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, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VIRGINIA BOND FUND]
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SEMIANNUAL REPORT
USAA VIRGINIA BOND FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2014
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PRESIDENT'S MESSAGE
"SMALL DECISIONS TODAY, AS YOU WORK TO
GROW YOUR SAVINGS AND BUILD YOUR PORTFOLIO, [PHOTO OF BROOKS ENGLEHARDT]
CAN HAVE A BIG IMPACT IN THE FUTURE."
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NOVEMBER 2014
In the financial markets, nothing should be taken for granted. During the
reporting period, a number of so-called "experts" predicted that longer-term
interest rates would rise after the Federal Reserve (the Fed) began reducing (or
tapering) its quantitative easing (QE) asset purchases. (Through QE, the Fed had
been buying $85 billion of U.S. Treasury securities and mortgage-backed
securities every month in an effort to push down long-term interest rates and
stimulate economic growth.) However, instead of longer-term interest rates
rising, they fell. They continued to trend down through much of the reporting
period as the Fed continued tapering its asset purchases. Although interest
rates spiked during September of this year, the increase was temporary and
seemed to be a reaction to improved U.S. economic data, speculation about the
timing of Fed short-term interest rate cuts, and growing geopolitical concerns,
including extremist threats in the Middle East. At the end of the reporting
period, longer-term interest rates were lower than they were at the beginning of
the period.
The investment environment is multi-faceted, and short-term market moves can be
influenced by many different things. It is therefore vital, I believe, to have
an investment plan - one that is based on your financial objectives, time
horizon, and risk tolerance. Small decisions today, as you work to grow your
savings and build your portfolio, can have a big impact in the future.
At USAA Investments, we have believed for some time that longer-term interest
rates were likely to remain lower for longer than many market participants
expected. The U.S. economic recovery remains fragile. Growth contracted during
the first quarter, with U.S. gross domestic product (GDP) declining 2.1%.
Although GDP reportedly grew 4.6% in the second quarter, economic growth in the
first half of 2014 was lower than many expected at the beginning of the calendar
year. In addition, the global economy has slowed. Growth has stagnated in a
number of euro zone countries, and Europe could potentially experience a new
recession. China's economy has unexpectedly softened amid a slump in that
country's real estate sector, while Japan's second-quarter change in GDP was
weaker than anticipated. Meanwhile, geopolitical tensions sparked dramatic
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headlines during the reporting period and are likely to persist. Shareholders
must try to look through the media noise and focus on information relevant to
their investment plan.
Eventually, longer-term interest rates may start to rise, and we expect the
increase to be more gradual than the markets seem to believe. Once interest
rates do rise, bond prices will fall (bond prices move in the opposite direction
of interest rates). However, this will be offset, we believe, in part by the
income generated by those bonds. We also expect that our USAA fixed-income
portfolio managers will have the opportunity to reinvest and achieve higher
yields. It is our view that, in the coming months, you should expect the
majority of your potential total return to come from the income generated by
your bond funds.
Meanwhile, we believe that tax-exempt bonds are likely to remain attractive,
perhaps more so given that marginal income tax rates are higher today than they
were a few years ago. We expect many investors to continue favoring them for the
tax-free income they provide.
At the same time, most money market funds are yielding almost zero percent.
Some shareholders may find that other investments, such as short duration bond
funds - which generally offer higher yields than money markets - could be
attractive alternatives. If you would like to review your investment plan to
ensure it still matches your time horizon, investment goals, and risk tolerance,
please do not hesitate to call one of our financial advisors. They can also help
you determine if it might be appropriate to rebalance your portfolio. Regular
rebalancing potentially can help you protect your gains and prepare for what
happens next.
From all of us here at USAA Investments, thank you for your continued investment
in our family of tax-exempt mutual funds. We will continue working hard on your
behalf.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Past performance is no guarantee of future results. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened. o
Investments provided by USAA Investment Management Company and USAA Financial
Advisors Inc., both registered broker dealers. o Financial advice provided by
USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial
Insurance Agency in California, License # 0E36312), and USAA Financial Advisors,
Inc., a registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 23
Financial Statements 25
Notes to Financial Statements 28
EXPENSE EXAMPLE 41
ADVISORY AGREEMENT(S) 43
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)2014, USAA. All rights reserved.
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FUND OBJECTIVE
THE VIRGINIA BOND FUND (THE FUND) PROVIDES VIRGINIA INVESTORS WITH A HIGH LEVEL
OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND VIRGINIA STATE INCOME
TAXES.
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TYPES OF INVESTMENTS
The Fund invests primarily in long-term investment-grade securities issued by
the Commonwealth of Virginia, its political subdivisions and instrumentalities,
and other government entities, the interest on which is exempt from federal
income tax and Virginia state income taxes. During normal market conditions, at
least 80% of the Fund's net assets will consist of Virginia tax-exempt
securities. The Fund's dollar-weighted average portfolio maturity is not
restricted, but is expected to be greater than 10 years.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF JOHN C. BONNELL] [PHOTO OF DIEDERIK OLIJSLAGER]
JOHN C. BONNELL, CFA DIEDERIK OLIJSLAGER
USAA Asset Management Company USAA Asset Management Company
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o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period, supported by
an imbalance in supply and demand. New issuances of tax-exempt bonds
remained extremely light - well below historical norms - throughout the
period as state and local governments hesitated to take on new debt.
Meanwhile, demand was strong as investors sought higher-yielding securities
and continued to favor municipal securities for their tax advantage. At the
same time, geopolitical worries drove a flight to quality assets.
Municipal bond prices also benefited from strength in the U.S. Treasury
market; the municipal bond market tends to follow the U.S. Treasury market
over time. Longer-term U.S. Treasury yields trended down for much of the
reporting period before spiking in late August through mid-September.
Stronger U.S. economic data and speculation about the timing of short-term
interest rate hikes by the Federal Reserve were the prime catalysts. In late
September, longer-term U.S. Treasury yields fell back to end the reporting
period lower than they began.
Municipal bonds outperformed U.S. Treasuries during the reporting period. As
a result, the difference in yields between AAA-rated tax-exempt bonds and
U.S. Treasuries returned to historic averages. At the same time, municipal
credit spreads narrowed as investors sought higher yields in riskier assets.
(Municipal credit spreads are the difference in yields between municipal
bonds with similar maturities but different credit ratings.)
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2 | USAA VIRGINIA BOND FUND
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Overall, during the reporting period, municipal credit quality remained
solid, as state and local governments continued working to maintain fiscal
balance. We expect credit quality to continue to improve further as the U.S.
economy strengthens. That said, the size and diversity of the tax-exempt
market makes it likely that we will see occasional problems.
o HOW DID THE USAA VIRGINIA BOND FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
six-month period ended September 30, 2014, the Fund Shares and Adviser
Shares had a total return of 4.91% and 4.70%, respectively, versus an average
return of 4.15% amongst the funds in the Lipper Virginia Municipal Debt Funds
category. This compares to returns of 4.47% for the Lipper Virginia Municipal
Debt Funds Index and 4.12% for the Barclays Municipal Bond Index. The Fund
Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months
produced a dividend yield of 3.81% and 3.60%, respectively, compared to the
Lipper category average of 3.47%.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o WHAT ARE THE CONDITIONS IN THE COMMONWEALTH OF VIRGINIA?
Given its proximity to Washington, D.C. and its dependency on government and
government-related jobs, Virginia's economy is feeling the effects of federal
spending cuts. However, at the end of the reporting
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
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MANAGERS' COMMENTARY ON THE FUND | 3
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period, its economy continued to be stronger than those of most states. The
Commonwealth has been proactive in cutting expenditures to maintain overall
balance and has been able to post budget surpluses to restore financial
reserves. Virginia's conservative fiscal practices are serving it well, as
it remains one of the minority of states rated AAA by all three credit rating
companies. Virginia is characterized by a broad-based economy, with a
well-educated work force and high wealth levels, as well as a history of
conservative financial management.
o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD?
We maintained our focus on income generation. The Fund's long-term income
distribution, not its price appreciation, contributes the majority of its
total returns (see page 6). Because of our income focus, the Fund is
generally tilted toward bonds in the BBB and A rated categories.
To help us identify attractive opportunities for the portfolio, we continued
to work with our in-house team of credit analysts. We conduct independent
credit research on every security we consider for purchase. Issues are
selected one at a time based on fundamental analysis, rather than thematic or
sector trends, with a focus on the issuer's ability and willingness to repay
its debt. We attempt to use credit research both to find value and to avoid
potential pitfalls.
During the reporting period, we continued to maintain a diversified
portfolio in primarily investment-grade municipal bonds. Our credit analysts
continuously monitored the portfolio's holdings. The Fund continues to be
diversified by sector and issuer, potentially limiting its exposure to an
unexpected event. We also seek to avoid bonds subject to the federal
alternative minimum tax for individuals.
Thank you for allowing us to help you with your investment needs.
Diversification is a technique intended 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 federal alternative minimum tax.
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4 | USAA VIRGINIA BOND FUND
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INVESTMENT OVERVIEW
USAA VIRGINIA BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USVAX)
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9/30/14 3/31/14
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Net Assets $626.1 Million $595.2 Million
Net Asset Value Per Share $11.50 $11.17
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.438 $0.444
Dollar-Weighted Average
Portfolio Maturity(+) 16.9 Years 16.9 Years
(+)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 9/30/14
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3/30/14-9/30/14* 1 YEAR 5 YEARS 10 YEARS
4.91% 9.91% 5.02% 4.25%
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30-DAY SEC YIELD AS OF 9/30/14** EXPENSE RATIO AS OF 3/31/14***
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2.14% 0.59%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated August 1, 2014, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses. 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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INVESTMENT OVERVIEW | 5
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
SEPTEMBER 30, 2014
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 YEARS 4.25 = 4.34% + (0.09)%
5 YEARS 5.02 = 4.17% + 0.85%
1 YEAR 9.91 = 4.21% + 5.70%
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, 2005 - SEPTEMBER 30, 2014
[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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9/30/04 3.77% 4.28% -0.51%
9/30/05 4.10% 4.36% -0.26%
9/30/06 1.58% 4.21% -2.63%
9/30/07 -3.49% 4.31% -7.80%
9/30/08 12.03% 5.37% 6.66%
9/30/09 5.88% 4.52% 1.36%
9/30/10 4.02% 4.33% -0.31%
9/30/11 8.91% 4.15% 4.76%
9/30/12 -3.12% 3.65% -6.77%
9/30/13 9.91% 4.21% 5.70%
9/30/14
[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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6 | USAA VIRGINIA BOND FUND
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TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/14, and
assuming Virginia state
tax rates of: 5.75% 5.75% 5.75% 5.75%
and assuming marginal federal
tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
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10 Years 4.34% 6.40% 7.29% 7.52% 8.14%
5 Years 4.17% 6.15% 7.00% 7.23% 7.82%
1 Year 4.21% 6.20% 7.07% 7.30% 7.89%
To match the Fund Shares' closing 30-day SEC Yield of 2.14% on 9/30/2014,
A FULLY TAXABLE INVESTMENT MUST PAY: 3.15% 3.59% 3.71% 4.01%
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
federal alternative minimum tax. Based on 2013 tax rates or rates in effect as
of the issuance of this report. The above marginal rates assume married, filing
jointly.
* 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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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS MUNICIPAL USAA VIRGINIA LIPPER VIRGINIA MUNICIPAL
BOND INDEX BOND FUND SHARES DEBT FUNDS INDEX
09/30/04 $10,000.00 $10,000.00 $10,000.00
10/31/04 10,086.05 10,103.97 10,082.27
11/30/04 10,002.86 10,028.35 9,994.07
12/31/04 10,125.01 10,151.91 10,123.26
01/31/05 10,219.64 10,245.19 10,220.81
02/28/05 10,185.64 10,194.69 10,181.83
03/31/05 10,121.40 10,108.46 10,114.68
04/30/05 10,281.02 10,276.62 10,265.46
05/31/05 10,353.68 10,346.56 10,343.14
06/30/05 10,417.92 10,409.22 10,402.35
07/31/05 10,370.83 10,357.18 10,354.06
08/31/05 10,475.54 10,446.46 10,448.79
09/30/05 10,404.98 10,379.24 10,382.79
10/31/05 10,341.80 10,315.48 10,322.29
11/30/05 10,391.44 10,352.36 10,361.79
12/31/05 10,480.80 10,454.29 10,447.08
01/31/06 10,509.09 10,461.83 10,464.59
02/28/06 10,579.64 10,544.49 10,532.83
03/31/06 10,506.68 10,475.98 10,464.54
04/30/06 10,503.07 10,456.53 10,458.00
05/31/06 10,549.85 10,494.20 10,503.26
06/30/06 10,510.14 10,452.28 10,456.23
07/31/06 10,635.15 10,570.28 10,571.48
08/31/06 10,792.96 10,737.15 10,721.07
09/30/06 10,868.03 10,804.05 10,786.23
10/31/06 10,936.18 10,877.76 10,851.92
11/30/06 11,027.35 10,981.26 10,939.14
12/31/06 10,988.38 10,922.12 10,894.00
01/31/07 10,960.25 10,900.78 10,874.76
02/28/07 11,104.67 11,043.42 11,004.86
03/31/07 11,077.29 10,997.05 10,969.83
04/30/07 11,110.09 11,043.57 11,009.36
05/31/07 11,060.90 10,976.91 10,960.06
06/30/07 11,003.58 10,901.94 10,895.17
07/31/07 11,088.88 10,949.70 10,959.37
08/31/07 11,041.04 10,781.22 10,838.71
09/30/07 11,204.42 10,973.73 11,002.49
10/31/07 11,254.36 11,024.45 11,044.23
11/30/07 11,326.12 11,067.52 11,076.53
12/31/07 11,357.56 11,039.89 11,063.06
01/31/08 11,500.78 11,178.41 11,183.19
02/29/08 10,974.24 10,588.96 10,649.08
03/31/08 11,287.91 10,866.93 10,927.02
04/30/08 11,420.00 11,039.31 11,079.99
05/31/08 11,489.05 11,163.27 11,174.40
06/30/08 11,359.37 11,062.89 11,043.81
07/31/08 11,402.54 11,035.99 11,040.52
08/31/08 11,535.98 11,129.71 11,130.73
09/30/08 10,995.00 10,590.80 10,662.58
10/31/08 10,882.78 10,309.98 10,406.32
11/30/08 10,917.38 10,268.42 10,327.65
12/31/08 11,076.54 10,220.94 10,353.45
01/31/09 11,481.98 10,586.54 10,815.30
02/28/09 11,542.30 10,714.25 10,918.76
03/31/09 11,544.41 10,726.23 10,921.02
04/30/09 11,775.03 10,949.25 11,185.47
05/31/09 11,899.59 11,109.49 11,361.18
06/30/09 11,788.12 11,058.72 11,289.04
07/31/09 11,985.34 11,191.46 11,434.79
08/31/09 12,190.24 11,425.09 11,650.00
09/30/09 12,627.72 11,865.46 12,070.32
10/31/09 12,362.65 11,707.54 11,899.37
11/30/09 12,464.79 11,761.35 11,912.55
12/31/09 12,506.92 11,853.48 11,999.17
01/31/10 12,572.06 11,926.39 12,042.98
02/28/10 12,693.91 12,026.28 12,148.34
03/31/10 12,663.53 12,037.98 12,143.96
04/30/10 12,817.42 12,140.36 12,268.83
05/31/10 12,913.56 12,192.36 12,321.96
06/30/10 12,921.23 12,179.91 12,291.46
07/31/10 13,082.35 12,280.46 12,418.88
08/31/10 13,381.87 12,521.31 12,674.93
09/30/10 13,360.96 12,563.09 12,699.23
10/31/10 13,323.95 12,535.39 12,665.70
11/30/10 13,057.53 12,238.64 12,359.66
12/31/10 12,804.49 11,983.70 12,103.51
01/31/11 12,710.16 11,853.49 11,956.96
02/28/11 12,912.50 12,081.07 12,150.69
03/31/11 12,869.48 12,033.93 12,108.34
04/30/11 13,099.95 12,252.86 12,325.21
05/31/11 13,323.80 12,515.17 12,566.15
06/30/11 13,370.29 12,594.93 12,630.53
07/31/11 13,506.74 12,721.14 12,742.95
08/31/11 13,737.81 12,894.58 12,900.98
09/30/11 13,879.83 13,071.09 13,086.68
10/31/11 13,828.23 13,018.84 13,044.29
11/30/11 13,909.91 13,063.34 13,087.11
12/31/11 14,174.54 13,300.09 13,334.22
01/31/12 14,502.34 13,661.78 13,739.11
02/29/12 14,516.64 13,670.73 13,738.77
03/31/12 14,422.31 13,644.33 13,650.68
04/30/12 14,588.70 13,782.89 13,808.37
05/31/12 14,709.80 13,911.13 13,938.98
06/30/12 14,694.00 13,932.25 13,926.12
07/31/12 14,926.88 14,107.85 14,171.84
08/31/12 14,943.88 14,156.21 14,194.19
09/30/12 15,034.15 14,233.13 14,271.43
10/31/12 15,076.57 14,302.18 14,323.15
11/30/12 15,324.95 14,510.02 14,599.63
12/31/12 15,135.54 14,330.91 14,350.06
01/31/13 15,198.58 14,411.22 14,452.74
02/28/13 15,244.61 14,456.09 14,487.98
03/31/13 15,178.87 14,413.20 14,386.53
04/30/13 15,345.25 14,557.29 14,551.48
05/31/13 15,157.81 14,403.45 14,399.76
06/30/13 14,728.60 13,936.18 13,855.46
07/31/13 14,599.83 13,731.81 13,656.36
08/31/13 14,391.47 13,476.84 13,327.36
09/30/13 14,701.22 13,788.86 13,593.46
10/31/13 14,817.36 13,898.99 13,690.98
11/30/13 14,786.82 13,922.55 13,655.93
12/31/13 14,749.06 13,881.01 13,582.92
01/31/14 15,036.40 14,221.83 13,876.80
02/28/14 15,212.72 14,398.50 14,087.18
03/31/14 15,238.29 14,446.15 14,124.48
04/30/14 15,421.38 14,635.19 14,290.22
05/31/14 15,619.96 14,863.28 14,521.97
06/30/14 15,633.50 14,884.02 14,482.16
07/31/14 15,661.03 14,865.77 14,477.74
08/31/14 15,850.73 15,108.30 14,700.59
09/30/14 15,866.83 15,154.99 14,755.29
[END CHART]
data from 9/30/04 through 9/30/14.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Virginia Bond Fund Shares to the following benchmarks:
o The unmanaged, broad-based Barclays Municipal Bond Index tracks total return
performance for the long-term, investment-grade, tax-exempt bond market. All
tax-exempt bond funds will find it difficult to outperform the index because
the index does not reflect any deduction for fees, expenses, or taxes.
o The unmanaged Lipper Virginia Municipal Debt Funds Index tracks the total
return performance of the 10 largest funds within the Lipper Virginia
Municipal Debt Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
8 | USAA VIRGINIA BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER VIRGINIA
USAA VIRGINIA BOND MUNICIPAL DEBT FUNDS
FUND SHARES AVERAGE
09/30/05 4.25% 3.80%
09/30/06 4.25 3.69
09/30/07 4.34 3.74
09/30/08 4.87 4.18
09/30/09 4.61 3.89
09/30/10 4.29 3.84
09/30/11 4.11 3.90
09/30/12 3.82 3.49
09/30/13 4.02 3.56
09/30/14 3.81 3.47
[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 9/30/05 to 9/30/14.
The Lipper Virginia Municipal Debt Funds Average is an average performance level
of all Virginia municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA VIRGINIA BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UVABX)
--------------------------------------------------------------------------------
9/30/14 3/31/14
--------------------------------------------------------------------------------
Net Assets $17.0 Million $12.7 Million
Net Asset Value Per Share $11.49 $11.17
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.414 $0.422
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/14
--------------------------------------------------------------------------------
3/30/14-9/30/14* 1 YEAR SINCE INCEPTION 8/01/10
4.70% 9.68% 4.92%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/14**
--------------------------------------------------------------------------------
1.89%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 3/31/14***
--------------------------------------------------------------------------------
0.79%
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, 2014, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
10 | USAA VIRGINIA BOND FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 1.89% on 9/30/2014, and
assuming Virginia state tax
rates of: 5.75% 5.75% 5.75% 5.75%
and assuming marginal federal
tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 2.79% 3.17% 3.28% 3.54%
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
federal alternative minimum tax. Based on 2013 tax rates or rates in effect as
of the issuance of this report. The above marginal rates assume married, filing
jointly.
* 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER VIRGINIA
USAA VIRGINIA BOND FUND BARCLAYS MUNICIPAL MUNICIPAL DEBT FUNDS
ADVISER SHARES BOND INDEX INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,192.19 10,228.95 10,206.18
09/30/10 10,222.70 10,212.97 10,225.75
10/31/10 10,196.69 10,184.68 10,198.75
11/30/10 9,952.02 9,981.03 9,952.32
12/31/10 9,741.82 9,787.61 9,746.05
01/31/11 9,633.52 9,715.50 9,628.05
02/28/11 9,816.40 9,870.17 9,784.05
03/31/11 9,766.84 9,837.28 9,749.95
04/30/11 9,952.12 10,013.45 9,924.57
05/31/11 10,163.27 10,184.57 10,118.58
06/30/11 10,226.11 10,220.10 10,170.42
07/31/11 10,317.16 10,324.40 10,260.95
08/31/11 10,465.37 10,501.03 10,388.20
09/30/11 10,606.52 10,609.58 10,537.72
10/31/11 10,562.58 10,570.14 10,503.59
11/30/11 10,597.09 10,632.58 10,538.07
12/31/11 10,777.74 10,834.86 10,737.06
01/31/12 11,079.06 11,085.43 11,063.08
02/29/12 11,084.08 11,096.35 11,062.80
03/31/12 11,059.90 11,024.25 10,991.87
04/30/12 11,160.75 11,151.44 11,118.85
05/31/12 11,272.50 11,244.01 11,224.02
06/30/12 11,287.75 11,231.93 11,213.67
07/31/12 11,428.16 11,409.94 11,411.52
08/31/12 11,455.60 11,422.94 11,429.52
09/30/12 11,526.22 11,491.93 11,491.72
10/31/12 11,570.41 11,524.36 11,533.37
11/30/12 11,736.71 11,714.22 11,755.99
12/31/12 11,589.94 11,569.44 11,555.03
01/31/13 11,664.31 11,617.62 11,637.71
02/28/13 11,688.99 11,652.81 11,666.09
03/31/13 11,662.23 11,602.56 11,584.40
04/30/13 11,776.88 11,729.74 11,717.22
05/31/13 11,650.37 11,586.46 11,595.05
06/30/13 11,270.46 11,258.38 11,156.77
07/31/13 11,103.25 11,159.95 10,996.45
08/31/13 10,895.31 11,000.68 10,731.53
09/30/13 11,135.56 11,237.45 10,945.79
10/31/13 11,232.88 11,326.23 11,024.33
11/30/13 11,249.95 11,302.88 10,996.10
12/31/13 11,214.46 11,274.02 10,937.31
01/31/14 11,477.65 11,493.66 11,173.95
02/28/14 11,618.75 11,628.43 11,343.36
03/31/14 11,665.55 11,647.98 11,373.39
04/30/14 11,805.90 11,787.93 11,506.85
05/31/14 11,988.11 11,939.72 11,693.46
06/30/14 12,002.50 11,950.07 11,661.40
07/31/14 11,995.70 11,971.12 11,657.85
08/31/14 12,188.98 12,116.12 11,837.29
09/30/14 12,213.54 12,128.43 11,881.33
[END CHART]
Data from 7/31/10 through 9/30/14.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Virginia Bond Fund Adviser Shares to the benchmarks listed above (see page
8 for benchmark definitions).
*The performance of the Barclays Municipal Bond Index and the Lipper Virginia
Municipal Debt Funds Index is calculated from the end of the month, July 31,
2010, while the inception date of the Adviser Shares is August 1, 2010. There
may be a slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
12 | USAA VIRGINIA BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON* o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA VIRGINIA BOND FUND LIPPER VIRGINIA MUNICIPAL
ADVISER SHARES DEBT FUNDS AVERAGE
09/30/11 3.84% 3.90%
09/30/12 3.62 3.49
09/30/13 3.83 3.56
09/30/14 3.60 3.47
[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 9/30/11 to 9/30/14.
The Lipper Virginia Municipal Debt Funds Average is an average performance level
of all Virginia municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
* Adviser Shares were initiated on August 1, 2010.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/14 o
(% of Net Assets)
Hospital 21.0%
Appropriated Debt 14.2%
Escrowed Bonds 11.1%
Education 10.6%
Nursing/CCRC 8.5%
Water/Sewer Utility 8.3%
Special Assessment/Tax/Fee 5.7%
Airport/Port 5.6%
Toll Roads 5.5%
Single Family Housing 2.5%
You will find a complete list of securities that the Fund owns on pages 18-22.
================================================================================
14 | USAA VIRGINIA BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/14 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AA 54.0%
BBB 12.8%
A 11.6%
AAA 10.7%
UNRATED 9.9%
BELOW INVESTMENT-GRADE 1.0%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide a third-party analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government are not
rated but are treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 18-22.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2014 (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.
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by one of the
following: AMBAC Assurance Corp., Assured Guaranty Corp., Assured
Guaranty Municipal Corp., or National Public Finance Guarantee Corp.
Although bond insurance reduces the risk of loss due to default by
an issuer, such bonds remain
================================================================================
16 | USAA VIRGINIA BOND FUND
================================================================================
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 Barclays
Bank PLC.
(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 Federal National Mortgage Assn.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
MTA Metropolitan Transportation Authority
PRE Prerefunded to a date prior to maturity
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (98.9%)
VIRGINIA (89.8%)
$ 2,500 Albemarle County IDA 5.00% 1/01/2031 $ 2,533
1,000 Alexandria IDA 4.75 1/01/2036 1,080
2,000 Amherst IDA 5.00 9/01/2026 2,064
2,000 Amherst IDA 4.75 9/01/2030 2,043
15,000 Arlington County IDA 5.00 7/01/2031 16,695
4,595 Bedford County EDA (INS) (PRE) 5.25 5/01/2031 4,957
715 Bedford County EDA (INS) 5.25 5/01/2031 756
2,615 Capital Region Airport Commission (INS) 5.00 7/01/2031 2,887
5,000 Chesapeake Bay Bridge and Tunnel District 5.50 7/01/2025 5,865
6,520 Chesapeake, 4.75%, 7/15/2023 4.65(a) 7/15/2032 4,416
3,000 Chesapeake, 4.88%, 7/15/2023 4.88(a) 7/15/2040 1,899
5,000 College Building Auth. 5.00 6/01/2029 5,101
10,000 College Building Auth. 5.00 3/01/2034 11,017
3,290 College Building Auth. (PRE) 5.00 6/01/2036 3,547
11,710 College Building Auth. 5.00 6/01/2036 11,885
2,540 College Building Auth. 5.00 3/01/2041 2,768
11,145 Fairfax (INS) (PRE)(b) 4.75 1/15/2035 11,296
1,255 Fairfax (PRE) 4.75 1/15/2036 1,272
7,100 Fairfax County EDA 5.00 10/01/2027 7,524
2,000 Fairfax County EDA 5.00 10/01/2029 2,402
7,980 Fairfax County EDA (PRE) 5.00 1/15/2030 8,094
2,000 Fairfax County EDA 5.00 10/01/2030 2,386
2,000 Fairfax County EDA 5.00 10/01/2031 2,375
6,150 Fairfax County EDA (PRE) 5.00 4/01/2032 6,301
1,500 Fairfax County EDA 5.00 10/01/2032 1,771
1,500 Fairfax County EDA 5.00 12/01/2032 1,572
2,200 Fairfax County EDA 5.00 10/01/2033 2,585
2,000 Fairfax County EDA 5.00 10/01/2034 2,341
5,750 Fairfax County EDA 4.88 10/01/2036 5,875
7,500 Fairfax County EDA 5.13 10/01/2037 7,764
1,000 Fairfax County EDA 4.00 5/15/2042 1,015
2,800 Fairfax County EDA 5.00 12/01/2042 2,885
1,500 Fairfax County IDA 5.25 5/15/2026 1,677
14,000 Fairfax County IDA 5.00 5/15/2037 15,567
5,770 Farms of New Kent Community Dev. Auth.,
acquired 9/08/2006-10/03/2007;
cost $5,630(c),(d),(e) 5.45 3/01/2036 2,885
1,000 Fauquier County IDA (PRE) 5.00 10/01/2027 1,132
8,825 Fauquier County IDA (PRE) 5.25 10/01/2037 10,053
================================================================================
18 | USAA VIRGINIA BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 6,195 Frederick County IDA (INS) 4.75% 6/15/2036 $ 6,503
9,000 Hampton Roads Sanitation District 5.00 4/01/2033 9,990
2,795 Hanover County EDA 4.50 7/01/2030 2,779
1,100 Hanover County EDA 4.50 7/01/2032 1,081
2,000 Hanover County EDA 5.00 7/01/2042 2,022
6,840 Hanover County IDA (INS) 6.38 8/15/2018 7,432
2,000 Harrisonburg IDA (INS) 5.00 8/15/2031 2,078
10,000 Harrisonburg IDA (INS) 4.50 8/15/2039 10,201
1,200 Henrico County EDA 5.00 6/01/2024 1,292
140 Henrico County EDA 4.25 6/01/2026 141
3,200 Henrico County EDA 5.00 10/01/2027 3,248
2,105 Henrico County EDA 5.00 11/01/2030 2,365
945 Henrico County EDA 5.00 10/01/2035 959
4,225 Henrico County EDA 5.00 10/01/2035 4,298
10,000 Henrico County Water & Sewer (PRE) 5.00 5/01/2036 10,752
5,400 Housing Dev. Auth. 4.60 4/01/2028 5,419
3,175 Housing Dev. Auth. 4.50 10/01/2036 3,371
5,000 Housing Dev. Auth. 4.80 7/01/2038 5,419
5,000 Housing Dev. Auth. 5.10 10/01/2038 5,523
4,105 Housing Dev. Auth. 4.50 1/01/2039 4,144
4,480 Housing Dev. Auth. 4.60 9/01/2040 4,704
1,551 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,285
762 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 754
2,437 Lewistown Commerce Center Community Dev. Auth.
acquired 10/12/2007; cost $2,437(c) 6.05 3/01/2054 241
5,000 Lexington IDA 5.00 12/01/2036 5,602
2,000 Lexington IDA 5.00 1/01/2043 2,229
5,000 Lynchburg 4.00 6/01/2044 5,164
3,000 Lynchburg EDA 5.00 9/01/2043 3,201
3,532 Marquis Community Dev. Auth.,
acquired 3/01/2012; cost $2,926(c),(f) 5.63 9/01/2041 3,340
5,389 Marquis Community Dev. Auth.,
acquired 3/01/2012; cost $468(c),(f) 5.63(g) 9/01/2041 784
5,000 Montgomery County EDA 5.00 6/01/2035 5,473
5,500 Montgomery County IDA 5.00 2/01/2029 6,076
4,200 Newport News EDA (PRE) 5.00 7/01/2031 4,535
1,045 Newport News EDA 5.00 7/01/2031 1,109
1,000 Norfolk EDA 5.00 11/01/2030 1,124
3,500 Norfolk EDA 5.00 11/01/2043 3,913
1,850 Norfolk Redevelopment and Housing Auth. 5.50 11/01/2019 1,858
4,963 Peninsula Town Center Community Dev. Auth. 6.45 9/01/2037 5,369
4,005 Port Auth. (PRE) 5.00 7/01/2030 4,152
3,000 Port Auth. 5.00 7/01/2030 3,416
10,000 Port Auth. 5.00 7/01/2040 11,128
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,000 Portsmouth 5.00% 2/01/2033 $ 1,149
2,815 Powhatan County EDA (INS) 5.00 3/15/2032 3,038
1,620 Prince William County (INS) (PRE) 5.00 9/01/2024 1,765
3,370 Prince William County IDA 4.88 1/01/2020 3,387
8,000 Prince William County IDA 5.13 1/01/2026 8,014
1,705 Prince William County IDA 5.50 9/01/2031 1,965
2,000 Prince William County IDA 5.50 9/01/2031 2,243
1,000 Prince William County IDA 5.50 9/01/2034 1,155
10,000 Prince William County IDA 5.00 11/01/2046 10,850
5,825 Public Building Auth. 5.00 8/01/2023 7,119
1,200 Public Building Auth. 5.00 8/01/2024 1,482
1,805 Public Building Auth. 5.00 8/01/2025 2,215
4,000 Radford IDA (NBGA) 3.50 9/15/2029 4,116
5,310 Rappahannock Regional Jail Auth. (INS) 4.75 12/01/2031 5,634
6,280 Rappahannock Regional Jail Auth. (INS) 4.50 12/01/2036 6,600
1,685 Resources Auth. (PRE) 4.75 11/01/2035 1,769
2,260 Resources Auth. (PRE) 4.75 11/01/2035 2,373
2,000 Resources Auth. 4.38 11/01/2036 2,044
1,435 Resources Auth. 5.00 11/01/2040 1,571
7,310 Resources Auth. 4.00 11/01/2041 7,647
921 Reynolds Crossing Community Dev. Auth. 5.10 3/01/2021 929
2,500 Richmond Public Utility (INS) 4.50 1/15/2033 2,581
2,000 Richmond Public Utility 5.00 1/15/2035 2,237
6,000 Richmond Public Utility 5.00 1/15/2038 6,901
4,500 Richmond Public Utility 5.00 1/15/2040 5,029
5,120 Roanoke County EDA (INS) 5.00 10/15/2027 5,748
2,850 Roanoke County EDA (INS) 5.00 10/15/2032 3,175
1,150 Roanoke County EDA 5.00 7/01/2033 1,265
4,285 Roanoke County EDA (INS) 5.13 10/15/2037 4,796
110 Roanoke County IDA (INS) (PRE) 5.00 7/01/2038 132
6,890 Roanoke County IDA (INS) 5.00 7/01/2038 7,454
3,000 Route 460 Funding Corp. 5.08(g) 7/01/2036 994
2,000 Route 460 Funding Corp. 5.12(g) 7/01/2037 626
2,500 Route 460 Funding Corp. 5.13(g) 7/01/2038 742
6,965 Route 460 Funding Corp. 5.17(g) 7/01/2039 1,964
420 Small Business Financing Auth. 5.00 4/01/2025 461
185 Small Business Financing Auth. 5.25 4/01/2026 208
1,500 Small Business Financing Auth. 5.25 9/01/2027 1,581
855 Small Business Financing Auth. 5.50 4/01/2028 961
750 Small Business Financing Auth. 5.50 4/01/2033 833
15,000 Small Business Financing Auth. 5.25 9/01/2037 15,608
11,945 Small Business Financing Auth. 5.00 11/01/2040 12,938
4,000 Southampton County IDA 5.00 4/01/2025 4,224
6,345 Spotsylvania County EDA (INS) (PRE) 5.00 2/01/2031 6,450
================================================================================
20 | USAA VIRGINIA BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,645 Stafford County and City of Stauton IDA (INS) (PRE) 5.25% 8/01/2031 $ 1,791
5,755 Stafford County and City of Stauton IDA (INS) (PRE) 5.25 8/01/2031 6,266
13,470 Stafford County and City of Stauton IDA (PRE)(b) 5.25 8/01/2036 14,666
2,685 Stafford County and City of Stauton IDA (INS) 5.25 8/01/2036 2,753
10,000 Tobacco Settlement Financing Corp. 5.00 6/01/2047 6,742
6,315 Univ. Health System Auth. 4.75 7/01/2036 6,863
3,000 Univ. Health System Auth. 4.75 7/01/2041 3,247
4,405 Univ. of Virginia 5.00 6/01/2037 5,093
5,000 Upper Occoquan Sewage Auth. 5.00 7/01/2041 5,475
1,795 Virginia Beach Dev. Auth. 5.00 5/01/2029 2,117
2,165 Washington County IDA 5.25 8/01/2030 2,447
2,160 Washington County IDA 5.50 8/01/2040 2,440
3,671 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 3,698
3,250 Winchester EDA(h) 5.00 1/01/2044 3,584
3,000 Winchester IDA 5.63 1/01/2044 3,310
--------
577,224
--------
DISTRICT OF COLUMBIA (5.8%)
2,825 Metropolitan Washington Airports Auth. 5.00 10/01/2029 3,196
12,465 Metropolitan Washington Airports Auth. 5.00 10/01/2030 13,897
5,500 Metropolitan Washington Airports Auth. (INS) 5.32(g) 10/01/2030 2,730
11,230 Metropolitan Washington Airports Auth. 5.00 10/01/2039 12,069
4,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 4,208
1,000 Washington MTA 5.13 7/01/2032 1,153
--------
37,253
--------
PUERTO RICO (1.0%)
6,180 Public Improvement (PRE) 5.25 7/01/2032 6,712
--------
GUAM (2.0%)
1,500 Government Business Privilege Tax 5.00 1/01/2042 1,592
1,600 Government Waterworks Auth. 5.00 7/01/2035 1,741
4,000 Government Waterworks Auth. 5.50 7/01/2043 4,526
1,255 International Airport Auth. (INS) 5.75 10/01/2043 1,440
500 Power Auth. 5.00 10/01/2031 555
1,000 Power Auth. 5.00 10/01/2034 1,104
750 Power Auth. (INS) 5.00 10/01/2039 839
1,000 Power Auth. (INS) 5.00 10/01/2044 1,112
--------
12,909
--------
U.S. VIRGIN ISLANDS (0.3%)
2,000 Public Finance Auth. 5.00 10/01/2032 2,197
--------
Total Fixed-Rate Instruments (cost: $609,547) 636,295
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
PUT BONDS (0.5%)
VIRGINIA (0.5%)
$ 3,000 York County EDA (cost: $3,000) 1.88% 5/01/2033 $ 3,069
--------
VARIABLE-RATE DEMAND NOTES (1.3%)
VIRGINIA (1.3%)
5,100 Albemarle County IDA (LOC - Wells Fargo Bank, N.A.) 0.05 10/01/2022 5,100
3,335 College Building Auth. (LIQ)(i) 0.09 2/01/2028 3,335
--------
8,435
--------
Total Variable-Rate Demand Notes (cost: $8,435) 8,435
--------
TOTAL INVESTMENTS (COST: $620,982) $647,799
========
----------------------------------------------------------------------------------------------------
($ 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 $- $636,295 $- $636,295
Put Bonds - 3,069 - 3,069
Variable-Rate Demand Notes - 8,435 - 8,435
---------------------------------------------------------------------------------------------------
Total $- $647,799 $- $647,799
---------------------------------------------------------------------------------------------------
For the period of April 1, 2014, through September 30, 2014, 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.
================================================================================
22 | USAA VIRGINIA BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Stepped-coupon security that is initially issued in zero-coupon form
and converts to coupon form at the specified date and rate shown in the
security's description. The rate presented in the coupon rate column
represents the effective yield at the date of purchase.
(b) At September 30, 2014, the security, or a portion thereof, were
segregated to cover when-issued purchases.
(c) Security deemed illiquid by USAA Asset Management Company (the
Manager), under liquidity guidelines approved by the USAA Mutual Funds
Trust's Board of Trustees (the Board). The aggregate market value of
these securities at September 30, 2014, was $7,250,000, which
represented 1.1% of the Fund's net assets.
(d) Security was fair valued at September 30, 2014, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $2,885,000 which represented 0.4% of
the Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
(e) At September 30, 2014, the issuer was in default with respect to
interest and/or principal payments.
(f) Restricted security that is not registered under the Securities Act
of 1933.
(g) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(h) At September 30, 2014, the aggregate market value of securities
purchased on a delayed delivery basis was $3,584,000, of which all were
when-issued.
(i) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
See accompanying notes to financial statements.
================================================================================
24 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $620,982) $647,799
Receivables:
Capital shares sold 642
Interest 8,452
Securities sold 5,100
--------
Total assets 661,993
--------
LIABILITIES
Payables:
Securities purchased 8,646
Capital shares redeemed 224
Dividends on capital shares 421
Bank overdraft 9,340
Accrued management fees 194
Accrued transfer agent's fees 4
Other accrued expenses and payables 35
--------
Total liabilities 18,864
--------
Net assets applicable to capital shares outstanding $643,129
========
NET ASSETS CONSIST OF:
Paid-in capital $623,134
Undistributed net investment income 4
Accumulated net realized loss on investments (6,826)
Net unrealized appreciation of investments 26,817
--------
Net assets applicable to capital shares outstanding $643,129
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $626,142/54,461 shares outstanding) $ 11.50
========
Adviser Shares (net assets of $16,987/1,478 shares outstanding) $ 11.49
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 13,740
--------
EXPENSES
Management fees 1,169
Administration and servicing fees:
Fund Shares 460
Adviser Shares 11
Transfer agent's fees:
Fund Shares 91
Adviser Shares 3
Distribution and service fees (Note 6E):
Adviser Shares 19
Custody and accounting fees:
Fund Shares 52
Adviser Shares 1
Postage:
Fund Shares 6
Shareholder reporting fees:
Fund Shares 9
Trustees' fees 12
Professional fees 40
Other 8
--------
Total expenses 1,881
--------
NET INVESTMENT INCOME 11,859
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss (4,518)
Change in net unrealized appreciation/depreciation 22,379
--------
Net realized and unrealized gain 17,861
--------
Increase in net assets resulting from operations $ 29,720
========
See accompanying notes to financial statements.
================================================================================
26 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended September 30, 2014 (unaudited), and year ended March 31,
2014
--------------------------------------------------------------------------------
9/30/2014 3/31/2014
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 11,859 $ 24,949
Net realized loss on investments (4,518) (1,350)
Change in net unrealized appreciation/depreciation
of investments 22,379 (25,375)
------------------------------
Increase (decrease) in net assets resulting
from operations 29,720 (1,776)
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (11,544) (24,473)
Adviser Shares (262) (424)
------------------------------
Total distributions of net investment income (11,806) (24,897)
------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 13,399 (49,866)
Adviser Shares 3,869 1,254
------------------------------
Total net increase (decrease) in net assets
from capital share transactions 17,268 (48,612)
------------------------------
Net increase (decrease) in net assets 35,182 (75,285)
NET ASSETS
Beginning of period 607,947 683,232
------------------------------
End of period $ 643,129 $ 607,947
==============================
Undistributed (overdistribution of) net investment income:
End of period $ 4 $ (49)
==============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 52 separate funds. The
information presented in this semiannual report pertains only to the USAA
Virginia Bond Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to provide Virginia investors with a
high level of current interest income that is exempt from federal and Virginia
state income taxes.
The Fund consists of two classes of shares: Virginia Bond Fund Shares (Fund
Shares) and Virginia Bond Fund Adviser Shares (Adviser Shares). Each class of
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, distribution and service (12b-1) fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class's relative net assets. Each class has exclusive
voting rights on matters related solely to that class and separate voting rights
on matters that relate to both classes. The Adviser Shares permit investors to
purchase shares through financial intermediaries, including banks, broker-
dealers, insurance companies, investment advisers, plan sponsors, and financial
professionals that provide various administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures which are approved by the Board. Among other
things, these policies and procedures allow the Fund to
================================================================================
28 | USAA VIRGINIA BOND FUND
================================================================================
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.
3. Securities for which market quotations are not readily available or
are considered unreliable, or whose values have been materially
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
affected by events occurring after the close of their primary markets
but before the pricing of the Fund, are valued in good faith at fair
value, using methods determined by the Manager, an affiliate of the
Fund, under valuation procedures approved by the Board. The effect of
fair value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's net asset value (NAV) to be more reliable
than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include fixed-rate instruments and put bonds which are valued based on
methods discussed in Note 1A1 and variable-rate demand notes which are
valued at amortized cost.
================================================================================
30 | USAA VIRGINIA BOND FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities. The Fund concentrates its investments in
Virginia tax-exempt securities and, therefore, may be exposed to more credit
risk than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -
Delivery and payment for securities that have been purchased by the Fund on
a delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested. As of September 30, 2014, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $3,546,000;
of which all were when-issued.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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, 2014, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended September 30, 2014, the Fund paid CAPCO facility
fees of $2,000, which represents 0.9% 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, 2014.
================================================================================
32 | USAA VIRGINIA BOND FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of March 31, 2015,
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.
The Fund is permitted to carry forward post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and/or long-term capital losses. Post-
enactment capital loss carryforwards must be used before pre-enactment capital
loss carryforwards. As a result, pre-enactment capital loss carryforwards may be
more likely to expire unused.
At March 31, 2014, the Fund had no pre-enactment capital loss carryforwards and
post-enactment net capital loss carryforwards of $2,308,000, for federal income
tax purposes. It is unlikely that the Board will authorize a distribution of
capital gains realized in the future until the capital loss carryforwards have
been used.
POST-ENACTMENT CAPITAL LOSS CARRYFORWARDS
--------------------------------------------
TAX CHARACTER
--------------------------------------------
(NO EXPIRATION) BALANCE
---------------- ----------
Short-Term $ 954,000
Long-Term 1,354,000
-----------
Total $ 2,308,000
===========
For the six-month period ended September 30, 2014, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(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, 2014, were
$51,331,000 and $25,901,000, respectively.
As of September 30, 2014, 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, 2014, were $35,257,000 and $8,440,000, respectively, resulting in net
unrealized appreciation of $26,817,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2014, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2014 MARCH 31, 2014
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 3,009 $ 34,196 4,605 $ 51,223
Shares issued from reinvested
dividends 788 8,987 1,760 19,486
Shares redeemed (2,622) (29,784) (10,927) (120,575)
--------------------------------------------------
Net increase (decrease) from
capital share transactions 1,175 $ 13,399 (4,562) $ (49,866)
==================================================
ADVISER SHARES:
Shares sold 345 $ 3,910 464 $ 5,124
Shares issued from reinvested
dividends 15 170 21 235
Shares redeemed (19) (211) (375) (4,105)
--------------------------------------------------
Net increase from capital
share transactions 341 $ 3,869 110 $ 1,254
==================================================
================================================================================
34 | USAA VIRGINIA BOND FUND
================================================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly as a percentage of aggregate average net assets of the USAA Virginia
Bond and USAA Virginia Money Market Funds combined, which on an annual basis
is equal to 0.50% of the first $50 million, 0.40% of that portion over $50
million but not over $100 million, and 0.30% of that portion over $100
million. These fees are allocated on a proportional basis to each Fund
monthly based upon average net assets. For the six-month period ended
September 30, 2014, the Fund's effective annualized base fee was 0.32% of
the Fund's average net assets for the same period.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
Virginia Municipal Debt Funds Index over the performance period. The Lipper
Virginia Municipal Debt Funds Index tracks the total return performance of
the 10 largest funds within the Lipper Virginia Municipal Debt Funds
category. The performance period for each class consists of the current
month plus the previous 35 months. The following table is utilized to
determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX (IN BASIS POINTS AS A PERCENTAGE
(IN BASIS POINTS)(1) OF AVERAGE NET ASSETS)(1)
--------------------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant index, rounded to the nearest basis
point. Average net assets of the share class are calculated over a rolling
36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Virginia Municipal Debt Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended September 30, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $1,169,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$167,000 and $2,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.05% and 0.03%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2014, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $460,000 and $11,000, 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, 2014, the Fund reimbursed the
Manager $8,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
================================================================================
36 | USAA VIRGINIA BOND FUND
================================================================================
C. EXPENSE LIMITATION - The Manager agreed, through August 1, 2014, to limit
the total annual operating expenses of the Adviser Shares to 0.90% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and would reimburse the Adviser Shares for
all expenses in excess of that amount. Effective August 1, 2014, the Manager
terminated this agreement for the Adviser Shares. For the six-month period
ended September 30, 2014, the Adviser Shares incurred no reimbursable
expenses.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager,
provides transfer agent services to the Fund. Transfer agent's fees for
both the Fund Shares and Adviser Shares are paid monthly based on an
annual charge of $25.50 per shareholder account plus out-of-pocket
expenses. SAS pays a portion of these fees to certain intermediaries for
the administration and servicing of accounts that are held with such
intermediaries. For the six-month period ended September 30, 2014, the
Fund Shares and Adviser Shares incurred transfer agent's fees, paid or
payable to SAS, of $91,000 and $3,000, respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for investment
by their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are
offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended September
30, 2014, the Adviser Shares incurred distribution and service (12b-1) fees
of $19,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(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,
2014, USAA and its affiliates owned 448,000 shares, which represent 30.3% of the
Adviser Shares and 0.8% of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended September 30, 2014, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
COST TO NET REALIZED
SELLER PURCHASER PURCHASER LOSS TO SELLER
---------------------------------------------------------------------------------------------------
USAA Tax Exempt Long-Term Fund USAA Virginia Bond Fund $4,144,000 $(12,000)
================================================================================
38 | USAA VIRGINIA BOND 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,
----------------------------------------------------------------------------------------
2014 2014 2013 2012 2011 2010
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.17 $ 11.60 $ 11.40 $ 10.48 $ 10.96 $ 10.23
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .44 .44 .46 .46 .50
Net realized and
unrealized gain (loss) .33 (.43) .20 .92 (.45) .73
-------------------------------------------------------------------------------------
Total from investment
operations .54 .01 .64 1.38 .01 1.23
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.44) (.44) (.46) (.46) (.50)
Realized capital gains - - - - (.03) -
-------------------------------------------------------------------------------------
Total distributions (.21) (.44) (.44) (.46) (.49) (.50)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 11.50 $ 11.17 $ 11.60 $ 11.40 $ 10.48 $ 10.96
=====================================================================================
Total return (%)* 4.91 .23 5.65 13.37 (.03) 12.23(a)
Net assets at end
of period (000) $ 626,142 $ 595,246 $ 671,320 $ 628,271 $ 546,998 $ 573,840
Ratios to average
net assets:**
Expenses (%)(b) .59(c) .59 .57 .55 .51 .49(a)
Net investment income (%) 3.78(c) 4.01 3.77 4.14 4.21 4.66
Portfolio turnover (%) 4 7 6 5 23 3
* 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, 2014, average net assets
were $611,560,000.
(a) During the year ended March 31, 2010, SAS reimbursed the Fund Shares
$11,000 for corrections in fees paid for the administration and servicing
of certain accounts. The effect of this reimbursement on the Fund Shares'
total return was less than 0.01%. The reimbursement decreased the Fund
Shares' expense ratio by 0.01%. This decrease is excluded from the expense
ratio in the Financial Highlights table.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
--------------------------------------------------------------------------
2014 2014 2013 2012 2011***
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.17 $ 11.60 $ 11.40 $10.47 $11.02
---------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .42 .42 .43 .27
Net realized and
unrealized gain (loss) .32 (.43) .20 .93 (.52)
---------------------------------------------------------------------
Total from investment
operations .52 (.01) .62 1.36 (.25)
---------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.42) (.42) (.43) (.27)
Realized capital gains - - - - (.03)
---------------------------------------------------------------------
Total distributions (.20) (.42) (.42) (.43) (.30)
---------------------------------------------------------------------
Net asset value at
end of period $ 11.49 $ 11.17 $ 11.60 $11.40 $10.47
=====================================================================
Total return (%)* 4.70 .03 5.46 13.23 (2.33)
Net assets at end
of period (000) $ 16,987 $ 12,701 $ 11,912 $7,028 $4,691
Ratios to average
net assets:**
Expenses (%)(a),(c) .83(b) .79 .76 .78 .86(b)
Expenses, excluding
reimbursements (%)(a),(c) .83(b) .79 .76 .78 .86(b)
Net investment income (%) 3.53(b) 3.80 3.57 3.90 3.84(b)
Portfolio turnover (%) 4 7 6 5 23
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended September 30, 2014, average net assets
were $14,790,000.
*** 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.
(c) Prior to August 1, 2014, the Manager had voluntarily agreed to limit
the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
================================================================================
40 | USAA VIRGINIA BOND FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2014, through
September 30, 2014.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table on the next page
provides information about actual account values and actual expenses. You may
use the information in this line, together with the amount you invested at the
beginning of the period, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
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, 2014 -
APRIL 1, 2014 SEPTEMBER 30, 2014 SEPTEMBER 30, 2014
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,049.07 $3.03
Hypothetical
(5% return before expenses) 1,000.00 1,022.11 2.99
ADVISER SHARES
Actual 1,000.00 1,046.98 4.26
Hypothetical
(5% return before expenses) 1,000.00 1,020.91 4.20
* Expenses are equal to the annualized expense ratio of 0.59% for Fund Shares
and 0.83% for Adviser Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
4.91% for Fund Shares and 4.70% for Adviser Shares for the six-month period of
April 1, 2014, through September 30, 2014.
================================================================================
42 | USAA VIRGINIA BOND FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 30,
2014, 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
================================================================================
ADVISORY AGREEMENT(S) | 43
================================================================================
performance, comparability of fees and total expenses, and profitability.
However, the Board noted that the evaluation process with respect to the Manager
is an ongoing one. In this regard, the Board's and its committees' consideration
of the Advisory Agreement included information previously received at such
meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's 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 the
Manager's 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,"
================================================================================
44 | USAA VIRGINIA BOND FUND
================================================================================
also was considered. The Manager's role in coordinating the activities of the
Fund's other service providers also was considered. The Board also considered
the Manager's risk management processes. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Advisory
Agreement. In reviewing the Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including the Manager's oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, investment companies with front-end loads or with
no sales loads), asset size, and expense components (the "expense group") and
(ii) a larger group of investment companies that includes all no-load and
front-end load retail open-end investment companies in the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was above the median of its
expense group and below 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 nature and
high
================================================================================
ADVISORY AGREEMENT(S) | 45
================================================================================
quality of services provided by the Manager. The Board took into account
management's discussion of the Fund's expenses. 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, 2013.
The Board also noted that the Fund's percentile performance ranking was in the
top 25% of its performance universe for the one-year period ended December 31,
2013, was in the top 5% of its performance universe for the three-year period
ended December 31, 2013, and was in the top 35% of its performance universe for
the five-year period ended December 31, 2013.
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.
================================================================================
46 | USAA VIRGINIA BOND FUND
================================================================================
The Board also considered the possible direct and indirect benefits to the
Manager from its relationship with the Trust, including that the Manager may
derive reputational and other benefits from its association with the Fund. The
Board also took into account the high quality of services received by the Fund
from the Manager. The Trustees recognized that the Manager should be entitled to
earn a reasonable level of profits in exchange for the level of services it
provides to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that the Fund may realize additional economies of scale if assets increase
proportionally more than some expenses. The Board determined that the current
investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's level of profitability from its
relationship with the Fund is reasonable in light of the nature and high quality
of services provided by the Manager and the type of fund. Based on its
conclusions, the Board determined that continuation of the Advisory Agreement
would be in the best interests of the Fund and its shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA
(8722)
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
211759-1114
================================================================================
USAA --------------
9800 Fredericksburg Road PRSRT STD
San Antonio, TX 78288 U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on usaa.com select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
============================================================================
39604-1114 (C)2014, 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, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 11/20/2014
------------------------------
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: 11/21/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 11/20/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.