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 SHORT-TERM FUND]
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SEMIANNUAL REPORT
USAA TAX EXEMPT SHORT-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 32
Financial Statements 33
Notes to Financial Statements 36
EXPENSE EXAMPLE 49
ADVISORY AGREEMENT 51
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 SHORT-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 three years or less.
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 REGINA SHAFER] [PHOTO OF DIEDERIK OLIJSLAGER]
Regina Shafer, CPA, CFA Diederik Olijslager
USAA Asset USAA Asset
Management Company Management Company
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o HOW DID THE USAA TAX EXEMPT SHORT-TERM FUND (THE FUND SHARES) PERFORM DURING
THE REPORTING PERIOD?
The Fund Shares provided a total return of -0.28% versus an average return
of -0.39% amongst the funds in the Lipper Short Municipal Debt Funds
category. This compares to returns of -0.27% for the Lipper Short Municipal
Debt Funds Index and -3.15% for the Barclays Municipal Bond Index. The Fund
Shares' tax-exempt distributions over the prior 12 months produced a
dividend yield of 1.96%, compared to the Lipper category average of 0.86%.
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
In April, when the reporting period began, tax-exempt bonds posted gains,
benefiting from supportive supply and demand conditions and the strong
performance of U.S. Treasuries, which municipals tend to follow over time.
In early May, yields began to rise on speculation the U.S. Federal Reserve
(the Fed) might start scaling back its quantitative easing measures sooner
than expected. Bond prices, which move in the opposite direction of interest
rates, declined. Yields surged in June
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 SHORT-TERM FUND
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after Fed Chairman Ben Bernanke suggested tapering could start later in
2013. Investors, fearful that Fed tapering would lead to higher interest
rates, shifted assets away from bonds. The large amount of redemptions from
the municipal market drove down tax-exempt bond prices further, fueling more
selling. After the Fed reiterated that any tapering would be data-dependent,
municipal prices retraced some of their losses in late June.
Municipal bond prices resumed their decline in July as investors sought to
divine the Fed's intentions. Yields increased, rising most in the longer
maturities. Also in July, the City of Detroit filed for bankruptcy
protection. Though widely anticipated, the bankruptcy likely contributed to
overall market volatility. By August, it was widely believed the Fed would
announce a reduction in its asset purchases following its September policy
meeting. Instead, the Fed surprised the markets, announcing in September
that it would make no changes to its bond-buying programs. U.S. Treasuries
and equities rallied on the news that the Fed would continue its easy
monetary policies at least in the near term. The tax-exempt market followed
suit. As municipal bond prices stabilized, redemptions slowed.
Shorter-term municipal yields increased during the reporting period overall.
The yield on a three-year AAA-rated municipal, which was 0.47% on March 29,
2013, hit a high of 0.91% on September 5, 2013, and ended the reporting
period at 0.65%.
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
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MANAGERS' COMMENTARY ON THE FUND | 3
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municipal debt but who purchased it opportunistically to take advantage of
the attractive yields. Low supply and improving demand helped stabilize
municipal bond prices.
o HOW DID YOU MANAGE VOLATILITY IN THE FUND'S PRICE?
We continued to invest a portion of the portfolio in variable rate demand
notes (VRDNs). Because they tend to remain at par (100% of face value) as
interest rates move, the VRDNs owned by the Fund help us reduce share price
volatility. They also possess a "demand" feature that allows the holder to
sell the bond back to issue at par with notice of seven days or less. This
provides us with the flexibility to act when we find attractive
opportunities. Furthermore, VRDNs can generate income for the Fund when
short-term interest rates rise because they have rates that adjust weekly.
In addition to VRDNs, we invest in shorter-term bonds, which are generally
less volatile than longer-term bonds.
o WHAT OTHER 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.
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4 | USAA TAX EXEMPT SHORT-TERM FUND
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During the reporting period, we continued to maintain a diversified
portfolio of more than 300 longer-term, primarily investment-grade municipal
bonds. We continue to 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.
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 SHORT-TERM FUND SHARES (FUND SHARES)
(Ticker Symbol: USSTX)
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9/30/13 3/31/13
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Net Assets $2,141.0 Million $2,185.7 Million
Net Asset Value Per Share $10.71 $10.84
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.210 $0.219
Capital Gain Distributions Per Share -- --
Dollar-Weighted Average
Portfolio Maturity(+) 2.0 Years 2.1 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
-0.28% 0.64% 3.26% 2.88%
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30-DAY SEC YIELD AS OF 9/30/13** EXPENSE RATIO AS OF 3/31/13***
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0.86% 0.55%
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 SHORT-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 2.88% = 3.05% + (0.17)%
5 Years 3.26% = 2.73% + 0.53%
1 Year 0.64% = 1.93% + (1.29)%
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 1.57% 2.49% -0.92%
9/30/2005 1.72% 2.92% -1.20%
9/30/2006 3.16% 3.54% -0.38%
9/30/2007 3.26% 3.73% -0.47%
9/30/2008 2.83% 4.15% -1.32%
9/30/2009 5.53% 4.09% 1.44%
9/30/2010 4.29% 2.68% 1.61%
9/30/2011 3.00% 2.72% 0.28%
9/30/2012 2.92% 2.27% 0.65%
9/30/2013 0.64% 1.93% -1.29%
[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 3.05% 4.23% 4.82% 4.98% 5.39%
5 Years 2.73% 3.79% 4.32% 4.46% 4.83%
1 Year 1.93% 2.69% 3.06% 3.16% 3.42%
To match the Fund Shares' closing 30-day SEC Yield of 0.86% on 9/30/13,
A FULLY TAXABLE INVESTMENT MUST PAY: 1.19% 1.35% 1.40% 1.51%
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 SHORT-TERM FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS MUNICIPAL USAA TAX EXEMPT LIPPER SHORT MUNICIPAL
BOND INDEX SHORT-TERM FUND SHARES BOND FUNDS INDEX
09/30/03 $10,000.00 $10,000.00 $10,000.00
10/31/03 9,949.65 9,994.65 9,994.53
11/30/03 10,053.34 10,023.42 10,009.58
12/31/03 10,136.59 10,045.24 10,023.49
01/31/04 10,194.65 10,075.43 10,050.92
02/29/04 10,348.08 10,141.36 10,089.06
03/31/04 10,312.04 10,115.08 10,077.40
04/30/04 10,067.82 10,034.90 10,025.06
05/31/04 10,031.32 10,017.55 10,012.19
06/30/04 10,067.82 10,028.81 10,022.13
07/31/04 10,200.32 10,077.92 10,059.93
08/31/04 10,404.73 10,144.90 10,115.75
09/30/04 10,459.96 10,156.86 10,122.94
10/31/04 10,549.97 10,179.28 10,142.96
11/30/04 10,462.95 10,154.49 10,117.53
12/31/04 10,590.73 10,197.47 10,154.69
01/31/05 10,689.71 10,209.63 10,155.79
02/28/05 10,654.14 10,204.67 10,155.12
03/31/05 10,586.95 10,190.70 10,151.75
04/30/05 10,753.91 10,226.94 10,175.05
05/31/05 10,829.91 10,253.60 10,198.55
06/30/05 10,897.10 10,289.78 10,235.48
07/31/05 10,847.85 10,287.37 10,237.92
08/31/05 10,957.37 10,323.83 10,268.14
09/30/05 10,883.57 10,333.43 10,282.27
10/31/05 10,817.48 10,330.20 10,282.46
11/30/05 10,869.41 10,348.01 10,299.67
12/31/05 10,962.88 10,378.52 10,331.95
01/31/06 10,992.46 10,405.59 10,359.39
02/28/06 11,066.26 10,434.36 10,382.29
03/31/06 10,989.94 10,437.23 10,385.24
04/30/06 10,986.17 10,446.54 10,400.71
05/31/06 11,035.11 10,478.48 10,436.97
06/30/06 10,993.56 10,492.90 10,442.45
07/31/06 11,124.33 10,543.24 10,484.50
08/31/06 11,289.40 10,605.62 10,539.04
09/30/06 11,367.92 10,658.91 10,579.67
10/31/06 11,439.20 10,690.15 10,606.63
11/30/06 11,534.56 10,732.16 10,640.24
12/31/06 11,493.81 10,746.40 10,654.23
01/31/07 11,464.38 10,746.00 10,663.05
02/28/07 11,615.45 10,808.41 10,711.14
03/31/07 11,586.81 10,832.26 10,734.66
04/30/07 11,621.11 10,864.28 10,762.14
05/31/07 11,569.66 10,856.82 10,778.00
06/30/07 11,509.70 10,861.55 10,776.09
07/31/07 11,598.92 10,904.11 10,814.46
08/31/07 11,548.88 10,921.02 10,828.82
09/30/07 11,719.78 11,005.12 10,881.94
10/31/07 11,772.02 11,030.00 10,910.30
11/30/07 11,847.08 11,088.14 10,944.57
12/31/07 11,879.97 11,103.12 10,978.03
01/31/08 12,029.77 11,255.23 11,092.74
02/29/08 11,479.02 11,135.73 10,961.96
03/31/08 11,807.11 11,246.97 11,002.85
04/30/08 11,945.27 11,264.23 11,024.45
05/31/08 12,017.50 11,304.68 11,069.42
06/30/08 11,881.86 11,289.52 11,050.62
07/31/08 11,927.02 11,351.72 11,111.69
08/31/08 12,066.59 11,436.47 11,164.64
09/30/08 11,500.73 11,316.41 11,070.63
10/31/08 11,383.34 11,243.78 11,034.69
11/30/08 11,419.54 11,282.96 11,077.65
12/31/08 11,586.02 11,250.14 11,083.32
01/31/09 12,010.10 11,490.24 11,227.88
02/28/09 12,073.20 11,497.01 11,224.92
03/31/09 12,075.41 11,514.75 11,255.35
04/30/09 12,316.64 11,586.82 11,306.30
05/31/09 12,446.93 11,656.47 11,352.35
06/30/09 12,330.33 11,679.71 11,374.38
07/31/09 12,536.63 11,761.00 11,435.18
08/31/09 12,750.95 11,824.52 11,464.30
09/30/09 13,208.55 11,942.02 11,540.52
10/31/09 12,931.28 11,923.65 11,527.82
11/30/09 13,038.13 12,005.88 11,576.52
12/31/09 13,082.19 12,024.09 11,590.38
01/31/10 13,150.33 12,093.08 11,620.89
02/28/10 13,277.79 12,164.02 11,646.09
03/31/10 13,246.00 12,142.99 11,635.31
04/30/10 13,406.98 12,205.12 11,656.24
05/31/10 13,507.53 12,241.54 11,678.28
06/30/10 13,515.56 12,269.24 11,690.06
07/31/10 13,684.09 12,355.49 11,736.02
08/31/10 13,997.39 12,450.69 11,775.19
09/30/10 13,975.52 12,454.24 11,768.27
10/31/10 13,936.81 12,469.88 11,775.67
11/30/10 13,658.13 12,427.55 11,756.79
12/31/10 13,393.45 12,376.46 11,738.04
01/31/11 13,294.78 12,368.28 11,742.17
02/28/11 13,506.43 12,432.88 11,766.15
03/31/11 13,461.43 12,460.87 11,786.42
04/30/11 13,702.50 12,537.51 11,826.34
05/31/11 13,936.65 12,623.77 11,879.22
06/30/11 13,985.27 12,675.30 11,904.98
07/31/11 14,128.00 12,749.98 11,945.98
08/31/11 14,369.70 12,812.35 11,983.55
09/30/11 14,518.25 12,829.30 11,988.35
10/31/11 14,464.28 12,806.96 11,971.93
11/30/11 14,549.72 12,846.23 11,992.61
12/31/11 14,826.52 12,923.06 12,031.23
01/31/12 15,169.40 12,995.29 12,076.59
02/29/12 15,184.35 13,032.80 12,104.47
03/31/12 15,085.69 13,010.11 12,090.18
04/30/12 15,259.72 13,058.19 12,119.74
05/31/12 15,386.40 13,105.53 12,138.02
06/30/12 15,369.88 13,115.09 12,142.89
07/31/12 15,613.47 13,160.05 12,171.22
08/31/12 15,631.25 13,183.14 12,181.49
09/30/12 15,725.66 13,201.76 12,198.82
10/31/12 15,770.04 13,224.71 12,204.74
11/30/12 16,029.84 13,262.40 12,228.23
12/31/12 15,831.72 13,246.82 12,209.38
01/31/13 15,897.66 13,255.67 12,229.53
02/28/13 15,945.81 13,302.40 12,248.45
03/31/13 15,877.04 13,323.48 12,254.71
04/30/13 16,051.08 13,344.86 12,269.57
05/31/13 15,855.01 13,329.20 12,260.23
06/30/13 15,406.07 13,263.37 12,202.57
07/31/13 15,271.37 13,271.15 12,212.55
08/31/13 15,053.43 13,254.39 12,197.19
09/30/13 15,377.43 13,286.70 12,221.20
[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 Short-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 Short Municipal Bond Funds Index tracks the total
return performance of the 10 largest funds within the Lipper Short 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 SHORT MUNICIPAL
SHORT-TERM FUND SHARES DEBT FUNDS AVERAGE
09/30/04 2.49% 2.02%
09/30/05 2.93 2.27
09/30/06 3.48 2.80
09/30/07 3.69 3.18
09/30/08 4.18 3.23
09/30/09 3.89 3.04
09/30/10 2.58 1.42
09/30/11 2.65 1.45
09/30/12 2.22 1.21
09/30/13 1.96 0.86
[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 Short Municipal Debt Funds Average is an average performance level of
all short-term municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
10 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
USAA TAX EXEMPT SHORT-TERM FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UTESX)
--------------------------------------------------------------------------------
9/30/13 3/31/13
--------------------------------------------------------------------------------
Net Assets $9.4 Million $6.6 Million
Net Asset Value Per Share $10.71 $10.84
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.183 $0.191
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
-0.40% 0.39% 2.07%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/13**
--------------------------------------------------------------------------------
Subsidized 0.59% Unsubsidized 0.22%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/13***
--------------------------------------------------------------------------------
Before Reimbursement 1.17% After Reimbursement 0.80%
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 0.80% 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 0.59% 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: 0.82% 0.93% 0.96% 1.04%
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 SHORT-TERM FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA TAX EXEMPT LIPPER SHORT
BARCLAYS MUNICIPAL SHORT-TERM FUND MUNICIPAL BOND
BOND INDEX ADVISER SHARES FUNDS INDEX
07/31/10 $10000.00 $10000.00 $10000.00
08/31/10 10228.95 10074.87 10033.38
09/30/10 10212.97 10085.31 10027.48
10/31/10 10184.68 10086.35 10033.79
11/30/10 9981.03 10049.96 10017.70
12/31/10 9787.61 10006.37 10001.73
01/31/11 9715.50 9997.77 10005.25
02/28/11 9870.17 10048.12 10025.68
03/31/11 9837.28 10068.74 10042.95
04/30/11 10013.45 10128.54 10076.96
05/31/11 10184.57 10196.15 10122.02
06/30/11 10220.10 10235.65 10143.97
07/31/11 10324.40 10293.76 10178.91
08/31/11 10501.03 10341.92 10210.92
09/30/11 10609.58 10353.30 10215.01
10/31/11 10570.14 10333.20 10201.02
11/30/11 10632.58 10362.76 10218.64
12/31/11 10834.86 10422.38 10251.55
01/31/12 11085.43 10478.59 10290.19
02/29/12 11096.35 10506.75 10313.95
03/31/12 11024.25 10486.24 10301.77
04/30/12 11151.44 10522.87 10326.96
05/31/12 11244.01 10558.72 10342.54
06/30/12 11231.93 10564.12 10346.69
07/31/12 11409.94 10598.09 10370.82
08/31/12 11422.94 10614.24 10379.58
09/30/12 11491.93 10627.28 10394.34
10/31/12 11524.36 10643.48 10399.39
11/30/12 11714.22 10671.47 10419.40
12/31/12 11569.44 10657.30 10403.34
01/31/13 11617.62 10661.62 10420.51
02/28/13 11652.81 10697.12 10436.63
03/31/13 11602.56 10711.77 10441.96
04/30/13 11729.74 10726.76 10454.63
05/31/13 11586.46 10711.89 10446.67
06/30/13 11258.38 10656.80 10397.54
07/31/13 11159.95 10660.80 10406.04
08/31/13 11000.68 10645.13 10392.95
09/30/13 11237.45 10668.85 10413.41
[END CHART]
Data from 7/31/10 through 9/30/13.*
See page 9 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Short-Term Fund Adviser Shares to the benchmarks.
*The performance of the Barclays Municipal Bond Index and the Lipper Short
Municipal Bond Funds Index is calculated from the end of the month, July 31,
2010, while the Adviser Shares' inception date is August 1, 2010. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES o
AS OF 9/30/13
(% of Net Assets)
Hospital ................................................................ 19.8%
General Obligation ...................................................... 19.5%
Electric Utilities ...................................................... 12.4%
Appropriated Debt ....................................................... 8.2%
Special Assessment/Tax/Fee .............................................. 5.9%
Education ............................................................... 5.2%
Toll Roads .............................................................. 3.4%
Nursing/CCRC ............................................................ 3.2%
Environmental & Facilities Services ..................................... 3.1%
Sales Tax ............................................................... 2.8%
You will find a complete list of securities that the Fund owns on pages 18-31.
================================================================================
14 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX -- 9/30/13 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 0.3%
AA 18.2%
A 28.0%
BBB 20.3%
BELOW INVESTMENT GRADE 0.2%
SHORT-TERM INVESTMENT GRADE 25.6%
UNRATED 7.4%
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of a Nationally Recognized
Statistical Rating Organization (NRSRO). Any of the Fund's securities that are
not rated by these agencies appear in the chart above as "Unrated", but are
monitored and evaluated by USAA Asset Management Company on an ongoing basis.
Government securities that are issued or guaranteed as to principal and interest
by the U.S. government are not rated but are treated as AAA for credit quality
purposes. Securities within the Short-Term Investment-Grade category are those
that are ranked in the top two short-term credit ratings for the respective
rating agency (which are A-1 and A-2 for S&P and P-1 and P-2 for Moody's, F1 and
F2 for Fitch, and R-1 and R-2 for Dominion). Short-term ratings are generally
assigned to those obligations considered short-term; such obligations generally
have an original maturity not exceeding 13 months, unless explicitly noted. The
Below Investment-Grade category includes both long-term and short-term
securities.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 18-31.
================================================================================
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.
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., Assured Guaranty
================================================================================
16 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
Corp., Assured Guaranty Municipal Corp., 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: Bank of America, N.A., Bank of New York
Mellon, Citibank, N.A., DEPFA Bank plc, Deutsche Postbank, Dexia
Credit Local, JPMorgan Chase Bank, N.A., Key Bank, N.A., 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 one of the following: Duke Realty Corp., Fannie Mae,
or Texas Permanent School Fund.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
CSD Central School District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
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 (47.6%)
ALABAMA (0.3%)
$ 1,200 Montgomery Medical Clinic Board 4.50% 3/01/2014 $ 1,218
2,480 Montgomery Medical Clinic Board 4.50 3/01/2015 2,594
2,595 Montgomery Medical Clinic Board 4.50 3/01/2016 2,775
----------
6,587
----------
ARIZONA (0.5%)
1,000 Pinal County Correctional Facilities IDA (INS) 5.25 10/01/2013 1,000
1,710 Pinal County Correctional Facilities IDA (INS) 5.25 10/01/2014 1,765
5,365 State (INS) 5.00 10/01/2015 5,803
1,000 Yavapai County IDA 5.00 8/01/2019 1,097
1,105 Yavapai County IDA 5.00 8/01/2020 1,212
----------
10,877
----------
CALIFORNIA (3.9%)
5,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2015 5,252
7,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2016 7,535
3,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2017 3,291
1,125 Irvine 5.00 9/02/2021 1,230
5,000 Irvine USD Community Facilities District (INS) 5.00 9/01/2014 5,193
3,730 Irvine USD Community Facilities District (INS) 5.00 9/01/2015 4,008
5,885 Irvine USD Community Facilities District (INS) 5.00 9/01/2016 6,482
500 Los Angeles County 5.00 3/01/2021 578
1,000 Los Angeles County 5.00 9/01/2021 1,158
3,785 Lynwood USD 1.10(a) 8/01/2014 3,767
14,785 Public Works Board 5.00 10/01/2015 16,143
2,000 Public Works Board 5.00 4/01/2019 2,335
2,700 Public Works Board 5.00 11/01/2019 3,174
1,000 Public Works Board 5.00 4/01/2020 1,172
1,500 Public Works Board 5.00 4/01/2021 1,738
2,000 Salinas USD (INS) 4.21(a) 6/01/2014 1,995
1,000 Salinas USD (INS) 4.21(a) 10/01/2014 995
15,000 State 5.00 10/01/2017 17,323
----------
83,369
----------
COLORADO (0.7%)
125 Beacon Point Metropolitan District
(LOC - Compass Bank) 4.38 12/01/2015 125
1,865 Denver Health and Hospital Auth. 5.00 12/01/2014 1,943
1,000 Denver Health and Hospital Auth. 5.00 12/01/2015 1,073
1,475 Denver Health and Hospital Auth. 5.00 12/01/2016 1,617
================================================================================
18 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,000 Health Facilities Auth. 5.00% 6/01/2015 $ 2,133
110 Health Facilities Auth. (ETM) 5.00 11/15/2015 121
1,890 Health Facilities Auth. 5.00 11/15/2015 2,062
2,840 Health Facilities Auth. 5.00 11/15/2016 3,187
160 Health Facilities Auth. (ETM) 5.00 11/15/2016 182
1,605 High Plains Metropolitan District
(LOC - Compass Bank) 4.38 12/01/2015 1,652
----------
14,095
----------
CONNECTICUT (0.1%)
500 West Haven 4.00 8/01/2014 511
2,235 West Haven (INS) 5.00 8/01/2020 2,462
----------
2,973
----------
DISTRICT OF COLUMBIA (0.1%)
2,245 Community Academy (INS) 4.50 5/01/2017 2,252
----------
FLORIDA (3.7%)
4,500 Gulf Breeze 3.10 12/01/2020 4,545
1,385 Higher Educational Facilities Financing Auth. 5.00 4/01/2021 1,536
1,000 Highlands County Health Facilities 5.00 11/15/2014 1,052
1,000 Highlands County Health Facilities 5.00 11/15/2015 1,091
1,235 Highlands County Health Facilities 5.00 11/15/2016 1,386
3,500 Highlands County Health Facilities 5.00 11/15/2016 3,935
10,000 Hurricane Catastrophe Fund Finance Corp. 5.00 7/01/2014 10,361
1,000 Jacksonville 5.00 10/01/2019 1,160
4,580 Jacksonville 5.00 10/01/2020 5,340
1,720 Lee County IDA 3.75 10/01/2017 1,677
3,165 Lee County IDA 4.75 10/01/2022 3,061
1,775 Miami Beach Health Facilities Auth. 5.00 11/15/2019 1,981
1,250 Miami Beach Health Facilities Auth. 5.00 11/15/2020 1,370
7,500 Miami-Dade County IDA 3.75 12/01/2018 7,637
2,000 Orange County Health Facilities Auth. 5.00 10/01/2013 2,000
1,200 Orange County Health Facilities Auth. 5.00 10/01/2016 1,330
2,000 Palm Beach County School Board (INS) 5.00 8/01/2015 2,159
3,290 Palm Beach County School Board 5.50 8/01/2015 3,582
2,820 Pinellas County Educational Facilities Auth. 4.00 10/01/2020 2,863
10,000 Sunshine State Governmental Financing Commission 5.00 9/01/2017 11,393
8,975 Sunshine State Governmental Financing Commission 5.00 9/01/2018 10,218
----------
79,677
----------
GEORGIA (0.8%)
3,000 Fulton County Dev. Auth. (ETM) 4.00 11/15/2016 3,306
3,000 Municipal Electric Auth. 5.00 1/01/2016 3,286
3,415 Private Colleges and Universities Auth. 5.00 10/01/2018 3,762
1,265 Private Colleges and Universities Auth. 5.00 10/01/2019 1,397
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,255 Private Colleges and Universities Auth. 5.00% 10/01/2019 $ 1,385
3,770 Private Colleges and Universities Auth. 5.00 10/01/2020 4,165
----------
17,301
----------
GUAM (0.2%)
1,000 Education Financing Foundation 4.00 10/01/2013 1,000
760 Education Financing Foundation 5.00 10/01/2014 772
1,000 Power Auth. 5.00 10/01/2019 1,148
1,500 Power Auth. 5.00 10/01/2020 1,728
----------
4,648
----------
ILLINOIS (4.0%)
20,000 Chicago (INS) 3.18(a) 1/01/2018 17,321
15,000 Chicago Board of Education (INS) 2.54(a) 12/01/2013 14,983
7,140 Finance Auth. 4.50 2/15/2016 7,563
3,720 Finance Auth. 5.25 5/01/2016 4,027
5,940 Finance Auth. 4.50 2/15/2017 6,359
1,000 Finance Auth. 5.00 7/01/2018 1,090
2,410 Finance Auth. 5.00 8/15/2018 2,716
1,000 Finance Auth. 5.00 7/01/2019 1,079
1,420 Finance Auth. 5.00 7/01/2020 1,524
490 Housing Dev. Auth. 4.15 1/01/2014 493
130 Housing Dev. Auth. 4.20 1/01/2014 131
450 Housing Dev. Auth. 4.15 7/01/2014 458
565 Housing Dev. Auth. 4.20 7/01/2015 584
305 Housing Dev. Auth. 4.30 1/01/2016 317
140 Housing Dev. Auth. 4.35 1/01/2016 146
5,000 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2016 5,486
6,500 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 7,315
4,160 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2020 4,724
1,090 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2021 1,230
3,000 State (INS) 5.00 1/01/2016 3,238
5,000 State 4.50 6/15/2016 5,475
----------
86,259
----------
INDIANA (2.5%)
10,000 Finance Auth. 4.90 1/01/2016 10,750
10,000 Finance Auth. 2.20 2/01/2016 10,036
20,000 Jasper County (INS) 5.60 11/01/2016 22,122
10,000 Whiting Environmental Facilities 5.00 7/01/2017 11,333
----------
54,241
----------
IOWA (0.5%)
10,000 Finance Auth. (INS) 5.00 7/01/2014 10,327
----------
================================================================================
20 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
KANSAS (0.1%)
$ 2,000 La Cygne (INS) 4.05% 3/01/2015 $ 2,100
----------
LOUISIANA (0.5%)
1,500 Office Facilities Corp. 5.00 3/01/2016 1,646
3,455 Public Facilities Auth. 2.88 11/01/2015 3,548
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2022 5,564
----------
10,758
----------
MAINE (0.1%)
2,500 Jay 4.85 5/01/2019 2,564
----------
MARYLAND (0.5%)
10,000 Anne Arundel County 4.10 7/01/2014 10,069
----------
MASSACHUSETTS (0.9%)
11,500 Dev. Finance Agency 2.88 10/01/2014 11,811
600 Dev. Finance Agency 5.00 1/01/2015 626
630 Dev. Finance Agency 5.00 1/01/2016 674
835 Dev. Finance Agency 5.00 1/01/2017 907
1,065 Dev. Finance Agency 5.00 1/01/2018 1,175
1,395 Dev. Finance Agency 5.00 1/01/2019 1,533
2,015 Health and Educational Facilities Auth. 5.00 7/01/2016 2,189
----------
18,915
----------
MICHIGAN (1.9%)
25,000 Dickinson County EDC 4.80 11/01/2018 25,721
2,165 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2018 2,481
2,625 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2019 3,019
1,000 Hospital Finance Auth. 5.00 11/15/2014 1,038
1,000 Hospital Finance Auth. 5.00 11/15/2015 1,068
6,440 Housing Dev. Auth. 1.00 10/01/2014 6,451
----------
39,778
----------
MINNESOTA (0.4%)
5,000 Agricultural and Economic Development Board(b) 4.75 2/15/2015 5,040
1,335 Agricultural and Economic Development Board (INS) 5.00 2/15/2015 1,410
565 Agricultural and Economic Development Board (INS) 5.00 2/15/2016 616
1,000 Higher Education Facilities Auth. 4.00 4/01/2015 1,053
250 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2014 257
250 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2015 266
300 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2016 328
325 St. Paul Housing and Redevelopment Auth. 5.25 5/15/2017 360
----------
9,330
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MISSISSIPPI (0.4%)
$ 2,280 Hospital Equipment and Facilities Auth. 5.00% 8/15/2014 $ 2,363
2,960 Hospital Equipment and Facilities Auth. 5.00 12/01/2014 3,070
1,000 Hospital Equipment and Facilities Auth. 5.00 8/15/2015 1,071
2,000 Hospital Equipment and Facilities Auth. 5.00 8/15/2016 2,197
----------
8,701
----------
MISSOURI (0.3%)
1,135 Cape Girardeau County IDA 5.00 6/01/2014 1,158
1,000 Cape Girardeau County IDA 5.00 6/01/2017 1,078
1,055 Joint Municipal Electric Utility Commission (INS) 5.00 1/01/2015 1,100
3,630 Riverside IDA (INS) 4.50 5/01/2016 3,838
----------
7,174
----------
NEW JERSEY (7.1%)
12,800 Atlantic City 1.50 2/04/2014 12,813
6,000 Berkeley Township 1.50 12/19/2013 6,009
8,064 Bridgeton 1.50 2/28/2014 8,083
2,219 East Rutherford 2.00 3/20/2014 2,226
10,000 EDA 5.25 9/01/2019 11,662
5,000 EDA 5.00 6/15/2020 5,533
7,000 EDA 5.00 6/15/2021 7,691
5,055 Health Care Facilities Financing Auth. 4.00 11/15/2016 5,415
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2018 2,270
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2019 2,273
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2020 2,279
17,580 Jersey City 1.50 12/13/2013 17,619
5,965 Jersey City 2.00 12/13/2013 5,976
1,500 Lyndhurst Township 1.50 2/14/2014 1,503
3,320 Lyndhurst Township 1.75 3/20/2014 3,334
5,000 Newark 2.00 12/11/2013 5,010
1,080 Newark 2.00 12/11/2013 1,082
6,000 Newark 1.50 2/20/2014 6,005
5,000 Seaside Heights 2.00 12/19/2013 5,008
9,745 Tobacco Settlement Financing Corp. 5.00 6/01/2014 9,957
9,640 Transportation Trust Fund Auth. 5.75 9/15/2014 9,684
15,000 Transportation Trust Fund Auth. (PRE) 5.25 12/15/2017 16,605
4,400 Wall Township 1.50 4/11/2014 4,414
----------
152,451
----------
NEW MEXICO (0.0%)
900 Sandoval County 4.00 6/01/2015 922
----------
NEW YORK (7.4%)
1,000 Albany IDA 5.50 11/15/2013 1,007
3,500 Albany IDA 4.25 11/15/2014 3,647
================================================================================
22 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 4,480 Albany IDA 5.00% 11/15/2015 $ 4,877
3,030 Corning Town 1.25 8/20/2014 3,037
3,010 Dormitory Auth. 5.00 7/01/2014 3,117
1,865 Dormitory Auth. 5.00 7/01/2014 1,911
5,000 Dormitory Auth. 5.20 2/15/2015 5,021
3,145 Dormitory Auth. 5.00 7/01/2015 3,390
4,095 Dormitory Auth. 5.00 7/01/2015 4,411
2,000 Dormitory Auth. 4.00 8/15/2015 2,127
720 Dormitory Auth. 4.00 2/15/2016 774
3,295 Dormitory Auth. 5.00 7/01/2016 3,649
2,000 Dormitory Auth. 5.00 7/01/2016 2,144
4,430 East Ramapo CSD 1.75 10/25/2013 4,432
2,000 Environmental Facilities Corp. 2.75 7/01/2017 2,022
3,786 Glen Cove 2.50 10/24/2013 3,787
7,203 Glen Cove 2.50 1/10/2014 7,218
3,020 Long Beach 3.00 12/20/2013 3,027
3,000 Long Island Power Auth. 5.25 6/01/2014 3,094
20,000 New York City 5.00 8/01/2016 22,426
1,510 Newburgh 3.50 8/07/2014 1,513
10,000 Rockland County 2.25 3/14/2014 10,033
180 Rockland County 2.00 4/09/2014 180
2,350 Rockland County 2.00 6/05/2014 2,358
10,000 Rockland County 1.75 6/27/2014 10,004
500 Rockland County 4.00 12/15/2015 525
1,345 Rockland County 3.50 10/01/2016 1,409
550 Rockland County 5.00 12/15/2016 602
1,410 Rockland County 3.50 10/01/2017 1,471
550 Rockland County 5.00 12/15/2017 607
1,475 Rockland County 3.50 10/01/2018 1,510
550 Rockland County 5.00 12/15/2018 602
1,520 Rockland County 3.50 10/01/2019 1,540
1,575 Rockland County 3.50 10/01/2020 1,571
6,500 Solvay 1.50 2/06/2014 6,511
2,000 St. Lawrence County 1.50 8/29/2014 2,009
2,500 Suffolk County EDC 5.00 7/01/2019 2,813
2,640 Suffolk County EDC 5.00 7/01/2020 2,973
8,654 Utica 1.50 5/08/2014 8,686
3,000 Westchester County Health Care Corp. 5.00 11/01/2015 3,246
3,930 Yonkers 5.00 10/01/2017 4,392
7,310 Yonkers 5.00 10/01/2018 8,229
----------
157,902
----------
NORTH CAROLINA (0.4%)
2,000 Eastern Municipal Power Agency 5.00 1/01/2016 2,193
2,100 Medical Care Commission 4.38 7/01/2017 2,232
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 3,855 Medical Care Commission 5.00% 7/01/2018 $ 4,404
----------
8,829
----------
OHIO (0.9%)
4,515 American Municipal Power, Inc. 5.00 2/15/2017 5,080
4,500 Buckeye Tobacco Settlement Financing Auth. 5.00 6/01/2015 4,726
5,300 Coventry Local School District 1.75 1/15/2014 5,312
1,530 Hancock County 4.00 12/01/2016 1,640
1,875 Hancock County 4.25 12/01/2017 2,044
----------
18,802
----------
OKLAHOMA (0.1%)
1,580 Cherokee Nation (INS)(b) 4.30 12/01/2016 1,675
1,090 Norman Regional Hospital Auth. (INS) 5.00 9/01/2014 1,107
----------
2,782
----------
PENNSYLVANIA (2.4%)
12,250 Allegheny County Hospital Dev. Auth. 5.00 5/15/2016 13,543
7,975 Coatesville School District 3.46(a) 8/15/2018 6,784
1,165 Coatesville School District 3.86(a) 8/15/2019 942
5,305 Coatesville School District 4.13(a) 8/15/2020 4,055
1,980 Cumberland County Municipal Auth. 3.25 12/01/2022 1,867
1,065 Delaware County 4.00 10/01/2015 1,109
1,110 Delaware County 4.00 10/01/2016 1,168
1,155 Delaware County 5.00 10/01/2017 1,257
1,195 Delaware County 5.00 10/01/2018 1,301
3,740 Higher Educational Facilities Auth. 5.00 5/15/2016 4,135
1,500 Montgomery County IDA 5.00 11/15/2016 1,643
2,000 Montgomery County IDA 5.00 11/15/2017 2,169
5,175 St. Mary Hospital Auth. 4.00 11/15/2016 5,578
5,170 St. Mary Hospital Auth. 4.00 11/15/2016 5,573
----------
51,124
----------
PUERTO RICO (0.8%)
14,000 Government Dev. Bank (INS) 4.75 12/01/2015 13,770
2,000 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.00 4/01/2017 1,979
1,000 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.00 4/01/2019 959
700 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 4.00 4/01/2020 622
----------
17,330
----------
SOUTH CAROLINA (1.8%)
1,485 Association of Governmental Organizations
Educational Facilities Corp. (INS) 4.00 12/01/2016 1,576
================================================================================
24 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$23,000 Berkeley County 4.88% 10/01/2014 $ 23,752
1,000 Lexington County Health Services District, Inc. 5.00 11/01/2014 1,045
3,950 Piedmont Municipal Power Agency 5.00 1/01/2015 4,170
7,715 Piedmont Municipal Power Agency 5.00 1/01/2016 8,426
----------
38,969
----------
TENNESSEE (0.1%)
2,750 Shelby County Health, Educational, and Housing
Facility Board 5.00 9/01/2014 2,864
----------
TEXAS (2.9%)
5,170 Brazos River Auth. 4.90 10/01/2015 5,493
3,000 Dallas Fort Worth International Airport 5.00 11/01/2016 3,361
1,335 Gregg County Health Facilities Dev. Corp. 5.00 10/01/2015 1,421
2,105 Gregg County Health Facilities Dev. Corp. 5.00 10/01/2016 2,289
6,035 Harris County Cultural Education Facilities 5.00 2/15/2015 6,386
4,500 Harris County Cultural Education Facilities 5.00 2/15/2016 4,914
535 Midlothian Dev. Auth. (INS) 5.00 11/15/2013 536
560 Midlothian Dev. Auth. (INS) 5.00 11/15/2014 571
390 Midlothian Dev. Auth. (INS) 5.00 11/15/2015 401
1,000 Northwest ISD (NBGA) 4.07(a) 2/15/2014 999
7,175 Red River Auth. 4.45 6/01/2020 7,664
1,000 San Leanna Education Facilities Corp. 5.00 6/01/2015 1,058
1,585 San Leanna Education Facilities Corp. 5.00 6/01/2017 1,745
1,220 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2013 1,226
1,100 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2013 1,103
595 Tarrant County Cultural Education Facilities
Finance Corp. 4.63 11/15/2014 609
1,265 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2014 1,288
1,470 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 5/15/2015 1,527
1,250 Tarrant County Cultural Education Facilities
Finance Corp. 5.75 11/15/2015 1,279
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2017 1,094
2,810 Tyler Health Facilities Dev. Corp. 5.00 11/01/2013 2,820
4,575 Tyler Health Facilities Dev. Corp. 5.00 11/01/2014 4,767
3,360 Tyler Health Facilities Dev. Corp. 5.00 11/01/2015 3,606
6,155 Tyler Health Facilities Dev. Corp. 5.25 11/01/2016 6,798
----------
62,955
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. VIRGIN ISLANDS (0.2%)
$ 2,250 Water and Power Auth. 4.75% 7/01/2015 $ 2,290
2,700 Water and Power Auth. 4.75 7/01/2016 2,761
----------
5,051
----------
VIRGINIA (0.5%)
3,200 Housing Dev. Auth. 3.05 3/01/2018 3,345
3,200 Housing Dev. Auth. 3.05 9/01/2018 3,344
3,506 Marquis Community Dev. Auth., acquired
3/01/2012; cost $2,736(b),(c) 5.10 9/01/2036 2,641
5,111 Marquis Community Dev. Auth., acquired
3/01/2012; cost $444(b),(c) 5.63(a) 9/01/2041 484
----------
9,814
----------
WEST VIRGINIA (0.5%)
10,000 EDA 3.25 5/01/2019 10,132
----------
WISCONSIN (0.1%)
1,200 Health and Educational Facilities Auth. 5.00 8/15/2021 1,353
----------
Total Fixed-Rate Instruments (cost: $989,389) 1,023,275
----------
PUT BONDS (24.3%)
ALABAMA (0.2%)
5,000 Mobile IDB 5.00 6/01/2034 5,306
----------
ARIZONA (3.3%)
16,000 Health Facilities Auth. 1.92(d) 2/01/2048 15,601
20,000 Health Facilities Auth. 1.92(d) 2/01/2048 19,398
20,400 Maricopa County Pollution Control Corp. 4.00 6/01/2043 21,166
15,000 Navajo County 5.50 6/01/2034 15,462
----------
71,627
----------
CALIFORNIA (4.2%)
5,000 Bay Area Toll Auth. 0.98(d) 4/01/2045 4,993
15,000 Bay Area Toll Auth. 0.77(d) 4/01/2047 14,990
4,000 Contra Costa Transportation Auth. 0.49(d) 3/01/2034 3,988
5,585 Economic Recovery 4.00 7/01/2023 5,739
11,875 Economic Recovery 5.00 7/01/2023 12,301
5,000 Health Facilities Financing Auth. 5.00 7/01/2027 5,169
20,000 Hemet USD 0.92(d) 10/01/2036 20,000
5,000 Municipal Finance Auth. 0.70 2/01/2039 4,979
3,750 Pollution Control Financing Auth.(b) 0.70 8/01/2024 3,750
6,925 Sacramento USD (INS) 3.07(d) 3/01/2040 6,954
4,000 Twin Rivers USD (INS) 3.20 6/01/2027 4,000
4,000 Twin Rivers USD (INS) 3.20 6/01/2035 4,000
----------
90,863
----------
================================================================================
26 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
COLORADO (1.1%)
$ 3,000 E-470 Public Highway Auth. 1.82%(d) 9/01/2039 $ 3,001
10,000 E-470 Public Highway Auth. 2.79(d) 9/01/2039 10,028
10,500 Health Facilities Auth. 4.00 10/01/2040 11,253
----------
24,282
----------
FLORIDA (0.7%)
5,000 Miami-Dade County IDA 4.00 10/01/2018 5,154
6,000 Miami-Dade County School Board 5.00 5/01/2032 6,613
2,500 Palm Beach County School Board 5.00 8/01/2032 2,780
----------
14,547
----------
GEORGIA (0.7%)
10,000 Appling County Dev. Auth 2.40 1/01/2038 9,668
5,000 Monroe County Dev. Auth. 2.00 9/01/2037 4,955
----------
14,623
----------
ILLINOIS (0.9%)
15,000 Chicago Board of Education 0.90(d) 3/01/2036 15,068
1,250 Educational Facilities Auth. 4.13 3/01/2030 1,332
2,500 Educational Facilities Auth. 3.40 11/01/2036 2,620
----------
19,020
----------
INDIANA (0.4%)
3,460 Plainfield (NBGA) 4.88 2/01/2035 3,483
5,000 Whiting Environmental Facilities 2.80 6/01/2044 5,076
----------
8,559
----------
LOUISIANA (0.7%)
10,000 De Soto Parish 3.25 1/01/2019 10,219
4,000 St. Charles Parish 4.00 12/01/2040 3,997
----------
14,216
----------
MASSACHUSETTS (0.2%)
5,000 Dev. Finance Agency 0.65(d) 10/01/2040 4,993
----------
MICHIGAN (0.9%)
10,000 Hospital Finance Auth. 5.50 12/01/2034 10,090
8,000 Strategic Fund Ltd. 5.25 8/01/2029 8,318
----------
18,408
----------
NEW JERSEY (0.7%)
5,000 EDA (PRE) 5.00 9/01/2029 5,446
10,000 Turnpike Auth. 0.75(d) 1/01/2024 9,904
----------
15,350
----------
NEW MEXICO (0.6%)
11,600 Farmington 2.88 4/01/2029 11,952
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
NEW YORK (0.6%)
$10,000 MTA 0.96%(d) 11/01/2030 $ 10,008
2,000 New York City 0.62(d) 8/01/2025 1,996
----------
12,004
----------
OHIO (1.0%)
9,000 Air Quality Dev. Auth. 2.25 8/01/2029 8,820
4,000 Air Quality Dev. Auth. 3.88 12/01/2038 4,070
9,405 Water Dev. Auth. 3.38 7/01/2033 9,479
----------
22,369
----------
PENNSYLVANIA (2.9%)
10,000 Beaver County IDA 4.75 8/01/2020 10,984
7,000 Beaver County IDA 2.20 1/01/2035 6,864
5,100 Beaver County IDA 2.70 4/01/2035 4,921
7,575 Berks County Municipal Auth. 1.57(d) 11/01/2039 7,493
2,000 Economic Dev. Financing Auth. 1.75 12/01/2033 1,993
17,500 Economic Dev. Financing Auth. 3.00 12/01/2038 18,027
3,000 Economic Dev. Financing Auth. 3.00 12/01/2038 3,090
2,000 Economic Dev. Financing Auth. 3.38 12/01/2040 2,069
7,000 Northampton County General Purpose Auth. 1.47(d) 8/15/2043 6,873
----------
62,314
----------
TEXAS (3.4%)
5,095 Gateway Public Facility Corp. (NBGA) 4.55 7/01/2034 5,246
10,000 Harris County Cultural Education Facilities
Finance Corp. 1.12(d) 11/15/2045 10,027
40,000 Mission EDC 0.85 1/01/2020 40,000
12,000 North Texas Tollway Auth. 5.75 1/01/2038 13,245
5,000 Transportation Commission 1.25 8/15/2042 5,019
----------
73,537
----------
VIRGINIA (0.4%)
8,000 Louisa IDA 5.38 11/01/2035 8,071
----------
WEST VIRGINIA (0.2%)
5,000 EDA 3.13 3/01/2043 5,128
----------
WISCONSIN (1.2%)
10,000 Health and Educational Facilities Auth. 4.75 8/15/2025 10,321
14,350 Health and Educational Facilities Auth. 5.13 8/15/2027 15,779
----------
26,100
----------
Total Put Bonds (cost: $515,174) 523,269
----------
================================================================================
28 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ADJUSTABLE-RATE NOTES (0.8%)
PENNSYLVANIA (0.6%)
$ 6,000 Turnpike Commission 1.22% 12/01/2019 $ 5,995
6,000 Turnpike Commission 1.34 12/01/2020 5,990
----------
11,985
----------
TEXAS (0.2%)
1,750 Harris County Cultural Education Facilities
Finance Corp. 0.67 6/01/2018 1,749
2,250 Harris County Cultural Education Facilities
Finance Corp. 0.77 6/01/2019 2,246
----------
3,995
----------
Total Adjustable-Rate Notes (cost: $16,000) 15,980
----------
VARIABLE-RATE DEMAND NOTES (27.9%)
ARIZONA (0.9%)
9,295 Pima County IDA (LIQ)(b) 0.22 7/01/2033 9,295
11,000 Verrado Western Overlay Community
Facilities District (LOC - Compass Bank) 1.50 7/01/2029 11,000
----------
20,295
----------
CALIFORNIA (5.8%)
26,050 Golden State Tobacco Securitization Corp.
(INS)(LIQ)(b) 0.47 6/01/2045 26,050
8,515 Hacienda La Puente USD (LIQ)(LOC - Dexia
Credit Local)(b) 0.51 8/01/2024 8,515
9,465 Inglewood USD (LIQ)(LOC - Dexia Credit Local)(b) 0.51 10/15/2023 9,465
26,760 State (LIQ)(LOC - Dexia Credit Local)(b) 0.50 8/01/2027 26,760
17,900 State (LIQ)(LOC - Dexia Credit Local)(b) 0.50 8/01/2027 17,900
1,300 Statewide Communities Dev. Auth. (LIQ)
(LOC - Citibank, N.A.)(b) 0.57 12/14/2016 1,300
23,800 Statewide Communities Dev. Auth. (LIQ)
(LOC - Citibank, N.A.)(b) 0.57 9/06/2035 23,800
11,445 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.57 5/01/2040 11,445
----------
125,235
----------
COLORADO (0.4%)
8,915 Arista Metropolitan District (LOC - Compass Bank) 1.50 12/01/2030 8,915
----------
FLORIDA (0.5%)
10,000 Miami-Dade County School Board (INS)(LIQ)(b) 0.32 5/01/2016 10,000
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
GEORGIA (0.5%)
$10,550 Atlanta (INS)(LIQ)(b) 0.37% 11/01/2043 $ 10,550
----------
IDAHO (0.9%)
19,885 American Falls Reservoir District 0.50 2/01/2025 19,885
----------
ILLINOIS (2.5%)
19,570 Chicago (LIQ)(b) 0.27 1/01/2015 19,570
34,100 State (LIQ) 2.00 10/01/2033 34,100
----------
53,670
----------
KENTUCKY (0.9%)
15,000 Economic Dev. Finance Auth. (INS)(LIQ)(b) 0.32 6/01/2016 15,000
4,060 Economic Dev. Finance Auth. (INS)(LIQ) 0.32 8/01/2018 4,060
----------
19,060
----------
LOUISIANA (3.8%)
28,000 St. James Parish (LOC - Natixis S.A.) 0.43 11/01/2039 28,000
29,000 St. James Parish 0.34 11/01/2040 29,000
25,000 St. James Parish 0.35 11/01/2040 25,000
----------
82,000
----------
MAINE (1.1%)
23,285 Health & Higher Educational Facilities
Auth. (INS)(LIQ) 0.35 7/01/2036 23,285
----------
NEW JERSEY (3.5%)
28,015 EDA (LIQ)(LOC - Dexia Credit Local)(b) 0.47 9/01/2022 28,015
10,550 EDA (LIQ)(LOC - Dexia Credit Local)(b) 0.47 9/01/2025 10,550
2,600 EDA (LOC - Valley National Bank) 0.75 3/01/2031 2,600
7,135 EDA (LOC - Valley National Bank) 0.42 11/01/2031 7,135
6,435 EDA (LOC - Sovereign Bank) 0.75 5/15/2033 6,435
9,275 EDA (LOC - Valley National Bank) 0.30 11/01/2040 9,275
12,465 EDA (LOC - Valley National Bank) 0.30 11/01/2040 12,465
----------
76,475
----------
NEW YORK (0.2%)
4,745 Ulster County IDA (LOC - Sovereign Bank) 0.75 9/15/2037 4,745
----------
PENNSYLVANIA (4.4%)
11,000 Butler County General Auth. (INS)(LIQ) 0.30 9/01/2027 11,000
10,000 Delaware Valley Regional Finance Auth.
(LOC - Bayerische Landesbank) 0.31 12/01/2020 10,000
13,750 Delaware Valley Regional Finance Auth.
(LOC - Bayerische Landesbank) 0.29 6/01/2042 13,750
39,600 Emmaus General Auth. (INS)(LIQ) 0.35 12/01/2028 39,600
20,000 Luzerne County (INS)(LIQ) 0.65 11/15/2026 20,000
----------
94,350
----------
================================================================================
30 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
TEXAS (0.8%)
$ 4,095 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 0.72% 6/01/2031 $ 4,095
12,220 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 0.72 6/01/2038 12,220
----------
16,315
----------
WASHINGTON (1.7%)
35,765 Health Care Facilities Auth. (INS)(LIQ) 0.45 12/01/2036 35,765
----------
Total Variable-Rate Demand Notes (cost: $600,545) 600,545
----------
TOTAL INVESTMENTS (COST: $2,121,108) $2,163,069
==========
-------------------------------------------------------------------------------------------------------
($ 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 $- $1,023,275 $- $1,023,275
Put Bonds - 523,269 - 523,269
Adjustable-Rate Notes - 15,980 - 15,980
Variable-Rate Demand Notes - 600,545 - 600,545
-------------------------------------------------------------------------------------------------------
Total $- $2,163,069 $- $2,163,069
-------------------------------------------------------------------------------------------------------
For the period of April 1, 2013, through September 30, 2013, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
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) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by the Trust's
Board of Trustees (the Board), unless otherwise noted as illiquid.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
September 30, 2013, was $3,125,000, which represented 0.1% of the Fund's
net assets.
(d) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate at
September 30, 2013.
See accompanying notes to financial statements.
================================================================================
32 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,121,108) $2,163,069
Cash 1,978
Receivables:
Capital shares sold 3,125
Interest 16,780
----------
Total assets 2,184,952
----------
LIABILITIES
Payables:
Securities purchased 30,000
Capital shares redeemed 3,478
Dividends on capital shares 472
Accrued management fees 578
Accrued transfer agent's fees 30
Other accrued expenses and payables 54
----------
Total liabilities 34,612
----------
Net assets applicable to capital shares outstanding $2,150,340
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,128,225
Accumulated undistributed net investment income 2
Accumulated net realized loss on investments (19,848)
Net unrealized appreciation of investments 41,961
----------
Net assets applicable to capital shares outstanding $2,150,340
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,140,956/199,951
shares outstanding) $ 10.71
==========
Adviser Shares (net assets of $9,384/877 shares outstanding) $ 10.71
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended September 30, 2013 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 26,285
--------
EXPENSES
Management fees 3,629
Administration and servicing fees:
Fund Shares 1,627
Adviser Shares 6
Transfer agent's fees:
Fund Shares 425
Distribution and service fees (Note 6E):
Adviser Shares 11
Custody and accounting fees:
Fund Shares 127
Postage:
Fund Shares 16
Shareholder reporting fees:
Fund Shares 16
Trustees' fees 7
Registration fees:
Fund Shares 21
Adviser Shares 14
Professional fees 61
Other 16
--------
Total expenses 5,976
Expenses reimbursed:
Adviser Shares (12)
--------
Net expenses 5,964
--------
NET INVESTMENT INCOME 20,321
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (223)
Change in net unrealized appreciation/depreciation (26,190)
--------
Net realized and unrealized loss (26,413)
--------
Decrease in net assets resulting from operations $ (6,092)
========
See accompanying notes to financial statements.
================================================================================
34 | USAA TAX EXEMPT SHORT-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 $ 20,321 $ 44,326
Net realized gain (loss) on investments (223) 376
Change in net unrealized appreciation/depreciation of
investments (26,190) 6,322
---------------------------
Increase (decrease) in net assets resulting
from operations (6,092) 51,024
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (20,117) (44,079)
Adviser Shares (67) (115)
---------------------------
Distributions to shareholders (20,184) (44,194)
---------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (18,612) 54,810
Adviser Shares 2,883 574
---------------------------
Total net increase (decrease) in net assets
from capital share transactions (15,729) 55,384
---------------------------
Net increase (decrease) in net assets (42,005) 62,214
NET ASSETS
Beginning of period 2,192,345 2,130,131
---------------------------
End of period $2,150,340 $2,192,345
===========================
Accumulated undistributed (overdistribution of) net
investment income:
End of period $ 2 $ (135)
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
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 Short-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 Short-Term Fund Shares
(Fund Shares) and Tax Exempt Short-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 Board
oversight, the Committee administers and oversees the Fund's
================================================================================
36 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
valuation policies and procedures which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a wide
variety of sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager). Among other things, these monthly meetings include a
review and analysis of back testing reports, pricing service quotation
comparisons, illiquid securities and fair value determinations, pricing
movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are not
readily available. The Service generally prices these securities based on
methods that include consideration of yields or prices of tax-exempt
securities of comparable quality, coupon, maturity, and type; indications
as to values from dealers in securities; and general market conditions.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
3. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before the
pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager, an affiliate of the Fund, under
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
the Fund's net asset value (NAV) to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
================================================================================
38 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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 | 39
================================================================================
the volatility of the Fund's NAV to the extent that the Fund makes such
purchases while remaining substantially fully invested.
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended September 30, 2013, there were no custodian and other bank credits.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of
================================================================================
40 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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 $6,000, which represents 3.5% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2013.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of March 31, 2014,
in accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
Under the Regulated Investment Company Modernization Act of 2010 (the Act) a
fund is permitted to carry forward net capital losses indefinitely.
Additionally, such capital losses that are carried forward will retain their
character as short-term and or long-term capital losses. Post-enactment capital
loss carryforwards must be used before pre-enactment capital loss carryforwards.
As a result, pre-enactment capital loss carryforwards may be more likely to
expire unused.
At March 31, 2013, the Fund had pre-enactment capital loss carryforwards of
$2,687,000 and post-enactment long-term capital loss carryforwards of
$16,938,000, for federal income tax purposes. If not offset by subsequent
capital gains, the pre-enactment capital loss carryforwards will expire between
2014 and 2016, as shown below. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
PRE-ENACTMENT CAPITAL LOSS CARRYFORWARDS
------------------------------------------
EXPIRES BALANCE
--------- ----------
2014 $ 265,000
2015 2,326,000
2016 96,000
----------
Total $2,687,000
==========
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
$26,986,000 and $128,467,000, 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 $45,930,000 and $3,969,000, respectively, resulting in net
unrealized appreciation of $41,961,000.
(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.
================================================================================
42 | USAA TAX EXEMPT SHORT-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 38,248 $ 411,961 69,674 $ 754,914
Shares issued from reinvested
dividends 1,590 17,100 3,520 38,154
Shares redeemed (41,584) (447,673) (68,122) (738,258)
-------------------------------------------------
Net increase (decrease) from
capital share transactions (1,746) $ (18,612) 5,072 $ 54,810
=================================================
ADVISER SHARES:
Shares sold 382 $ 4,112 135 $ 1,459
Shares issued from reinvested
dividends 2 24 2 26
Shares redeemed (117) (1,253) (84) (911)
-------------------------------------------------
Net increase from capital
share transactions 267 $ 2,883 53 $ 574
=================================================
(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
Short Municipal Debt Funds Index over the performance period. The Lipper
Short Municipal Debt Funds Index tracks the total return performance of the
10 largest funds in the Lipper Short Municipal Debt Funds category. The
performance period for each class consists of the current month plus the
previous 35 months.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
The following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
--------------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point (0.01%). Average net assets of the share class are
calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance 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 Short 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 $3,629,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$579,000 and $1,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.05% and 0.03%, respectively.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended
================================================================================
44 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
September 30, 2013, the Fund Shares and Adviser Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$1,627,000 and $6,000, 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 $31,000 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 0.80% 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 $12,000, 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 $425,000 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 | 45
================================================================================
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 $11,000.
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 465,000 shares, which represent 53.0% 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.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended September 30, 2013, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Fund at the then-current market price with no brokerage
commissions incurred.
COST TO NET REALIZED
SELLER PURCHASER PURCHASER GAIN TO SELLER
--------------------------------------------------------------------------------
USAA Tax Exempt USAA Tax Exempt
Intermediate-Term Fund Short-Term Fund $25,751,000 $713,000
================================================================================
46 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
(9) 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 $ 10.84 $ 10.80 $ 10.61 $ 10.62 $ 10.38 $ 10.59
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .22 .27 .29 .32 .45
Net realized and
unrealized gain (loss) (.13) .04 .19 (.01) .24 (.20)
-------------------------------------------------------------------------------
Total from investment
operations (.03) .26 .46 .28 .56 .25
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.22) (.27) (.29) (.32) (.46)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 10.71 $ 10.84 $ 10.80 $ 10.61 $ 10.62 $ 10.38
===============================================================================
Total return (%)* (.28) 2.41 4.40 2.62 5.46(a) 2.38
Net assets at
end of period (000) $2,140,956 $2,185,741 $2,124,120 $1,860,300 $1,752,698 $1,211,460
Ratios to average
net assets:**
Expenses (%)(b) .55(c) .55 .55 .54 .55(a) .56
Net investment income (%) 1.87(c) 2.02 2.54 2.69 3.01 4.36
Portfolio turnover (%) 2 3 16 10 16 24
* 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
$2,162,812,000.
(a) During the year ended March 31, 2010, SAS reimbursed the Fund Shares
$47,000 for corrections in fees paid for the administration and servicing of
certain accounts. The effect of this reimbursement on the Fund Shares' total
return was less than 0.01%. The reimbursement decreased the Fund Shares'
expense ratios by less than 0.01%. This decrease is excluded from the
expense ratios in the Financial Highlights table.
(b) 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%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- ADVISER SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
------------------------------------------------------------------
2013 2013 2012 2011***
------------------------------------------------------------------
Net asset value at
beginning of period $10.84 $10.80 $10.61 $10.71
-------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .19 .25 .17
Net realized and
unrealized gain (loss) (.13) .04 .19 (.10)
-------------------------------------------------------------
Total from investment operations (.04) .23 .44 .07
-------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.19) (.25) (.17)
-------------------------------------------------------------
Net asset value at end of period $10.71 $10.84 $10.80 $10.61
=============================================================
Total return (%)* (.40) 2.16 4.14 .69
Net assets at end of period (000) $9,384 $6,604 $6,011 $4,940
Ratios to average net assets:**
Expenses (%)(a) .80(b) .80 .80 .80(b)
Expenses, excluding
reimbursements (%)(a) 1.07(b) 1.17 1.30 1.53(b)
Net investment income (%) 1.61(b) 1.77 2.28 2.47(b)
Portfolio turnover (%) 2 3 16 10
* 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
$8,429,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Reflects total operating expenses of the Adviser Shares before reductions of
any expenses paid indirectly. The Adviser Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
48 | USAA TAX EXEMPT SHORT-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
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EXPENSE EXAMPLE | 49
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actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2013 -
APRIL 1, 2013 SEPTEMBER 30, 2013 SEPTEMBER 30, 2013
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 997.20 $2.75
Hypothetical
(5% return before expenses) 1,000.00 1,022.31 2.79
ADVISER SHARES
Actual 1,000.00 996.00 4.00
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
* Expenses are equal to the annualized expense ratio of 0.55% for Fund
Shares and 0.80% for Adviser Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 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 (0.28)% for Fund Shares and (0.40)% for Adviser Shares for
the six-month period of April 1, 2013, through September 30, 2013.
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50 | USAA TAX EXEMPT SHORT-TERM FUND
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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.
================================================================================
ADVISORY AGREEMENT | 51
================================================================================
However, the Board noted that the evaluation process with respect to the Manager
is an ongoing one. In this regard, the Board's and its committees' consideration
of the Advisory Agreement included information previously received at such
meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its knowledge of
the Manager's management and the quality of the performance of its duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's role
in coordinating the activities of
================================================================================
52 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
the Fund's other service providers also was considered. The Board also
considered the Manager's risk management processes. The Board considered the
Manager's financial condition and that it had the financial wherewithal to
continue to provide the same scope and high quality of services under the
Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on
the experience, resources, and strengths of the Manager and its affiliates in
managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objectives and classifications,
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 similar investment
classifications/objectives as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate -- which includes advisory and administrative
services and the effects of any performance adjustment -- was above the median
of its expense group and was the median of 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
================================================================================
ADVISORY AGREEMENT | 53
================================================================================
services provided by the Manager. The Board also noted the level and method of
computing the management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the approval of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three-, and five-year periods ended December 31, 2012. The
Board also noted that the Fund's percentile performance ranking was in the top
10% of its performance universe for the one-year period ended December 31, 2012,
and was in the top 5% of its performance universe for the three- and five-year
periods ended December 31, 2012.
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This information included a
review of the methodology used in the allocation of certain costs to the Fund.
The Trustees reviewed the profitability of the Manager's relationship with the
Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which they receive compensation. The Board also considered the possible
direct and indirect benefits to the Manager from its relationship with the
================================================================================
54 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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 | 55
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
Jefferson C. Boyce
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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
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TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
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CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
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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)
=============================================================================
39592-1113 (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.