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 TAX EXEMPT LONG-TERM FUND]
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SEMIANNUAL REPORT
USAA TAX EXEMPT LONG-TERM FUND
FUND SHARES o ADVISER SHARES
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
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 33
Financial Statements 35
Notes to Financial Statements 38
EXPENSE EXAMPLE 51
ADVISORY AGREEMENT 53
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 USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST
INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
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TYPES OF INVESTMENTS
The Fund invests primarily in investment-grade securities, the interest from
which is exempt from federal income tax. During normal market conditions, at
least 80% of the Fund's net assets will consist of tax-exempt securities. The
Fund's dollar-weighted average portfolio maturity is 10 years or more.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF JOHN C. BONNELL] [PHOTO OF DIEDERIK OLIJSLAGER]
JOHN C. BONNELL, CFA DIEDERIK OLIJSLAGER
USAA Asset USAA Asset
Management Company Management Company
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o HOW DID THE USAA TAX EXEMPT LONG-TERM FUND (THE FUND SHARES) PERFORM DURING
THE REPORTING PERIOD?
The Fund Shares provided a total return of -3.88% versus an average of -4.58%
amongst the funds in the Lipper General Municipal Debt Funds category. This
compares to a -4.52% return for the Lipper General 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
4.12%, compared to the Lipper category average of 3.26%.
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 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 U.S. Federal Reserve (the Fed) Chairman Ben Bernanke suggested
tapering could start later in 2013. Investors, fearful that Fed tapering would
lead to higher interest
Refer to pages 9 and 10 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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2 | USAA TAX EXEMPT LONG-TERM FUND
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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
determine 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.
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MANAGERS' COMMENTARY ON THE FUND | 3
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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 400 longer-term, primarily investment-grade municipal bonds.
Because of our income focus, the Fund is generally tilted toward bonds in the
BBB and A rated categories. To limit exposure to an unexpected event, the Fund
is diversified both by issuer and geographic area. We also avoid bonds subject
to the federal alternative minimum tax for individuals.
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.
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4 | USAA TAX EXEMPT LONG-TERM FUND
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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.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA TAX EXEMPT LONG-TERM FUND SHARES (FUND SHARES) (Ticker Symbol: USTEX)
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9/30/13 3/31/13
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Net Assets $2,519.8 Million $2,837.8 Million
Net Asset Value Per Share $13.10 $13.91
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.539 $0.539
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 16.5 Years 16.7 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.
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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
-3.88% -2.03% 6.52% 4.32%
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30-DAY SEC YIELD AS OF 9/30/13** EXPENSE RATIO AS OF 3/31/13***
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4.07% 0.53%
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.
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6 | USAA TAX EXEMPT LONG-TERM FUND
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED SEPTEMBER 30, 2013
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 Years 4.32% = 4.71% + (0.39)%
5 Years 6.52% = 4.88% + 1.64%
1 Year (2.03)% = 3.79% + (5.82)%
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]
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TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
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9/30/2004 6.02% 4.73% 1.29%
9/30/2005 4.77% 4.49% 0.28%
9/30/2006 4.24% 4.51% -0.27%
9/30/2007 1.88% 4.46% -2.58%
9/30/2008 -5.63% 4.55% -10.18%
9/30/2009 14.62% 6.29% 8.33%
9/30/2010 6.30% 5.07% 1.23%
9/30/2011 3.49% 4.90% -1.41%
9/30/2012 11.04% 4.49% 6.55%
9/30/2013 -2.03% 3.79% -5.82%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE
A RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
distributions or the redemption of shares.
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INVESTMENT OVERVIEW | 7
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TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/13, 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
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10 Years 4.71% 6.54% 7.46% 7.70% 8.32%
5 Years 4.88% 6.78% 7.72% 7.97% 8.62%
1 Year 3.79% 5.26% 5.99% 6.19% 6.69%
To match the Fund Shares' closing 30-day SEC Yield of 4.07%, on 9/30/13,
A FULLY TAXABLE INVESTMENT MUST PAY: 5.65% 6.44% 6.65% 7.19%
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.
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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.
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8 | USAA TAX EXEMPT LONG-TERM FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS MUNICIPAL USAA TAX EXEMPT LIPPER GENERAL MUNICIPAL
BOND INDEX LONG-TERM FUND SHARES DEBT FUNDS INDEX
09/30/03 $10,000.00 $10,000.00 $10,000.00
10/31/03 9,949.65 9,962.26 9,963.84
11/30/03 10,053.34 10,092.17 10,076.92
12/31/03 10,136.59 10,204.46 10,159.44
01/31/04 10,194.65 10,236.08 10,193.67
02/29/04 10,348.08 10,441.35 10,354.10
03/31/04 10,312.04 10,377.66 10,294.28
04/30/04 10,067.82 10,125.88 10,063.69
05/31/04 10,031.32 10,110.83 10,031.19
06/30/04 10,067.82 10,164.65 10,064.90
07/31/04 10,200.32 10,301.60 10,187.88
08/31/04 10,404.73 10,518.30 10,378.67
09/30/04 10,459.96 10,602.38 10,438.55
10/31/04 10,549.97 10,694.26 10,522.61
11/30/04 10,462.95 10,597.74 10,444.22
12/31/04 10,590.73 10,775.86 10,579.61
01/31/05 10,689.71 10,888.63 10,684.17
02/28/05 10,654.14 10,852.43 10,656.87
03/31/05 10,586.95 10,761.93 10,576.52
04/30/05 10,753.91 10,956.71 10,741.36
05/31/05 10,829.91 11,049.24 10,825.01
06/30/05 10,897.10 11,120.28 10,892.16
07/31/05 10,847.85 11,067.13 10,853.16
08/31/05 10,957.37 11,185.36 10,964.14
09/30/05 10,883.57 11,111.10 10,886.20
10/31/05 10,817.48 11,030.96 10,820.65
11/30/05 10,869.41 11,071.24 10,869.88
12/31/05 10,962.88 11,187.46 10,971.26
01/31/06 10,992.46 11,201.75 11,000.82
02/28/06 11,066.26 11,299.04 11,087.20
03/31/06 10,989.94 11,214.67 11,023.26
04/30/06 10,986.17 11,197.11 11,013.22
05/31/06 11,035.11 11,246.74 11,068.83
06/30/06 10,993.56 11,178.07 11,024.40
07/31/06 11,124.33 11,323.13 11,158.51
08/31/06 11,289.40 11,496.01 11,324.39
09/30/06 11,367.92 11,581.02 11,402.75
10/31/06 11,439.20 11,663.40 11,476.74
11/30/06 11,534.56 11,788.87 11,572.88
12/31/06 11,493.81 11,724.18 11,531.11
01/31/07 11,464.38 11,697.46 11,508.24
02/28/07 11,615.45 11,850.79 11,645.95
03/31/07 11,586.81 11,811.25 11,616.32
04/30/07 11,621.11 11,845.06 11,652.35
05/31/07 11,569.66 11,786.75 11,602.59
06/30/07 11,509.70 11,712.69 11,538.15
07/31/07 11,598.92 11,756.21 11,593.88
08/31/07 11,548.88 11,573.64 11,483.28
09/30/07 11,719.78 11,797.34 11,646.93
10/31/07 11,772.02 11,843.99 11,680.82
11/30/07 11,847.08 11,849.97 11,700.58
12/31/07 11,879.97 11,795.95 11,690.60
01/31/08 12,029.77 11,938.07 11,829.30
02/29/08 11,479.02 11,228.22 11,225.22
03/31/08 11,807.11 11,576.52 11,524.31
04/30/08 11,945.27 11,776.87 11,678.69
05/31/08 12,017.50 11,889.79 11,767.70
06/30/08 11,881.86 11,748.51 11,610.07
07/31/08 11,927.02 11,680.53 11,598.40
08/31/08 12,066.59 11,795.55 11,706.71
09/30/08 11,500.73 11,132.77 11,085.88
10/31/08 11,383.34 10,628.25 10,748.66
11/30/08 11,419.54 10,519.61 10,624.06
12/31/08 11,586.02 10,317.76 10,585.46
01/31/09 12,010.10 10,864.51 11,084.82
02/28/09 12,073.20 10,954.56 11,194.44
03/31/09 12,075.41 10,958.85 11,155.58
04/30/09 12,316.64 11,295.33 11,475.00
05/31/09 12,446.93 11,660.82 11,739.06
06/30/09 12,330.33 11,559.69 11,619.38
07/31/09 12,536.63 11,759.91 11,802.81
08/31/09 12,750.95 12,050.12 12,102.88
09/30/09 13,208.55 12,760.24 12,718.97
10/31/09 12,931.28 12,475.71 12,389.75
11/30/09 13,038.13 12,488.67 12,427.46
12/31/09 13,082.19 12,596.55 12,543.81
01/31/10 13,150.33 12,672.88 12,605.51
02/28/10 13,277.79 12,784.47 12,724.41
03/31/10 13,246.00 12,777.13 12,733.55
04/30/10 13,406.98 12,942.74 12,900.71
05/31/10 13,507.53 13,021.80 12,968.70
06/30/10 13,515.56 13,014.99 12,952.89
07/31/10 13,684.09 13,180.36 13,106.62
08/31/10 13,997.39 13,524.32 13,441.40
09/30/10 13,975.52 13,564.23 13,452.47
10/31/10 13,936.81 13,523.20 13,424.14
11/30/10 13,658.13 13,114.00 13,053.44
12/31/10 13,393.45 12,770.47 12,752.17
01/31/11 13,294.78 12,571.94 12,592.98
02/28/11 13,506.43 12,803.30 12,796.08
03/31/11 13,461.43 12,752.61 12,748.52
04/30/11 13,702.50 12,997.46 12,961.94
05/31/11 13,936.65 13,313.15 13,238.77
06/30/11 13,985.27 13,419.78 13,328.77
07/31/11 14,128.00 13,600.44 13,470.05
08/31/11 14,369.70 13,759.52 13,651.03
09/30/11 14,518.25 14,041.01 13,856.24
10/31/11 14,464.28 14,003.48 13,813.17
11/30/11 14,549.72 14,076.48 13,869.95
12/31/11 14,826.52 14,365.81 14,149.35
01/31/12 15,169.40 14,827.18 14,593.25
02/29/12 15,184.35 14,878.91 14,636.86
03/31/12 15,085.69 14,833.56 14,568.35
04/30/12 15,259.72 15,004.11 14,756.45
05/31/12 15,386.40 15,175.71 14,912.47
06/30/12 15,369.88 15,193.90 14,906.27
07/31/12 15,613.47 15,431.92 15,191.25
08/31/12 15,631.25 15,497.75 15,232.38
09/30/12 15,725.66 15,587.31 15,335.67
10/31/12 15,770.04 15,681.94 15,409.46
11/30/12 16,029.84 15,972.98 15,728.68
12/31/12 15,831.72 15,771.59 15,494.79
01/31/13 15,897.66 15,899.52 15,597.96
02/28/13 15,945.81 15,950.16 15,646.08
03/31/13 15,877.04 15,886.27 15,560.61
04/30/13 16,051.08 16,073.77 15,746.65
05/31/13 15,855.01 15,906.73 15,548.87
06/30/13 15,406.07 15,314.03 14,973.30
07/31/13 15,271.37 15,137.45 14,775.39
08/31/13 15,053.43 14,867.55 14,509.77
09/30/13 15,377.43 15,270.15 14,856.76
[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 Tax Exempt Long-Term 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 General Municipal Debt Funds Index tracks the total
return performance of the 30 largest funds within the Lipper General & Insured
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 TAX EXEMPT LIPPER GENERAL & INSURED
LONG-TERM FUND SHARES MUNICIPAL DEBT FUNDS AVERAGE
09/30/04 4.52% 3.90%
09/30/05 4.40 3.80
09/30/06 4.39 3.78
09/30/07 4.60 3.85
09/30/08 5.35 4.29
09/30/09 5.06 4.01
09/30/10 4.76 3.84
09/30/11 4.66 3.91
09/30/12 4.01 3.37
09/30/13 4.12 3.26
[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 General & Insured Municipal Debt Funds Average is an average
performance level of all general municipal debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
10 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
USAA TAX EXEMPT LONG-TERM FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UTELX)
--------------------------------------------------------------------------------
9/30/13 3/31/13
--------------------------------------------------------------------------------
Net Assets $5.4 Million $6.8 Million
Net Asset Value Per Share $13.09 $13.91
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.495 $0.494
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
-4.10% -2.42% 4.39%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/13**
--------------------------------------------------------------------------------
Subsidized 3.76% Unsubsidized 3.51%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/13***
--------------------------------------------------------------------------------
Before Reimbursement 1.11% After Reimbursement 0.85%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated August 1, 2013, and is
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through August 1, 2014, to make payments or waive
management, administration, and other fees so that the total expenses of the
Adviser Shares (exclusive of commission recapture, expense offset arrangements,
acquired fund fees and expenses, and extraordinary expenses) do not exceed an
annual rate of 0.85% of the Adviser Shares' average net assets. This
reimbursement arrangement may not be changed or terminated during this time
period without approval of the Trust's Board of Trustees and may be changed or
terminated by the Manager at any time after August 1, 2014. These expense ratios
may differ from the expense ratios 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 3.76% on 9/30/13, and
assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 5.23% 5.95% 6.15% 6.65%
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 TAX EXEMPT LONG-TERM FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA TAX EXEMPT LONG-TERM LIPPER GENERAL MUNICIPAL BARCLAYS MUNICIPAL
FUND ADVISER SHARES DEBT FUNDS INDEX BOND INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,257.04 10,255.42 10,228.95
09/30/10 10,277.14 10,263.87 10,212.97
10/31/10 10,250.63 10,242.26 10,184.68
11/30/10 9,937.52 9,959.42 9,981.03
12/31/10 9,674.00 9,729.56 9,787.61
01/31/11 9,520.42 9,608.10 9,715.50
02/28/11 9,692.41 9,763.07 9,870.17
03/31/11 9,651.06 9,726.78 9,837.28
04/30/11 9,825.30 9,889.61 10,013.45
05/31/11 10,068.87 10,100.83 10,184.57
06/30/11 10,146.23 10,169.49 10,220.10
07/31/11 10,279.94 10,277.29 10,324.40
08/31/11 10,397.24 10,415.37 10,501.03
09/30/11 10,606.89 10,571.94 10,609.58
10/31/11 10,575.95 10,539.08 10,570.14
11/30/11 10,628.49 10,582.40 10,632.58
12/31/11 10,844.06 10,795.57 10,834.86
01/31/12 11,181.59 11,134.26 11,085.43
02/29/12 11,226.23 11,167.53 11,096.35
03/31/12 11,189.08 11,115.26 11,024.25
04/30/12 11,314.94 11,258.77 11,151.44
05/31/12 11,441.29 11,377.81 11,244.01
06/30/12 11,443.58 11,373.09 11,231.93
07/31/12 11,628.25 11,590.52 11,409.94
08/31/12 11,674.32 11,621.90 11,422.94
09/30/12 11,739.01 11,700.70 11,491.93
10/31/12 11,798.62 11,757.01 11,524.36
11/30/12 12,022.84 12,000.56 11,714.22
12/31/12 11,868.10 11,822.11 11,569.44
01/31/13 11,952.59 11,900.82 11,617.62
02/28/13 11,996.17 11,937.54 11,652.81
03/31/13 11,944.95 11,872.33 11,602.56
04/30/13 12,082.77 12,014.28 11,729.74
05/31/13 11,953.94 11,863.37 11,586.46
06/30/13 11,496.85 11,424.23 11,258.38
07/31/13 11,361.16 11,273.23 11,159.95
08/31/13 11,155.44 11,070.57 11,000.68
09/30/13 11,454.79 11,335.31 11,237.45
[END CHART]
Data from 7/31/10 through 9/30/13.*
See pages 9 and 10 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Long-Term Fund Adviser Shares to the benchmarks.
*The performance of the Lipper General Municipal Debt Funds Index and the
Barclays Municipal Bond Index is calculated from the end of the month, July 31,
2010, while the Adviser Shares' inception date is August 1, 2010. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES o
AS OF 9/30/13
(% of Net Assets)
Hospital ............................................................... 20.3%
General Obligation ..................................................... 11.5%
Education .............................................................. 10.7%
Electric Utilities ..................................................... 8.5%
Special Assessment/Tax/Fee ............................................. 8.3%
Appropriated Debt ...................................................... 5.8%
Airport/Port ........................................................... 5.0%
Toll Roads ............................................................. 4.5%
Nursing/CCRC ........................................................... 3.9%
Water/Sewer Utility .................................................... 3.5%
You will find a complete list of securities that the Fund owns on pages 18-32.
================================================================================
14 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX -- 9/30/13 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 5.9%
AA 25.6%
A 31.4%
BBB 26.1%
BELOW INVESTMENT-GRADE 2.5%
UNRATED 5.0%
SHORT-TERM INVESTMENT-GRADE 3.5%
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 18-32.
================================================================================
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.
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.
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the security
at face value on either that day or within the rate-reset period. The interest
rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other
specified time interval to reflect current market conditions. VRDNs will
normally trade as if the maturity is the earlier put date, even though stated
maturity is longer.
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 market values of the securities.
================================================================================
16 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured Guaranty
Corp., Assured Guaranty Municipal Corp., CIFG Assurance, N.A.,
Financial Guaranty Insurance Co., National Public Finance Guarantee
Corp., Radian Asset Assurance Inc., or XL Capital Assurance. 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: DEPFA Bank plc or Wells Fargo Bank, N.A.
(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 the Texas Permanent School Fund.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
CCD Community College District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
IDC Industrial Development Corp.
ISD Independent School District
MTA Metropolitan Transportation Authority
PRE Prerefunded to a date prior to maturity
USD Unified School District
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (90.8%)
ALABAMA (0.7%)
$ 4,245 Chatom IDB (INS) 5.00% 8/01/2037 $ 4,384
2,500 Montgomery Medical Clinic Board 4.75 3/01/2031 2,301
2,500 Montgomery Medical Clinic Board 4.75 3/01/2036 2,229
7,000 Port Auth. 6.00 10/01/2035 7,866
2,000 Selma IDB 5.80 5/01/2034 2,049
----------
18,829
----------
ARIZONA (2.5%)
5,000 Apache County IDA 4.50 3/01/2030 4,669
5,000 Goodyear 5.63 7/01/2039 5,215
6,000 Health Facilities Auth. 5.00 2/01/2042 5,463
7,000 Maricopa County 5.00 6/01/2035 7,207
3,500 Maricopa County 4.50 8/01/2042 3,042
1,000 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2029 1,125
1,500 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2030 1,677
3,000 Pima County IDA 4.00 9/01/2029 2,643
4,000 Pima County IDA 5.75 9/01/2029 4,079
2,685 Pima County IDA 4.50 6/01/2030 2,505
3,000 Pima County IDA 5.25 10/01/2040 2,979
3,500 Scottsdale IDA 5.25 9/01/2030 3,501
9,325 Univ. Medical Center Corp. 5.00 7/01/2035 9,347
2,000 Yavapai County IDA 5.63 8/01/2033 2,008
7,500 Yavapai County IDA 5.63 8/01/2037 7,518
----------
62,978
----------
ARKANSAS (0.1%)
1,000 Dev. Finance Auth. (INS) 4.97(a) 7/01/2028 519
1,165 Dev. Finance Auth. (INS) 4.98(a) 7/01/2029 570
1,150 Dev. Finance Auth. (INS) 4.99(a) 7/01/2030 525
2,500 Dev. Finance Auth. (INS) 5.03(a) 7/01/2036 757
----------
2,371
----------
CALIFORNIA (9.4%)
1,000 Cerritos CCD 5.63(a) 8/01/2031 397
2,500 Cerritos CCD 5.67(a) 8/01/2032 937
2,175 Cerritos CCD 5.71(a) 8/01/2033 762
1,000 Cerritos CCD 5.76(a) 8/01/2034 327
1,500 Cerritos CCD 5.82(a) 8/01/2035 461
2,200 Cerritos CCD 5.88(a) 8/01/2036 634
8,500 Coachella Valley USD (INS) 5.95(a) 8/01/2041 1,626
================================================================================
18 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 6,700 Corona-Norco USD (INS) 5.50% 8/01/2039 $ 7,307
3,000 El Camino CCD 5.08(a) 8/01/2034 1,005
3,000 El Camino CCD 5.24(a) 8/01/2038 763
10,000 El Monte Union High School District (INS) 5.75(a) 6/01/2042 1,947
2,500 Escondido Union High School District (INS) 5.00 6/01/2037 2,524
2,410 Golden State Tobacco Securitization (INS) 4.55 6/01/2022 2,475
5,000 Golden State Tobacco Securitization (INS) 4.60 6/01/2023 5,150
2,000 Golden State Tobacco Securitization 5.00 6/01/2030 2,051
5,000 Indio Redevelopment Agency 5.25 8/15/2035 4,510
17,025 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 15,657
2,000 Jurupa Public Finance Auth. (INS) 5.00 9/01/2033 2,027
1,200 Los Alamitos USD, 5.95%, 8/01/2024 5.95(b) 8/01/2034 656
4,500 Los Alamitos USD, 6.05%, 8/01/2024 6.05(b) 8/01/2042 2,422
3,000 Monterey Peninsula USD (INS) 5.50 8/01/2034 3,248
15,000 Palomar Pomerado Health 5.13 8/01/2037 15,126
1,860 Paramount USD 6.82(a) 8/01/2034 543
2,000 Paramount USD 6.86(a) 8/01/2035 548
2,750 Paramount USD 6.88(a) 8/01/2036 690
2,750 Paramount USD 6.90(a) 8/01/2037 655
6,000 Pollution Control Financing Auth. 5.00 11/21/2045 5,392
9,105 Public Works Board 5.00 11/01/2029 9,401
2,500 Public Works Board 5.00 12/01/2029 2,635
2,610 Public Works Board 5.00 4/01/2030 2,670
2,000 Public Works Board 5.00 10/01/2030 2,076
2,950 Public Works Board 5.00 6/01/2031 3,083
1,110 Public Works Board 5.00 10/01/2031 1,145
2,000 Public Works Board 5.00 12/01/2031 2,079
7,250 Public Works Board 5.00 11/01/2037 7,339
3,000 Public Works Board 5.00 3/01/2038 3,034
4,600 San Francisco City and County
Redevelopment Financing Auth. (INS) 4.88 8/01/2036 4,345
3,000 San Marcos Schools Financing Auth. (INS) 5.00 8/15/2040 3,049
13,605 San Ysidro School District (INS) 5.58(a) 8/01/2036 3,249
14,285 San Ysidro School District (INS) 5.64(a) 8/01/2037 3,209
15,000 Santa Ana USD (INS) 5.45(a) 4/01/2029 6,314
5,000 Southern California Public Power Auth. 5.00 7/01/2040 5,082
6,000 State 5.25 2/01/2030 6,496
24,700 State(c) 4.50 8/01/2030 24,881
5,000 State 5.75 4/01/2031 5,561
960 State 5.00 2/01/2032 963
6,000 State 5.00 11/01/2032 6,203
5,000 State 5.00 12/01/2032 5,172
8,000 State 5.25 4/01/2035 8,484
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 6,750 State 5.00% 2/01/2038 $ 6,963
9,010 State 5.00 4/01/2042 9,229
10,000 Statewide Communities Dev. Auth. 5.00 4/01/2042 10,038
8,885 Stockton USD (INS) 7.33(a) 8/01/2034 2,663
2,500 Victor Elementary School District (INS) 5.13 8/01/2034 2,604
5,180 Washington Township Health Care Dist. 5.25 7/01/2030 5,222
5,000 Washington Township Health Care Dist. 5.50 7/01/2038 5,094
----------
238,123
----------
COLORADO (1.8%)
3,500 Denver Convention Center Hotel Auth. (INS) 4.75 12/01/2035 3,220
15,765 Denver Health and Hospital Auth. 4.75 12/01/2034 14,812
2,000 E-470 Public Highway Auth. 5.38 9/01/2026 2,056
10,000 E-470 Public Highway Auth. (INS) 5.06(a) 9/01/2035 2,796
2,500 Educational and Cultural Facilities Auth. 5.25 4/01/2043 2,537
3,500 Health Facilities Auth. 5.00 6/01/2029 3,483
3,000 Health Facilities Auth. 5.25 6/01/2031 3,009
2,000 Health Facilities Auth. 5.00 6/01/2035 1,907
2,500 Health Facilities Auth. 5.25 6/01/2036 2,456
2,000 Health Facilities Auth. 5.00 10/01/2042 2,006
5,000 Health Facilities Auth. 5.00 12/01/2042 4,628
2,000 Vista Ridge Metropolitan District (INS) 5.00 12/01/2036 1,683
----------
44,593
----------
CONNECTICUT (1.8%)
2,500 Health and Educational Facilities Auth. (INS) 5.13 7/01/2030 2,366
2,000 Health and Educational Facilities Auth. 5.00 7/01/2035 2,060
60,796 Mashantucket (Western) Pequot Tribe(d) 7.08(k) 7/01/2031 42,056
----------
46,482
----------
DELAWARE (0.2%)
4,000 EDA 5.40 2/01/2031 4,216
----------
DISTRICT OF COLUMBIA (2.0%)
12,870 Community Academy Public Charter School, Inc. (INS) 4.88 5/01/2037 10,265
1,305 District of Columbia 5.00 7/01/2036 1,315
1,500 District of Columbia 5.00 7/01/2042 1,507
1,700 District of Columbia 6.00 7/01/2043 1,732
1,450 District of Columbia 6.00 7/01/2048 1,464
7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 7,861
5,000 Metropolitan Washington Airports Auth. 5.00 10/01/2039 5,170
10,000 Metropolitan Washington Airports Auth. 5.63 10/01/2039 10,661
10,000 Washington Convention & Sports Auth. 5.00 10/01/2040 10,012
----------
49,987
----------
================================================================================
20 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FLORIDA (11.1%)
$ 2,000 Brevard County Health Facilities Auth. 7.00% 4/01/2039 $ 2,172
20,000 Brevard County School Board (INS)(c) 5.00 7/01/2032 20,510
1,500 Broward County 5.25 10/01/2034 1,611
350 Broward County School Board (INS) 5.25 7/01/2027 373
10,000 Broward County School Board (INS) 5.00 7/01/2032 10,230
2,000 Clearwater 5.25 12/01/2039 2,097
5,675 Department of Children and Family Services 5.00 10/01/2025 6,062
1,500 Escambia County 6.25 11/01/2033 1,598
1,000 Escambia County Housing Finance Auth. (INS) 5.75 6/01/2031 1,064
3,950 Gainesville 5.25 10/01/2034 4,207
1,000 Hialeah Gardens Health Care Facilities Auth.
(LOC - SunTrust Bank) 5.00 8/15/2037 964
3,500 Highlands County Health Facilities Auth. 5.00 11/15/2031 3,529
625 Hillsborough County (INS) 5.13 3/01/2020 627
2,270 Jacksonville 5.00 10/01/2029 2,374
5,750 Jacksonville Economic Dev. Commission 5.00 11/15/2036 5,792
4,000 JEA Water & Sewer System 5.00 10/01/2039 4,146
4,000 Lake County School Board (INS) (PRE) 5.00 7/01/2029 4,143
500 Lakeland Educational Facility 5.00 9/01/2037 480
1,000 Lakeland Educational Facility 5.00 9/01/2042 942
4,000 Lee County IDA 5.75 10/01/2042 3,724
1,500 Miami (INS) 5.00 10/01/2034 1,523
13,125 Miami (INS) 5.25 7/01/2035 13,507
4,000 Miami (INS) 5.25 7/01/2039 4,079
2,000 Miami Beach 5.00 9/01/2040 2,029
6,875 Miami-Dade County 5.00 10/01/2029 7,096
3,950 Miami-Dade County 5.00 10/01/2034 4,060
23,205 Miami-Dade County 5.38 10/01/2035 24,165
2,500 Miami-Dade County 5.00 10/01/2037 2,523
5,000 Miami-Dade County 5.00 7/01/2040 5,040
3,000 Miami-Dade County Facilities Auth. 5.00 4/01/2042 2,986
5,000 Miami-Dade County School Board (INS) 5.25 2/01/2027 5,307
5,000 Miami-Dade County School Board (INS) 5.00 5/01/2033 5,081
2,500 Municipal Loan Council (INS) 5.25 10/01/2033 2,620
5,000 Orange County (INS) 5.00 10/01/2031 5,204
3,000 Orange County Health Facilities Auth. 5.25 10/01/2035 3,040
10,000 Orange County Health Facilities Auth. 4.75 11/15/2036 9,666
6,255 Orange County Health Facilities Auth. 5.13 11/15/2039 6,259
8,000 Orange County Health Facilities Auth. 5.00 10/01/2042 7,886
12,170 Orange County School Board (INS) 5.00 8/01/2031 12,572
5,000 Orange County School Board (INS) 5.00 8/01/2032 5,229
10,000 Orange County School Board (INS) 5.50 8/01/2034 10,714
6,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 6,110
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,000 Orlando-Orange County Expressway Auth. 5.00% 7/01/2035 $ 2,033
10,000 Palm Beach County 5.00 10/01/2031 10,408
1,000 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,000
1,000 Pinellas County Educational Facilities Auth. 5.25 10/01/2030 1,005
3,650 Pinellas County Educational Facilities Auth. 6.00 10/01/2041 3,808
4,000 Polk County Utility Systems (INS) 5.00 10/01/2030 4,112
4,000 Port St. Lucie Utility System (INS) 4.64(a) 9/01/2032 1,524
4,000 Port St. Lucie Utility System (INS) 4.65(a) 9/01/2033 1,431
1,000 Sarasota County Public Hospital District 5.63 7/01/2039 1,025
5,000 South Miami Health Facilities Auth. 4.63 8/15/2029 4,972
3,000 St. Petersburg Health Facilities Auth. 6.50 11/15/2039 3,280
600 State Higher Educational Facility 5.00 4/01/2032 594
1,500 State Higher Educational Facility 5.25 4/01/2042 1,489
3,400 Sumter County (INS) 5.00 6/01/2036 3,449
2,200 Tampa Housing Auth. 4.85 7/01/2036 2,181
3,050 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2042 3,076
2,350 Volusia County Educational Facilities Auth. (INS) 5.00 10/15/2029 2,443
8,350 Volusia County School Board (INS) 5.00 8/01/2031 8,572
1,165 West Palm Beach Community Redevelopment Agency 5.00 3/01/2029 1,175
----------
280,918
----------
GEORGIA (1.5%)
3,500 Atlanta Airport 5.00 1/01/2035 3,573
10,000 Burke County Dev. Auth. 7.00 1/01/2023 11,716
4,000 Dahlonega Downtown Dev. Auth. (INS) 5.00 7/01/2040 4,115
4,000 Glynn-Brunswick Memorial Hospital Auth. 5.63 8/01/2034 4,182
1,600 Private Colleges & Universities Auth. 5.00 10/01/2032 1,554
10,000 Savannah EDA 6.15 3/01/2017 10,695
1,000 Thomasville Hospital Auth. 5.25 11/01/2035 1,015
1,250 Thomasville Hospital Auth. 5.38 11/01/2040 1,278
----------
38,128
----------
HAWAII (0.3%)
6,000 State 6.50 7/01/2039 6,516
----------
IDAHO (0.1%)
1,500 Health Facilities Auth. (INS) 5.00 7/01/2035 1,525
----------
ILLINOIS (9.0%)
520 Chicago (INS) 5.25 1/01/2029 520
4,370 Chicago 6.75 12/01/2032 4,473
5,000 Chicago-O'Hare International Airport 5.75 1/01/2039 5,179
5,000 Chicago-O'Hare International Airport 5.75 1/01/2043 5,010
2,000 Finance Auth. 5.00 4/01/2026 1,980
5,000 Finance Auth. 5.50 8/15/2028 5,187
================================================================================
22 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,500 Finance Auth. (INS) 5.75% 11/01/2028 $ 2,641
5,000 Finance Auth. 7.25 11/01/2030 5,881
4,500 Finance Auth. 5.00 4/01/2031 4,149
7,565 Finance Auth. 5.50 4/01/2032 7,647
8,000 Finance Auth. 6.00 10/01/2032 8,778
14,875 Finance Auth. 4.50 11/15/2032 14,114
6,000 Finance Auth. 4.00 2/01/2033 5,344
5,000 Finance Auth. 5.75 10/01/2035 5,112
7,000 Finance Auth. 5.00 4/01/2036 6,253
20,000 Finance Auth. 5.38 8/15/2039 20,272
1,205 Finance Auth. 5.25 10/01/2039 1,193
5,000 Finance Auth. 6.00 7/01/2043 5,169
2,500 Housing Dev. Auth. 4.85 1/01/2037 2,431
5,000 Metropolitan Pier and Exposition Auth. (INS) 5.50 6/15/2020 5,552
2,500 Metropolitan Pier and Exposition Auth. (INS) 5.55 6/15/2021 2,754
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 10,940
23,980 Regional Transportation Auth. (INS) 5.75 6/01/2020 28,507
37,550 Regional Transportation Auth. (INS) 6.50 7/01/2030 46,016
3,000 Schaumburg (INS) (PRE) 5.25 12/01/2034 3,175
8,000 State (INS) 5.00 4/01/2029 7,940
1,000 Univ. of Illinois 5.13 4/01/2036 1,023
7,676 Village of Gilberts (INS) 4.75 3/01/2030 7,555
1,710 Village of Montgomery Kane and Kendall
Counties (INS) 4.70 3/01/2030 1,493
1,500 Village of Round Lake (INS) 4.70 3/01/2033 1,408
----------
227,696
----------
INDIANA (1.0%)
3,440 Finance Auth. 5.00 10/01/2033 3,479
5,000 Finance Auth. 5.00 6/01/2039 4,562
4,000 Finance Auth. 5.00 5/01/2042 3,908
6,000 Indianapolis (INS) 5.50 1/01/2038 6,309
7,500 Rockport (INS) 4.63 6/01/2025 7,790
----------
26,048
----------
IOWA (0.3%)
5,000 Finance Auth. (INS) 4.75 12/01/2031 4,479
5,000 Finance Auth. (INS) 5.00 12/01/2039 4,425
----------
8,904
----------
KANSAS (0.9%)
9,000 Burlington (INS) 4.85 6/01/2031 9,036
15,000 Wyandotte County 5.89(a) 6/01/2021 10,011
3,415 Wyandotte County 5.00 9/01/2032 3,593
----------
22,640
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
KENTUCKY (0.5%)
$ 1,000 Economic Dev. Finance Auth. (INS) 6.00% 12/01/2033 $ 1,012
4,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2038 4,035
5,000 Municipal Power Agency (INS) 5.00 9/01/2037 5,032
2,000 Owen County 6.25 6/01/2039 2,116
----------
12,195
----------
LOUISIANA (2.1%)
2,500 Lafayette Public Trust Financing Auth. (INS) 5.50 10/01/2035 2,647
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,029
25,000 Parish of St. John the Baptist 5.13 6/01/2037 24,812
10,000 Public Facilities Auth. 5.00 6/01/2030 10,372
7,450 Public Facilities Auth. 5.00 7/01/2042 7,421
2,000 Stadium and Exposition District 5.00 7/01/2036 2,011
1,500 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,472
----------
52,764
----------
MARYLAND (0.7%)
2,500 EDC 6.20 9/01/2022 2,954
5,000 Health and Higher Educational Facilities Auth. 5.75 1/01/2033 5,123
1,700 Health and Higher Educational Facilities Auth. 5.00 7/01/2037 1,701
6,000 Health and Higher Educational Facilities Auth. 5.75 1/01/2038 6,061
3,000 Health and Higher Educational Facilities Auth. 4.00 7/01/2038 2,464
----------
18,303
----------
MASSACHUSETTS (1.0%)
2,000 Dev. Finance Agency (INS) 5.25 3/01/2026 2,094
2,000 Dev. Finance Agency (INS) 5.00 3/01/2036 1,911
10,000 Health and Educational Facilities Auth. 6.25 7/01/2030 10,968
3,500 Health and Educational Facilities Auth. 5.00 7/15/2032 3,342
1,250 Health and Educational Facilities Auth. 5.00 7/01/2033 1,250
500 Health and Educational Facilities Auth. 5.00 7/15/2037 466
5,000 School Building Auth. (INS) 4.75 8/15/2032 5,067
----------
25,098
----------
MICHIGAN (1.3%)
59,395 Building Auth. (INS) 5.01(a) 10/15/2030 23,876
4,500 Lansing Board of Water & Light 5.00 7/01/2037 4,669
3,000 Strategic Fund 5.63 7/01/2020 3,514
----------
32,059
----------
MINNESOTA (0.7%)
4,000 Chippewa County 5.50 3/01/2037 4,002
6,841 Higher Education Facilities Auth., acquired
8/28/2006; cost $6,926(e),(f) 5.43 8/28/2031 6,944
================================================================================
24 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,500 Higher Education Facilities Auth. 5.00% 10/01/2039 $ 2,580
3,000 St. Louis Park 5.75 7/01/2030 3,150
----------
16,676
----------
MISSISSIPPI (0.5%)
1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2026 1,009
8,750 Warren County 4.80 8/01/2030 8,620
3,000 Warren County 5.38 12/01/2035 3,007
----------
12,636
----------
MISSOURI (1.5%)
20,000 Cape Girardeau County IDA 5.00 6/01/2036 19,457
1,000 Cape Girardeau County IDA 5.75 6/01/2039 1,041
8,000 Cass County 5.63 5/01/2038 7,641
2,000 Dev. Finance Board 5.00 6/01/2035 2,002
7,500 Health and Educational Facilities Auth. 5.50 11/15/2033 7,775
----------
37,916
----------
MONTANA (0.5%)
6,500 Forsyth (INS) 4.65 8/01/2023 6,848
5,000 Forsyth 5.00 5/01/2033 5,188
----------
12,036
----------
NEBRASKA (0.3%)
2,250 Douglas County Hospital Auth. 6.13 8/15/2031 2,372
5,000 Lincoln County Hospital Auth. 5.00 11/01/2042 4,943
----------
7,315
----------
NEVADA (1.8%)
3,000 Carson City 5.00 9/01/2033 2,835
4,000 Clark County (INS) 5.00 7/01/2026 4,299
11,000 Clark County 5.13 7/01/2034 11,268
5,000 Clark County (INS) 5.25 7/01/2039 5,205
12,410 Clark County EDC 5.00 5/15/2029 12,772
10,420 Truckee Meadows Water Auth. (INS) 4.88 7/01/2034 10,453
----------
46,832
----------
NEW JERSEY (1.6%)
3,000 Camden County Improvement Auth. 5.75 2/15/2034 3,009
6,000 EDA 5.00 9/01/2024 6,640
2,000 EDA 5.00 6/15/2028 2,018
1,500 Health Care Facilities Financing Auth. 4.00 7/01/2026 1,442
11,495 Health Care Facilities Financing Auth. 5.00 7/01/2029 11,530
15,000 Health Care Facilities Financing Auth. 5.63 7/01/2032 15,464
----------
40,103
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
NEW MEXICO (1.4%)
$32,380 Farmington 4.88% 4/01/2033 $ 30,457
5,000 Farmington 5.90 6/01/2040 5,132
----------
35,589
----------
NEW YORK (3.8%)
2,040 Buffalo and Erie County Industrial Land Dev. Corp. 5.38 10/01/2041 2,122
16,570 Dormitory Auth. 6.00 8/15/2016 17,806
1,920 Dormitory Auth. 5.25 7/01/2024 2,042
2,250 Dormitory Auth. 5.25 7/01/2029 2,274
16,130 Liberty Dev. Corp. 5.25 10/01/2035 17,110
2,000 Long Island Power Auth. 5.75 4/01/2039 2,146
5,000 MTA 3.55(a) 11/15/2032 2,077
5,000 MTA 5.00 11/15/2042 5,066
4,000 MTA 5.00 11/15/2042 4,055
5,000 MTA 5.00 11/15/2043 5,065
5 New York City 5.30 12/01/2018 5
60 New York City 5.88 8/01/2019 61
5,000 New York City 5.13 12/01/2028 5,543
1,500 New York City Municipal Water Finance Auth. 5.00 6/15/2037 1,551
7,500 New York City Transitional Finance Auth. 5.00 1/15/2034 8,098
5,000 Thruway Auth. 5.00 1/01/2042 5,118
5,000 Triborough Bridge and Tunnel Auth. 3.62(a) 11/15/2031 2,092
10,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 10,430
3,000 Triborough Bridge and Tunnel Auth. 3.66(a) 11/15/2032 1,194
2,500 Triborough Bridge and Tunnel Auth. 3.70(a) 11/15/2032 1,026
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,067
----------
96,948
----------
NORTH CAROLINA (1.0%)
645 Capital Facilities Finance Agency 5.00 3/01/2034 640
10,000 Capital Facilities Finance Agency 4.63 11/01/2040 9,863
3,750 Charlotte-Mecklenberg Hospital Auth. 5.25 1/15/2034 3,942
5,000 Columbus County Industrial Facilities & Pollution
Control Financing Auth. 6.25 11/01/2033 5,327
5,250 State Medical Care Commission 5.00 7/01/2033 5,036
----------
24,808
----------
NORTH DAKOTA (0.8%)
4,685 Fargo 6.25 11/01/2031 5,288
5,000 Grand Forks 5.00 12/01/2032 5,008
5,000 Grand Forks 5.00 12/01/2035 5,011
2,500 McLean County 4.88 7/01/2026 2,574
1,685 Williams County 5.00 11/01/2026 1,696
----------
19,577
----------
================================================================================
26 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
OHIO (1.6%)
$ 6,000 Air Quality Dev. Auth. 5.70% 8/01/2020 $ 6,653
20,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 15,966
10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 7,619
1,000 Cleveland (INS) 5.00 1/01/2031 1,024
4,640 Higher Education Facility Commission (INS) 5.00 5/01/2036 4,075
2,000 Lake County 5.63 8/15/2029 2,085
2,000 State Turnpike Commission 5.25 2/15/2033 2,131
----------
39,553
----------
OKLAHOMA (2.0%)
20,760 Comanche County Hospital Auth. 5.00 7/01/2032 20,646
4,500 Municipal Power Auth. (INS) 4.50 1/01/2047 4,262
2,910 Norman Regional Hospital Auth. (INS) 5.50 9/01/2023 2,910
3,100 Norman Regional Hospital Auth. 5.38 9/01/2029 3,035
8,695 Norman Regional Hospital Auth. 5.38 9/01/2036 8,245
1,000 Oklahoma County Finance Auth. 5.00 4/01/2033 940
7,380 Sapulpa Municipal Auth. (INS) 5.00 4/01/2033 7,611
2,675 Tulsa Industrial Auth. 5.00 10/01/2037 2,705
----------
50,354
----------
OREGON (0.1%)
1,640 Keizer 5.20 6/01/2031 1,653
----------
PENNSYLVANIA (1.1%)
750 Allegheny County Higher Education Building Auth. 5.50 3/01/2031 811
875 Allegheny County IDA 5.13 9/01/2031 787
4,000 Allegheny County Sanitary Auth. (INS) 5.00 6/01/2040 4,077
5,000 Dauphin County 5.00 6/01/2042 4,870
7,000 Economic Development Financing Auth. 4.00 10/01/2023 7,190
1,870 Erie Parking Auth. (INS) 5.13 9/01/2032 1,976
2,295 Erie Parking Auth. (INS) 5.20 9/01/2035 2,406
550 Montgomery County IDA 5.00 11/15/2029 535
1,250 State Turnpike Commission, 5.00%, 12/01/2018 4.12(b) 12/01/2033 956
3,200 Washington County IDA 5.00 11/01/2036 3,230
----------
26,838
----------
PUERTO RICO (0.1%)
2,000 Industrial, Tourist, Educational, Medical,
Environmental Control Facilities Financing Auth. 5.38 4/01/2042 1,494
----------
RHODE ISLAND (1.1%)
5,700 EDC (INS) 5.00 7/01/2031 5,708
12,185 EDC (INS) 5.00 7/01/2036 11,861
975 Housing and Mortgage Finance Corp. 6.85 10/01/2024 977
9,950 Housing and Mortgage Finance Corp. 4.85 4/01/2033 9,981
----------
28,527
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
SOUTH CAROLINA (0.7%)
$ 5,000 Georgetown County 5.70% 4/01/2014 $ 5,110
2,250 Greenwood County 5.38 10/01/2039 2,321
10,000 Jobs EDA (INS) 4.60 4/01/2027 9,436
----------
16,867
----------
SOUTH DAKOTA (0.5%)
500 Educational Enhancement Funding Corp. 5.00 6/01/2027 531
2,500 Health and Educational Facilities Auth. 5.25 11/01/2027 2,523
2,500 Health and Educational Facilities Auth. 5.25 11/01/2029 2,587
3,000 Health and Educational Facilities Auth. 5.25 7/01/2038 3,041
4,000 Health and Educational Facilities Auth. 5.00 7/01/2042 3,997
----------
12,679
----------
TENNESSEE (1.2%)
4,240 Jackson 5.50 4/01/2033 4,452
3,000 Johnson City Health and Educational Facilities Board 5.50 7/01/2031 3,075
5,000 Johnson City Health and Educational Facilities Board 5.50 7/01/2036 5,106
2,000 Johnson City Health and Educational Facilities Board 5.00 8/15/2042 1,925
4,155 Knox County Health, Educational and Housing
Facilities Board 5.02(a) 1/01/2036 1,172
4,000 Knox County Health, Educational and Housing
Facilities Board 5.03(a) 1/01/2037 1,059
3,765 Shelby County Health, Educational and Housing
Facilities Board 5.00 5/01/2042 3,795
11,075 Sullivan County Health Educational & Housing
Facilities Board 5.25 9/01/2036 11,097
----------
31,681
----------
TEXAS (16.5%)
19,500 Bell County Health Facilities Dev. Corp. (ETM) 6.50 7/01/2019 23,350
1,520 Bexar County 5.00 7/01/2033 1,513
1,795 Bexar County 5.00 7/01/2037 1,762
6,000 Central Texas Regional Mobility Auth. 5.75 1/01/2031 6,060
2,500 Central Texas Regional Mobility Auth. 5.00 1/01/2042 2,071
1,000 Clifton Higher Education Finance Corp.(g) 6.00 8/15/2033 1,060
2,750 Clifton Higher Education Finance Corp.(g) 6.00 8/15/2043 2,860
5,000 Cypress-Fairbanks ISD (NBGA) 5.00 2/15/2035 5,346
4,000 Dallas/Fort Worth International Airport 5.00 11/01/2034 4,086
12,100 Denton ISD (NBGA) 5.16(a) 8/15/2028 5,818
13,885 Denton ISD (NBGA) 5.18(a) 8/15/2029 6,257
11,220 Denton ISD (NBGA) 5.20(a) 8/15/2030 4,753
15,645 Denton ISD (NBGA) 5.22(a) 8/15/2031 6,131
5,000 Duncanville ISD (NBGA) 4.63 2/15/2029 5,099
2,240 Eagle Mountain-Saginaw ISD (NBGA) 4.50 8/15/2033 2,262
================================================================================
28 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 9,155 Ennis ISD (NBGA) 4.70%(a) 8/15/2034 $ 3,493
9,155 Ennis ISD (NBGA) 4.71(a) 8/15/2035 3,317
9,000 Fort Worth 6.00 3/01/2029 10,319
8,085 Fort Worth 6.25 3/01/2033 9,183
3,965 Guadalupe-Blanco River Auth. (INS) 5.00 5/15/2039 3,979
3,000 Harlandale ISD (NBGA) 4.75 8/15/2036 3,008
20,100 Harris County (PRE) 4.75 10/01/2031 22,527
4,900 Harris County 4.75 10/01/2031 5,129
4,000 Harris County Education Facilities Finance Corp. 5.25 10/01/2029 4,346
3,000 Harris County Education Facilities Finance Corp. 5.00 6/01/2038 2,826
1,500 Harris County Health Facilities Dev. Corp. (PRE) 7.25 12/01/2035 1,936
7,000 Harris County IDC 5.00 2/01/2023 7,509
2,660 Hopkins County Hospital District 5.75 2/15/2028 2,403
12,500 Houston Airport System 5.50 7/01/2034 13,697
22,000 Houston ISD (NBGA) 5.00 2/15/2033 23,286
5,000 Irving ISD (NBGA) 5.38(a) 2/15/2028 2,471
22,000 Judson ISD (NBGA)(c) 4.50 2/01/2035 22,243
3,000 Laredo CCD (INS) 5.25 8/01/2035 3,133
5,300 Matagorda County 6.30 11/01/2029 5,883
3,615 Matagorda County 4.00 6/01/2030 3,228
6,000 Matagorda County 4.00 6/01/2030 5,358
4,235 Mesquite Health Facilities Dev. Corp. 5.63 2/15/2035 4,097
780 Midlothian Dev. Auth. 5.13 11/15/2026 753
5,000 North Fort Bend Water Auth. 5.00 12/15/2036 5,097
3,000 North Texas Tollway Auth. 5.63 1/01/2028 3,267
15,000 North Texas Tollway Auth. 5.63 1/01/2033 15,861
5,000 North Texas Tollway Auth. 5.63 1/01/2033 5,287
15,000 North Texas Tollway Auth. 5.75 1/01/2033 15,950
3,000 North Texas Tollway Auth. 7.55(a) 9/01/2037 726
12,500 North Texas Tollway Auth. 5.75 1/01/2040 13,436
5,490 Red River Education Finance Corp. 4.38 3/15/2027 5,534
1,000 San Leanna Education Facilities Corp. 5.13 6/01/2026 1,027
1,815 San Leanna Education Facilities Corp. 5.13 6/01/2027 1,855
6,025 San Leanna Education Facilities Corp. 4.75 6/01/2032 5,857
2,395 San Leanna Education Facilities Corp. 5.13 6/01/2036 2,384
7,205 Schertz - Cibolo - Universal City ISD (NBGA) 5.09(a) 2/01/2033 2,509
6,200 Schertz - Cibolo - Universal City ISD (NBGA) 5.11(a) 2/01/2035 1,896
18,530 State Turnpike Auth. (INS) 5.25(a) 8/15/2030 7,577
1,100 Tarrant County Cultural Education Facilities
Finance Corp. 6.00 11/15/2026 1,107
6,315 Tarrant County Cultural Education Facilities
Finance Corp. 5.63 11/15/2027 6,274
2,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 8/15/2033 2,041
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 4,000 Tarrant County Cultural Education Facilities
Finance Corp. 6.00% 11/15/2036 $ 3,990
15,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.13 5/15/2037 13,733
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.75 11/15/2037 3,795
5,000 Transportation Commission 4.50 4/01/2033 5,066
3,850 Transportation Commission 5.00 8/15/2041 3,770
22,000 Tyler Health Facilities Dev. Corp. 5.25 11/01/2032 20,942
10,000 Tyler Health Facilities Dev. Corp. 5.00 7/01/2033 9,523
1,230 Tyler Health Facilities Dev. Corp. 5.38 11/01/2037 1,162
1,000 Uptown Dev. Auth. 5.50 9/01/2029 1,042
3,000 Weatherford ISD (NBGA) 4.83(a) 2/15/2027 1,574
2,500 Weatherford ISD (NBGA) 4.84(a) 2/15/2028 1,219
6,360 West Harris County Regional Water Auth. (INS) 4.70 12/15/2030 6,514
4,770 Wood County Central Hospital District 6.00 11/01/2041 4,982
----------
417,549
----------
VIRGINIA (1.5%)
11,280 College Building Auth. 5.00 6/01/2026 11,386
5,000 College Building Auth. 5.00 6/01/2029 5,006
880 College Building Auth. (PRE) 5.00 6/01/2036 982
3,120 College Building Auth. 5.00 6/01/2036 3,009
1,437 Farms of New Kent Community Dev. Auth.,
acquired 10/23/2007; cost $1,337(f),(h),(i) 5.13 3/01/2036 703
8,665 Farms of New Kent Community Dev. Auth., acquired
9/08/2006-10/11/2007; cost $8,323(f),(h),(i) 5.45 3/01/2036 4,245
2,000 Farms of New Kent Community Dev. Auth., acquired
11/15/2007; cost $1,870(f),(h),(i) 5.80 3/01/2036 981
1,300 Lewistown Commerce Center Community Dev. Auth. 5.75 3/01/2019 543
10,875 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2027 4,541
5,000 Small Business Financing Auth. 5.25 9/01/2037 4,818
2,452 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 2,390
----------
38,604
----------
WASHINGTON (0.1%)
2,500 Health Care Facilities Auth. (INS) 6.00 8/15/2039 2,675
----------
WEST VIRGINIA (0.3%)
2,000 EDA 5.38 12/01/2038 2,051
2,500 Univ. Board of Governors (INS) (PRE) 5.00 10/01/2027 2,619
2,500 Univ. Board of Governors (INS) (PRE) 5.00 10/01/2028 2,620
----------
7,290
----------
WISCONSIN (1.4%)
5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,557
================================================================================
30 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 3,000 Health & Educational Facilities Auth. 5.00% 8/15/2032 $ 3,055
3,500 Health & Educational Facilities Auth. 4.00 10/01/2032 3,343
10,600 Health & Educational Facilities Auth. 5.38 2/15/2034 10,693
2,500 Health & Educational Facilities Auth. 5.38 8/15/2037 2,557
7,800 Kaukauna (INS) 5.00 12/15/2035 7,932
2,725 Platteville Redevelopment Auth. 5.00 7/01/2042 2,363
----------
35,500
----------
WYOMING (0.4%)
2,360 Municipal Power Agency 5.50 1/01/2033 2,555
2,300 Municipal Power Agency 5.50 1/01/2038 2,470
6,000 Sweetwater County 5.25 7/15/2026 6,438
----------
11,463
----------
Total Fixed-Rate Instruments (cost: $2,271,235) 2,293,536
----------
PUT BONDS (3.6%)
ARIZONA (1.3%)
20,000 Health Facilities Auth. 1.92(j) 2/01/2048 19,398
12,500 Maricopa County 6.00 5/01/2029 12,883
----------
32,281
----------
FLORIDA (0.2%)
4,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 4,579
----------
INDIANA (0.4%)
9,000 Rockport 6.25 6/01/2025 9,313
----------
LOUISIANA (0.3%)
6,750 St. Charles Parish 4.00 12/01/2040 6,746
----------
MONTANA (0.1%)
4,000 Forsyth 3.90 3/01/2031 3,724
----------
OHIO (0.4%)
9,000 Air Quality Dev. Auth. 2.25 8/01/2029 8,820
2,400 Water Dev. Auth. 2.25 8/01/2029 2,341
----------
11,161
----------
PENNSYLVANIA (0.9%)
3,000 Beaver County IDA 2.20 1/01/2035 2,942
8,250 Beaver County IDA 2.70 4/01/2035 7,960
11,000 Berks County Municipal Auth. 1.57(j) 11/01/2039 10,880
1,000 Economic Dev. Financing Auth. 1.75 12/01/2033 997
----------
22,779
----------
Total Put Bonds (cost: $90,825) 90,583
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ADJUSTABLE-RATE NOTES (0.8%)
NEW JERSEY (0.8%)
$20,000 EDA (cost: $20,000) 1.67% 3/01/2028 $ 18,968
----------
VARIABLE-RATE DEMAND NOTES (3.4%)
ARIZONA (0.9%)
22,120 Health Facilities Auth. (LOC - Sovereign Bank) 0.77 12/01/2037 22,120
----------
CALIFORNIA (0.9%)
16,520 Educational Facilities Auth. (LOC - Sovereign Bank) 0.85 11/01/2042 16,520
6,930 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.57 5/01/2040 6,930
----------
23,450
----------
ILLINOIS (0.8%)
21,230 State (LIQ) 2.00 10/01/2033 21,230
----------
PENNSYLVANIA (0.8%)
19,360 Emmaus General Auth. (INS)(LIQ) 0.35 12/01/2028 19,360
----------
Total Variable-Rate Demand Notes (cost: $86,160) 86,160
----------
TOTAL INVESTMENTS (COST: $2,468,220) $2,489,247
==========
--------------------------------------------------------------------------------------------------------
($ 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 $- $2,293,536 $- $2,293,536
Put Bonds - 90,583 - 90,583
Adjustable-Rate Notes - 18,968 - 18,968
Variable-Rate Demand Notes - 86,160 - 86,160
--------------------------------------------------------------------------------------------------------
Total $- $2,489,247 $- $2,489,247
--------------------------------------------------------------------------------------------------------
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.
================================================================================
32 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(b) 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.
(c) At September 30, 2013, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(d) Pay-in-kind (PIK) -- Security in which the issuer will have or has the
option to make all or a portion of the interest or dividend payments in
additional securities.
(e) 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
by Rule 144A, and as such has been deemed liquid by USAA Asset
Management Company (the Manager) under liquidity guidelines approved by
the Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(f) 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 $12,873,000, which represented 0.5% of the
Fund's net assets.
(g) At September 30, 2013, the aggregate market value of securities
purchased on a when-issued basis was $3,920,000.
(h) Security was fair valued at September 30, 2013, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $5,929,000, which represented 0.2% of
net assets of the Fund.
(i) Currently the issuer is in default with respect to interest and/or
principal payments.
(j) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate at
September 30, 2013.
(k) A portion of the coupon is payable in kind (PIK) 7.08% (5.03% cash,
2.05% PIK).
See accompanying notes to financial statements.
================================================================================
34 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,468,220) $2,489,247
Cash 6,517
Receivables:
Capital shares sold 570
Interest 33,703
Securities sold 3,000
----------
Total assets 2,533,037
----------
LIABILITIES
Payables:
Securities purchased 3,768
Capital shares redeemed 1,285
Dividends on capital shares 1,961
Accrued management fees 679
Accrued transfer agent's fees 26
Other accrued expenses and payables 75
----------
Total liabilities 7,794
----------
Net assets applicable to capital shares outstanding $2,525,243
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,554,455
Accumulated undistributed net investment income 2
Accumulated net realized loss on investments (50,241)
Net unrealized appreciation of investments 21,027
----------
Net assets applicable to capital shares outstanding $2,525,243
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,519,814/192,389 shares outstanding) $ 13.10
==========
Adviser Shares (net assets of $5,429/415 shares outstanding) $ 13.09
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 61,876
---------
EXPENSES
Management fees 4,399
Administration and servicing fees:
Fund Shares 2,012
Adviser Shares 4
Transfer agent's fees:
Fund Shares 478
Distribution and service fees (Note 6E):
Adviser Shares 8
Custody and accounting fees:
Fund Shares 148
Postage:
Fund Shares 17
Shareholder reporting fees:
Fund Shares 22
Trustees' fees 6
Registration fees:
Fund Shares 25
Adviser Shares 14
Professional fees 82
Other 22
---------
Total expenses 7,237
Expenses reimbursed:
Adviser Shares (10)
---------
Net expenses 7,227
---------
NET INVESTMENT INCOME 54,649
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (39,166)
Change in net unrealized appreciation/depreciation (126,649)
---------
Net realized and unrealized loss (165,815)
---------
Decrease in net assets resulting from operations $(111,166)
=========
See accompanying notes to financial statements.
================================================================================
36 | USAA TAX EXEMPT LONG-TERM 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 $ 54,649 $ 109,107
Net realized gain (loss) on investments (39,166) 3,107
Change in net unrealized appreciation/depreciation of
investments (126,649) 78,571
--------------------------
Increase (decrease) in net assets resulting from
operations (111,166) 190,785
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (54,319) (108,637)
Adviser Shares (112) (244)
--------------------------
Distributions to shareholders (54,431) (108,881)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (152,714) 167,252
Adviser Shares (1,013) 759
--------------------------
Total net increase (decrease) in net assets from
capital share transactions (153,727) 168,011
--------------------------
Net increase (decrease) in net assets (319,324) 249,915
NET ASSETS
Beginning of period 2,844,567 2,594,652
--------------------------
End of period $2,525,243 $2,844,567
==========================
Accumulated undistributed (overdistribution of) net
investment income:
End of period $ 2 $ (216)
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
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 Tax
Exempt Long-Term Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is to provide investors with interest
income that is exempt from federal income tax.
The Fund consists of two classes of shares: Tax Exempt Long-Term Fund Shares
(Fund Shares) and Tax Exempt Long-Term 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
================================================================================
38 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures which are approved by the Board. Among other things,
these policies and procedures allow the Fund to utilize independent pricing
services, quotations from securities dealers, and a wide variety of sources
and information to establish and adjust the fair value of securities as
events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager). Among other things, these monthly meetings include a
review and analysis of back testing reports, pricing service quotation
comparisons, illiquid securities and fair value determinations, pricing
movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
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.
================================================================================
40 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 variable-rate demand notes which are valued at amortized cost. All
other level 2 securities are valued based on methods discussed in Note 1A1.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
the volatility of the Fund's NAV to the extent that the Fund makes such
purchases while remaining substantially fully invested. As of September 30,
2013, the Fund's outstanding delayed-delivery commitments, including
interest purchased, were $3,768,000; all of which were when-issued
securities.
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended 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).
================================================================================
42 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 $7,000, which represents 4.2% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended 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 pre-enactment capital loss carryforwards
and post-enactment net capital loss carryfowards of $10,992,000, 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 or expire.
The capital loss carryforwards of the Fund include capital losses acquired from
the merger with USAA Florida Tax-Free Income Fund on
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
January 27, 2012. In addition to the acquired capital loss carryforwards, the
Fund also acquired unrealized capital losses as a result of the merger. The
yearly utilization of the acquired capital losses and unrealized losses may be
limited by the Internal Revenue Code.
<CPATION>
POST-ENACTMENT CAPITAL LOSS CARRYFORWARDS
-----------------------------------------
TAX CHARACTER
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $ 2,522,000
Long-Term 8,470,000
-----------
Total $10,992,000
===========
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 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
$119,811,000 and $209,766,000, 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 $89,819,000 and $68,792,000, respectively, resulting in net
unrealized appreciation of $21,027,000.
(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.
================================================================================
44 | USAA TAX EXEMPT LONG-TERM 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 8,040 $ 107,895 27,331 $ 376,945
Shares issued from reinvested
dividends 3,127 41,718 5,983 83,074
Shares redeemed (22,735) (302,327) (21,099) (292,767)
--------------------------------------------------
Net increase (decrease) from
capital share transactions (11,568) $(152,714) 12,215 $ 167,252
==================================================
ADVISER SHARES:
Shares sold 69 $ 918 263 $ 3,655
Shares issued from reinvested
dividends 1 16 4 57
Shares redeemed (145) (1,947) (212) (2,953)
--------------------------------------------------
Net increase (decrease) from
capital share transactions (75) $ (1,013) 55 $ 759
==================================================
(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 at an annualized rate of
0.28% of the Fund's average net assets for the fiscal year.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
General Municipal Debt Funds Index over the performance period. The Lipper
General Municipal Debt Index tracks the total return performance of the 30
largest funds in the Lipper General & Insured Municipal Debt Funds category.
The performance period for each class consists of the current month plus the
previous 35 months. The
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point (0.01%). Average net assets of the share class are
calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the
average net assets of each respective class over the entire performance
period, which is then multiplied by a fraction, the numerator of which is
the number of days in the month and the denominator of which is 365 (366 in
leap years). The resulting amount is 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 General 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 $4,399,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$633,000 and $1,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.05% and 0.04%, 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
================================================================================
46 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
September 30, 2013, the Fund Shares and Adviser Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$2,012,000 and $4,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended September 30, 2013, the Fund reimbursed the
Manager $38,000 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 0.85% of 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 reimbursable expenses of $10,000, of which, less than $500
was receivable from the Manager.
D. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. Transfer agent's fees for both the Fund
Shares and Adviser Shares are paid monthly based on an annual charge of
$25.50 per shareholder account plus out-of-pocket expenses. 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 $478,000 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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 $8,000.
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.
(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 377,000 shares, which represent 90.9% of the
Adviser Shares and 0.2% 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.
================================================================================
48 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(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 $ 13.91 $ 13.50 $ 12.16 $ 12.83 $ 11.59 $ 12.97
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .27 .54 .59 .62 .65 .66
Net realized and
unrealized gain (loss) (.81) .41 1.36 (.63) 1.24 (1.35)
-------------------------------------------------------------------------------
Total from investment
operations (.54) .95 1.95 (.01) 1.89 (.69)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.27) (.54) (.59) (.62) (.65) (.66)
Realized capital gains - - (.02) (.04) (.00)(a) (.03)
-------------------------------------------------------------------------------
Total distributions (.27) (.54) (.61) (.66) (.65) (.69)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 13.10 $ 13.91 $ 13.50 $ 12.16 $ 12.83 $ 11.59
===============================================================================
Total return (%)* (3.88) 7.11 16.30 (.19) 16.59(b) (5.34)
Net assets at
end of period (000) $2,519,814 $2,837,758 $2,588,782 $2,170,450 $2,344,007 $2,029,981
Ratios to average
net assets:**
Expenses (%)(c) .54(d) .53 .52 .47 .45(b) .44
Net investment
income (%) 4.07(d) 3.89 4.54 4.84 5.21 5.42
Portfolio turnover (%) 5 14 9 15 8 13
* 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
$2,672,650,000.
(a) Represents less than $0.01 per share.
(b) During the year ended March 31, 2010, SAS reimbursed the Fund Shares
$102,000 for corrections in fees paid for the administration and servicing
of certain accounts. The effect of this reimbursement on the Fund Shares'
total return was less than 0.01%. The reimbursement decreased the Fund
Shares' expense ratio by less than 0.01%. This decrease is excluded from the
expense ratio in the Financial Highlights table.
(c) Reflects total operating expenses of the Fund Shares before reductions of
any expenses paid indirectly. The Fund Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(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 $13.91 $13.50 $12.16 $13.02
-------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .49 .55 .37
Net realized and unrealized
gain (loss) (.82) .41 1.36 (.82)
-------------------------------------------------------------
Total from investment operations (.57) .90 1.91 (.45)
-------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.49) (.55) (.37)
Realized capital gains - - (.02) (.04)
-------------------------------------------------------------
Total distributions (.25) (.49) (.57) (.41)
-------------------------------------------------------------
Net asset value at end of period $13.09 $13.91 $13.50 $12.16
=============================================================
Total return (%)* (4.10) 6.77 15.92 (3.49)
Net assets at end of period (000) $5,429 $6,809 $5,870 $4,586
Ratios to average net assets:**
Expenses (%)(b) .85(a) .85 .85 .85(a)
Expenses, excluding
reimbursements (%)(b) 1.21(a) 1.11 1.32 1.53(a)
Net investment income (%) 3.75(a) 3.56 4.20 4.47(a)
Portfolio turnover (%) 5 14 9 15
* 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
$6,011,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) 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%.
================================================================================
50 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of 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 actual
================================================================================
EXPENSE EXAMPLE | 51
================================================================================
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 $ 961.20 $2.65
Hypothetical
(5% return before expenses) 1,000.00 1,022.36 2.74
ADVISER SHARES
Actual 1,000.00 959.00 4.17
Hypothetical
(5% return before expenses) 1,000.00 1,020.81 4.31
* Expenses are equal to the annualized expense ratio of 0.54% for Fund Shares
and 0.85% 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
(3.88)% for Fund Shares and (4.10)% for Adviser Shares for the six-month
period of April 1, 2013, through September 30, 2013.
================================================================================
52 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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, comparability of fees and
total expenses, and profitability. However, the
================================================================================
ADVISORY AGREEMENT | 53
================================================================================
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," also was considered. The Manager's role
in coordinating the activities of the
================================================================================
54 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 and its affiliates, including the high quality of
services provided by the Manager. The Board also
================================================================================
ADVISORY AGREEMENT | 55
================================================================================
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 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-, three-, and five-year periods ended December 31, 2012. The
Board also noted that the Fund's percentile performance ranking was in the top
35% of its performance universe for the one-year period ended December 31, 2012,
and was in the top 25% of its performance universe for the three- and five-year
periods ended December 31, 2012. The Board took into account management's
discussion of the Fund's performance, including any actions taken with respect
to the Fund, as well as management's continued monitoring of the Fund's
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 they receive
================================================================================
56 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to participate
in any economies of scale. The Board took into account management's discussion
of the current advisory fee structure. The Board also considered the 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 other 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 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 the 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.
================================================================================
ADVISORY AGREEMENT | 57
================================================================================
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)
=============================================================================
39596-1113 (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.