UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: DECEMBER 31
Date of reporting period: JUNE 30, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JUNE 30, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA FLEXIBLE INCOME FUND]
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SEMIANNUAL REPORT
USAA FLEXIBLE INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JUNE 30, 2014
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PRESIDENT'S MESSAGE
"...[W]E HAVE BELIEVED FOR SOME TIME THE
ECONOMIC RECOVERY WILL BE MORE GRADUAL [PHOTO OF BROOKS ENGLEHARDT]
THAN THE MARKET'S INITIAL EXPECTATIONS."
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AUGUST 2014
The six-month reporting period was a reminder that nothing should be taken for
granted, especially when it comes to the economy and financial markets. In
January 2014, when the six-month period began, many observers anticipated U.S.
economic growth of more than 3% in 2014. Interest rates were expected to rise
once the U.S. Federal Reserve (the Fed) began tapering (or reducing) its
quantitative easing (QE) asset purchases. The equity market was expected to
become more volatile, as Fed tapering continued. Instead, stock market
volatility remained low, interest rates fell, and U.S. economic growth slowed.
At USAA Asset Management Company, we have believed for some time the economic
recovery will be more gradual than the market's initial expectations. Indeed,
economic growth disappointed many during the reporting period, contracting by
2.9% in the first quarter of 2014. Some attributed the deceleration to the
extreme winter weather, but we are not entirely convinced. For example, in
Canada, where the winter weather was equally harsh, economic growth remained
positive. In the second quarter, economic growth appeared to pick up -
manufacturing data and construction spending improved, for example - suggesting
the economy was getting healthier. Nevertheless, we believe that gross domestic
product growth for 2014 is likely to fall short of the market's expectations at
the beginning of the year.
At the same time, inflationary pressures are increasing. The Fed has a
long-stated inflation target of 2%. By many measures, inflation is at or near
that range. If inflation continues to rise, the Fed may taper its QE asset
purchases more aggressively.
Meanwhile, the U.S. stock market generated positive returns during the reporting
period, with little to no increase in market volatility. International stocks
also generated positive returns. We remain concerned, and are also
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uncertain, if the improving economy can generate the revenue and earnings growth
needed to justify current valuations and serve as a foundation for future price
gains. Valuations will continue to rise, in our opinion, if economic growth
accelerates and profit margins can maintain their current levels. If growth
stalls and profit margins decrease, earnings may disappoint and stocks may trim
their gains. Based on fundamental valuation at the time of this writing, we are
more optimistic about the near-term prospects for international stocks than for
U.S. stocks.
As for interest rates, they declined after the Fed started tapering its QE asset
purchases. By the end of the reporting period, the Fed - which had bought $85
billion of U.S. Treasury securities and mortgage-backed securities every month
during 2013 - had cut its asset purchases by more than half, with $35 billion
slated for purchase in July 2014. Longer-term interest rates, which had been
expected to increase, dropped and bond prices (which tend to move inversely with
rates) increased. We have long believed that, while interest rates would rise
over the longer term, it would be at a much more gradual pace than the market
was expecting.
In the months ahead, we will continue to monitor the direction of interest rates
and central bank policy, as well as the financial markets, corporate earnings,
economic trends, and other factors that could potentially affect your
investments. Assuming the U.S. economy regains its footing and continues to
strengthen, we expect the Fed to end its QE asset purchases by the end of 2014.
We believe that other global central banks are likely to maintain their easy
monetary policies, using rate cuts and/or asset purchases, to boost economic
growth in their countries and to support their financial markets.
On behalf of everyone at USAA Asset Management Company, thank you for allowing
us to help you manage your investments. We appreciate your continued investment
in our family of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Asset 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.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGER COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 19
Financial Statements 22
Notes to Financial Statements 27
EXPENSE EXAMPLE 46
ADVISORY AGREEMENT(S) 48
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2014, USAA. All rights reserved.
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FUND OBJECTIVE
THE USAA FLEXIBLE INCOME FUND (THE FUND) SEEKS TOTAL RETURN THROUGH A
COMBINATION OF INCOME AND CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
Under normal market conditions, the Fund will invest in income-producing
securities that carry the most attractive opportunity for total return,
regardless of maturity or credit rating. In addition to investment-grade U.S.
bonds, the Fund also may invest to a significant extent in high-yield bonds,
bank loans, non-dollar-denominated bonds, preferred stocks, and common stocks.
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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MANAGER COMMENTARY ON THE FUND
ARNOLD J. ESPE, CFA [PHOTO OF ARNOLD J. ESPE]
USAA Asset Management Company
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o HOW DID THE USAA FLEXIBLE 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 June 30, 2014, the
Fund Shares, Institutional Shares, and Adviser Shares had a total return of
8.37%, 8.44%, and 8.25%, respectively. This compares to a total return of
3.93% for the Barclays U.S. Aggregate Bond Index, a benchmark of the Fund,
and 4.74% for the Lipper Multi-Sector Income Funds Index.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
During January of this year, interest rates trended downward on concern
about emerging markets and geopolitical turmoil, as well as the potential
impact on the U.S. economy of unusually harsh winter weather. Bond prices,
which generally move in the opposite direction of interest rates, rose.
Also in January, and as anticipated, the U.S. Federal Reserve (the Fed)
Refer to page 6 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. As interest rates rise,
existing bond prices generally fall; given the historically low interest
rate environment, risks associated with rising interest rates may be
heightened. Foreign investing is subject to additional risks, such as
currency fluctuations, market illiquidity, and political instability.
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2 | USAA FLEXIBLE INCOME FUND
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began reducing (or tapering) its asset purchases and continued to trim them
every month through the end of the reporting period. Though longer-term
interest rates were expected to increase in response to Fed tapering, they
declined instead. At the same time, bond prices appreciated, with investors
favoring higher-yielding issues in the low interest rate environment. Both
U.S. and international stocks posted gains. Gold-mining stocks recorded
positive returns as the price of gold rallied.
o HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
The Fund generated a solid gain during the reporting period, benefiting from
the strength of the bond market. It also benefited from its holdings of
investment-grade corporate bonds and high-yield corporate bonds. Corporate
bonds outperformed U.S. Treasuries during the reporting period, as credit
spreads narrowed and investors sought higher-yielding securities. (Credit
spreads represent the difference in yields between corporate bonds and U.S.
Treasuries of similar maturity.) The Fund's investments in commercial
mortgage-backed securities also added to relative returns. Individual issue
selection in the energy sector - particularly the oil and gas exploration
and production industry and pipeline companies - enhanced returns.
Investments in the subordinated debt of property and casualty companies and
life insurers also added to performance. Additionally, the Fund's
significant allocation to common stocks contributed positively. In
particular, the Fund's position in gold-mining stocks added to results, as
gold prices rose. Investments in mortgage real estate investment trusts,
which appreciated, also enhanced Fund returns.
During the reporting period, the Fund continued to benefit from our focus on
income. In managing the Fund, we concentrated our purchases on
income-producing securities that we believe have the most attractive
opportunity for total return, regardless of maturity or credit rating. We
relied on our skilled research analysts to help us identify attractive
opportunities among high-yield corporate bonds and investment-grade
corporate bonds. To position the Fund for future interest rate increases,
the Fund had investments in floating rate securities, such as bank loans.
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MANAGER COMMENTARY ON THE FUND | 3
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The Fund's duration (a measure of its sensitivity to interest rates)
remained relatively short.
o WHAT IS THE OUTLOOK?
At the end of the reporting period, a number of economic indicators - such
as job growth, improving consumer sentiment, new home construction, and
manufacturing activity - suggested the U.S. economic recovery was continuing
and that the first-quarter contraction may have been temporary. Even so, we
expect the economy to remain on a slow-growth track. If it continues to
strengthen, we believe that the Fed is likely to finish tapering by the end
of 2014. In the months ahead, we expect interest rates to increase
gradually. Accordingly, we favor segments of the bond market that are more
sensitive to credit risk than interest-rate risk. At the end of the
reporting period, we have a positive outlook on corporate bonds. We also
have a positive outlook on gold and gold mining companies. Gold remains a
hedge against potential inflation and currency devaluation, and we think
gold-mining stocks and bonds are attractively valued based on their business
fundamentals. We have maintained the portfolio's short position in Japanese
government bond and currency futures because we expect Japanese interest
rates to rise and the yen to depreciate.
Going forward, we will continue to seek attractive investment opportunities,
relying on the skill and judgment of our experienced research analysts as we
strive to provide positive absolute returns over time though a combination
of income and capital appreciation.
We appreciate the opportunity to serve your investment needs.
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4 | USAA FLEXIBLE INCOME FUND
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INVESTMENT OVERVIEW
USAA FLEXIBLE INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USFIX)
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6/30/14 12/31/13*
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Net Assets $59.0 Million $31.6 Million
Net Asset Value Per Share $10.60 $9.99
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AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/14
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12/31/13 - 6/30/14** SINCE INCEPTION 7/12/13**
8.37% 10.56%
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EXPENSE RATIO AS OF 12/31/13***
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1.01%
(Includes acquired fund fees and expenses of 0.01%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*The Fund Shares commenced operations on July 12, 2013.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated May 1, 2014, and are
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through May 1, 2015, to make payments or waive
management, administration, and other fees to limit the exenses of the Fund so
that the total annual operating expenses of the Fund Shares (exclusive of
commission recapture, expense offset arrangements, acquired fund fees and
expenses, and extraordinary expenses) do not exceed an annual rate of 1.00% of
the Fund 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 May 1, 2015. If the total annual operating expense ratio of the Fund
Shares is lower than 1.00%, the Fund Shares will operate at the lower expense
ratio. The expense ratio may differ from the expense ratios disclosed in the
Financial Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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INVESTMENT OVERVIEW | 5
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA FLEXIBLE INCOME BARCLAYS U.S. AGGREGATE
FUND SHARES BOND INDEX
7/31/2013 $10,000.00 $10,000.00
8/31/2013 9,934.92 9,948.88
9/30/2013 9,977.26 10,043.07
10/31/2013 10,152.37 10,124.27
11/30/2013 10,110.84 10,086.36
12/31/2013 10,202.15 10,029.36
1/31/2014 10,384.25 10,177.55
2/28/2014 10,575.79 10,231.66
3/31/2014 10,588.85 10,214.23
4/30/2014 10,699.95 10,300.43
5/31/2014 10,838.44 10,417.70
6/30/2014 11,056.41 10,423.09
[END CHART]
Data from 7/31/13 to 6/30/14.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Flexible Income Fund Shares to the following benchmark:
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.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees or expenses.
*The performance of the Barclays U.S. Aggregate Bond Index is calculated from
the end of the month, July 31, 2013, while the Fund Shares' inception date is
July 12, 2013. There may be a slight variation of performance numbers because of
this difference.
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6 | USAA FLEXIBLE INCOME FUND
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USAA FLEXIBLE INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIFIX)
--------------------------------------------------------------------------------
6/30/14 12/31/13*
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Net Assets $109.1 Million $97.1 Million
Net Asset Value Per Share $10.60 $9.99
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AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/14
--------------------------------------------------------------------------------
12/31/13 - 6/30/14** SINCE INCEPTION 7/12/13**
8.44% 10.71%
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EXPENSE RATIOS AS OF 12/31/13***
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BEFORE REIMBURSEMENT 0.89% AFTER REIMBURSEMENT 0.81%
(Includes acquired fund fees and expenses of 0.01%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
* The Institutional Shares commenced operations on July 12, 2013.
**Total returns for periods of less than one year are not annualized. This
return is cumulative.
***The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated May 1, 2014, and are
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through May 1, 2015, to make payments or waive
management, administration, and other fees to limit the exenses of the Fund so
that the total annual operating expenses of the Institutional Shares (exclusive
of commission recapture, expense offset arrangements, acquired fund fees and
expenses, and extraordinary expenses) do not exceed an annual rate of 0.80% of
the Institutional Shares' average net assets. This reimbursement arrangement may
not be changed or terminated during this time period without approval of the
Fund's Board of Trustees and may be changed or terminated by the Manager at any
time after May 1, 2015. If the total annual operating expense ratio of the
Institutional Shares is lower than 0.80%, the Fund's Institutional Shares will
operate at the lower expense ratio. These expense ratios may differ from the
expense ratios disclosed in the Financial Highlights, which excludes acquired
fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA FLEXIBLE INCOME FUND BARCLAYS U.S. AGGREGATE
INSTITUTIONAL SHARES BOND INDEX
7/31/2013 $10,000.00 $10,000.00
8/31/2013 9,937.29 9,948.88
9/30/2013 9,980.78 10,043.07
10/31/2013 10,156.99 10,124.27
11/30/2013 10,116.46 10,086.36
12/31/2013 10,209.04 10,029.36
1/31/2014 10,392.47 10,177.55
2/28/2014 10,585.52 10,231.66
3/31/2014 10,600.17 10,214.23
4/30/2014 10,712.36 10,300.43
5/31/2014 10,851.85 10,417.70
6/30/2014 11,070.52 10,423.09
[END CHART]
Data from 7/31/13 to 6/30/14.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Flexible Income Fund Institutional Shares to the benchmark listed above
(see page 6 for the benchmark definition).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees or expenses.
*The performance of the Barclays U.S. Aggregate Bond Index is calculated from
the end of the month, July 31, 2013, while the Institutional Shares' inception
date is July 12, 2013. There may be a slight variation of performance numbers
because of this difference.
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8 | USAA FLEXIBLE INCOME FUND
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USAA FLEXIBLE INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UAFIX)
--------------------------------------------------------------------------------
6/30/14 12/31/13*
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Net Assets $5.4 Million $5.0 Million
Net Asset Value Per Share $10.60 $9.99
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AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/14
--------------------------------------------------------------------------------
12/31/13 - 6/30/14** SINCE INCEPTION 7/12/13**
8.25% 10.30%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 12/31/13***
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BEFORE REIMBURSEMENT 1.55% AFTER REIMBURSEMENT 1.26%
(Includes acquired fund fees and expenses of 0.01%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
* The Adviser Shares commenced operations on July 12, 2013.
** Total returns for periods of less than one year are not annualized. This
return is cumulative.
***The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated May 1, 2014, and are
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through May 1, 2015, to make payments or waive
management, administration, and other fees to limit the exenses of the Fund so
that the total annual operating expenses of the Adviser Shares (exclusive of
commission recapture, expense offset arrangements, acquired fund fees and
expenses, and extraordinary expenses) do not exceed an annual rate of 1.25% 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 May 1, 2015. If the total annual operating expense ratio of the Adviser
Shares is lower than 1.25%, the Fund's Adviser Shares will operate at the lower
expense ratio. These expense ratios may differ from the expense ratios disclosed
in the Financial Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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INVESTMENT OVERVIEW | 9
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA FLEXIBLE INCOME FUND BARCLAYS U.S. AGGREGATE
ADVISER SHARES BOND INDEX
7/31/2013 $10,000.00 $10,000.00
8/31/2013 9,931.57 9,948.88
9/30/2013 9,971.49 10,043.07
10/31/2013 10,143.69 10,124.27
11/30/2013 10,101.91 10,086.36
12/31/2013 10,189.94 10,029.36
1/31/2014 10,369.42 10,177.55
2/28/2014 10,557.97 10,231.66
3/31/2014 10,569.36 10,214.23
4/30/2014 10,677.02 10,300.43
5/31/2014 10,810.78 10,417.70
6/30/2014 11,030.34 10,423.09
[END CHART]
Data from 7/31/13 to 6/30/14.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Flexible Income Fund Adviser Shares to the benchmark listed above (see page
6 for benchmark definition).
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees or expenses.
*The performance of the Barclays U.S. Aggregate Bond Index is calculated from
the end of the month, July 31, 2013, while the Adviser Shares' inception date is
July 12, 2013. There may be a slight variation of performance numbers because of
this difference.
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10 | USAA FLEXIBLE INCOME FUND
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o TOP 10 HOLDINGS* o
AS OF 6/30/14
(% of Net Assets)
COUPON RATE % % OF NET ASSETS
--------------------------------
St. Barbara Ltd. ............................ 8.88% 2.9%
Allied Nevada Gold Corp. .................... 8.75% 1.9%
Southern Union Co. .......................... 3.24% 1.9%
Merrill Lynch Mortgage Trust ................ 6.03% 1.8%
Trans-Canada Pipelines Ltd. ................. 6.35% 1.8%
Forestar USA Real Estate Group, Inc. ........ 8.50% 1.8%
Toys R Us Property Co. II, LLC .............. 8.50% 1.8%
PPL Capital Funding, Inc. ................... 6.70% 1.8%
Glen Meadow Pass-Through Trust .............. 6.51% 1.7%
Wachovia Bank Commercial Mortgage Trust ..... 5.37% 1.7%
You will find a complete list of securities that the Fund owns on pages 13-18.
* Excludes money market instruments.
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INVESTMENT OVERVIEW | 11
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o ASSET ALLOCATION* - 6/30/14 o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 40.5%
COMMON STOCKS 17.9%
COMMERCIAL MORTGAGE SECURITIES 15.1%
MONEY MARKET INSTRUMENTS 9.9%
EURODOLLAR AND YANKEE OBLIGATIONS 8.5%
PREFERRED STOCKS 3.6%
COLLATERALIZED MORTGAGE OBLIGATIONS 2.1%
U.S. TREASURY SECURITIES 0.6%
Percentages are of the net assets of the Fund and may not equal 100%.
* Excludes Futures
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12 | USAA FLEXIBLE INCOME FUND
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PORTFOLIO OF INVESTMENTS
June 30, 2014 (unaudited)
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (40.5%)
CONSUMER DISCRETIONARY (1.8%)
----------------------------
SPECIALTY STORES (1.8%)
$ 3,000 Toys R Us Property Co. II, LLC(a) 8.50% 12/01/2017 $ 3,079
--------
ENERGY (10.5%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (2.3%)
2,000 Fieldwood Energy, LLC(a),(b) 8.38 9/30/2020 2,066
2,000 Quicksilver Resources, Inc.(b) 7.00 6/21/2019 1,959
--------
4,025
--------
OIL & GAS STORAGE & TRANSPORTATION (8.2%)
2,700 DCP Midstream, LLC(c) 5.85 5/21/2043 2,579
650 Enbridge Energy Partners, LP 8.05 10/01/2037 736
2,925 Energy Transfer Partners, LP 3.24(d) 11/01/2066 2,717
2,000 Enterprise Products Operating, LLC 7.00 6/01/2067 2,132
2,500 NuStar Logistics, LP 7.63 1/15/2043 2,735
4,000 Southern Union Co.(a) 3.24(d) 11/01/2066 3,316
--------
14,215
--------
Total Energy 18,240
--------
FINANCIALS (16.0%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (1.2%)
2,000 Walter Investment Management Corp.(c) 7.88 12/15/2021 2,100
--------
LIFE & HEALTH INSURANCE (5.0%)
2,333 Delphi Financial Group, Inc. 7.38 5/15/2037 2,292
1,000 Lincoln National Corp. 7.00 5/17/2066 1,045
2,800 Lincoln National Corp. 6.05 4/20/2067 2,845
2,481 StanCorp Financial Group, Inc. 6.90 6/01/2067 2,599
--------
8,781
--------
MULTI-LINE INSURANCE (2.9%)
3,000 Glen Meadow Pass-Through Trust(a),(c) 6.51 2/12/2067 2,985
2,000 Nationwide Mutual Insurance Co.(c) 5.81 12/15/2024 2,050
--------
5,035
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.5%)
3,000 JPMorgan Chase Capital XXI(a) 1.17(d) 2/02/2037 2,534
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(g) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (3.0%)
$ 2,000 AmTrust Financial Services, Inc.(a),(c) 6.13% 8/15/2023 $ 2,030
130 Ironshore Holdings, Inc.(c) 8.50 5/15/2020 155
3,200 Oil Insurance Ltd.(c) 3.22(d) -(e) 2,976
--------
5,161
--------
REAL ESTATE DEVELOPMENT (1.8%)
3,000 Forestar USA Real Estate Group, Inc.(c) 8.50 6/01/2022 3,120
--------
REGIONAL BANKS (0.6%)
1,000 Citizens Funding Trust I 7.50 9/15/2066 1,023
--------
Total Financials 27,754
--------
INDUSTRIALS (1.4%)
----------------
TRUCKING (1.4%)
2,289 YRC Worldwide, Inc.(b) 8.00 2/12/2019 2,337
--------
MATERIALS (1.9%)
---------------
GOLD (1.9%)
CAD 4,750 Allied Nevada Gold Corp.(c),(j) 8.75 2/01/2019 3,316
--------
TELECOMMUNICATION SERVICES (1.5%)
--------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.5%)
3,000 NII International Telecom SCA(c) 7.88 8/15/2019 2,618
--------
UTILITIES (7.4%)
---------------
ELECTRIC UTILITIES (3.9%)
1,800 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 1,776
1,831 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 2,020
3,000 PPL Capital Funding, Inc. 6.70 3/30/2067 3,062
--------
6,858
--------
MULTI-UTILITIES (3.5%)
2,000 Dominion Resources, Inc. 2.53(d) 9/30/2066 1,861
2,005 Integrys Energy Group, Inc. 6.11 12/01/2066 2,061
2,027 Puget Sound Energy, Inc. 6.97 6/01/2067 2,121
--------
6,043
--------
Total Utilities 12,901
--------
Total Corporate Obligations (cost: $67,776) 70,245
--------
EURODOLLAR AND YANKEE OBLIGATIONS (8.5%)
ENERGY (1.8%)
------------
OIL & GAS STORAGE & TRANSPORTATION (1.8%)
3,000 Trans-Canada Pipelines Ltd.(a) 6.35 5/15/2067 3,131
--------
================================================================================
14 | USAA FLEXIBLE INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
FINANCIALS (2.5%)
----------------
LIFE & HEALTH INSURANCE (1.2%)
$ 2,000 Great-West Life & Annuity Insurance
Capital, LP(c) 7.15% 5/16/2046 $ 2,080
--------
PROPERTY & CASUALTY INSURANCE (1.3%)
2,190 QBE Capital Funding III Ltd.(c) 7.25 5/24/2041 2,363
--------
Total Financials 4,443
--------
MATERIALS (2.9%)
---------------
GOLD (2.9%)
6,000 St. Barbara Ltd.(c) 8.88 4/15/2018 4,995
--------
UTILITIES (1.3%)
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (1.3%)
2,000 AES Gener S.A.(c) 8.38 12/18/2073 2,255
--------
Total Eurodollar and Yankee Obligations
(cost: $14,749) 14,824
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.1%)
932 Sequoia Mortgage Trust 1.05(d) 9/20/2033 814
2,146 Structured Asset Mortgage Investments, Inc. 0.66(d) 7/19/2035 1,907
993 Wells Fargo Mortgage Backed Securities Trust 4.98(d) 4/25/2035 964
--------
Total Collateralized Mortgage Obligations
(cost: $3,703) 3,685
--------
COMMERCIAL MORTGAGE SECURITIES (15.1%)
COMMERCIAL MORTGAGE-BACKED SECURITIES (15.1%)
2,700 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 2,815
2,000 Banc of America Commercial Mortgage, Inc. 6.46 2/10/2051 2,159
2,000 Bear Stearns Commercial Mortgage
Securities, Inc.(c) 5.66 9/11/2041 1,974
2,770 CD Commercial Mortgage Trust 5.69 10/15/2048 2,689
2,000 Citigroup Commercial Mortgage Trust 6.34 12/10/2049 2,062
2,000 GE Capital Commercial Mortgage Corp. 5.49 11/10/2045 2,042
1,000 GS Mortgage Securities Corp. II 5.75 4/10/2038 1,043
28,796 GS Mortgage Securities Trust,
acquired 1/02/2014; cost $1,173(c),(f) 1.25 3/10/2044 1,016
35,619 JPMBB Commercial Mortgage Securities Trust,
acquired 4/30/2014; cost $2,325(f) 1.45 4/15/2047 2,296
3,000 Merrill Lynch Mortgage Trust 6.03 6/12/2050 3,165
2,000 Morgan Stanley Capital I Trust 5.68 3/12/2044 2,021
3,053 Wachovia Bank Commercial Mortgage Trust 5.37 11/15/2048 2,985
--------
26,267
--------
Total Commercial Mortgage Securities (cost: $25,777) 26,267
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
----------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.6%)
NOTES (0.6%)
$ 1,000 2.50%, 8/15/2023(i) (cost: $991) $ 1,006
--------
----------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------
EQUITY SECURITIES (21.5%)
COMMON STOCKS (17.9%)
CONSUMER DISCRETIONARY (1.7%)
----------------------------
AUTOMOBILE MANUFACTURERS (1.7%)
80,000 General Motors Co.(a) 2,904
--------
ENERGY (2.3%)
------------
INTEGRATED OIL & GAS (1.0%)
200,000 Gazprom OAO ADR* 1,743
--------
OIL & GAS EXPLORATION & PRODUCTION (1.3%)
100,000 Approach Resources, Inc.* 2,273
--------
Total Energy 4,016
--------
FINANCIALS (8.6%)
----------------
ASSET MANAGEMENT & CUSTODY BANKS (4.8%)
250,000 Apollo Investment Corp. 2,152
130,000 Ares Capital Corp. 2,322
70,000 KKR & Co. LP 1,703
200,000 Prospect Capital Corp. 2,125
--------
8,302
--------
REITs - MORTGAGE (2.5%)
200,000 Annaly Capital Management, Inc.(a) 2,286
100,000 Hatteras Financial Corp.(a) 1,981
--------
4,267
--------
REITs - SPECIALIZED (1.3%)
50,000 Plum Creek Timber Co., Inc. 2,255
--------
Total Financials 14,824
--------
MATERIALS (5.3%)
---------------
PRECIOUS METALS & MINERALS (5.3%)
121,500 Alamos Gold, Inc. 1,232
103,000 Goldcorp, Inc.(a) 2,875
================================================================================
16 | USAA FLEXIBLE INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------
600,000 Kinross Gold Corp.* $ 2,484
104,000 Newmont Mining Corp.(a) 2,646
--------
9,327
--------
Total Materials 9,327
--------
Total Common Stocks (cost: $29,607) 30,981
--------
PREFERRED STOCKS (3.6%)
CONSUMER STAPLES (1.2%)
----------------------
AGRICULTURAL PRODUCTS (1.2%)
20,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(c) 2,155
--------
FINANCIALS (2.4%)
----------------
REITs - MORTGAGE (1.4%)
100,000 Arbor Realty Trust, Inc., 7.38%* 2,501
--------
THRIFTS & MORTGAGE FINANCE (1.0%)
150,000 Freddie Mac, 8.38%, perpetual* 1,644
--------
Total Financials 4,145
--------
Total Preferred Stocks (cost: $5,310) 6,300
--------
Total Equity Securities (cost: $34,917) 37,281
--------
MONEY MARKET INSTRUMENTS (9.9%)
MONEY MARKET FUNDS (9.9%)
17,150,017 State Street Institutional Liquid Reserve Fund, 0.06%(h) 17,150
--------
Total Money Market Instruments (cost: $17,150) 17,150
--------
TOTAL INVESTMENTS (COST: $165,063) $170,458
========
--------------------------------------------------------------------------------------------------------
NUMBER OF CONTRACT UNREALIZED
CONTRACTS EXPIRATION VALUE (DEPRECIATION)
LONG/(SHORT) DATE (000) (000)
--------------------------------------------------------------------------------------------------------
FUTURES (15.0%)
(60) 10 Year SGX Mini JGB Futures 09/09/2014 $ (8,626) $ (16)
(70) Japanese Yen Currency Futures 09/15/2014 (8,645) (59)
(73) Russell 2000 Mini Futures 09/19/2014 (8,689) (254)
-------- -------
TOTAL FUTURES $(25,960) $ (329)
======== =======
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
($ 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 $ - $ 70,245 $- $ 70,245
Eurodollar and Yankee Obligations - 14,824 - 14,824
Collateralized Mortgage Obligations - 3,685 - 3,685
Commercial Mortgage Securities - 26,267 - 26,267
U.S. Treasury Securities 1,006 - - 1,006
Equity Securities:
Common Stocks 30,981 - - 30,981
Preferred Stocks - 6,300 - 6,300
Money Market Instruments:
Money Market Funds 17,150 - - 17,150
--------------------------------------------------------------------------------------------------------
Total $ 49,137 $ 121,321 $- $ 170,458
--------------------------------------------------------------------------------------------------------
LIABILITIES TOTAL
--------------------------------------------------------------------------------------------------------
Futures (1) $ (329) $ - $- $ (329)
--------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/depreciation on the
investment.
For the period of January 1, 2014, through June 30, 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.
================================================================================
18 | USAA FLEXIBLE INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 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 13.3% of net assets at June
30, 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
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.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities but such maturities can be difficult to predict because of the
effect of prepayments.
o PORTFOLIO 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 Dollar
JGB Japanese Government Bond
REIT Real estate investment trust
SGX Singapore Exchange
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value
of open futures contracts at June 30, 2014.
(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 June 30, 2014. The
weighted
================================================================================
20 | USAA FLEXIBLE INCOME FUND
================================================================================
average life of the loan is likely to be shorter than the stated final
maturity date due to mandatory or optional prepayments. The loan is
deemed liquid by USAA Asset Management Company (the Manager) under
liquidity guidelines approved by the USAA Mutual Funds Trust's Board
of Trustees (the Board), unless otherwise noted as illiquid.
(c) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(d) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at June
30, 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 June 30, 2014, was $3,312,000, which represented 1.9% of the Fund's
net assets.
(g) In U.S. dollars unless otherwise noted.
(h) Rate represents the money market fund annualized seven-day yield at
June 30, 2014.
(i) Securities with a value of $624,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(j) Security was fair valued at June 30, 2014, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $3,316,000, which represented 1.9% of
net assets of the Fund.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $165,063) $170,458
Cash 541
Receivables:
Capital shares sold 300
USAA Asset Management Company (Note 6C) 3
Dividends and interest 1,143
Securities sold 2,545
--------
Total assets 174,990
--------
LIABILITIES
Payables:
Securities purchased 849
Capital shares redeemed 111
Variation margin on futures contracts 355
Accrued management fees 69
Accrued transfer agent's fees 2
Other accrued expenses and payables 25
--------
Total liabilities 1,411
--------
Net assets applicable to capital shares outstanding $173,579
========
NET ASSETS CONSIST OF:
Paid-in capital $164,452
Accumulated undistributed net investment income 248
Accumulated net realized gain on investments and futures transactions 3,813
Net unrealized appreciation of investments and futures contracts 5,066
--------
Net assets applicable to capital shares outstanding $173,579
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $59,008/5,567 shares outstanding) $ 10.60
========
Institutional Shares (net assets of $109,135/10,294 shares outstanding) $ 10.60
========
Adviser Shares (net assets of $5,436/513 shares outstanding) $ 10.60
========
See accompanying notes to financial statements.
================================================================================
22 | USAA FLEXIBLE INCOME FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $5) $ 894
Interest 3,321
--------
Total income 4,215
--------
EXPENSES
Management fees 374
Administration and servicing fees:
Fund Shares 32
Institutional Shares 51
Adviser Shares 4
Transfer agent's fees:
Fund Shares 13
Institutional Shares 51
Distribution and service fees (Note 6E):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 13
Institutional Shares 28
Adviser Shares 1
Postage:
Fund Shares 2
Shareholder reporting fees:
Fund Shares 5
Trustees'fees 11
Registration fees:
Fund Shares 21
Institutional Shares 21
Adviser Shares 21
Professional fees 42
Other 5
--------
Total expenses 701
--------
Expenses reimbursed:
Institutional Shares (40)
Adviser Shares (16)
--------
Net expenses 645
--------
NET INVESTMENT INCOME 3,570
--------
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments 3,810
Futures transactions (679)
Change in net unrealized appreciation/depreciation of:
Investments 5,872
Foreign currency translations (1)
Futures contracts (367)
--------
Net realized and unrealized gain 8,635
--------
Increase in net assets resulting from operations $ 12,205
========
See accompanying notes to financial statements.
================================================================================
24 | USAA FLEXIBLE INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended June 30, 2014 (unaudited), and period ended
December 31, 2013
--------------------------------------------------------------------------------
6/30/2014 12/31/2013*
--------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,570 $ 2,393
Net realized gain on investments 3,810 1,154
Net realized loss on futures transactions (679) (112)
Change in net unrealized appreciation/depreciation of:
Investments 5,872 (476)
Foreign currency translations (1) 1
Futures contracts (367) 37
---------------------------
Increase in net assets resulting from operations 12,205 2,997
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (961) (540)
Institutional Shares (2,239) (1,753)
Adviser Shares (105) (84)
---------------------------
Total distributions of net investment income (3,305) (2,377)
---------------------------
Net realized gains:
Fund Shares - (92)
Institutional Shares - (286)
Adviser Shares - (15)
---------------------------
Total distributions of net realized gains - (393)
---------------------------
Distributions to shareholders (3,305) (2,770)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 24,831 31,647
Institutional Shares 5,980 96,859
Adviser Shares 135 5,000
---------------------------
Total net increase in net assets from
capital share transactions 30,946 133,506
---------------------------
Net increase in net assets 39,846 133,733
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
NET ASSETS
Beginning of period 133,733 -
--------------------------
End of period $173,579 $133,733
==========================
Accumulated undistributed net investment income (loss):
End of period $ 248 $ (17)
==========================
*Fund commenced operations on July 12, 2013.
See accompanying notes to financial statements.
================================================================================
26 | USAA FLEXIBLE INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 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
Flexible Income Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is to seek total return through a
combination of income and capital appreciation.
The Fund consists of three classes of shares: Flexible Income Fund Shares (Fund
Shares), Flexible Income Fund Institutional Shares (Institutional Shares), and
Flexible 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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. 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 bid and
================================================================================
28 | USAA FLEXIBLE INCOME FUND
================================================================================
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. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In most
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sales or official closing prices
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not be reflected in the value of the Fund's foreign
securities. However, the Manager, an affiliate of the Fund, and the
Fund's subadviser, if applicable, will monitor for events that would
materially affect the value of the Fund's foreign securities. The Fund's
subadviser has agreed to notify the Manager of significant events it
identifies that would materially affect the value of the Fund's foreign
securities. If the Manager determines that a particular event would
materially affect the value of the Fund's foreign securities, then the
Manager, under valuation
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
procedures approved by the Board, will consider such available
information that it deems relevant to determine a fair value for the
affected foreign securities. In addition, the Fund may use information
from an external vendor or other sources to adjust the foreign market
closing prices of foreign equity securities to reflect what the Fund
believes to be the fair value of the securities as of the close of the
NYSE. Fair valuation of affected foreign equity securities may occur
frequently based on an assessment that events that occur on a fairly
regular basis (such as U.S. market movements) are significant.
4. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end of
each business day.
5. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
6. Repurchase agreements are valued at cost, which approximates market
value.
7. Futures are valued based upon the last sale price at the close of market
on the principal exchange on which they are traded.
8. 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 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,
================================================================================
30 | USAA FLEXIBLE INCOME FUND
================================================================================
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 preferred stocks, which are valued based on methods discussed in
Note 1A2. Additionally, bonds, except U.S. Treasury securities, are valued
based on methods discussed in Note 1A1.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, options on futures contracts, and forward
currency contracts, under circumstances in which such instruments are
expected by the portfolio manager to aid in achieving the Fund's
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
investment objective. The Fund also may use derivatives in circumstances
where the portfolio manager believes they offer an economical means of
gaining exposure to a particular asset class or securities market or to
keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the market. With exchange-listed futures contracts
and options, counterparty credit risk to the Fund is limited to the
exchange's clearinghouse which, as counterparty to all exchange-traded
futures contracts and options, guarantees the transactions against default
from the actual counterparty to the trade. The Fund's derivative agreements
held at June 30, 2014, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is
required to deposit with the broker in either cash or securities an initial
margin in an amount equal to a certain percentage of the contract amount.
Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Upon entering into
such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
================================================================================
32 | USAA FLEXIBLE INCOME FUND
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2014* (IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
----------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
----------------------------------------------------------------------------------------------
Interest rate contracts $- Net unrealized $ 16**
depreciation of
investments and
futures contracts
Equity contracts Net unrealized 254**
depreciation of
investments and
futures contracts
Foreign exchange contracts Net unrealized 59**
depreciation of
investments and
futures contracts
----------------------------------------------------------------------------------------------
Total $- $329
----------------------------------------------------------------------------------------------
* For open derivative instruments as of June 30, 2014, see the portfolio
of investments, which also is indicative of activity for the period
ended June 30, 2014.
** Includes cumulative depreciation of futures as reported on the portfolio
of investments. Only current day's variation margin is reported within
the statement of assets and liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2014 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------------------------------------
Interest rate contracts Net realized and $ (149) $ (53)
unrealized gain (loss)
on futures transactions/
Change in unrealized
appreciation (depreciation)
of futures contracts
Equity contracts Net realized and (530) (255)
unrealized gain (loss)
on futures transactions/
Change in unrealized
appreciation (depreciation)
of futures contracts
Foreign exchange contracts Net realized and - (59)
unrealized gain (loss)
on futures transactions/
Change in unrealized
appreciation (depreciation)
of futures contracts
------------------------------------------------------------------------------------------------------------
Total $ (679) $(367)
------------------------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
================================================================================
34 | USAA FLEXIBLE INCOME FUND
================================================================================
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or
loss from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can
take place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than
the amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended June 30, 2014, there were no custodian and other bank credits.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to
================================================================================
36 | USAA FLEXIBLE INCOME FUND
================================================================================
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 June 30, 2014, the Fund paid CAPCO facility fees
of less than $500, which represents 0.2% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 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 December 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.
The 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 loss carryforwards.
As a result, pre-enactment capital loss carryforwards may be more likely to
expire unused.
At December 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 June 30, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
the Fund's tax return filings generally remains 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 June 30, 2014, were
$94,390,000 and $79,034,000, respectively.
As of June 30, 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 June 30,
2014, for federal income tax purposes, were $6,352,000 and $957,000,
respectively, resulting in net unrealized appreciation of $5,395,000.
(5) CAPITAL SHARE TRANSACTIONS
At June 30, 2014, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
================================================================================
38 | USAA FLEXIBLE 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 PERIOD ENDED
JUNE 30, 2014 DECEMBER 31, 2013*
-------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------
FUND SHARES:
Shares sold 2,642 $ 27,334 3,282 $32,790
Shares issued from
reinvested dividends 37 384 14 137
Shares redeemed (279) (2,887) (129) (1,280)
-------------------------------------------------
Net increase from capital
share transactions 2,400 $ 24,831 3,167 $31,647
=================================================
INSTITUTIONAL SHARES:
Shares sold 379 $ 3,948 9,524 $94,926
Shares issued from
reinvested dividends 206 2,126 195 1,939
Shares redeemed (9) (94) (1) (6)
-------------------------------------------------
Net increase from capital
share transactions 576 $ 5,980 9,718 $96,859
=================================================
ADVISER SHARES:
Shares sold 14 $ 145 500 $ 5,000
Shares issued from
reinvested dividends -** 1 - -
Shares redeemed (1) (11) (-)** (-)**
-------------------------------------------------
Net increase from capital
share transactions 13 $ 135 500 $ 5,000
=================================================
* Fund commenced operations on July 12, 2013
** Represents less than 500 shares or $500.
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund
and for directly managing the day-to-day investment
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
of the Fund's assets, subject to the authority of and supervision by the
Board. The Manager also is authorized to select (with approval of the Board
and without shareholder approval) one or more subadvisers to manage the
actual day-to-day investment of a portion of the Fund's assets. For the
six-month period ended June 30, 2014, there are no subadvisers.
The Fund's management fees are accrued daily and paid monthly at an
annualized rate of 0.50% of the Fund's average net assets for the fiscal
year. For the six-month period ended June 30, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $374,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of 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 June 30, 2014, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $32,000, $51,000, and $4,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended June 30, 2014, the Fund reimbursed the Manager
$2,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
C. EXPENSE LIMITATION - The Manager agreed, through May 1, 2015, to limit the
total annual operating expenses of the Fund Shares, Institutional Shares,
and Adviser Shares to 1.00%, 0.80%, and 1.25%, respectively, of their
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and will reimburse the Fund Shares,
Institutional Shares, and the Adviser Shares for all expenses in
================================================================================
40 | USAA FLEXIBLE INCOME FUND
================================================================================
excess of those amounts. This expense limitation arrangement may not be
changed or terminated through May 1, 2015, 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 June 30, 2014, the Fund incurred
reimbursable expenses from the Manager for the Institutional Shares and the
Adviser Shares of $40,000 and $16,000, respectively, of which $3,000 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 June 30, 2014, the Fund Shares, Institutional Shares and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of $13,000,
$51,000, 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 June
30, 2014, the Adviser Shares incurred distribution and service (12b-1) fees
of $6,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 June 30, 2014, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
USAA Target Retirement Income Fund 7.8
USAA Target Retirement 2020 Fund 12.4
USAA Target Retirement 2030 Fund 17.7
USAA Target Retirement 2040 Fund 14.9
USAA Target Retirement 2050 Fund 6.9
USAA Target Retirement 2060 Fund 0.1
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At June 30, 2014,
USAA and its affiliates owned 2,504,000 Fund Shares, 501,000 Institutional
Shares, and 500,000 Adviser Shares, which represent 45.0% of the Fund Shares,
4.9% of the Institutional Shares and 97.5% of the Adviser Shares and 21.4% of
the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
42 | USAA FLEXIBLE INCOME FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
-------------------------------
2014 2013***
-------------------------------
Net asset value at beginning of period $ 9.99 $ 10.00
----------------------------
Income (loss) from investment operations:
Net investment income(a) .24 .22
Net realized and unrealized gain (loss)(a) .59 (.02)
----------------------------
Total from investment operations(a) .83 .20
----------------------------
Less distributions from:
Net investment income (.22) (.18)
Realized capital gains - (.03)
----------------------------
Total distributions (.22) (.21)
----------------------------
Net asset value at end of period $ 10.60 $ 9.99
============================
Total return (%)* 8.37 2.02
Net assets at end of period (000) $ 59,008 $31,636
Ratios to average net assets:**
Expenses (%)(c) .96 1.00(b)
Expenses, excluding reimbursements (%)(c) .96 1.00(b)
Net investment income (%)(c) 4.70 4.10
Portfolio turnover (%) 55 39
* 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 June 30, 2014, average net assets were
$43,473,000.
*** Fund Shares commenced operations on July 12, 2013.
(a) Calculated using average shares. For the six-month period ended
June 30, 2014, average shares were 4,230,000.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
---------------------------------
2014 2013***
---------------------------------
Net asset value at beginning of period $ 9.99 $ 10.00
----------------------------
Income (loss) from investment operations:
Net investment income(a) .25 .24
Net realized and unrealized gain (loss)(a) .58 (.03)
----------------------------
Total from investment operations(a) .83 .21
----------------------------
Less distributions from:
Net investment income (.22) (.19)
Realized capital gains - (.03)
----------------------------
Total distributions (.22) (.22)
----------------------------
Net asset value at end of period $ 10.60 $ 9.99
============================
Total return (%)* 8.44 2.09
Net assets at end of period (000) $109,135 $97,101
Ratios to average net assets:**
Expenses (%)(c) .80 .80(b)
Expenses, excluding reimbursements (%)(c) .88 .88(b)
Net investment income (%)(c) 4.81 4.65
Portfolio turnover (%) 55 39
* 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 June 30, 2014, average net assets were
$102,384,000.
*** Institutional Shares commenced operations on July 12, 2013.
(a) Calculated using average shares. For the six-month period ended
June 30, 2014, average shares were 9,945,000.
(b) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional
Shares' expenses paid indirectly decreased the expense ratios by less than
0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
44 | USAA FLEXIBLE INCOME FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
----------------------------------
2014 2013***
----------------------------------
Net asset value at beginning of period $ 9.99 $ 10.00
----------------------------
Income (loss) from investment operations:
Net investment income(a) .22 .20
Net realized and unrealized gain (loss)(a) .60 (.01)
----------------------------
Total from investment operations(a) .82 .19
----------------------------
Less distributions from:
Net investment income (.21) (.17)
Realized capital gains - (.03)
----------------------------
Total distributions (.21) (.20)
----------------------------
Net asset value at end of period $ 10.60 $ 9.99
============================
Total return (%)* 8.25 1.90
Net assets at end of period (000) $ 5,436 $ 4,996
Ratios to average net assets:**
Expenses (%)(c) 1.25 1.25(b)
Expenses, excluding reimbursements (%)(c) 1.88 1.54(b)
Net investment income (%)(c) 4.36 3.76
Portfolio turnover (%) 55 39
* 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 June 30, 2014, average net assets were
$5,199,000.
*** Adviser Shares commenced operations on July 12, 2013.
(a) Calculated using average shares. For the six-month period ended
June 30, 2014, average shares were 504,000.
(b) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
EXPENSE EXAMPLE
June 30, 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 January 1, 2014, through June
30, 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 the Fund's actual
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46 | USAA FLEXIBLE INCOME FUND
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2014 -
JANUARY 1, 2014 JUNE 30, 2014 JUNE 30, 2014
------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,083.73 $4.96
Hypothetical
(5% return before expenses) 1,000.00 1,020.03 4.81
INSTITUTIONAL SHARES
Actual 1,000.00 1,084.38 4.13
Hypothetical
(5% return before expenses) 1,000.00 1,020.83 4.01
ADVISER SHARES
Actual 1,000.00 1,082.47 6.45
Hypothetical
(5% return before expenses) 1,000.00 1,018.60 6.26
* Expenses are equal to the annualized expense ratio of 0.96% for Fund Shares,
0.80% for Institutional Shares, and 1.25% for Adviser Shares, which are net
of any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 181 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 8.37% for Fund Shares, 8.44% for Institutional
Shares, and 8.25% for Adviser Shares for the six-month period of January 1,
2014, through June 30, 2014.
================================================================================
EXPENSE EXAMPLE | 47
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 30,
2014, the Board, including the Trustees who are not "interested persons" of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund. In advance of the meeting, the Trustees received and considered a variety
of information relating to the Advisory Agreement and the Manager, and were
given the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with their counsel at which no representatives of
management were present. At each regularly scheduled meeting of the Board and
its committees, the Board receives and reviews, among other things, information
concerning the Fund's performance and related services provided by the Manager.
At the meeting at which the renewal of the Advisory Agreement is considered,
particular focus is given to information concerning Fund performance,
comparability of fees and total expenses, and profitability. However, the Board
noted that the evaluation process with respect to the Manager is an ongoing
================================================================================
48 | USAA FLEXIBLE INCOME FUND
================================================================================
one. In this regard, the Board's and its committees' consideration of the
Advisory Agreement included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust. The Board
considered the Manager's management style and the performance of the Manager's
duties under the Advisory Agreement. The Board considered the level and depth
of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's role
in coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
under the Advisory Agreement. In reviewing the Advisory Agreement, the Board
focused on the experience, resources, and strengths of the Manager and its
affiliates in managing the Fund, as well as other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including the Manager's oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the expense group) and
(ii) a larger group of investment companies that includes all front-end load and
no-load retail open-end investment companies in the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the expense universe). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any reimbursements - was above the median of its expense
group and below the median of its expense universe. The data indicated that the
Fund's total expenses, after reimbursements, were below the median of its
expense group and above the median of its expense universe. The Board took into
account the various services provided to the Fund by the Manager and its
affiliates, including the high quality of services received by the Fund from the
Manager. The Board also noted the level and method of computing the management
fee. The Board also took into account management's discussion of the Fund's
expenses and noted the Manager's current undertakings to maintain expense
limitations for the Fund.
================================================================================
50 | USAA FLEXIBLE INCOME FUND
================================================================================
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
performance universe). The Fund's performance universe consisted of the Fund and
all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was lower than the average of its performance universe and its
Lipper index for the five-month period ended December 31, 2013.
The Board also noted that the Fund's percentile performance ranking was in the
top 45% of its performance universe for the five-month period ended December 31,
2013. The Board took into account that the Fund commenced operations on July 12,
2013, and therefore, has a limited performance history.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its management fees to the Fund. The
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. In reviewing the overall profitability of the management
fee to the Manager, the Board also considered the fact that affiliates provide
shareholder servicing and administrative services to the Fund for which they
receive compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
profits in exchange for the level of services it provides to the Fund and the
entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the fee waivers
and expense reimbursements arrangements by the Manager. The Board also
considered the effect of Fund's growth and size on its performance and fees,
noting that the Fund may realize other economies of scale if assets increase
proportionately more than some expenses. The Board determined that the current
investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices in view of the Fund's limited performance
history; (iv) the Fund's advisory expenses are reasonable in relation to those
of similar funds and to the services to be provided by the Manager; and (v) the
Manager's and its affiliates' level of profitability from their relationship
with the Fund is reasonable. Based on its conclusions, the Board determined that
continuation of the Advisory Agreement would be in the best interests of the
Fund and its shareholders.
================================================================================
52 | USAA FLEXIBLE INCOME FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9453
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9453
--------------------------------------------------------------------------------
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 --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on usaa.com select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
97757-0814 (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 June 30, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 8/27/2014
------------------------------
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: 8/27/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 8/27/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.