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 TAX EXEMPT LONG-TERM FUND]
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SEMIANNUAL REPORT
USAA TAX EXEMPT LONG-TERM 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 33
Financial Statements 35
Notes to Financial Statements 38
EXPENSE EXAMPLE 52
ADVISORY AGREEMENT(S) 54
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 USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PROVIDES
INVESTORS WITH INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
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TYPES OF INVESTMENTS
The Fund invests primarily in investment-grade securities, the interest from
which is exempt from federal income tax. During normal market conditions, at
least 80% of the Fund's net assets will consist of tax-exempt securities. The
Fund's dollar-weighted average portfolio maturity is 10 years or more.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF JOHN C. BONNELL] [PHOTO OF DIEDERIK OLIJSLAGER]
JOHN C. BONNELL, CFA DIEDERIK OLIJSLAGER
USAA Asset USAA Asset
Management Company Management Company
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o 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 TAX EXEMPT LONG-TERM 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 TAX EXEMPT LONG-TERM 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 4.17% and 3.96%, respectively, versus an
average return of 4.56% amongst the funds in the Lipper General & Insured
Municipal Debt Funds category. This compares to returns of 4.91% for the
Lipper General & Insured 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 4.17% and 3.89%, respectively, compared to the Lipper category average
of 3.22%.
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 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.
Refer to pages 8 and 9 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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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 of more than 400 longer-term, primarily investment-grade
municipal bonds. Our credit analysts continuously monitored the portfolio's
holdings. The Fund continues to be diversified by sector, issuer, and
geography, 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 TAX EXEMPT LONG-TERM FUND
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INVESTMENT OVERVIEW
USAA TAX EXEMPT LONG-TERM FUND SHARES (FUND SHARES) (Ticker Symbol: USTEX)
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9/30/14 3/31/14
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Net Assets $2.3 Billion $2.3 Billion
Net Asset Value Per Share $13.72 $13.45
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.572 $0.557
Dollar-Weighted Average
Portfolio Maturity(+) 16.8 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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3/31/14-9/30/14* 1 YEAR 5 YEARS 10 YEARS
4.17% 9.27% 5.51% 4.64%
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30-DAY SEC YIELD AS OF 9/30/14** EXPENSE RATIO AS OF 3/31/14***
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2.64% 0.54%
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 4.64% = 4.71% + (0.07)%
5 YEARS 5.51% = 4.55% + 0.96%
1 YEAR 9.27% = 4.54% + 4.73%
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
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CHANGE IN
TOTAL RETURN DIVIDEND RETURN SHARE PRICE
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9/30/05 4.77% 4.49% 0.28%
9/30/06 4.24% 4.51% -0.27%
9/30/07 1.88% 4.46% -2.58%
9/30/08 -5.63% 4.55% -10.18%
9/30/09 14.62% 6.29% 8.33%
9/30/10 6.30% 5.07% 1.23%
9/30/11 3.49% 4.90% -1.41%
9/30/12 11.04% 4.49% 6.55%
9/30/13 -2.03% 3.79% -5.82%
9/30/14 9.27% 4.54% 4.73%
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 TAX EXEMPT LONG-TERM FUND
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TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/14, and
assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
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10 Years 4.71% 6.54% 7.45% 7.70% 8.32%
5 Years 4.55% 6.32% 7.20% 7.43% 8.04%
1 Year 4.54% 6.31% 7.18% 7.42% 8.02%
To match the Fund Shares' closing 30-day SEC Yield of 2.64%, on 9/30/2014,
A FULLY TAXABLE INVESTMENT MUST PAY: 3.67% 4.18% 4.31% 4.66%
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]
USAA TAX EXEMPT LIPPER GENERAL &
BARCLAYS MUNICIPAL LONG-TERM FUND INSURED MUNICIPAL
BOND INDEX SHARES DEBT FUNDS INDEX
09/30/04 $10,000.00 $10,000.00 $10,000.00
10/31/04 10,086.05 10,086.66 10,080.53
11/30/04 10,002.86 9,995.62 10,005.43
12/31/04 10,125.01 10,163.63 10,135.14
01/31/05 10,219.64 10,269.99 10,235.30
02/28/05 10,185.64 10,235.85 10,209.14
03/31/05 10,121.40 10,150.49 10,132.17
04/30/05 10,281.02 10,334.21 10,290.09
05/31/05 10,353.68 10,421.47 10,370.23
06/30/05 10,417.92 10,488.48 10,434.56
07/31/05 10,370.83 10,438.35 10,397.19
08/31/05 10,475.54 10,549.86 10,503.51
09/30/05 10,404.98 10,479.82 10,428.84
10/31/05 10,341.80 10,404.23 10,366.05
11/30/05 10,391.44 10,442.23 10,413.21
12/31/05 10,480.80 10,551.84 10,510.33
01/31/06 10,509.09 10,565.32 10,538.65
02/28/06 10,579.64 10,657.08 10,621.40
03/31/06 10,506.68 10,577.51 10,560.15
04/30/06 10,503.07 10,560.94 10,550.52
05/31/06 10,549.85 10,607.76 10,603.80
06/30/06 10,510.14 10,542.98 10,561.23
07/31/06 10,635.15 10,679.80 10,689.71
08/31/06 10,792.96 10,842.86 10,848.63
09/30/06 10,868.03 10,923.04 10,923.69
10/31/06 10,936.18 11,000.74 10,994.57
11/30/06 11,027.35 11,119.09 11,086.67
12/31/06 10,988.38 11,058.07 11,046.65
01/31/07 10,960.25 11,032.86 11,024.75
02/28/07 11,104.67 11,177.49 11,156.68
03/31/07 11,077.29 11,140.19 11,128.29
04/30/07 11,110.09 11,172.08 11,162.81
05/31/07 11,060.90 11,117.08 11,115.14
06/30/07 11,003.58 11,047.24 11,053.40
07/31/07 11,088.88 11,088.28 11,106.79
08/31/07 11,041.04 10,916.08 11,000.83
09/30/07 11,204.42 11,127.07 11,157.61
10/31/07 11,254.36 11,171.07 11,190.08
11/30/07 11,326.12 11,176.72 11,209.00
12/31/07 11,357.56 11,125.76 11,199.44
01/31/08 11,500.78 11,259.81 11,332.32
02/29/08 10,974.24 10,590.29 10,753.62
03/31/08 11,287.91 10,918.80 11,040.15
04/30/08 11,420.00 11,107.76 11,188.04
05/31/08 11,489.05 11,214.27 11,273.31
06/30/08 11,359.37 11,081.02 11,122.30
07/31/08 11,402.54 11,016.90 11,111.12
08/31/08 11,535.98 11,125.39 11,214.88
09/30/08 10,995.00 10,500.26 10,620.13
10/31/08 10,882.78 10,024.40 10,297.09
11/30/08 10,917.38 9,921.94 10,177.72
12/31/08 11,076.54 9,731.55 10,140.74
01/31/09 11,481.98 10,247.24 10,619.12
02/28/09 11,542.30 10,332.18 10,724.13
03/31/09 11,544.41 10,336.22 10,686.91
04/30/09 11,775.03 10,653.59 10,992.91
05/31/09 11,899.59 10,998.31 11,245.88
06/30/09 11,788.12 10,902.93 11,131.22
07/31/09 11,985.34 11,091.77 11,306.95
08/31/09 12,190.24 11,365.49 11,594.41
09/30/09 12,627.72 12,035.27 12,184.62
10/31/09 12,362.65 11,766.90 11,869.22
11/30/09 12,464.79 11,779.12 11,905.35
12/31/09 12,506.92 11,880.88 12,016.81
01/31/10 12,572.06 11,952.87 12,075.93
02/28/10 12,693.91 12,058.12 12,189.83
03/31/10 12,663.53 12,051.19 12,198.58
04/30/10 12,817.42 12,207.39 12,358.72
05/31/10 12,913.56 12,281.97 12,423.86
06/30/10 12,921.23 12,275.54 12,408.71
07/31/10 13,082.35 12,431.52 12,555.98
08/31/10 13,381.87 12,755.94 12,876.70
09/30/10 13,360.96 12,793.57 12,887.30
10/31/10 13,323.95 12,754.88 12,860.16
11/30/10 13,057.53 12,368.92 12,505.03
12/31/10 12,804.49 12,044.91 12,216.42
01/31/11 12,710.16 11,857.66 12,063.92
02/28/11 12,912.50 12,075.87 12,258.49
03/31/11 12,869.48 12,028.07 12,212.93
04/30/11 13,099.95 12,259.00 12,417.38
05/31/11 13,323.80 12,556.76 12,682.58
06/30/11 13,370.29 12,657.33 12,768.80
07/31/11 13,506.74 12,827.73 12,904.14
08/31/11 13,737.81 12,977.77 13,077.52
09/30/11 13,879.83 13,243.27 13,274.11
10/31/11 13,828.23 13,207.87 13,232.85
11/30/11 13,909.91 13,276.72 13,287.24
12/31/11 14,174.54 13,549.61 13,554.90
01/31/12 14,502.34 13,984.77 13,980.15
02/29/12 14,516.64 14,033.57 14,021.93
03/31/12 14,422.31 13,990.79 13,956.30
04/30/12 14,588.70 14,151.65 14,136.50
05/31/12 14,709.80 14,313.50 14,285.96
06/30/12 14,694.00 14,330.65 14,280.03
07/31/12 14,926.88 14,555.15 14,553.03
08/31/12 14,943.88 14,617.24 14,592.43
09/30/12 15,034.15 14,701.72 14,691.38
10/31/12 15,076.57 14,790.97 14,762.08
11/30/12 15,324.95 15,065.47 15,067.89
12/31/12 15,135.54 14,875.52 14,843.82
01/31/13 15,198.58 14,996.18 14,942.65
02/28/13 15,244.61 15,043.95 14,988.76
03/31/13 15,178.87 14,983.68 14,906.88
04/30/13 15,345.25 15,160.54 15,085.11
05/31/13 15,157.81 15,002.98 14,895.63
06/30/13 14,728.60 14,443.96 14,344.24
07/31/13 14,599.83 14,277.41 14,154.65
08/31/13 14,391.47 14,022.85 13,900.19
09/30/13 14,701.22 14,402.57 14,232.59
10/31/13 14,817.36 14,509.45 14,344.03
11/30/13 14,786.82 14,475.57 14,307.72
12/31/13 14,749.06 14,461.88 14,273.24
01/31/14 15,036.40 14,868.98 14,605.74
02/28/14 15,212.72 15,044.23 14,802.51
03/31/14 15,238.29 15,107.86 14,858.33
04/30/14 15,421.38 15,320.29 15,060.12
05/31/14 15,619.96 15,499.47 15,297.69
06/30/14 15,633.50 15,532.57 15,294.99
07/31/14 15,661.03 15,565.79 15,323.61
08/31/14 15,850.73 15,676.06 15,522.67
09/30/14 15,866.83 15,737.83 15,588.12
[END CHART]
Data from 7/31/08 through 7/31/14.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Long-Term Fund Shares to the following benchmarks:
o The unmanaged, broad-based Barclays Municipal Bond Index tracks total
return performance for the long-term, investment-grade, tax-exempt bond
market. All tax-exempt bond funds will find it difficult to outperform the
Index because the Index does not reflect any deduction for fees, expenses,
or taxes.
o The unmanaged Lipper General & Insured Municipal Debt Funds Index tracks
the total return performance of the 30 largest funds within the Lipper
General & Insured Municipal Debt Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
8 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER GENERAL &
LONG-TERM FUND INSURED MUNICIPAL
SHARES DEBT FUNDS AVERAGE
09/30/05 4.40 3.80
09/30/06 4.39 3.78
09/30/07 4.60 3.85
09/30/08 5.35 4.29
09/30/09 5.06 4.01
09/30/10 4.76 3.84
09/30/11 4.66 3.91
09/30/12 4.01 3.37
09/30/13 4.12 3.26
09/30/14 4.17 3.22
[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 General & Insured Municipal Debt Funds Average is an average
performance level of all general municipal debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA TAX EXEMPT LONG-TERM FUND ADVISER SHARES
(ADVISER SHARES) (Ticker Symbol:UTELX)
--------------------------------------------------------------------------------
9/30/14 3/31/14
--------------------------------------------------------------------------------
Net Assets $9.8 Million $7.1 Million
Net Asset Value Per Share $13.70 $13.44
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.533 $0.516
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/14
--------------------------------------------------------------------------------
3/31/14-9/30/14* 1 YEAR SINCE INCEPTION 8/01/10
3.96% 8.89% 5.45%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/14**
--------------------------------------------------------------------------------
UNSUBSIDIZED 2.12% SUBSIDIZED 2.39%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/14***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.07% AFTER REIMBURSEMENT 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated August 1, 2014, and is
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through August 1, 2015, to make payments or waive
management, administration, and other fees so that the total annual operating
expenses of the Adviser Shares (exclusive of commission recapture, expense
offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 0.80% of the Adviser Shares' average
net assets. This reimbursement arrangement may not be changed or terminated
during this time period without approval of the Fund's Board of Trustees and may
be changed or terminated by the Manager at any time after August 1, 2015. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
10 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing subsidized 30-day SEC Yield of 2.39% on
9/30/2014, and assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 3.32% 3.78% 3.91% 4.22%
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]
USAA TAX EXEMPT LIPPER GENERAL &
LONG-TERM FUND INSURED MUNICIPAL BARCLAYS MUNICIPAL
ADVISER SHARES DEBT FUNDS INDEX BOND INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,257.04 10,255.42 10,228.95
09/30/10 10,277.14 10,263.87 10,212.97
10/31/10 10,250.63 10,242.26 10,184.68
11/30/10 9,937.52 9,959.42 9,981.03
12/31/10 9,674.00 9,729.56 9,787.61
01/31/11 9,520.42 9,608.10 9,715.50
02/28/11 9,692.41 9,763.07 9,870.17
03/31/11 9,651.06 9,726.78 9,837.28
04/30/11 9,825.30 9,889.61 10,013.45
05/31/11 10,068.87 10,100.83 10,184.57
06/30/11 10,146.23 10,169.49 10,220.10
07/31/11 10,279.94 10,277.29 10,324.40
08/31/11 10,397.24 10,415.37 10,501.03
09/30/11 10,606.89 10,571.94 10,609.58
10/31/11 10,575.95 10,539.08 10,570.14
11/30/11 10,628.49 10,582.40 10,632.58
12/31/11 10,844.06 10,795.57 10,834.86
01/31/12 11,181.59 11,134.26 11,085.43
02/29/12 11,226.23 11,167.53 11,096.35
03/31/12 11,189.08 11,115.26 11,024.25
04/30/12 11,314.94 11,258.77 11,151.44
05/31/12 11,441.29 11,377.81 11,244.01
06/30/12 11,443.58 11,373.09 11,231.93
07/31/12 11,628.25 11,590.52 11,409.94
08/31/12 11,674.32 11,621.90 11,422.94
09/30/12 11,739.01 11,700.70 11,491.93
10/31/12 11,798.62 11,757.01 11,524.36
11/30/12 12,022.84 12,000.56 11,714.22
12/31/12 11,868.10 11,822.11 11,569.44
01/31/13 11,952.59 11,900.82 11,617.62
02/28/13 11,996.17 11,937.54 11,652.81
03/31/13 11,944.95 11,872.33 11,602.56
04/30/13 12,082.77 12,014.28 11,729.74
05/31/13 11,953.94 11,863.37 11,586.46
06/30/13 11,496.85 11,424.23 11,258.38
07/31/13 11,361.16 11,273.23 11,159.95
08/31/13 11,155.44 11,070.57 11,000.68
09/30/13 11,454.79 11,335.31 11,237.45
10/31/13 11,536.87 11,424.06 11,326.23
11/30/13 11,506.92 11,395.14 11,302.88
12/31/13 11,493.04 11,367.68 11,274.02
01/31/14 11,813.88 11,632.49 11,493.66
02/28/14 11,950.53 11,789.21 11,628.43
03/31/14 11,998.07 11,833.67 11,647.98
04/30/14 12,155.13 11,994.38 11,787.93
05/31/14 12,303.46 12,183.59 11,939.72
06/30/14 12,317.71 12,181.44 11,950.07
07/31/14 12,349.97 12,204.23 11,971.12
08/31/14 12,426.09 12,362.77 12,116.12
09/30/14 12,472.82 12,414.90 12,128.43
[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 Tax Exempt Long-Term Fund Adviser Shares to the benchmarks listed above
(see page 8 for benchmark definitions).
*The performance of the Lipper General & Insured Municipal Debt Funds Index and
the Barclays Municipal Bond 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 TAX EXEMPT LONG-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON* o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON*]
USAA TAX EXEMPT LIPPER GENERAL &
LONG-TERM FUND INSURED MUNICIPAL
ADVISER SHARES DEBT FUNDS AVERAGE
09/30/11 4.31 3.91
09/30/12 3.71 3.37
09/30/13 3.78 3.26
09/30/14 3.89 3.22
[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 General & Insured Municipal Debt Funds Average is an average
performance level of all general municipal debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
*Adviser Shares were initiated on August 1, 2010.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/14 o
(% of Net Assets)
Hospital ....................................................17.6%
Education....................................................11.6%
General Obligation...........................................11.3%
Electric Utilities........................................... 8.6%
Special Assessment/Tax/Fee................................... 8.4%
Toll Roads................................................... 6.0%
Airport/Port................................................. 5.8%
Appropriated Debt............................................ 4.8%
Nursing/CCRC................................................. 4.0%
Buildings.................................................... 3.5%
You will find a complete list of securities that the Fund owns on pages 18-32.
================================================================================
14 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/14 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 6.5%
AA 34.0%
A 26.1%
BBB 28.6%
BELOW INVESTMENT-GRADE 2.3%
UNRATED 2.5%
[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 18-32.
================================================================================
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.
ADJUSTABLE-RATE NOTES - similar to variable-rate demand notes in the fact
that the interest rate is adjusted periodically to reflect current market
conditions. These interest rates are adjusted at a given time, such as
monthly or quarterly. However, these securities do not offer the right to
sell the security at face value prior to maturity.
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.
================================================================================
16 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(INS) Principal and interest payments are insured by one of the
following: ACA Financial Guaranty Corp., AMBAC Assurance Corp.,
Assured Guaranty Corp., Assured Guaranty Municipal Corp., Build
America Mutual Corp., CIFG Assurance, N.A., Financial Guaranty
Insurance Co., National Public Finance Guarantee Corp., Radian
Asset Assurance Inc., or XL Capital Assurance. Although bond
insurance reduces the risk of loss due to default by an issuer,
such bonds remain subject to the risk that value may fluctuate for
other reasons, and there is no assurance that the insurance company
will meet its obligations.
(LOC) Principal and interest payments are guaranteed by a bank
letter of credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain
circumstances, underlying mortgages are guaranteed by a nonbank
guarantee agreement from the Texas Permanent School Fund.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
CCD Community College District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
IDC Industrial Development Corp.
ISD Independent School District
MTA Metropolitan Transportation Authority
PRE Prerefunded to a date prior to maturity
USD Unified School District
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (95.4%)
ALABAMA (0.9%)
$ 4,245 Chatom IDB (INS) 5.00% 8/01/2037 $ 4,598
2,500 Montgomery Medical Clinic Board 4.75 3/01/2031 2,534
2,500 Montgomery Medical Clinic Board 4.75 3/01/2036 2,525
7,000 Port Auth. 6.00 10/01/2035 8,229
2,000 Selma IDB 5.80 5/01/2034 2,245
---------
20,131
---------
ARIZONA (2.8%)
5,000 Apache County IDA 4.50 3/01/2030 5,251
5,000 Goodyear 5.63 7/01/2039 5,490
6,000 Health Facilities Auth. 5.00 2/01/2042 6,382
7,000 Maricopa County 5.00 6/01/2035 7,650
1,000 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2029 1,243
1,500 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2030 1,879
3,000 Pima County IDA 4.00 9/01/2029 3,049
4,000 Pima County IDA 5.75 9/01/2029 4,036
2,685 Pima County IDA 4.50 6/01/2030 2,823
3,000 Pima County IDA 5.25 10/01/2040 3,252
3,500 Scottsdale IDA 5.25 9/01/2030 3,542
9,325 Univ. Medical Center Corp. 5.00 7/01/2035 9,474
2,000 Yavapai County IDA 5.63 8/01/2033 2,109
7,500 Yavapai County IDA 5.63 8/01/2037 7,891
---------
64,071
---------
ARKANSAS (0.1%)
1,000 Dev. Finance Auth. (INS) 4.97(a) 7/01/2028 609
1,165 Dev. Finance Auth. (INS) 4.98(a) 7/01/2029 674
1,150 Dev. Finance Auth. (INS) 4.99(a) 7/01/2030 626
2,500 Dev. Finance Auth. (INS) 5.03(a) 7/01/2036 1,019
---------
2,928
---------
CALIFORNIA (9.9%)
1,000 Cerritos CCD 5.63(a) 8/01/2031 499
2,500 Cerritos CCD 5.67(a) 8/01/2032 1,189
2,175 Cerritos CCD 5.71(a) 8/01/2033 989
1,000 Cerritos CCD 5.76(a) 8/01/2034 432
1,500 Cerritos CCD 5.82(a) 8/01/2035 607
2,200 Cerritos CCD 5.88(a) 8/01/2036 851
8,500 Coachella Valley USD (INS) 5.95(a) 8/01/2041 2,380
6,700 Corona-Norco USD (INS) 5.50 8/01/2039 7,843
================================================================================
18 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 3,000 El Camino CCD 5.08%(a) 8/01/2034 $ 1,370
3,000 El Camino CCD 5.24(a) 8/01/2038 1,143
10,000 El Monte Union High School District (INS) 5.75(a) 6/01/2042 2,765
2,500 Escondido Union High School District (INS) 5.00 6/01/2037 2,664
2,410 Golden State Tobacco Securitization (INS) 4.55 6/01/2022 2,605
5,000 Golden State Tobacco Securitization (INS) 4.60 6/01/2023 5,416
2,000 Golden State Tobacco Securitization 5.00 6/01/2030 2,239
5,000 Indio Redevelopment Agency 5.25 8/15/2035 5,125
17,025 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 16,362
2,000 Jurupa Public Finance Auth. (INS) 5.00 9/01/2033 2,146
1,200 Los Alamitos USD, 5.95%, 8/01/2024 5.95(b) 8/01/2034 840
4,500 Los Alamitos USD, 6.05%, 8/01/2024 6.05(b) 8/01/2042 3,055
3,000 Monterey Peninsula USD (INS) 5.50 8/01/2034 3,433
15,000 Palomar Pomerado Health 5.13 8/01/2037 15,670
1,860 Paramount USD 6.82(a) 8/01/2034 742
2,000 Paramount USD 6.86(a) 8/01/2035 754
2,750 Paramount USD 6.88(a) 8/01/2036 987
2,750 Paramount USD 6.90(a) 8/01/2037 931
6,000 Pollution Control Financing Auth. 5.00 11/21/2045 6,163
2,500 Public Works Board 5.00 12/01/2029 2,893
2,610 Public Works Board 5.00 4/01/2030 2,730
2,000 Public Works Board 5.00 10/01/2030 2,256
2,950 Public Works Board 5.00 6/01/2031 3,374
1,110 Public Works Board 5.00 10/01/2031 1,249
2,000 Public Works Board 5.00 12/01/2031 2,273
3,500 Public Works Board 5.00 10/01/2039 3,945
2,560 Sacramento City Schools Joint
Powers Financing Auth. (INS) 5.00 3/01/2036 2,796
2,000 Sacramento City Schools Joint
Powers Financing Auth. (INS) 5.00 3/01/2040 2,178
4,485 San Francisco City and County
Redevelopment Financing Auth. (INS) 4.88 8/01/2036 4,546
3,000 San Marcos Schools Financing Auth. (INS) 5.00 8/15/2040 3,236
13,605 San Ysidro School District (INS) 5.58(a) 8/01/2036 4,647
14,285 San Ysidro School District (INS) 5.64(a) 8/01/2037 4,625
15,000 Santa Ana USD (INS) 5.45(a) 4/01/2029 8,268
5,000 Southern California Public Power Auth. 5.00 7/01/2040 5,650
6,000 State 5.25 2/01/2030 7,014
24,700 State(c) 4.50 8/01/2030 26,439
5,000 State 5.75 4/01/2031 5,983
160 State 5.00 2/01/2032 161
6,000 State 5.00 11/01/2032 6,603
5,000 State 5.00 12/01/2032 5,516
8,000 State 5.25 4/01/2035 9,227
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 6,750 State 5.00% 2/01/2038 $ 7,567
8,885 Stockton USD (INS) 7.33(a) 8/01/2034 4,066
2,500 Victor Elementary School District (INS) 5.13 8/01/2034 2,847
5,180 Washington Township Health Care Dist. 5.25 7/01/2030 5,499
5,000 Washington Township Health Care Dist. 5.50 7/01/2038 5,358
---------
230,146
---------
COLORADO (2.2%)
3,500 Denver Convention Center Hotel Auth. (INS) 4.75 12/01/2035 3,534
15,765 Denver Health and Hospital Auth. 4.75 12/01/2034 15,985
2,000 E-470 Public Highway Auth. 5.38 9/01/2026 2,224
10,000 E-470 Public Highway Auth. (INS) 5.06(a) 9/01/2035 3,636
2,500 Educational and Cultural Facilities Auth. 5.25 4/01/2043 2,789
3,500 Health Facilities Auth. 5.00 6/01/2029 3,581
3,000 Health Facilities Auth. 5.25 6/01/2031 3,083
2,000 Health Facilities Auth. 5.00 6/01/2035 2,037
2,500 Health Facilities Auth. 5.25 6/01/2036 2,557
5,000 Health Facilities Auth. 5.00 12/01/2042 5,287
5,000 Regional Transportation District 5.00 6/01/2044 5,445
2,000 Vista Ridge Metropolitan District (INS) 5.00 12/01/2036 1,968
---------
52,126
---------
CONNECTICUT (0.6%)
2,500 Health and Educational Facilities Auth. (INS) 5.13 7/01/2030 2,519
2,000 Health and Educational Facilities Auth. 5.00 7/01/2035 2,151
45,069 Mashantucket (Western) Pequot Tribe,
acquired 7/01/2013-9/30/2014; cost $26,502(d),(g) 7.06(c) 7/01/2031 10,390
---------
15,060
---------
DELAWARE (0.2%)
4,000 EDA 5.40 2/01/2031 4,499
---------
DISTRICT OF COLUMBIA (2.7%)
12,870 Community Academy Public Charter School, Inc. (INS) 4.88 5/01/2037 9,262
1,305 District of Columbia 5.00 7/01/2036 1,399
1,500 District of Columbia 5.00 7/01/2042 1,595
1,700 District of Columbia 6.00 7/01/2043 1,964
1,450 District of Columbia 6.00 7/01/2048 1,664
7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 8,407
5,000 Metropolitan Washington Airports Auth. 5.00 10/01/2039 5,631
10,000 Metropolitan Washington Airports Auth. 5.63 10/01/2039 11,367
10,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 10,520
10,000 Washington Convention & Sports Auth. 5.00 10/01/2040 10,603
---------
62,412
---------
================================================================================
20 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FLORIDA (11.5%)
$ 7,000 Atlantic Beach Health Care Facilities Auth. 5.63% 11/15/2043 $ 7,578
2,000 Brevard County Health Facilities Auth. 7.00 4/01/2039 2,321
20,000 Brevard County School Board (INS)(c) 5.00 7/01/2032 21,708
1,500 Broward County 5.25 10/01/2034 1,698
350 Broward County School Board (INS) 5.25 7/01/2027 384
10,000 Broward County School Board (INS) 5.00 7/01/2032 10,837
2,000 Clearwater 5.25 12/01/2039 2,187
5,675 Department of Children and Family Services 5.00 10/01/2025 5,925
1,500 Escambia County 6.25 11/01/2033 1,698
1,000 Escambia County Housing Finance Auth. (INS) 5.75 6/01/2031 1,099
3,950 Gainesville 5.25 10/01/2034 4,540
1,000 Hialeah Gardens Health Care Facilities Auth.
(LOC - SunTrust Bank) 5.00 8/15/2037 1,035
600 Higher Educational Facility Auth. 5.00 4/01/2032 646
1,500 Higher Educational Facility Auth. 5.25 4/01/2042 1,620
3,500 Highlands County Health Facilities Auth. 5.00 11/15/2031 3,579
625 Hillsborough County (INS) 5.13 3/01/2020 628
2,270 Jacksonville 5.00 10/01/2029 2,585
5,750 Jacksonville Economic Dev. Commission 5.00 11/15/2036 6,054
500 Lakeland Educational Facility 5.00 9/01/2037 524
1,000 Lakeland Educational Facility 5.00 9/01/2042 1,045
4,000 Lee County IDA 5.75 10/01/2042 4,290
5,000 Lee County IDA(f) 5.50 10/01/2047 5,263
1,500 Miami (INS) 5.00 10/01/2034 1,590
13,125 Miami (INS) 5.25 7/01/2035 14,201
4,000 Miami (INS) 5.25 7/01/2039 4,309
2,000 Miami Beach 5.00 9/01/2040 2,145
6,875 Miami-Dade County 5.00 10/01/2029 7,797
3,950 Miami-Dade County 5.00 10/01/2034 4,467
23,205 Miami-Dade County 5.38 10/01/2035 26,721
5,000 Miami-Dade County 5.00 7/01/2039 5,591
5,000 Miami-Dade County 5.00 7/01/2040 5,365
1,750 Miami-Dade County 5.00 10/01/2043 1,901
5,000 Miami-Dade County School Board (INS) 5.25 2/01/2027 5,471
5,000 Miami-Dade County School Board (INS) 5.00 5/01/2033 5,497
2,500 Municipal Loan Council (INS) 5.25 10/01/2033 2,784
5,000 Orange County (INS) 5.00 10/01/2031 5,328
3,000 Orange County Health Facilities Auth. 5.25 10/01/2035 3,293
6,255 Orange County Health Facilities Auth. 5.13 11/15/2039 6,440
12,170 Orange County School Board (INS) 5.00 8/01/2031 12,898
5,000 Orange County School Board (INS) 5.00 8/01/2032 5,426
10,000 Orange County School Board (INS) 5.50 8/01/2034 11,158
6,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 6,621
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,000 Orlando-Orange County Expressway Auth. 5.00% 7/01/2035 $ 2,207
10,000 Palm Beach County 5.00 10/01/2031 11,483
1,000 Palm Beach County Health Facilities Auth. 7.50 6/01/2049 1,125
1,000 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,097
1,000 Pinellas County Educational Facilities Auth. 5.25 10/01/2030 1,100
3,650 Pinellas County Educational Facilities Auth. 6.00 10/01/2041 4,113
4,000 Port St. Lucie Utility System (INS) 4.64(a) 9/01/2032 1,774
4,000 Port St. Lucie Utility System (INS) 4.65(a) 9/01/2033 1,690
1,000 Sarasota County Public Hospital District 5.63 7/01/2039 1,114
3,000 St. Petersburg Health Facilities Auth. 6.50 11/15/2039 3,562
3,400 Sumter County (INS) 5.00 6/01/2036 3,585
2,200 Tampa Housing Auth. 4.85 7/01/2036 2,238
3,050 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2042 3,333
2,350 Volusia County Educational Facilities Auth. (INS) 5.00 10/15/2029 2,594
1,165 West Palm Beach Community Redevelopment Agency 5.00 3/01/2029 1,187
---------
268,449
---------
GEORGIA (1.7%)
3,500 Atlanta Airport 5.00 1/01/2035 3,935
10,000 Burke County Dev. Auth. 7.00 1/01/2023 11,596
4,000 Dahlonega Downtown Dev. Auth. (INS) 5.00 7/01/2040 4,317
4,000 Glynn-Brunswick Memorial Hospital Auth. 5.63 8/01/2034 4,371
1,600 Private Colleges & Universities Auth. 5.00 10/01/2032 1,717
10,000 Savannah EDA 6.15 3/01/2017 10,771
1,000 Thomasville Hospital Auth. 5.25 11/01/2035 1,076
1,250 Thomasville Hospital Auth. 5.38 11/01/2040 1,355
---------
39,138
---------
HAWAII (0.3%)
6,000 State 6.50 7/01/2039 6,980
---------
IDAHO (0.1%)
1,500 Health Facilities Auth. (INS) 5.00 7/01/2035 1,600
---------
ILLINOIS (11.2%)
520 Chicago (INS) 5.25 1/01/2029 521
4,057 Chicago 6.75 12/01/2032 4,092
4,000 Chicago 5.00 1/01/2044 4,386
3,000 Chicago 5.00 11/01/2044 3,311
5,000 Chicago-O'Hare International Airport 5.75 1/01/2039 5,694
5,000 Chicago-O'Hare International Airport 5.75 1/01/2043 5,552
2,000 Finance Auth. 5.00 4/01/2026 2,012
5,000 Finance Auth. 5.50 8/15/2028 5,520
2,500 Finance Auth. (INS) 5.75 11/01/2028 2,804
14,000 Finance Auth. 3.90 3/01/2030 14,390
5,000 Finance Auth. 7.25 11/01/2030 5,982
================================================================================
22 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 4,500 Finance Auth. 5.00% 4/01/2031 $ 4,505
7,565 Finance Auth. 5.50 4/01/2032 7,826
8,000 Finance Auth. 6.00 10/01/2032 9,385
13,275 Finance Auth. 4.50 11/15/2032 13,427
6,000 Finance Auth. 4.00 2/01/2033 6,132
5,000 Finance Auth. 5.75 10/01/2035 5,536
7,000 Finance Auth. 5.00 4/01/2036 6,918
20,000 Finance Auth. 5.38 8/15/2039 21,584
1,205 Finance Auth. 5.25 10/01/2039 1,280
5,000 Finance Auth. 6.00 7/01/2043 5,764
2,500 Housing Dev. Auth. 4.85 1/01/2037 2,538
5,000 Metropolitan Pier and Exposition Auth. (INS) 5.50 6/15/2020 5,532
2,500 Metropolitan Pier and Exposition Auth. (INS) 5.55 6/15/2021 2,749
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,707
23,980 Regional Transportation Auth. (INS) 5.75 6/01/2020 29,151
37,550 Regional Transportation Auth. (INS) 6.50 7/01/2030 52,075
8,000 State (INS) 5.00 4/01/2029 8,647
1,000 Univ. of Illinois 5.13 4/01/2036 1,108
7,676 Village of Gilberts (INS) 4.75 3/01/2030 7,706
1,648 Village of Montgomery Kane and
Kendall Counties (INS) 4.70 3/01/2030 1,649
1,500 Village of Round Lake (INS) 4.70 3/01/2033 1,522
---------
261,005
---------
INDIANA (1.2%)
3,440 Finance Auth. 5.00 10/01/2033 3,603
5,000 Finance Auth. 5.00 6/01/2039 5,214
4,000 Indiana Finance Auth.(f) 5.00 10/01/2044 4,213
6,000 Indianapolis (INS) 5.50 1/01/2038 6,775
7,500 Rockport (INS) 4.63 6/01/2025 8,005
---------
27,810
---------
IOWA (0.4%)
5,000 Finance Auth. (INS) 4.75 12/01/2031 5,018
5,000 Finance Auth. (INS) 5.00 12/01/2039 5,025
---------
10,043
---------
KANSAS (0.9%)
9,000 Burlington (INS) 4.85 6/01/2031 9,398
9,760 Wyandotte County 6.07(a) 6/01/2021 6,845
3,415 Wyandotte County 5.00 9/01/2032 3,858
---------
20,101
---------
KENTUCKY (0.6%)
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,083
4,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2038 4,329
5,000 Municipal Power Agency (INS) 5.00 9/01/2037 5,446
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,000 Owen County 6.25% 6/01/2039 $ 2,299
---------
13,157
---------
LOUISIANA (2.0%)
2,500 Lafayette Public Trust Financing Auth. (INS) 5.50 10/01/2035 2,778
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,393
25,000 Parish of St. John the Baptist 5.13 6/01/2037 26,359
10,000 Public Facilities Auth. 5.00 6/01/2030 10,414
1,500 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,608
---------
45,552
---------
MARYLAND (0.6%)
2,500 EDC 6.20 9/01/2022 2,981
5,000 Health and Higher Educational Facilities Auth. 5.75 1/01/2033 5,227
6,000 Health and Higher Educational Facilities Auth. 5.75 1/01/2038 6,259
---------
14,467
---------
MASSACHUSETTS (1.3%)
2,000 Dev. Finance Agency (INS) 5.25 3/01/2026 2,106
2,000 Dev. Finance Agency (INS) 5.00 3/01/2036 2,026
4,000 Dev. Finance Agency 5.50 7/01/2044 4,309
10,000 Health and Educational Facilities Auth. 6.25 7/01/2030 11,771
3,500 Health and Educational Facilities Auth. 5.00 7/15/2032 3,563
1,250 Health and Educational Facilities Auth. 5.00 7/01/2033 1,262
500 Health and Educational Facilities Auth. 5.00 7/15/2037 505
5,000 School Building Auth. (INS) 4.75 8/15/2032 5,421
---------
30,963
---------
MICHIGAN (1.5%)
59,395 Building Auth. (INS) 5.01(a) 10/15/2030 27,459
4,500 Lansing Board of Water & Light 5.00 7/01/2037 5,016
3,000 Strategic Fund 5.63 7/01/2020 3,574
---------
36,049
---------
MINNESOTA (0.4%)
4,000 Chippewa County 5.50 3/01/2037 4,162
2,500 Higher Education Facilities Auth. 5.00 10/01/2039 2,778
3,000 St. Louis Park 5.75 7/01/2030 3,350
---------
10,290
---------
MISSISSIPPI (0.6%)
1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2026 1,025
8,750 Warren County 4.80 8/01/2030 8,757
3,000 Warren County 5.38 12/01/2035 3,347
---------
13,129
---------
================================================================================
24 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MISSOURI (1.9%)
$ 20,000 Cape Girardeau County IDA 5.00% 6/01/2036 $ 20,288
1,000 Cape Girardeau County IDA 5.75 6/01/2039 1,118
8,000 Cass County 5.63 5/01/2038 8,136
2,000 Dev. Finance Board 5.00 6/01/2035 2,046
7,500 Health and Educational Facilities Auth. 5.50 11/15/2033 8,266
5,000 St. Louis County IDA 5.88 9/01/2043 5,450
---------
45,304
---------
MONTANA (0.5%)
6,500 Forsyth (INS) 4.65 8/01/2023 6,931
5,000 Forsyth 5.00 5/01/2033 5,572
---------
12,503
---------
NEBRASKA (0.1%)
975 Douglas County Hospital Auth. (PRE) 6.13 8/15/2031 1,128
1,275 Douglas County Hospital Auth. 6.13 8/15/2031 1,368
---------
2,496
---------
NEVADA (2.0%)
4,000 Clark County (INS) 5.00 7/01/2026 4,510
11,000 Clark County 5.13 7/01/2034 12,371
5,000 Clark County (INS) 5.25 7/01/2039 5,586
12,410 Clark County EDC 5.00 5/15/2029 13,067
10,420 Truckee Meadows Water Auth. (INS) 4.88 7/01/2034 10,949
---------
46,483
---------
NEW JERSEY (1.7%)
3,000 Camden County Improvement Auth. 5.75 2/15/2034 3,007
6,000 EDA 5.00 9/01/2024 6,720
2,000 EDA 5.00 6/15/2028 2,216
11,475 Health Care Facilities Financing Auth. 5.00 7/01/2029 11,877
15,000 Health Care Facilities Financing Auth. 5.63 7/01/2032 16,749
---------
40,569
---------
NEW MEXICO (1.7%)
32,380 Farmington 4.88 4/01/2033 33,319
5,000 Farmington 5.90 6/01/2040 5,566
---------
38,885
---------
NEW YORK (3.2%)
2,040 Buffalo and Erie County Industrial Land Dev. Corp. 5.38 10/01/2041 2,249
20 Dormitory Auth. (ETM) 6.00 8/15/2016 22
11,350 Dormitory Auth. 6.00 8/15/2016 11,925
1,785 Dormitory Auth. 5.25 7/01/2024 1,911
2,250 Dormitory Auth. 5.25 7/01/2029 2,367
16,130 Liberty Dev. Corp. 5.25 10/01/2035 19,142
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 MTA 3.55%(a) 11/15/2032 $ 2,574
60 New York City 5.88 8/01/2019 60
5,000 New York City 5.13 12/01/2028 5,601
1,500 New York City Municipal Water Finance Auth. 5.00 6/15/2037 1,671
7,500 New York City Transitional Finance Auth. 5.00 1/15/2034 8,284
5,000 Triborough Bridge and Tunnel Auth. 3.62(a) 11/15/2031 2,624
10,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 11,215
3,000 Triborough Bridge and Tunnel Auth. 3.66(a) 11/15/2032 1,484
2,500 Triborough Bridge and Tunnel Auth. 3.70(a) 11/15/2032 1,295
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,196
---------
74,620
---------
NORTH CAROLINA (1.1%)
10,000 Capital Facilities Finance Agency 4.63 11/01/2040 10,472
3,750 Charlotte-Mecklenberg Hospital Auth. 5.25 1/15/2034 4,222
5,000 Columbus County Industrial Facilities &
Pollution Control Financing Auth. 6.25 11/01/2033 5,660
5,250 State Medical Care Commission 5.00 7/01/2033 5,473
---------
25,827
---------
NORTH DAKOTA (0.4%)
4,685 Fargo 6.25 11/01/2031 5,571
2,500 McLean County 4.88 7/01/2026 2,680
1,685 Williams County 5.00 11/01/2026 1,688
---------
9,939
---------
OHIO (1.4%)
6,000 Air Quality Dev. Auth. 5.70 8/01/2020 6,976
10,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 8,128
10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 7,996
1,000 Cleveland (INS) 5.00 1/01/2031 1,093
4,640 Higher Education Facility Commission (INS) 5.00 5/01/2036 4,656
2,000 Lake County 5.63 8/15/2029 2,158
2,000 State Turnpike Commission 5.25 2/15/2033 2,273
---------
33,280
---------
OKLAHOMA (0.6%)
2,910 Norman Regional Hospital Auth. (INS) 5.50 9/01/2023 2,913
8,695 Norman Regional Hospital Auth. 5.38 9/01/2036 8,897
2,675 Tulsa Industrial Auth. 5.00 10/01/2037 2,749
---------
14,559
---------
OREGON (0.1%)
1,320 Keizer 5.20 6/01/2031 1,375
---------
PENNSYLVANIA (1.2%)
750 Allegheny County Higher Education Building Auth. 5.50 3/01/2031 845
745 Allegheny County IDA 5.13 9/01/2031 749
================================================================================
26 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 4,000 Allegheny County Sanitary Auth. (INS) 5.00% 6/01/2040 $ 4,438
7,000 Economic Dev. Financing Auth. 4.00 10/01/2023 7,431
1,870 Erie Parking Auth. (INS) 5.13 9/01/2032 2,063
2,295 Erie Parking Auth. (INS) 5.20 9/01/2035 2,531
1,970 Higher Educational Facilities Auth. 5.25 7/15/2033 2,156
2,750 Higher Educational Facilities Auth. 5.50 7/15/2038 3,025
1,250 State Turnpike Commission, 5.00%, 12/01/2018 4.12(b) 12/01/2033 1,169
3,200 Washington County IDA 5.00 11/01/2036 3,401
---------
27,808
---------
PUERTO RICO (0.1%)
2,000 Industrial, Tourist, Educational, Medical,
Environmental Control Facilities Financing Auth. 5.38 4/01/2042 1,645
---------
RHODE ISLAND (1.3%)
5,700 EDC (INS) 5.00 7/01/2031 5,852
12,185 EDC (INS) 5.00 7/01/2036 12,462
2,000 Health and Educational Building Corp. 6.00 9/01/2033 2,212
245 Housing and Mortgage Finance Corp. 6.85 10/01/2024 246
9,950 Housing and Mortgage Finance Corp. 4.85 4/01/2033 10,013
---------
30,785
---------
SOUTH CAROLINA (0.5%)
2,250 Greenwood County 5.38 10/01/2039 2,478
10,000 Jobs EDA (INS) 4.60 4/01/2027 10,055
---------
12,533
---------
SOUTH DAKOTA (0.6%)
500 Educational Enhancement Funding Corp. 5.00 6/01/2027 556
2,500 Health and Educational Facilities Auth. 5.25 11/01/2027 2,511
2,500 Health and Educational Facilities Auth. 5.25 11/01/2029 2,797
3,000 Health and Educational Facilities Auth. 5.25 7/01/2038 3,225
4,000 Health and Educational Facilities Auth. 5.00 7/01/2042 4,317
---------
13,406
---------
TENNESSEE (1.3%)
4,240 Jackson 5.50 4/01/2033 4,635
3,000 Johnson City Health and Educational Facilities Board 5.50 7/01/2031 3,127
5,000 Johnson City Health and Educational Facilities Board 5.50 7/01/2036 5,198
2,000 Johnson City Health and Educational Facilities Board 5.00 8/15/2042 2,142
4,155 Knox County Health, Educational and Housing
Facilities Board 5.02(a) 1/01/2036 1,349
4,000 Knox County Health, Educational and Housing
Facilities Board 5.03(a) 1/01/2037 1,216
11,075 Sullivan County Health Educational & Housing
Facilities Board 5.25 9/01/2036 11,573
---------
29,240
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
TEXAS (18.4%)
$ 19,500 Bell County Health Facilities Dev. Corp. (ETM) 6.50% 7/01/2019 $ 22,953
1,520 Bexar County 5.00 7/01/2033 1,540
1,795 Bexar County 5.00 7/01/2037 1,816
6,000 Central Texas Regional Mobility Auth. 5.75 1/01/2031 6,797
2,500 Central Texas Regional Mobility Auth. 5.00 1/01/2042 2,612
1,000 Clifton Higher Education Finance Corp. 6.00 8/15/2033 1,186
2,500 Clifton Higher Education Finance Corp. (NBGA)(f) 5.00 8/15/2039 2,848
2,750 Clifton Higher Education Finance Corp. 6.00 8/15/2043 3,251
5,000 Cypress-Fairbanks ISD (NBGA) 5.00 2/15/2035 5,454
4,000 Dallas/Fort Worth International Airport 5.00 11/01/2034 4,431
1,250 Decatur Hospital Auth. 5.25 9/01/2044 1,300
12,100 Denton ISD (NBGA) 5.16(a) 8/15/2028 6,375
13,885 Denton ISD (NBGA) 5.18(a) 8/15/2029 6,932
11,220 Denton ISD (NBGA) 5.20(a) 8/15/2030 5,329
15,645 Denton ISD (NBGA) 5.22(a) 8/15/2031 7,003
5,000 Duncanville ISD (NBGA) 4.63 2/15/2029 5,122
2,240 Eagle Mountain-Saginaw ISD (NBGA) 4.50 8/15/2033 2,352
9,155 Ennis ISD (NBGA) 4.70(a) 8/15/2034 3,724
9,155 Ennis ISD (NBGA) 4.71(a) 8/15/2035 3,541
9,000 Fort Worth 6.00 3/01/2029 10,566
8,085 Fort Worth 6.25 3/01/2033 9,533
3,885 Guadalupe-Blanco River Auth. (INS) 5.00 5/15/2039 4,210
795 Harlandale ISD (PRE) 4.75 8/15/2036 861
2,205 Harlandale ISD 4.75 8/15/2036 2,332
4,900 Harris County 4.75 10/01/2031 5,228
4,000 Harris County Education Facilities Finance Corp. 5.25 10/01/2029 4,613
6,100 Harris County Education Facilities Finance Corp. 5.00 6/01/2038 6,490
1,500 Harris County Health Facilities Dev. Corp. (PRE) 7.25 12/01/2035 1,885
7,000 Harris County IDC 5.00 2/01/2023 7,609
1,000 Hopkins County Hospital District 5.75 2/15/2028 1,022
12,500 Houston Airport System 5.50 7/01/2034 14,256
10,000 Houston Higher Education Finance Corp. 5.00 9/01/2042 10,718
22,000 Houston ISD (NBGA) 5.00 2/15/2033 23,884
2,390 Irving 5.00 8/15/2043 2,460
5,000 Irving ISD (NBGA) 5.38(a) 2/15/2028 2,589
22,000 Judson ISD (NBGA)(c) 4.50 2/01/2035 22,791
3,000 Laredo CCD (INS) 5.25 8/01/2035 3,292
5,300 Matagorda County 6.30 11/01/2029 6,086
3,615 Matagorda County 4.00 6/01/2030 3,661
6,000 Matagorda County 4.00 6/01/2030 6,077
4,235 Mesquite Health Facilities Dev. Corp. 5.63 2/15/2035 4,283
740 Midlothian Dev. Auth. 5.13 11/15/2026 751
5,000 North Fort Bend Water Auth. 5.00 12/15/2036 5,446
================================================================================
28 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 3,000 North Texas Tollway Auth. 5.63% 1/01/2028 $ 3,340
15,000 North Texas Tollway Auth. 5.63 1/01/2033 16,696
5,000 North Texas Tollway Auth. 5.63 1/01/2033 5,565
15,000 North Texas Tollway Auth. 5.75 1/01/2033 16,730
3,000 North Texas Tollway Auth. 7.55(a) 9/01/2037 988
12,500 North Texas Tollway Auth. 5.75 1/01/2040 13,979
1,000 San Leanna Education Facilities Corp. 5.13 6/01/2026 1,044
1,815 San Leanna Education Facilities Corp. 5.13 6/01/2027 1,891
6,025 San Leanna Education Facilities Corp. 4.75 6/01/2032 6,149
2,395 San Leanna Education Facilities Corp. 5.13 6/01/2036 2,464
7,205 Schertz - Cibolo - Universal City ISD (NBGA) (PRE) 5.09(a) 2/01/2033 2,883
6,200 Schertz - Cibolo - Universal City ISD (NBGA) (PRE) 5.11(a) 2/01/2035 2,233
180 State (PRE) 4.50 4/01/2033 198
4,820 State 4.50 4/01/2033 5,167
18,530 State Turnpike Auth. (INS) 5.25(a) 8/15/2030 9,416
1,100 Tarrant County Cultural Education
Facilities Finance Corp. 6.00 11/15/2026 1,146
6,315 Tarrant County Cultural Education
Facilities Finance Corp. 5.63 11/15/2027 6,514
4,000 Tarrant County Cultural Education
Facilities Finance Corp. 6.00 11/15/2036 4,123
15,000 Tarrant County Cultural Education
Facilities Finance Corp. 5.13 5/15/2037 15,085
4,000 Tarrant County Cultural Education
Facilities Finance Corp. 5.75 11/15/2037 4,080
3,850 Transportation Commission 5.00 8/15/2041 4,152
22,000 Tyler Health Facilities Dev. Corp. 5.25 11/01/2032 22,790
10,000 Tyler Health Facilities Dev. Corp. 5.00 7/01/2033 10,263
1,230 Tyler Health Facilities Dev. Corp. 5.38 11/01/2037 1,274
1,000 Uptown Dev. Auth. 5.50 9/01/2029 1,092
3,000 Weatherford ISD (NBGA) 4.83(a) 2/15/2027 1,699
2,500 Weatherford ISD (NBGA) 4.84(a) 2/15/2028 1,347
6,360 West Harris County Regional Water Auth. (INS) 4.70 12/15/2030 6,616
4,770 Wood County Central Hospital District 6.00 11/01/2041 5,332
---------
429,465
---------
VIRGINIA (1.6%)
11,280 College Building Auth. 5.00 6/01/2026 11,564
5,000 College Building Auth. 5.00 6/01/2029 5,101
880 College Building Auth. (PRE) 5.00 6/01/2036 949
1,437 Farms of New Kent Community Dev.
Auth., acquired 10/23/2007; cost $1,337(g),(h),(i) 5.13 3/01/2036 719
8,665 Farms of New Kent Community Dev. Auth.,
acquired 9/08/2006-10/11/2007; cost $8,323(g),(h),(i) 5.45 3/01/2036 4,332
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,000 Farms of New Kent Community Dev.
Auth., acquired 11/15/2007; cost $1,870(g),(h),(i) 5.80% 3/01/2036 $ 1,000
3,776 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 3,128
1,855 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,836
5,934 Lewistown Commerce Center Community Dev. Auth.,
acquired 10/12/2007; cost $5,934(g) 6.05 3/01/2054 586
5,000 Small Business Financing Auth. 5.25 9/01/2037 5,203
2,203 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 2,219
---------
36,637
---------
WASHINGTON (0.1%)
2,500 Health Care Facilities Auth. (INS) 6.00 8/15/2039 2,874
---------
WEST VIRGINIA (0.2%)
2,500 Univ. Board of Governors (INS) 5.00 10/01/2027 2,501
2,500 Univ. Board of Governors (INS) 5.00 10/01/2028 2,500
---------
5,001
---------
WISCONSIN (1.2%)
5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,807
10,600 Health & Educational Facilities Auth. 5.38 2/15/2034 10,825
2,500 Health & Educational Facilities Auth. 5.38 8/15/2037 2,757
7,800 Kaukauna (INS) 5.00 12/15/2035 8,492
---------
27,881
---------
WYOMING (0.5%)
2,360 Municipal Power Agency 5.50 1/01/2033 2,627
2,300 Municipal Power Agency 5.50 1/01/2038 2,560
6,000 Sweetwater County 5.25 7/15/2026 6,900
---------
12,087
---------
Total Fixed-Rate Instruments (cost: $2,082,545) 2,225,308
---------
PUT BONDS (1.9%)
ARIZONA (0.2%)
5,000 Health Facilities Auth. 1.89(j) 2/01/2048 5,056
---------
FLORIDA (0.2%)
4,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 4,573
---------
LOUISIANA (0.3%)
6,750 St. Charles Parish 4.00 12/01/2040 7,223
---------
MONTANA (0.2%)
4,000 Forsyth 3.90 3/01/2031 4,166
---------
OHIO (0.1%)
2,400 Water Dev. Auth. 2.25 8/01/2029 2,399
---------
================================================================================
30 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PENNSYLVANIA (0.8%)
$ 3,000 Beaver County IDA 2.20% 1/01/2035 $ 3,036
8,250 Beaver County IDA 2.70 4/01/2035 8,359
6,000 Beaver County IDA 3.50 12/01/2035 6,166
---------
17,561
---------
WEST VIRGINIA (0.1%)
2,000 EDA 5.38(j) 12/01/2038 2,194
---------
Total Put Bonds (cost: $41,412) 43,172
---------
ADJUSTABLE-RATE NOTES (0.9%)
NEW JERSEY (0.9%)
20,000 EDA (cost: $20,000) 1.64 3/01/2028 19,997
---------
VARIABLE-RATE DEMAND NOTES (0.9%)
CALIFORNIA (0.6%)
13,800 Educational Facilities Auth.
(LOC - Santander Bank, N.A.) 0.69 11/01/2042 13,800
---------
TEXAS (0.0%)
1,000 Port of Port Arthur Navigation District 0.17 12/01/2039 1,000
---------
VIRGINIA (0.3%)
2,835 Alexandria IDA (LOC - PNC Bank, N.A.) 0.05 6/01/2025 2,835
3,200 Madison County IDA (LOC - SunTrust Bank) 0.09 10/01/2037 3,200
----------
6,035
----------
Total Variable-Rate Demand Notes (cost: $20,835) 20,835
----------
TOTAL INVESTMENTS (COST: $2,164,792) $2,309,312
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $2,225,308 $- $2,225,308
Put Bonds - 43,172 - 43,172
Adjustable-Rate Notes - 19,997 - 19,997
Variable-Rate Demand Notes - 20,835 - 20,835
-------------------------------------------------------------------------------------------------------------
Total $- $2,309,312 $- $2,309,312
-------------------------------------------------------------------------------------------------------------
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.
================================================================================
32 | USAA TAX EXEMPT LONG-TERM 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) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(b) Stepped-coupon security that is initially issued in zero-coupon
form and converts to coupon form at the specified date and rate shown
in the security's description. The rate presented in the coupon rate
column represents the effective yield at the date of purchase.
(c) At September 30, 2014, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(d) Pay-in-kind (PIK) - Security in which the issuer will have or has
the option to make all or a portion of the interest or dividend
payments in additional securities.
(e) Up to 6.05% of the 7.06% coupon may be payable in PIK.
(f) At September 30, 2014, the aggregate market value of securities
purchased on a delayed-delivery and/or when-issued basis was
$12,324,000.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
(g) Security deemed illiquid by the 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 $17,027,000,
which represented 0.7% of the Fund's net assets.
(h) 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 $6,051,000, which represented 0.3%
of the Fund's net assets.
(i) At September 30, 2014, the issuer was in default with respect to
interest and/or principal payments.
(j) Variable-rate or floating-rate security - interest rate is
adjusted periodically. The interest rate disclosed represents the
rate at September 30, 2014.
See accompanying notes to financial statements.
================================================================================
34 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,164,792) $2,309,312
Cash 10,364
Receivables:
Capital shares sold 915
USAA Asset Management Company (Note 6C) 1
Interest 30,676
Securities sold 1,604
----------
Total assets 2,352,872
----------
LIABILITIES
Payables:
Securities purchased 13,820
Capital shares redeemed 983
Dividends on capital shares 1,846
Accrued management fees 619
Accrued transfer agent's fees 26
Other accrued expenses and payables 4,553
----------
Total liabilities 21,847
----------
Net assets applicable to capital shares outstanding $2,331,025
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,248,944
Undistributed net investment income 34
Accumulated net realized loss on investments (62,473)
Net unrealized appreciation of investments 144,520
----------
Net assets applicable to capital shares outstanding $2,331,025
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,321,197/169,210 shares outstanding) $ 13.72
==========
Adviser Shares (net assets of $9,828/717 shares outstanding) $ 13.70
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $55,528
-------
EXPENSES
Management fees 3,886
Administration and servicing fees:
Fund Shares 1,728
Adviser Shares 7
Transfer agent's fees:
Fund Shares 444
Adviser Shares 1
Distribution and service fees (Note 6E):
Adviser Shares 12
Custody and accounting fees:
Fund Shares 138
Adviser Shares 1
Postage:
Fund Shares 21
Shareholder reporting fees:
Fund Shares 17
Trustees' fees 11
Registration fees:
Fund Shares 39
Adviser Shares 15
Professional fees 73
Other 22
-------
Total expenses 6,415
Expenses reimbursed:
Adviser Shares (12)
-------
Net expenses 6,403
-------
NET INVESTMENT INCOME 49,125
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Unaffiliated transactions (5,767)
Affiliated transactions (Note 8) (12)
Change in net unrealized appreciation/depreciation 50,823
-------
Net realized and unrealized gain 45,044
-------
Increase in net assets resulting from operations $94,169
=======
See accompanying notes to financial statements.
================================================================================
36 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended September 30, 2014 (unaudited), and year ended March 31,
2014
-------------------------------------------------------------------------------------------------------------
9/30/2014 3/31/2014
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 49,125 $ 108,207
Net realized loss on investments (5,779) (46,118)
Change in net unrealized appreciation/depreciation
of investments 50,823 (53,979)
--------------------------
Increase in net assets resulting from
operations 94,169 8,110
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (48,409) (107,764)
Adviser Shares (183) (227)
--------------------------
Distributions of net investment income (48,592) (107,991)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 24,568 (486,883)
Adviser Shares 2,516 550
--------------------------
Total net increase (decrease) in net assets from
capital share transactions 27,084 (486,333)
--------------------------
Capital contribution from USAA Transfer
Agency Company - 11
--------------------------
Net increase (decrease) in net assets 72,661 (586,203)
NET ASSETS
Beginning of period 2,258,364 2,844,567
--------------------------
End of period $2,331,025 $2,258,364
==========================
Undistributed (overdistribution of)
net investment income:
End of period $ 34 $ (499)
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
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
Tax Exempt Long-Term Fund (the Fund), which is classified as diversified under
the 1940 Act. The Fund's investment objective is to provide investors with
interest income that is exempt from federal income tax.
The Fund consists of two classes of shares: Tax Exempt Long-Term Fund Shares
(Fund Shares) and Tax Exempt Long-Term Fund Adviser Shares (Adviser Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a specific
class, income, and realized gains or losses on investments are allocated to each
class of shares based on each class's relative net assets. Each class has
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to both classes. The Adviser Shares permit
investors to purchase shares through financial intermediaries, 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
================================================================================
38 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
Board oversight, the Committee administers and oversees the Fund's
valuation policies and procedures which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a
wide variety of sources and information to establish and adjust the fair
value of securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager). Among other things, these monthly meetings include
a review and analysis of back testing reports, pricing service quotation
comparisons, illiquid securities and fair value determinations, pricing
movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on
the New York Stock Exchange (NYSE) on each business day the NYSE is open)
as set forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are not
readily available. The Service generally prices these securities based
on methods that include consideration of yields or prices of tax-exempt
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
3. Securities for which market quotations are not readily available or
are considered unreliable, or whose values have been materially affected
by events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager, an affiliate of the Fund, under
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
the Fund's net asset value (NAV) to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
================================================================================
40 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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, put bonds, and adjustable-rate notes which
are valued based on methods discussed in Note 1A1 and variable-rate demand
notes which are valued at amortized cost.
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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
$13,820,000; all of which were when-issued securities, including
$1,593,000 of commitments sold prior to September 30, 2014.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's
custodian and other banks utilized by the Fund for cash management
purposes, realized credits, if any, generated from cash balances in the
Fund's bank accounts may be used to directly reduce the Fund's expenses.
For the six-month period ended September 30, 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
================================================================================
42 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 $6,000, which represents 3.4% 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.
(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 $56,694,000, for federal income
tax purposes. It is unlikely that the Board will authorize a distribution
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 $10,662,000
Long-Term 46,032,000
-----------
Total $56,694,000
===========
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.
(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
$85,011,000 and $72,829,000, 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 $180,914,000 and $36,394,000, respectively, resulting in net
unrealized appreciation of $144,520,000.
================================================================================
44 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(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 6,782 $ 92,492 14,855 $ 197,834
Shares issued from reinvested
dividends 2,623 35,879 6,223 82,685
Shares redeemed (7,611) (103,803) (57,619) (767,402)
--------------------------------------------------
Net increase (decrease) from
capital share transactions 1,794 $ 24,568 (36,541) $(486,883)
==================================================
ADVISER SHARES:
Shares sold 236 $ 3,211 187 $ 2,494
Shares issued from reinvested
dividends 5 72 2 29
Shares redeemed (56) (767) (147) (1,973)
--------------------------------------------------
Net increase from capital
share transactions 185 $ 2,516 42 $ 550
==================================================
(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 at an annualized rate of 0.28% of the Fund's average net assets for
the fiscal year.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
The performance adjustment is calculated separately for each share class
on a monthly basis by comparing each class's performance to that of the
Lipper General Municipal Debt Funds Index over the performance period. The
Lipper General Municipal Debt Index tracks the total return performance of
the 30 largest funds in the Lipper General & Insured Municipal Debt Funds
category. The performance period for each class consists of the current
month plus the previous 35 months. The 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.
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 General Municipal Debt Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended September 30, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $3,886,000,
================================================================================
46 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
which included a performance adjustment for the Fund Shares and Adviser
Shares of $646,000 and $1,000, respectively. For the Fund Shares and
Adviser Shares, the performance adjustments were 0.06% and 0.02%,
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 $1,728,000 and $7,000, 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 $29,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
statement of operations.
C. EXPENSE LIMITATION - The Manager agreed, through August 1, 2015, to
limit the total annual operating expenses of the Adviser Shares to 0.80% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and will reimburse the Adviser
Shares for all expenses in excess of that amount. This expense limitation
arrangement may not be changed or terminated through August 1, 2015,
without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. Prior to August 1, 2014, the Adviser
Shares, expense limitation was 0.85% of average net assets. For the
six-month period ended September 30, 2014, the Adviser Shares incurred
reimbursable expenses of $12,000, of which $1,000 was receivable from the
Manager.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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 $444,000
and $1,000, 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 $12,000.
F. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no commissions or fees for this
service.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At September 30,
2014, USAA and its affiliates owned 377,000 shares, which represent 52.6% of the
Adviser Shares and 0.2% of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
48 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(8) 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 Fund at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO LOSS TO
SELLER PURCHASER PURCHASER SELLER
--------------------------------------------------------------------------------
USAA Tax Exempt USAA Virginia
Long-Term Bond Fund Bond Fund $4,144,000 $(12,000)
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(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 $ 13.45 $ 13.91 $ 13.50 $ 12.16 $ 12.83 $ 11.59
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .29 .56 .54 .59 .62 .65
Net realized and
unrealized gain (loss) .27 (.46) .41 1.36 (.63) 1.24
--------------------------------------------------------------------------------
Total from investment
operations .56 .10 .95 1.95 (.01) 1.89
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.56) (.54) (.59) (.62) (.65)
Realized capital gains - - - (.02) (.04) (.00)(a)
Total distributions (.29) (.56) (.54) (.61) (.66) (.65)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 13.72 $ 13.45 $ 13.91 $ 13.50 $ 12.16 $ 12.83
================================================================================
16.59(b)
Total return (%)* 4.17 .83 7.11 16.30 (.19)
Net assets at end
of period (000) $2,321,197 $2,251,219 $2,837,758 $2,588,782 $2,170,450 $2,344,007
Ratios to average
net assets:**
Expenses (%)(c) .55(d) .45(b)
.54 .53 .52 .47
Net investment
income (%) 4.25(d) 4.19 3.89 4.54 4.84 5.21
Portfolio turnover (%) 3 7 14 9 15 8
* 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 $2,298,512,000.
(a) Represents less than $0.01 per share.
(b) During the year ended March 31, 2010, SAS reimbursed the Fund Shares
$102,000 for corrections in fees paid for the administration and servicing
of certain accounts. The effect of this reimbursement on the Fund Shares'
total return was less than 0.01%. The reimbursement decreased the Fund
Shares' expense ratio by less than 0.01%. This decrease is excluded from
the expense ratio in the Financial Highlights table.
(c) Reflects total 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%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
50 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH PERIOD
PERIOD ENDED ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
--------------------------------------------------------------------------------
2014 2014 2013 2012 2011***
--------------------------------------------------------------------------------
Net asset value at
beginning of period $13.43 $13.91 $13.50 $12.16 $13.02
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .27 .51 .49 .55 .37
Net realized and
unrealized gain (loss) .27 (.47) .41 1.36 (.82)
----------------------------------------------------------------------------
Total from investment
operations .54 .04 .90 1.91 (.45)
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.27) (.52) (.49) (.55) (.37)
Realized capital gains - - - (.02) (.04)
----------------------------------------------------------------------------
Total distributions (.27) (.52) (.49) (.57) (.41)
----------------------------------------------------------------------------
Net asset value at
end of period $13.70 $13.43 $13.91 $13.50 $12.16
============================================================================
Total return (%)* 4.03 .37 6.77 15.92 (3.49)
Net assets at end
of period (000) $9,828 $7,145 $6,809 $5,870 $4,586
Ratios to average
net assets:**
Expenses (%)(b),(c) .83(a) .85(a)
.85 .85 .85
Expenses, excluding
reimbursements (%)(c) 1.08(a) 1.53(a)
1.07 1.11 1.32
Net investment income (%) 3.95(a) 3.88 3.56 4.20 4.47(a)
Portfolio turnover (%) 3 7 14 9 15
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended September 30, 2014, average net assets
were $9,325,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Effective August 1, 2014, the Manager voluntarily agreed to reimburse
the Adviser Shares for expenses in excess of 0.80% of their annual average
net assets. Prior to August 1, 2014, the Manager voluntarily agreed to
reimburse the Adviser Shares for expenses in excess of 0.85% of their
annual average net assets.
(c) Reflects total annual 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%.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
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, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 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 actual
ending account balance or expenses you paid for the period. You may
================================================================================
52 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 $1,041.70 $2.82
Hypothetical
(5% return before expenses) 1,000.00 1,022.31 2.79
ADVISER SHARES
Actual 1,000.00 1,040.30** 4.25**
Hypothetical
(5% return before expenses) 1,000.00 1,020.91** 4.20**
* Expenses are equal to the annualized expense ratio of 0.55% 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 4.17% for Fund Shares and 4.03% for Adviser Shares for the
six-month period of April 1, 2014, through September 30, 2014.
** The Fund's annualized expense ratio of 0.83% for Adviser Shares above
reflects a change effective August 1, 2014, in the Manager's voluntary
expense limitation for the Adviser Shares from 0.85% to 0.80% of the Fund's
annual net assets. Had the expense limitation of 0.80% been in effect for
the entire six-month period of April 1, 2014, through September 30, 2014,
the values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2014 -
APRIL 1, 2014 SEPTEMBER 30, 2014 SEPTEMBER 30, 2014
---------------------------------------------------------------
ADVISER SHARES
Actual $1,000.00 $1,040.30 $4.09
HYPOTHETICAL
(5% return before expenses) 1,000.00 1,021.06 4.05
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
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 performance,
================================================================================
54 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
comparability of fees and total expenses, and profitability. However, the Board
noted that the evaluation process with respect to the Manager is an ongoing one.
In this regard, the Board's and its committees' consideration of the Advisory
Agreement included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of 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 its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered.
================================================================================
ADVISORY AGREEMENT | 55
================================================================================
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 below the median of its
expense group and its expense universe. The data indicated that the Fund's total
expense ratio was below the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the high quality of services
provided by the
================================================================================
56 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
Manager. The Board also noted the level and method of computing the management
fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution.This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three-, and five-year periods ended December 31, 2013. The
Board also noted that the Fund's percentile performance ranking was in the top
20% of its performance universe for the one- and five-year periods ended
December 31, 2013, and was in the top 10% of its performance universe for the
three-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. 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
================================================================================
ADVISORY AGREEMENT | 57
================================================================================
Board also took into account the high quality of services received by the Fund
from the Manager. The Trustees recognized that the Manager should be entitled to
earn a reasonable level of profits in exchange for the level of services it
provides to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the effect of the
Fund's growth and size on its performance and fees, noting that if the Fund's
assets increase over time, the Fund may realize other economies of scale if
assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund is reasonable in light of the
nature and high quality of the services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
58 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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.
211741-1114
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on usaa.com select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
39596-1114 (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.