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 CALIFORNIA MONEY MARKET FUND]
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SEMIANNUAL REPORT
USAA CALIFORNIA MONEY MARKET FUND
SEPTEMBER 30, 2013
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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."
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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
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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.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGER'S COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 14
Financial Statements 15
Notes to Financial Statements 18
EXPENSE EXAMPLE 26
ADVISORY AGREEMENT 28
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.
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FUND OBJECTIVE
THE CALIFORNIA MONEY MARKET FUND (THE FUND) PROVIDES CALIFORNIA INVESTORS WITH A
HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND CALIFORNIA
STATE INCOME TAXES AND A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING
LIQUIDITY.
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TYPES OF INVESTMENTS
The Fund primarily invests in high-quality California tax-exempt securities with
remaining maturities of 397 days or less. During normal market conditions, at
least 80% of the Fund's net assets will consist of California tax-exempt
securities.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGER'S COMMENTARY ON THE FUND
DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN]
USAA Asset Management Company
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o HOW DID THE USAA CALIFORNIA MONEY MARKET FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
Yields on tax-exempt money market instruments stayed near all-time lows.
During the reporting period, the Fund had a return of 0.01%, compared to an
average return of 0.00% for the California tax-exempt money market funds
category, according to iMoneyNet, Inc.
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Long-term interest rates increased during the reporting period on speculation
that 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. By August, it was widely
believed the Fed would announce a reduction in its asset purchases after its
September policy meeting. Instead, the Fed announced it would make no changes
to its bond-buying programs and long-term interest rates drifted down
slightly.
Short-term interest rates were anchored near zero throughout the reporting
period. The Fed says it does not plan to raise short-term rates until
unemployment falls below 6.5% and inflation rises above 2.0%. Though the U.S.
economy has continued to grow slowly, employment gains have been modest and
inflation has remained benign.
Refer to page 6 for benchmark definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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2 | USAA CALIFORNIA MONEY MARKET FUND
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Because of exceptionally low short-term rates, money market funds continued to
provide very low absolute yields. Nevertheless, investors continued to favor
them for the safety and liquidity they provide. As a result, short-term
tax-exempt securities, especially municipal variable rate demand notes
(VRDNs), remained in short supply. During the reporting period, the SIFMA
Municipal Swap Index, the index of seven-day VRDNs, remained in a narrow
range, starting the reporting period at 0.12%, dropping as low as 0.05% on
July 3, 2013, and rising to 0.07% at the end of the reporting period.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
Because of the low interest rate environment, we continued to focus our
purchases on VRDNs. The VRDNs owned by the Fund offer flexibility because we
can sell them at par value (100% of face value) upon seven days' or less
notice. In addition to providing liquidity, they offer a degree of safety.
Many of these VRDNs are guaranteed by a bank letter of credit for the payment
of both principal and interest.
To enhance the portfolio's yield, we sought to invest in securities with
longer maturities. However, with short-term rates at historic lows, there were
very few attractive opportunities. Our team of credit analysts helped us
identify potential investments for the Fund. These experienced professionals
also continued to analyze and monitor every holding in the portfolio.
o WHAT ARE THE CONDITIONS IN THE STATE OF CALIFORNIA?
California's fiscal situation has improved significantly since the third
quarter of 2012. For the third year in a row, the state budget was signed on
time in June 2013 and achieved structural balance. State revenues are
benefiting from a tax initiative that voters approved in November 2012. The
new taxes are expected to generate billions of dollars in additional annual
revenue, which lessens the chance of a
The SIFMA Municipal Swap Index, produced by Municipal Market Data, is a
seven-day high-grade market index comprised of tax-exempt variable-rate demand
obligations from Municipal Market Data's extensive database. o Variable-rate
demand notes (VRDNs) are securities which the interest rate is reset
periodically; typically weekly, although reset intervals may vary.
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MANAGER'S COMMENTARY ON THE FUND | 3
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large budget gap emerging in the near future. Furthermore, because the tax
increase is in effect until fiscal 2019, the state should benefit from the
additional revenue for some time. As a result of better fiscal management and
the improved revenue picture, Fitch Ratings upgraded California's long-term
general obligation bond rating one notch in August 2013. The state's general
obligation bonds are rated A1 by Moody's Investors Service, A by Standard &
Poor's Ratings and A by Fitch Ratings.
o WHAT IS THE OUTLOOK?
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. At
the end of the reporting period, tax-exempt investors seemed less worried
about higher interest rates and more concerned about tight municipal supply
and the U.S. government's fiscal challenges.
Meanwhile, the Fed is likely to keep short-term rates low for the foreseeable
future. As a result, shareholders can expect to see little change in the
Fund's yield. Once the Fed does begin raising rates, we will look for
opportunities to invest at higher yields. In the interim, we will continue to
focus on safety and liquidity, while striving to maximize the tax-exempt
income you receive from the Fund. As always, we will avoid issues subject to
the alternative minimum tax for individuals.
We appreciate your continued investment in the Fund.
Investing in securities products involves risk, including possible loss of
principal. 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.
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4 | USAA CALIFORNIA MONEY MARKET FUND
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INVESTMENT OVERVIEW
USAA CALIFORNIA MONEY MARKET FUND (Ticker Symbol: UCAXX)
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9/30/13 3/31/13
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Net Assets $332.6 Million $329.4 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 12 Days 13 Days
(+)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.
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AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/13
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3/31/13-9/30/13* 1 Year 5 Years 10 Years
0.01% 0.01% 0.21% 1.18%
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7-DAY YIELD AS OF 9/30/13 EXPENSE RATIO AS OF 3/31/13**
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Subsidized 0.01% 0.57%
Unsubsidized -0.39%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated 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.
An investment in a money market fund is not insured or guaranteed by the FDIC or
any other government agency. Although the Fund seeks to preserve the value of
your investment at $1 per share, it is possible to lose money by investing in
the Fund.
Total return equals income return and assumes reinvestment of all net investment
income and realized capital gain distributions. The total returns quoted do not
reflect adjustments made to the enclosed financial statements in accordance with
U.S. generally accepted accounting principles or the deduction of taxes that a
shareholder would pay on distributions or the redemption of shares. Yields and
returns fluctuate. The seven-day yield quotation more closely reflects current
earnings of the Fund than the total return quotation.
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INVESTMENT OVERVIEW | 5
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o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA CALIFORNIA
iMONEYNET AVERAGE MONEY MARKET FUND
9/24/2012 0.01% 0.01%
10/29/2012 0.01 0.01
11/26/2012 0.01 0.01
12/31/2012 0.03 0.01
1/28/2013 0.01 0.01
2/25/2013 0.01 0.01
3/25/2013 0.01 0.01
4/29/2013 0.01 0.01
5/28/2013 0.01 0.01
6/24/2013 0.01 0.01
7/29/2013 0.01 0.01
8/26/2013 0.01 0.01
9/30/2013 0.01 0.01
Data represent the last Monday of each month. Ending date 9/30/13.
The graph tracks the USAA California Money Market Fund's seven-day yield against
iMoneyNet, Inc. state-specific California institutional and retail state
tax-free and municipal money funds, an average of money market fund yields.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
Past performance is no guarantee of future results.
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6 | USAA CALIFORNIA MONEY MARKET FUND
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o TOP 10 INDUSTRIES o
AS OF 9/30/13
(% of Net Assets)
Education .............................................................. 21.3%
General Obligation ..................................................... 16.6%
Hospital ............................................................... 14.1%
Appropriated Debt ...................................................... 9.7%
Special Assessment/Tax/Fee ............................................. 6.0%
Water/Sewer Utility .................................................... 5.9%
Multifamily Housing .................................................... 5.5%
Industrial Gases ....................................................... 4.8%
Community Service ...................................................... 4.1%
Nursing/CCRC ........................................................... 3.5%
o PORTFOLIO MIX -- 9/30/13 o
[PIE CHART OF PORTFOLIO MIX]
Variable-Rate Demand Notes 90.1%
Fixed-Rate Instruments 4.5%
Put Bonds 3.5%
Adjustable-Rate Notes 1.8%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 11-13.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA CALIFORNIA
MONEY MARKET FUND
09/30/03 $10,000.00
10/31/03 10,005.40
11/30/03 10,010.66
12/31/03 10,016.42
01/31/04 10,021.05
02/29/04 10,025.11
03/31/04 10,029.49
04/30/04 10,034.90
05/31/04 10,039.96
06/30/04 10,044.98
07/31/04 10,050.33
08/31/04 10,056.30
09/30/04 10,064.07
10/31/04 10,074.43
11/30/04 10,084.22
12/31/04 10,095.21
01/31/05 10,105.51
02/28/05 10,116.73
03/31/05 10,129.06
04/30/05 10,145.90
05/31/05 10,165.56
06/30/05 10,181.68
07/31/05 10,197.40
08/31/05 10,214.34
09/30/05 10,232.83
10/31/05 10,250.57
11/30/05 10,270.86
12/31/05 10,295.24
01/31/06 10,315.84
02/28/06 10,336.76
03/31/06 10,361.35
04/30/06 10,384.63
05/31/06 10,411.31
06/30/06 10,440.22
07/31/06 10,465.72
08/31/06 10,492.56
09/30/06 10,519.65
10/31/06 10,545.47
11/30/06 10,572.06
12/31/06 10,601.79
01/31/07 10,627.52
02/28/07 10,653.06
03/31/07 10,681.99
04/30/07 10,709.70
05/31/07 10,740.37
06/30/07 10,769.78
07/31/07 10,797.70
08/31/07 10,830.37
09/30/07 10,857.28
10/31/07 10,885.83
11/30/07 10,914.82
12/31/07 10,942.78
01/31/08 10,966.90
02/29/08 10,987.76
03/31/08 11,012.60
04/30/08 11,032.47
05/31/08 11,053.68
06/30/08 11,068.65
07/31/08 11,083.64
08/31/08 11,101.23
09/30/08 11,130.79
10/31/08 11,164.49
11/30/08 11,178.87
12/31/08 11,193.31
01/31/09 11,202.04
02/28/09 11,209.00
03/31/09 11,216.32
04/30/09 11,222.89
05/31/09 11,229.48
06/30/09 11,233.36
07/31/09 11,235.19
08/31/09 11,236.91
09/30/09 11,237.99
10/31/09 11,238.97
11/30/09 11,239.39
12/31/09 11,242.79
01/31/10 11,242.88
02/28/10 11,242.97
03/31/10 11,243.06
04/30/10 11,243.16
05/31/10 11,243.35
06/30/10 11,243.45
07/31/10 11,243.55
08/31/10 11,243.64
09/30/10 11,243.73
10/31/10 11,243.83
11/30/10 11,243.92
12/31/10 11,244.80
01/31/11 11,244.89
02/28/11 11,244.98
03/31/11 11,245.07
04/30/11 11,245.17
05/31/11 11,245.26
06/30/11 11,245.35
07/31/11 11,245.45
08/31/11 11,245.54
09/30/11 11,245.64
10/31/11 11,245.73
11/30/11 11,245.82
12/31/11 11,246.37
01/31/12 11,247.89
02/29/12 11,247.98
03/31/12 11,248.07
04/30/12 11,248.16
05/31/12 11,248.26
06/30/12 11,248.35
07/31/12 11,248.45
08/31/12 11,248.55
09/30/12 11,248.63
10/31/12 11,248.73
11/30/12 11,248.83
12/31/12 11,249.25
01/31/13 11,249.35
02/28/13 11,249.44
03/31/13 11,249.53
04/30/13 11,249.62
05/31/13 11,249.72
06/30/13 11,249.81
07/31/13 11,249.91
08/31/13 11,250.00
09/30/13 11,250.09
[END CHART]
Data from 9/30/03 through 9/30/13.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA California Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
reinvested net investment income and realized capital gain distributions or on
the redemption of shares. Some income may be subject to federal, state, or local
taxes. For seven-day yield information, please refer to the Fund's Investment
Overview.
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8 | USAA CALIFORNIA MONEY MARKET FUND
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PORTFOLIO OF INVESTMENTS
September 30, 2013 (unaudited)
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o CATEGORIES AND DEFINITIONS
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the security
at face value on either that day or within the rate-reset period. The interest
rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other
specified time interval to reflect current market conditions. The effective
maturity of these instruments is deemed to be less than 397 days in accordance
with detailed regulatory requirements.
PUT BONDS -- provide the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the effective
maturity of the security.
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.
ADJUSTABLE-RATE NOTES -- similar to VRDNs in the fact that the interest rate
is adjusted periodically to reflect current market conditions. These interest
rates are adjusted at a given time, such as monthly or quarterly. However,
these securities do not offer the right to sell the security at face value
prior to maturity.
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 values of the securities.
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PORTFOLIO OF INVESTMENTS | 9
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The USAA California Money Market Fund's (the Fund) investments consist of
securities meeting the requirements to qualify at the time of purchase as
"eligible securities" under the Securities and Exchange Commission (SEC) rules
applicable to money market funds. With respect to quality, eligible securities
generally consist of securities rated in one of the two highest categories for
short-term securities or, if not rated, of comparable quality at the time of
purchase. USAA Asset Management Company (the Manager) also attempts to
minimize credit risk in the Fund through rigorous internal credit research.
(INS) Principal and interest payments are insured Berkshire Hathaway
Assurance 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.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from one of the
following: Bank of America, N.A., Citibank, N.A., Deutsche Bank A.G.,
Deutsche Postbank, JPMorgan Chase Bank, N.A., Rabobank Nederland
N.V., or Wells Fargo & Co.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee agreement
from California State Teacher Retirement System.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ABAG Association of Bay Area Governments
IDA Industrial Development Authority/Agency
SPEAR Short Puttable Exempt Adjustable Receipts
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10 | USAA CALIFORNIA MONEY MARKET FUND
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INVESTMENTS
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (90.1%)
CALIFORNIA (90.1%)
$ 9,870 ABAG Finance Auth. for Nonprofit Corps.
(LOC - KBC Bank N.V.) 0.37% 5/15/2035 $ 9,870
2,900 Alameda County IDA (LOC - Comerica Bank, N.A.) 0.09 12/01/2040 2,900
3,700 Alameda County IDA (LOC - Bank of the West) 0.21 12/01/2040 3,700
1,379 Anaheim Housing Auth. (LOC - Union Bank of
California, N.A.) 1.95 12/01/2015 1,379
605 Apple Valley (LOC - Union Bank of California, N.A.) 0.10 9/01/2015 605
1,368 Culver City Redevelopment Agency
(LOC - Union Bank of California, N.A.) 1.95 12/01/2015 1,368
17,755 Educational Facilities Auth. (LIQ)(a) 0.09 5/01/2017 17,755
7,565 Educational Facilities Auth. (LOC - Sovereign Bank) 0.85 11/01/2042 7,565
10,000 Enterprise Dev. Auth. (LOC - Federal Home Loan
Bank of San Francisco)(a) 0.08 12/01/2042 10,000
1,035 Golden State Tobacco Securitization Corp. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 0.15 6/01/2027 1,035
14,255 Golden State Tobacco Securitization Corp. (INS)(LIQ)(a) 0.17 12/01/2037 14,255
3,460 Hanford (LOC - Union Bank of California, N.A.) 0.10 4/01/2023 3,460
13,680 Infrastructure and Economic Dev. Bank
(LOC - Bank of America, N.A.) 0.09 7/01/2034 13,680
5,000 Infrastructure and Economic Dev. Bank
(LOC - Federal Home Loan Bank of San Francisco)(a) 0.06 12/01/2040 5,000
4,567 Irvine (LOC - KBC Bank N.V.) 0.11 9/02/2032 4,567
8,637 Irvine (LOC - KBC Bank N.V.) 0.11 9/02/2050 8,637
6,255 Loma Linda (LOC - Union Bank of California, N.A.) 0.10 6/01/2025 6,255
3,500 Long Beach Health Facility 0.06 10/01/2016 3,500
6,695 Los Angeles (LOC - U.S. Bank, N.A.) 0.08 8/01/2035 6,695
14,800 Montebello Public Financing Auth.
(LOC - Union Bank of California, N.A.) 0.10 12/01/2034 14,800
2,230 Novato (LOC - Bank of the West) 0.23 10/01/2032 2,230
9,070 Pasadena (LOC - Bank of America, N.A.) 0.10 2/01/2035 9,070
2,580 Pollution Control Financing Auth.
(LOC - Comerica Bank, N.A.) 0.10 12/01/2030 2,580
16,000 Pollution Control Financing Auth. 0.07 3/01/2041 16,000
7,895 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 0.15 12/01/2033 7,895
6,250 San Diego County (LOC - Comerica Bank, N.A.) 0.07 1/01/2023 6,250
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------
$15,119 SPEAR (LIQ)(LOC - Deutsche Bank A.G.)(a) 0.17% 8/01/2031 $ 15,119
7,909 SPEAR (LIQ)(LOC - Deutsche Bank A.G.)(a) 0.17 8/01/2041 7,909
7,650 State (INS)(LIQ)(a) 0.09 3/01/2014 7,650
11,370 State (LIQ)(LOC - Rabobank Nederland N.V.)(a) 0.20 8/01/2032 11,370
2,500 State (LOC - Citibank, N.A.) 0.07 5/01/2033 2,500
14,600 Statewide Communities Dev. Auth. (LIQ)
(LOC - Citibank, N.A.)(a) 0.57 12/14/2016 14,600
3,450 Statewide Communities Dev. Auth.
(LOC - Comerica Bank, N.A.) 0.07 12/01/2024 3,450
9,820 Statewide Communities Dev. Auth. (LIQ)
(LOC - Wells Fargo & Co.) (a) 0.07 7/01/2030 9,820
6,600 Statewide Communities Dev. Auth. 0.08 11/01/2030 6,600
400 Statewide Communities Dev. Auth.
(LOC - Bank of America, N.A.) 0.08 10/01/2036 400
12,720 Statewide Communities Dev. Auth. (LIQ)
(LOC - Wells Fargo & Co.)(a) 0.10 10/01/2036 12,720
6,000 Statewide Communities Dev. Auth. (LOC - Federal
Home Loan Bank of San Francisco) 0.08 8/01/2037 6,000
7,220 Statewide Communities Dev. Auth. (LIQ)
(LOC - Bank of America, N.A.) (a) 0.51 9/01/2038 7,220
9,000 Statewide Communities Dev. Auth. 0.05 4/01/2046 9,000
4,400 Univ. of California Regents (LIQ) (a) 0.08 5/15/2030 4,400
--------
299,809
--------
Total Variable-Rate Demand Notes (cost: $299,809) 299,809
--------
PUT BONDS (3.5%)
CALIFORNIA (3.5%)
11,600 Statewide Communities Dev. Auth. (cost: $11,600) 0.20 4/01/2037 11,600
--------
FIXED-RATE INSTRUMENTS (4.5%)
CALIFORNIA (4.5%)
10,000 San Diego County Water Auth. 0.12 10/03/2013 10,000
5,000 State (NBGA)(LOC - Wells Fargo Bank, N.A.) 0.09 11/05/2013 5,000
--------
Total Fixed-Rate Instruments (cost: $15,000) 15,000
--------
ADJUSTABLE-RATE NOTES (1.8%)
CALIFORNIA (1.8%)
6,000 Golden Empire Schools Financing Auth.
(cost: $6,000) 0.37 5/01/2014 6,000
--------
TOTAL INVESTMENTS (COST: $332,409) $332,409
========
================================================================================
12 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
-------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-------------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $299,809 $- $299,809
Put Bonds - 11,600 - 11,600
Fixed-Rate Instruments - 15,000 - 15,000
Adjustable-Rate Notes - 6,000 - 6,000
-------------------------------------------------------------------------------------------------
Total $- $332,409 $- $332,409
-------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
Note 1 to the financial statements.
The cost of securities at September 30, 2013, for federal income tax purposes,
was approximately the same as that reported in the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Trust's Board of Trustees, unless otherwise
noted as illiquid.
See accompanying notes to financial statements.
================================================================================
14 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $332,409
Cash 56
Receivables:
Capital shares sold 467
USAA Asset Management Company (Note 4D) 15
Interest 83
--------
Total assets 333,030
--------
LIABILITIES
Payables:
Capital shares redeemed 264
Dividends on capital shares 4
Accrued management fees 86
Accrued transfer agent's fees 20
Other accrued expenses and payables 27
--------
Total liabilities 401
--------
Net assets applicable to capital shares outstanding $332,629
========
NET ASSETS CONSIST OF:
Paid-in capital $332,614
Overdistribution of net investment income (2)
Accumulated net realized gain on investments 17
--------
Net assets applicable to capital shares outstanding $332,629
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 332,606
========
Net asset value, redemption price, and offering price per share $ 1.00
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 368
-----
EXPENSES
Management fees 522
Administration and servicing fees 166
Transfer agent's fees 162
Custody and accounting fees 39
Postage 3
Shareholder reporting fees 9
Trustees' fees 7
Professional fees 37
Other 5
-----
Total expenses 950
Expenses reimbursed (597)
-----
Net expenses 353
-----
NET INVESTMENT INCOME 15
-----
NET REALIZED GAIN ON INVESTMENTS
Net realized gain 13
-----
Increase in net assets resulting from operations $ 28
=====
See accompanying notes to financial statements.
================================================================================
16 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
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 $ 15 $ 33
Net realized gain on investments 13 7
----------------------
Increase in net assets resulting from operations 28 40
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (17) (33)
Net realized gains - (10)
----------------------
Distributions to shareholders (17) (43)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 127,632 228,203
Reinvested dividends 16 42
Cost of shares redeemed (124,451) (227,738)
----------------------
Increase in net assets from capital
share transactions 3,197 507
----------------------
Net increase in net assets 3,208 504
NET ASSETS
Beginning of period 329,421 328,917
----------------------
End of period $ 332,629 $ 329,421
======================
Overdistribution of net investment income:
End of period $ (2) $ -
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 127,632 228,203
Shares issued for dividends reinvested 16 42
Shares redeemed (124,452) (227,738)
----------------------
Increase in shares outstanding 3,196 507
======================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
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
California Money Market 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
California state income taxes, with a further objective of preserving capital
and maintaining liquidity.
A. SECURITY VALUATION -- The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures which are approved by the Board. Among other things,
these policies and procedures allow the Fund to utilize independent pricing
services, quotations from securities dealers, and a wide variety of sources
and information to establish and adjust the fair value of securities as
events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used by
the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
================================================================================
18 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
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. Pursuant to Rule 2a-7 under the 1940 Act, securities in the Fund are
valued at amortized cost, which approximates market value. This method
values a security at its cost on the date of purchase and, thereafter,
assumes a constant amortization to maturity of any premiums or discounts.
2. Securities for which amortized cost valuations are considered unreliable
or whose values have been materially affected by a significant event are
valued in good faith at fair value, using methods determined by the
Manager, an affiliate of the Fund, under procedures to stabilize net asset
value (NAV) and valuation procedures approved by the Board.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities. For
example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is not
obtained from a quoted price in an active market, such securities are
reflected as Level 2.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities using the
straight-line method. The Fund concentrates its investments in California
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
================================================================================
20 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
Fund maintains segregated assets with a market value equal to or greater than
the amount of its purchase commitments.
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts may
be used to directly reduce the Fund's expenses. For the six-month period
ended 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 $1,000, which represents 0.5% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2013.
(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 capital loss carryforwards,
for federal income tax purposes.
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 preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
================================================================================
22 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
(4) 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 Fund's
management fees are accrued daily and paid monthly as a percentage of
aggregate average net assets of the USAA California Bond and USAA California
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 incurred
total management fees, paid or payable to the Manager, of $522,000, resulting
in an effective annualized management fee of 0.32% of the Fund's average net
assets for the same period.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
September 30, 2013, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $166,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For the
six-month period ended September 30, 2013, the Fund reimbursed the Manager
$5,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's statement of operations.
C. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund based on an
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
annual charge of $25.50 per shareholder account plus out-of-pocket expenses.
The Fund 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 incurred transfer agent's fees,
paid or payable to SAS, of $162,000.
D. EXPENSE LIMITATION -- The Manager has voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield. The Manager can
modify or terminate this arrangement at any time. For the six-month period
ended September 30, 2013, the Fund incurred reimbursable expenses of
$597,000, of which $15,000 was receivable from the Manager.
E. UNDERWRITING SERVICES -- USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(5) TRANSACTIONS WITH AFFILIATES
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.
================================================================================
24 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
(6) FINANCIAL HIGHLIGHTS
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .00(a) .00(a) .00(a) .00(a) .00(a) .02
Net realized and
unrealized gain(a) .00 .00 .00 .00 .00 .00
--------------------------------------------------------------------------------------------
Total from investment
operations .00(a) .00(a) .00(a) .00(a) .00(a) .02
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.02)
Realized capital gains - (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.00)(a)
--------------------------------------------------------------------------------------------
Total distributions (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.02)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================================
Total return (%)* .01(b) .01(b) .03(b),(d) .02(b) .24(b),(c) 1.85
Net assets at end of
period (000) $332,629 $329,421 $328,917 $358,135 $431,320 $659,353
Ratios to average net assets:**
Expenses (%)(e) .21(b),(f) .32(b) .31(b),(d) .41(b) .52(b),(c) .51
Expenses, excluding
reimbursements (%)(e) .57(f) .57 .58(d) .56 .54(c) -
Net investment income (%) .01(f) .01 .02 .01 .24 1.82
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
iMoneyNet reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended September 30, 2013, average net assets were
$330,268,000.
(a) Represents less than $0.01 per share.
(b) Effective November 9, 2009, the Manager voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield.
(c) During the year ended March 31, 2010, SAS reimbursed the Fund $15,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratios by
0.01%. This decrease is excluded from the expense ratios in the Financial
Highlights table.
(d) During the year ended March 31, 2012, SAS reimbursed the Fund $42,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratios by
0.01%. This decrease is excluded from the expense ratios in the Financial
Highlights table.
(e) 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%.
(f) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 first line of 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 in the first 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 second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual
================================================================================
26 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2013 -
APRIL 1, 2013 SEPTEMBER 30, 2013 SEPTEMBER 30, 2013
---------------------------------------------------------
Actual $1,000.00 $1,000.10 $1.05
Hypothetical
(5% return before expenses) 1,000.00 1,024.02 1.07
* Expenses are equal to the Fund's annualized expense ratio of 0.21%, which is
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 ending account value on the
first line in the table is based on its actual total return of 0.01% for the
six-month period of April 1, 2013, through September 30, 2013.
================================================================================
EXPENSE EXAMPLE | 27
================================================================================
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 performance,
================================================================================
28 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
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 | 29
================================================================================
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 the Fund and all other
no-load and front-end load retail open-end investment companies in the similar
investment classifications/objectives 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 fee waivers or reimbursements --
was above the median of its expense group and its expense universe. The data
indicated that the Fund's total expense ratio, after reimbursements, was above
the median of its expense group and its expense universe. The Board took into
account the various services
================================================================================
30 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
provided to the Fund by the Manager 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. The Board took into account
management's discussion of the Fund's expenses, noting that the Manager had
reimbursed Fund expenses during the previous year.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one- and five-year periods ended December 31, 2012, and was lower
than the average of its performance universe and its Lipper index for the three-
year period 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-year period ended December 31, 2012, was in the bottom 50% of its
performance universe for the three-year period ended December 31, 2012, and was
in the top 5% of its performance universe for the five-year period ended
December 31, 2012.
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
================================================================================
ADVISORY AGREEMENT | 31
================================================================================
the Manager, the Board also considered the fact that affiliates provide
shareholder servicing and administrative services to the Fund for which they
receive compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Board also took into account the high quality of services received by
the Fund from the Manager as well as the type of fund. 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 if the Fund's assets increase over time, 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 overall performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to 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.
================================================================================
32 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
Jefferson C. Boyce
--------------------------------------------------------------------------------
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)
=============================================================================
39602-1113 (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.