UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: JULY 31
Date of reporting period: JANUARY 31, 2015
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2015
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME FUND]
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SEMIANNUAL REPORT
USAA INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
JANUARY 31, 2015
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PRESIDENT'S MESSAGE
"...WE BELIEVE THAT IT IS IMPORTANT FOR INVESTORS
TO FOCUS LESS ON WHAT'S HAPPENING DAY-TO-DAY IN [PHOTO OF BROOKS ENGLEHARDT]
THE FINANCIAL MARKETS AND MORE ON THEIR OWN
FINANCIAL WELL-BEING."
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MARCH 2015
The United States was the place to be during the six-month reporting period
ended January 31, 2015. Those investors who concentrated their investments in
U.S. stocks and/or longer-term U.S. Treasury securities were fortuitously
positioned, as these asset classes generally outperformed all other market
segments. U.S. equities recorded strong gains, surpassing developed equities
markets and emerging markets equities, both of which declined during the
reporting period. Among U.S. stocks, growth-oriented names outperformed their
value counterparts, while mid-cap stocks outpaced small-cap and large-cap
stocks. Meanwhile, yields on longer-term U.S. Treasuries trended down, driving
up bond prices. (Bond prices move in the opposite direction of interest rates.)
Though yields were near historic lows during the period, they still remained the
highest among developed nations. U.S. Treasuries also benefited from their
perceived status as high-quality, safe-haven investments.
What circumstances produced these results? At USAA Investments, we believe a
series of interconnected factors were at work, all of which were still in place
at the end of the reporting period. These factors include:
o SLOWING INTERNATIONAL GROWTH. U.S. economic conditions improved during the
reporting period, but most other countries struggled with economic weakness.
The economy of continental Europe was stagnant, with some countries falling
into recession, while Japan's government continued to attempt to jumpstart
its sluggish economy. China's economy weakened, growing at its slowest pace
in more than 24 years. At the same time, a sharp drop in commodities and
energy prices weighed on emerging markets economies. Although economic
divergence is likely to continue for a time, we do not believe it is likely
to endure over the long term. We believe that eventually, either the global
economy will rebound or else global economic weakness will dampen U.S.
economic growth.
o DIVERGENT MONETARY POLICIES. Reflecting the disparity between international
and U.S. economic growth, the monetary policies of the world's central banks
diverged. In the United States, the Federal Reserve ended its quantitative
easing asset purchases and signaled its willingness--should the data support
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it--to raise short-term interest rates. Elsewhere, central banks continued to
cut rates and increase monetary stimulus to support their faltering
economies.
o STRONGER U.S. DOLLAR. The divergence in monetary policies, along with
differing expectations about U.S. and international economic growth, had a
major impact on currencies. During the reporting period, the U.S. dollar
strengthened, appreciating significantly compared to most other global
currencies. In response, some countries devalued their currencies as an
attempt to make their exports cheaper to foreign buyers, and therefore to
boost economic growth.
o DECREASING INFLATION. Slowing international growth, divergent global monetary
policies, and currency movements combined to reduce inflation expectations.
The drop in energy prices was a prime example. Oil prices fell nearly 50%
during 2014. Lower oil prices do have some advantages--automobile owners have
more money to spend on other things--but extended periods of low inflation
can lead to economic stagnation, cause consumers to postpone spending, and
put pressure on corporate profit margins.
In this economic environment we believe that it is important for investors to
focus less on what's happening day-to-day in the financial markets and more on
their own financial well-being. As I write to you, tax season is upon us. You
may be preparing to make contributions to your IRA. You may also consider
setting near term goals, such as reviewing your investment strategy to make sure
it still suits your objectives, time horizon, and tolerance for risk. If you'd
like assistance, please call one of our financial advisors. They would be happy
to help.
Looking ahead, it is too soon to identify a dominant market trend for 2015.
However, we believe investors are likely to focus on higher asset quality as
long as the financial markets continue to grapple with the implications of
slowing global growth, divergent monetary policy, a stronger U.S. dollar, and
lower oil prices. On behalf of everyone here at USAA Investments, thank you for
your continued investment in our family of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
o Emerging Market countries are less diverse and mature than other countries and
tend to be politically less stable. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers. o Financial advice provided by USAA Financial Planning Services
Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California,
License # 0E36312), and USAA Financial Advisors, Inc., a registered broker
dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGER'S COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 18
Notes to Portfolio of Investments 49
Financial Statements 55
Notes to Financial Statements 58
EXPENSE EXAMPLE 75
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)2015, USAA. All rights reserved.
202376-0315
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FUND OBJECTIVE
THE USAA INCOME FUND (THE FUND) SEEKS MAXIMUM CURRENT INCOME WITHOUT UNDUE RISK
TO PRINCIPAL.
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TYPES OF INVESTMENTS
The Fund invests its assets primarily in U.S. dollar-denominated debt securities
that have been selected for their high yields relative to the risk involved.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGER'S COMMENTARY ON THE FUND
USAA Asset Management Company
R. MATTHEW FREUND, CFA
JULIANNE BASS, CFA
BRIAN W. SMITH, CFA, CPA
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o WHAT WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the six-month reporting period began, longer-term interest rates
trended down. They edged up during September 2014 on speculation that an
improving U.S. economy would lead the Federal Reserve (the Fed) to raise
short-term interest rates sooner than expected. In early October, rates fell
on a slide in oil prices as well as fears regarding the Ebola outbreak. The
U.S. equity market also declined, with the S&P 500(R) Index dropping almost
100 points during the month. On October 29, 2014, the Fed ended its
quantitative easing (QE) bond-buying program. Almost immediately, the Bank
of Japan announced an even larger QE program.
During November 2014, after the Fed suggested it would wait a "considerable
time" before raising short-term interest rates, stocks rebounded and
longer-term interest rates rose. Rates took a new turn downward in early
December on a further drop in oil prices, eurozone economic weakness,
slowing growth in China, and concerns about Russia. During January 2015,
longer-term rates continued to fall, with volatility increasing mid-month
after Switzerland's central bank announced it would cease its currency peg
to the euro, causing the Swiss franc to appreciate significantly versus the
euro and driving the yield on Swiss government bonds into negative
territory. Also in January, the Fed said it believed the U.S. economy was on
more solid footing, but it did not withdraw earlier statements that it would
be "patient" about raising short-term interest rates. Meanwhile, the
European Central Bank said it
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2 | USAA INCOME FUND
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o 10-YEAR U.S. TREASURY YIELDS o
[CHART OF 10-YEAR U.S. TREASURY YIELDS]
YIELD IN PERCENT
7/31/2014 2.559
8/1/2014 2.493
8/4/2014 2.483
8/5/2014 2.485
8/6/2014 2.472
8/7/2014 2.412
8/8/2014 2.421
8/11/2014 2.428
8/12/2014 2.45
8/13/2014 2.418
8/14/2014 2.402
8/15/2014 2.341
8/18/2014 2.394
8/19/2014 2.401
8/20/2014 2.427
8/21/2014 2.408
8/22/2014 2.403
8/25/2014 2.383
8/26/2014 2.397
8/27/2014 2.358
8/28/2014 2.337
8/29/2014 2.344
9/1/2014 2.344
9/2/2014 2.422
9/3/2014 2.397
9/4/2014 2.451
9/5/2014 2.46
9/8/2014 2.472
9/9/2014 2.504
9/10/2014 2.542
9/11/2014 2.551
9/12/2014 2.611
9/15/2014 2.59
9/16/2014 2.593
9/17/2014 2.621
9/18/2014 2.615
9/19/2014 2.575
9/22/2014 2.565
9/23/2014 2.528
9/24/2014 2.565
9/25/2014 2.503
9/26/2014 2.529
9/29/2014 2.478
9/30/2014 2.49
10/1/2014 2.386
10/2/2014 2.426
10/3/2014 2.435
10/6/2014 2.421
10/7/2014 2.34
10/8/2014 2.322
10/9/2014 2.314
10/10/2014 2.281
10/13/2014 2.281
10/14/2014 2.198
10/15/2014 2.137
10/16/2014 2.157
10/17/2014 2.194
10/20/2014 2.192
10/21/2014 2.223
10/22/2014 2.217
10/23/2014 2.272
10/24/2014 2.269
10/27/2014 2.261
10/28/2014 2.297
10/29/2014 2.318
10/30/2014 2.306
10/31/2014 2.336
11/3/2014 2.343
11/4/2014 2.334
11/5/2014 2.343
11/6/2014 2.387
11/7/2014 2.298
11/10/2014 2.361
11/11/2014 2.361
11/12/2014 2.372
11/13/2014 2.341
11/14/2014 2.321
11/17/2014 2.341
11/18/2014 2.316
11/19/2014 2.36
11/20/2014 2.338
11/21/2014 2.311
11/24/2014 2.307
11/25/2014 2.258
11/26/2014 2.246
11/27/2014 2.246
11/28/2014 2.165
12/1/2014 2.236
12/2/2014 2.293
12/3/2014 2.281
12/4/2014 2.235
12/5/2014 2.307
12/8/2014 2.258
12/9/2014 2.214
12/10/2014 2.165
12/11/2014 2.163
12/12/2014 2.083
12/15/2014 2.119
12/16/2014 2.06
12/17/2014 2.137
12/18/2014 2.208
12/19/2014 2.163
12/22/2014 2.159
12/23/2014 2.262
12/24/2014 2.264
12/25/2014 2.264
12/26/2014 2.251
12/29/2014 2.203
12/30/2014 2.188
12/31/2014 2.172
1/1/2015 2.172
1/2/2015 2.111
1/5/2015 2.033
1/6/2015 1.941
1/7/2015 1.969
1/8/2015 2.019
1/9/2015 1.946
1/12/2015 1.908
1/13/2015 1.901
1/14/2015 1.856
1/15/2015 1.716
1/16/2015 1.838
1/19/2015 1.838
1/20/2015 1.789
1/21/2015 1.873
1/22/2015 1.864
1/23/2015 1.798
1/26/2015 1.825
1/27/2015 1.824
1/28/2015 1.722
1/29/2015 1.752
1/30/2015 1.642
[END CHART]
Source: Bloomberg Finance L.P.
would expand its own QE program by increasing the amount and types of bonds
it can purchase.
At the end of the reporting period, market participants seemed to believe
that the Fed might raise interest rates late during the fourth quarter of
2015. However, we believe that the Fed is likely to keep rates lower for a
longer period of time as inflation remains muted and unemployment levels
have improved despite the global economic slowdown. We consider it unlikely
that the Fed will act solely out of a desire to normalize interest rates.
The U.S. Treasury yield curve flattened during the reporting period, with
longer-term maturities falling more than shorter-term maturities. The
10-year U.S. Treasury yield, which had started the period at 2.56%, fell 92
basis points to end the period at 1.64%. The 30-year U.S. Treasury yield
fell 109 basis points, while three-year and five-year U.S. Treasury yields
fell by 26 basis points and 60 basis points, respectively. The flattening
yield curve was likely attributable to eurozone economic weakness, slowing
growth in China, a decline in oil prices, and a stronger U.S. dollar, which
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MANAGER'S COMMENTARY ON THE FUND | 3
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collectively dampened inflationary expectations. Meanwhile, the U.S. stock
market generated a modest gain for the reporting period overall.
Yield spreads widened across the credit spectrum, with single A, BBB, and
high-yield spreads widening 28 basis points, 53 basis points, and 122 basis
points, respectively. Spreads (yield differentials versus U.S. Treasury
securities of comparable maturity) are generally considered an indication of
risk: the wider the spread, the greater the credit risk. Altogether, yields
on investment-grade corporate bonds fell slightly, while yields on
high-yield bonds rose.
o HOW DID THE USAA INCOME FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the six-month reporting period ended January 31, 2015,
the Fund Shares, Institutional Shares, and Adviser Shares had total returns
of 3.07%, 3.04%, and 2.97%, respectively. This compares to returns of 4.36%
for the Barclays U.S. Aggregate Bond Index (the Index) and 6.23% for the
Lipper A Rated Bond Funds Index. At the same time, the Fund Shares,
Institutional Shares, and Adviser Shares provided a one-year dividend yield
of 3.63%, 3.71%, and 3.42%, respectively, compared to 2.76% for the Lipper
Corporate Debt Funds A Rated Average.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
In keeping with our investment process, we continued to seek relative values
across the fixed-income market, selecting bonds one at a time for
Refer to page 9 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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4 | USAA INCOME FUND
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the portfolio. We relied on our team of credit analysts to help us evaluate
each potential investment individually, rather than on the basis of thematic
trends. In choosing investments, we sought to maintain a high-quality
portfolio, with a focus on securities A-rated or better. During the
reporting period, we took advantage of attractive opportunities to lengthen
the Fund's duration by purchasing high-quality, longer-maturity securities.
As always, we endeavored to maximize income--the portfolio's long-term
income distribution, not its price appreciation, generally contributes the
majority of its total return--while maintaining an acceptable level of price
volatility. We believed the Fund should be adequately compensated for any
risk taken.
The Fund was hurt during the reporting period by its shorter duration
relative to the Index and the Lipper A Rated Bond Funds Index.
Longer-duration bonds were the best-performing securities in both indices.
(Duration is a measure of a portfolio's sensitivity to interest rates.) In
addition, the portfolio's investments in high-yield bonds dampened
performance. The Fund benefited from its equity holdings, particularly
within the utilities sector, and its holdings of municipal bonds.
Throughout the reporting period, our credit analysts continue to monitor
every holding in the portfolio. We remain committed to building a portfolio
diversified among multiple asset classes and across a large number of
issuers. To minimize the Fund's exposure to potential surprises, we limit
the positions we take in any one issuer.
Thank you for your continued investment in the Fund.
Standard & Poor's 500 Index and S&P are registered trademarks. The S&P 500
Index is an unmanaged index of 500 stocks. The S&P 500 focuses on the large
cap segment of the market, covering 75% of the U.S. equities market. S&P 500
is a trademark of the McGraw-Hill Companies, Inc. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
o Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Non-investment grade securities are
considered speculative and are subject to significant credit risk. They are
sometimes referred to as junk bonds since they represent a greater risk of
default than more creditworthy investment-grade securities.
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MANAGER'S COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USAIX)
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1/31/15 7/31/14
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Net Assets $3.3 Billion $2.9 Billion
Net Asset Value Per Share $13.42 $13.28
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/15
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7/31/14 - 1/31/15* 1 YEAR 5 YEARS 10 YEARS
3.07% 6.23% 5.50% 5.41%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
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1 YEAR 5 YEARS 10 YEARS
5.89% 5.50% 5.29%
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30-DAY SEC YIELD** AS OF 1/31/15 EXPENSE RATIO AS OF 7/31/14***
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2.60% 0.59%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2014, and
is calculated as a percentage of average net assets. This expense ratio may
differ from the expense ratio disclosed in the Financial Highlights, which
excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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6 | USAA INCOME FUND
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
JANUARY 31, 2015
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 YEARS 5.41% = 4.63% + 0.78%
5 YEARS 5.50% = 4.02% + 1.48%
1 YEAR 6.23% = 3.75% + 2.48%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
usaa.com.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED
JANUARY 31, 2006 - JANUARY 31, 2015
[CHART OF TOTAL RETURN DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
1/31/2006 2.23% 4.72% -2.49%
1/31/2007 4.23% 4.89% -0.66%
1/31/2008 6.75% 5.26% 1.49%
1/31/2009 -6.65% 4.94% -11.59%
1/31/2010 22.04% 6.53% 15.51%
1/31/2011 6.56% 4.56% 2.00%
1/31/2012 7.64% 4.11% 3.53%
1/31/2013 5.87% 3.72% 2.15%
1/31/2014 1.34% 3.98% -2.64%
1/31/2015 6.23% 3.75% 2.48%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A
RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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INVESTMENT OVERVIEW | 7
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o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME FUND LIPPER CORPORATE DEBT FUNDS
SHARES A RATED AVERAGE
1/31/2006 4.79 4.12
1/31/2007 4.79 4.38
1/31/2008 4.98 4.59
1/31/2009 5.80 5.46
1/31/2010 5.16 4.34
1/31/2011 4.37 3.82
1/31/2012 3.83 3.36
1/31/2013 3.55 2.83
1/31/2014 3.96 3.21
1/31/2015 3.63 2.76
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains, if any, distributed during the previous nine months. The graph represents
data for periods ending 1/31/06 to 1/31/15.
The Lipper Corporate Debt Funds A Rated Average is the average performance level
of all corporate A rated debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
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8 | USAA INCOME FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND LIPPER A RATED BARCLAYS U.S.
SHARES BOND FUNDS INDEX AGGREGATE BOND INDEX
1/31/2005 $10,000.00 $10,000.00 $10,000.00
2/28/2005 9,957.37 9,960.39 9,940.97
3/31/2005 9,921.27 9,900.13 9,889.91
4/30/2005 10,059.60 10,031.65 10,023.76
5/31/2005 10,156.38 10,146.81 10,132.21
6/30/2005 10,203.69 10,205.59 10,187.46
7/31/2005 10,119.38 10,112.75 10,094.71
8/31/2005 10,263.36 10,249.22 10,224.12
9/30/2005 10,170.93 10,127.60 10,118.80
10/31/2005 10,096.48 10,033.99 10,038.72
11/30/2005 10,134.52 10,084.76 10,083.12
12/31/2005 10,227.15 10,182.57 10,178.99
1/31/2006 10,222.95 10,176.98 10,179.56
2/28/2006 10,260.07 10,214.65 10,213.35
3/31/2006 10,167.14 10,098.88 10,113.13
4/30/2006 10,121.48 10,058.36 10,094.80
5/31/2006 10,121.37 10,053.76 10,084.03
6/30/2006 10,142.14 10,060.74 10,105.40
7/31/2006 10,271.00 10,193.70 10,242.05
8/31/2006 10,425.34 10,356.10 10,398.84
9/30/2006 10,521.34 10,447.37 10,490.18
10/31/2006 10,597.96 10,522.44 10,559.57
11/30/2006 10,710.59 10,649.80 10,682.08
12/31/2006 10,652.89 10,579.33 10,620.08
1/31/2007 10,655.69 10,574.44 10,615.73
2/28/2007 10,828.00 10,752.43 10,779.42
3/31/2007 10,817.34 10,730.04 10,779.75
4/30/2007 10,852.17 10,786.47 10,837.88
5/31/2007 10,753.92 10,702.10 10,755.74
6/30/2007 10,710.92 10,652.63 10,723.92
7/31/2007 10,793.86 10,710.74 10,813.38
8/31/2007 10,912.52 10,792.85 10,945.91
9/30/2007 10,982.65 10,879.71 11,028.95
10/31/2007 11,067.36 10,960.89 11,128.02
11/30/2007 11,212.41 11,087.90 11,328.14
12/31/2007 11,188.66 11,060.87 11,359.96
1/31/2008 11,374.60 11,201.81 11,550.78
2/29/2008 11,364.91 11,171.13 11,566.82
3/31/2008 11,376.34 11,116.16 11,606.28
4/30/2008 11,391.63 11,157.25 11,582.03
5/31/2008 11,362.43 11,083.42 11,497.10
6/30/2008 11,319.97 11,044.59 11,487.80
7/31/2008 11,265.99 10,958.12 11,478.43
8/31/2008 11,344.66 10,989.04 11,587.37
9/30/2008 11,023.64 10,620.15 11,431.73
10/31/2008 10,416.66 10,060.43 11,161.89
11/30/2008 10,412.96 10,165.36 11,525.21
12/31/2008 10,624.69 10,541.46 11,955.21
1/31/2009 10,618.50 10,512.49 11,849.72
2/28/2009 10,602.36 10,388.05 11,805.00
3/31/2009 10,767.03 10,511.62 11,969.10
4/30/2009 11,015.89 10,721.15 12,026.33
5/31/2009 11,449.54 11,008.91 12,113.56
6/30/2009 11,659.92 11,201.86 12,182.46
7/31/2009 11,984.45 11,539.63 12,378.96
8/31/2009 12,271.58 11,679.61 12,507.13
9/30/2009 12,499.10 11,967.97 12,638.52
10/31/2009 12,612.62 12,065.01 12,700.92
11/30/2009 12,781.46 12,207.63 12,865.35
12/31/2009 12,722.02 12,093.81 12,664.25
1/31/2010 12,958.62 12,292.63 12,857.71
2/28/2010 13,015.26 12,328.19 12,905.72
3/31/2010 13,058.29 12,374.70 12,889.85
4/30/2010 13,231.22 12,554.53 13,024.03
5/31/2010 13,234.57 12,555.24 13,133.63
6/30/2010 13,387.35 12,763.04 13,339.58
7/31/2010 13,542.95 12,927.69 13,481.90
8/31/2010 13,759.50 13,155.41 13,655.38
9/30/2010 13,853.37 13,195.57 13,669.93
10/31/2010 13,939.26 13,219.90 13,718.61
11/30/2010 13,879.79 13,134.53 13,639.76
12/31/2010 13,759.17 13,036.29 13,492.67
1/31/2011 13,808.25 13,050.71 13,508.38
2/28/2011 13,873.50 13,141.44 13,542.17
3/31/2011 13,914.11 13,146.21 13,549.65
4/30/2011 14,079.82 13,338.01 13,721.65
5/31/2011 14,234.28 13,503.41 13,900.71
6/30/2011 14,201.90 13,406.59 13,860.02
7/31/2011 14,402.16 13,641.00 14,079.95
8/31/2011 14,494.38 13,717.04 14,285.66
9/30/2011 14,485.98 13,788.29 14,389.58
10/31/2011 14,576.04 13,905.63 14,405.04
11/30/2011 14,547.48 13,792.58 14,392.54
12/31/2011 14,704.32 13,982.30 14,550.72
1/31/2012 14,863.25 14,202.57 14,678.49
2/29/2012 14,920.84 14,261.21 14,675.12
3/31/2012 14,908.63 14,166.65 14,594.71
4/30/2012 15,064.67 14,345.02 14,756.51
5/31/2012 15,161.58 14,489.96 14,890.03
6/30/2012 15,183.42 14,516.60 14,895.87
7/31/2012 15,388.27 14,840.24 15,101.33
8/31/2012 15,457.92 14,874.28 15,111.20
9/30/2012 15,559.30 14,906.82 15,132.00
10/31/2012 15,675.21 15,011.07 15,161.76
11/30/2012 15,744.91 15,033.65 15,185.69
12/31/2012 15,733.95 15,000.94 15,164.06
1/31/2013 15,735.40 14,905.55 15,058.00
2/28/2013 15,850.04 15,008.67 15,133.48
3/31/2013 15,896.04 15,021.83 15,145.57
4/30/2013 16,093.68 15,291.47 15,298.82
5/31/2013 15,862.59 14,908.98 15,025.86
6/30/2013 15,516.53 14,496.28 14,793.43
7/31/2013 15,587.77 14,545.47 14,813.66
8/31/2013 15,490.99 14,420.16 14,737.93
9/30/2013 15,622.15 14,543.51 14,877.46
10/31/2013 15,790.48 14,754.55 14,997.74
11/30/2013 15,773.95 14,694.25 14,941.59
12/31/2013 15,705.79 14,634.89 14,857.15
1/31/2014 15,945.52 14,988.43 15,076.67
2/28/2014 16,065.51 15,144.85 15,156.83
3/31/2014 16,076.60 15,183.67 15,131.01
4/30/2014 16,236.51 15,361.29 15,258.70
5/31/2014 16,418.33 15,577.78 15,432.42
6/30/2014 16,471.20 15,621.23 15,440.40
7/31/2014 16,434.61 15,611.62 15,401.67
8/31/2014 16,591.25 15,856.93 15,571.70
9/30/2014 16,473.31 15,656.03 15,465.97
10/31/2014 16,595.23 15,828.71 15,617.99
11/30/2014 16,662.06 15,967.34 15,728.79
12/31/2014 16,630.74 16,038.46 15,743.53
1/31/2015 16,938.41 16,584.10 16,073.63
[END CHART]
Data from 1/31/05 to 1/31/15.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Shares to the following benchmarks:
o The unmanaged Lipper A Rated Bond Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Corporate Debt Funds A
Rated category.
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 into an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIINX)
--------------------------------------------------------------------------------
1/31/15 7/31/14
--------------------------------------------------------------------------------
Net Assets $2.2 Billion $2.1 Billion
Net Asset Value Per Share $13.41 $13.28
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/15
--------------------------------------------------------------------------------
7/31/14 - 1/31/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
3.04% 6.32% 5.65% 6.63%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
5.96% 5.68% 6.42%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/15 EXPENSE RATIO AS OF 7/31/14***
--------------------------------------------------------------------------------
2.66% 0.48%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2014, and
is calculated as a percentage of average net assets. This expense ratio may
differ from the expense ratio disclosed in the Financial Highlights, which
excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to time, or
for purchase by a USAA fund participating in a fund-of-funds investment strategy
(USAA fund-of-funds).
================================================================================
10 | USAA INCOME FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME FUND LIPPER CORPORATE DEBT FUNDS
INSTITUTIONAL SHARES A RATED AVERAGE
1/31/2010 5.40 4.34
1/31/2011 4.60 3.82
1/31/2012 4.00 3.36
1/31/2013 3.68 2.83
1/31/2014 4.09 3.21
1/31/2015 3.71 2.76
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains, if any, distributed during the previous nine months. The graph represents
data for periods ending 1/31/10 to 1/31/15.
The Lipper Corporate Debt Funds A Rated Average is the average performance level
of all corporate A rated debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INCOME FUND LIPPER A RATED BARCLAYS U.S.
INSTITUTIONAL SHARES BOND FUNDS INDEX AGGREGATE BOND INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,055.01 10,028.22 10,094.91
9/30/2008 9,773.05 9,691.59 9,959.32
10/31/2008 9,237.79 9,180.80 9,724.23
11/30/2008 9,236.65 9,276.55 10,040.76
12/31/2008 9,427.63 9,619.78 10,415.37
1/31/2009 9,415.64 9,593.33 10,323.47
2/28/2009 9,411.92 9,479.78 10,284.50
3/31/2009 9,560.51 9,592.54 10,427.47
4/30/2009 9,783.97 9,783.75 10,477.33
5/31/2009 10,171.39 10,046.35 10,553.32
6/30/2009 10,360.57 10,222.43 10,613.35
7/31/2009 10,652.16 10,530.67 10,784.54
8/31/2009 10,900.47 10,658.41 10,896.20
9/30/2009 11,105.20 10,921.56 11,010.66
10/31/2009 11,217.48 11,010.12 11,065.03
11/30/2009 11,370.44 11,140.26 11,208.28
12/31/2009 11,309.79 11,036.39 11,033.08
1/31/2010 11,531.30 11,217.83 11,201.62
2/28/2010 11,574.58 11,250.28 11,243.45
3/31/2010 11,624.81 11,292.72 11,229.63
4/30/2010 11,781.04 11,456.84 11,346.52
5/31/2010 11,786.08 11,457.48 11,442.00
6/30/2010 11,915.28 11,647.11 11,621.43
7/31/2010 12,065.96 11,797.36 11,745.42
8/31/2010 12,261.25 12,005.17 11,896.55
9/30/2010 12,347.04 12,041.82 11,909.23
10/31/2010 12,425.80 12,064.03 11,951.63
11/30/2010 12,365.74 11,986.12 11,882.94
12/31/2010 12,261.04 11,896.47 11,754.80
1/31/2011 12,316.56 11,909.62 11,768.48
2/28/2011 12,377.14 11,992.42 11,797.92
3/31/2011 12,406.22 11,996.78 11,804.44
4/30/2011 12,556.24 12,171.81 11,954.28
5/31/2011 12,705.90 12,322.75 12,110.29
6/30/2011 12,669.48 12,234.39 12,074.83
7/31/2011 12,850.45 12,448.30 12,266.44
8/31/2011 12,945.08 12,517.70 12,445.65
9/30/2011 12,938.91 12,582.71 12,536.18
10/31/2011 13,010.56 12,689.80 12,549.65
11/30/2011 12,996.48 12,586.63 12,538.76
12/31/2011 13,128.02 12,759.76 12,676.57
1/31/2012 13,281.25 12,960.77 12,787.88
2/29/2012 13,334.15 13,014.29 12,784.95
3/31/2012 13,314.58 12,927.99 12,714.90
4/30/2012 13,455.34 13,090.77 12,855.86
5/31/2012 13,543.31 13,223.03 12,972.18
6/30/2012 13,574.18 13,247.35 12,977.27
7/31/2012 13,747.80 13,542.69 13,156.26
8/31/2012 13,810.98 13,573.75 13,164.86
9/30/2012 13,902.20 13,603.45 13,182.98
10/31/2012 14,009.00 13,698.58 13,208.91
11/30/2012 14,072.75 13,719.19 13,229.75
12/31/2012 14,075.26 13,689.34 13,210.92
1/31/2013 14,067.78 13,602.29 13,118.52
2/28/2013 14,171.56 13,696.39 13,184.27
3/31/2013 14,224.22 13,708.41 13,194.80
4/30/2013 14,391.52 13,954.47 13,328.31
5/31/2013 14,196.33 13,605.42 13,090.51
6/30/2013 13,877.48 13,228.80 12,888.02
7/31/2013 13,943.43 13,273.70 12,905.64
8/31/2013 13,858.26 13,159.34 12,839.67
9/30/2013 13,977.33 13,271.90 12,961.22
10/31/2013 14,130.02 13,464.49 13,066.01
11/30/2013 14,116.77 13,409.46 13,017.09
12/31/2013 14,068.49 13,355.30 12,943.53
1/31/2014 14,273.39 13,677.92 13,134.78
2/28/2014 14,382.12 13,820.67 13,204.61
3/31/2014 14,393.06 13,856.09 13,182.12
4/30/2014 14,537.52 14,018.19 13,293.36
5/31/2014 14,701.37 14,215.75 13,444.71
6/30/2014 14,749.47 14,255.40 13,451.66
7/31/2014 14,728.51 14,246.63 13,417.92
8/31/2014 14,867.63 14,470.49 13,566.04
9/30/2014 14,762.80 14,287.16 13,473.93
10/31/2014 14,862.00 14,444.74 13,606.37
11/30/2014 14,933.76 14,571.25 13,702.90
12/31/2014 14,907.37 14,636.15 13,715.75
1/31/2015 15,175.82 15,134.08 14,003.33
[END CHART]
Data from 7/31/08 to 1/31/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Institutional Shares to the Fund's benchmarks listed above (see
page 9 for benchmark definitions).
*The performance of the Lipper A Rated Bond Funds Index and the Barclays U.S.
Aggregate Bond Index is calculated from the end of the month, July 31, 2008,
while the inception date of the Institutional Shares is August 1, 2008. There
may be a slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
12 | USAA INCOME FUND
================================================================================
USAA INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UINCX)
--------------------------------------------------------------------------------
1/31/15 7/31/14
--------------------------------------------------------------------------------
Net Assets $155.2 Million $42.5 Million
Net Asset Value Per Share $13.39 $13.25
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/15
--------------------------------------------------------------------------------
7/31/14 - 1/31/15* 1 YEAR SINCE INCEPTION 8/01/10
2.97% 6.01% 4.81%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 8/01/10
5.60% 4.47%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 1/31/15 EXPENSE RATIO AS OF 7/31/14***
--------------------------------------------------------------------------------
2.20% 0.88%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2014, and
is calculated as a percentage of average net assets. The expense ratio may
differ from the expense ratio disclosed in the Financial Highlights, which
excludes acquired fund fees and expenses. Prior to December 1, 2014, the Adviser
Shares' expense limitation was 0.90% of average net assets.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA INCOME FUND LIPPER CORPORATE DEBT FUNDS
ADVISER SHARES A RATED AVERAGE
1/31/2012 3.58 3.36
1/31/2013 3.26 2.83
1/31/2014 3.69 3.21
1/31/2015 3.42 2.76
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains, if any, distributed during the previous nine months. The graph represents
data for periods ending 1/31/12 to 1/31/15.
The Lipper Corporate Debt Funds A Rated Average is the average performance level
of all corporate A rated debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
14 | USAA INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER A RATED USAA INCOME FUND BARCLAYS U.S.
BOND FUNDS INDEX ADVISER SHARES AGGREGATE BOND INDEX
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 10,176.15 10,162.09 10,128.67
9/30/2010 10,207.22 10,236.32 10,139.47
10/31/2010 10,226.04 10,297.51 10,175.57
11/30/2010 10,160.00 10,243.44 10,117.09
12/31/2010 10,084.01 10,151.81 10,007.99
1/31/2011 10,095.16 10,186.50 10,019.64
2/28/2011 10,165.34 10,232.86 10,044.70
3/31/2011 10,169.04 10,260.68 10,050.25
4/30/2011 10,317.40 10,373.18 10,177.83
5/31/2011 10,445.34 10,493.60 10,310.65
6/30/2011 10,370.45 10,459.46 10,280.46
7/31/2011 10,551.77 10,605.46 10,443.59
8/31/2011 10,610.59 10,678.79 10,596.17
9/30/2011 10,665.70 10,670.09 10,673.26
10/31/2011 10,756.47 10,725.79 10,684.72
11/30/2011 10,669.02 10,710.40 10,675.45
12/31/2011 10,815.78 10,814.83 10,792.78
1/31/2012 10,986.16 10,938.11 10,887.55
2/29/2012 11,031.53 10,978.09 10,885.05
3/31/2012 10,958.38 10,958.31 10,825.41
4/30/2012 11,096.35 11,070.64 10,945.43
5/31/2012 11,208.47 11,139.03 11,044.46
6/30/2012 11,229.08 11,160.94 11,048.79
7/31/2012 11,479.42 11,300.09 11,201.19
8/31/2012 11,505.75 11,348.41 11,208.51
9/30/2012 11,530.92 11,419.79 11,223.94
10/31/2012 11,611.57 11,502.01 11,246.01
11/30/2012 11,629.03 11,550.18 11,263.76
12/31/2012 11,603.73 11,539.02 11,247.72
1/31/2013 11,529.94 11,537.85 11,169.05
2/28/2013 11,609.71 11,619.18 11,225.04
3/31/2013 11,619.89 11,649.96 11,234.00
4/30/2013 11,828.47 11,791.82 11,347.67
5/31/2013 11,532.59 11,618.75 11,145.21
6/30/2013 11,213.36 11,362.36 10,972.81
7/31/2013 11,251.41 11,412.37 10,987.81
8/31/2013 11,154.47 11,339.19 10,931.64
9/30/2013 11,249.89 11,433.14 11,035.13
10/31/2013 11,413.14 11,553.80 11,124.35
11/30/2013 11,366.49 11,539.62 11,082.70
12/31/2013 11,320.58 11,486.42 11,020.07
1/31/2014 11,594.05 11,650.77 11,182.90
2/28/2014 11,715.05 11,745.73 11,242.36
3/31/2014 11,745.08 11,751.25 11,223.21
4/30/2014 11,882.48 11,857.24 11,317.91
5/31/2014 12,049.94 11,988.67 11,446.77
6/30/2014 12,083.55 12,025.10 11,452.69
7/31/2014 12,076.11 11,995.29 11,423.96
8/31/2014 12,265.87 12,108.43 11,550.08
9/30/2014 12,110.47 12,020.91 11,471.65
10/31/2014 12,244.04 12,108.33 11,584.41
11/30/2014 12,351.27 12,155.37 11,666.59
12/31/2014 12,406.29 12,129.25 11,677.53
1/31/2015 12,828.36 12,350.95 11,922.38
[END CHART]
Data from 7/31/10 to 1/31/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Fund Adviser Shares to the Fund's benchmarks listed above (see page
9 for benchmark definitions).
*The performance of the Lipper A Rated Bond Funds Index and the Barclays U.S.
Aggregate Bond Index is calculated from the end of the month, July 31, 2010,
while the inception date of the Adviser Shares is August 1, 2010. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
o PORTFOLIO RATINGS MIX - 1/31/15 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 22.1%
AA 17.2%
A 26.8%
BBB 25.5%
BELOW INVESTMENT-GRADE 7.5%
UNRATED 0.9%
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide a third-party analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government are not
rated but are treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 18-48.
================================================================================
16 | USAA INCOME FUND
================================================================================
o TOP 10 HOLDINGS* - 1/31/15 o
(% of Net Assets)
COUPON RATE % % OF NET ASSETS
--------------------------------------
U.S. Treasury Notes 3.63% 1.7%
U.S. Treasury Inflation-Indexed
Notes 2.38% 1.2%
U.S. Treasury Notes 3.50% 1.1%
U.S. Treasury Notes 2.63% 1.0%
U.S. Treasury Bonds 3.00% 0.8%
U.S. Treasury Bonds 2.75% 0.8%
U.S. Treasury Bonds 3.88% 0.7%
Electricite De France S.A. 5.25% 0.6%
U.S. Treasury Bonds 4.25% 0.5%
State Street Capital Trust IV 1.24% 0.5%
*Excludes money market instruments.
o PORTFOLIO MIX - 1/31/15 o
[PIE CHART OF PORTFOLIO MIX]
CORPORATE OBLIGATIONS ................................................ 42.6%
EURODOLLAR AND YANKEE OBLIGATIONS .................................... 14.1%
U.S. TREASURY SECURITIES ............................................. 10.5%
COMMERCIAL MORTGAGE SECURITIES ....................................... 8.5%
MONEY MARKET INSTRUMENTS ............................................. 7.4%
MUNICIPAL BONDS ...................................................... 6.0%
ASSET-BACKED SECURITIES .............................................. 3.5%
U.S. GOVERNMENT AGENCY ISSUES ........................................ 2.6%
PREFERRED STOCKS ..................................................... 1.9%
COMMON STOCKS ........................................................ 1.6%
FOREIGN GOVERNMENT OBLIGATIONS ....................................... 0.5%
[END CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 17
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2015 (unaudited)
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (42.6%)
CONSUMER DISCRETIONARY (2.0%)
-----------------------------
APPAREL RETAIL (0.2%)
$ 10,000 L Brands, Inc. 5.63% 2/15/2022 $ 10,900
---------
CABLE & SATELLITE (0.6%)
10,000 NBCUniversal Enterprise, Inc.(a) 1.97 4/15/2019 10,141
10,000 NBCUniversal Media, LLC 5.15 4/30/2020 11,577
10,000 Time Warner Cable, Inc. 6.75 7/01/2018 11,576
---------
33,294
---------
CASINOS & GAMING (0.1%)
3,000 International Game Technology 7.50 6/15/2019 3,212
5,000 Marina District Finance Co., Inc. 9.88 8/15/2018 5,256
---------
8,468
---------
CATALOG RETAIL (0.1%)
4,000 QVC, Inc. 3.13 4/01/2019 4,055
---------
EDUCATION SERVICES (0.2%)
6,080 Princeton Theological Seminary 4.11 7/01/2023 6,792
5,000 Univ. of Notre Dame 3.44 2/15/2045 5,233
---------
12,025
---------
HOME FURNISHINGS (0.1%)
4,581 Serta Simmons Holdings, LLC(b) 4.25 10/01/2019 4,551
3,405 Tempur Sealy International, Inc.(b) 3.50 3/18/2020 3,362
---------
7,913
---------
HOTELS, RESORTS & CRUISE LINES (0.1%)
5,000 Hyatt Hotels Corp. 3.38 7/15/2023 5,134
---------
MOVIES & ENTERTAINMENT (0.1%)
1,105 Metropolitan Opera Assoc., Inc. 1.79 10/01/2017 1,127
2,235 Metropolitan Opera Assoc., Inc. 2.14 10/01/2018 2,282
2,285 Metropolitan Opera Assoc., Inc. 2.39 10/01/2019 2,369
---------
5,778
---------
RESTAURANTS (0.3%)
15,035 ARAMARK Services, Inc.(b) 3.25 9/07/2019 14,873
5,000 Restaurant Brands International, Inc.(b) 4.50 12/12/2021 5,011
---------
19,884
---------
================================================================================
18 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
SPECIALTY STORES (0.2%)
$ 8,575 Harbor Freight Tools USA, Inc.(b) 4.75% 7/26/2019 $ 8,580
---------
Total Consumer Discretionary 116,031
---------
CONSUMER STAPLES (2.1%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
4,000 Bunge Ltd. Finance Co. 8.50 6/15/2019 4,975
---------
DRUG RETAIL (0.5%)
7,710 CVS Pass-Through Trust 6.04 12/10/2028 9,249
4,454 CVS Pass-Through Trust(a) 7.51 1/10/2032 5,868
4,636 CVS Pass-Through Trust(a) 5.93 1/10/2034 5,639
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 10,596
---------
31,352
---------
FOOD RETAIL (0.1%)
4,000 Albertson's Holdings, LLC(b) 5.00 8/25/2019 3,983
---------
HOUSEHOLD PRODUCTS (0.2%)
10,000 SC Johnson & Son, Inc.(a) 4.35 9/30/2044 11,444
---------
HYPERMARKETS & SUPER CENTERS (0.4%)
20,000 Costco Wholesale Corp. 1.70 12/15/2019 20,059
---------
PACKAGED FOODS & MEAT (0.5%)
2,621 H.J. Heinz Co.(b) 3.50 6/05/2020 2,620
5,500 H.J. Heinz Co.(a) 4.88 2/15/2025 5,528
10,000 J.M. Smucker Co. 3.50 10/15/2021 10,735
10,000 Kraft Foods Group, Inc. 3.50 6/06/2022 10,499
---------
29,382
---------
PERSONAL PRODUCTS (0.0%)
1,799 Prestige Brands, Inc.(b) 4.13 1/31/2019 1,800
---------
SOFT DRINKS (0.2%)
5,000 PepsiCo, Inc. 7.90 11/01/2018 6,133
5,000 PepsiCo, Inc. 4.25 10/22/2044 5,469
---------
11,602
---------
TOBACCO (0.1%)
5,000 Lorillard Tobacco Co. 2.30 8/21/2017 5,063
---------
Total Consumer Staples 119,660
---------
ENERGY (6.5%)
-------------
COAL & CONSUMABLE FUELS (0.1%)
5,000 Peabody Energy Corp. 6.00 11/15/2018 4,037
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
$ 4,000 Peabody Energy Corp. 6.50% 9/15/2020 $ 3,080
---------
7,117
---------
INTEGRATED OIL & GAS (0.3%)
10,000 ConocoPhillips Co. 4.15 11/15/2034 10,912
5,000 Hess Corp. 8.13 2/15/2019 5,973
---------
16,885
---------
OIL & GAS DRILLING (0.5%)
3,000 Nabors Industries, Inc. 9.25 1/15/2019 3,433
7,000 Nabors Industries, Inc. 4.63 9/15/2021 6,504
10,000 Noble Holding International Ltd. 4.90 8/01/2020 9,117
5,000 Rowan Companies, Inc. 7.88 8/01/2019 5,613
5,000 Rowan Companies, Inc. 4.88 6/01/2022 4,818
---------
29,485
---------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
5,000 Baker Hughes, Inc. 7.50 11/15/2018 6,023
5,000 Weatherford Bermuda 9.63 3/01/2019 5,335
5,000 Weatherford Bermuda 4.50 4/15/2022 4,188
---------
15,546
---------
OIL & GAS EXPLORATION & PRODUCTION (1.3%)
5,000 Anadarko Petroleum Corp. 5.95 9/15/2016 5,349
2,000 California Resources Corp.(a) 5.00 1/15/2020 1,735
5,000 Chesapeake Energy Corp. 3.50(c) 4/15/2019 4,862
10,000 Chesapeake Energy Corp. 6.13 2/15/2021 10,600
5,000 Denbury Resources, Inc. 4.63 7/15/2023 4,288
4,000 EQT Corp. 8.13 6/01/2019 4,842
3,000 Newfield Exploration Co. 5.75 1/30/2022 2,978
6,730 Newfield Exploration Co. 5.63 7/01/2024 6,680
5,000 Noble Energy, Inc. 8.25 3/01/2019 6,052
5,000 QEP Resources, Inc. 6.88 3/01/2021 5,175
2,000 Sabine Oil & Gas Corp. 7.25 6/15/2019 565
5,000 Samson Investment Co.(b) 5.00 9/25/2018 3,139
10,000 Southwestern Energy Co. 4.05 1/23/2020 10,155
5,000 WPX Energy, Inc. 5.25 1/15/2017 5,062
---------
71,482
---------
OIL & GAS REFINING & MARKETING (0.5%)
10,000 Marathon Petroleum Corp. 4.75 9/15/2044 9,858
10,000 Phillips 66 4.65 11/15/2034 10,909
5,000 Valero Energy Corp.(d) 9.38 3/15/2019 6,280
---------
27,047
---------
================================================================================
20 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION (3.5%)
$ 15,000 Boardwalk Pipelines, LP 4.95% 12/15/2024 $ 15,351
10,000 Buckeye Partners LP 5.60 10/15/2044 10,322
10,000 Buckeye Partners, LP 2.65 11/15/2018 10,008
15,000 DCP Midstream, LLC(a) 5.85 5/21/2043 13,875
4,000 Enbridge Energy Partners, LP 8.05 10/01/2077 4,390
3,000 Energy Transfer Partners, LP 9.00 4/15/2019 3,697
7,000 Energy Transfer Partners, LP 5.20 2/01/2022 7,694
20,010 Energy Transfer Partners, LP 3.25(c) 11/01/2066 17,809
10,000 Enterprise Products Operating, LLC(d) 6.30 9/15/2017 11,180
5,000 Enterprise Products Operating, LLC 3.90 2/15/2024 5,288
5,000 Enterprise Products Operating, LLC 7.03 1/15/2068 5,454
5,000 NGPL PipeCo, LLC(a) 7.12 12/15/2017 4,876
10,000 NuStar Logistics, LP 8.15 4/15/2018 11,318
5,000 ONEOK Partners, LP 8.63 3/01/2019 5,983
5,000 Plains All American Pipeline, LP 6.50 5/01/2018 5,707
3,000 Plains All American Pipeline, LP 8.75 5/01/2019 3,777
5,000 Questar Pipeline Co. 5.83 2/01/2018 5,590
7,000 Regency Energy Partners 4.50 11/01/2023 7,105
10,000 Sabine Pass LNG, LP 7.50 11/30/2016 10,575
4,000 Targa Resources Partners, LP(a) 5.00 1/15/2018 4,089
1,000 Targa Resources Partners, LP(a) 4.13 11/15/2019 980
10,000 TC PipeLines, LP 4.65 6/15/2021 10,591
10,000 Western Gas Partners, LP 5.38 6/01/2021 11,173
15,000 Williams Companies, Inc. 4.55 6/24/2024 13,950
---------
200,782
---------
Total Energy 368,344
---------
FINANCIALS (15.9%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.1%)
10,000 Ares Capital Corp. 4.88 11/30/2018 10,501
5,000 Bank of New York Mellon 2.40 1/17/2017 5,145
10,000 Bank of New York Mellon 1.30 1/25/2018 9,999
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,345
32,450 State Street Capital Trust IV 1.24(c) 6/01/2077 26,775
---------
62,765
---------
CONSUMER FINANCE (0.6%)
3,000 Ally Financial, Inc. 4.63 6/26/2015 3,026
5,000 Capital One Bank USA, N.A. 3.38 2/15/2023 5,095
5,000 Capital One Financial Corp. 4.75 7/15/2021 5,650
10,000 Capital One Financial Corp. 3.75 4/24/2024 10,543
10,000 Citizens Bank N.A. 2.45 12/04/2019 10,189
---------
34,503
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (1.2%)
$ 6,000 Bank of America Corp. 8.00% -(n) $ 6,453
9,000 Bank of America Corp. 4.00 4/01/2024 9,705
10,000 Bank of America Corp. 4.20 8/26/2024 10,396
5,000 Bank of America, N.A. 6.10 6/15/2017 5,512
10,000 Citigroup, Inc. 4.45 1/10/2017 10,594
7,000 HSBC USA, Inc. 2.38 2/13/2015 7,004
3,000 JPMorgan Chase & Co. 7.90 -(n) 3,239
5,000 JPMorgan Chase Capital XXI 1.18(c) 1/15/2087 4,075
15,000 USB Realty Corp.(a) 1.40(c) -(n) 13,748
---------
70,726
---------
INVESTMENT BANKING & BROKERAGE (0.2%)
10,000 Morgan Stanley 4.88 11/01/2022 10,886
---------
LIFE & HEALTH INSURANCE (1.8%)
10,000 Forethought Financial Group(a) 8.63 4/15/2021 11,921
10,000 Lincoln National Corp. 4.20 3/15/2022 10,904
8,000 Lincoln National Corp. 7.00 5/17/2066 8,000
10,000 MetLife, Inc. 4.13 8/13/2042 10,693
4,000 Ohio National Financial Services, Inc.(a) 6.38 4/30/2020 4,716
5,000 Ohio National Financial Services, Inc.(a) 6.63 5/01/2031 6,491
10,000 Primerica, Inc. 4.75 7/15/2022 11,263
10,000 Prudential Financial, Inc. 5.63 6/15/2043 10,450
17,050 StanCorp Financial Group, Inc. 5.00 8/15/2022 18,844
6,625 StanCorp Financial Group, Inc. 6.90 6/01/2067 6,874
5,000 TIAA Asset Management Finance Co., LLC(a) 4.13 11/01/2024 5,369
---------
105,525
---------
MULTI-LINE INSURANCE (1.4%)
10,000 American International Group, Inc. 3.88 1/15/2035 10,287
17,500 Genworth Holdings, Inc. 6.15 11/15/2066 11,025
16,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 15,700
5,000 HCC Insurance Holdings, Inc. 6.30 11/15/2019 5,888
10,000 Loews Corp. 2.63 5/15/2023 9,795
10,000 MassMutual Global Funding II(a) 3.60 4/09/2024 10,817
14,505 Nationwide Mutual Insurance Co.(a) 2.53(c) 12/15/2024 14,536
---------
78,048
---------
MULTI-SECTOR HOLDINGS (0.3%)
10,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 10,041
5,000 Lubrizol Corp. 8.88 2/01/2019 6,333
---------
16,374
---------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.7%)
5,000 General Electric Capital Corp. 6.25 -(n) 5,535
9,000 General Electric Capital Corp. 6.38 11/15/2067 9,775
================================================================================
22 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
$ 15,000 General Electric Capital Corp./LJ VP
Holdings, LLC(a) 3.80% 6/18/2019 $ 16,121
5,000 Icahn Enterprises, LP 3.50 3/15/2017 4,987
2,610 JPMorgan Chase Bank N.A. 6.00 10/01/2017 2,904
---------
39,322
---------
PROPERTY & CASUALTY INSURANCE (2.1%)
15,000 ACE INA Holdings, Inc. 3.35 5/15/2024 15,903
5,000 Allstate Corp. 5.75 8/15/2053 5,325
2,000 Allstate Corp. 6.13 5/15/2067 2,118
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,926
1,000 Assured Guaranty U.S. Holdings, Inc. 6.40 12/15/2066 880
20,050 Chubb Corp. 6.38 3/29/2067 21,604
10,000 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 12,034
19,300 Oil Insurance Ltd.(a) 3.24(c) -(n) 17,486
10,000 ProAssurance Corp. 5.30 11/15/2023 11,290
14,538 Progressive Corp. 6.70 6/15/2067 15,701
5,000 Travelers Companies, Inc. 6.25 3/15/2067 5,377
---------
118,644
---------
REGIONAL BANKS (2.2%)
5,000 AmSouth Bancorp. 6.75 11/01/2025 6,131
15,000 Citizens Financial Group, Inc.(a) 4.15 9/28/2022 15,835
10,000 Cullen/Frost Capital Trust II 1.78(c) 3/01/2034 8,789
5,000 Fifth Third Bancorp 2.30 3/01/2019 5,083
3,500 First Maryland Capital Trust I 1.25(c) 1/15/2027 3,119
10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,437
10,000 First Republic Bank 2.38 6/17/2019 10,217
10,000 FirstMerit Bank N.A. 4.27 11/25/2026 10,635
10,000 FirstMerit Corp. 4.35 2/04/2023 10,665
10,000 MUFG Union Bank, N.A. 2.25 5/06/2019 10,145
7,000 PNC Bank N.A. 4.20 11/01/2025 7,731
3,000 PNC Financial Services 2.85 11/09/2022 3,064
6,021 Susquehanna Bancshares, Inc. 5.38 8/15/2022 6,846
10,000 TCF National Bank 6.25 6/08/2022 11,174
5,000 Webster Financial Corp. 4.38 2/15/2024 5,199
---------
126,070
---------
REINSURANCE (0.2%)
10,000 Alterra Finance, LLC 6.25 9/30/2020 11,852
---------
REITs - DIVERSIFIED (0.3%)
5,000 Liberty Property, LP 6.63 10/01/2017 5,620
10,000 Washington REIT 3.95 10/15/2022 10,356
---------
15,976
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
REITs - HEALTH CARE (0.5%)
$ 5,000 Aviv Healthcare Properties, LP 7.75% 2/15/2019 $ 5,224
10,000 Health Care REIT, Inc. 6.13 4/15/2020 11,750
10,000 Ventas Realty, LP 4.00 4/30/2019 10,748
---------
27,722
---------
REITs - INDUSTRIAL (0.1%)
5,000 ProLogis, LP 7.38 10/30/2019 6,143
---------
REITs - OFFICE (1.3%)
5,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 5,482
10,000 ARC Properties Operating Partnership,
LP/Clark Acquisition, LLC 3.00 2/06/2019 9,572
5,000 BioMed Realty, LP 3.85 4/15/2016 5,158
5,000 BioMed Realty, LP 6.13 4/15/2020 5,826
8,034 Boston Properties, LP 3.70 11/15/2018 8,602
10,000 Boston Properties, LP 5.88 10/15/2019 11,755
10,000 Boston Properties, LP 3.85 2/01/2023 10,723
10,000 Columbia Property Trust Operating
Partnership, LP 5.88 4/01/2018 10,640
5,000 Equity Commonwealth 5.75 11/01/2015 5,056
3,000 Mack-Cali Realty, LP 7.75 8/15/2019 3,587
---------
76,401
---------
REITs - RESIDENTIAL (0.2%)
5,000 AvalonBay Communities, Inc. 3.63 10/01/2020 5,313
7,000 UDR, Inc. 4.63 1/10/2022 7,755
---------
13,068
---------
REITs - RETAIL (0.8%)
3,000 Federal Realty Investment Trust 5.90 4/01/2020 3,537
7,000 Federal Realty Investment Trust 3.00 8/01/2022 7,220
10,000 Federal Realty Investment Trust 2.75 6/01/2023 10,033
5,000 National Retail Properties, Inc. 6.88 10/15/2017 5,648
5,000 Realty Income Corp. 4.13 10/15/2026 5,344
2,000 Regency Centers, LP 6.00 6/15/2020 2,343
10,000 Simon Property Group, LP 4.13 12/01/2021 11,139
---------
45,264
---------
REITs - SPECIALIZED (0.3%)
10,000 Crown Castle International Corp. 5.25 1/15/2023 10,300
4,000 EPR Properties 7.75 7/15/2020 4,907
---------
15,207
---------
SPECIALIZED FINANCE (0.2%)
10,000 National Rural Utilities Cooperative
Finance Corp. 4.75 4/30/2043 9,955
---------
================================================================================
24 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.4%)
$ 5,000 Chittenden Corp. 0.92%(c) 2/14/2017 $ 4,971
17,685 People's United Financial, Inc. 3.65 12/06/2022 18,393
---------
23,364
---------
Total Financials 907,815
---------
HEALTH CARE (1.9%)
------------------
HEALTH CARE EQUIPMENT (0.4%)
10,000 Covidien International Finance S.A. 2.95 6/15/2023 10,243
10,000 Medtronic, Inc.(a) 4.38 3/15/2035 11,132
---------
21,375
---------
HEALTH CARE FACILITIES (0.4%)
5,000 HCA, Inc. 5.00 3/15/2024 5,362
15,000 HCA, Inc. 5.25 4/15/2025 16,369
---------
21,731
---------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
10,065 Thermo Fisher Scientific 3.60 8/15/2021 10,690
---------
PHARMACEUTICALS (0.9%)
15,000 Abbvie, Inc. 1.75 11/06/2017 15,127
10,000 Genentech, Inc. 4.75 7/15/2015 10,197
20,000 Mallinckrodt International Finance S.A. 4.75 4/15/2023 19,050
8,528 Valeant Pharmaceuticals International,
Inc.(b) 3.50 2/13/2019 8,482
---------
52,856
---------
Total Health Care 106,652
---------
INDUSTRIALS (4.8%)
------------------
AEROSPACE & DEFENSE (0.2%)
10,000 Raytheon Co. 4.20 12/15/2044 11,316
---------
AIR FREIGHT & LOGISTICS (0.2%)
10,000 FedEx Corp. 3.90 2/01/2035 10,438
---------
AIRLINES (1.7%)
1,295 America West Airlines, Inc. Pass-Through
Trust 6.87 7/02/2018 1,353
4,484 American Airlines, Inc. Pass-Through Trust 7.38 11/23/2017 4,618
10,000 American Airlines, Inc. Pass-Through Trust 3.70 4/01/2028 10,075
3,574 Continental Airlines, Inc. Pass-Through Trust 9.00 1/08/2018 3,904
897 Continental Airlines, Inc. Pass-Through Trust 7.88 1/02/2020 947
2,718 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 2,813
9,262 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 9,678
4,734 Continental Airlines, Inc. Pass-Through Trust 4.00 4/29/2026 4,923
16,949 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 1/15/2026 16,992
5,000 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 5,175
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
$ 20,000 United Airlines, Inc. Pass-Through Trust 3.75% 3/03/2028 $ 20,000
3,870 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 4,344
9,709 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 10,073
---------
94,895
---------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.6%)
10,000 Caterpillar Financial Services, Corp. 1.25 11/06/2017 10,061
13,500 CNH Industrial Capital, LLC 3.88 11/01/2015 13,618
6,500 CNH Industrial Capital, LLC(a) 3.38 7/15/2019 6,273
5,013 Terex Corp.(b) 3.50 8/13/2021 4,986
---------
34,938
---------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
15,000 Eaton Corp. 2.75 11/02/2022 15,295
---------
INDUSTRIAL CONGLOMERATES (0.2%)
10,000 Danaher Corp.(d) 5.63 1/15/2018 11,248
---------
INDUSTRIAL MACHINERY (0.2%)
5,000 Hillenbrand, Inc. 5.50 7/15/2020 5,503
1,500 Ingersoll-Rand Co. 9.00 8/15/2021 1,975
1,500 SPX Corp. 6.88 9/01/2017 1,645
5,000 Stanley Black & Decker, Inc. 5.75 12/15/2053 5,447
---------
14,570
---------
RAILROADS (0.7%)
8,000 Burlington Northern Santa Fe, LLC 3.75 4/01/2024 8,678
5,000 TTX Co.(a) 4.15 1/15/2024 5,494
10,000 TTX Co.(a) 3.60 1/15/2025 10,641
5,000 Union Pacific Corp. 7.88 1/15/2019 6,144
10,000 Union Pacific Corp. 3.38 2/01/2035 10,266
---------
41,223
---------
TRADING COMPANIES & DISTRIBUTORS (0.5%)
10,000 ILFC E-Capital Trust I(a) 4.37(c) 12/21/2065 9,362
5,000 International Lease Finance Corp.(a) 7.13 9/01/2018 5,644
10,000 United Rentals North America, Inc. 5.75 7/15/2018 10,375
4,000 United Rentals North America, Inc. 6.13 6/15/2023 4,175
---------
29,556
---------
TRUCKING (0.2%)
5,000 J.B. Hunt Transport Services, Inc. 3.85 3/15/2024 5,428
5,000 Penske Truck Leasing Co., LP/PTL
Finance Corp.(a) 3.38 3/15/2018 5,223
---------
10,651
---------
Total Industrials 274,130
---------
================================================================================
26 | USAA INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.1%)
$ 5,000 Cisco Systems, Inc. 2.90% 3/04/2021 $ 5,256
5,000 Harris Corp. 5.95 12/01/2017 5,601
---------
10,857
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
5,000 FLIR Systems, Inc. 3.75 9/01/2016 5,168
---------
HOME ENTERTAINMENT SOFTWARE (0.1%)
4,238 Activision Blizzard, Inc.(b) 3.25 10/12/2020 4,239
---------
IT CONSULTING & OTHER SERVICES (0.1%)
5,000 IBM Corp. 7.63 10/15/2018 6,093
---------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.1%)
4,938 Dell International, LLC(b) 4.50 4/29/2020 4,948
---------
Total Information Technology 31,305
---------
MATERIALS (2.3%)
----------------
ALUMINUM (0.3%)
15,000 Alcoa, Inc. 5.13 10/01/2024 16,405
---------
CONSTRUCTION MATERIALS (0.2%)
10,000 CRH America, Inc. 6.00 9/30/2016 10,747
---------
DIVERSIFIED CHEMICALS (0.7%)
20,000 Dow Chemical Co. 4.25 10/01/2034 20,894
10,000 E.I. du Pont de Nemours & Co. 2.80 2/15/2023 10,163
8,028 E.I. du Pont de Nemours & Co. 4.90 1/15/2041 9,301
---------
40,358
---------
METAL & GLASS CONTAINERS (0.3%)
3,000 Ball Corp. 5.00 3/15/2022 3,176
3,883 Greif, Inc. 6.75 2/01/2017 4,194
9,801 Reynolds Group Holdings, Inc.(b) 4.00 12/01/2018 9,710
---------
17,080
---------
PAPER PACKAGING (0.1%)
5,000 Sealed Air Corp.(a) 6.88 7/15/2033 5,175
---------
SPECIALTY CHEMICALS (0.3%)
2,505 Cytec Industries, Inc. 8.95 7/01/2017 2,869
15,000 RPM International, Inc.(d) 6.13 10/15/2019 17,351
---------
20,220
---------
STEEL (0.4%)
5,000 Allegheny Ludlum Corp. 6.95 12/15/2025 5,672
5,000 Allegheny Technologies, Inc. 9.38 6/01/2019 5,901
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 10,000 Allegheny Technologies, Inc. 5.95% 1/15/2021 $ 10,665
---------
22,238
---------
Total Materials 132,223
---------
TELECOMMUNICATION SERVICES (1.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.2%)
10,000 Centel Capital Corp. 9.00 10/15/2019 12,209
10,000 CenturyLink, Inc. 5.80 3/15/2022 10,575
2,000 CenturyLink, Inc. 6.75 12/01/2023 2,240
8,409 Frontier Communications Corp. 7.88 1/15/2027 8,593
5,000 Qwest Corp. 6.75 12/01/2021 5,830
15,000 Verizon Communications, Inc. 4.50 9/15/2020 16,565
10,000 Verizon Communications, Inc. 4.40 11/01/2034 10,618
---------
66,630
---------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
5,000 Grain Spectrum Funding II(a) 3.29 10/10/2034 5,030
---------
Total Telecommunication Services 71,660
---------
UTILITIES (5.3%)
----------------
ELECTRIC UTILITIES (2.4%)
5,000 Atlantic City Electric Co. 3.38 9/01/2024 5,277
5,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 6,253
10,000 Duke Energy Progress, Inc. 4.15 12/01/2044 11,604
3,500 Duquesne Light Holdings, Inc.(a) 5.90 12/01/2021 4,176
4,000 Entergy Arkansas, Inc. 3.05 6/01/2023 4,168
7,000 Entergy Louisiana, LLC 4.95 1/15/2045 7,442
649 FPL Energy American Wind, LLC(a) 6.64 6/20/2023 655
10,000 IPALCO Enterprises, Inc. 5.00 5/01/2018 10,700
3,168 Mississippi Power Co. 4.25 3/15/2042 3,481
10,000 Monongahela Power Co.(a) 4.10 4/15/2024 11,112
5,000 Nevada Power Co. 7.13 3/15/2019 6,065
4,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 4,058
5,000 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 5,366
5,000 Oglethorpe Power Corp. 6.10 3/15/2019 5,824
20,000 PPL Capital Funding, Inc. 6.70 3/30/2067 19,593
5,000 South Carolina Electric & Gas Co. 5.30 5/15/2033 6,357
10,000 Southern California Edison Co. 6.25 -(n) 11,187
2,534 Tri-State General & Transport Association
Pass-Through Trust(a) 6.04 1/31/2018 2,669
10,000 Tri-State Generation & Transmission
Association, Inc.(a) 4.70 11/01/2044 11,621
---------
137,608
---------
================================================================================
28 | USAA INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
GAS UTILITIES (0.9%)
$ 8,000 AGL Capital Corp. 6.38% 7/15/2016 $ 8,608
4,000 Atmos Energy Corp. 8.50 3/15/2019 5,044
10,000 Atmos Energy Corp. 4.13 10/15/2044 11,267
10,000 Florida Gas Transmission Co.(a) 5.45 7/15/2020 11,362
10,000 National Fuel Gas Co. 4.90 12/01/2021 11,162
5,000 Southern Star Central Gas Pipeline, Inc.(a) 6.00 6/01/2016 5,260
---------
52,703
---------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
2,500 AES Corp. 3.23(c) 6/01/2019 2,468
5,000 AES Corp. 4.88 5/15/2023 4,900
---------
7,368
---------
MULTI-UTILITIES (1.7%)
5,000 Ameren Illinois Co. 9.75 11/15/2018 6,461
15,000 Berkshire Hathaway Energy Co. 4.50 2/01/2045 16,924
5,000 Black Hills Corp. 5.88 7/15/2020 5,861
10,000 Black Hills Corp. 4.25 11/30/2023 11,016
12,387 Integrys Energy Group, Inc. 6.11 12/01/2066 12,460
5,000 NiSource Finance Corp. 10.75 3/15/2016 5,481
5,000 Northwestern Corp. 6.34 4/01/2019 5,913
10,000 Puget Sound Energy, Inc. 6.97 6/01/2067 10,188
20,000 Wisconsin Energy Corp. 6.25 5/15/2067 20,110
---------
94,414
---------
WATER UTILITIES (0.2%)
10,000 Aquarion Co., Inc.(a) 4.00 8/15/2024 10,286
---------
Total Utilities 302,379
---------
Total Corporate Obligations (cost: $2,290,938) 2,430,199
---------
EURODOLLAR AND YANKEE OBLIGATIONS (14.1%)
CONSUMER DISCRETIONARY (0.7%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.5%)
10,000 American Honda Finance Corp.(a) 7.63 10/01/2018 12,129
5,000 Daimler Finance N.A., LLC(a) 1.65 4/10/2015 5,010
5,000 Daimler Finance N.A., LLC(a) 1.88 1/11/2018 5,057
5,000 Daimler Finance N.A., LLC(a) 2.25 7/31/2019 5,093
---------
27,289
---------
PUBLISHING (0.2%)
10,000 Pearson Funding Four plc(a) 3.75 5/08/2022 10,535
---------
Total Consumer Discretionary 37,824
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
CONSUMER STAPLES (0.5%)
-----------------------
DISTILLERS & VINTNERS (0.2%)
$ 10,000 Pernod Ricard S.A.(a) 4.25% 7/15/2022 $ 10,909
---------
PACKAGED FOODS & MEAT (0.3%)
4,712 JBS S.A. 10.50 8/04/2016 5,160
10,000 Kerry Group Financial Services(a) 3.20 4/09/2023 10,148
---------
15,308
---------
Total Consumer Staples 26,217
---------
ENERGY (1.3%)
-------------
INTEGRATED OIL & GAS (0.6%)
10,000 BP Capital Markets plc 1.63 8/17/2017 10,026
4,000 Husky Energy, Inc. 7.25 12/15/2019 4,712
10,000 Petrobras Global Finance B.V. 3.00 1/15/2019 8,563
10,000 Shell International Finance B.V. 3.63 8/21/2042 10,463
---------
33,764
---------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
3,500 Talisman Energy, Inc. 7.75 6/01/2019 4,056
10,000 Woodside Finance Ltd.(a) 8.75 3/01/2019 12,470
---------
16,526
---------
OIL & GAS REFINING & MARKETING (0.1%)
5,000 GS Caltex Corp.(a) 5.50 10/15/2015 5,153
---------
OIL & GAS STORAGE & TRANSPORTATION (0.3%)
6,000 TransCanada PipeLines Ltd. 1.88 1/12/2018 6,050
14,124 TransCanada PipeLines Ltd. 6.35 5/15/2067 13,665
---------
19,715
---------
Total Energy 75,158
---------
FINANCIALS (6.0%)
-----------------
DIVERSIFIED BANKS (3.6%)
5,000 Abbey National Treasury Services plc 4.00 3/13/2024 5,456
4,000 Banco Santander Chile(a) 1.15(c) 4/11/2017 3,985
10,000 Bank of Montreal(a) 2.85 6/09/2015 10,090
10,000 Bank of Montreal 2.50 1/11/2017 10,294
5,000 Barclays Bank plc(a) 6.05 12/04/2017 5,537
10,000 BBVA Bancomer S.A. Texas Agency(a) 4.38 4/10/2024 10,300
5,000 BNP Paribas(a) 7.20 -(n) 5,863
4,349 Canadian Imperial Bank of Commerce(a) 7.26 4/10/2032 5,423
5,000 Caribbean Development Bank(a) 4.38 11/09/2027 5,473
10,000 Commonwealth Bank of Australia 1.95 3/16/2015 10,020
================================================================================
30 | USAA INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 15,000 DNB Bank ASA(a) 3.20% 4/03/2017 $ 15,614
10,000 DNB Boligkreditt AS(a) 2.90 3/29/2017 10,253
5,000 HBOS plc(a) 6.75 5/21/2018 5,637
25,000 HSBC Bank plc 0.69(c) -(n) 15,844
5,000 National Australia Bank Ltd. 2.00 3/09/2015 5,008
5,000 National Australia Bank Ltd. 3.00 1/20/2023 5,196
5,000 Nordea Bank AB(a) 2.25 3/20/2015 5,013
10,000 Rabobank Nederland 3.38 1/19/2017 10,464
10,000 Rabobank Nederland 3.88 2/08/2022 10,910
10,000 Rabobank Nederland 3.95 11/09/2022 10,480
5,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 5,646
10,000 Santander UK plc(a) 5.00 11/07/2023 10,821
4,355 Standard Chartered Bank(a) 6.40 9/26/2017 4,813
10,000 Swedbank AB(a) 1.75 3/12/2018 10,056
10,000 Westpac Banking Corp.(a) 2.45 11/28/2016 10,285
---------
208,481
---------
DIVERSIFIED CAPITAL MARKETS (0.1%)
4,000 Credit Suisse Guernsey(a) 1.63 3/06/2015 4,003
---------
LIFE & HEALTH INSURANCE (0.2%)
10,000 Great-West Life & Annuity Insurance Capital, LP(a) 7.15 5/16/2046 10,400
---------
MULTI-LINE INSURANCE (0.3%)
19,072 ZFS Finance USA Trust II(a) 6.45 12/15/2065 19,978
---------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.8%)
15,000 ING Bank N.V.(a) 3.75 3/07/2017 15,780
3,000 ING Bank N.V. 4.13 11/21/2023 3,077
5,000 ING Capital Funding Trust III 3.86(c) -(n) 4,950
20,000 KFW 0.31(c) 3/13/2015 20,006
---------
43,813
---------
PROPERTY & CASUALTY INSURANCE (0.4%)
20,000 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 22,028
5,000 XLIT Ltd. 6.50 -(n) 4,512
---------
26,540
---------
REGIONAL BANKS (0.0%)
5,000 Kaupthing Bank hf, acquired 6/22/2006;
cost $4,942(a),(e),(f),(g) 7.13 5/19/2016 -
---------
REINSURANCE (0.3%)
15,000 Swiss Re Capital I, LP(a) 6.85 -(n) 15,772
---------
REITs - RESIDENTIAL (0.1%)
5,000 Deutsche Annington Finance B.V.(a) 3.20 10/02/2017 5,154
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
REITs - RETAIL (0.2%)
$ 10,000 WEA Finance, LLC/Westfield UK &
Europe Finance plc(a) 3.75% 9/17/2024 $ 10,530
---------
Total Financials 344,671
---------
GOVERNMENT (0.3%)
-----------------
FOREIGN GOVERNMENT (0.3%)
15,000 Region of Lombardy(d) 5.80 10/25/2032 17,210
---------
HEALTH CARE (0.3%)
------------------
PHARMACEUTICALS (0.3%)
10,000 GlaxoSmithKline Capital, Inc. 4.20 3/18/2043 11,168
2,888 Roche Holdings, Inc.(a) 6.00 3/01/2019 3,383
---------
14,551
---------
Total Health Care 14,551
---------
INDUSTRIALS (2.1%)
------------------
AIRLINES (1.0%)
24,298 Air Canada Pass-Through Trust(a) 4.13 11/15/2026 25,148
19,546 British Airways Pass-Through Trust(a) 4.63 6/20/2024 20,865
4,118 Virgin Australia Trust(a) 6.00 4/23/2022 4,252
8,591 Virgin Australia Trust(a) 5.00 4/23/2025 8,891
---------
59,156
---------
AIRPORT SERVICES (0.5%)
10,000 Heathrow Funding Ltd.(a) 4.88 7/15/2023 11,404
15,000 Sydney Airport Finance Co. Proprietary Ltd.(a) 3.90 3/22/2023 15,867
---------
27,271
---------
INDUSTRIAL CONGLOMERATES (0.6%)
10,000 Hutchison Whampoa International Ltd.(a) 2.00 11/08/2017 10,035
5,000 Hutchison Whampoa International Ltd.(a) 4.63 1/13/2022 5,549
10,000 Hutchison Whampoa International Ltd.(a) 3.63 10/31/2024 10,324
7,000 Smiths Group plc(a) 3.63 10/12/2022 7,182
---------
33,090
---------
Total Industrials 119,517
---------
MATERIALS (2.2%)
----------------
COMMODITY CHEMICALS (0.2%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 9,775
---------
CONSTRUCTION MATERIALS (0.2%)
10,000 Holcim US Finance Sarl & Cie SCS(a) 6.00 12/30/2019 11,678
2,000 Lafarge SA(a) 6.20 7/09/2015 2,038
---------
13,716
---------
================================================================================
32 | USAA INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(H) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
DIVERSIFIED METALS & MINING (0.6%)
$ 5,000 Anglo American Capital plc(a) 2.63% 9/27/2017 $ 5,057
2,034 Glencore Canada Corp. 5.38 6/01/2015 2,060
3,000 Glencore Canada Corp. 6.00 10/15/2015 3,095
10,000 Glencore Funding, LLC(a) 2.50 1/15/2019 9,857
5,000 Glencore Funding, LLC(a) 4.13 5/30/2023 4,836
5,000 Rio Tinto Finance (USA) Ltd. 9.00 5/01/2019 6,416
---------
31,321
---------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.0%)
2,000 Yara International ASA(a) 7.88 6/11/2019 2,417
---------
GOLD (0.7%)
10,000 Barrick North America Finance, LLC 6.80 9/15/2018 11,339
20,000 Goldcorp, Inc. 3.70 3/15/2023 20,245
10,000 Kinross Gold Corp. 5.95 3/15/2024 9,962
---------
41,546
---------
PRECIOUS METALS & MINERALS (0.2%)
10,000 Fresnillo plc(a) 5.50 11/13/2023 10,437
---------
STEEL (0.3%)
10,000 ArcelorMittal 6.75 2/25/2022 10,675
5,000 Vale Overseas Ltd. 4.38 1/11/2022 4,779
---------
15,454
---------
Total Materials 124,666
---------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.5%)
30,000 Electricite De France S.A.(a),(d) 5.25 -(n) 31,575
---------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
10,200 Transalta Corp. 6.65 5/15/2018 11,374
---------
Total Utilities 42,949
---------
Total Eurodollar and Yankee Obligations (cost: $763,607) 802,763
---------
FOREIGN GOVERNMENT OBLIGATIONS (0.5%)
CAD 15,000 Province of Alberta 2.55 12/15/2022 12,679
CAD 20,000 Province of Ontario 2.85 6/02/2023 17,069
---------
Total Foreign Government Obligations (cost: $34,607) 29,748
---------
ASSET-BACKED SECURITIES (3.5%)
FINANCIALS (3.2%)
-----------------
ASSET-BACKED FINANCING (3.2%)
1,928 Access Group, Inc. 0.52(c) 4/25/2029 1,893
2,306 ACS Pass-Through Trust(a) 0.48(c) 6/14/2037 2,254
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 10,000 AESOP Funding II, LLC(a) 3.41% 11/20/2017 $ 10,366
5,571 AmeriCredit Automobile Receivables Trust 4.20 11/08/2016 5,591
813 ARI Fleet Lease Trust(a) 0.72(c) 3/15/2020 812
3,100 ARL First, LLC(a) 1.92(c) 12/15/2042 3,117
5,136 Arran Residential Mortgages Funding plc(a) 1.68(c) 11/19/2047 5,172
10,000 Babson CLO Ltd.(a) 1.66(c) 10/17/2026 9,932
1,048 Centre Point Funding, LLC(a) 5.43 7/20/2016 1,058
8,500 CIT Equipment Collateral(a) 2.15 2/20/2020 8,571
5,000 Citibank Credit Card Issuance Trust 5.50 3/24/2017 5,036
5,000 Citibank Credit Card Issuance Trust 5.10 11/20/2017 5,181
2,000 Citibank Credit Card Issuance Trust 5.35 2/07/2020 2,241
5,000 Credit Acceptance Auto Loan Trust(a) 2.29 4/15/2022 5,010
3,000 Credit Acceptance Auto Loan Trust(a) 3.30 7/17/2023 3,014
7,500 Dryden Senior Loan Fund(a),(f),(i) 1.75 4/15/2027 7,500
7,000 Element Rail Leasing I, LLC(a) 3.67 4/19/2044 7,258
267 Enterprise Fleet Financing, LLC(a) 1.14 11/20/2017 268
10,000 Exeter Automobile Receivables Trust(a) 2.42 1/15/2019 9,981
5,000 Exeter Automobile Receivables Trust(a) 2.17 5/15/2019 4,944
10,000 First Investors Auto Owner Trust(a) 0.86 8/15/2018 9,992
6,580 Gracechurch Mortgage Financing plc(a) 1.78(c) 11/20/2056 6,586
3,333 Hertz Vehicle Financing, LLC(a) 5.93 3/25/2016 3,344
2,663 Honda Auto Receivables Owner Trust 1.17 12/21/2017 2,664
7,673 Honda Auto Receivables Owner Trust 0.97 4/16/2018 7,683
20,000 Louisiana Environmental Facilities and Community
Dev. 3.24 8/01/2028 21,128
493 Rental Car Finance Corp.(a) 2.51 2/25/2016 494
692 Rental Car Finance Corp.(a) 4.38 2/25/2016 693
6,407 Santander Drive Auto Receivables Trust 3.06 11/15/2017 6,469
5,000 SBA Tower Trust(a) 2.90 10/15/2044 5,101
3,026 SLM Student Loan Trust 0.81(c) 10/25/2038 2,745
7,843 SLM Student Loan Trust 0.49(c) 1/25/2041 6,887
10,000 Trip Rail Master Funding, LLC(a) 4.09 4/15/2044 10,631
173 Wheels SPV, LLC(a) 1.19 3/20/2021 173
2,000 Wheels SPV, LLC(a) 1.53 3/20/2021 2,008
----------
185,797
----------
Total Financials 185,797
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24 1/01/2031 15,532
----------
Total Asset-Backed Securities (cost: $196,701) 201,329
----------
================================================================================
34 | USAA INCOME FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (8.5%)
FINANCIALS (8.5%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (7.9%)
$ 5,125 Banc of America Commercial Mortgage, Inc. 5.29% 11/10/2042 $ 5,121
4,000 Banc of America Commercial Mortgage, Inc.(a) 5.26 7/10/2043 4,013
5,000 Banc of America Commercial Mortgage, Inc. 5.84 7/10/2044 5,180
1,239 Banc of America Commercial Mortgage, Inc. 5.71 5/10/2045 1,247
7,000 Banc of America Commercial Mortgage, Inc. 5.17 10/10/2045 7,149
8,000 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 8,172
8,765 CD Commercial Mortgage Trust 5.23 7/15/2044 8,931
10,000 Citigroup Commercial Mortgage Trust 3.36 7/10/2047 10,649
2,500 Citigroup Commercial Mortgage Trust 3.62 7/10/2047 2,704
4,000 Citigroup Commercial Mortgage Trust 3.86 7/10/2047 4,330
9,704 Commercial Mortgage Trust 5.12 6/10/2044 9,791
8,600 Commercial Mortgage Trust 3.25 10/15/2045 8,972
5,925 Commercial Mortgage Trust(a) 3.42 10/15/2045 6,257
6,000 Commercial Mortgage Trust 2.77 12/10/2045 6,161
4,000 Commercial Mortgage Trust 3.61 6/10/2046 4,344
10,000 Commercial Mortgage Trust 5.35 12/10/2046 10,719
7,500 Commercial Mortgage Trust 4.08 8/10/2047 8,122
3,000 Credit Suisse Commercial Mortgage Trust 5.47 2/15/2039 3,121
6,750 Credit Suisse First Boston Mortgage Securities Corp. 0.42 4/15/2037 6,709
8,700 Credit Suisse First Boston Mortgage Securities Corp. 5.10 8/15/2038 8,863
7,426 Credit Suisse First Boston Mortgage Securities Corp. 5.23 12/15/2040 7,533
5,000 GE Capital Commercial Mortgage Corp. 5.28 3/10/2044 5,073
4,000 GE Capital Commercial Mortgage Corp. 5.07 7/10/2045 4,061
10,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 10,543
7,000 GMAC Commercial Mortgage Securities, Inc. 5.29 11/10/2045 7,203
10,000 GS Mortgage Securities Corp. II 5.52 4/10/2038 10,278
10,264 GS Mortgage Securities Corp. II 4.78 7/10/2039 10,302
6,000 GS Mortgage Securities Corp. II 3.21 5/10/2045 6,331
5,000 GS Mortgage Securities Corp. II 3.38 5/10/2045 5,323
13,500 GS Mortgage Securities Trust 5.55 4/10/2038 13,997
5,000 GS Mortgage Securities Trust 3.28 2/10/2046 5,182
5,000 GS Mortgage Securities Trust(a) 3.68 2/10/2046 5,237
5,000 GS Mortgage Securities Trust 4.24 8/10/2046 5,649
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.84 7/15/2042 5,052
6,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.00 10/15/2042 6,110
6,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.04 10/15/2042 6,058
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 910 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.49% 4/15/2043 $ 916
2,531 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.81 6/12/2043 2,651
15,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(a) 5.51 11/15/2043 17,039
9,146 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.23 12/15/2044 9,308
1,398 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.88 4/15/2045 1,415
5,697 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.82 5/15/2045 6,424
5,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.48 5/15/2045 5,273
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.27 6/15/2045 11,108
9,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 4.44 2/15/2047 10,079
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 5.37 5/15/2047 10,446
6,685 LB-UBS Commercial Mortgage Trust 4.95 9/15/2030 6,711
5,000 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 5,306
864 LB-UBS Commercial Mortgage Trust 5.34 9/15/2039 864
9,450 LB-UBS Commercial Mortgage Trust 5.32 11/15/2040 9,687
10,643 Merrill Lynch Mortgage Trust 5.14 7/12/2038 10,843
1,299 Morgan Stanley Capital I, Inc. 5.80 8/12/2041 1,311
8,499 Morgan Stanley Capital I, Inc. 5.37 12/15/2043 9,096
2,750 Morgan Stanley Capital I, Inc.(a) 5.20 6/15/2044 3,141
3,000 Morgan Stanley Capital I, Inc. 3.77 3/15/2045 3,203
5,000 Timberstar Trust(a) 5.88 10/15/2036 5,272
8,000 UBS Commercial Mortgage Trust 4.17 5/10/2045 8,735
15,000 UBS Commercial Mortgage Trust 4.82 5/10/2045 16,756
2,313 UBS-Barclays Commercial Mortgage Trust(a) 4.18 5/10/2063 2,522
4,250 Wachovia Bank Commercial Mortgage Trust 5.57 10/15/2048 4,489
1,500 WF-RBS Commercial Mortgage Trust(a) 5.25 6/15/2044 1,721
5,000 WF-RBS Commercial Mortgage Trust 3.35 5/15/2045 5,227
10,000 WF-RBS Commercial Mortgage Trust 4.09 6/15/2045 10,967
5,000 WF-RBS Commercial Mortgage Trust 3.24 12/15/2045 5,194
20,000 WF-RBS Commercial Mortgage Trust 3.65 12/15/2046 21,469
----------
451,660
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.6%)
46,922 Commercial Mortgage Pass-Through Certificates,
acquired 5/22/2012; cost $6,504(e) 2.11 5/15/2045 4,896
================================================================================
36 | USAA INCOME FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 72,167 Commercial Mortgage Trust, acquired 11/06/2012;
cost $9,674(e) 1.96% 10/15/2045 $ 7,506
39,280 GS Mortgage Securities Corp. II, acquired 5/18/2012;
cost $6,001(e) 2.56 5/10/2045 4,325
190,667 GS Mortgage Securities Trust X1, acquired 6/27/2013;
cost $4,998(a),(e) 0.21 5/03/2032 4,547
61,991 UBS Commercial Mortgage Trust, acquired 9/26/2012;
cost $9,550(a),(e) 2.28 5/10/2045 7,295
34,785 WF Commercial Mortgage Trust, acquired 9/21/2012;
cost $4,826(a),(e) 2.10 10/15/2045 3,685
----------
32,254
----------
Total Financials 483,914
----------
Total Commercial Mortgage Securities (cost: $460,034) 483,914
----------
U.S. GOVERNMENT AGENCY ISSUES (2.6%)(j)
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.7%)
72,064 Freddie Mac(+) 1.58 10/25/2018 3,748
69,739 Freddie Mac(+) 1.54 3/25/2019 3,848
62,142 Freddie Mac(+) 1.44 1/25/2022 4,961
97,536 Freddie Mac(+) 1.46 5/25/2022 8,464
74,302 Freddie Mac(+) 1.50 6/25/2022 6,662
71,835 Freddie Mac(+) 0.90 10/25/2022 4,066
98,216 Freddie Mac(+) 1.05 11/25/2022 6,523
----------
38,272
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.6%)
15,832 Fannie Mae(+) 2.50 2/01/2028 16,411
3,426 Fannie Mae(+) 5.00 6/01/2033 3,799
1,044 Fannie Mae(+) 5.50 7/01/2021 1,112
3,695 Fannie Mae(+) 5.50 9/01/2035 4,211
1,733 Fannie Mae(+) 5.50 10/01/2035 1,950
593 Fannie Mae(+) 5.50 1/01/2036 663
2,024 Fannie Mae(+) 5.50 4/01/2036 2,263
2,027 Fannie Mae(+) 5.50 2/01/2037 2,265
1,782 Fannie Mae(+) 5.50 3/01/2037 2,019
1,025 Fannie Mae(+) 5.50 11/01/2037 1,145
2,629 Fannie Mae(+) 5.50 5/01/2038 2,938
2,043 Fannie Mae(+) 6.00 5/01/2036 2,318
1,508 Fannie Mae(+) 6.00 6/01/2036 1,724
2,279 Fannie Mae(+) 6.00 8/01/2037 2,578
454 Fannie Mae(+) 6.50 4/01/2031 534
6 Fannie Mae(+) 6.50 7/01/2031 7
787 Fannie Mae(+) 6.50 3/01/2032 915
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-----------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------
$ 23 Fannie Mae(+) 7.00% 10/01/2022 $ 26
12 Fannie Mae(+) 7.00 3/01/2023 13
36 Fannie Mae(+) 7.00 4/01/2023 37
16,671 Freddie Mac(+) 3.50 5/01/2042 17,609
655 Freddie Mac(+) 5.00 6/01/2020 696
1,471 Freddie Mac(+) 5.00 1/01/2021 1,574
1,883 Freddie Mac(+) 5.50 11/01/2020 2,037
444 Freddie Mac(+) 5.50 12/01/2020 478
1,270 Freddie Mac(+) 5.50 12/01/2035 1,416
1,202 Freddie Mac(+) 5.50 4/01/2036 1,346
4,959 Government National Mortgage Assn. I 5.00 8/15/2033 5,586
108 Government National Mortgage Assn. I 6.00 8/15/2028 122
161 Government National Mortgage Assn. I 6.00 9/15/2028 182
307 Government National Mortgage Assn. I 6.00 9/15/2028 352
2,205 Government National Mortgage Assn. I 6.00 9/15/2028 2,546
484 Government National Mortgage Assn. I 6.00 10/15/2028 558
155 Government National Mortgage Assn. I 6.00 1/15/2029 175
301 Government National Mortgage Assn. I 6.00 1/15/2029 347
44 Government National Mortgage Assn. I 6.00 1/15/2029 50
394 Government National Mortgage Assn. I 6.00 1/15/2033 455
17 Government National Mortgage Assn. I 6.50 6/15/2023 20
204 Government National Mortgage Assn. I 6.50 7/15/2023 232
10 Government National Mortgage Assn. I 6.50 7/15/2023 11
60 Government National Mortgage Assn. I 6.50 9/15/2023 69
199 Government National Mortgage Assn. I 6.50 10/15/2023 228
200 Government National Mortgage Assn. I 6.50 10/15/2023 229
29 Government National Mortgage Assn. I 6.50 10/15/2023 33
357 Government National Mortgage Assn. I 6.50 12/15/2023 407
177 Government National Mortgage Assn. I 6.50 12/15/2023 203
75 Government National Mortgage Assn. I 6.50 1/15/2024 85
138 Government National Mortgage Assn. I 6.50 2/15/2024 157
74 Government National Mortgage Assn. I 6.50 4/15/2026 85
395 Government National Mortgage Assn. I 6.50 5/15/2028 466
673 Government National Mortgage Assn. I 6.50 10/15/2031 793
65 Government National Mortgage Assn. I 7.00 5/15/2023 72
50 Government National Mortgage Assn. I 7.00 5/15/2023 57
30 Government National Mortgage Assn. I 7.00 5/15/2023 31
30 Government National Mortgage Assn. I 7.00 5/15/2023 32
117 Government National Mortgage Assn. I 7.00 6/15/2023 128
144 Government National Mortgage Assn. I 7.00 6/15/2023 159
112 Government National Mortgage Assn. I 7.00 8/15/2023 122
19 Government National Mortgage Assn. I 7.00 8/15/2023 21
139 Government National Mortgage Assn. I 7.00 8/15/2023 152
================================================================================
38 | USAA INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 36 Government National Mortgage Assn. I 7.00% 8/15/2023 $ 40
84 Government National Mortgage Assn. I 7.00 9/15/2023 92
36 Government National Mortgage Assn. I 7.00 1/15/2026 41
29 Government National Mortgage Assn. I 7.00 3/15/2026 32
14 Government National Mortgage Assn. I 7.00 3/15/2026 16
275 Government National Mortgage Assn. I 7.00 10/15/2027 332
187 Government National Mortgage Assn. I 7.00 6/15/2029 213
405 Government National Mortgage Assn. I 7.00 6/15/2029 470
22 Government National Mortgage Assn. I 7.00 7/15/2029 22
307 Government National Mortgage Assn. I 7.00 8/15/2031 372
155 Government National Mortgage Assn. I 7.00 7/15/2032 189
164 Government National Mortgage Assn. I 7.50 7/15/2023 184
170 Government National Mortgage Assn. I 7.50 6/15/2026 191
131 Government National Mortgage Assn. I 7.50 6/15/2026 149
127 Government National Mortgage Assn. I 7.50 7/15/2026 142
191 Government National Mortgage Assn. I 7.50 5/15/2027 221
210 Government National Mortgage Assn. I 7.50 2/15/2028 254
175 Government National Mortgage Assn. I 7.50 12/15/2028 211
135 Government National Mortgage Assn. I 7.50 8/15/2029 161
904 Government National Mortgage Assn. II 5.50 4/20/2033 1,018
845 Government National Mortgage Assn. II 6.00 8/20/2032 975
629 Government National Mortgage Assn. II 6.00 9/20/2032 725
277 Government National Mortgage Assn. II 6.50 8/20/2031 332
-------
92,631
-------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (0.3%)
10,000 Totem Ocean Trailer Express, Inc., Title XI 6.37 4/15/2028 11,897
6,384 Washington Aircraft 1 Co. Ltd. (NBGA) 2.64 9/15/2026 6,586
-------
18,483
-------
Total U.S. Government Agency Issues (cost: $137,791) 149,386
-------
U.S. TREASURY SECURITIES (10.5%)
BONDS (3.1%)
30,000 3.88%, 8/15/2040 39,841
20,000 4.25%, 11/15/2040 28,111
40,000 2.75%, 8/15/2042 44,100
10,000 2.75%, 11/15/2042 11,022
5,000 3.38%, 5/15/2044 6,211
40,000 3.00%, 11/15/2044 46,422
-------
175,707
-------
INFLATION-INDEXED NOTES (1.2%)
56,376 2.38%, 1/15/2025 69,466
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------
NOTES (6.2%)
$ 15,000 3.38%, 11/15/2019 $ 16,546
85,000 3.63%, 2/15/2020 95,081
55,000 3.50%, 5/15/2020 61,316
25,000 2.63%, 8/15/2020 26,744
55,000 2.63%, 11/15/2020 58,880
25,000 2.00%, 2/15/2022 25,869
20,000 1.63%, 8/15/2022 20,148
20,000 1.63%, 11/15/2022 20,116
10,000 2.00%, 2/15/2023 10,328
5,000 2.50%, 5/15/2024 5,364
10,000 2.25%, 11/15/2024 10,514
----------
350,906
----------
Total U.S. Treasury Securities (cost: $529,505) 596,079
----------
MUNICIPAL BONDS (6.0%)
AIRPORT/PORT (1.1%)
6,500 Chicago Midway Airport 5.00% 1/01/2025 7,780
8,000 Chicago Midway Airport 5.00 1/01/2026 9,464
5,000 Chicago O'Hare International Airport 5.00 1/01/2021 5,867
12,570 Dallas-Fort Worth International Airport Facilities 4.00 11/01/2021 13,976
2,265 Dallas-Fort Worth International Airport Facilities 4.44 11/01/2021 2,526
5,000 Port of Oakland 4.50 5/01/2030 5,527
11,700 Port of Oakland 4.50 5/01/2032 12,804
2,385 Port of Seattle 3.00 8/01/2015 2,419
4,350 Port of Seattle 4.00 8/01/2016 4,573
----------
64,936
----------
APPROPRIATED DEBT (0.7%)
5,600 Brevard County School Board 1.70 7/01/2017 5,608
3,250 Jacksonville 2.00 10/01/2019 3,296
3,000 Jacksonville 2.37 10/01/2020 3,079
5,000 Kannapolis 7.28 3/01/2027 5,607
2,000 McLennan County Public Facility 3.90 6/01/2029 2,084
10,000 Miami-Dade County School Board 5.38 5/01/2031 11,620
435 New Jersey EDA 5.18 11/01/2015 440
6,000 Palm Beach County School Board 5.40 8/01/2025 7,175
850 Placentia Yorba Linda USD 5.40 8/01/2021 945
----------
39,854
----------
CASINOS & GAMING (0.0%)
6,427 Mashantucket (Western) Pequot Tribe(k) 7.35 7/01/2026 1,137
----------
COMMUNITY SERVICE (0.1%)
2,750 Art Institute of Chicago 3.23 3/01/2022 2,896
----------
================================================================================
40 | USAA INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------
EDUCATION (0.6%)
$ 2,000 Austin Texas Community College District Public Auth. 6.91% 8/01/2035 $ 2,804
9,520 Indiana State 2.13 7/15/2019 9,770
5,000 New Jersey EDA 2.42 6/15/2018 5,084
10,000 New Jersey EDA 5.25 9/01/2022 11,652
1,625 State Public School Building Auth. 2.84 12/01/2019 1,684
1,300 State Public School Building Auth. 4.08 12/01/2023 1,416
2,000 Torrance USD 5.52 8/01/2021 2,347
----------
34,757
----------
ELECTRIC UTILITIES (0.3%)
5,000 Appling County Dev. Auth 2.40 1/01/2038(l) 5,086
5,000 Burke County Dev. Auth. 1.25 1/01/2052(l) 5,011
5,000 Ohio Water Dev. Auth. 4.00 12/01/2033(l) 5,394
----------
15,491
----------
ELECTRIC/GAS UTILITIES (0.8%)
10,000 Cleveland Public Power 5.50 11/15/2038 10,792
2,000 Jackson Energy Auth. 2.90 4/01/2022 2,014
2,745 Jackson Energy Auth. 3.05 4/01/2023 2,772
3,915 Jackson Energy Auth. 3.20 4/01/2024 3,994
10,000 Long Island Power Auth. 5.25 5/01/2022 11,296
2,500 Long Island Power Auth. 3.98 9/01/2025 2,663
2,500 Long Island Power Auth. 4.13 9/01/2026 2,704
6,325 Pedernales Electric Cooperative, Inc.(a) 5.95 11/15/2022 7,387
4,465 Piedmont Municipal Power Agency 4.34 1/01/2017 4,602
----------
48,224
----------
GENERAL OBLIGATION (0.9%)
1,250 City and County of Honolulu 2.51 11/01/2022 1,288
5,000 City and County of Honolulu 2.51 11/01/2022 5,012
900 City and County of Honolulu 2.81 11/01/2023 938
730 City and County of Honolulu 2.91 11/01/2024 763
680 City and County of Honolulu 3.06 11/01/2025 713
775 City and County of Honolulu 3.16 11/01/2026 815
625 City and County of Honolulu 3.26 11/01/2027 656
690 City and County of Honolulu 3.36 11/01/2028 721
1,250 Las Virgenes USD 5.54 8/01/2025 1,432
2,200 Marin County (INS) 4.89 8/01/2016 2,313
4,250 Riverside Community College District 3.49 8/01/2023 4,550
3,000 Riverside Community College District 3.61 8/01/2024 3,224
1,800 State of Mississippi 2.83 12/01/2024 1,876
2,000 State of Mississippi 3.03 12/01/2025 2,079
10,000 State of Washington 5.25 2/01/2036 11,863
10,000 Town of Stratford 5.75 8/15/2030 11,660
----------
49,903
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------
HOSPITAL (0.2%)
$ 10,000 Rochester Health Care Facilities 4.50% 11/15/2038(l) $ 11,886
-----------
SALES TAX (0.1%)
3,500 Arizona School Facilities Board 2.38 9/01/2019 3,609
-----------
SEMICONDUCTORS (0.0%)
1,250 Sandoval County 2.32 6/01/2019 1,281
1,000 Sandoval County 2.72 6/01/2020 1,051
-----------
2,332
-----------
SPECIAL ASSESSMENT/TAX/FEE (0.7%)
9,000 Colony Local Dev. Corp. (INS) 4.38 10/01/2033 9,424
5,000 Maine Municipal Bond Bank 4.25 6/01/2023 5,428
5,000 New Jersey Transportation Trust Fund Auth. 1.76 12/15/2018 4,945
3,320 New Jersey Transportation Trust Fund Auth. 5.50 12/15/2022 3,979
5,000 New York City Transitional Finance Auth. 5.00 2/01/2035 5,818
7,000 New York MTA (ETM) 1.47 7/01/2018 6,998
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 6,043
-----------
42,635
-----------
TOLL ROADS (0.1%)
2,185 New Jersey Turnpike Auth. (INS) 4.25 1/01/2016 2,241
3,000 North Texas Tollway Auth. 5.00 9/01/2031 3,550
-----------
5,791
-----------
WATER/SEWER UTILITY (0.4%)
5,000 Houston Utility System 5.00 11/15/2033 5,873
10,825 New York Municipal Water Finance Auth. 5.25 6/15/2040 12,477
2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,977
-----------
21,327
-----------
Total Municipal Bonds (cost: $316,718) 344,778
-----------
-------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------
EQUITY SECURITIES (3.5%)
COMMON STOCKS (1.6%)
CONSUMER STAPLES (0.1%)
-----------------------
HOUSEHOLD PRODUCTS (0.1%)
40,000 Kimberly-Clark Corp. 4,318
-----------
================================================================================
42 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
ENERGY (0.2%)
-------------
INTEGRATED OIL & GAS (0.2%)
41,780 Chevron Corp. $ 4,284
80,000 Royal Dutch Shell plc ADR "A" 4,916
----------
9,200
----------
Total Energy 9,200
----------
FINANCIALS (0.6%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.0%)
202,000 Prospect Capital Corp. 1,667
----------
DIVERSIFIED BANKS (0.1%)
50,000 Bank of Montreal 2,874
50,000 Canadian Imperial Bank of Commerce 3,471
----------
6,345
----------
REGIONAL BANKS (0.1%)
303,836 KeyCorp 3,947
402,414 Regions Financial Corp. 3,501
----------
7,448
----------
REITs - MORTGAGE (0.3%)
89,000 American Capital Agency Corp. 1,918
270,000 Annaly Capital Management, Inc. 2,851
160,000 Hatteras Financial Corp. 2,909
544,700 MFA Financial, Inc. 4,270
412,400 Two Harbors Investment Corp. 4,256
----------
16,204
----------
THRIFTS & MORTGAGE FINANCE (0.1%)
400,000 People's United Financial, Inc. 5,628
----------
Total Financials 37,292
----------
HEALTH CARE (0.1%)
------------------
HEALTH CARE SUPPLIES (0.0%)
5,000 Halyard Health, Inc. 223
----------
PHARMACEUTICALS (0.1%)
119,300 Merck & Co., Inc. 7,191
----------
Total Health Care 7,414
----------
INDUSTRIALS (0.1%)
------------------
INDUSTRIAL CONGLOMERATES (0.1%)
150,000 General Electric Co. 3,584
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000)/SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
125,000 Intel Corp. $ 4,130
---------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
128,050 AT&T, Inc. 4,215
21,000 Verizon Communications, Inc. 960
---------
5,175
---------
Total Telecommunication Services 5,175
---------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.1%)
152,000 Southern Co. 7,709
---------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
325,000 AES Corp. 3,972
---------
MULTI-UTILITIES (0.1%)
200,000 CMS Energy Corp. 7,546
15,200 Dominion Resources, Inc. 1,169
---------
8,715
---------
Total Utilities 20,396
---------
Total Common Stocks (cost: $78,693) 91,509
---------
PREFERRED STOCKS (1.9%)
CONSUMER STAPLES (0.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
200,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 5,621
172,520 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a) 18,821
---------
24,442
---------
Total Consumer Staples 24,442
---------
FINANCIALS (1.2%)
-----------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.0%)
80,000 Citigroup Capital XIII, 7.88% 2,127
---------
PROPERTY & CASUALTY INSURANCE (0.1%)
$5,000 Catlin Insurance Co. Ltd., 7.25%, perpetual(a) 4,988
---------
REGIONAL BANKS (0.2%)
10,800 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 11,013
---------
REITs - INDUSTRIAL (0.4%)
344,500 ProLogis, Inc., Series Q, 8.54%, cumulative redeemable, perpetual(d) 21,703
---------
================================================================================
44 | USAA INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
REITs - OFFICE (0.1%)
200,000 Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual $ 5,189
---------
REITs - RESIDENTIAL (0.4%)
142,500 Equity Residential Properties Trust, depositary shares, Series K,
8.29%, cumulative redeemable, perpetual 9,307
250,000 Post Properties, Inc., Series A, 8.50%, cumulative redeemable,
perpetual 17,320
---------
26,627
---------
Total Financials 71,647
---------
INDUSTRIALS (0.1%)
------------------
OFFICE SERVICES & SUPPLIES (0.1%)
3,000 Pitney Bowes International Holdings, Series F, 6.13%, cumulative
redeemable, perpetual(a) 3,200
---------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
200,000 Entergy Texas, Inc., 5.63% 5,303
50,000 Southern California Edison, Series D, 6.50%, cumulative
redeemable, perpetual 5,362
---------
10,665
---------
Total Utilities 10,665
---------
Total Preferred Stocks (cost: $92,579) 109,954
---------
Total Equity Securities (cost: $171,272) 201,463
---------
---------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
---------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (7.4%)
COMMERCIAL PAPER (7.3%)
CONSUMER STAPLES (0.4%)
-----------------------
PACKAGED FOODS & MEAT (0.4%)
$ 22,500 McCormick & Co., Inc.(a),(m) 0.20% 2/27/2015 22,497
---------
ENERGY (0.4%)
-------------
INTEGRATED OIL & GAS (0.4%)
25,000 BP Capital Markets plc(a),(m) 0.13 2/11/2015 24,999
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
FINANCIALS (2.6%)
-----------------
ASSET-BACKED FINANCING (1.4%)
$ 25,000 Govco, LLC(a),(m) 0.13% 2/11/2015 $ 24,999
16,502 Hannover Funding Co., LLC(a),(m) 0.15 2/05/2015 16,502
21,166 Hannover Funding Co., LLC(a),(m) 0.17 2/09/2015 21,165
15,000 Hannover Funding Co., LLC(a),(m) 0.18 3/12/2015 14,997
----------
77,663
----------
SPECIALIZED FINANCE (1.2%)
5,497 Intercontinental Exchange, Inc.(a),(m) 0.19 2/17/2015 5,497
15,550 Intercontinental Exchange, Inc.(a),(m) 0.13 2/26/2015 15,549
22,383 National Rural Utilities Cooperative Finance Corp. 0.13 2/13/2015 22,382
25,000 National Rural Utilities Cooperative Finance Corp. 0.14 2/19/2015 24,998
----------
68,426
----------
Total Financials 146,089
----------
HEALTH CARE (0.7%)
------------------
PHARMACEUTICALS (0.7%)
40,000 Merck & Co., Inc.(a),(m) 0.13 2/13/2015 39,999
----------
INDUSTRIALS (0.1%)
------------------
INDUSTRIAL MACHINERY (0.1%)
5,422 Stanley Black & Decker, Inc.(a),(m) 0.25 2/05/2015 5,422
----------
UTILITIES (3.1%)
----------------
ELECTRIC UTILITIES (0.7%)
18,970 Florida Power & Light Co. 0.17 2/04/2015 18,970
22,911 Florida Power & Light Co. 0.20 2/10/2015 22,910
----------
41,880
----------
GAS UTILITIES (1.8%)
24,500 Atmos Energy Corp.(a),(m) 0.31 2/03/2015 24,500
10,000 Atmos Energy Corp.(a),(m) 0.32 2/12/2015 9,999
13,408 Northern Illinois Gas Co. 0.30 2/03/2015 13,408
9,000 Peoples Gas Light & Coke Co. 0.28 2/02/2015 9,000
22,969 Peoples Gas Light & Coke Co. 0.27 2/03/2015 22,969
20,000 Peoples Gas Light & Coke Co. 0.28 2/10/2015 19,998
----------
99,874
----------
MULTI-UTILITIES (0.6%)
20,000 San Diego Gas & Electric Co.(a),(m) 0.18 2/06/2015 19,999
13,000 San Diego Gas & Electric Co.(a),(m) 0.18 2/23/2015 12,999
----------
32,998
----------
Total Utilities 174,752
----------
Total Commercial Paper 413,758
----------
================================================================================
46 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (0.1%)
ENERGY (0.1%)
-------------
OIL & GAS REFINING & MARKETING (0.1%)
$ 5,000 Port of Port Arthur Navigation District 0.12% 12/01/2039 $ 5,000
----------
Total Money Market Instruments (cost: $418,756) 418,758
----------
TOTAL INVESTMENTS (COST: $5,319,929) $5,658,417
==========
-----------------------------------------------------------------------------------------------------
($ in 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $2,430,199 $- $2,430,199
Eurodollar and Yankee Obligations - 802,763 - 802,763
Foreign Government Obligations - 29,748 - 29,748
Asset-Backed Securities - 201,329 - 201,329
Commercial Mortgage Securities - 483,914 - 483,914
U.S. Government Agency Issues - 149,386 - 149,386
U.S. Treasury Securities 596,079 - - 596,079
Municipal Bonds - 344,778 - 344,778
Equity Securities:
Common Stocks 91,509 - - 91,509
Preferred Stocks - 109,954 - 109,954
Money Market Instruments:
Commercial Paper - 413,758 - 413,758
Variable-Rate Demand Notes - 5,000 - 5,000
-----------------------------------------------------------------------------------------------------
Total $687,588 $4,970,829 $- $5,658,417
-----------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
COMMERCIAL
MORTGAGE
SECURITIES
--------------------------------------------------------------------------------
Balance as of July 31, 2014 $ 6,695
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (6,695)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/depreciation of investments -
--------------------------------------------------------------------------------
Balance as of January 31, 2015 $ -
--------------------------------------------------------------------------------
For the period of August 1, 2014, through January 31, 2015, commercial mortgage
securities with a fair value of $6,695,000 were transferred from Level 3 to
Level 2 as a result of this security being priced during the period by the
Fund's pricing service. The Fund's policy is to recognize any transfers into and
out of the levels as of the beginning of the period in which the event or
circumstance that caused the transfer occurred.
================================================================================
48 | USAA INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2015 (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 15.7% of net assets at January 31,
2015.
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 | 49
================================================================================
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from period
to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment penalties.
This serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
U.S. TREASURY INFLATION-INDEXED NOTES - designed to provide a real rate of
return after being adjusted over time to reflect the impact of inflation.
Their principal value periodically adjusts to the rate of inflation. They
trade at the prevailing real, or after-inflation, interest rates. The U.S.
Treasury guarantees repayment of these securities of at least their face
value in the event of sustained deflation or a drop in prices. Inflation
adjustments to the face value of these securities are included in interest
income.
VARIABLE-RATE DEMAND NOTES (VRDNs) - provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
================================================================================
50 | USAA INCOME FUND
================================================================================
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
CAD Canadian dollars
CLO Collateralized Loan Obligation
EDA Economic Development Authority
ETM Escrowed to final maturity
MTA Metropolitan Transportation Authority
REIT Real estate investment trust
Title XI The Title XI Guarantee Program provides a guarantee of payment of
principal and interest of debt obligations issued by U.S. merchant
marine and U.S. shipyards by enabling owners of eligible vessels
and shipyards to obtain financing at attractive terms. The
guarantee carries the full faith and credit of the U.S.
government.
USD Unified School District
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by one of the
following: AMBAC Assurance Corp., Berkshire Hathaway Assurance
Corp., or National Public Finance Guarantee Corp. Although bond
insurance reduces the risk of loss due to default by an issuer,
such bonds remain subject to the risk that value may fluctuate
for other reasons, and there is no assurance that the insurance
company will meet its obligations.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 51
================================================================================
(NGBA) Principal and interest payments are guaranteed by a nonbank
guarantee agreement from the Export-Import Bank of the United
States.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management Company
(the Manager) under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) Senior loan (loan) - is not registered under the Securities Act of 1933.
The loan contains certain restrictions on resale and cannot be sold
publicly. The interest rate is adjusted periodically, and the rate
disclosed represents the current rate at January 31, 2015. The weighted
average life of the loan is likely to be shorter than the stated final
maturity date due to mandatory or optional prepayments. The loan is
deemed liquid by the Manager, under liquidity guidelines approved by the
Board, unless otherwise noted as illiquid.
(c) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at January
31, 2015.
(d) At January 31, 2015, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(e) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2015, was $32,254,000, which represented 0.6% of the Fund's
net assets.
(f) Security was fair valued at January 31, 2015, by the Manager in
accordance with valuation procedures approved by the Board. The
================================================================================
52 | USAA INCOME FUND
================================================================================
total value of all such securities was $7,500,000, which represented 0.1%
of the Fund's net assets.
(g) At January 31, 2015, the issuer was in default with respect to interest
and/or principal payments.
(h) In U.S. dollars unless otherwise noted.
(i) At January 31, 2015, the aggregate market value of securities purchased
on a delayed-delivery basis was $7,500,000, all of which were
when-issued.
(j) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and certain
other U.S. government guaranteed securities are supported by the full
faith and credit of the U.S. government. Securities issued by other
GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation or
FHLMC) and Fannie Mae (Federal National Mortgage Association or FNMA),
indicated with a "+", are supported only by the right of the GSE to
borrow from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the GSEs' obligations, or only by the credit of
the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship and
appointed the Federal Housing Finance Agency (FHFA) to act as conservator
and oversee their daily operations. In addition, the U.S. Treasury
entered into purchase agreements with Fannie Mae and Freddie Mac to
provide them with capital in exchange for senior preferred stock. While
these arrangements are intended to ensure that Fannie Mae and Freddie Mac
can continue to meet their obligations, it is possible that actions by
the U.S. Treasury, FHFA, or others could adversely impact the value of
the Fund's investments in securities issued by Fannie Mae and Freddie
Mac.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 53
================================================================================
(k) Pay-in-kind (PIK) - Security in which the issuer will have or has the
option to make all or a portion of the interest or dividend payments in
additional securities.
(l) Put bond - provides the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the
effective maturity of the security.
(m) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Unless this commercial paper is subsequently registered, a resale of this
commercial paper in the United States must be effected in a transaction
exempt from registration under the Securities Act of 1933. Section 4(2)
commercial paper is normally resold to other investors through or with
the assistance of the issuer or an investment dealer who makes a market
in this security, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(n) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
See accompanying notes to financial statements.
================================================================================
54 | USAA INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
January 31, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $5,319,929) $5,658,417
Cash 4,080
Receivables:
Capital shares sold 7,906
Dividends and interest 49,793
Securities sold 1,121
----------
Total assets 5,721,317
----------
LIABILITIES
Payables:
Securities purchased 11,500
Capital shares redeemed 3,252
Accrued management fees 945
Accrued transfer agent's fees 160
Other accrued expenses and payables 212
----------
Total liabilities 16,069
----------
Net assets applicable to capital shares outstanding $5,705,248
==========
NET ASSETS CONSIST OF:
Paid-in capital $5,378,080
Overdistribution of net investment income (13,825)
Accumulated net realized gain on investments 2,514
Net unrealized appreciation of investments 338,488
Net unrealized depreciation of foreign currency translations (9)
----------
Net assets applicable to capital shares outstanding $5,705,248
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $3,349,938/249,663
shares outstanding) $ 13.42
==========
Institutional Shares (net assets of $2,200,082/164,066
shares outstanding) $ 13.41
==========
Adviser Shares (net assets of $155,228/11,597 shares outstanding) $ 13.39
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 55
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended January 31, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $46) $ 5,616
Interest 98,229
--------
Total income 103,845
--------
EXPENSES
Management fees 5,775
Administration and servicing fees:
Fund Shares 2,329
Institutional Shares 1,076
Adviser Shares 70
Transfer agent's fees:
Fund Shares 2,123
Institutional Shares 1,076
Adviser Shares 45
Distribution and service fees (Note 6E):
Adviser Shares 117
Custody and accounting fees:
Fund Shares 177
Institutional Shares 119
Adviser Shares 6
Postage:
Fund Shares 93
Institutional Shares 107
Adviser Shares 3
Shareholder reporting fees:
Fund Shares 41
Institutional Shares 10
Adviser Shares 1
Trustees' fees 12
Registration fees:
Fund Shares 54
Institutional Shares 46
Adviser Shares 23
Professional fees 128
Other 43
--------
Total expenses 13,474
--------
NET INVESTMENT INCOME 90,371
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Unaffiliated transactions 2,955
Affiliated transactions (Note 8) 524
Foreign currency transactions (21)
Change in net unrealized appreciation/depreciation of:
Investments 68,912
Foreign currency translations (7)
--------
Net realized and unrealized gain 72,363
--------
Increase in net assets resulting from operations $162,734
========
See accompanying notes to financial statements.
================================================================================
56 | USAA INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended January 31, 2015 (unaudited), and year ended July 31,
2014
--------------------------------------------------------------------------------
1/31/2015 7/31/2014
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 90,371 $ 166,353
Net realized gain on investments 3,479 16,077
Net realized loss on foreign currency transactions (21) (15)
Change in net unrealized appreciation/depreciation of:
Investments 68,912 66,199
Foreign currency translations (7) (3)
-------------------------
Increase in net assets resulting from operations 162,734 248,611
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (60,138) (104,800)
Institutional Shares (42,182) (77,115)
Adviser Shares (1,874) (409)
-------------------------
Total distributions of net investment income (104,194) (182,324)
-------------------------
Net realized gains:
Fund Shares (1,257) (877)
Institutional Shares (845) (614)
Adviser Shares (47) (2)
-------------------------
Total distributions of net realized gains (2,149) (1,493)
-------------------------
Distributions to shareholders (106,343) (183,817)
-------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 457,385 162,930
Institutional Shares 80,144 222,974
Adviser Shares 111,324 36,665
-------------------------
Total net increase in net assets from capital
share transactions 648,853 422,569
-------------------------
Net increase in net assets 705,244 487,363
NET ASSETS
Beginning of period 5,000,004 4,512,641
-------------------------
End of period $5,705,248 $5,000,004
=========================
Overdistribution of net investment income:
End of period $ (13,825) $ (2)
=========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 57
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2015 (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.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Income Fund (the Fund), which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek maximum current income without undue risk to principal.
The Fund consists of three classes of shares: Income Fund Shares (Fund Shares),
Income Fund Institutional Shares (Institutional Shares), and Income Fund Adviser
Shares (Adviser Shares). Each class of shares has equal rights to assets and
earnings, except that each class bears certain class-related expenses specific
to the particular class. These expenses include administration and servicing
fees, transfer agent fees, postage, shareholder reporting fees, distribution and
service (12b-1) fees, and certain registration and custodian fees. Expenses not
attributable to a specific class, income, and realized gains or losses on
investments are allocated to each class of shares based on each class's relative
net assets. Each class has exclusive voting rights on matters related solely to
that class and separate voting rights on matters that relate to all classes. The
Institutional Shares are available for investment through a USAA discretionary
managed account program, and certain advisory programs sponsored by financial
intermediaries, such as brokerage firms, investment advisors, financial
planners, third-party administrators, and insurance companies. Institutional
Shares also are available to institutional investors, which include retirement
plans, endowments, foundations, and bank trusts, as well as other persons or
legal entities that the Fund may
================================================================================
58 | USAA INCOME FUND
================================================================================
approve from time to time, or for purchase by a USAA fund participating in a
fund-of-funds investment strategy (USAA fund-of-funds). 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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 will monitor for events that would materially affect the value of
the Fund's foreign securities and, if necessary, the Manager will value
the foreign securities in good faith, considering such available
information that the Manager deems relevant, under valuation procedures
approved by the Board. 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.
================================================================================
60 | USAA INCOME FUND
================================================================================
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,
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:
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 1A3. Additionally, bonds, except U.S. Treasury securities, valued based
on methods discussed in Note 1A1, and commercial paper and variable-rate
demand notes, valued at amortized cost.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income is recorded on the ex-dividend date; interest income
is recorded daily on the accrual basis. Discounts and premiums on securities
are amortized over the life of the respective securities, using the
effective yield method for long-term securities and the straight-line method
for short-term securities.
E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
================================================================================
62 | USAA INCOME FUND
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Separately, net realized foreign currency gains/losses may arise from
sales of foreign currency, currency gains/losses realized between the
trade and settlement dates on security transactions, and from the
difference between amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts received. At the end of the Fund's fiscal
year, these net realized foreign currency gains/losses are reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income on the statement of assets and liabilities as such
amounts are treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from changes in
the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can
take place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund 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 while remaining substantially fully invested. As of
January 31, 2015, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $7,500,000, of which all were when-issued
securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended January 31, 2015, there were no custodian and other bank
credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended January 31, 2015, the Fund paid CAPCO facility
fees of $13,000, which represents 7.6% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2015.
================================================================================
64 | USAA INCOME FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 2015,
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 post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and or long-term capital losses.
Post-enactment capital loss carryforwards must be used before pre-enactment
capital loss carryforwards. As a result, pre-enactment capital loss
carryforwards may be more likely to expire unused.
At July 31, 2014, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2015, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2015, were
$682,077,000 and $215,934,000, respectively.
As of January 31, 2015, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2015, were $376,204,000 and $37,716,000, respectively, resulting in net
unrealized appreciation of $338,488,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2015, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JANUARY 31, 2015 JULY 31, 2014
----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------
FUND SHARES:
Shares sold 47,678 $634,438 42,145 $554,932
Shares issued from
reinvested dividends 4,366 57,954 7,511 98,660
Shares redeemed (17,662) (235,007) (37,395) (490,662)
----------------------------------------------
Net increase from
capital share transactions 34,382 $457,385 12,261 $162,930
==============================================
INSTITUTIONAL SHARES:
Shares sold 19,671 $261,649 39,002 $512,393
Shares issued from
reinvested dividends 3,182 42,214 5,787 76,003
Shares redeemed (16,825) (223,719) (27,869) (365,422)
----------------------------------------------
Net increase from
capital share transactions 6,028 $ 80,144 16,920 $222,974
==============================================
ADVISER SHARES:
Shares sold 8,980 $119,187 2,801 $ 37,192
Shares issued from
reinvested dividends 137 1,818 17 221
Shares redeemed (730) (9,681) (57) (748)
----------------------------------------------
Net increase from
capital share transactions 8,387 $111,324 2,761 $ 36,665
==============================================
================================================================================
66 | USAA INCOME FUND
================================================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services
to the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the actual day-to-day
investment of the Fund's assets. For the six-month period ended January 31,
2015, there were no subadviser(s).
The investment management fee for the Fund is comprised of a base fee and
a performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.24% of the Fund's average net assets for
the fiscal year.
The performance adjustment is calculated separately for each share class
on a monthly basis by comparing each class's performance to that of the
Lipper A Rated Bond Funds Index over the performance period. The Lipper A
Rated Bond Funds Index tracks the total return performance of the 30
largest funds within the Lipper Corporate Debt Funds A Rated category. The
performance period for each class consists of the current month plus the
previous 35 months. The following table is utilized to determine the extent
of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the
average net assets of each respective class over the entire performance
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
period, which is then multiplied by a fraction, the numerator of which is
the number of days in the month and the denominator of which is 365 (366 in
leap years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper A Rated Bond Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $5,775,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $(427,000), $(215,000), and $(4,000),
respectively. For the Fund Shares, Institutional Shares, and Adviser
Shares, the performance adjustments were (0.03)%, (0.02)%, and (0.01)%,
respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended January 31, 2015, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $2,329,000, $1,076,000, and $70,000, respectively.
In addition to the services provided under its Administration and
Servicing Agreement with the Fund, the Manager also provides certain
compliance and legal services for the benefit of the Fund. The Board has
approved the reimbursement of a portion of these expenses incurred by the
Manager. For the six-month period ended January 31, 2015, the Fund
reimbursed the Manager $84,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
statement of operations.
================================================================================
68 | USAA INCOME FUND
================================================================================
C. EXPENSE LIMITATION - The Manager agreed, through December 1, 2014, to
limit the total annual operating expenses of the Adviser Shares to 0.90% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and would reimburse the Adviser
Shares for all expenses in excess of that amount. Effective December 1,
2014, the Manager terminated this agreement for the Adviser Shares. For the
six-month period ended January 31, 2015, the Fund did not incur any
reimbursable expenses.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. Transfer agent's fees for both the
Fund Shares and Adviser Shares are paid monthly based on an annual charge
of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a
portion of these fees to certain intermediaries for administration and
servicing of accounts that are held with such intermediaries. Transfer
agent's fees for Institutional Shares are paid monthly based on a fee
accrued daily at an annualized rate of 0.10% of the Institutional Shares'
average net assets, plus out-of-pocket expenses. For the six-month period
ended January 31, 2015, the Fund Shares, Institutional Shares and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of
$2,123,000, $1,076,000, and $45,000, respectively.
E. DISTRIBUTION AND SERVICE (12B-1) FEES - The Fund has adopted a plan pursuant
to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under
the plan, the Adviser Shares pay fees to USAA Investment Management Company,
the distributor, for distribution and shareholder services. USAA Investment
Management Company pays all or a portion of such fees to intermediaries that
make the Adviser Shares available for investment by their customers. The fee
is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser
Shares' average net assets. Adviser Shares are offered and sold without
imposition of an initial sales charge or a contingent deferred sales charge.
For the six-month period ended January 31, 2015, the Adviser Shares
incurred distribution and service (12b-1) fees of $117,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
F. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no commissions or fees for this
service.
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA funds and
is one of 17 USAA mutual funds in which the affiliated USAA fund-of-funds may
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of January 31, 2015, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
USAA Cornerstone Conservative Fund 0.7
USAA Target Retirement Income Fund 0.7
USAA Target Retirement 2020 Fund 1.1
USAA Target Retirement 2030 Fund 1.3
USAA Target Retirement 2040 Fund 0.6
USAA Target Retirement 2050 Fund 0.1
USAA Target Retirement 2060 Fund 0.0*
*Represents less than 0.01%.
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2015, USAA and its affiliates owned 387,000 shares which represent 3.3% of the
Adviser Shares and 0.1% of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
70 | USAA INCOME FUND
================================================================================
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2015, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN (LOSS) TO
SELLER PURCHASER PURCHASER SELLER
--------------------------------------------------------------------------------
USAA Income Fund USAA Short-Term
Bond Fund $10,520,000 $524,000
USAA Global Managed
Volatility Fund USAA Income Fund 1,057,000 159,000
USAA High Income Fund USAA Income Fund 5,040,000 42,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------
2015 2014 2013 2012 2011 2010
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.28 $ 13.10 $ 13.43 $ 13.05 $ 12.78 $ 11.86
-------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .51 .49 .49 .52 .59
Net realized and
unrealized gain (loss) .19 .18 (.32) .38 .27 .92
-------------------------------------------------------------------------------------------
Total from investment
operations .41 .69 .17 .87 .79 1.51
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.26) (.51) (.47) (.49) (.52) (.59)
Realized capital gains (.01) (.00)(c) (.03) - - -
-------------------------------------------------------------------------------------------
Total distributions (.27) (.51) (.50) (.49) (.52) (.59)
-------------------------------------------------------------------------------------------
Net asset value at end
of period $ 13.42 $ 13.28 $ 13.10 $ 13.43 $ 13.05 $ 12.78
===========================================================================================
Total return (%)* 3.07 5.43 1.30 6.85 6.34 13.00(b)
Net assets at end
of period (000) $3,349,938 $2,859,427 $2,659,263 $3,570,505 $3,144,378 $2,628,381
Ratios to average
net assets:**
Expenses (%)(a) .53(d) .59 .58 .59 .61 .63(b)
Net investment
income (%) 3.35(d) 3.55 3.53 3.75 4.09 4.80
Portfolio turnover (%) 4 14 24 19 19 12
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2015, average net assets
were $3,083,958,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) During the year ended July 31, 2010, SAS reimbursed the Fund Shares $419,000
for corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund Shares' total return
was less than 0.01%. The reimbursement decreased the Fund Shares' expense
ratio by 0.02%. This decrease is excluded from the expense ratio in the
Financial Highlights table.
(c) Represents less than $0.01 per share.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
72 | USAA INCOME FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------------
2015 2014 2013 2012 2011 2010
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.28 $ 13.09 $ 13.42 $ 13.04 $ 12.78 $ 11.86
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .53 .48 .51 .56 .62
Net realized and
unrealized gain (loss) .17 .19 (.29) .38 .25 .92
-----------------------------------------------------------------------------------------
Total from
investment operations .39 .72 .19 .89 .81 1.54
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.53) (.49) (.51) (.55) (.62)
Realized capital gains (.01) (.00)(a) (.03) - - -
-----------------------------------------------------------------------------------------
Total distributions (.26) (.53) (.52) (.51) (.55) (.62)
-----------------------------------------------------------------------------------------
Net asset value at end
of period $ 13.41 $ 13.28 $ 13.09 $ 13.42 $ 13.04 $ 12.78
=========================================================================================
Total return (%)* 3.04 5.63 1.42 6.98 6.50 13.27
Net assets at end
of period (000) $2,200,082 $2,098,035 $1,847,503 $685,149 $318,276 $190,659
Ratios to average
net assets:**
Expenses (%)(b) .45(d) .48 .47 .48 .38(c) .38(c)
Net investment
income (%) 3.43(d) 3.65 3.63 3.81 4.30 4.92
Portfolio turnover (%) 4 14 24 19 19 12
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2015, average net assets
were $2,134,850,000.
(a) Represents less than $0.01 per share.
(b) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios as follows:
- - (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 10, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.40% of the Institutional
Shares' average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31, JULY 31,***
------------------------------------------------------------------------------
2015 2014 2013 2012 2011
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.25 $ 13.08 $13.41 $13.03 $12.77
------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .37(a) .43 .46 .49(a)
Net realized and
unrealized gain (loss) .20 .28(a) (.30) .38 .27(a)
------------------------------------------------------------------------
Total from investment
operations .41 .65(a) .13 .84 .76(a)
------------------------------------------------------------------------
Less distributions from:
Net investment income (.26) (.48) (.43) (.46) (.50)
Realized capital gains (.01) (.00)(b) (.03) - -
------------------------------------------------------------------------
Total distributions (.27) (.48) (.46) (.46) (.50)
------------------------------------------------------------------------
Net asset value at
end of period $ 13.39 $ 13.25 $13.08 $13.41 $13.03
========================================================================
Total return (%)* 2.97 5.11 .99 6.55 6.05
Net assets at
end of period (000) $155,228 $42,542 $5,875 $5,880 $5,469
Ratios to average
net assets:**
Expenses (%)(d) .80(c),(e) .88 .90 .90 .90(c)
Expenses, excluding
reimbursements (%)(d) .80(c) .88 1.08 1.12 1.62(c)
Net investment income (%) 3.05(c) 3.13 3.21 3.45 3.82(c)
Portfolio turnover (%) 4 14 24 19 19
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2015, average net assets
were $94,030,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(d) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Prior to December 1, 2014, the Manager had voluntarily agreed to limit
the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
================================================================================
74 | USAA INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2015 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2014, through
January 31, 2015.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
EXPENSE EXAMPLE | 75
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2014 -
AUGUST 1, 2014 JANUARY 31, 2015 JANUARY 31, 2015
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,030.66 $2.71
Hypothetical
(5% return before expenses) 1,000.00 1,022.53 2.70
INSTITUTIONAL SHARES
Actual 1,000.00 1,030.37 2.30
Hypothetical
(5% return before expenses) 1,000.00 1,022.94 2.29
ADVISER SHARES
Actual 1,000.00 1,029.65 4.09
Hypothetical
(5% return before expenses) 1,000.00 1,021.17 4.08
*Expenses are equal to the annualized expense ratio of 0.53% for Fund Shares,
0.45% for Institutional Shares, and 0.80% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 days/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of 3.07% for Fund Shares, 3.04% for Institutional Shares,
and 2.97% for Adviser Shares for the six-month period of August 1, 2014, through
January 31, 2015.
================================================================================
76 | USAA INCOME FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT One Lincoln Street
Boston, Massachusetts 02111
--------------------------------------------------------------------------------
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
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USAA We know what it means to serve.(R) 10%
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23424-0315 (C)2015, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent trustees. The Corporate Governance
Committee has adopted procedures to consider Board candidates suggested by
shareholders. The procedures are initiated by the receipt of nominations
submitted by a fund shareholder sent to Board member(s) at the address specified
in fund disclosure documents or as received by AMCO or a fund officer. Any
recommendations for a nomination by a shareholder, to be considered by the
Board, must include at least the following information: name; date of birth;
contact information; education; business profession and other expertise;
affiliations; experience relating to serving on the Board; and references.
The Corporate Governance Committee gives shareholder recommendations the same
consideration as any other candidate.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended January 31, 2015
By:* /S/ DANIEL J. MAVICO
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Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 03/26/2015
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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
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Signature and Title: Daniel S. McNamara, President
Date: 03/30/2015
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By:* /S/ ROBERTO GALINDO, JR.
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Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 03/30/2015
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*Print the name and title of each signing officer under his or her signature.