Prospectus - USAA

Each Fund automatically reinvests all dividends and other distributions in
additional shares of the Fund unless you request to receive those distributions by
way of electronic funds transfer. The share price will be the NAV of the shares
computed on the ex-distribution date. Any capital gain distributions made by the
California Bond Fund will reduce the NAV per share by the amount of the
distribution on the ex-distribution date. You should consider carefully the effects
of purchasing shares of a Fund shortly before any capital gain distribution. Some
or all of these distributions may be subject to taxes. Each Fund will invest in
your account, at the current NAV per share, any distribution payment returned to
us by your financial institution.
TAXES
The following tax information is quite general and refers to the federal income
tax law in effect as of the date of this prospectus.
Treatment of the Funds
Each Fund, which is treated as a separate corporation for federal tax purposes,
has qualified for each past taxable year, and intends to continue to qualify, for
treatment as a “regulated investment company” under the Code. By doing so, a
Fund (but not its shareholders) will be relieved of federal income tax on the part
of its investment company taxable income (consisting generally of taxable net
investment income, the excess, if any, of net short-term capital gain over net
long-term capital loss and net gains and losses from certain foreign currency
transactions, if any, all determined without regard to any deduction for
dividends paid) and net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) that it distributes to its shareholders.
Taxation of Shareholders
If a Fund satisfies the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of securities the interest
on which is excludable from gross income under section 103(a) of the Code, it
may pay “exempt-interest dividends” to its shareholders. Those dividends
constitute the portion of its aggregate dividends (excluding capital gain
distributions) equal to the excess of its excludable interest over certain amounts
disallowed as deductions. Exempt-interest dividends are excludable from a
shareholder’s gross income for federal income tax purposes, although the
amount of those dividends must be reported on the recipient’s federal income
tax return. Accordingly, the amount of exempt-interest dividends — and, to the
extent determination thereof is possible after reasonable effort, the part thereof
constituting interest that is a tax preference item — that a Fund pays to its
shareholders will be reported to them annually on Forms 1099-INT (or
substitutes therefor). Shareholders’ treatment of dividends from a Fund under
47 | USAA California Funds