond Funds Index and 1.78% for the Barclays
U.S. Aggregate Bond Index. At the same time, the Fund Shares,
Institutional Shares, and Adviser Shares provided a one-year dividend yield
of 3.96%, 4.09%, and 3.69%, respectively, compared to 3.21% for the Lipper
Corporate Debt Funds A Rated average.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o WHAT WERE MARKET CONDITIONS?
Though progress was uneven, U.S. economic growth continued to improve
during the reporting period, fueling speculation that the U.S. Federal
Reserve (the Fed) would announce a reduction -- or
*Effective December 1, 2013, Brian W. Smith co-manages the Fund.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates
rise, bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
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2 | USAA INCOME FUND
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o 10-YEAR U.S. TREASURY YIELDS o
[CHART OF 10-YEAR U.S. TREASURY YIELDS]
YIELD IN PERCENT
8/1/2013 2.707%
8/2/2013 2.597
8/5/2013 2.634
8/6/2013 2.643
8/7/2013 2.600
8/8/2013 2.590
8/9/2013 2.579
8/12/2013 2.621
8/13/2013 2.720
8/14/2013 2.714
8/15/2013 2.767
8/16/2013 2.826
8/19/2013 2.881
8/20/2013 2.815
8/21/2013 2.894
8/22/2013 2.885
8/23/2013 2.815
8/26/2013 2.786
8/27/2013 2.710
8/28/2013 2.766
8/29/2013 2.763
8/30/2013 2.785
9/3/2013 2.859
9/4/2013 2.898
9/5/2013 2.995
9/6/2013 2.935
9/9/2013 2.913
9/10/2013 2.965
9/11/2013 2.913
9/12/2013 2.910
9/13/2013 2.886
9/16/2013 2.865
9/17/2013 2.848
9/18/2013 2.689
9/19/2013 2.753
9/20/2013 2.735
9/23/2013 2.701
9/24/2013 2.656
9/25/2013 2.629
9/26/2013 2.651
9/27/2013 2.625
9/30/2013 2.611
10/1/2013 2.651
10/2/2013 2.618
10/3/2013 2.605
10/4/2013 2.646
10/7/2013 2.627
10/8/2013 2.633
10/9/2013 2.664
10/10/2013 2.682
10/11/2013 2.688
10/15/2013 2.729
10/16/2013 2.664
10/17/2013 2.590
10/18/2013 2.579
10/21/2013 2.602
10/22/2013 2.513
10/23/2013 2.502
10/24/2013 2.521
10/25/2013 2.510
10/28/2013 2.524
10/29/2013 2.504
10/30/2013 2.539
10/31/2013 2.555
11/1/2013 2.623
11/4/2013 2.604
11/5/2013 2.671
11/6/2013 2.643
11/7/2013 2.601
11/8/2013 2.749
11/12/2013 2.774
11/13/2013 2.700
11/14/2013 2.691
11/15/2013 2.704
11/18/2013 2.667
11/19/2013 2.708
11/20/2013 2.800
11/21/2013 2.785
11/22/2013 2.744
11/25/2013 2.729
11/26/2013 2.709
11/27/2013 2.738
11/29/2013 2.745
12/2/2013 2.796
12/3/2013 2.783
12/4/2013 2.835
12/5/2013 2.873
12/6/2013 2.856
12/9/2013 2.840
12/10/2013 2.802
12/11/2013 2.854
12/12/2013 2.878
12/13/2013 2.866
12/16/2013 2.879
12/17/2013 2.836
12/18/2013 2.894
12/19/2013 2.930
12/20/2013 2.890
12/23/2013 2.928
12/24/2013 2.979
12/26/2013 2.991
12/27/2013 3.001
12/30/2013 2.971
12/31/2013 3.029
1/2/2014 2.990
1/3/2014 2.996
1/6/2014 2.959
1/7/2014 2.940
1/8/2014 2.990
1/9/2014 2.966
1/10/2014 2.859
1/13/2014 2.827
1/14/2014 2.872
1/15/2014 2.892
1/16/2014 2.842
1/17/2014 2.820
1/21/2014 2.830
1/22/2014 2.866
1/23/2014 2.778
1/24/2014 2.716
1/27/2014 2.749
1/28/2014 2.750
1/29/2014 2.678
1/30/2014 2.696
1/31/2014 2.645
[END CHART]
Source: Bloomberg Finance L.P.
"taper" -- in the pace of its monthly purchases of U.S. Treasury securities
and mortgage-backed securities. Interest rates increased and bond prices
(which move in the opposite direction of rates) declined on expectations of
Fed tapering. The yield on a 10-year U.S. Treasury, which began the period
at 2.71%, rose to nearly 3% in early September. The 10-year U.S. Treasury
yield drifted down after the Fed surprised the markets during September
with the announcement that it would continue the pace of its bond
purchases. In October and November, the 10-year U.S. Treasury yield edged
up as investors sought to divine the Fed's intentions and in response to
the partial government shutdown and debt ceiling debate. After the Fed said
in December it would taper its January 2014 bond purchases by $10 billion,
the yield on a 10-year U.S. Treasury reached a high for the reporting
period of 3.03% on December 31, 2013. The Fed subsequently announced an
additional $10 billion reduction in its February bond purchases. In
January, the 10-year U.S. Treasury yield trended down as a decline in stock
prices sent many investors into the perceived safe haven of U.S. Treasury
securities. On January 31, 2014, the yield on a 10-year U.S. Treasury stood
at 2.65%.
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MANAGERS' COMMENTARY ON THE FUND | 3
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o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We sought attractive relative values across the fixed income market,
seeking 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. We relied on our team of credit analysts to
help us identify investment opportunities. During the reporting period, we
found value in spread (non-U.S. Treasury) sectors, including commercial
mortgage-backed securities (CMBS), airline enhanced equipment trust
certificates, and corporate bonds. Our credit analysts continued to
analyze and monitor every holding in the portfolio. We remain committed to
building a high-quality 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.
During the reporting period, the Fund continued to benefit from its
underweight in U.S. Treasuries. It also benefited from its holdings of
select junior subordinated debt, holdings in previously purchased
out-of-favor industries, and municipal bonds. In addition, allocations to
equities and high-yield bonds added to the Fund's returns. This performance
was offset by the Fund's overweight in certain CMBS and certain financial
and utility holdings.
o WHAT IS THE OUTLOOK?
Looking ahead, we expect the U.S. economy to continue strengthening during
2014, perhaps at a slightly faster rate than in 2013. This should allow the
Fed to continue scaling back its bond-buying program, though we believe the
Fed will taper gradually so as not to undermine the economic recovery.
Meanwhile, we expect interest rates to continue rising at a modest pace. We
will continue to look for attractive values, while also focusing on the
impact of rising long-term rates. We also will continue working hard to
manage against risk while striving to enhance the income your Fund
provides. We believe the Fund's long-term record shows that it has provided
good returns with relatively low volatility.
We appreciate the opportunity to help you with your investment needs.
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4 | USAA INCOME FUND
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INVESTMENT OVERVIEW
USAA INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USAIX)
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1/31/14 7/31/13
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Net Assets $2,659.7 Million $2,659.3 Million
Net Asset Value Per Share $13.11 $13.10
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/14
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8/1/13-1/31/14* 1 Year 5 Years 10 Years
2.30% 1.34% 8.47% 5.23%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
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1 Year 5 Years 10 Years
-0.18% 8.13% 5.15%
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30-DAY SEC YIELD AS OF 1/31/14** EXPENSE RATIO AS OF 7/31/13***
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2.87% 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
six-month 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, 2013, 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. 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 the
redemption of shares.
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INVESTMENT OVERVIEW | 5
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED JANUARY 31, 2014
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 Years 5.23% = 4.71% + 0.52%
5 Years 8.47% = 4.53% + 3.94%
1 Year 1.34% = 3.98% + -2.64%
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, 2005 -- JANUARY 31, 2014
[CHART OF TOTAL RETURN, DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
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TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
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1/31/2005 4.39% 4.55% -0.16%
1/31/2006 2.23% 4.72% -2.49%
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%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE
A RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. 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 or the redemption of shares.
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6 | USAA INCOME FUND
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o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER CORPORATE
USAA INCOME DEBT FUNDS
FUND SHARES A RATED AVERAGE
1/31/2005 4.42% 3.88%
1/31/2006 4.79 4.12
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
[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, if any, distributed during the previous nine months. The graph represents
data for periods ending 1/31/05 to 1/31/14.
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.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME BARCLAYS U.S. LIPPER A RATED BOND
FUND SHARES AGGREGATE BOND INDEX FUNDS INDEX
1/31/2004 $10,000.00 $10,000.00 $10,000.00
2/29/2004 10,101.83 10,108.24 10,095.09
3/31/2004 10,182.29 10,183.94 10,172.46
4/30/2004 9,901.45 9,918.99 9,922.86
5/31/2004 9,864.23 9,879.25 9,872.19
6/30/2004 9,917.27 9,935.09 9,922.74
7/31/2004 10,028.50 10,033.57 10,017.56
8/31/2004 10,204.80 10,224.96 10,205.86
9/30/2004 10,243.32 10,252.70 10,238.83
10/31/2004 10,330.08 10,338.68 10,322.37
11/30/2004 10,268.66 10,256.21 10,259.85
12/31/2004 10,368.60 10,350.58 10,363.95
1/31/2005 10,438.85 10,415.58 10,435.54
2/28/2005 10,394.35 10,354.09 10,394.21
3/31/2005 10,356.66 10,300.92 10,331.32
4/30/2005 10,501.06 10,440.33 10,468.57
5/31/2005 10,602.09 10,553.28 10,588.75
6/30/2005 10,651.47 10,610.83 10,650.08
7/31/2005 10,563.46 10,514.23 10,553.20
8/31/2005 10,713.76 10,649.02 10,695.62
9/30/2005 10,617.28 10,539.32 10,568.70
10/31/2005 10,539.56 10,455.91 10,471.01
11/30/2005 10,579.27 10,502.16 10,523.99
12/31/2005 10,675.96 10,602.01 10,626.06
1/31/2006 10,671.59 10,602.61 10,620.23
2/28/2006 10,710.33 10,637.80 10,659.54
3/31/2006 10,613.32 10,533.41 10,538.72
4/30/2006 10,565.66 10,514.32 10,496.44
5/31/2006 10,565.54 10,503.10 10,491.64
6/30/2006 10,587.23 10,525.36 10,498.92
7/31/2006 10,721.73 10,667.69 10,637.68
8/31/2006 10,882.85 10,830.99 10,807.14
9/30/2006 10,983.06 10,926.13 10,902.39
10/31/2006 11,063.05 10,998.41 10,980.73
11/30/2006 11,180.62 11,126.00 11,113.64
12/31/2006 11,120.39 11,061.43 11,040.10
1/31/2007 11,123.31 11,056.89 11,035.00
2/28/2007 11,303.19 11,227.39 11,220.74
3/31/2007 11,292.05 11,227.73 11,197.38
4/30/2007 11,328.42 11,288.28 11,256.26
5/31/2007 11,225.86 11,202.73 11,168.22
6/30/2007 11,180.96 11,169.59 11,116.59
7/31/2007 11,267.55 11,262.76 11,177.24
8/31/2007 11,391.42 11,400.80 11,262.93
9/30/2007 11,464.62 11,487.29 11,353.57
10/31/2007 11,553.04 11,590.48 11,438.28
11/30/2007 11,704.47 11,798.91 11,570.83
12/31/2007 11,679.67 11,832.05 11,542.61
1/31/2008 11,873.77 12,030.81 11,689.70
2/29/2008 11,863.66 12,047.51 11,657.68
3/31/2008 11,875.59 12,088.61 11,600.31
4/30/2008 11,891.55 12,063.35 11,643.19
5/31/2008 11,861.06 11,974.89 11,566.15
6/30/2008 11,816.74 11,965.21 11,525.63
7/31/2008 11,760.39 11,955.45 11,435.39
8/31/2008 11,842.51 12,068.92 11,467.65
9/30/2008 11,507.41 11,906.81 11,082.70
10/31/2008 10,873.79 11,625.76 10,498.60
11/30/2008 10,869.93 12,004.18 10,608.10
12/31/2008 11,090.95 12,452.04 11,000.59
1/31/2009 11,084.49 12,342.17 10,970.35
2/28/2009 11,067.64 12,295.59 10,840.49
3/31/2009 11,239.53 12,466.52 10,969.44
4/30/2009 11,499.32 12,526.12 11,188.10
5/31/2009 11,951.99 12,616.97 11,488.39
6/30/2009 12,171.62 12,688.74 11,689.74
7/31/2009 12,510.38 12,893.40 12,042.23
8/31/2009 12,810.11 13,026.91 12,188.30
9/30/2009 13,047.62 13,163.75 12,489.23
10/31/2009 13,166.12 13,228.74 12,590.49
11/30/2009 13,342.37 13,400.01 12,739.32
12/31/2009 13,280.32 13,190.55 12,620.54
1/31/2010 13,527.31 13,392.05 12,828.02
2/28/2010 13,586.43 13,442.06 12,865.14
3/31/2010 13,631.35 13,425.53 12,913.67
4/30/2010 13,811.87 13,565.29 13,101.33
5/31/2010 13,815.37 13,679.44 13,102.07
6/30/2010 13,974.84 13,893.95 13,318.92
7/31/2010 14,137.28 14,042.18 13,490.74
8/31/2010 14,363.33 14,222.87 13,728.38
9/30/2010 14,461.32 14,238.03 13,770.29
10/31/2010 14,550.98 14,288.72 13,795.68
11/30/2010 14,488.90 14,206.60 13,706.59
12/31/2010 14,362.98 14,053.40 13,604.07
1/31/2011 14,414.23 14,069.76 13,619.11
2/28/2011 14,482.33 14,104.95 13,713.80
3/31/2011 14,524.73 14,112.75 13,718.78
4/30/2011 14,697.71 14,291.89 13,918.93
5/31/2011 14,858.94 14,478.40 14,091.54
6/30/2011 14,825.14 14,436.01 13,990.50
7/31/2011 15,034.20 14,665.09 14,235.12
8/31/2011 15,130.46 14,879.34 14,314.47
9/30/2011 15,121.69 14,987.58 14,388.82
10/31/2011 15,215.71 15,003.68 14,511.28
11/30/2011 15,185.89 14,990.67 14,393.30
12/31/2011 15,349.62 15,155.42 14,591.29
1/31/2012 15,515.52 15,288.50 14,821.15
2/29/2012 15,575.63 15,284.99 14,882.35
3/31/2012 15,562.89 15,201.24 14,783.66
4/30/2012 15,725.78 15,369.77 14,969.80
5/31/2012 15,826.95 15,508.84 15,121.05
6/30/2012 15,849.74 15,514.92 15,148.86
7/31/2012 16,063.58 15,728.92 15,486.59
8/31/2012 16,136.28 15,739.19 15,522.11
9/30/2012 16,242.11 15,760.86 15,556.07
10/31/2012 16,363.11 15,791.86 15,664.86
11/30/2012 16,435.87 15,816.78 15,688.43
12/31/2012 16,424.43 15,794.25 15,654.29
1/31/2013 16,425.94 15,683.79 15,554.74
2/28/2013 16,545.62 15,762.40 15,662.36
3/31/2013 16,593.63 15,774.99 15,676.09
4/30/2013 16,799.94 15,934.61 15,957.47
5/31/2013 16,558.71 15,650.30 15,558.32
6/30/2013 16,197.46 15,408.22 15,127.65
7/31/2013 16,271.84 15,429.28 15,178.99
8/31/2013 16,170.80 15,350.41 15,048.21
9/30/2013 16,307.72 15,495.74 15,176.94
10/31/2013 16,483.44 15,621.02 15,397.17
11/30/2013 16,466.18 15,562.53 15,334.24
12/31/2013 16,395.03 15,474.58 15,272.30
1/31/2014 16,645.28 15,703.23 15,641.23
[END CHART]
Data from 1/31/04 to 1/31/14.
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
indices does not reflect the deduction of any fees or expenses.
================================================================================
8 | USAA INCOME FUND
================================================================================
USAA INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIINX)
--------------------------------------------------------------------------------
1/31/14 7/31/13
--------------------------------------------------------------------------------
Net Assets $1,905.6 Million $1,847.5 Million
Net Asset Value Per Share $13.10 $13.09
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/14
--------------------------------------------------------------------------------
8/1/13-1/31/14* 1 Year 5 Years Since Inception 8/01/08
2.37% 1.46% 8.68% 6.68%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
--------------------------------------------------------------------------------
1 Year 5 Years Since Inception 8/01/08
-0.05% 8.34% 6.50%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 7/31/13**
--------------------------------------------------------------------------------
0.47%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2013, 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. 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 the
redemption of shares.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to time, or
for purchase by a USAA Fund participating in a fund-of-funds investment strategy
(USAA fund-of-funds) and not to the general public.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND LIPPER A RATED BOND BARCLAYS U.S.
INSTITUTIONAL SHARES 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
[END CHART]
Data from 7/31/08 to 1/31/14.*
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 8 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 Institutional Shares' inception date 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
indices does not reflect the deduction of any fees or expenses.
================================================================================
10 | USAA INCOME FUND
================================================================================
USAA INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UINCX)
--------------------------------------------------------------------------------
1/31/14 7/31/13
--------------------------------------------------------------------------------
Net Assets $6.0 Million $5.9 Million
Net Asset Value Per Share $13.08 $13.08
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/14
--------------------------------------------------------------------------------
8/1/13-1/31/14* 1 Year Since Inception 8/01/10
2.09% 0.98% 4.46%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
--------------------------------------------------------------------------------
1 Year Since Inception 8/01/10
-0.46% 4.14%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 1/31/14**
--------------------------------------------------------------------------------
Unsubsidized 2.39% Subsidized 2.57%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/13***
--------------------------------------------------------------------------------
Before Reimbursement 1.08% After Reimbursement 0.90%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**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, 2013, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through December 1, 2014, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Adviser Shares (exclusive of commission recapture,
expense offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 0.90% 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, 2014.
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. 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 the
redemption of shares.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND LIPPER A RATED BOND BARCLAYS U.S.
ADVISER SHARES FUNDS INDEX AGGREGATE BOND INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,162.09 10,176.15 10,128.67
9/30/2010 10,236.32 10,207.22 10,139.47
10/31/2010 10,297.51 10,226.04 10,175.57
11/30/2010 10,243.44 10,160.00 10,117.09
12/31/2010 10,151.81 10,084.01 10,007.99
1/31/2011 10,186.50 10,095.16 10,019.64
2/28/2011 10,232.86 10,165.34 10,044.70
3/31/2011 10,260.68 10,169.04 10,050.25
4/30/2011 10,373.18 10,317.40 10,177.83
5/31/2011 10,493.60 10,445.34 10,310.65
6/30/2011 10,459.46 10,370.45 10,280.46
7/31/2011 10,605.46 10,551.77 10,443.59
8/31/2011 10,678.79 10,610.59 10,596.17
9/30/2011 10,670.09 10,665.70 10,673.26
10/31/2011 10,725.79 10,756.47 10,684.72
11/30/2011 10,710.40 10,669.02 10,675.45
12/31/2011 10,814.83 10,815.78 10,792.78
1/31/2012 10,938.11 10,986.16 10,887.55
2/29/2012 10,978.09 11,031.53 10,885.05
3/31/2012 10,958.31 10,958.38 10,825.41
4/30/2012 11,070.64 11,096.35 10,945.43
5/31/2012 11,139.03 11,208.47 11,044.46
6/30/2012 11,160.94 11,229.08 11,048.79
7/31/2012 11,300.09 11,479.42 11,201.19
8/31/2012 11,348.41 11,505.75 11,208.51
9/30/2012 11,419.79 11,530.92 11,223.94
10/31/2012 11,502.01 11,611.57 11,246.01
11/30/2012 11,550.18 11,629.03 11,263.76
12/31/2012 11,539.02 11,603.73 11,247.72
1/31/2013 11,537.85 11,529.94 11,169.05
2/28/2013 11,619.18 11,609.71 11,225.04
3/31/2013 11,649.96 11,619.89 11,234.00
4/30/2013 11,791.82 11,828.47 11,347.67
5/31/2013 11,618.75 11,532.59 11,145.21
6/30/2013 11,362.36 11,213.36 10,972.81
7/31/2013 11,412.37 11,251.41 10,987.81
8/31/2013 11,339.19 11,154.47 10,931.64
9/30/2013 11,433.14 11,249.89 11,035.13
10/31/2013 11,553.80 11,413.14 11,124.35
11/30/2013 11,539.62 11,366.49 11,082.70
12/31/2013 11,486.42 11,320.58 11,020.07
1/31/2014 11,650.77 11,594.05 11,182.90
[END CHART]
Data from 7/31/10 to 1/31/14.*
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
8 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 Adviser Shares' inception date 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
indices does not reflect the deduction of any fees or expenses.
================================================================================
12 | USAA INCOME FUND
================================================================================
o PORTFOLIO RATINGS MIX -- 1/31/2014 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 25.6%
AA 12.5%
A 24.2%
BBB 26.2%
BELOW INVESTMENT GRADE 8.7%
UNRATED 0.6%
SHORT-TERM INVESTMENT GRADE 2.2%
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of a Nationally Recognized
Statistical Rating Organization (NRSRO). Any of the Fund's securities that are
not rated by these agencies appear in the chart above as "Unrated", but are
monitored and evaluated by USAA Asset Management Company on an ongoing basis.
Government securities that are issued or guaranteed as to principal and interest
by the U.S. government are not rated but are treated as AAA for credit quality
purposes. Securities within the Short-Term Investment-Grade ratings category are
those that are ranked in the top two short-term credit ratings for the
respective rating agency (which are A-1 and A-2 for S&P and P-1 and P-2 for
Moody's, F1 and F2 for Fitch, and R-1 and R-2 for Dominion). Short-term ratings
are generally assigned to those obligations considered short-term; such
obligations generally have an original maturity not exceeding 13 months, unless
explicitly noted. The Below Investment-Grade ratings category includes both
long-term and short-term securities.
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 15-41.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 HOLDINGS* -- 1/31/2014 o
COUPON RATE % % OF NET ASSETS
--------------------------------
U.S. Treasury Notes ............................ 3.63% 2.1%
U.S. Treasury Inflation-Indexed Notes .......... 2.38% 1.4%
U.S. Treasury Notes ............................ 3.50% 1.3%
U.S. Treasury Notes ............................ 2.63% 1.2%
U.S. Treasury Bonds ............................ 2.75% 0.7%
U.S. Treasury Bonds ............................ 3.88% 0.7%
Electricite De France .......................... 5.25% 0.6%
U.S. Treasury Notes ............................ 2.63% 0.6%
U.S. Treasury Notes ............................ 2.00% 0.5%
U.S. Treasury Bonds ............................ 4.25% 0.5%
*Excludes money market instruments.
o PORTFOLIO MIX -- 1/31/2014 o
[PIE CHART OF PORTFOLIO MIX]
CORPORATE OBLIGATIONS 39.0%
EURODOLLAR AND YANKEE OBLIGATIONS 20.8%
U.S. TREASURY SECURITIES 10.6%
COMMERCIAL MORTGAGE SECURITIES 10.0%
MUNICIPAL BONDS 6.1%
U.S. GOVERNMENT AGENCY ISSUES 3.7%
ASSET-BACKED SECURITIES 3.0%
MONEY MARKET INSTRUMENTS 2.5%
PREFERRED STOCKS 2.1%
COMMON STOCKS 1.5%
FOREIGN GOVERNMENT OBLIGATIONS 0.7%
[END CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
14 | USAA INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2014 (unaudited)
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (39.0%)
CONSUMER DISCRETIONARY (2.0%)
-----------------------------
APPAREL RETAIL (0.2%)
$ 10,000 L Brands, Inc. 5.63% 2/15/2022 $ 10,200
----------
BROADCASTING (0.3%)
10,000 NBCUniversal Media, LLC 5.15 4/30/2020 11,347
----------
CABLE & SATELLITE (0.5%)
10,000 NBCUniversal Enterprise, Inc.(a) 1.97 4/15/2019 9,859
10,000 Time Warner Cable, Inc. 6.75 7/01/2018 11,311
----------
21,170
----------
CASINOS & GAMING (0.2%)
3,000 International Game Technology 7.50 6/15/2019 3,564
5,000 Marina District Finance Co., Inc. 9.88 8/15/2018 5,400
----------
8,964
----------
EDUCATION SERVICES (0.1%)
6,080 Princeton Theological Seminary 4.11 7/01/2023 6,311
----------
HOME FURNISHINGS (0.2%)
4,848 Serta Simmons Holdings, LLC(b) 4.25 10/01/2019 4,900
4,237 Tempur-Pedic International, Inc.(b) 3.50 3/18/2020 4,256
----------
9,156
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
5,000 Hyatt Hotels Corp. 3.38 7/15/2023 4,722
----------
MOVIES & ENTERTAINMENT (0.1%)
1,105 Metropolitan Opera Assoc., Inc. 1.79 10/01/2017 1,126
2,235 Metropolitan Opera Assoc., Inc. 2.14 10/01/2018 2,258
2,285 Metropolitan Opera Assoc., Inc. 2.39 10/01/2019 2,323
----------
5,707
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
5,000 Hillenbrand, Inc. 5.50 7/15/2020 5,345
----------
SPECIALTY STORES (0.2%)
8,888 Harbor Freight Tools USA, Inc.(b) 4.75 7/26/2019 9,037
----------
Total Consumer Discretionary 91,959
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (1.8%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
$ 4,000 Bunge Ltd. Finance Co. 8.50% 6/15/2019 $ 4,996
----------
DRUG RETAIL (0.4%)
8,058 CVS Pass-Through Trust 6.04 12/10/2028 9,021
4,582 CVS Pass-Through Trust(a) 7.51 1/10/2032 5,671
4,765 CVS Pass-Through Trust(a) 5.93 1/10/2034 5,278
----------
19,970
----------
HYPERMARKETS & SUPER CENTERS (0.4%)
20,000 Costco Wholesale Corp. 1.70 12/15/2019 19,570
----------
PACKAGED FOODS & MEAT (0.5%)
3,980 H.J. Heinz Co.(b) 3.50 6/15/2020 4,025
10,000 Kraft Foods Group, Inc. 3.50 6/06/2022 10,028
10,000 Smucker (J.M.) Co. 3.50 10/15/2021 10,134
----------
24,187
----------
PERSONAL PRODUCTS (0.1%)
2,254 Prestige Brands, Inc.(b) 3.79 1/31/2019 2,273
----------
SOFT DRINKS (0.2%)
5,000 PepsiCo, Inc. 7.90 11/01/2018 6,332
----------
TOBACCO (0.1%)
5,000 Lorillard Tobacco Co. 2.30 8/21/2017 5,102
----------
Total Consumer Staples 82,430
----------
ENERGY (5.7%)
-------------
COAL & CONSUMABLE FUELS (0.2%)
5,000 Peabody Energy Corp. 6.00 11/15/2018 5,350
4,000 Peabody Energy Corp. 6.50 9/15/2020 4,210
----------
9,560
----------
INTEGRATED OIL & GAS (0.1%)
5,000 Hess Corp. 8.13 2/15/2019 6,277
----------
OIL & GAS DRILLING (0.3%)
5,000 Rowan Companies, Inc. 7.88 8/01/2019 6,086
5,000 Rowan Companies, Inc. 4.88 6/01/2022 5,215
----------
11,301
----------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
5,000 Baker Hughes, Inc. 7.50 11/15/2018 6,205
----------
OIL & GAS EXPLORATION & PRODUCTION (1.5%)
5,000 Anadarko Petroleum Corp. 5.95 9/15/2016 5,581
5,000 Chesapeake Energy Corp.(b) 5.75 12/01/2017 5,124
================================================================================
16 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 10,000 Chesapeake Energy Corp. 6.13% 2/15/2021 $ 10,825
5,000 Denbury Resources, Inc. 4.63 7/15/2023 4,638
4,000 EQT Corp. 8.13 6/01/2019 4,921
5,000 Forest Oil Corp. 7.25 6/15/2019 4,825
3,000 Newfield Exploration Co. 5.75 1/30/2022 3,113
6,730 Newfield Exploration Co. 5.63 7/01/2024 6,764
5,000 Noble Energy, Inc. 8.25 3/01/2019 6,309
5,000 QEP Resources, Inc. 6.88 3/01/2021 5,412
5,000 Samson Investment Co.(b) 5.00 9/25/2018 5,053
5,000 WPX Energy, Inc. 5.25 1/15/2017 5,387
----------
67,952
----------
OIL & GAS REFINING & MARKETING (0.2%)
5,000 Valero Energy Corp.(c) 9.38 3/15/2019 6,580
----------
OIL & GAS STORAGE & TRANSPORTATION (3.3%)
10,000 Buckeye Partners, LP 2.65 11/15/2018 9,972
15,000 DCP Midstream, LLC(a) 5.85 5/21/2043 13,950
4,000 Enbridge Energy Partners, LP 8.05 10/01/2037 4,509
3,000 Energy Transfer Partners, LP 9.00 4/15/2019 3,830
7,000 Energy Transfer Partners, LP 5.20 2/01/2022 7,506
20,010 Energy Transfer Partners, LP 3.26(d) 11/01/2066 18,309
10,000 Enterprise Products Operating, LLC(c) 6.30 9/15/2017 11,610
5,000 Enterprise Products Operating, LLC 7.03 1/15/2068 5,555
5,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 4,750
10,000 NuStar Logistics, LP 8.15(d) 4/15/2018 11,325
5,000 Oneok Partners, LP 8.63 3/01/2019 6,354
5,000 Plains All American Pipeline, LP 6.50 5/01/2018 5,878
3,000 Plains All American Pipeline, LP 8.75 5/01/2019 3,879
5,000 Questar Pipeline Co. 5.83 2/01/2018 5,749
7,000 Regency Energy Partners 4.50 11/01/2023 6,414
10,000 Sabine Pass LNG, LP 7.50 11/30/2016 11,200
10,000 TC PipeLines, LP 4.65 6/15/2021 10,373
10,000 Western Gas Partners, LP 5.38 6/01/2021 10,943
----------
152,106
----------
Total Energy 259,981
----------
FINANCIALS (16.5%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.0%)
10,000 Ares Capital Corp. 4.88 11/30/2018 10,299
5,000 Bank of New York Mellon 2.40 1/17/2017 5,196
10,000 Bank of New York Mellon 1.30 1/25/2018 9,858
2,950 Mellon Funding Corp. 0.39(d) 5/15/2014 2,951
22,500 State Street Capital Trust IV 1.24(d) 6/01/2077 17,347
----------
45,651
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
CONSUMER FINANCE (0.8%)
$ 3,000 Ally Financial, Inc. 4.63% 6/26/2015 $ 3,116
10,000 American Express Credit Corp. 1.10(d) 6/24/2014 10,030
5,000 Capital One Bank USA, N.A. 3.38 2/15/2023 4,776
5,000 Capital One Financial Corp. 4.75 7/15/2021 5,434
10,000 Caterpillar Financial Services, Corp. 1.25 11/06/2017 9,954
5,000 Credit Acceptance Corp. 9.13 2/01/2017 5,250
----------
38,560
----------
DIVERSIFIED BANKS (0.5%)
7,000 HSBC USA, Inc. 2.38 2/13/2015 7,137
15,000 USB Realty Corp.(a) 1.39(d) -(e) 13,650
----------
20,787
----------
INVESTMENT BANKING & BROKERAGE (0.2%)
10,000 Morgan Stanley 4.88 11/01/2022 10,407
----------
LIFE & HEALTH INSURANCE (2.5%)
10,000 Forethought Financial Group(a) 8.63 4/15/2021 11,256
10,000 Lincoln National Corp. 4.20 3/15/2022 10,425
5,000 Lincoln National Corp. 7.00 5/17/2066 5,125
10,000 Metlife, Inc. 4.13 8/13/2042 9,030
10,000 New York Life Global Funding(a) 0.50(d) 4/04/2014 10,007
10,000 New York Life Global Funding(a) 1.30 1/12/2015 10,094
4,000 Ohio National Financial Services, Inc.(a) 6.38 4/30/2020 4,492
5,000 Ohio National Financial Services, Inc.(a) 6.63 5/01/2031 5,931
10,000 Primerica, Inc. 4.75 7/15/2022 10,562
10,000 Prudential Financial, Inc. 5.63 6/15/2043 10,052
5,000 Prudential Holdings, LLC(a) 7.25 12/18/2023 6,008
15,700 StanCorp Financial Group, Inc. 5.00 8/15/2022 15,987
5,625 StanCorp Financial Group, Inc. 6.90 6/01/2067 5,639
----------
114,608
----------
MULTI-LINE INSURANCE (1.3%)
17,500 Genworth Holdings, Inc. 6.15 11/15/2066 15,706
16,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 16,000
5,000 HCC Insurance Holdings, Inc. 6.30 11/15/2019 5,837
10,000 Loews Corp. 2.63 5/15/2023 9,206
11,005 Nationwide Mutual Insurance Co.(a) 5.81 12/15/2024 11,184
----------
57,933
----------
MULTI-SECTOR HOLDINGS (0.7%)
15,000 Berkshire Hathaway Finance Corp. 4.85 1/15/2015 15,645
10,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 9,867
5,000 Lubrizol Corp. 8.88 2/01/2019 6,566
----------
32,078
----------
================================================================================
18 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.8%)
$ 6,000 Bank of America Corp. 8.00% -(e) $ 6,669
5,000 Bank of America, N.A. 6.10 6/15/2017 5,706
80 Citigroup Capital XIII 7.88 10/30/2040 2,175
10,000 Citigroup, Inc. 4.45 1/10/2017 10,838
15,000 GECC/LJ VP Holdings, LLC(a) 3.80 6/18/2019 15,934
5,000 General Electric Capital Corp. 6.25 -(e) 5,234
9,000 General Electric Capital Corp. 6.38 11/15/2067 9,799
5,000 Icahn Enterprises, LP(a) 3.50 3/15/2017 5,019
10,000 ILFC E-Capital Trust I(a) 5.46(d) 12/21/2065 9,237
3,000 JPMorgan Chase & Co. 7.90 -(e) 3,322
2,610 JPMorgan Chase Bank N.A. 6.00 10/01/2017 2,996
5,000 JPMorgan Chase Capital XXI 1.19(d) 2/02/2037 3,762
----------
80,691
----------
PROPERTY & CASUALTY INSURANCE (1.8%)
5,000 Allstate Corp. 5.75 8/15/2053 5,074
2,000 Allstate Corp. 6.13 5/15/2067 2,093
10,000 AmTrust Financial Services, Inc.(a) 6.13 8/15/2023 10,100
1,000 Assured Guaranty U.S. Holdings, Inc. 6.40 12/15/2066 895
20,050 Chubb Corp. 6.38 3/29/2067 22,205
10,000 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 11,719
10,000 ProAssurance Corp. 5.30 11/15/2023 10,561
14,538 Progressive Corp. 6.70 6/15/2037 15,810
5,000 Travelers Companies, Inc. 6.25 3/15/2037 5,375
----------
83,832
----------
REGIONAL BANKS (1.4%)
10,000 BB&T Corp. 0.94(d) 4/28/2014 10,013
5,000 Chittenden Corp. 0.92(d) 2/14/2017 4,929
3,500 First Maryland Capital Trust I 1.24(d) 1/15/2027 2,975
10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,886
10,000 FirstMerit Corp. 4.35 2/04/2023 10,066
7,000 PNC Bank N.A. 4.20 11/01/2025 7,109
3,000 PNC Financial Services 2.85 11/09/2022 2,865
5,000 Susquehanna Bancshares 5.38 8/15/2022 4,924
10,000 TCF National Bank 6.25 6/08/2022 10,639
----------
65,406
----------
REINSURANCE (0.3%)
10,000 Alterra Finance, LLC 6.25 9/30/2020 11,515
----------
REITs - DIVERSIFIED (0.3%)
5,000 Liberty Property, LP 6.63 10/01/2017 5,726
10,000 Washington REIT 3.95 10/15/2022 9,698
----------
15,424
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
REITs - INDUSTRIAL (0.1%)
$ 5,000 ProLogis LP 7.38% 10/30/2019 $ 6,135
----------
REITs - OFFICE (1.6%)
5,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 5,147
5,000 BioMed Realty, LP 3.85 4/15/2016 5,228
5,000 BioMed Realty, LP 6.13 4/15/2020 5,542
8,034 Boston Properties, LP 3.70 11/15/2018 8,557
10,000 Boston Properties, LP 5.88 10/15/2019 11,612
10,000 Boston Properties, LP 3.85 2/01/2023 9,992
10,000 Columbia Property Trust Operating Partnership, LP 5.88 4/01/2018 10,627
5,000 CommonWealth REIT 5.75 11/01/2015 5,208
3,000 Mack-Cali Realty, LP 7.75 8/15/2019 3,629
6,000 Reckson Operating Partnership, LP 5.88 8/15/2014 6,146
----------
71,688
----------
REITs - RESIDENTIAL (0.2%)
7,000 UDR, Inc. 4.63 1/10/2022 7,386
----------
REITs - RETAIL (0.8%)
3,000 Federal Realty Investment Trust 5.90 4/01/2020 3,478
7,000 Federal Realty Investment Trust 3.00 8/01/2022 6,735
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,226
5,000 National Retail Properties, Inc. 6.88 10/15/2017 5,828
2,000 Regency Centers, LP 6.00 6/15/2020 2,286
10,000 Simon Property Group, LP 4.13 12/01/2021 10,589
----------
38,142
----------
REITs - SPECIALIZED (0.7%)
5,000 Aviv Healthcare Properties, LP 7.75 2/15/2019 5,400
4,000 EPR Properties 7.75 7/15/2020 4,675
10,000 Health Care REIT, Inc. 6.13 4/15/2020 11,479
10,000 Ventas Realty, LP 4.00 4/30/2019 10,645
----------
32,199
----------
SPECIALIZED FINANCE (0.2%)
10,000 National Rural Utilities Cooperative Finance Corp. 4.75 4/30/2043 9,425
----------
THRIFTS & MORTGAGE FINANCE (0.3%)
12,685 People's United Financial, Inc. 3.65 12/06/2022 12,328
----------
Total Financials 754,195
----------
HEALTH CARE (1.0%)
------------------
HEALTH CARE EQUIPMENT (0.2%)
10,000 Covidien International Finance SA 2.95 6/15/2023 9,471
----------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
10,065 Thermo Fisher Scientific 3.60 8/15/2021 10,238
----------
================================================================================
20 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (0.6%)
$ 15,000 Abbvie, Inc. 1.75% 11/06/2017 $ 15,084
10,000 Genentech, Inc. 4.75 7/15/2015 10,616
----------
25,700
----------
Total Health Care 45,409
----------
INDUSTRIALS (3.3%)
------------------
AIRLINES (1.4%)
2,163 America West Airlines, Inc. Pass-Through Trust 6.87 1/02/2017 2,272
3,875 Continental Airlines, Inc. Pass-Through Trust 9.00 7/08/2016 4,432
3,000 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 3,060
9,754 Continental Airlines, Inc. Pass-Through Trust 4.15 4/11/2024 9,985
5,000 Continental Airlines, Inc. Pass-Through Trust 4.00 10/29/2024 5,000
15,000 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 1/15/2026 14,250
2,914 UAL Pass-Through Trust 2.60(d) 7/02/2014 2,914
5,000 United Airlines, Inc. Pass-Through Trust 4.30 8/15/2025 5,100
4,193 US Airways Group, Inc. Pass-Through Trust 6.25 4/22/2023 4,665
10,000 US Airways Group, Inc. Pass-Through Trust 3.95 11/15/2025 9,950
----------
61,628
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.4%)
10,000 CNH Capital, LLC 3.88 11/01/2015 10,325
5,000 Paccar, Inc. 6.88 2/15/2014 5,009
5,051 Terex Corp.(b) 3.50 4/28/2017 5,112
----------
20,446
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
7,000 Eaton Corp. 2.75 11/02/2022 6,663
----------
INDUSTRIAL CONGLOMERATES (0.4%)
10,000 Danaher Corp.(c) 5.63 1/15/2018 11,507
7,244 Tomkins, LLC(b) 3.75 9/29/2016 7,316
----------
18,823
----------
INDUSTRIAL MACHINERY (0.2%)
1,500 SPX Corp. 6.88 9/01/2017 1,703
5,000 Stanley Black & Decker, Inc. 5.75(d) 12/15/2053 5,337
----------
7,040
----------
RAILROADS (0.5%)
10,000 TTX Co.(a) 5.40 2/15/2016 10,704
5,000 TTX Co.(a) 4.15 1/15/2024 5,089
5,000 Union Pacific Corp. 7.88 1/15/2019 6,187
----------
21,980
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
$ 10,000 United Rentals North America, Inc. 5.75% 7/15/2018 $ 10,738
----------
TRUCKING (0.1%)
5,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(a) 3.38 3/15/2018 5,187
----------
Total Industrials 152,505
----------
INFORMATION TECHNOLOGY (0.6%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.1%)
5,000 Harris Corp. 5.95 12/01/2017 5,776
----------
COMPUTER HARDWARE (0.1%)
4,988 Dell International LLC(b) 4.75 3/24/2020 4,973
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
5,000 FLIR Systems, Inc. 3.75 9/01/2016 5,220
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
4,988 Activision Blizzard, Inc.(b) 3.25 10/12/2020 5,031
----------
IT CONSULTING & OTHER SERVICES (0.2%)
5,000 IBM Corp. 7.63 10/15/2018 6,284
----------
Total Information Technology 27,284
----------
MATERIALS (1.8%)
----------------
DIVERSIFIED CHEMICALS (0.3%)
15,000 E.I. Du Pont De Nemours 2.80 2/15/2023 14,159
----------
METAL & GLASS CONTAINERS (0.4%)
3,000 Ball Corp. 5.00 3/15/2022 2,996
3,883 Greif, Inc. 6.75 2/01/2017 4,315
9,900 Reynolds Group Holdings, Inc.(b) 4.00 9/14/2018 10,027
----------
17,338
----------
PAPER PACKAGING (0.1%)
5,000 Sealed Air Corp.(a) 6.88 7/15/2033 4,925
----------
PAPER PRODUCTS (0.2%)
2,000 Clearwater Paper Corp. 7.13 11/01/2018 2,150
5,000 Mercer International, Inc. 9.50 12/01/2017 5,475
----------
7,625
----------
SPECIALTY CHEMICALS (0.5%)
5,000 Cytec Industries, Inc. 8.95 7/01/2017 6,021
15,000 RPM International, Inc.(c) 6.13 10/15/2019 17,073
----------
23,094
----------
================================================================================
22 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
STEEL (0.3%)
$ 5,000 Allegheny Technologies, Inc. 9.38% 6/01/2019 $ 6,152
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 10,557
----------
16,709
----------
Total Materials 83,850
----------
TELECOMMUNICATION SERVICES (1.5%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.2%)
10,000 Centel Capital Corp. 9.00 10/15/2019 11,981
10,000 CenturyLink, Inc. 5.80 3/15/2022 9,900
2,000 CenturyLink, Inc. 6.75 12/01/2023 2,035
8,409 Frontier Communications Corp. 7.88 1/15/2027 8,241
5,000 Qwest Corp. 6.75 12/01/2021 5,591
15,000 Verizon Communications, Inc. 4.50 9/15/2020 16,179
----------
53,927
----------
WIRELESS TELECOMMUNICATION SERVICES (0.3%)
5,000 Cellco Partnership/Verizon Wireless 8.50 11/15/2018 6,405
10,000 Crown Castle International Corp. 5.25 1/15/2023 9,962
----------
16,367
----------
Total Telecommunication Services 70,294
----------
UTILITIES (4.8%)
----------------
ELECTRIC UTILITIES (2.1%)
5,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 6,372
3,500 Duquesne Light Holdings, Inc.(a) 5.90 12/01/2021 3,970
4,000 Entergy Arkansas, Inc. 3.05 6/01/2023 3,870
3,000 Entergy Mississippi, Inc. 4.95 6/01/2018 2,991
711 FPL Energy American Wind(a) 6.64 6/20/2023 707
5,000 Gulf Power Co. 4.90 10/01/2014 5,117
10,000 IPALCO Enterprises, Inc. 5.00 5/01/2018 10,600
5,000 Nevada Power Co. 7.13 3/15/2019 6,157
4,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 4,078
5,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 5,504
5,000 Oglethorpe Power Corp. 6.10 3/15/2019 5,869
20,000 PPL Capital Funding, Inc. 6.70 3/30/2067 20,214
5,000 South Carolina Electric & Gas Co. 5.30 5/15/2033 5,651
10,000 Southern California Edison Co. 6.25 -(e) 10,420
3,515 Tri-State General & Transport Association
Pass-Through Trust(a) 6.04 1/31/2018 3,720
----------
95,240
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
GAS UTILITIES (0.9%)
$ 8,000 AGL Capital Corp. 6.38% 7/15/2016 $ 8,917
4,000 Atmos Energy Corp. 8.50 3/15/2019 5,169
10,000 Florida Gas Transmission Co.(a) 5.45 7/15/2020 10,970
10,000 National Fuel Gas Co. 4.90 12/01/2021 10,643
5,000 Southern Star Central Gas Pipeline, Inc.(a) 6.00 6/01/2016 5,467
----------
41,166
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
5,000 AES Corp. 4.88 5/15/2023 4,706
10,000 Monongahela Power Co.(a) 4.10 4/15/2024 10,251
----------
14,957
----------
MULTI-UTILITIES (1.5%)
5,000 Ameren Illinois Co. 9.75 11/15/2018 6,673
5,000 Black Hills Corp. 5.88 7/15/2020 5,801
10,000 Black Hills Corp. 4.25 11/30/2023 10,225
5,000 Nisource Finance Corp. 10.75 3/15/2016 5,855
5,000 Northwestern Corp. 6.34 4/01/2019 5,893
10,000 Puget Sound Energy, Inc. 6.97 6/01/2067 10,538
20,000 Wisconsin Energy Corp. 6.25 5/15/2067 20,515
----------
65,500
----------
Total Utilities 216,863
----------
Total Corporate Obligations (cost: $1,689,081) 1,784,770
----------
EURODOLLAR AND YANKEE OBLIGATIONS (20.8%)
CONSUMER DISCRETIONARY (0.9%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.8%)
10,000 American Honda Finance Corp.(a) 7.63 10/01/2018 12,442
8,000 Daimler Finance N.A., LLC(a) 1.02(d) 4/10/2014 8,013
5,000 Daimler Finance N.A., LLC(a) 1.65 4/10/2015 5,063
5,000 Daimler Finance N.A., LLC(a) 1.88 1/11/2018 5,012
5,000 Daimler Finance N.A., LLC(a) 2.25 7/31/2019 4,984
----------
35,514
----------
PUBLISHING (0.1%)
7,000 Pearson Funding Four plc(a) 3.75 5/08/2022 6,882
----------
Total Consumer Discretionary 42,396
----------
CONSUMER STAPLES (0.4%)
-----------------------
DISTILLERS & VINTNERS (0.2%)
10,000 Pernod Ricard SA(a) 4.25 7/15/2022 10,228
----------
================================================================================
24 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEAT (0.2%)
$ 10,000 Kerry Group Financial Services(a) 3.20% 4/09/2023 $ 9,360
----------
Total Consumer Staples 19,588
----------
ENERGY (2.3%)
-------------
INTEGRATED OIL & GAS (0.7%)
10,000 BP Capital Markets plc 1.63 8/17/2017 10,095
4,000 Husky Energy, Inc. 7.25 12/15/2019 4,917
10,000 Petrobras Global Finance 3.00 1/15/2019 9,449
10,000 Shell International Finance 3.63 8/21/2042 8,748
----------
33,209
----------
OIL & GAS DRILLING (0.5%)
3,000 Nabors Industries, Inc. 9.25 1/15/2019 3,721
7,000 Nabors Industries, Inc. 4.63 9/15/2021 7,187
10,000 Noble Holding International Ltd. 4.90 8/01/2020 10,818
----------
21,726
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
5,000 Weatherford Bermuda 9.63 3/01/2019 6,498
5,000 Weatherford Bermuda 4.50 4/15/2022 5,083
----------
11,581
----------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
3,500 Talisman Energy, Inc. 7.75 6/01/2019 4,242
10,000 Woodside Finance Ltd.(a) 8.75 3/01/2019 12,789
----------
17,031
----------
OIL & GAS REFINING & MARKETING (0.1%)
5,000 GS Caltex Corp.(a) 5.50 10/15/2015 5,347
----------
OIL & GAS STORAGE & TRANSPORTATION (0.3%)
14,124 TransCanada Pipelines Ltd. 6.35 5/15/2067 14,586
----------
Total Energy 103,480
----------
FINANCIALS (10.1%)
------------------
DIVERSIFIED BANKS (6.5%)
10,000 Banco Santander Chile(a) 2.24(d) 2/14/2014 9,999
6,000 Banco Santander Chile(a) 5.38 12/09/2014 6,214
10,000 Bank of Montreal(a) 2.85 6/09/2015 10,331
10,000 Bank of Montreal 2.50 1/11/2017 10,440
10,000 Bank of Nova Scotia 0.67(d) 2/27/2014 10,005
10,000 Bank of Nova Scotia 1.85 1/12/2015 10,143
5,000 Barclays Bank plc(a) 6.05 12/04/2017 5,642
5,000 BNP Paribas(a) 7.20 -(e) 5,338
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 4,609 Canadian Imperial Bank(a) 7.26% 4/10/2032 $ 5,546
5,000 Caribbean Development Bank(a) 4.38 11/09/2027 4,953
10,000 Commonwealth Bank of Australia(a) 0.97(d) 3/17/2014 10,011
10,000 Commonwealth Bank of Australia 1.95 3/16/2015 10,169
15,000 DNB Bank ASA(a) 3.20 4/03/2017 15,779
10,000 DNB Boligkreditt AS(a) 2.90 3/29/2016 10,470
5,000 HBOS plc(a) 6.75 5/21/2018 5,696
25,000 HSBC Bank plc 0.69(d) -(e) 18,054
10,000 LBG Capital No.1 plc 8.00 -(e) 10,723
10,000 National Australia Bank Ltd.(a) 0.96(d) 4/11/2014 10,013
5,000 National Australia Bank Ltd.(a) 1.19(d) 7/25/2014 5,025
5,000 National Australia Bank Ltd. 2.00 3/09/2015 5,087
5,000 National Australia Bank Ltd. 3.00 1/20/2023 4,768
5,000 Nordea Bank AB(a) 2.25 3/20/2015 5,102
10,000 Rabobank Nederland 3.38 1/19/2017 10,676
10,000 Rabobank Nederland 3.88 2/08/2022 10,203
10,000 Rabobank Nederland 3.95 11/09/2022 9,817
10,000 Royal Bank of Canada 0.94(d) 10/30/2014 10,052
5,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 5,165
8,000 Santander UK plc(a) 5.00 11/07/2023 8,096
4,355 Standard Chartered Bank(a) 6.40 9/26/2017 4,956
10,000 Sumitomo Mitsui Banking Corp.(a) 1.19(d) 7/22/2014 10,040
10,000 Swedbank AB(a) 1.75 3/12/2018 9,910
10,000 Swedbank Hypotek AB(a) 0.70(d) 3/28/2014 10,007
10,000 Westpac Banking Corp.(a) 0.98(d) 3/31/2014 10,011
10,000 Westpac Banking Corp.(a) 2.45 11/28/2016 10,504
----------
298,945
----------
DIVERSIFIED CAPITAL MARKETS (0.4%)
5,000 Credit Suisse Group, AG 5.50 5/01/2014 5,063
4,000 Credit Suisse Guernsey(a) 1.63 3/06/2015 4,053
10,000 UBS AG London(a) 1.88 1/23/2015 10,140
----------
19,256
----------
LIFE & HEALTH INSURANCE (0.2%)
7,000 Great-West Life & Annuity Insurance Capital, LP(a) 7.15 5/16/2046 7,245
----------
MULTI-LINE INSURANCE (0.4%)
15,000 ZFS Finance USA Trust II(a) 6.45 12/15/2065 16,162
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.9%)
15,000 ING Bank N.V.(a) 3.75 3/07/2017 15,951
5,000 ING Capital Funding Trust III 3.85(d) -(e) 5,012
20,000 KFW 0.31(d) 3/13/2015 20,022
----------
40,985
----------
================================================================================
26 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (0.9%)
$ 19,300 Oil Insurance Ltd.(a) 3.23%(d) -(e) $ 17,630
20,000 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 20,679
5,000 XL Group plc 6.50 -(e) 4,925
----------
43,234
----------
REGIONAL BANKS (0.3%)
5,000 Kaupthing Bank hf, acquired 6/22/2006;
cost $4,942(a),(f),(g),(h) 7.13 5/19/2016 -
15,000 RBS Citizens Financial Group, Inc.(a) 4.15 9/28/2022 15,006
----------
15,006
----------
REINSURANCE (0.4%)
15,000 Swiss Re Capital I, LP(a) 6.85 -(e) 16,125
----------
REITs - RESIDENTIAL (0.1%)
5,000 Deutsche Annington Finance BV(a) 3.20 10/02/2017 5,113
----------
Total Financials 462,071
----------
GOVERNMENT (0.3%)
-----------------
FOREIGN GOVERNMENT (0.3%)
15,000 Region of Lombardy(c) 5.80 10/25/2032 14,347
----------
HEALTH CARE (0.5%)
------------------
PHARMACEUTICALS (0.5%)
4,556 Roche Holdings, Inc.(a) 6.00 3/01/2019 5,411
9,875 Valeant Pharmaceuticals International, Inc.(b) 3.75 2/13/2019 9,963
5,000 Teva Pharmaceutical Finance III B.V. 0.75(d) 3/21/2014 5,004
----------
20,378
----------
Total Health Care 20,378
----------
INDUSTRIALS (2.2%)
------------------
AIR FREIGHT & LOGISTICS (0.3%)
15,000 Sydney Airport Finance Co. Pty. Ltd.(a) 3.90 3/22/2023 14,660
----------
AIRLINES (1.1%)
15,375 Air Canada Pass-Through Trust(a) 4.13 5/15/2025 14,991
20,000 British Airways Pass-Through Trust(a) 4.63 6/20/2024 20,925
5,000 Virgin Australia Trust(a) 6.00 4/23/2022 5,212
10,000 Virgin Australia Trust(a) 5.00 10/23/2023 10,500
----------
51,628
----------
AIRPORT SERVICES (0.2%)
10,000 Heathrow Funding Ltd.(a) 4.88 7/15/2021 10,736
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.5%)
$ 10,000 Hutchison Whampoa International Ltd.(a) 2.00% 11/08/2017 $ 10,025
5,000 Hutchison Whampoa International Ltd.(a) 4.63 1/13/2022 5,227
7,000 Smiths Group plc(a) 3.63 10/12/2022 6,640
----------
21,892
----------
INDUSTRIAL MACHINERY (0.1%)
1,500 Ingersoll-Rand Co. 9.00 8/15/2021 1,939
----------
Total Industrials 100,855
----------
MATERIALS (3.2%)
----------------
COMMODITY CHEMICALS (0.1%)
6,000 Braskem Finance Ltd. 6.45 2/03/2024 5,907
----------
CONSTRUCTION MATERIALS (0.6%)
10,000 CRH America, Inc. 6.00 9/30/2016 11,176
10,000 Holcim (US), Inc.(a) 6.00 12/30/2019 11,558
2,000 Lafarge SA(a) 6.20 7/09/2015 2,125
----------
24,859
----------
DIVERSIFIED METALS & MINING (0.8%)
5,000 Anglo American Capital plc(a) 2.63 9/27/2017 5,052
2,034 Glencore Canada Corp. 5.38 6/01/2015 2,145
3,000 Glencore Canada Corp. 6.00 10/15/2015 3,238
5,000 Glencore Funding, LLC(a) 6.00 4/15/2014 5,051
10,000 Glencore Funding, LLC(a) 2.50 1/15/2019 9,677
5,000 Rio Tinto Finance (USA) Ltd. 9.00 5/01/2019 6,569
5,000 Xstrata Finance Canada Ltd.(a) 2.85 11/10/2014 5,070
----------
36,802
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
8,000 Yara International ASA(a) 5.25 12/15/2014 8,273
2,000 Yara International ASA(a) 7.88 6/11/2019 2,455
----------
10,728
----------
GOLD (0.7%)
10,000 Barrick NA Finance, LLC 6.80 9/15/2018 11,645
20,000 Goldcorp, Inc. 3.70 3/15/2023 18,473
----------
30,118
----------
METAL & GLASS CONTAINERS (0.2%)
10,000 Ardagh Packaging Finance plc(a) 7.38 10/15/2017 10,750
----------
PRECIOUS METALS & MINERALS (0.2%)
10,000 Fresnillo plc(a) 5.50 11/13/2023 9,750
----------
================================================================================
28 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
STEEL (0.4%)
$ 5,000 ArcelorMittal 9.50% 2/15/2015 $ 5,394
10,000 ArcelorMittal 6.75 2/25/2022 10,837
----------
16,231
----------
Total Materials 145,145
----------
UTILITIES (0.9%)
----------------
ELECTRIC UTILITIES (0.6%)
30,000 Electricite De France S.A.(a) 5.25 -(e) 29,039
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
10,200 Transalta Corp. 6.65 5/15/2018 11,678
----------
Total Utilities 40,717
----------
Total Eurodollar and Yankee Obligations (cost: $915,500) 948,977
----------
FOREIGN GOVERNMENT OBLIGATIONS (0.7%)
CAD 15,000 Province of Alberta 2.55 12/15/2022 13,129
CAD 20,000 Province of Ontario 2.85 6/02/2023 17,546
----------
Total Foreign Government Obligations (cost: $34,612) 30,675
----------
ASSET-BACKED SECURITIES (3.0%)
ASSET-BACKED FINANCING (3.0%)
2,635 Access Group, Inc. 0.50(d) 4/25/2029 2,588
10,000 AESOP Funding II, LLC(a) 3.41 11/20/2017 10,501
3,100 AmeriCredit Automobile Receivables Trust 2.76 5/09/2016 3,134
6,000 AmeriCredit Automobile Receivables Trust 4.20 11/08/2016 6,220
1,800 Ari Fleet Lease Trust(a) 0.71(d) 3/15/2020 1,804
3,536 ARL First, LLC(a),(g) 1.91(d) 12/15/2042 3,570
8,330 Arran Residential Mortgages Funding plc(a) 1.69(d) 11/19/2047 8,419
1,748 Centre Point Funding, LLC(a) 5.43 7/20/2016 1,806
3,554 CIT Equipment Collateral(a) 1.10 8/22/2016 3,558
2,000 CIT Equipment Collateral(a) 1.69 8/22/2016 2,003
5,000 Citibank Credit Card Issuance Trust 5.10 11/20/2017 5,401
2,000 Citibank Credit Card Issuance Trust 5.35 2/07/2020 2,288
409 Enterprise Fleet Financing, LLC(a) 1.44 10/20/2016 409
2,655 Enterprise Fleet Financing, LLC(a) 1.62 5/20/2017 2,661
2,659 Enterprise Fleet Financing, LLC(a) 1.14 11/20/2017 2,665
10,000 Exeter Automobile Receivables Trust(a),(g),(i) 2.42 1/15/2019 10,000
6,723 Fosse Master Issuer plc(a) 1.64 10/18/2054 6,757
996 GE Equipment Small Ticket LLC(a) 0.85 11/21/2014 996
8,176 Gracechurch Mortgage Financing plc(a) 1.79 11/20/2056 8,270
10,000 Hertz Vehicle Financing, LLC(a) 5.93 3/25/2016 10,393
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 2,889 Holmes Master Issuer plc(a) 1.64% 10/15/2054 $ 2,896
3,700 Holmes Master Issuer plc(a) 1.79 10/15/2054 3,735
15,000 Permanent Master Issuer plc(a) 1.79 7/15/2042 15,136
3,279 Prestige Auto Receivables Trust "B"(a) 2.87 7/16/2018 3,288
4,150 Rental Car Finance Corp.(a) 4.38 2/25/2016 4,236
676 Santander Drive Auto Receivables Trust(a) 1.48 5/15/2017 676
3,335 SLM Student Loan Trust 0.79(d) 10/25/2038 2,943
8,494 SLM Student Loan Trust 0.47(d) 1/25/2041 7,530
2,185 Wheels SPV, LLC(a) 1.19 3/20/2021 2,190
2,000 Wheels SPV, LLC(a) 1.53 3/20/2021 2,017
----------
138,090
----------
Total Asset-Backed Securities (cost: $134,085) 138,090
----------
COMMERCIAL MORTGAGE SECURITIES (10.0%)
COMMERCIAL MORTGAGE-BACKED SECURITIES (9.2%)
5,125 Banc of America Commercial Mortgage, Inc. 5.29 11/10/2042 5,350
5,000 Banc of America Commercial Mortgage, Inc. 5.85 7/10/2044 5,221
3,961 Banc of America Commercial Mortgage, Inc. 5.72 5/10/2045 4,068
7,000 Banc of America Commercial Mortgage, Inc. 5.15 10/10/2045 7,401
3,782 Bear Stearns Commercial Mortgage Securities, Inc. 5.44 3/11/2039 3,824
8,000 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 8,366
12,000 Commercial Mortgage Trust 5.12 6/10/2044 12,619
8,765 Commercial Mortgage Trust 5.22 7/15/2044 9,125
8,600 Commercial Mortgage Trust 3.25 10/15/2045 8,318
5,425 Commercial Mortgage Trust(a) 3.42 10/15/2045 5,323
6,000 Commercial Mortgage Trust 2.77 12/10/2045 5,703
4,000 Commercial Mortgage Trust 3.61 6/10/2046 4,033
10,000 Commercial Mortgage Trust 5.35 12/10/2046 10,955
3,000 Credit Suisse Commercial Mortgage Trust 5.47 2/15/2039 3,209
6,750 Credit Suisse First Boston Mortgage Securities Corp. 0.41 4/15/2037 6,228
8,700 Credit Suisse First Boston Mortgage Securities Corp. 5.10 8/15/2038 9,166
8,385 Credit Suisse First Boston Mortgage Securities Corp. 5.23 12/15/2040 8,865
5,000 GE Capital Commercial Mortgage Corp. 5.28 3/10/2044 4,839
1,306 GE Capital Commercial Mortgage Corp. 5.28 3/10/2044 1,305
4,000 GE Capital Commercial Mortgage Corp. 5.07 7/10/2045 4,237
7,000 GMAC Commercial Mortgage Securities Inc. 5.29 11/10/2045 7,417
13,500 GS Mortgage Securities Corp. II 5.62 4/10/2038 14,626
1,000 GS Mortgage Securities Corp. II 5.53 8/10/2038 1,016
3,000 GS Mortgage Securities Corp. II 5.82 8/10/2038 2,991
10,264 GS Mortgage Securities Corp. II 4.78 7/10/2039 10,512
6,000 GS Mortgage Securities Corp. II 3.21 5/10/2045 6,247
5,000 GS Mortgage Securities Corp. II 3.38 5/10/2045 5,066
5,000 GS Mortgage Securities Trust 3.28 2/10/2046 4,833
================================================================================
30 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 5,000 GS Mortgage Securities Trust(a) 3.68% 2/10/2046 $ 4,790
5,000 GS Mortgage Securities Trust 4.24 8/10/2046 5,274
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.84 7/15/2042 5,205
6,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.00 10/15/2042 6,352
6,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.04 10/15/2042 6,192
3,567 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.49 4/15/2043 3,657
2,824 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.81 6/12/2043 3,048
15,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(a) 5.51 11/15/2043 16,608
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.24 12/15/2044 10,655
3,761 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.86 4/15/2045 3,897
5,697 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.82 5/15/2045 6,010
4,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.48 5/15/2045 4,206
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.27 6/15/2045 10,458
973 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(a) 1.87 2/15/2046 976
221 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.63 3/15/2046 221
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 5.37 5/15/2047 10,595
7,179 LB-UBS Commercial Mortgage Trust 4.95 9/15/2030 7,481
5,000 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 5,423
3,707 LB-UBS Commercial Mortgage Trust 5.34 9/15/2039 3,864
9,450 LB-UBS Commercial Mortgage Trust 5.32 11/15/2040 9,996
2,538 Merrill Lynch Mortgage Trust 5.02 7/12/2038 2,587
10,643 Merrill Lynch Mortgage Trust 5.14 7/12/2038 11,077
3,105 Morgan Stanley Capital I, Inc. 5.80 8/12/2041 3,188
4,638 Morgan Stanley Capital I, Inc. 5.17 1/14/2042 4,751
8,499 Morgan Stanley Capital I, Inc. 5.37 12/15/2043 9,306
7 Morgan Stanley Capital I, Inc. 4.85 6/12/2047 7
2,010 Morgan Stanley Capital I, Inc. 5.17 10/12/2052 2,039
5,000 Timberstar Trust(a) 5.88 10/15/2036 5,399
8,000 UBS Commercial Mortgage Trust 4.17 5/10/2045 8,252
15,000 UBS Commercial Mortgage Trust 4.82 5/10/2045 15,685
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 9,963 Wachovia Bank Commercial Mortgage Trust 5.08% 3/15/2042 $ 10,254
2,227 Wachovia Bank Commercial Mortgage Trust 4.81 4/15/2042 2,268
651 Wachovia Bank Commercial Mortgage Trust 5.58 3/15/2045 653
4,850 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 5,313
5,000 WF-RBS Commercial Mortgage Trust 3.35 5/15/2045 4,836
10,000 WF-RBS Commercial Mortgage Trust 4.09 6/15/2045 10,321
20,000 WF-RBS Commercial Mortgage Trust 3.65 12/15/2046 20,773
----------
422,480
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.8%)
49,375 Commercial Mortgage Pass-Through Certificates,
acquired 5/22/2012; cost $6,844(f) 2.23 5/15/2045 5,895
73,719 Commercial Mortgage Trust, acquired 11/06/2012;
cost $9,882(f) 2.00 10/15/2045 8,534
40,009 GS Mortgage Securities Corp. II, acquired 5/18/2012;
cost $6,113(f) 2.59 5/10/2045 5,155
190,667 GS Mortgage Securities Trust XI, acquired 6/27/2013;
cost $4,998(a),(f) 0.21 5/03/2032 4,946
63,581 UBS Commercial Mortgage Trust, acquired 9/26/2012;
cost $9,795(a),(f) 2.33 5/10/2045 8,267
35,400 WF Commercial Mortgage Trust, acquired 9/21/2012;
cost $4,911(a),(f) 2.13 10/15/2045 4,165
----------
36,962
----------
Total Commercial Mortgage Securities (cost: $442,289) 459,442
----------
U.S. GOVERNMENT AGENCY ISSUES (3.7%)(j)
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (1.0%)
98,808 Freddie Mac(+) 1.05 11/25/2022 7,102
72,259 Freddie Mac(+) 0.90 10/25/2022 4,430
75,245 Freddie Mac(+) 1.51 6/25/2022 7,419
98,846 Freddie Mac(+) 1.47 5/25/2022 9,337
63,113 Freddie Mac(+) 1.46 1/25/2022 5,545
70,795 Freddie Mac(+) 1.54 3/25/2019 4,805
74,344 Freddie Mac(+) 1.59 10/25/2018 4,891
----------
43,529
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (2.5%)
18,312 Fannie Mae(+) 2.50 2/01/2028 18,422
4,455 Fannie Mae(+) 5.00 6/01/2033 4,891
1,927 Fannie Mae(+) 5.50 7/01/2021 2,112
4,936 Fannie Mae(+) 5.50 9/01/2035 5,452
2,139 Fannie Mae(+) 5.50 10/01/2035 2,374
1,114 Fannie Mae(+) 5.50 1/01/2036 1,227
2,748 Fannie Mae(+) 5.50 4/01/2036 3,031
2,518 Fannie Mae(+) 5.50 2/01/2037 2,778
================================================================================
32 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 2,573 Fannie Mae(+) 5.50% 3/01/2037 $ 2,829
1,479 Fannie Mae(+) 5.50 11/01/2037 1,629
4,934 Fannie Mae(+) 5.50 5/01/2038 5,432
2,889 Fannie Mae(+) 6.00 5/01/2036 3,200
1,873 Fannie Mae(+) 6.00 6/01/2036 2,079
2,944 Fannie Mae(+) 6.00 8/01/2037 3,255
569 Fannie Mae(+) 6.50 4/01/2031 641
7 Fannie Mae(+) 6.50 7/01/2031 8
1,013 Fannie Mae(+) 6.50 3/01/2032 1,138
25 Fannie Mae(+) 7.00 10/01/2022 28
13 Fannie Mae(+) 7.00 3/01/2023 14
40 Fannie Mae(+) 7.00 4/01/2023 41
18,200 Freddie Mac(+) 3.50 5/01/2042 18,473
883 Freddie Mac(+) 5.00 6/01/2020 950
2,074 Freddie Mac(+) 5.00 1/01/2021 2,224
2,534 Freddie Mac(+) 5.50 11/01/2020 2,772
560 Freddie Mac(+) 5.50 12/01/2020 599
1,975 Freddie Mac(+) 5.50 12/01/2035 2,184
1,318 Freddie Mac(+) 5.50 4/01/2036 1,445
5,729 Government National Mortgage Assn. I 5.00 8/15/2033 6,394
113 Government National Mortgage Assn. I 6.00 8/15/2028 126
288 Government National Mortgage Assn. I 6.00 9/15/2028 322
353 Government National Mortgage Assn. I 6.00 9/15/2028 396
2,624 Government National Mortgage Assn. I 6.00 9/15/2028 2,994
649 Government National Mortgage Assn. I 6.00 10/15/2028 740
321 Government National Mortgage Assn. I 6.00 1/15/2029 361
163 Government National Mortgage Assn. I 6.00 1/15/2029 182
48 Government National Mortgage Assn. I 6.00 1/15/2029 53
487 Government National Mortgage Assn. I 6.00 1/15/2033 562
19 Government National Mortgage Assn. I 6.50 6/15/2023 21
222 Government National Mortgage Assn. I 6.50 7/15/2023 250
12 Government National Mortgage Assn. I 6.50 7/15/2023 13
71 Government National Mortgage Assn. I 6.50 9/15/2023 80
238 Government National Mortgage Assn. I 6.50 10/15/2023 268
33 Government National Mortgage Assn. I 6.50 10/15/2023 37
224 Government National Mortgage Assn. I 6.50 10/15/2023 253
416 Government National Mortgage Assn. I 6.50 12/15/2023 467
233 Government National Mortgage Assn. I 6.50 12/15/2023 261
90 Government National Mortgage Assn. I 6.50 1/15/2024 101
205 Government National Mortgage Assn. I 6.50 2/15/2024 230
88 Government National Mortgage Assn. I 6.50 4/15/2026 99
476 Government National Mortgage Assn. I 6.50 5/15/2028 538
770 Government National Mortgage Assn. I 6.50 10/15/2031 866
72 Government National Mortgage Assn. I 7.00 5/15/2023 79
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 59 Government National Mortgage Assn. I 7.00% 5/15/2023 $ 67
58 Government National Mortgage Assn. I 7.00 5/15/2023 64
47 Government National Mortgage Assn. I 7.00 5/15/2023 52
165 Government National Mortgage Assn. I 7.00 6/15/2023 183
128 Government National Mortgage Assn. I 7.00 6/15/2023 141
162 Government National Mortgage Assn. I 7.00 8/15/2023 177
30 Government National Mortgage Assn. I 7.00 8/15/2023 32
177 Government National Mortgage Assn. I 7.00 8/15/2023 193
41 Government National Mortgage Assn. I 7.00 8/15/2023 45
97 Government National Mortgage Assn. I 7.00 9/15/2023 105
45 Government National Mortgage Assn. I 7.00 1/15/2026 53
31 Government National Mortgage Assn. I 7.00 3/15/2026 35
15 Government National Mortgage Assn. I 7.00 3/15/2026 17
318 Government National Mortgage Assn. I 7.00 10/15/2027 372
423 Government National Mortgage Assn. I 7.00 6/15/2029 479
198 Government National Mortgage Assn. I 7.00 6/15/2029 223
23 Government National Mortgage Assn. I 7.00 7/15/2029 23
374 Government National Mortgage Assn. I 7.00 8/15/2031 449
161 Government National Mortgage Assn. I 7.00 7/15/2032 184
204 Government National Mortgage Assn. I 7.50 7/15/2023 228
228 Government National Mortgage Assn. I 7.50 6/15/2026 258
138 Government National Mortgage Assn. I 7.50 6/15/2026 157
143 Government National Mortgage Assn. I 7.50 7/15/2026 160
203 Government National Mortgage Assn. I 7.50 5/15/2027 232
240 Government National Mortgage Assn. I 7.50 2/15/2028 286
210 Government National Mortgage Assn. I 7.50 12/15/2028 251
178 Government National Mortgage Assn. I 7.50 8/15/2029 202
1,104 Government National Mortgage Assn. II 5.50 4/20/2033 1,227
1,046 Government National Mortgage Assn. II 6.00 8/20/2032 1,172
753 Government National Mortgage Assn. II 6.00 9/20/2032 843
331 Government National Mortgage Assn. II 6.50 8/20/2031 390
----------
113,221
----------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.2%)
10,000 Totem Ocean Trailer Express, Inc., Title XI 6.37 4/15/2028 11,335
----------
Total U.S. Government Agency Issues (cost: $159,190) 168,085
----------
U.S. TREASURY SECURITIES (10.6%)
BONDS (2.1%)
40,000 2.75%, 8/15/2042 33,722
10,000 2.75%, 11/15/2042 8,412
30,000 3.88%, 8/15/2040 31,666
20,000 4.25%, 11/15/2040 22,444
----------
96,244
----------
================================================================================
34 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
INFLATION-INDEXED NOTES (1.4%)
$55,644 2.38%, 1/15/2025 $ 66,086
----------
NOTES (7.1%)
20,000 1.63%, 8/15/2022 18,647
20,000 1.63%, 11/15/2022 18,545
25,000 2.00%, 2/15/2022 24,279
10,000 2.00%, 2/15/2023 9,536
25,000 2.63%, 8/15/2020 25,960
55,000 2.63%, 11/15/2020 56,979
15,000 3.38%, 11/15/2019 16,349
55,000 3.50%, 5/15/2020 60,227
85,000 3.63%, 2/15/2020 93,789
----------
324,311
----------
Total U.S. Treasury Securities (cost: $463,343) 486,641
----------
MUNICIPAL BONDS (6.1%)
AIRPORT/PORT (1.4%)
17,000 Chicago Midway Airport 3.53% 1/01/2041(k) 17,740
5,000 Chicago O'Hare International Airport 5.00 1/01/2021 5,619
12,570 Dallas-Fort Worth International Airport Facilities 4.00 11/01/2021 13,157
2,265 Dallas-Fort Worth International Airport Facilities 4.44 11/01/2021 2,366
5,000 Port of Oakland 4.50 5/01/2030 5,025
11,700 Port of Oakland 4.50 5/01/2032 11,478
2,385 Port of Seattle 3.00 8/01/2015 2,473
4,350 Port of Seattle 4.00 8/01/2016 4,694
----------
Total Airport/Port 62,552
----------
APPROPRIATED DEBT (0.8%)
5,600 Brevard County School Board 1.70 7/01/2017 5,616
3,250 Jacksonville 2.00 10/01/2019 3,208
3,000 Jacksonville 2.37 10/01/2020 2,980
5,000 Kannapolis Ltd. 7.28 3/01/2027 5,224
10,000 Miami-Dade County School Board 5.38 5/01/2031 10,877
850 New Jersey EDA 5.18 11/01/2015 864
6,000 Palm Beach County School Board 5.40 8/01/2025 6,433
850 Placentia Yorba Linda USD 5.40 8/01/2021 918
----------
36,120
----------
CASINOS & GAMING (0.1%)
6,363 Mashantucket (Western) Pequot Tribe(a),(l) 7.35 7/01/2026 3,861
----------
COMMUNITY SERVICE (0.1%)
2,750 Art Institute of Chicago 3.23 3/01/2022 2,661
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
EDUCATION (0.6%)
$ 2,000 Austin Texas Community College District Public Auth. 6.91% 8/01/2035 $ 2,501
9,520 Indiana State 2.13 7/15/2019 9,519
10,000 New Jersey EDA 5.25 9/01/2022 11,519
2,000 Torrance USD 5.52 8/01/2021 2,237
----------
25,776
----------
ELECTRIC UTILITIES (0.2%)
5,000 Appling County Dev. Auth 2.40(d) 1/01/2038(k) 4,836
5,000 Burke County Dev. Auth. 1.25 1/01/2052(k) 5,033
----------
9,869
----------
ELECTRIC/GAS UTILITIES (0.6%)
2,000 Jackson Energy Auth. 2.90 4/01/2022 1,919
2,745 Jackson Energy Auth. 3.05 4/01/2023 2,606
3,915 Jackson Energy Auth. 3.20 4/01/2024 3,707
10,000 Long Island Power Auth. 5.25 5/01/2022 10,607
2,311 Pedernales Electric Cooperative, Inc.(a) 5.95 11/15/2022 2,649
4,535 Piedmont Municipal Power Agency 4.34 1/01/2017 4,602
----------
26,090
----------
ESCROWED BONDS (0.0%)
1,000 New Jersey Turnpike Auth. (INS)(PRE) 4.25 1/01/2016 1,037
----------
GENERAL OBLIGATION (0.9%)
1,250 City and County of Honolulu 2.51 11/01/2022 1,198
5,000 City and County of Honolulu 2.51 11/01/2022 4,782
900 City and County of Honolulu 2.81 11/01/2023 851
730 City and County of Honolulu 2.91 11/01/2024 678
680 City and County of Honolulu 3.06 11/01/2025 632
775 City and County of Honolulu 3.16 11/01/2026 720
625 City and County of Honolulu 3.26 11/01/2027 582
690 City and County of Honolulu 3.36 11/01/2028 637
1,250 Las Virgenes USD 5.54 8/01/2025 1,359
2,200 Marin County (INS) 4.89 8/01/2016 2,397
1,800 State of Mississippi 2.83 12/01/2024 1,720
2,000 State of Mississippi 3.03 12/01/2025 1,904
10,000 State of Washington 5.25 2/01/2036 10,945
10,000 Town of Stratford 5.75 8/15/2030 10,632
----------
39,037
----------
HOSPITAL (0.2%)
10,000 Rochester Health Care Facilities 4.50 11/15/2038(k) 11,423
----------
SPECIAL ASSESSMENT/TAX/FEE (0.6%)
9,000 Colony Local Dev. Corp. (INS) 4.38 10/01/2033 8,475
5,000 Maine Municipal Bond Bank 4.25 6/01/2023 5,182
================================================================================
36 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 5,000 New Jersey Transportation Trust Fund Auth. (INS) 5.25% 12/15/2022 $ 5,871
3,320 New Jersey Transportation Trust Fund Auth. 5.50 12/15/2022 3,963
5,000 New York City Transitional Finance Auth. 5.00 2/01/2035 5,345
----------
28,836
----------
TOLL ROADS (0.2%)
7,305 New Jersey Turnpike Auth. (INS) 4.25 1/01/2016 7,576
3,000 North Texas Tollway Auth. 5.00 9/01/2031 3,273
----------
10,849
----------
WATER/SEWER UTILITY (0.4%)
5,000 Houston Utility System 5.00 11/15/2033 5,387
10,825 New York Municipal Water Finance Auth. 5.25 6/15/2040 11,486
2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,704
----------
19,577
----------
Total Municipal Bonds (cost: $265,602) 277,688
----------
----------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (3.6%)
COMMON STOCKS (1.5%)
CONSUMER STAPLES (0.1%)
-----------------------
HOUSEHOLD PRODUCTS (0.1%)
40,000 Kimberly-Clark Corp. 4,375
----------
ENERGY (0.2%)
-------------
INTEGRATED OIL & GAS (0.2%)
41,780 Chevron Corp. 4,664
80,000 Royal Dutch Shell plc ADR 5,528
----------
10,192
----------
Total Energy 10,192
----------
FINANCIALS (0.5%)
-----------------
DIVERSIFIED BANKS (0.2%)
50,000 Bank of Montreal 3,054
50,000 Canadian Imperial Bank of Commerce 3,886
----------
6,940
----------
REITs - MORTGAGE (0.2%)
89,000 American Capital Agency Corp. 1,864
419,700 MFA Financial, Inc. 3,060
314,400 Two Harbors Investment Corp. 3,091
----------
8,015
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.1%)
400,000 People's United Financial, Inc. $ 5,684
----------
Total Financials 20,639
----------
HEALTH CARE (0.1%)
------------------
PHARMACEUTICALS (0.1%)
119,300 Merck & Co., Inc. 6,319
----------
INDUSTRIALS (0.1%)
------------------
INDUSTRIAL CONGLOMERATES (0.1%)
150,000 General Electric Co. 3,769
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
125,000 Intel Corp. 3,068
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
128,050 AT&T, Inc. 4,267
21,000 Verizon Communications, Inc. 1,008
----------
5,275
----------
Total Telecommunication Services 5,275
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.1%)
130,000 Southern Co. 5,361
----------
MULTI-UTILITIES (0.2%)
200,000 CMS Energy Corp. 5,558
15,200 Dominion Resources, Inc. 1,032
30,400 NiSource, Inc. 1,045
----------
7,635
----------
Total Utilities 12,996
----------
Total Common Stocks (cost: $55,706) 66,633
----------
PREFERRED STOCKS (2.1%)
CONSUMER STAPLES (0.5%)
-----------------------
AGRICULTURAL PRODUCTS (0.5%)
200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 5,740
172,520 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a) 18,772
----------
24,512
----------
Total Consumer Staples 24,512
----------
================================================================================
38 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
FINANCIALS (1.4%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
$5,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(a) $ 5,200
----------
REGIONAL BANKS (0.2%)
10,800 M&T Bank Corp., 6.38%, cumulative
redeemable, perpetual 10,362
----------
REITs - INDUSTRIAL (0.5%)
344,500 ProLogis, Inc., Series Q, 8.54%, cumulative
redeemable, perpetual 19,637
----------
REITs - OFFICE (0.1%)
200,000 CommonWealth REIT, Series E, 7.25%, cumulative
redeemable, perpetual 4,560
----------
REITs - RESIDENTIAL (0.5%)
142,500 Equity Residential Properties Trust, depositary shares,
Series K, 8.29%, cumulative redeemable, perpetual 8,532
250,000 Post Properties, Inc., Series A, 8.50%,
cumulative redeemable, perpetual 15,063
----------
23,595
----------
Total Financials 63,354
----------
INDUSTRIALS (0.1%)
------------------
OFFICE SERVICES & SUPPLIES (0.1%)
3,000 Pitney Bowes International Holdings, Series F, 6.13%,
cumulative redeemable, perpetual(a) 3,181
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.1%)
50,000 Southern California Edison, Series D, 6.50%,
cumulative redeemable, perpetual 4,925
----------
Total Preferred Stocks (cost: $85,886) 95,972
----------
Total Equity Securities (cost: $141,592) 162,605
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.5%)
COMMERCIAL PAPER (2.1%)
ENERGY (0.0%)
-------------
OIL & GAS REFINING & MARKETING (0.0%)
$ 2,000 Deer Park Refining LP(a),(m) 0.30% 2/19/2014 $ 2,000
----------
FINANCIALS (1.6%)
-----------------
ASSET-BACKED FINANCING (1.6%)
3,000 Govco LLC(a),(m) 0.10 2/06/2014 3,000
35,000 Hannover Funding Co. LLC(a),(m) 0.15 2/20/2014 34,998
4,000 Ridgefield Funding Co., LLC(a) 0.17 2/04/2014 4,000
30,846 Ridgefield Funding Co. LLC(a) 0.12 2/10/2014 30,845
----------
72,843
----------
Total Financials 72,843
----------
INDUSTRIALS (0.5%)
------------------
AEROSPACE & DEFENSE (0.5%)
4,000 Precision Castparts Corp.(a),(m) 0.09 2/10/2014 4,000
16,700 Precision Castparts Corp.(a),(m) 0.11 2/18/2014 16,699
----------
20,699
----------
Total Industrials 20,699
----------
Total Commercial Paper 95,542
----------
VARIABLE-RATE DEMAND NOTES (0.1%)
FINANCIALS (0.1%)
-----------------
REAL ESTATE OPERATING COMPANIES (0.1%)
2,000 New York City Housing Dev. Corp.
(LOC - RBS Citizens, N.A.) 0.40 3/01/2048 2,000
----------
----------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.3%)
14,668,093 State Street Institutional Liquid Reserve Fund, 0.06%(n) 14,668
----------
Total Money Market Instruments (cost: $112,209) 112,210
----------
TOTAL INVESTMENTS (COST: $4,357,503) $4,569,183
==========
================================================================================
40 | USAA INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------------
($ 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 $ - $1,784,770 $ - $1,784,770
Eurodollar And Yankee Obligations - 948,977 - 948,977
Foreign Government Obligations - 30,675 - 30,675
Asset-Backed Securities - 134,520 3,570 138,090
Commercial Mortgage Securities - 459,442 - 459,442
U.S. Government Agency Issues - 168,085 - 168,085
U.S. Treasury Securities 486,641 - - 486,641
Municipal Bonds - 277,688 - 277,688
Equity Securities:
Common Stocks 66,633 - - 66,633
Preferred Stocks - 95,972 - 95,972
Money Market Instruments:
Commercial Paper - 95,542 - 95,542
Variable-Rate Demand Notes - 2,000 - 2,000
Money Market Funds 14,668 - - 14,668
----------------------------------------------------------------------------------------------------------------
Total $567,942 $3,997,671 $3,570 $4,569,183
----------------------------------------------------------------------------------------------------------------
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
COMMERCIAL
MORTGAGE
SECURITIES
------------------------------------------------------------------------------------------
Balance as of July 31, 2013 $3,781
Purchases -
Sales (220)
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/depreciation on investments 9
------------------------------------------------------------------------------------------
Balance as of January 31, 2014 $3,570
------------------------------------------------------------------------------------------
For the period of August 1, 2013, through January 31, 2014, 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 | 41
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 21.5% of net assets at
January 31, 2014.
o CATEGORIES AND DEFINITIONS
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES -- Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
when the final principal payment will be made for all underlying loans. 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.
================================================================================
42 | USAA INCOME FUND
================================================================================
EURODOLLAR AND YANKEE OBLIGATIONS -- Eurodollar obligations are
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.
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.
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the
security at face value on either that day or within the rate-reset period.
The interest rate is adjusted at a stipulated daily, weekly, monthly,
quarterly, or other specified time interval to reflect current market
conditions. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 43
================================================================================
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
CAD Canadian dollars
EDA Economic Development Authority
PRE Prerefunded 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 -- 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., 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.
(LOC) Principal and interest payments are guaranteed by a bank letter
of credit or other bank credit agreement.
================================================================================
44 | USAA INCOME FUND
================================================================================
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by the
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 interest rate is adjusted periodically, and the rate
disclosed represents the current rate at January 31, 2014. 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, 2014, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(d) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate
at January 31, 2014.
(e) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(f) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2014, was $36,962,000, which represented 0.8% of the Fund's
net assets.
(g) Security was fair valued at January 31, 2014, by the Manager in
accordance with valuation procedures approved by the Board.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
The total value of all such securities was $13,570,000, which
represented 0.3% of net assets of the Fund.
(h) Currently the issuer is in default with respect to interest and/or
principal payments.
(i) At January 31, 2014, the aggregate market value of securities purchased
on a when-issued basis was $10,000,000.
(j) U.S. government agency issues -- Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency (FHFA)
to act as conservator and oversee their daily operations. In addition,
the U.S. Treasury entered into purchase agreements with Fannie Mae and
Freddie Mac to provide them with capital in exchange for senior
preferred stock. While these arrangements are intended to ensure that
Fannie Mae and Freddie Mac can continue to meet their obligations, it
is possible that actions by the U.S. Treasury, FHFA, or others could
adversely impact the value of the Fund's investments in securities
issued by Fannie Mae and Freddie Mac.
(k) 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.
================================================================================
46 | USAA INCOME FUND
================================================================================
(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) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act of
1933. 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 of
Trustees, unless otherwise noted as illiquid.
(n) Rate represents the money market fund annualized seven-day yield at
January 31, 2014.
(o) In U.S. dollars unless otherwise noted.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 47
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $4,357,503) $4,569,183
Cash 26
Receivables:
Capital shares sold:
Affiliated transactions (Note 7) 32
Nonaffiliated transactions 3,881
USAA Asset Management Company (Note 6C) 2
Dividends and interest 40,929
Securities sold 22
----------
Total assets 4,614,075
----------
LIABILITIES
Payables:
Securities purchased 38,892
Capital shares redeemed 2,554
Accrued management fees 957
Accrued transfer agent's fees 116
Other accrued expenses and payables 267
----------
Total liabilities 42,786
----------
Net assets applicable to capital shares outstanding $4,571,289
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,363,949
Overdistribution of net investment income (14,416)
Accumulated net realized gain on investments 10,080
Net unrealized appreciation of investments 211,680
Net unrealized depreciation of foreign currency translations (4)
----------
Net assets applicable to capital shares outstanding $4,571,289
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,659,699/202,990 shares outstanding) $ 13.10
==========
Institutional Shares (net assets of $1,905,568/145,506
shares outstanding) $ 13.10
==========
Adviser Shares (net assets of $6,022/460 shares outstanding) $ 13.08
==========
See accompanying notes to financial statements.
================================================================================
48 | USAA INCOME FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $46) $ 4,528
Interest 90,399
--------
Total income 94,927
--------
EXPENSES
Management fees 6,286
Administration and servicing fees:
Fund Shares 1,994
Institutional Shares 928
Adviser Shares 5
Transfer agent's fees:
Fund Shares 1,982
Institutional Shares 928
Distribution and service fees (Note 6E):
Adviser Shares 7
Custody and accounting fees:
Fund Shares 233
Institutional Shares 114
Adviser Shares 1
Postage:
Fund Shares 98
Institutional Shares 4
Shareholder reporting fees:
Fund Shares 60
Institutional Shares 4
Trustees' fees 7
Registration fees:
Fund Shares 29
Institutional Shares 13
Adviser Shares 10
Professional fees 110
Other 38
--------
Total expenses 12,851
Expenses reimbursed:
Adviser Shares (4)
--------
Net expenses 12,847
--------
NET INVESTMENT INCOME 82,080
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Unaffiliated transactions 5,494
Affiliated transactions (Note 8) 5,183
Foreign currency transactions (16)
Change in net unrealized appreciation/depreciation of:
Investments 8,303
Foreign currency translations (5)
--------
Net realized and unrealized gain 18,959
--------
Increase in net assets resulting from operations $101,039
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 49
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended January 31, 2014 (unaudited), and year ended
July 31, 2013
--------------------------------------------------------------------------------
1/31/2014 7/31/2013
-------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 82,080 $ 159,426
Net realized gain on investments 10,677 19,596
Net realized loss on foreign currency transactions (16) (11)
Change in net unrealized appreciation/depreciation of:
Investments 8,303 (126,480)
Foreign currency translations (5) 1
---------------------------
Increase in net assets resulting from operations 101,039 52,532
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (56,962) (102,045)
Institutional Shares (41,107) (57,681)
Adviser Shares (120) (198)
---------------------------
Total distributions of net investment income (98,189) (159,924)
---------------------------
Net realized gains:
Fund Shares (877) (6,912)
Institutional Shares (614) (4,032)
Adviser Shares (2) (15)
---------------------------
Total distributions of net realized gains (1,493) (10,959)
---------------------------
Distributions to shareholders (99,682) (170,883)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (188) (848,602)
Institutional Shares 57,331 1,217,909
Adviser Shares 148 151
---------------------------
Total net increase in net assets from capital
share transactions 57,291 369,458
---------------------------
Net increase in net assets 58,648 251,107
NET ASSETS
Beginning of period 4,512,641 4,261,534
---------------------------
End of period $4,571,289 $4,512,641
===========================
Accumulated undistributed (overdistribution of) net
investment income:
End of period $ (14,416) $ 1,693
===========================
See accompanying notes to financial statements.
================================================================================
50 | USAA INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 52 separate funds. 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, foundations, and bank trusts, as well as other persons or
legal entities
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
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) and
not to the general public. 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). 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
================================================================================
52 | USAA INCOME FUND
================================================================================
bid and asked prices or the last sales price to price securities when,
in the Service's judgment, these prices are readily available and are
representative of the securities' market values. For many securities,
such prices are not readily available. The Service generally prices
these securities based on methods that include consideration of yields
or prices of securities of comparable quality, coupon, maturity, and
type; indications as to values from dealers in securities; and general
market conditions.
2. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets, are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund 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. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end
of each business day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Futures are valued based upon the last sale price at the close of market
on the principal exchange on which they are traded.
7. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before the
pricing of the Fund, are valued in good
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
faith at fair value, using methods determined by the Manager under
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the
fair value price. Valuing these securities at fair value is intended to
cause the Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of the
forces that influenced the market in which the securities are purchased
and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include all preferred stocks, which are valued based on methods discussed
in Note 1A2, certain bonds, which are valued based on methods discussed in
Note 1A1, and commercial paper and variable-rate demand notes, which are
valued at amortized cost.
================================================================================
54 | USAA INCOME FUND
================================================================================
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
some securities falling in the Level 3 category are primarily supported by
quoted prices obtained from broker-dealers participating in the market for
these securities. However, these securities are included in the Level 3
category due to limited market transparency and or a lack of corroboration
to support the quoted prices.
Refer to the portfolio of investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code 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 is recorded on the ex-dividend date; interest income
is recorded daily on the accrual basis. Discounts and premiums on
securities 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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, 2014, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $10,000,000, of which all
were when-issued securities.
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, 2014, 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.
================================================================================
56 | USAA INCOME FUND
================================================================================
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended January 31, 2014, the Fund paid CAPCO facility
fees of $12,000, which represents 7.1% 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, 2014.
(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, 2014,
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.
Under the Regulated Investment Company Modernization Act of 2010 (the Act), a
fund is permitted to carry forward net 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
loss carryforwards. As a result, pre-enactment capital loss carryforwards may be
more likely to expire unused.
At July 31, 2013, the Fund had no pre-enactment or post-enactment capital loss
carryforwards, for federal income tax purposes.
For the six-month period ended January 31, 2014, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2014, were
$380,017,000 and $348,542,000, respectively.
As of January 31, 2014, 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,
2014, were $259,282,000 and $47,602,000, respectively, resulting in net
unrealized appreciation of $211,680,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2014, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
58 | USAA INCOME FUND
================================================================================
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds. Capital share transactions for
all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2014 JULY 31, 2013
----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------
FUND SHARES:
Shares sold 17,390 $ 226,913 44,481 $ 599,445
Shares issued from reinvested
dividends 4,131 53,871 7,496 100,726
Shares redeemed (21,551) (280,972) (114,820) (1,548,773)
-----------------------------------------------
Net decrease from
capital share transactions (30) $ (188) (62,843) $ (848,602)
===============================================
INSTITUTIONAL SHARES:
Shares sold 17,332 $ 226,003 118,906 $ 1,603,716
Shares issued from
reinvested dividends 3,125 40,748 4,537 60,881
Shares redeemed (16,069) (209,420) (33,364) (446,688)
-----------------------------------------------
Net increase from
capital share transactions 4,388 $ 57,331 90,079 $ 1,217,909
===============================================
ADVISER SHARES:
Shares sold 20 $ 264 43 $584
Shares issued from reinvested
dividends 1 18 3 32
Shares redeemed (10) (134) (35) (465)
-----------------------------------------------
Net increase from
capital share transactions 11 $ 148 11 $ 151
===============================================
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
(with approval of the Board and without shareholder approval) one or more
subadvisers to manage the actual day-to-day investment of a portion of the
Fund's assets. For the six-month period ended January 31, 2014, 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 for
the fiscal year.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
A Rated Bond Funds Index over the performance period. The Lipper A Rated
Bond Funds Index tracks the total return performance of the 30 largest
funds in 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 ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
---------------------------------------------------------------------------------
+/-0.20% to 0.50% +/-0.04%
+/-0.51% to 1.00% +/-0.05%
+/-1.01% and greater +/-0.06%
(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 (0.01%). 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.
================================================================================
60 | USAA INCOME FUND
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper 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, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $6,286,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $636,000, $225,000, and $1,000, respectively.
For the Fund Shares, Institutional Shares, and Adviser Shares, the
performance adjustments were 0.05%, 0.02%, and 0.03%, 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, 2014, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,994,000, $928,000, and $5,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended January 31, 2014, the Fund reimbursed the
Manager $62,000 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 agreed, through December 1, 2014, to
limit the total annual operating expenses of the Adviser Shares to 0.90% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
will reimburse the Adviser Shares for all expenses in excess of that
amount. This expense limitation arrangement may not be changed or
terminated through December 1, 2014, 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, 2014, the Adviser Shares incurred
reimbursable expenses of $4,000, of which $2,000 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. Transfer agent's fees for both the
Fund Shares and Adviser Shares are paid monthly 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, 2014, the Fund Shares, Institutional Shares and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of
$1,982,000, $928,000, 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 charge
or a contingent deferred sales charge. For the six-month period ended
January 31, 2014, the Adviser Shares incurred distribution and service
(12b-1) fees of $7,000.
================================================================================
62 | USAA INCOME 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 commissions or fees for this
service.
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 17 USAA mutual funds in which the affiliated USAA fund-of-funds may
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31, 2014, the Fund
recorded a receivable for capital shares sold of $32,000 for the USAA
fund-of-funds' purchases of Institutional Shares. As of January 31, 2014, the
USAA fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-----------------------------------------------------------------------------
USAA Cornerstone Conservative Fund 0.6
USAA Target Retirement Income Fund 0.9
USAA Target Retirement 2020 Fund 1.4
USAA Target Retirement 2030 Fund 1.6
USAA Target Retirement 2040 Fund 0.9
USAA Target Retirement 2050 Fund 0.1
USAA Target Retirement 2060 Fund 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,
2014, USAA and its affiliates owned 387,000 shares which represents 84.1% 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2014, 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 Fund USAA Short-Term
Bond Fund $54,469,000 $5,183,000
USAA Short-Term
Bond Fund USAA Income Fund 5,251,000 148,000
USAA High Income Fund USAA Income Fund 11,614,000 922,000
================================================================================
64 | 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,
------------------------------------------------------------------------------------------
2014 2013 2012 2011 2010 2009
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.10 $ 13.43 $ 13.05 $ 12.78 $ 11.86 $ 11.81
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income .24 .49 .49 .52 .59 .64
Net realized and
unrealized gain (loss) .04 (.32) .38 .27 .92 .05
------------------------------------------------------------------------------------------
Total from investment
operations .28 .17 .87 .79 1.51 .69
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.28) (.47) (.49) (.52) (.59) (.64)
Realized capital gains (.00)(d) (.03) - - - -
------------------------------------------------------------------------------------------
Total distributions (.28) (.50) (.49) (.52) (.59) (.64)
------------------------------------------------------------------------------------------
Net asset value at end
of period $ 13.10 $ 13.10 $ 13.43 $ 13.05 $ 12.78 $ 11.86
==========================================================================================
Total return (%)* 2.22 1.30 6.85 6.34 13.00(b) 6.38
Net assets at end
of period (000) $2,659,699 $2,659,263 $3,570,505 $3,144,378 $2,628,381 $2,080,994
Ratios to average
net assets:**
Expenses (%)(a) .63(c) .58 .59 .61 .63(b) .65
Net investment
income (%) 3.57(c) 3.53 3.75 4.09 4.80 5.76
Portfolio turnover (%) 8 24 19 19 12 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2014, average net assets were
$2,637,501,000.
(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 by less than 0.01%.
(b) During the year ended July 31, 2010, SAS reimbursed the Fund Shares $419,000
for corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund Shares' total return
was less than 0.01%. The reimbursement decreased the Fund Shares' expense
ratios by 0.02%. This decrease is excluded from the expense ratios in the
Financial Highlights table.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Represents less than $0.01 per share.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH PERIOD
PERIOD ENDED ENDED
JANUARY 31, YEAR ENDED JULY 31, JULY 31,
-------------------------------------------------------------------------------
2014 2013 2012 2011 2010 2009***
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.09 $ 13.42 $ 13.04 $ 12.78 $ 11.86 $ 11.83
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .48 .51 .56 .62 .67(a)
Net realized and
unrealized gain (loss) .05 (.29) .38 .25 .92 .04(a)
----------------------------------------------------------------------------
Total from investment
operations .30 .19 .89 .81 1.54 .71(a)
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.49) (.51) (.55) (.62) (.68)
Realized capital gains (.00)(e) (.03) - - - -
----------------------------------------------------------------------------
Total distributions (.29) (.52) (.51) (.55) (.62) (.68)
----------------------------------------------------------------------------
Net asset value at end
of period $ 13.10 $ 13.09 $ 13.42 $ 13.04 $ 12.78 $ 11.86
============================================================================
Total return (%)* 2.37 1.42 6.98 6.50 13.27 6.52
Net assets at end
of period (000) $1,905,568 $1,847,503 $685,149 $318,276 $190,659 $59,659
Ratios to average
net assets:**
Expenses (%)(c) .49(b) .47 .48 .38(d) .38(d) .38(b),(d)
Net investment
income (%) 3.71(b) 3.63 3.81 4.30 4.92 5.99(b)
Portfolio turnover (%) 8 24 19 19 12 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2014, average net assets were
$1,840,974,000.
*** Institutional shares were initiated on August 1, 2008.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) 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 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 0.40% of the Institutional
Shares' average net assets.
(e) Represents less than $0.01 per share.
================================================================================
66 | 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,
------------------------------------------------------
2014 2013 2012 2011***
------------------------------------------------------
Net asset value at beginning of period $13.08 $13.41 $13.03 $12.77
------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 .43 .46 .49(a)
Net realized and unrealized gain (loss) .05 (.30) .38 .27(a)
------------------------------------------------
Total from investment operations .27 .13 .84 .76(a)
------------------------------------------------
Less distributions from:
Net investment income (.27) (.43) (.46) (.50)
Realized capital gains (.00)(d) (.03) - -
------------------------------------------------
Total distributions (.27) (.46) (.46) (.50)
------------------------------------------------
Net asset value at end of period $13.08 $13.08 $13.41 $13.03
================================================
Total return (%)* 2.09 .99 6.55 6.05
Net assets at end of period (000) $6,022 $5,875 $5,880 $5,469
Ratios to average net assets:**
Expenses (%)(c) .90(b) .90 .90 .90(b)
Expenses, excluding reimbursements (%)(c) 1.04(b) 1.08 1.12 1.62(b)
Net investment income (%) 3.30(b) 3.21 3.45 3.82(b)
Portfolio turnover (%) 8 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, 2014, average net assets were
$5,906,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 by less than 0.01%.
(d) Represents less than $0.01 per share.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
EXPENSE EXAMPLE
January 31, 2014 (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, 2013, through
January 31, 2014.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table on the next page
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
================================================================================
68 | USAA INCOME FUND
================================================================================
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, 2013 -
AUGUST 1, 2013 JANUARY 31, 2014 JANUARY 31, 2014
------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,022.20 $3.21
Hypothetical
(5% return before expenses) 1,000.00 1,022.03 3.21
INSTITUTIONAL SHARES
Actual 1,000.00 1,023.70 2.50
Hypothetical
(5% return before expenses) 1,000.00 1,022.74 2.50
ADVISER SHARES
Actual 1,000.00 1,020.90 4.58
Hypothetical
(5% return before expenses) 1,000.00 1,020.67 4.58
* Expenses are equal to the annualized expense ratio of 0.63% for Fund Shares,
0.49% 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/365 days (to
reflect the one-half-year period). The Fund's actual ending account values
are based on its actual total returns of 2.22% for Fund Shares, 2.37% for
Institutional Shares, and 2.09% for Adviser Shares for the six-month period
of August 1, 2013, through January 31, 2014.
================================================================================
EXPENSE EXAMPLE | 69
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
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 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA
(8722)
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
USAA --------------
9800 Fredericksburg Road 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)
============================================================================
23424-0314 (C)2014, 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 directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
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, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 03/31/2014
------------------------------
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: 03/31/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 03/31/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.