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: MARCH 31
Date of reporting period: SEPTEMBER 30, 2013
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2013
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VIRGINIA BOND FUND]
============================================================
SEMIANNUAL REPORT
USAA VIRGINIA BOND FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2013
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"BECAUSE OF THE INVERSE RELATIONSHIP BETWEEN
BOND PRICES AND YIELDS, LOWER PRICES MEAN
INVESTORS MAY HAVE THE OPPORTUNITY TO [PHOTO OF DANIEL S. MCNAMARA]
REINVEST AT HIGHER RATES AND POTENTIALLY
EARN MORE ON ANY NEW INVESTMENTS."
--------------------------------------------------------------------------------
SEPTEMBER 2013
Would it or wouldn't it? Would the U.S. Federal Reserve (the Fed) begin to
reduce its bond-buying programs? Or would it continue purchasing bonds at the
same pace? And if the Fed decided to taper, when would the reductions begin and
how much would they be? The guessing game, which got underway in June after
remarks by Fed Chairman Ben Bernanke, continued through the end of the reporting
period. As I've discussed in the past, the Fed is supporting the economy by
purchasing approximately $85 billion in mortgage-backed securities and long-term
U.S. Treasury securities every month. (This is commonly known as "quantitative
easing" or "QE"). In response to QE, long-term interest rates have fallen and
the stock and bond markets have rallied.
Most people acknowledge that QE can't go on forever, but the idea the Fed would
restrain a still fragile economy gave the markets pause. Interest rates rose
sharply (bond prices, which move in the opposite direction, declined). By
August, many investors had convinced themselves that the tapering announcement
would be made at the Fed's September policy meeting. Instead, the Fed backed
away from its prior guidance, saying it would continue buying the same amount of
bonds every month. In response, interest rates trended down slightly as the
markets began to price in the risks of a fiscal impasse in Washington, D.C.
During the reporting period, our USAA tax-exempt portfolios appeared to benefit
from our bench of independent credit analysts. Because of their diligence, many
of our mutual funds have avoided headline defaults and Chapter 9 bankruptcies
such as Detroit; Jefferson County, Alabama; and Stockton, San Bernardino,
Vallejo and Orange County, California. While headline events like these are
likely to occur (unfunded pensions remain a long-term concern of ours), overall
municipal credit quality appears to
================================================================================
================================================================================
remain solid. We continue to expect the default rate among municipal issuers to
remain extremely low. Meanwhile, our USAA tax-exempt money market funds are
yielding almost zero at the present time.
For fixed-income investors, the prospect of gradually rising interest rates
remains a mixed blessing. Higher rates mean a decrease in principal value.
However, because of the inverse relationship between bond prices and yields,
lower prices mean investors may have the opportunity to reinvest at higher rates
and potentially earn more on any new investments. Furthermore, fixed-income
investing is not an all or none scenario, and bonds continue to have a place in
a diversified portfolio. Lastly, people often forget the bond market is not one
market but is actually a market of many different types of bonds. While
investors tend to focus on U.S. Treasuries, there are other segments of the bond
market and they have performed differently (some better, some worse) during the
reporting period. Investors should take a diversified approach to their
fixed-income holdings.
If you think you might be over-allocated to fixed-income securities, you want to
reassess your investment risk and if necessary, rebalance your portfolio.
Regular rebalancing can potentially help you protect your gains and prepare for
what happens next. Shareholders should always remain disciplined and follow an
investment plan based on their objectives, risk tolerance and time horizon. If
you have questions or would like assistance, USAA advisors stand ready to help
you, free of charge.
In closing, I want to acknowledge the challenges that many people faced as a
result of the federal government shutdown. We are glad the impasse has been
temporarily resolved as of the time of this message. Rest assured, we will
continue to monitor events in Washington, D.C. and any other factors that may
affect your investments.
Thank you for your confidence in us.
Sincerely,
/S/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
Past performance is no guarantee of future results. o As interest rates rise,
bond prices fall o Diversification is a technique to help reduce risk and does
not guarantee a profit or prevent a loss. o Financial advice provided by USAA
Financial Planning Services Insurance Agency, Inc. (known as USAA Financial
Insurance Agency in California, License # 0E36312), and USAA Financial Advisors,
Inc., a registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 22
Financial Statements 24
Notes to Financial Statements 27
EXPENSE EXAMPLE 40
ADVISORY AGREEMENT 42
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2013, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE VIRGINIA BOND FUND (THE FUND) PROVIDES VIRGINIA INVESTORS WITH A HIGH LEVEL
OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND VIRGINIA STATE INCOME
TAXES.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in long-term investment-grade securities issued by
the Commonwealth of Virginia, its political subdivisions and instrumentalities,
and by other government entities, the interest on which is exempt from federal
income tax and Virginia state income taxes. During normal market conditions, at
least 80% of the Fund's net assets will consist of Virginia tax-exempt
securities. The Fund's dollar-weighted average portfolio maturity is not
restricted, but is expected to be greater than 10 years.
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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF JOHN C. BONNELL] [PHOTO OF DIEDERIK OLIJSLAGER]
JOHN C. BONNELL, CFA DIEDERIK OLIJSLAGER
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o HOW DID THE USAA VIRGINIA BOND FUND (THE FUND SHARES) PERFORM DURING THE
REPORTING PERIOD?
The Fund Shares provided a total return of -4.33% versus an average of
-5.57% amongst the funds in the Lipper Virginia Municipal Debt Funds
category. This compares to a -5.51% return for the Lipper Virginia Municipal
Debt Funds Index and a -3.15% return for the Barclays Municipal Bond Index.
The Fund Shares' tax-exempt distributions over the prior 12 months produced
a dividend yield of 4.02%, compared to the Lipper category average of 3.56%.
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
In April, when the reporting period began, tax-exempt bonds posted gains,
benefiting from supportive supply and demand conditions and the strong
performance of U.S. Treasuries, which municipals tend to follow over time.
In early May, yields began to rise on speculation the U.S. Federal Reserve
(the Fed) might start scaling back its quantitative easing measures sooner
than expected. Bond prices, which move in the opposite direction of
interest rates, declined. Yields surged in June after Fed Chairman Ben
Bernanke suggested tapering could start later in 2013. Investors, fearful
that Fed tapering would lead to
Refer to pages 9 and 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
2 | USAA VIRGINIA BOND FUND
================================================================================
higher interest rates, shifted assets away from bonds. The large amount of
redemptions from the municipal market drove down tax-exempt bond prices
further, fueling more selling. After the Fed reiterated that any tapering
would be data-dependent, municipal prices retraced some of their losses in
late June.
Municipal bond prices resumed their decline in July as investors sought to
divine the Fed's intentions. Yields increased, rising most in the longer
maturities. Also in July, the City of Detroit filed for bankruptcy
protection. Though widely anticipated, the bankruptcy likely contributed to
overall market volatility. By August, it was widely believed the Fed would
announce a reduction in its asset purchases following its September policy
meeting. Instead, the Fed surprised the markets, announcing in September
that it would make no changes to its bond-buying programs. U.S. Treasuries
and equities rallied on the news that the Fed would continue its easy
monetary policies at least in the near term. The tax-exempt market followed
suit. As municipal bond prices stabilized, redemptions slowed.
Long-term municipal yields increased during the reporting period overall.
The yield on a 30-year AAA-rated municipal, which was 3.09% on March 29,
2013, hit a high of 4.51% on September 5, 2013, and ended the reporting
period at 4.12%.
Tax-exempt supply decreased over the course of the reporting period. Early
on, many of the bonds issued were refunding bonds -- wherein issuers
replaced higher-yielding bonds with debt issued at lower interest rates --
and as a result, the net amount of tax-exempt supply in the market remained
relatively stable. As yields increased, bond issuance slowed. On the demand
side, as tax-exempt investors reduced their positions, "crossover buyers"
entered the market. During the reporting period, long-term municipal yields
were higher than the yields of U.S. Treasuries and comparably rated
corporate bonds on an absolute basis (not adjusting for the tax exemption).
This was attractive to crossover buyers, who typically do not buy municipal
debt but who purchased it opportunistically to take advantage of the
attractive yields. Low supply and improving demand helped stabilize
municipal bond prices.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD?
In keeping with our investment approach, we continued to focus on income
generation. The portfolio's long-term income distribution contributes the
majority of its total returns (see page 7). In recent years, the Fund's
income has declined as tax-exempt bonds rallied and yields fell. The
increase in tax-exempt yields during the reporting period gave us the
opportunity to purchase bonds with higher yields.
Our experienced credit analysts continued to evaluate the bonds we consider
for purchase and continuously monitored the holdings in the Fund. They have
a comprehensive approach to credit analysis, which includes a focus on both
an issuer's willingness and its ability to repay its debt -- an approach
that has served the Fund well. We believe events such as the Detroit
bankruptcy filing demonstrate the value of credit research in the municipal
market.
During the reporting period, we continued to maintain a diversified
portfolio of more than 100 longer-term, primarily investment-grade municipal
bonds. We also avoid bonds subject to the federal alternative minimum tax
for individuals.
o WHAT ARE THE CONDITIONS IN THE COMMONWEALTH OF VIRGINIA?
Given its proximity to Washington, D.C. and its dependency on federal
government-related jobs, Virginia's economy is vulnerable to federal
spending cuts. However, at the end of the reporting period, its economy was
stronger than those of most states. The commonwealth has been proactive in
cutting expenditures to maintain overall balance and has been rebuilding
financial reserves. Virginia boasts a strong history of prudent fiscal
management which continues to aid the commonwealth in maintaining budgetary
strength amidst uncertainty caused by the federal government shutdown and
the impact of sequestration earlier in the year. It continues to be one of
the few states rated AAA by all three rating agencies, further evidencing
================================================================================
4 | USAA VIRGINIA BOND FUND
================================================================================
its strong financial position and proactive management. Virginia is
characterized by a wealthy and broad-based economy, lower than average debt
ratios and adequate financial reserves.
o WHAT IS YOUR OUTLOOK?
Looking ahead, we expect the U.S. economy to continue its "muddle through"
recovery with slow growth and low inflation in the near term. According to
consensus estimates, the 2013 gross domestic product growth may remain below
long-term averages. The Fed's decision not to taper its asset purchase
programs demonstrates that U.S. central bankers remain concerned about the
strength of economic growth and the level of unemployment. Indeed, Fed
Chairman Bernanke pointed to both issues in the press conference that
followed the Fed's September meeting.
As the economy continues to improve, and the market tries to anticipate when
the Fed will end its quantitative easing program, we expect to see continued
volatility in interest rates. Going forward, we expect the tax-exempt market
to take some of its direction from U.S. Treasuries. If U.S. Treasury yields
rise, municipal yields are likely to follow, but the attractiveness of
municipals relative to U.S. Treasuries should help support municipal prices.
Though some state and local governments continue to face budgetary
challenges, we have confidence that they will continue working to maintain
fiscal balance. We do not expect a material change in the longstanding debt
repayment record of municipal issuers. Given the size and diversity of the
tax-exempt market, occasional one-off credit problems will likely continue,
but we expect them to remain the exception, not the rule.
Thank you for allowing us to serve your investment needs. We appreciate your
confidence in us.
As interest rates rise, existing bond prices fall. o Diversification is a
technique to help reduce risk and does not guarantee a profit or prevent a
loss. o Some income may be subject to state or local taxes but not the
alternative minimum tax.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA VIRGINIA BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USVAX)
----------------------------------------------------------------------------------------
9/30/13 3/31/13
----------------------------------------------------------------------------------------
Net Assets $595.0 Million $671.3 Million
Net Asset Value Per Share $10.88 $11.60
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.438 $0.437
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 17.7 Years 17.2 Years
(+)Dollar-weighted average portfolio maturity is obtained by multiplying the
dollar value of each investment by the number of days left to its maturity,
adding those figures together, and dividing them by the total dollar value of
the Fund's portfolio.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/13
--------------------------------------------------------------------------------
3/31/13-9/30/13* 1 Year 5 Years 10 Years
-4.33% -3.12% 5.42% 3.72%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/13** EXPENSE RATIO AS OF 3/31/13***
--------------------------------------------------------------------------------
3.51% 0.57%
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 August 1, 2013, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
6 | USAA VIRGINIA BOND FUND
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED SEPTEMBER 30, 2013
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 Years 3.72% = 4.35% + (0.63)%
5 Years 5.42% = 4.39% + 1.03%
1 Year (3.12)% = 3.65% + (6.77)%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
usaa.com.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS
ENDED SEPTEMBER 30, 2004 -- SEPTEMBER 30, 2013
[CHART OF ANNUAL TOTAL RETURN, DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
-------------------------------------------------------------------------------------
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
-------------------------------------------------------------------------------------
9/30/2004 4.48% 4.39% 0.09%
9/30/2005 3.77% 4.28% -0.51%
9/30/2006 4.10% 4.36% -0.26%
9/30/2007 1.58% 4.21% -2.63%
9/30/2008 -3.49% 4.31% -7.80%
9/30/2009 12.03% 5.37% 6.66%
9/30/2010 5.88% 4.52% 1.36%
9/30/2011 4.02% 4.33% -0.31%
9/30/2012 8.91% 4.15% 4.76%
9/30/2013 -3.12% 3.65% -6.77%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE
A RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
distributions or the redemption of shares.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/13, and
assuming Virginia state tax
rates of: 5.75% 5.75% 5.75% 5.75%
and assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
--------------------------------------------------------------------------------
10 Years 4.35% 6.41% 7.30% 7.54% 8.16%
5 Years 4.39% 6.47% 7.37% 7.61% 8.23%
1 Year 3.65% 5.38% 6.13% 6.33% 6.84%
To match the Fund Shares' closing 30-day SEC Yield of 3.51% on 9/30/13,
A FULLY TAXABLE INVESTMENT MUST PAY: 5.17% 5.89% 6.09% 6.58%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2013 tax rates or rates in effect as of the
issuance of this report.
* The above marginal rates assume income exceeds $250,000 and investment income
is subject to the 3.80% medicare tax which is applied for income over a specific
level, depending on the federal income tax filing status.
================================================================================
8 | USAA VIRGINIA BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS MUNICIPAL USAA VIRGINIA BOND LIPPER VIRGINIA MUNICIPAL
BOND INDEX FUND SHARES DEBT FUNDS INDEX
09/30/03 $10,000.00 $10,000.00 $10,000.00
10/31/03 9,949.65 9,935.70 9,959.30
11/30/03 10,053.34 10,072.15 10,072.80
12/31/03 10,136.59 10,152.34 10,149.74
01/31/04 10,194.65 10,171.16 10,194.59
02/29/04 10,348.08 10,362.16 10,355.11
03/31/04 10,312.04 10,319.82 10,297.49
04/30/04 10,067.82 10,062.15 10,065.41
05/31/04 10,031.32 10,017.42 10,037.56
06/30/04 10,067.82 10,054.36 10,069.05
07/31/04 10,200.32 10,198.10 10,192.61
08/31/04 10,404.73 10,393.14 10,377.53
09/30/04 10,459.96 10,448.18 10,429.01
10/31/04 10,549.97 10,556.82 10,514.80
11/30/04 10,462.95 10,477.80 10,422.82
12/31/04 10,590.73 10,606.90 10,557.56
01/31/05 10,689.71 10,704.36 10,659.29
02/28/05 10,654.14 10,651.59 10,618.63
03/31/05 10,586.95 10,561.50 10,548.61
04/30/05 10,753.91 10,737.20 10,705.85
05/31/05 10,829.91 10,810.28 10,786.86
06/30/05 10,897.10 10,875.74 10,848.62
07/31/05 10,847.85 10,821.36 10,798.25
08/31/05 10,957.37 10,914.65 10,897.05
09/30/05 10,883.57 10,844.42 10,828.22
10/31/05 10,817.48 10,777.80 10,765.13
11/30/05 10,869.41 10,816.34 10,806.31
12/31/05 10,962.88 10,922.83 10,895.27
01/31/06 10,992.46 10,930.71 10,913.53
02/28/06 11,066.26 11,017.08 10,984.69
03/31/06 10,989.94 10,945.49 10,913.47
04/30/06 10,986.17 10,925.17 10,906.65
05/31/06 11,035.11 10,964.53 10,953.86
06/30/06 10,993.56 10,920.73 10,904.81
07/31/06 11,124.33 11,044.02 11,025.00
08/31/06 11,289.40 11,218.37 11,181.01
09/30/06 11,367.92 11,288.26 11,248.97
10/31/06 11,439.20 11,365.28 11,317.47
11/30/06 11,534.56 11,473.42 11,408.44
12/31/06 11,493.81 11,411.63 11,361.35
01/31/07 11,464.38 11,389.33 11,341.29
02/28/07 11,615.45 11,538.36 11,476.98
03/31/07 11,586.81 11,489.92 11,440.44
04/30/07 11,621.11 11,538.53 11,481.67
05/31/07 11,569.66 11,468.88 11,430.25
06/30/07 11,509.70 11,390.54 11,362.58
07/31/07 11,598.92 11,440.44 11,429.53
08/31/07 11,548.88 11,264.42 11,303.70
09/30/07 11,719.78 11,465.55 11,474.50
10/31/07 11,772.02 11,518.54 11,518.04
11/30/07 11,847.08 11,563.55 11,551.72
12/31/07 11,879.97 11,534.68 11,537.67
01/31/08 12,029.77 11,679.41 11,662.95
02/29/08 11,479.02 11,063.53 11,105.93
03/31/08 11,807.11 11,353.96 11,395.79
04/30/08 11,945.27 11,534.07 11,555.32
05/31/08 12,017.50 11,663.58 11,653.78
06/30/08 11,881.86 11,558.71 11,517.59
07/31/08 11,927.02 11,530.60 11,514.17
08/31/08 12,066.59 11,628.52 11,608.25
09/30/08 11,500.73 11,065.46 11,120.01
10/31/08 11,383.34 10,772.05 10,852.75
11/30/08 11,419.54 10,728.63 10,770.71
12/31/08 11,586.02 10,679.03 10,797.61
01/31/09 12,010.10 11,061.01 11,279.28
02/28/09 12,073.20 11,194.44 11,387.18
03/31/09 12,075.41 11,206.96 11,389.53
04/30/09 12,316.64 11,439.98 11,665.34
05/31/09 12,446.93 11,607.40 11,848.58
06/30/09 12,330.33 11,554.35 11,773.35
07/31/09 12,536.63 11,693.04 11,925.35
08/31/09 12,750.95 11,937.14 12,149.79
09/30/09 13,208.55 12,397.25 12,588.14
10/31/09 12,931.28 12,232.25 12,409.85
11/30/09 13,038.13 12,288.47 12,423.60
12/31/09 13,082.19 12,384.73 12,513.93
01/31/10 13,150.33 12,460.91 12,559.63
02/28/10 13,277.79 12,565.28 12,669.51
03/31/10 13,246.00 12,577.50 12,664.94
04/30/10 13,406.98 12,684.47 12,795.17
05/31/10 13,507.53 12,738.80 12,850.58
06/30/10 13,515.56 12,725.79 12,818.77
07/31/10 13,684.09 12,830.84 12,951.66
08/31/10 13,997.39 13,082.50 13,218.69
09/30/10 13,975.52 13,126.14 13,244.04
10/31/10 13,936.81 13,097.20 13,209.07
11/30/10 13,658.13 12,787.15 12,889.90
12/31/10 13,393.45 12,520.78 12,622.76
01/31/11 13,294.78 12,384.75 12,469.92
02/28/11 13,506.43 12,622.52 12,671.96
03/31/11 13,461.43 12,573.27 12,627.80
04/30/11 13,702.50 12,802.01 12,853.97
05/31/11 13,936.65 13,076.07 13,105.24
06/30/11 13,985.27 13,159.41 13,172.38
07/31/11 14,128.00 13,291.28 13,289.63
08/31/11 14,369.70 13,472.49 13,454.44
09/30/11 14,518.25 13,656.91 13,648.10
10/31/11 14,464.28 13,602.32 13,603.90
11/30/11 14,549.72 13,648.81 13,648.55
12/31/11 14,826.52 13,896.17 13,906.27
01/31/12 15,169.40 14,274.08 14,328.52
02/29/12 15,184.35 14,283.42 14,328.17
03/31/12 15,085.69 14,255.85 14,236.30
04/30/12 15,259.72 14,400.61 14,400.75
05/31/12 15,386.40 14,534.60 14,536.97
06/30/12 15,369.88 14,556.67 14,523.56
07/31/12 15,613.47 14,740.14 14,779.82
08/31/12 15,631.25 14,790.67 14,803.13
09/30/12 15,725.66 14,871.03 14,883.68
10/31/12 15,770.04 14,943.18 14,937.62
11/30/12 16,029.84 15,160.33 15,225.96
12/31/12 15,831.72 14,973.20 14,965.69
01/31/13 15,897.66 15,057.10 15,072.76
02/28/13 15,945.81 15,103.98 15,109.52
03/31/13 15,877.04 15,059.17 15,003.72
04/30/13 16,051.08 15,209.72 15,175.75
05/31/13 15,855.01 15,048.98 15,017.51
06/30/13 15,406.07 14,560.77 14,449.87
07/31/13 15,271.37 14,347.25 14,242.23
08/31/13 15,053.43 14,080.84 13,899.11
09/30/13 15,377.43 14,406.86 14,176.62
[END CHART]
Data from 9/30/03 through 9/30/13.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Virginia Bond Fund Shares to the following benchmarks:
o The unmanaged, broad-based Barclays Municipal Bond Index tracks total return
performance for the long-term, investment-grade, tax-exempt bond market.
All tax-exempt bond funds will find it difficult to outperform the index
because the index does not reflect any deduction for fees, expenses, or
taxes.
o The unmanaged Lipper Virginia Municipal Debt Funds Index tracks the total
return performance of the 10 largest funds within the Lipper Virginia
Municipal Debt Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA VIRGINIA BOND LIPPER VIRGINIA MUNICIPAL
FUND SHARES DEBT FUNDS AVERAGE
09/30/04 4.28% 3.84%
09/30/05 4.25 3.80
09/30/06 4.25 3.69
09/30/07 4.34 3.74
09/30/08 4.87 4.18
09/30/09 4.61 3.89
09/30/10 4.29 3.84
09/30/11 4.11 3.90
09/30/12 3.82 3.49
09/30/13 4.02 3.56
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 9/30/04 to 9/30/13.
The Lipper Virginia Municipal Debt Funds Average is an average performance level
of all Virginia municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
10 | USAA VIRGINIA BOND FUND
================================================================================
USAA VIRGINIA BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UVABX)
--------------------------------------------------------------------------------
9/30/13 3/31/13
--------------------------------------------------------------------------------
Net Assets $10.6 Million $11.9 Million
Net Asset Value Per Share $10.87 $11.60
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.417 $0.416
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/13
--------------------------------------------------------------------------------
3/31/13-9/30/13* 1 Year Since Inception 8/01/10
-4.52% -3.39% 3.46%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/13**
--------------------------------------------------------------------------------
3.31%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 3/31/13***
--------------------------------------------------------------------------------
0.76%
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 August 1, 2013, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 3.31% on 9/30/13,
and assuming Virginia state tax
rates of: 5.75% 5.75% 5.75% 5.75%
and assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 4.88% 5.56% 5.74% 6.21%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2013 tax rates or rates in effect as of the
issuance of this report.
* The above marginal rates assume income exceeds $250,000 and investment income
is subject to the 3.80% medicare tax which is applied for income over a specific
level, depending on the federal income tax filing status.
================================================================================
12 | USAA VIRGINIA BOND FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS MUNICIPAL USAA VIRGINIA BOND LIPPER VIRGINIA MUNICIPAL
BOND INDEX FUND ADVISER SHARES DEBT FUNDS INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,228.95 10,192.19 10,206.18
09/30/10 10,212.97 10,222.70 10,225.75
10/31/10 10,184.68 10,196.69 10,198.75
11/30/10 9,981.03 9,952.02 9,952.32
12/31/10 9,787.61 9,741.84 9,746.05
01/31/11 9,715.50 9,633.54 9,628.05
02/28/11 9,870.17 9,816.42 9,784.05
03/31/11 9,837.28 9,766.86 9,749.95
04/30/11 10,013.45 9,952.14 9,924.57
05/31/11 10,184.57 10,163.29 10,118.58
06/30/11 10,220.10 10,226.13 10,170.42
07/31/11 10,324.40 10,317.18 10,260.95
08/31/11 10,501.03 10,465.39 10,388.20
09/30/11 10,609.58 10,606.54 10,537.72
10/31/11 10,570.14 10,562.60 10,503.59
11/30/11 10,632.58 10,597.11 10,538.07
12/31/11 10,834.86 10,777.76 10,737.06
01/31/12 11,085.43 11,079.08 11,063.08
02/29/12 11,096.35 11,084.10 11,062.80
03/31/12 11,024.25 11,059.92 10,991.87
04/30/12 11,151.44 11,160.77 11,118.85
05/31/12 11,244.01 11,272.53 11,224.02
06/30/12 11,231.93 11,287.78 11,213.67
07/31/12 11,409.94 11,428.18 11,411.52
08/31/12 11,422.94 11,455.62 11,429.52
09/30/12 11,491.93 11,526.24 11,491.72
10/31/12 11,524.36 11,570.41 11,533.37
11/30/12 11,714.22 11,736.71 11,755.99
12/31/12 11,569.44 11,591.07 11,555.03
01/31/13 11,617.62 11,664.31 11,637.71
02/28/13 11,652.81 11,688.99 11,666.09
03/31/13 11,602.56 11,662.23 11,584.40
04/30/13 11,729.74 11,776.88 11,717.22
05/31/13 11,586.46 11,650.37 11,595.05
06/30/13 11,258.38 11,270.46 11,156.77
07/31/13 11,159.95 11,103.25 10,996.45
08/31/13 11,000.68 10,895.31 10,731.53
09/30/13 11,237.45 11,135.56 10,945.79
[END CHART]
Data from 7/31/10 through 9/30/13.*
See page 9 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Virginia Bond Fund Adviser Shares to the benchmarks.
*The performance of the Barclays Municipal Bond Index and the Lipper Virginia
Municipal Debt Funds Index is calculated from the end of the month, July 31,
2010, while the Adviser Shares' inception date is August 1, 2010. There may be
a slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES o
AS OF 9/30/13
(% of Net Assets)
Hospital ................................................................. 21.5%
Appropriated Debt ........................................................ 15.2%
Education ................................................................ 11.9%
Special Assessment/Tax/Fee ............................................... 8.4%
Nursing/CCRC ............................................................. 8.1%
Water/Sewer Utility ...................................................... 7.1%
Airport/Port ............................................................. 6.2%
Escrowed Bonds ........................................................... 4.6%
Toll Roads ............................................................... 4.3%
Single Family Housing .................................................... 2.5%
You will find a complete list of securities that the Fund owns on pages 18-21.
================================================================================
14 | USAA VIRGINIA BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX -- 9/30/13 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 11.9%
AA 45.9%
A 15.1%
BBB 16.3%
BELOW INVESTMENT-GRADE 1.1%
UNRATED 9.7%
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of a Nationally Recognized
Statistical Rating Organization (NRSRO). Any of the Fund's securities that are
not rated by these agencies appear in the chart above as "Unrated", but are
monitored and evaluated by USAA Asset Management Company on an ongoing basis.
Government securities that are issued or guaranteed as to principal and interest
by the U.S. government are not rated but are treated as AAA for credit quality
purposes. Securities within the Short-Term Investment-Grade category are those
that are ranked in the top two short-term credit ratings for the respective
rating agency (which are A-1 and A-2 for S&P and P-1 and P-2 for Moody's, F1 and
F2 for Fitch, and R-1 and R-2 for Dominion). Short-term ratings are generally
assigned to those obligations considered short-term; such obligations generally
have an original maturity not exceeding 13 months, unless explicitly noted. The
Below Investment-Grade category includes both long-term and short-term
securities.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 18-21.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
FIXED-RATE INSTRUMENTS -- consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the
market price of a fixed-rate instrument generally varies inversely to the
movement of interest rates.
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., Assured Guaranty Corp., Assured Guaranty
Municipal Corp., or National Public Finance Guarantee Corp. Although
bond insurance reduces the risk of loss due to default by an issuer,
such bonds remain subject to the risk that value may fluctuate for
other reasons, and there is no assurance that the insurance company
will meet its obligations.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee agreement
from the following: Federal National Mortgage Assn.
================================================================================
16 | USAA VIRGINIA BOND FUND
================================================================================
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
PRE Prerefunded to a date prior to maturity
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (99.0%)
VIRGINIA (90.1%)
$ 2,500 Albemarle County IDA 5.00% 1/01/2031 $ 2,340
1,000 Alexandria IDA 4.75 1/01/2036 1,030
2,000 Amherst IDA 5.00 9/01/2026 2,029
2,000 Amherst IDA 4.75 9/01/2030 1,982
15,000 Arlington County IDA 5.00 7/01/2031 15,287
4,595 Bedford County EDA (INS) (PRE) 5.25 5/01/2031 5,147
715 Bedford County EDA (INS) 5.25 5/01/2031 756
2,615 Capital Region Airport Commission (INS) 5.00 7/01/2031 2,702
5,000 Chesapeake Bay Bridge and Tunnel District 5.50 7/01/2025 5,583
6,520 Chesapeake, 4.75%, 7/15/2023 4.65(a) 7/15/2032 3,204
3,000 Chesapeake, 4.88%, 7/15/2023 4.88(a) 7/15/2040 1,310
5,000 College Building Auth. 5.00 6/01/2029 5,006
10,000 College Building Auth. 5.00 3/01/2034 10,423
3,290 College Building Auth. (PRE) 5.00 6/01/2036 3,672
11,710 College Building Auth. 5.00 6/01/2036 11,294
3,715 Dinwiddie County IDA (INS) (PRE) 5.00 2/15/2034 3,778
11,145 Fairfax (INS) (PRE) 4.75 1/15/2035 11,791
1,255 Fairfax (PRE) 4.75 1/15/2036 1,328
7,100 Fairfax County EDA 5.00 10/01/2027 7,226
12,700 Fairfax County EDA (INS) (PRE) 5.00 4/01/2029 13,010
7,980 Fairfax County EDA (PRE) 5.00 1/15/2030 8,465
6,150 Fairfax County EDA 5.00 4/01/2032 6,383
1,500 Fairfax County EDA 5.00 12/01/2032 1,367
5,750 Fairfax County EDA 4.88 10/01/2036 5,742
7,500 Fairfax County EDA 5.13 10/01/2037 7,530
2,800 Fairfax County EDA 5.00 12/01/2042 2,430
1,500 Fairfax County IDA 5.25 5/15/2026 1,623
14,000 Fairfax County IDA 5.00 5/15/2037 14,284
5,770 Farms of New Kent Community Dev. Auth.,
acquired 9/08/2006-10/03/2007;
cost $5,630(b),(c),(f) 5.45 3/01/2036 2,826
1,000 Fauquier County IDA 5.00 10/01/2027 1,014
8,825 Fauquier County IDA 5.25 10/01/2037 8,890
6,195 Frederick County IDA (INS) 4.75 6/15/2036 6,198
4,755 Front Royal and Warren County IDA (INS) (PRE) 5.00 4/01/2029 4,870
2,745 Front Royal and Warren County IDA (INS) (PRE) 5.00 4/01/2029 2,811
9,000 Hampton Roads Sanitation District 5.00 4/01/2033 9,496
2,795 Hanover County EDA 4.50 7/01/2030 2,307
================================================================================
18 | USAA VIRGINIA BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,100 Hanover County EDA 4.50% 7/01/2032 $ 888
2,000 Hanover County EDA 5.00 7/01/2042 1,632
8,305 Hanover County IDA (INS) 6.38 8/15/2018 9,147
2,000 Harrisonburg IDA (INS) 5.00 8/15/2031 2,046
10,000 Harrisonburg IDA (INS) 4.50 8/15/2039 9,558
1,200 Henrico County EDA 5.00 6/01/2024 1,219
140 Henrico County EDA 4.25 6/01/2026 128
3,200 Henrico County EDA 5.00 10/01/2027 3,236
2,105 Henrico County EDA 5.00 11/01/2030 2,161
5,170 Henrico County EDA 5.00 10/01/2035 5,119
10,000 Henrico County Water & Sewer (PRE) 5.00 5/01/2036 11,138
5,400 Housing Dev. Auth. 4.60 4/01/2028 5,429
3,175 Housing Dev. Auth. 4.50 10/01/2036 3,139
5,000 Housing Dev. Auth. 4.80 7/01/2038 5,010
5,000 Housing Dev. Auth. 5.10 10/01/2038 5,116
4,105 Housing Dev. Auth. 4.50 1/01/2039 3,914
4,480 Housing Dev. Auth. 4.60 9/01/2040 4,447
1,000 King George County IDA (INS) (PRE) 5.00 3/01/2032 1,020
5,000 Lewistown Commerce Center Community
Dev. Auth. 5.75 3/01/2019 2,088
5,000 Lexington IDA 5.00 12/01/2036 5,243
2,000 Lexington IDA 5.00 1/01/2043 2,093
3,000 Lynchburg EDA 5.00 9/01/2043 2,748
3,532 Marquis Community Dev. Auth.,
acquired 3/01/2012; cost $2,926(c),(d) 5.63 9/01/2041 2,806
5,389 Marquis Community Dev. Auth.,
acquired 3/01/2012; cost $468(c),(d) 5.63(e) 9/01/2041 510
5,000 Montgomery County EDA 5.00 6/01/2035 5,227
5,500 Montgomery County IDA 5.00 2/01/2029 5,729
4,200 Newport News EDA (PRE) 5.00 7/01/2031 4,703
1,045 Newport News EDA 5.00 7/01/2031 1,107
1,000 Norfolk EDA 5.00 11/01/2030 1,027
3,500 Norfolk EDA 5.00 11/01/2043 3,566
1,850 Norfolk Redevelopment and Housing Auth. 5.50 11/01/2019 1,858
4,963 Peninsula Town Center Community Dev. Auth. 6.45 9/01/2037 5,115
4,005 Port Auth. (PRE) 5.00 7/01/2030 4,333
3,000 Port Auth. 5.00 7/01/2030 3,151
10,000 Port Auth. 5.00 7/01/2040 10,205
2,815 Powhatan County EDA (INS) 5.00 3/15/2032 2,907
1,620 Prince William County (INS) (PRE) 5.00 9/01/2024 1,825
1,210 Prince William County IDA (PRE) 5.50 10/01/2017 1,234
1,350 Prince William County IDA (PRE) 5.50 10/01/2019 1,377
3,370 Prince William County IDA 4.88 1/01/2020 2,849
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 8,000 Prince William County IDA 5.13% 1/01/2026 $ 6,109
1,705 Prince William County IDA 5.50 9/01/2031 1,832
2,000 Prince William County IDA 5.50 9/01/2031 2,129
7,500 Prince William County IDA (PRE) 5.50 10/01/2033 7,576
1,000 Prince William County IDA 5.50 9/01/2034 1,059
10,000 Prince William County IDA 5.00 11/01/2046 10,032
4,000 Radford IDA (NBGA) 3.50 9/15/2029 3,677
5,310 Rappahannock Regional Jail Auth. (INS) 4.75 12/01/2031 5,339
6,280 Rappahannock Regional Jail Auth. (INS) 4.50 12/01/2036 6,095
3,945 Resources Auth. 4.75 11/01/2035 3,954
2,000 Resources Auth. 4.38 11/01/2036 2,002
1,435 Resources Auth. 5.00 11/01/2040 1,492
7,310 Resources Auth. 4.00 11/01/2041 6,644
1,016 Reynolds Crossing Community Dev. Auth. 5.10 3/01/2021 1,026
2,500 Richmond Public Utility (INS) 4.50 1/15/2033 2,533
2,000 Richmond Public Utility 5.00 1/15/2035 2,100
6,000 Richmond Public Utility 5.00 1/15/2038 6,356
4,500 Richmond Public Utility 5.00 1/15/2040 4,650
5,120 Roanoke County EDA (INS) 5.00 10/15/2027 5,497
2,850 Roanoke County EDA (INS) 5.00 10/15/2032 2,953
4,285 Roanoke County EDA (INS) 5.13 10/15/2037 4,408
110 Roanoke County IDA (INS) (PRE) 5.00 7/01/2038 131
6,890 Roanoke County IDA (INS) 5.00 7/01/2038 7,018
3,000 Route 460 Funding Corp. 5.08(e) 7/01/2036 712
2,000 Route 460 Funding Corp. 5.12(e) 7/01/2037 442
2,500 Route 460 Funding Corp. 5.13(e) 7/01/2038 511
6,965 Route 460 Funding Corp. 5.17(e) 7/01/2039 1,310
420 Small Business Financing Auth. 5.00 4/01/2025 450
185 Small Business Financing Auth. 5.25 4/01/2026 199
1,500 Small Business Financing Auth. 5.25 9/01/2027 1,523
855 Small Business Financing Auth. 5.50 4/01/2028 916
750 Small Business Financing Auth. 5.50 4/01/2033 786
15,000 Small Business Financing Auth. 5.25 9/01/2037 14,455
11,945 Small Business Financing Auth. 5.00 11/01/2040 12,085
4,000 Southampton County IDA 5.00 4/01/2025 4,288
6,345 Spotsylvania County EDA (INS) 5.00 2/01/2031 6,510
1,645 Stafford County and City of Stauton IDA
(INS) (PRE) 5.25 8/01/2031 1,853
5,755 Stafford County and City of Stauton IDA (INS) 5.25 8/01/2031 5,838
16,155 Stafford County and City of Stauton IDA (INS) 5.25 8/01/2036 16,306
10,000 Tobacco Settlement Financing Corp. 5.00 6/01/2047 6,436
6,315 Univ. Health System Auth. 4.75 7/01/2036 6,280
3,000 Univ. Health System Auth. 4.75 7/01/2041 2,927
8,405 Univ. of Virginia 5.00 6/01/2037 9,094
5,000 Upper Occoquan Sewage Auth. 5.00 7/01/2041 5,197
================================================================================
20 | USAA VIRGINIA BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,165 Washington County IDA 5.25% 8/01/2030 $ 2,307
2,160 Washington County IDA 5.50 8/01/2040 2,275
4,086 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 3,982
3,000 Winchester IDA 5.63 1/01/2044 3,168
--------
545,644
--------
DISTRICT OF COLUMBIA (5.1%)
2,825 Metropolitan Airports Auth. 5.00 10/01/2029 3,013
12,465 Metropolitan Airports Auth. 5.00 10/01/2030 13,218
11,230 Metropolitan Airports Auth. 5.00 10/01/2039 11,323
1,000 Metropolitan Area Transit Auth. 5.13 7/01/2032 1,059
5,500 Metropolitan Washington Airports Auth. (INS) 5.32(e) 10/01/2030 2,186
--------
30,799
--------
PUERTO RICO (2.9%)
2,000 Electric Power Auth. 5.25 7/01/2028 1,507
6,180 Public Improvement (PRE) 5.25 7/01/2032 6,970
11,000 Sales Tax Financing Corp. 5.75 8/01/2037 9,054
--------
17,531
--------
GUAM (0.6%)
1,500 Government 5.00 1/01/2042 1,503
1,255 International Airport Auth. (INS) 5.75 10/01/2043 1,280
1,000 Power Auth. 5.00 10/01/2034 961
--------
3,744
--------
U.S. VIRGIN ISLANDS (0.3%)
2,000 Public Finance Auth. 5.00 10/01/2032 1,943
--------
Total Fixed-Rate Instruments (cost: $611,413) 599,661
--------
TOTAL INVESTMENTS (COST: $611,413) $599,661
========
------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $599,661 $- $599,661
------------------------------------------------------------------------------------------------------
Total $- $599,661 $- $599,661
------------------------------------------------------------------------------------------------------
For the period of April 1, 2013, through September 30, 2013, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2013 (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.
o SPECIFIC NOTES
(a) Stepped-coupon security that is initially issued in zero-coupon form
and converts to coupon form at the specified date and rate shown in the
security's description. The rate presented in the coupon rate column
represents the effective yield at the date of purchase.
(b) Security was fair valued at September 30, 2013, by USAA Asset
Management Company (the Manager) in accordance with valuation
procedures approved by the Trust's Board of Trustees (the Board). The
total value of all such securities was $2,826,000, which represented
0.5% of net assets of the Fund.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at September 30, 2013, was $6,142,000, which represented 1.0% of the
Fund's net assets.
================================================================================
22 | USAA VIRGINIA BOND FUND
================================================================================
(d) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(e) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(f) Currently the issuer is in default with respect to interest and/or
principal payments.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $611,413) $599,661
Receivables:
Capital shares sold 192
Interest 8,820
--------
Total assets 608,673
--------
LIABILITIES
Payables:
Capital shares redeemed 360
Dividends on capital shares 401
Bank overdraft 2,099
Accrued management fees 182
Accrued transfer agent's fees 3
Other accrued expenses and payables 26
--------
Total liabilities 3,071
--------
Net assets applicable to capital shares outstanding $605,602
========
NET ASSETS CONSIST OF:
Paid-in capital $619,566
Accumulated net realized loss on investments (2,212)
Net unrealized depreciation of investments (11,752)
--------
Net assets applicable to capital shares outstanding $605,602
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $594,979/54,710 shares outstanding) $ 10.88
========
Adviser Shares (net assets of $10,623/977 shares outstanding) $ 10.87
========
See accompanying notes to financial statements.
================================================================================
24 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 14,622
--------
EXPENSES
Management fees 1,175
Administration and servicing fees:
Fund Shares 477
Adviser Shares 9
Transfer agent's fees:
Fund Shares 98
Distribution and service fees (Note 6E):
Adviser Shares 14
Custody and accounting fees:
Fund Shares 43
Adviser Shares 1
Postage:
Fund Shares 4
Shareholder reporting fees:
Fund Shares 9
Trustees' fees 7
Professional fees 42
Other 8
--------
Total expenses 1,887
--------
NET INVESTMENT INCOME 12,735
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (1,205)
Change in net unrealized appreciation/depreciation (41,565)
--------
Net realized and unrealized loss (42,770)
--------
Decrease in net assets resulting from operations $(30,035)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended September 30, 2013 (unaudited), and year ended
March 31, 2013
--------------------------------------------------------------------------------
9/30/2013 3/31/2013
--------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 12,735 $ 25,129
Net realized gain (loss) on investments (1,205) 492
Change in net unrealized appreciation/depreciation of
investments (41,565) 10,584
-----------------------
Increase (decrease) in net assets resulting from
operations (30,035) 36,205
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (12,469) (24,756)
Adviser Shares (214) (336)
-----------------------
Distributions to shareholders (12,683) (25,092)
-----------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (34,389) 32,046
Adviser Shares (523) 4,774
-----------------------
Total net increase (decrease) in net assets from
capital share transactions (34,912) 36,820
-----------------------
Net increase (decrease) in net assets (77,630) 47,933
NET ASSETS
Beginning of period 683,232 635,299
-----------------------
End of period $605,602 $683,232
=======================
Overdistributed net investment income:
End of period $ - $ (52)
=======================
See accompanying notes to financial statements.
================================================================================
26 | USAA VIRGINIA BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 52 separate funds. The
information presented in this semiannual report pertains only to the USAA
Virginia Bond Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to provide investors with a high level
of current interest income that is exempt from federal and Virginia state income
taxes.
The Fund consists of two classes of shares: Virginia Bond Fund Shares (Fund
Shares) and Virginia Bond Fund Adviser Shares (Adviser Shares). Each class of
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, distribution and service (12b-1) fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class's relative net assets. Each class has exclusive
voting rights on matters related solely to that class and separate voting rights
on matters that relate to both classes. The Adviser Shares permit investors to
purchase shares through financial intermediaries, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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
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 tax-exempt
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
================================================================================
28 | USAA VIRGINIA BOND FUND
================================================================================
3. 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, an affiliate of the Fund, 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 net asset value (NAV) to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include fixed-rate instruments which are valued based on methods discussed
in Note 1A1.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore,
no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities. The Fund concentrates its investments in
Virginia tax-exempt securities and, therefore, may be exposed to more credit
risk than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in
================================================================================
30 | USAA VIRGINIA BOND FUND
================================================================================
the Fund's bank accounts may be used to directly reduce the Fund's expenses.
For the six-month period ended September 30, 2013, there were no custodian
and other bank credits.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fee rate remains unchanged from September 30, 2012, to
September 30, 2013. The facility fees are allocated among the Funds based on
their respective average net assets for the period.
For the six-month period ended September 30, 2013, the Fund paid CAPCO facility
fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2013.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(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 March 31, 2014,
in accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
Under the Regulated Investment Company Modernization Act of 2010 (the Act) a
fund is permitted to carry forward net capital losses indefinitely.
Additionally, such capital losses that are carried forward will retain their
character as short-term and or long-term capital losses. Post-enactment capital
loss carryforwards must be used before pre-enactment capital loss carryforwards.
As a result, pre-enactment capital loss carryforwards may be more likely to
expire unused.
At March 31, 2013, the Fund had no pre-enactment capital loss carryforwards and
post-enactment net capital loss carryforwards of $1,007,000, for federal income
tax purposes. It is unlikely that the Board will authorize a distribution of
capital gains realized in the future until the capital loss carryforwards have
been used.
POST-ENACTMENT CAPITAL LOSS CARRYFORWARDS
-----------------------------------------
TAX CHARACTER
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $ 403,000
Long-Term 604,000
----------
Total $1,007,000
==========
For the six-month period ended September 30, 2013, 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
================================================================================
32 | USAA VIRGINIA BOND FUND
================================================================================
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 September 30, 2013, were
$35,408,000 and $25,049,000, respectively.
As of September 30, 2013, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as that
reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2013, were $14,547,000 and $26,299,000, respectively, resulting in net
unrealized depreciation of $11,752,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2013, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2013 MARCH 31, 2013
---------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------
FUND SHARES:
Shares sold 2,550 $ 28,657 7,778 $ 90,445
Shares issued from reinvested
dividends 901 10,025 1,710 19,891
Shares redeemed (6,589) (73,071) (6,728) (78,290)
----------------------------------------------
Net increase (decrease) from
capital share transactions (3,138) $(34,389) 2,760 $ 32,046
==============================================
ADVISER SHARES:
Shares sold 131 $ 1,476 445 $ 5,172
Shares issued from reinvested
dividends 11 120 13 150
Shares redeemed (192) (2,119) (47) (548)
----------------------------------------------
Net increase (decrease) from
capital share transactions (50) $ (523) 411 $ 4,774
==============================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
investment management fee for the Fund is composed of a base investment
management fee and a performance adjustment. The Fund's base investment
management fee is accrued daily and paid monthly as a percentage of
aggregate average net assets of the USAA Virginia Bond and USAA Virginia
Money Market Funds combined, which on an annual basis is equal to 0.50% of
the first $50 million, 0.40% of that portion over $50 million but not over
$100 million, and 0.30% of that portion over $100 million. These fees are
allocated on a proportional basis to each Fund monthly based upon average
net assets. For the six-month period ended September 30, 2013, the Fund's
effective annualized base investment management fee was 0.32% of the Fund's
average net assets for the same period.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
Virginia Municipal Debt Funds Index over the performance period. The Lipper
Virginia Municipal Debt Funds Index tracks the total return performance of
the 10 largest funds in the Lipper Virginia Municipal Debt Funds category.
The performance period for each class consists of the current month plus the
previous 35 months. The following table is utilized to determine the extent
of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
--------------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1) Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant index, rounded to the nearest basis
point (0.01%). Average net assets of the share class are calculated over a
rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance
================================================================================
34 | USAA VIRGINIA BOND FUND
================================================================================
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 the performance adjustment; a positive
adjustment in the case of overperformance, or a negative adjustment in the
case of underperformance.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Virginia Municipal Debt Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended September 30, 2013, the Fund incurred total
management fees, paid or payable to the Manager, of $1,175,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$144,000 and $1,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.05% and 0.03%, respectively.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2013, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $477,000 and $9,000, 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 September 30, 2013, the Fund reimbursed the
Manager $9,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
C. EXPENSE LIMITATION -- The Manager has agreed, through August 1, 2014, to
limit the annual expenses of the Adviser Shares to 0.90% of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and will reimburse the Adviser
Shares for all expenses in excess of that amount. This expense limitation
arrangement may not be changed or terminated through August 1, 2014, without
approval of the Board, and may be changed or terminated by the Manager at
any time after that date. For the six-month period ended September 30, 2013,
the Adviser Shares incurred no 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. Each class also
pays SAS fees that are related to the administration and servicing of
accounts that are traded on an omnibus basis. For the six-month period ended
September 30, 2013, the Fund Shares and Adviser Shares incurred transfer
agent's fees, paid or payable to SAS, of $98,000 and less than $500,
respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES -- The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for investment
by their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are
offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended September
30, 2013, the Adviser Shares incurred distribution and service (12b-1) fees
of $14,000.
F. UNDERWRITING SERVICES -- USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
================================================================================
36 | USAA VIRGINIA BOND FUND
================================================================================
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution. At
September 30, 2013, USAA and its affiliates owned 448,000 shares, which
represent 45.8% of the Adviser Shares and 0.8% of the Fund.
Certain trustees and officers of the Fund are also directors, officers,
and/or employees of the Manager. None of the affiliated trustees or Fund
officers received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(8) FINANCIAL HIGHLIGHTS -- FUND SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------
2013 2013 2012 2011 2010 2009
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.60 $ 11.40 $ 10.48 $ 10.96 $ 10.23 $ 10.88
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .44 .46 .46 .50 .51
Net realized and
unrealized gain (loss) (.72) .20 .92 (.45) .73 (.65)
-------------------------------------------------------------------------------
Total from investment
operations (.50) .64 1.38 .01 1.23 (.14)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.44) (.46) (.46) (.50) (.51)
Realized capital gains - - - (.03) - -
-------------------------------------------------------------------------------
Total distributions (.22) (.44) (.46) (.49) (.50) (.51)
-------------------------------------------------------------------------------
Net asset value at end
of period $ 10.88 $ 11.60 $ 11.40 $ 10.48 $ 10.96 $ 10.23
===============================================================================
Total return (%)* (4.33) 5.65 13.37 (.03) 12.23(a) (1.29)
Net assets at end
of period (000) $594,979 $671,320 $628,271 $546,998 $573,840 $506,576
Ratios to average
net assets:**
Expenses (%)(b) .58(c) .57 .55 .51 .49(a) .52
Net investment income (%) 3.94(c) 3.77 4.14 4.21 4.66 4.84
Portfolio turnover (%) 4 6 5 23 3 1
* 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 September 30, 2013, average net assets were
$633,319,422.
(a) During the year ended March 31, 2010, SAS reimbursed the Fund Shares $11,000
for corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund Shares' total return
was less than 0.01%. The reimbursement decreased the Fund Shares' expense
ratios by 0.01%. This decrease is excluded from the expense ratios in the
Financial Highlights table.
(b) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA VIRGINIA BOND FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) -- ADVISER SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
-------------------------------------------------------------
2013 2013 2012 2011***
-------------------------------------------------------------
Net asset value at
beginning of period $ 11.60 $ 11.40 $10.47 $11.02
--------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .42 .43 .27
Net realized and unrealized
gain (loss) (.73) .20 .93 (.52)
--------------------------------------------------------
Total from investment operations (.52) .62 1.36 (.25)
--------------------------------------------------------
Less distributions from:
Net investment income (.21) (.42) (.43) (.27)
Realized capital gains - - - (.03)
--------------------------------------------------------
Total distributions (.21) (.42) (.43) (.30)
--------------------------------------------------------
Net asset value at end of period $ 10.87 $ 11.60 $11.40 $10.47
========================================================
Total return (%)* (4.52) 5.46 13.23 (2.33)
Net assets at end of period (000) $10,623 $11,912 $7,028 $4,691
Ratios to average net assets:**
Expenses (%)(a) .78(b) .76 .78 .86(b)
Expenses, excluding
reimbursements (%)(a) .78(b) .76 .78 .86(b)
Net investment income (%) 3.74(b) 3.57 3.90 3.84(b)
Portfolio turnover (%) 4 6 5 23
* 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 September 30, 2013, average net assets were
$11,455,135.
*** Adviser Shares were initiated on August 1, 2010.
(a) Reflects total operating expenses of the Adviser Shares before reductions of
any expenses paid indirectly. The Adviser Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
EXPENSE EXAMPLE
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs,
such as wire fees, redemption fees, and low balance fees; and indirect
costs, including management fees, transfer agency fees, and other Fund
operating expenses. This example is intended to help you understand your
indirect costs, also referred to as "ongoing costs" (in dollars), of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of April 1, 2013,
through September 30, 2013.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table on the next
page provides information about actual account values and actual expenses.
You may use the information in this line, together with the amount you
invested at the beginning of the period, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number for your share class in the "actual" line under the
heading "Expenses Paid During Period" to estimate the expenses you paid on
your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses
based on the Fund's actual expense ratios for each class and an assumed rate
of return of 5% per year before expenses, which is not the Fund's
================================================================================
40 | USAA VIRGINIA BOND FUND
================================================================================
actual return. The hypothetical account values and expenses may not be used
to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled
"hypothetical" is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In
addition, if these direct costs were included, your costs would have been
higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2013 -
APRIL 1, 2013 SEPTEMBER 30, 2013 SEPTEMBER 30, 2013
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 956.70 $2.84
Hypothetical
(5% return before expenses) 1,000.00 1,022.16 2.94
ADVISER SHARES
Actual 1,000.00 954.80 3.82
Hypothetical
(5% return before expenses) 1,000.00 1,021.16 3.95
* Expenses are equal to the annualized expense ratio of 0.58% for Fund Shares
and 0.78% for Adviser Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 183 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
(4.33)% for Fund Shares and (4.52)% for Adviser Shares for the six-month
period of April 1, 2013, through September 30, 2013.
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
ADVISORY AGREEMENT
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
At a meeting of the Board of Trustees (the Board) held on April 30, 2013, the
Board, including the Trustees who are not "interested persons" of the Trust (the
Independent Trustees), approved for an annual period the continuance of the
Advisory Agreement between the Trust and the Manager with respect to the Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with their counsel at which no representatives of
management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund
================================================================================
42 | USAA VIRGINIA BOND FUND
================================================================================
performance, comparability of fees and total expenses, and profitability.
However, the Board noted that the evaluation process with respect to the Manager
is an ongoing one. In this regard, the Board's and its committees' consideration
of the Advisory Agreement included information previously received at such
meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its knowledge of
the Manager's management and the quality of the performance of its duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution,"
================================================================================
ADVISORY AGREEMENT | 43
================================================================================
also was considered. The Manager's role in coordinating the activities of the
Fund's other service providers also was considered. The Board also considered
the Manager's risk management processes. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Advisory
Agreement. In reviewing the Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, investment companies with front-end loads or with
no sales loads), asset size, and expense components (the "expense group") and
(ii) a larger group of investment companies that includes all no-load and
front-end load retail open-end investment companies in the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate -- which includes advisory and administrative
services and the effects of any performance adjustment -- was below the median
of its expense group and its expense universe. The data indicated that the
Fund's total expense ratio was below the median of its expense group and its
expense universe. The Board took into account the various services provided to
the Fund by the Manager
================================================================================
44 | USAA VIRGINIA BOND FUND
================================================================================
and its affiliates, including the nature and high quality of services provided
by the Manager. The Board also noted the level and method of computing the
management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the approval of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three, and five-year periods ended December 31, 2012. The
Board also noted that the Fund's percentile performance ranking was in the top
25% of its performance universe for the one- and three-year periods ended
December 31, 2012, and was in the top 20% of its performance universe for the
five-year period ended December 31, 2012. The Board took into account
management's discussion of the Fund's performance, including the Fund's more
recent improved performance.
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This information included a
review of the methodology used in the allocation of certain costs to the Fund.
The Trustees reviewed the profitability of the Manager's relationship with the
Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which
================================================================================
ADVISORY AGREEMENT | 45
================================================================================
they receive compensation. The Board also considered the possible direct and
indirect benefits to the Manager from its relationship with the Trust, including
that the Manager may derive reputational and other benefits from its association
with the Fund. The Board also took into account the high quality of services
received by the Fund from the Manager. The Trustees recognized that the Manager
should be entitled to earn a reasonable level of profits in exchange for the
level of services it provides to the Fund and the entrepreneurial risk that it
assumes as Manager.
ECONOMIES OF SCALE -- The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also
considered the effect of the Fund's growth and size on its performance and fees,
noting that the Fund may realize additional economies of scale if assets
increase proportionally more than some expenses. The Board determined that the
current investment management fee structure was reasonable.
CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's level of profitability from its
relationship with the Fund is reasonable in light of the nature and high quality
of services provided by the Manager and the type of fund. Based on its
conclusions, the Board determined that continuation of the Advisory Agreement
would be in the best interests of the Fund and its shareholders.
================================================================================
46 | USAA VIRGINIA BOND FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select "Investments,"
AT USAA.COM then "Mutual Funds"
OR CALL Under "Investments" view
(800) 531-USAA account balances, or click
(8722) "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
39604-1113 (C)2013, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended September 30, 2013
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: DANIEL J. MAVICO, Assistant Secretary
Date: 11/22/2013
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 12/02/2013
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 12/02/2013
------------------------------
*Print the name and title of each signing officer under his or her signature.