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 INTERMEDIATE-TERM FUND]
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SEMIANNUAL REPORT
USAA TAX EXEMPT INTERMEDIATE-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 39
Financial Statements 41
Notes to Financial Statements 44
EXPENSE EXAMPLE 57
ADVISORY AGREEMENT(S) 59
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 INTERMEDIATE-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 between three and 10 years.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF REGINA G. SHAFER] [PHOTO OF DIEDERIK OLIJSLAGER]
REGINA G. SHAFER, CFA DIEDERIK OLIJSLAGER
USAA Asset Management Company USAA Asset Management Company
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o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period, supported
by an imbalance in supply and demand. New issuances of tax-exempt bonds
remained extremely light - well below historical norms - throughout the
period as state and local governments hesitated to take on new debt.
Meanwhile, demand was strong as investors sought higher-yielding securities
and continued to favor municipal securities for their tax advantage. At the
same time, geopolitical worries drove a flight to quality assets.
Municipal bond prices also benefited from strength in the U.S. Treasury
market; the municipal bond market tends to follow the U.S. Treasury market
over time. Intermediate-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, intermediate-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 INTERMEDIATE-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 INTERMEDIATE-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 3.22% and 3.10%, respectively, versus an
average return of 2.99% amongst the funds in the Lipper Intermediate
Municipal Debt Funds category. This compares to returns of 3.12% for the
Lipper Intermediate Municipal Debt Funds Index and 4.12% for the Barclays
Municipal Bond Index. The Fund Shares' and Adviser Shares' tax-exempt
distributions over the prior 12 months produced a dividend yield of 3.53%
and 3.32%, respectively, compared to the Lipper category average of 2.35%.
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 page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates
rise, bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
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MANAGERS' COMMENTARY ON THE FUND | 3
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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 500 municipal bonds, primarily of investment-grade
quality. 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 INTERMEDIATE-TERM FUND
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INVESTMENT OVERVIEW
USAA TAX EXEMPT INTERMEDIATE-TERM FUND SHARES
(FUND SHARES) (Ticker Symbol: USATX)
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9/30/14 3/31/14
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Net Assets $3.6 Billion $3.4 Billion
Net Asset Value Per Share $13.56 $13.36
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.479 $0.496
Dollar-Weighted Average
Portfolio Maturity(+) 8.7 Years 8.6 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
3.22% 6.63% 4.92% 4.48%
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30-DAY SEC YIELD AS OF 9/30/14** EXPENSE RATIO AS OF 3/31/14***
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1.78% 0.55%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated August 1, 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 4.48% = 4.26% + 0.22%
5 YEARS 4.92% = 4.05% + 0.87%
1 YEAR 6.63% = 3.75% + 2.88%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS
ENDED SEPTEMBER 30, 2005-SEPTEMBER 30, 2014
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
9/30/05 3.33% 4.22% -0.89%
9/30/06 4.37% 4.28% 0.09%
9/30/07 2.43% 4.21% -1.78%
9/30/08 -2.92% 4.29% -7.21%
9/30/09 13.72% 5.44% 8.28%
9/30/10 6.35% 4.52% 1.83%
9/30/11 3.93% 4.41% -0.48%
9/30/12 8.34% 4.07% 4.27%
9/30/13 -0.43% 3.51% -3.94%
9/30/14 6.63% 3.75% 2.88%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER
TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A
RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
distributions or the redemption of shares.
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6 | USAA TAX EXEMPT INTERMEDIATE-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 4.26% 5.92% 6.74% 6.96% 7.53%
5 Years 4.05% 5.63% 6.41% 6.62% 7.16%
1 Year 3.75% 5.21% 5.93% 6.13% 6.63%
To match the Fund Shares' closing 30-day SEC Yield of 1.78% on 9/30/2014,
A FULLY TAXABLE INVESTMENT MUST PAY: 2.47% 2.82% 2.91% 3.14%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
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Some income may be subject to federal, state, or local taxes, but not the
federal alternative minimum tax. Based on 2013 tax rates or rates in effect as
of the issuance of this report. The above marginal rates assume married, filing
jointly.
* The above marginal rates assume income exceeds $250,000 and investment income
is subject to the 3.80% medicare tax, which is applied for income over a
specific level, depending on the federal income tax filing status.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS USAA TAX EXEMPT LIPPER INTERMEDIATE
MUNICIPAL INTERMEDIATE-TERM MUNICIPAL DEBT
BOND INDEX FUND SHARES FUNDS INDEX
09/30/04 10,000.00 10,000.00 10,000.00
10/31/04 10,086.05 10,072.62 10,054.00
11/30/04 10,002.86 9,980.29 9,973.10
12/31/04 10,125.01 10,101.21 10,070.63
01/31/05 10,219.64 10,187.49 10,114.26
02/28/05 10,185.64 10,155.00 10,070.95
03/31/05 10,121.40 10,068.36 9,996.53
04/30/05 10,281.02 10,227.35 10,127.78
05/31/05 10,353.68 10,300.02 10,185.49
06/30/05 10,417.92 10,351.04 10,235.74
07/31/05 10,370.83 10,293.60 10,181.17
08/31/05 10,475.54 10,398.69 10,268.40
09/30/05 10,404.98 10,335.35 10,215.68
10/31/05 10,341.80 10,274.91 10,162.44
11/30/05 10,391.44 10,326.28 10,203.14
12/31/05 10,480.80 10,413.41 10,273.31
01/31/06 10,509.09 10,439.08 10,299.79
02/28/06 10,579.64 10,515.27 10,344.36
03/31/06 10,506.68 10,442.70 10,283.49
04/30/06 10,503.07 10,421.09 10,280.09
05/31/06 10,549.85 10,473.89 10,328.45
06/30/06 10,510.14 10,432.78 10,287.95
07/31/06 10,635.15 10,556.20 10,395.04
08/31/06 10,792.96 10,706.83 10,530.23
09/30/06 10,868.03 10,786.11 10,592.49
10/31/06 10,936.18 10,838.72 10,642.01
11/30/06 11,027.35 10,925.57 10,707.74
12/31/06 10,988.38 10,886.97 10,670.65
01/31/07 10,960.25 10,872.72 10,647.98
02/28/07 11,104.67 11,010.01 10,761.56
03/31/07 11,077.29 10,974.40 10,750.97
04/30/07 11,110.09 11,011.30 10,778.45
05/31/07 11,060.90 10,957.55 10,736.55
06/30/07 11,003.58 10,896.60 10,696.05
07/31/07 11,088.88 10,959.23 10,764.58
08/31/07 11,041.04 10,875.57 10,757.02
09/30/07 11,204.42 11,047.03 10,887.07
10/31/07 11,254.36 11,086.74 10,917.87
11/30/07 11,326.12 11,120.77 10,991.90
12/31/07 11,357.56 11,095.05 11,012.74
01/31/08 11,500.78 11,247.16 11,192.48
02/29/08 10,974.24 10,712.12 10,791.57
03/31/08 11,287.91 11,021.89 11,022.41
04/30/08 11,420.00 11,133.82 11,084.49
05/31/08 11,489.05 11,221.22 11,150.53
06/30/08 11,359.37 11,112.59 11,040.02
07/31/08 11,402.54 11,110.65 11,089.70
08/31/08 11,535.98 11,234.07 11,209.67
09/30/08 10,995.00 10,724.09 10,789.65
10/31/08 10,882.78 10,449.45 10,667.44
11/30/08 10,917.38 10,410.06 10,686.67
12/31/08 11,076.54 10,281.94 10,762.24
01/31/09 11,481.98 10,825.39 11,198.83
02/28/09 11,542.30 10,870.51 11,153.25
03/31/09 11,544.41 10,887.10 11,146.07
04/30/09 11,775.03 11,152.19 11,335.31
05/31/09 11,899.59 11,408.45 11,463.82
06/30/09 11,788.12 11,314.47 11,372.77
07/31/09 11,985.34 11,529.42 11,561.25
08/31/09 12,190.24 11,711.18 11,682.90
09/30/09 12,627.72 12,195.45 12,017.99
10/31/09 12,362.65 11,997.01 11,781.03
11/30/09 12,464.79 12,114.23 11,960.98
12/31/09 12,506.92 12,161.39 11,984.55
01/31/10 12,572.06 12,240.36 12,049.95
02/28/10 12,693.91 12,361.54 12,168.38
03/31/10 12,663.53 12,310.54 12,102.86
04/30/10 12,817.42 12,464.22 12,219.01
05/31/10 12,913.56 12,554.69 12,302.12
06/30/10 12,921.23 12,552.15 12,304.75
07/31/10 13,082.35 12,705.90 12,464.30
08/31/10 13,381.87 12,973.40 12,716.28
09/30/10 13,360.96 12,969.35 12,674.73
10/31/10 13,323.95 12,926.53 12,644.29
11/30/10 13,057.53 12,696.91 12,454.58
12/31/10 12,804.49 12,505.89 12,274.20
01/31/11 12,710.16 12,400.69 12,208.45
02/28/11 12,912.50 12,616.86 12,382.67
03/31/11 12,869.48 12,592.67 12,346.97
04/30/11 13,099.95 12,791.80 12,534.23
05/31/11 13,323.80 12,988.18 12,710.53
06/30/11 13,370.29 13,065.07 12,740.72
07/31/11 13,506.74 13,192.86 12,855.01
08/31/11 13,737.81 13,361.70 13,027.22
09/30/11 13,879.83 13,481.52 13,082.37
10/31/11 13,828.23 13,443.18 13,030.20
11/30/11 13,909.91 13,541.09 13,127.73
12/31/11 14,174.54 13,777.29 13,360.76
01/31/12 14,502.34 14,088.42 13,614.93
02/29/12 14,516.64 14,091.13 13,618.86
03/31/12 14,422.31 14,011.20 13,506.09
04/30/12 14,588.70 14,180.03 13,657.46
05/31/12 14,709.80 14,298.75 13,742.45
06/30/12 14,694.00 14,302.59 13,719.35
07/31/12 14,926.88 14,482.79 13,898.08
08/31/12 14,943.88 14,520.65 13,911.67
09/30/12 15,034.15 14,603.17 13,991.97
10/31/12 15,076.57 14,657.86 14,021.83
11/30/12 15,324.95 14,909.09 14,219.36
12/31/12 15,135.54 14,767.62 14,060.19
01/31/13 15,198.58 14,830.43 14,102.48
02/28/13 15,244.61 14,916.50 14,157.51
03/31/13 15,178.87 14,894.26 14,113.55
04/30/13 15,345.25 15,024.02 14,238.63
05/31/13 15,157.81 14,882.47 14,066.83
06/30/13 14,728.60 14,511.68 13,733.24
07/31/13 14,599.83 14,458.41 13,689.61
08/31/13 14,391.47 14,296.29 13,543.36
09/30/13 14,701.22 14,540.49 13,778.59
10/31/13 14,817.36 14,653.10 13,881.61
11/30/13 14,786.82 14,623.70 13,842.25
12/31/13 14,749.06 14,614.80 13,817.23
01/31/14 15,036.40 14,860.79 14,028.40
02/28/14 15,212.72 14,997.21 14,160.28
03/31/14 15,238.29 15,020.20 14,132.84
04/30/14 15,421.38 15,164.95 14,276.67
05/31/14 15,619.96 15,320.70 14,418.85
06/30/14 15,633.50 15,318.59 14,411.72
07/31/14 15,661.03 15,350.56 14,435.01
08/31/14 15,850.73 15,484.39 14,567.97
09/30/14 15,866.83 15,503.87 14,574.41
[END CHART]
Data from 9/30/04 through 9/30/14.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Intermediate-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 Intermediate Municipal Debt Funds Index tracks the total
return performance of the 30 largest funds within the Lipper Intermediate
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 INTERMEDIATE-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER INTERMEDIATE
INTERMEDIATE-TERM FUND SHARES MUNICIPAL DEBT FUNDS AVERAGE
09/30/05 4.21 3.33
09/30/06 4.16 3.40
09/30/07 4.25 3.48
09/30/08 4.78 3.62
09/30/09 4.53 3.77
09/30/10 4.26 3.11
09/30/11 4.23 2.89
09/30/12 3.77 2.53
09/30/13 3.70 2.40
09/30/14 3.53 2.35
[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 Intermediate Municipal Debt Funds Average is an average performance
level of all intermediate-term municipal debt funds, reported by Lipper Inc., an
independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA TAX EXEMPT INTERMEDIATE-TERM FUND
ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UTEIX)
--------------------------------------------------------------------------------
9/30/14 3/31/14
--------------------------------------------------------------------------------
Net Assets $30.3 Million $20.2 Million
Net Asset Value Per Share $13.56 $13.36
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.450 $0.468
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/14
--------------------------------------------------------------------------------
3/31/14-9/30/14* 1 YEAR SINCE INCEPTION 8/01/10
3.10% 6.40% 4.68%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 9/30/14**
--------------------------------------------------------------------------------
UNSUBSIDIZED 1.37% SUBSIDIZED 1.53%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/14***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.96% 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 INTERMEDIATE-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day Subsidized SEC Yield of 1.53%
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: 2.13% 2.42% 2.50% 2.70%
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]
BARCLAYS USAA TAX EXEMPT LIPPER INTERMEDIATE
MUNICIPAL INTERMEDIATE-TERM FUND MUNICIPAL DEBT
BOND INDEX ADVISER SHARES FUNDS INDEX
07/31/10 10,000.00 10,000.00 10,000.00
08/31/10 10,228.95 10,207.68 10,202.16
09/30/10 10,212.97 10,202.67 10,168.82
10/31/10 10,184.68 10,167.09 10,144.40
11/30/10 9,981.03 9,984.70 9,992.20
12/31/10 9,787.61 9,832.59 9,847.48
01/31/11 9,715.50 9,748.28 9,794.73
02/28/11 9,870.17 9,916.64 9,934.51
03/31/11 9,837.28 9,895.97 9,905.86
04/30/11 10,013.45 10,050.71 10,056.10
05/31/11 10,184.57 10,203.26 10,197.55
06/30/11 10,220.10 10,261.88 10,221.77
07/31/11 10,324.40 10,360.40 10,313.46
08/31/11 10,501.03 10,491.11 10,451.62
09/30/11 10,609.58 10,583.24 10,495.87
10/31/11 10,570.14 10,551.47 10,454.01
11/30/11 10,632.58 10,626.58 10,532.26
12/31/11 10,834.86 10,810.00 10,719.21
01/31/12 11,085.43 11,052.37 10,923.13
02/29/12 11,096.35 11,052.74 10,926.29
03/31/12 11,024.25 10,988.14 10,835.82
04/30/12 11,151.44 11,118.74 10,957.26
05/31/12 11,244.01 11,209.88 11,025.45
06/30/12 11,231.93 11,210.95 11,006.91
07/31/12 11,409.94 11,350.27 11,150.31
08/31/12 11,422.94 11,377.82 11,161.20
09/30/12 11,491.93 11,440.78 11,225.64
10/31/12 11,524.36 11,481.61 11,249.59
11/30/12 11,714.22 11,676.37 11,408.07
12/31/12 11,569.44 11,563.63 11,280.36
01/31/13 11,617.62 11,610.80 11,314.29
02/28/13 11,652.81 11,676.34 11,358.44
03/31/13 11,602.56 11,656.81 11,323.17
04/30/13 11,729.74 11,764.81 11,423.53
05/31/13 11,586.46 11,643.43 11,285.69
06/30/13 11,258.38 11,351.37 11,018.05
07/31/13 11,159.95 11,307.72 10,983.05
08/31/13 11,000.68 11,178.99 10,865.72
09/30/13 11,237.45 11,368.12 11,054.44
10/31/13 11,326.23 11,454.22 11,137.09
11/30/13 11,302.88 11,429.28 11,105.51
12/31/13 11,274.02 11,420.42 11,085.44
01/31/14 11,493.66 11,610.77 11,254.86
02/28/14 11,628.43 11,715.55 11,360.66
03/31/14 11,647.98 11,731.40 11,338.65
04/30/14 11,787.93 11,842.39 11,454.04
05/31/14 11,939.72 11,961.83 11,568.11
06/30/14 11,950.07 11,958.08 11,562.39
07/31/14 11,971.12 11,980.86 11,581.08
08/31/14 12,116.12 12,082.67 11,687.75
09/30/14 12,128.43 12,095.44 11,692.91
[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 Intermediate-Term Fund Adviser Shares to the benchmarks listed
above (see page 8 for benchmark definitions).
*The performance of the Barclays Municipal Bond Index and the Lipper
Intermediate Municipal Debt Funds Index is calculated from the end of the month,
July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010.
There may be a slight variation of performance numbers because of this
difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
12 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON* o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON*]
USAA TAX EXEMPT LIPPER INTERMEDIATE
INTERMEDIATE-TERM FUND MUNICIPAL DEBT FUNDS
ADVISER SHARES AVERAGE
09/30/11 4.02 2.89
09/30/12 3.57 2.53
09/30/13 3.48 2.40
09/30/14 3.32 2.35
[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 Intermediate Municipal Debt Funds Average is an average performance
level of all intermediate-term 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 ................................................................ 20.8%
Appropriated Debt ....................................................... 10.0%
General Obligation ...................................................... 9.7%
Electric Utilities ...................................................... 9.5%
Special Assessment/Tax/Fee .............................................. 9.0%
Education ............................................................... 7.9%
Airport/Port ............................................................ 5.4%
Toll Roads .............................................................. 4.5%
Electric/Gas Utilities .................................................. 4.0%
Oil & Gas Refining & Marketing .......................................... 3.4%
You will find a complete list of securities that the Fund owns on pages 18-38.
================================================================================
14 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/14 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 5.2%
AA 34.1%
A 36.2%
BBB 20.9%
Below Investment-Grade 1.0%
Unrated 2.6%
[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 18-38.
================================================================================
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.
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured
Guaranty Corp., Assured Guaranty
================================================================================
16 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
Municipal Corp., Build America Mutual Assurance Co., Financial
Guaranty Insurance Co., National Public Finance Guarantee Corp.,
Radian Asset Assurance, Inc., or XL Capital Assurance. Although bond
insurance reduces the risk of loss due to default by an issuer, such
bonds remain subject to the risk that value may fluctuate for other
reasons, and there is no assurance that the insurance company will
meet its obligations.
(LIQ) Liquidity enhancement that may, under certain circumstances,
provide for repayment of principal and interest upon demand
from one of the following: Bank of America, N.A., Bank of
New York Mellon, Citibank, N.A., Dexia Credit Local,
JPMorgan Chase Bank, N.A., Key Bank, N.A., Landesbank
Hessen-Thuringen, or Wells Fargo Bank, N.A.
(LOC) Principal and interest payments are guaranteed by a bank letter
of credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee
agreement from one of the following: Federal Home Loan
Mortgage Corp., Federal Housing Administration, Federal
Housing Association Insured Mortgage Nursing Home, or
Texas Permanent School Fund.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
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 (82.8%)
ALABAMA (0.6%)
$16,340 Montgomery Medical Clinic Board 4.75% 3/01/2026 $ 16,686
5,000 Private Colleges and Universities
Facilities Auth. (INS) 4.75 9/01/2026 5,080
----------
21,766
----------
ARIZONA (2.3%)
20,310 Apache County IDA(a) 4.50 3/01/2030 21,328
6,000 Health Facilities Auth. 5.00 2/01/2027 6,660
2,500 Maricopa County Union High School
District No. 210 (INS) (PRE) 4.50 7/01/2024 2,582
15,000 Mohave County IDA 7.50 5/01/2019 17,092
3,270 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2024 4,061
2,115 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2025 2,630
2,680 Pima County IDA 4.50 6/01/2030 2,818
2,000 Pinal County IDA (INS) 5.25 10/01/2020 2,082
1,250 Pinal County IDA (INS) 5.25 10/01/2022 1,289
2,000 Pinal County IDA (INS) 4.50 10/01/2025 2,017
3,540 State (INS) 5.00 10/01/2019 4,151
7,275 State (INS) 5.25 10/01/2020 8,481
1,535 State Univ. (INS) (PRE) 5.00 9/01/2024 1,566
7,180 Univ. Medical Center Corp. 5.00 7/01/2022 7,341
----------
84,098
----------
ARKANSAS (0.2%)
3,125 Baxter County 5.00 9/01/2026 3,203
4,000 Independence County (INS) 4.90 7/01/2022 4,071
----------
7,274
----------
CALIFORNIA (11.1%)
1,510 Cerritos Community College District 5.02(b) 8/01/2025 1,074
1,000 Cerritos Community College District 5.24(b) 8/01/2027 639
1,000 Cerritos Community College District 5.41(b) 8/01/2028 607
10,000 Chabot-Las Positas Community College District (INS) 4.85(b) 8/01/2022 7,346
5,000 Chabot-Las Positas Community College District (INS) 4.88(b) 8/01/2023 3,494
5,000 City and County of San Francisco Airport Commission 5.25 5/01/2022 5,881
7,000 City and County of San Francisco Airport Commission 5.25 5/01/2023 8,201
5,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 5,751
2,000 Coronado Community Dev. Agency (INS) 5.00 9/01/2024 2,082
6,810 El Camino Community College District 4.25(b) 8/01/2026 4,687
7,665 El Camino Community College District 4.42(b) 8/01/2027 4,995
5,500 El Camino Community College District 4.58(b) 8/01/2028 3,412
================================================================================
18 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$46,605 Golden State Tobacco Securitization Corp. (INS) 4.17%(b) 6/01/2025 $ 33,754
2,475 Health Facilities Financing Auth. 5.13 7/01/2022 2,558
2,000 Health Facilities Financing Auth. 5.00 8/15/2027 2,292
5,000 Health Facilities Financing Auth. 5.25 8/15/2031 5,712
1,000 Irvine City 5.00 9/02/2029 1,101
5,000 Irvine USD Special Tax District (INS) 5.25 9/01/2019 5,843
2,500 Irvine USD Special Tax District (INS) 4.50 9/01/2020 2,796
6,745 Kern County Board of Education (INS) 5.00 6/01/2026 6,933
1,300 Los Angeles County 5.00 3/01/2023 1,546
20,000 Los Angeles Department of Water and
Power (INS) (PRE)(a) 4.75 7/01/2025 20,699
6,400 Public Works Board 5.50 4/01/2021 7,622
6,755 Public Works Board 5.60 4/01/2022 8,005
3,000 Public Works Board 5.13 3/01/2023 3,461
3,130 Public Works Board 5.75 4/01/2023 3,696
1,185 Public Works Board 5.00 11/01/2023 1,413
2,500 Public Works Board 5.25 3/01/2024 2,891
2,000 Public Works Board 5.00 11/01/2024 2,367
1,250 Public Works Board 5.00 3/01/2025 1,481
2,000 Public Works Board 5.38 3/01/2025 2,321
1,365 Public Works Board 5.00 3/01/2026 1,608
10,000 Public Works Board 5.00 4/01/2028 11,445
7,000 Public Works Board 5.00 11/01/2028 8,078
5,000 Public Works Board 5.00 4/01/2029 5,687
11,465 Public Works Board 5.00 10/01/2031 13,332
1,430 Sacramento Financing Auth. (INS) 5.00 12/01/2024 1,501
15,265 Sacramento Municipal Utility District
Financing Auth. (INS) 4.75 7/01/2024 16,226
10,000 Sacramento Municipal Utility District Financing Auth. 5.13 7/01/2029 10,614
4,720 Salinas Union High School District (INS) 4.37(b) 6/01/2016 4,655
2,000 Salinas Union High School District (INS) 4.37(b) 10/01/2016 1,963
3,525 San Bernardino County Redevelopment Agency (INS) 5.00 9/01/2025 3,565
2,395 San Diego USD (INS) 4.50 7/01/2025 2,574
3,000 San Jose USD (INS) (PRE) 4.50 6/01/2024 3,268
7,065 Santa Clara County Financing Auth. (INS) 4.75 5/15/2023 7,538
7,400 Santa Clara County Financing Auth. (INS) 4.75 5/15/2024 7,889
7,750 Santa Clara County Financing Auth. (INS) 4.75 5/15/2025 8,256
2,175 Semitropic Improvement District (INS) (PRE) 5.25 12/01/2018 2,194
2,500 Solano Community College District (INS) 4.85(b) 8/01/2023 1,686
4,735 Solano Community College District (INS) 4.88(b) 8/01/2024 3,021
4,035 South Orange County Public Financing Auth. (INS) 5.00 8/15/2022 4,132
4,920 South Orange County Public Financing Auth. (INS) 5.00 8/15/2025 5,020
20,000 State 5.25 10/01/2022 23,992
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$27,445 State 5.75% 4/01/2027 $ 32,963
10,000 State University 5.00 11/01/2029 11,994
3,120 Statewide Communities Dev. Auth. 5.00 5/15/2021 3,257
3,275 Statewide Communities Dev. Auth. 5.00 5/15/2022 3,400
3,440 Statewide Communities Dev. Auth. 5.00 5/15/2023 3,583
3,610 Statewide Communities Dev. Auth. 5.00 5/15/2024 3,751
3,795 Statewide Communities Dev. Auth. 5.00 5/15/2025 3,935
1,000 Statewide Communities Dev. Auth. 5.13 5/15/2031 1,115
10,085 Tobacco Securitization Auth. 4.75 6/01/2025 9,963
3,470 Tuolumne Wind Project Auth. 5.00 1/01/2022 3,932
10,000 Upland City 6.00 1/01/2026 11,544
2,000 Washington Township Health Care District 5.75 7/01/2024 2,212
3,500 Washington Township Health Care District 5.00 7/01/2025 3,781
----------
408,334
----------
COLORADO (2.9%)
5,000 Adams and Arapahoe Counties Joint School
District No. 28J 3.20(b) 12/01/2022 4,204
4,500 Adams County (INS) 4.38 9/01/2017 4,661
30,955 Denver Health and Hospital Auth. 4.75 12/01/2027 31,684
1,000 Health Facilities Auth. 5.25 6/01/2023 1,040
2,750 Health Facilities Auth. 5.00 6/01/2028 2,981
10,000 Regional Transportation District 5.00 6/01/2025 11,140
7,585 Regional Transportation District 5.00 6/01/2029 8,639
14,175 Regional Transportation District 5.00 6/01/2030 16,087
15,005 Regional Transportation District 5.00 6/01/2031 16,932
9,045 State (INS) (PRE) 5.00 11/01/2023 9,520
----------
106,888
----------
CONNECTICUT (0.3%)
10,000 Health and Educational Facilities Auth. 5.00 7/01/2034 11,082
6,378 Mashantucket (Western) Pequot Tribe,
acquired 7/01/2013; cost $3,750(c),(d) 7.06(e) 7/01/2031 1,470
----------
12,552
----------
DISTRICT OF COLUMBIA (0.9%)
375 District of Columbia 5.00 7/01/2023 431
7,000 District of Columbia (INS) (PRE) 5.00 1/01/2025 7,414
3,870 District of Columbia 5.63 10/01/2025 4,321
5,000 District of Columbia 5.75 10/01/2026 5,588
7,930 District of Columbia (INS) 4.75 5/01/2027 6,333
6,000 District of Columbia 5.75 10/01/2027 6,731
1,280 District of Columbia 6.00 7/01/2033 1,495
----------
32,313
----------
================================================================================
20 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
FLORIDA (9.3%)
$ 5,165 Brevard County School Board (INS) (PRE) 5.00% 7/01/2025 $ 5,471
2,500 Broward County Airport System 5.00 10/01/2024 2,851
6,500 Broward County School Board (INS) 5.00 7/01/2023 6,969
4,000 Broward County School Board (INS) 5.00 7/01/2024 4,283
3,710 Broward County School Board (INS) 5.00 7/01/2025 3,832
3,270 Flagler County School Board (INS) (PRE) 5.00 8/01/2025 3,401
8,000 Hillsborough County IDA 5.65 5/15/2018 9,183
4,250 Indian River County School Board (INS) 5.00 7/01/2024 4,387
3,500 Jacksonville 5.00 10/01/2028 3,999
5,000 JEA St. Johns River Power Park (INS) 5.00 10/01/2020 5,121
1,250 Lake County School Board (INS) 5.00 6/01/2029 1,434
2,225 Lake County School Board (INS) 5.00 6/01/2030 2,543
2,500 Lee County 5.00 10/01/2023 2,957
2,700 Lee County 5.00 10/01/2024 3,220
7,245 Lee County IDA 5.00 10/01/2028 7,600
10,535 Lee County School Board (INS) (PRE) 5.00 8/01/2027 10,959
3,750 Lee County School Board 5.00 8/01/2028 4,383
6,465 Lee County School Board (INS) (PRE) 5.00 8/01/2028 6,725
6,560 Miami Beach City Health Facilities Auth. 5.00 11/15/2029 7,163
7,500 Miami-Dade County 3.75 12/01/2018 8,086
1,670 Miami-Dade County (INS) (PRE) 5.00 4/01/2022 1,711
2,805 Miami-Dade County (INS) (PRE) 5.00 4/01/2023 2,874
8,375 Miami-Dade County (INS) 4.75 11/01/2023 9,018
2,345 Miami-Dade County (INS) 5.00 10/01/2024 2,572
9,830 Miami-Dade County (INS) 4.75 11/01/2024 10,551
2,000 Miami-Dade County 5.00 10/01/2025 2,344
3,670 Miami-Dade County (INS) 5.00 10/01/2025 4,026
6,440 Miami-Dade County 5.00 10/01/2026 7,294
2,500 Miami-Dade County (INS) 5.00 10/01/2026 2,742
7,000 Miami-Dade County 5.00 10/01/2027 7,895
10,000 Miami-Dade County Expressway Auth. 5.00 7/01/2028 11,289
7,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 7,866
1,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 1,148
2,000 Miami-Dade County Expressway Auth.(f) 5.00 7/01/2030 2,309
1,610 Miami-Dade County Expressway Auth. 5.00 7/01/2030 1,842
2,000 Miami-Dade County Expressway Auth.(f) 5.00 7/01/2031 2,299
1,255 Miami-Dade County Expressway Auth. 5.00 7/01/2031 1,427
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2032 2,263
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2033 2,256
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2034 2,247
4,750 Miami-Dade County Health Facilities Auth. 5.00 8/01/2027 5,318
4,950 Miami-Dade County Health Facilities Auth. 5.00 8/01/2028 5,514
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 5,250 Miami-Dade County Health Facilities Auth. 5.00% 8/01/2029 $ 5,768
3,500 Miami-Dade County Health Facilities Auth. 5.00 8/01/2030 3,835
5,780 Miami-Dade County Health Facilities Auth. 5.00 8/01/2031 6,323
10,000 Miami-Dade County School Board (INS) 5.00 2/01/2024 10,892
12,000 Miami-Dade County School Board (INS) 5.25 5/01/2025 13,447
12,000 Orange County Health Facility Auth. 5.25 10/01/2022 13,722
5,000 Orange County Health Facility Auth. 5.38 10/01/2023 5,716
3,055 Osceola County School Board 5.00 6/01/2028 3,420
6,235 Palm Beach County Health Facilities Auth. (INS) 5.00 12/01/2021 6,243
7,595 Palm Beach County Health Facilities Auth. 5.00 11/15/2023 8,347
650 Palm Beach County School Board (INS) 5.00 8/01/2022 676
1,995 Pinellas County Educational Facilities Auth. 5.00 10/01/2021 2,292
1,080 Pinellas County Educational Facilities Auth. 4.00 10/01/2022 1,152
1,415 Pinellas County Educational Facilities Auth. 4.00 10/01/2023 1,488
2,045 Pinellas County Educational Facilities Auth. 5.38 10/01/2026 2,289
1,895 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 2,078
2,615 Pinellas County Educational Facilities Auth. 6.50 10/01/2031 3,083
7,370 Saint Lucie County (INS) 5.00 10/01/2028 8,281
2,045 Saint Lucie County School Board 5.00 7/01/2025 2,353
1,500 Saint Lucie County School Board 5.00 7/01/2026 1,713
3,195 Southeast Overtown/Park West Community
Redevelopment Agency(g) 5.00 3/01/2030 3,493
8,970 Sunshine State Governmental Financing Commission 5.00 9/01/2019 10,360
5,525 Sunshine State Governmental Financing Commission 5.00 9/01/2020 6,404
1,055 Sunshine State Governmental Financing
Commission (INS) 5.00 9/01/2021 1,227
4,585 Volusia County School Board (INS) (PRE) 5.00 8/01/2022 4,771
4,920 Volusia County School Board (INS) (PRE) 5.00 8/01/2023 5,120
5,165 Volusia County School Board (INS) (PRE) 5.00 8/01/2024 5,374
----------
341,239
----------
GEORGIA (0.6%)
10,000 Burke County Dev. Auth. 7.00 1/01/2023 11,596
4,000 Glynn-Brunswick Memorial Hospital Auth. 5.25 8/01/2023 4,350
2,000 Private Colleges and Universities Auth. 5.25 10/01/2027 2,246
3,000 Private Colleges and Universities Auth. 5.25 10/01/2027 3,328
----------
21,520
----------
GUAM (0.4%)
1,000 Power Auth. 5.00 10/01/2027 1,158
1,000 Power Auth. 5.00 10/01/2029 1,115
1,000 Power Auth. 5.00 10/01/2030 1,115
1,000 Power Auth. 5.00 10/01/2030 1,144
695 Power Auth. 5.00 10/01/2031 772
================================================================================
22 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 1,000 Power Auth. (INS) 5.00% 10/01/2032 $ 1,134
750 Waterworks Auth. 5.00 7/01/2023 856
600 Waterworks Auth. 5.00 7/01/2024 685
750 Waterworks Auth. 5.00 7/01/2025 848
1,000 Waterworks Auth. 5.00 7/01/2028 1,113
1,000 Waterworks Auth. 5.00 7/01/2029 1,103
3,000 Waterworks Auth. 5.25 7/01/2033 3,351
----------
14,394
----------
ILLINOIS (9.5%)
1,000 Bedford Park Village 4.60 12/01/2017 1,025
3,240 Bedford Park Village 4.80 12/01/2020 3,320
3,085 Bedford Park Village 4.90 12/01/2023 3,142
3,861 Chicago 6.63 12/01/2022 3,898
30,000 Chicago (INS) 4.45(b) 1/01/2023 21,548
1,000 Chicago 5.00 1/01/2031 1,119
2,000 Chicago 5.00 11/01/2031 2,265
1,000 Chicago 5.00 1/01/2032 1,115
2,000 Chicago 5.00 11/01/2033 2,249
6,525 Chicago Midway Airport 5.00 1/01/2027 7,439
11,750 Chicago Midway Airport 5.00 1/01/2029 13,316
5,175 Chicago Midway Airport 5.00 1/01/2030 5,843
8,910 Chicago Midway Airport 5.00 1/01/2031 10,007
6,000 Chicago Midway Airport 5.00 1/01/2032 6,708
1,635 Chicago Midway Airport 5.25 1/01/2033 1,837
7,000 Chicago-O'Hare International Airport (INS) 5.00 1/01/2021 7,387
10,000 Chicago-O'Hare International Airport (INS) 5.00 1/01/2022 10,551
9,000 Chicago-O'Hare International Airport 5.25 1/01/2024 10,175
3,620 Chicago-O'Hare International Airport (INS) 5.00 1/01/2028 4,107
1,500 Chicago-O'Hare International Airport (INS) 5.00 1/01/2029 1,690
13,480 Chicago-O'Hare International Airport 5.25 1/01/2029 15,464
2,150 Chicago-O'Hare International Airport (INS) 5.13 1/01/2030 2,434
2,370 Finance Auth. 5.50 5/01/2017 2,587
4,340 Finance Auth. 5.75 5/01/2018 4,875
2,080 Finance Auth. 5.00 2/15/2020 2,377
1,710 Finance Auth. 5.00 2/15/2022 1,878
750 Finance Auth. 5.25 4/01/2022 779
2,000 Finance Auth. 5.00 4/01/2023 2,021
3,400 Finance Auth. (INS) 5.00 11/01/2023 3,743
14,935 Finance Auth. (INS) 5.00 11/15/2023 14,983
7,140 Finance Auth. 5.13 2/15/2025 7,737
4,165 Finance Auth. 5.00 4/01/2025 4,196
8,210 Finance Auth. 4.50 5/15/2025 8,720
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 7,665 Finance Auth. 5.38% 8/15/2026 $ 8,649
8,000 Finance Auth. 4.50 11/15/2026 8,180
1,750 Finance Auth. 5.40 4/01/2027 1,820
8,250 Finance Auth. 5.50 7/01/2028 9,397
20,000 Finance Auth. 3.90 3/01/2030 20,557
3,385 Finance Auth. 5.00 9/01/2034 3,569
315 Housing Dev. Auth. 4.55 7/01/2021 322
365 Housing Dev. Auth. 4.60 7/01/2023 370
3,495 Lake County Community Unit School
District (INS) (ETM) 5.13(b) 12/01/2016 3,464
4,555 Lake County Community Unit School District (INS) 5.13(b) 12/01/2016 4,425
2,500 Metropolitan Pier and Exposition Auth. (INS) 5.20 6/15/2017 2,793
2,500 Metropolitan Pier and Exposition Auth. (INS) 5.30 6/15/2018 2,795
4,000 Metropolitan Pier and Exposition Auth. (INS) 5.40 6/15/2019 4,448
5,000 Metropolitan Pier and Exposition Auth. (INS) 5.70(b) 6/15/2026 3,172
2,000 Northeastern Illinois Univ. 4.75 10/01/2025 2,036
7,095 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 8,009
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,707
3,000 Sports Facilities Auth. (INS) 5.25 6/15/2030 3,370
5,000 Sports Facilities Auth. (INS) 5.25 6/15/2031 5,595
5,000 Sports Facilities Auth. (INS) 5.25 6/15/2032 5,577
3,700 Springfield School District No. 186 (INS) 5.00 2/01/2024 4,276
7,200 Springfield School District No. 186 (INS) 5.00 2/01/2025 8,238
4,215 Springfield School District No. 186 (INS) 5.00 2/01/2026 4,786
5,000 State (INS) 5.00 1/01/2021 5,553
10,000 State (INS) 5.00 4/01/2029 10,808
14,070 Will County Forest Preserve District (INS) 5.40(b) 12/01/2017 13,672
----------
348,123
----------
INDIANA (1.7%)
1,470 Finance Auth. 5.00 5/01/2024 1,719
20,000 Finance Auth. (INS)(a) 4.55 12/01/2024 20,608
1,200 Finance Auth. 5.00 5/01/2027 1,357
1,900 Finance Auth. 5.00 10/01/2027 2,084
10,500 Finance Auth. 5.00 6/01/2032 11,067
4,000 Health and Educational Facility Financing Auth. 5.00 2/15/2021 4,233
8,375 Health and Educational Facility Financing Auth. 5.00 2/15/2022 8,857
3,000 Jasper County (INS) 5.85 4/01/2019 3,431
6,000 Rockport (INS) 4.63 6/01/2025 6,404
6,181 St. Joseph County, acquired 12/17/1998;
cost $6,119(d),(h) 5.75 2/15/2019 509
1,500 Vanderburgh County Redevelopment District (PRE) 5.00 2/01/2026 1,627
----------
61,896
----------
================================================================================
24 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
IOWA (0.7%)
$ 1,325 Finance Auth. (INS) 5.00% 12/01/2021 $ 1,354
1,390 Finance Auth. (INS) 5.00 12/01/2022 1,414
5,000 Finance Auth. 5.50 12/01/2022 5,291
1,460 Finance Auth. (INS) 5.00 12/01/2023 1,482
1,535 Finance Auth. (INS) 5.00 12/01/2024 1,555
1,610 Finance Auth. (INS) 5.00 12/01/2025 1,631
1,690 Finance Auth. (INS) 5.00 12/01/2026 1,709
2,475 Waterloo Community School District 5.00 7/01/2024 2,682
2,775 Waterloo Community School District 5.00 7/01/2025 2,994
4,510 Waterloo Community School District 5.00 7/01/2027 4,908
----------
25,020
----------
KANSAS (0.1%)
7,585 Wyandotte County 6.07(b) 6/01/2021 5,320
----------
KENTUCKY (0.9%)
6,130 Economic Dev. Finance Auth. 4.05(b) 10/01/2024 4,336
7,500 Economic Dev. Finance Auth. (INS) 5.75 12/01/2028 8,093
3,830 Louisville/Jefferson County Metro Government 5.00 12/01/2022 4,477
2,760 Louisville/Jefferson County Metro Government 5.00 12/01/2023 3,190
7,160 Louisville/Jefferson County Metro Government 5.00 12/01/2024 8,233
3,725 Pikeville City Hospital Improvement 5.75 3/01/2026 4,214
----------
32,543
----------
LOUISIANA (1.6%)
2,750 Jefferson Parish Hospital District No. 1 (INS) 5.50 1/01/2026 3,076
3,000 Jefferson Parish Hospital District No. 1 (INS) 5.38 1/01/2031 3,278
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,393
20,000 Public Facilities Auth. 5.00 9/01/2028 20,649
2,440 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2022 2,717
2,570 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2023 2,832
2,000 Terrebonne Parish Hospital Service District No. 1 4.65 4/01/2024 2,144
4,250 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2028 4,587
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2023 5,720
10,000 Tobacco Settlement Financing Corp. 5.25 5/15/2031 10,788
----------
60,184
----------
MAINE (0.5%)
1,635 Health and Higher Educational Facilities Auth. 5.00 7/01/2024 1,871
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2026 1,124
11,500 Health and Higher Educational Facilities Auth. 6.00 7/01/2026 12,677
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2027 1,109
1,500 Jay 4.85 5/01/2019 1,506
----------
18,287
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
MARYLAND (0.2%)
$ 510 Community Dev. Administration 5.88% 7/01/2016 $ 512
2,500 EDC 6.20 9/01/2022 2,981
5,000 Health and Higher Educational Facilities Auth. 6.00 1/01/2028 5,324
----------
8,817
----------
MASSACHUSETTS (1.0%)
640 Dev. Finance Agency 5.00 7/01/2020 711
1,480 Dev. Finance Agency 5.00 7/01/2022 1,645
4,500 Dev. Finance Agency 6.25 1/01/2027 5,255
1,720 Dev. Finance Agency 5.00 7/01/2027 1,826
2,000 Dev. Finance Agency 5.00 7/01/2030 2,142
3,110 Health and Educational Facilities Auth. 5.00 7/01/2019 3,382
9,000 Health and Educational Facilities Auth. 6.00 7/01/2024 10,548
4,000 Health and Educational Facilities Auth. 5.00 7/15/2027 4,110
5,545 Massachusetts Bay Transportation Auth. 4.60(b) 7/01/2022 4,195
5,000 Massachusetts Bay Transportation Auth. 4.70(b) 7/01/2024 3,404
1,600 Massachusetts Bay Transportation Auth. 4.73(b) 7/01/2025 1,025
110 Water Pollution Abatement Trust 4.75 8/01/2025 114
----------
38,357
----------
MICHIGAN (1.4%)
18,000 Building Auth. (INS) 4.81(b) 10/15/2022 12,816
3,000 Building Auth. 5.00 10/15/2029 3,437
10,000 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2029 10,907
2,675 Hospital Finance Auth. 5.00 11/15/2019 2,875
3,400 Hospital Finance Auth. 5.00 11/15/2022 3,583
12,000 Kent Hospital Finance Auth. 5.00 11/15/2029 13,411
3,000 State Trunk Line Fund 5.00 11/01/2019 3,541
2,000 State Trunk Line Fund 5.00 11/01/2020 2,340
----------
52,910
----------
MINNESOTA (0.6%)
1,080 Chippewa County 5.38 3/01/2022 1,141
5,120 Chippewa County 5.50 3/01/2027 5,375
2,500 Higher Education Facilities Auth. 4.50 10/01/2027 2,641
3,000 Municipal Power Agency 4.38 10/01/2025 3,115
7,680 St. Paul Housing and Redevelopment Auth. 5.15 11/15/2020 7,925
3,500 St. Paul Housing and Redevelopment Auth. 5.25 5/15/2026 3,700
----------
23,897
----------
MISSISSIPPI (0.4%)
2,000 Dev. Bank 5.00 4/01/2028 2,245
7,000 Dev. Bank (INS) 5.00 9/01/2030 7,967
1,650 Hospital Equipment and Facilities Auth. 5.00 12/01/2016 1,759
================================================================================
26 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 1,000 Hospital Equipment and Facilities Auth. 5.25% 12/01/2021 $ 1,040
----------
13,011
----------
MISSOURI (1.2%)
1,780 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2025 2,055
17,545 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 17,895
2,555 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 2,899
1,000 Cass County 5.00 5/01/2022 1,021
3,315 Cass County 5.38 5/01/2022 3,409
2,000 Cass County 5.50 5/01/2027 2,043
2,000 Dev. Finance Board 4.75 6/01/2025 2,048
2,310 Health and Educational Facilities Auth. 5.00 5/01/2030 2,502
2,350 Health and Educational Facilities Auth. 5.25 5/01/2033 2,566
1,760 Riverside IDA (INS) 5.00 5/01/2020 1,882
1,380 Saint Louis County IDA 5.00 9/01/2023 1,479
2,750 Saint Louis County IDA 5.50 9/01/2033 3,011
1,330 St. Joseph IDA 5.00 4/01/2027 1,431
----------
44,241
----------
MONTANA (0.4%)
6,500 Forsyth (INS) 4.65 8/01/2023 6,931
8,500 Forsyth 3.90 3/01/2031 8,852
----------
15,783
----------
NEVADA (1.6%)
2,865 Clark County 5.00 5/15/2020 3,045
20,470 Clark County 5.00 7/01/2032 23,378
10,845 Clark County 5.00 7/01/2033 12,309
18,000 Humboldt County 5.15 12/01/2024 20,221
----------
58,953
----------
NEW JERSEY (3.5%)
10,000 EDA 5.25 9/01/2019 11,494
5,000 EDA (INS) 5.00 7/01/2022 5,083
10,000 EDA 5.25 9/01/2022 11,444
3,500 EDA 4.45 6/01/2023 3,825
8,830 EDA (PRE) 5.25 9/01/2023 9,246
10,000 EDA 5.00 6/15/2025 11,667
2,500 EDA 5.00 6/15/2026 2,802
4,535 Essex County Improvement Auth. (INS) 6.00 11/01/2025 5,234
20,000 State Turnpike Auth. 5.00 1/01/2021 22,824
10,000 State Turnpike Auth. 5.00 1/01/2034 11,376
5,000 Tobacco Settlement Financing Corp. 5.00 6/01/2017 5,476
2,000 Transportation Trust Fund Auth. (PRE) 5.25 12/15/2017 2,123
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,814
5,580 Transportation Trust Fund Auth. 5.00 12/15/2023 6,423
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$20,000 Transportation Trust Fund Auth. 4.47%(b) 12/15/2025 $ 12,739
----------
127,570
----------
NEW MEXICO (0.9%)
20,000 Farmington Pollution Control 4.70 5/01/2024 21,424
4,005 Jicarilla Apache Nation(g) 5.00 9/01/2018 4,005
3,250 Jicarilla Apache Nation(g) 5.50 9/01/2023 3,233
4,000 Sandoval County (PRE) 4.38 6/01/2020 4,113
----------
32,775
----------
NEW YORK (6.4%)
2,500 Albany IDA 5.75 11/15/2022 2,828
4,000 Dormitory Auth. 5.20 2/15/2016 4,017
4,760 Dormitory Auth. 5.30 2/15/2017 4,780
12,560 Dormitory Auth. (ETM) 5.30 2/15/2019 14,219
5,000 Dormitory Auth. 5.00 7/01/2020 5,450
24,935 Dormitory Auth. 5.00 7/01/2022 26,734
750 Dormitory Auth. 5.00 5/01/2023 845
750 Dormitory Auth. 5.00 5/01/2024 840
1,200 Dormitory Auth. 5.00 5/01/2025 1,334
1,000 Dormitory Auth. 5.00 5/01/2026 1,104
1,000 Dormitory Auth. (INS) 5.00 10/01/2027 1,197
1,000 Dormitory Auth. (INS) 5.00 10/01/2028 1,182
1,300 Dormitory Auth. (INS) 5.00 10/01/2029 1,525
2,500 Dutchess County IDA 4.50 8/01/2026 2,508
960 East Rochester Housing Auth. (NBGA) 4.63 2/15/2017 963
2,000 Erie County IDA 5.00 5/01/2028 2,321
17,075 Long Island Power Auth. 5.00 4/01/2023 18,884
5,000 Monroe County IDC (NBGA) 5.75 8/15/2030 6,006
10,000 MTA 6.25 11/15/2023 12,000
6,800 MTA 5.00 11/15/2024 7,620
16,565 MTA 5.00 11/15/2024 18,088
2,500 MTA (INS) 5.00 11/15/2024 2,780
45 New York City 5.63 8/01/2015 45
70 New York City 5.75 8/01/2016 70
5,000 New York City 5.13 11/15/2022 5,814
4,330 New York City 5.13 12/01/2022 4,884
6,000 New York City 5.13 12/01/2023 6,757
10,000 New York City (PRE) 5.00 4/01/2024 10,711
815 New York City (PRE) 5.00 8/01/2024 916
4,425 New York City 5.00 8/01/2024 4,914
5,000 New York City 5.25 11/15/2024 5,826
2,995 New York City (PRE) 5.00 2/01/2025 3,414
2,005 New York City 5.00 2/01/2025 2,261
3,500 New York City Transitional Finance Auth. 5.00 1/15/2022 4,048
25,000 New York City Transitional Finance Auth. 5.00 5/01/2026 28,832
================================================================================
28 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 575 Newburgh City 5.00% 6/15/2023 $ 623
2,250 Niagara Area Dev. Corp. 4.00 11/01/2024 2,282
1,585 Rockland County 3.50 10/01/2021 1,619
1,190 Rockland County 3.63 10/01/2022 1,210
1,560 Rockland County 3.63 10/01/2023 1,579
1,665 Rockland County 3.63 10/01/2024 1,678
790 Saratoga County Capital Resource Corp. 5.00 12/01/2028 905
1,500 Suffolk County EDC 5.00 7/01/2028 1,644
1,880 Suffolk County IDA 5.00 11/01/2014 1,886
1,000 Suffolk County IDA 5.00 11/01/2015 1,041
1,350 Westchester County Local Dev. Corp. 5.00 1/01/2028 1,454
2,600 Yonkers (INS) 5.00 10/01/2023 2,950
----------
234,588
----------
NORTH CAROLINA (0.8%)
3,000 Eastern Municipal Power Agency 5.00 1/01/2024 3,372
5,000 Eastern Municipal Power Agency 5.00 1/01/2026 5,686
4,805 Medical Care Commission 6.38 7/01/2026 5,579
5,500 Medical Care Commission 5.00 7/01/2027 5,770
2,000 Municipal Power Agency No. 1 5.25 1/01/2020 2,235
3,600 Turnpike Auth. (INS) 5.00 1/01/2022 3,982
3,330 Turnpike Auth. (INS) 5.13 1/01/2024 3,677
----------
30,301
----------
NORTH DAKOTA (0.4%)
1,000 Grand Forks (INS) 5.00 12/15/2022 1,054
11,085 Grand Forks City Health Care System 5.00 12/01/2029 11,884
2,055 Williams County 5.00 11/01/2021 2,059
----------
14,997
----------
OHIO (1.6%)
9,000 Air Quality Dev. Auth. 5.70 8/01/2020 10,464
3,000 American Municipal Power, Inc. 5.00 2/15/2021 3,435
2,760 American Municipal Power, Inc. 5.00 2/15/2022 3,123
7,165 Buckeye Tobacco Settlement Financing Auth. 5.13 6/01/2024 6,032
2,000 Cleveland Airport System 5.00 1/01/2030 2,163
1,000 Cleveland Airport System 5.00 1/01/2031 1,076
1,845 Fairview Park City (INS) (PRE) 4.13 12/01/2020 1,931
555 Fairview Park City (INS) 4.13 12/01/2020 579
10,000 Hamilton City (INS) 4.65 10/15/2022 10,534
4,365 Hamilton County 4.30(b) 12/01/2025 3,026
9,000 Hancock County Hospital Facilities 6.50 12/01/2030 10,806
1,750 Miami County 5.25 5/15/2021 1,861
2,000 Miami County 5.25 5/15/2026 2,113
2,000 Turnpike and Infrastructure Commission 5.25 2/15/2029 2,311
----------
59,454
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
OKLAHOMA (1.1%)
$ 5,360 Cherokee Nation (INS)(g) 4.60% 12/01/2021 $ 5,542
5,650 Chickasaw Nation(g) 5.38 12/01/2017 5,975
5,000 Chickasaw Nation(g) 6.00 12/01/2025 5,660
2,020 Comanche County Hospital Auth. 5.00 7/01/2021 2,147
3,895 Comanche County Hospital Auth. (INS) 5.25 7/01/2022 3,961
3,000 Comanche County Hospital Auth. (INS) 5.25 7/01/2023 3,046
1,400 Norman Regional Hospital Auth. 5.50 9/01/2024 1,457
13,100 Norman Regional Hospital Auth. 5.00 9/01/2027 13,494
----------
41,282
----------
OREGON (0.1%)
1,000 Washington, Yamhill and Multnomah Counties
Hillsboro School District No. 1J (INS) (PRE) 4.58(b) 6/15/2025 684
5,900 Washington, Yamhill and Multnomah Counties
Hillsboro School District No. 1J (INS) (PRE) 4.59(b) 6/15/2026 3,854
----------
4,538
----------
PENNSYLVANIA (1.8%)
1,410 Allegheny County Higher Education Building Auth. 5.13 3/01/2025 1,598
1,000 Allegheny County IDA 5.00 9/01/2021 1,022
1,220 Allegheny County IDA 5.10 9/01/2026 1,233
5,000 Beaver County IDA 2.15 3/01/2017 5,020
3,000 Bethlehem Auth. (INS) 5.00 11/15/2030 3,371
6,500 Cumberland County Municipal Auth. 4.00 12/01/2026 6,532
1,000 Delaware County Auth. 5.00 10/01/2025 1,068
2,720 Delaware River Port Auth. 5.00 1/01/2025 3,100
13,000 Economic Dev. Financing Auth. 4.00 10/01/2023 13,801
1,730 Higher Educational Facilities Auth. 5.25 7/15/2025 1,980
2,020 Higher Educational Facilities Auth. 5.25 7/15/2026 2,295
2,125 Higher Educational Facilities Auth. 5.25 7/15/2027 2,391
2,245 Higher Educational Facilities Auth. 5.25 7/15/2028 2,509
2,415 Higher Educational Facilities Auth. 5.00 7/15/2030 2,622
1,625 Higher Educational Facilities Auth. 5.00 7/01/2032 1,739
1,965 Higher Educational Facilities Auth. 5.25 7/15/2033 2,150
1,615 Lancaster County Hospital Auth. 5.00 11/01/2026 1,704
1,200 Montgomery County IDA 5.00 11/15/2023 1,327
2,750 Montgomery County IDA 5.00 11/15/2024 3,018
1,250 Public School Building Auth. 5.00 4/01/2023 1,445
1,500 State Turnpike Commission 5.00 12/01/2032 1,675
4,345 State Turnpike Commission 5.00 12/01/2033 4,841
----------
66,441
----------
PUERTO RICO (0.4%)
14,000 Government Dev. Bank (INS) 4.75 12/01/2015 14,017
================================================================================
30 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 2,600 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.00% 4/01/2027 $ 2,308
----------
16,325
----------
RHODE ISLAND (0.4%)
400 Health and Educational Building Corp. (INS) 5.50 5/15/2016 402
5,500 Health and Educational Building Corp. (INS) 5.00 5/15/2026 5,708
2,000 Health and Educational Building Corp. 6.00 9/01/2033 2,212
4,550 Housing and Mortgage Finance Corp. 4.65 10/01/2026 4,582
----------
12,904
----------
SOUTH CAROLINA (1.0%)
5,870 Association of Governmental Organizations
Educational Facilities Corp. (INS) 4.75 12/01/2026 6,058
6,325 Association of Governmental Organizations
Educational Facilities Corp. (INS) 4.75 12/01/2026 6,485
5,000 Lexington County Health Services District, Inc. 5.00 11/01/2024 5,523
7,335 Lexington County Health Services District, Inc. 5.00 11/01/2026 8,088
7,200 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 8,002
2,700 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 3,001
----------
37,157
----------
SOUTH DAKOTA (0.1%)
1,700 Health and Educational Facilities Auth. 5.00 11/01/2024 1,904
----------
TENNESSEE (0.7%)
7,000 Jackson 5.25 4/01/2023 7,688
2,125 Johnson City Health and Educational Facilities Board 5.25 7/01/2026 2,207
1,000 Nashville and Davidson County Health and
Educational Facilities Board (INS) 5.10 8/01/2019 1,001
14,750 Sullivan County Health, Educational and Housing
Facilities Board 5.25 9/01/2026 15,531
----------
26,427
----------
TEXAS (10.7%)
2,300 Austin (INS) 5.00 11/15/2024 2,422
5,610 Austin Utility Systems (INS) 5.15(b) 5/15/2017 5,473
3,030 Bastrop ISD (NBGA) 5.55(b) 2/15/2015 3,028
3,055 Bastrop ISD (NBGA) 5.60(b) 2/15/2016 3,040
3,155 Bastrop ISD (NBGA) 5.60(b) 2/15/2017 3,105
3,935 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2027 4,042
4,240 Boerne ISD (NBGA) 3.66(b) 2/01/2026 2,924
2,680 Central Regional Mobility Auth. (INS) (PRE) 4.55 1/01/2020 2,923
3,445 Central Regional Mobility Auth. (INS) (PRE) 4.60 1/01/2021 3,761
700 Central Regional Mobility Auth. 5.00 1/01/2021 779
500 Central Regional Mobility Auth. 5.00 1/01/2022 556
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 885 Central Regional Mobility Auth. 5.90%(b) 1/01/2022 $ 679
500 Central Regional Mobility Auth. 5.00 1/01/2023 555
7,000 Central Regional Mobility Auth. 6.25(b) 1/01/2024 4,852
2,500 Central Regional Mobility Auth. 5.75 1/01/2025 2,794
2,535 Central Regional Mobility Auth. 6.50(b) 1/01/2026 1,585
3,500 Central Regional Mobility Auth. 5.00 1/01/2033 3,707
2,600 Conroe ISD (NBGA) (PRE)(a) 5.00 2/15/2023 2,648
3,100 Conroe ISD (NBGA) (PRE)(a) 5.00 2/15/2024 3,157
2,000 Dallas/Fort Worth International Airport 5.25 11/01/2028 2,355
7,500 Dallas/Fort Worth International Airport 5.25 11/01/2029 8,784
1,000 Decatur Hospital Auth. 5.25 9/01/2029 1,072
1,000 Decatur Hospital Auth. 5.00 9/01/2034 1,038
13,745 Denton ISD (NBGA)(a) 5.03(b) 8/15/2023 9,502
16,500 Denton ISD (NBGA)(a) 5.06(b) 8/15/2024 10,820
3,715 Ennis ISD (NBGA) 4.58(b) 8/15/2025 2,365
3,720 Ennis ISD (NBGA) 4.60(b) 8/15/2026 2,253
4,710 Harris County Cultural Education
Facilities Finance Corp. 5.00 12/01/2027 5,403
1,400 Harris County Cultural Education
Facilities Finance Corp. 5.00 6/01/2028 1,535
40,000 Harris County IDC 5.00 2/01/2023 43,480
1,895 Hidalgo County Health Services Corp. 4.75 8/15/2017 1,897
350 Hidalgo County Health Services Corp. 5.00 8/15/2019 351
3,805 Hidalgo County Health Services Corp. 5.00 8/15/2022 3,927
1,785 Hidalgo County Health Services Corp. 5.00 8/15/2026 1,853
4,000 Houston Airport System 5.00 7/01/2024 4,489
7,000 Houston Airport System 5.00 7/01/2025 7,831
2,300 Houston Convention & Entertainment
Facilities Department 5.00 9/01/2029 2,648
1,000 Houston Convention & Entertainment
Facilities Department 5.00 9/01/2030 1,151
3,850 Houston Higher Education Finance Corp. 5.25 9/01/2031 4,280
4,075 Houston Higher Education Finance Corp. 5.25 9/01/2032 4,501
4,955 Houston ISD Public Facility Corp. (INS) 5.35(b) 9/15/2015 4,933
3,635 Houston ISD Public Facility Corp. (INS) 5.35(b) 9/15/2015 3,619
6,955 Houston ISD Public Facility Corp. (INS) 5.38(b) 9/15/2016 6,844
2,635 Houston ISD Public Facility Corp. (INS) 5.38(b) 9/15/2016 2,593
3,885 Houston ISD Public Facility Corp. (INS) 5.40(b) 9/15/2017 3,749
105 La Porte ISD (INS) 5.00 2/15/2022 107
1,490 La Porte ISD (INS) (PRE) 5.00 2/15/2022 1,517
225 La Porte ISD (INS) 5.00 2/15/2024 229
3,310 La Porte ISD (INS) (PRE) 5.00 2/15/2024 3,371
1,655 Lewisville (INS) 5.38 9/01/2015 1,659
4,555 Lower Colorado River Auth. (INS) 4.38 5/15/2025 4,813
================================================================================
32 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 2,000 Lower Colorado River Auth. (INS) 4.38% 5/15/2026 $ 2,113
1,245 Marlin ISD Public Facility Corp.,
acquired 7/22/1998; cost $1,265(d) 5.85 2/15/2018 1,271
3,425 Mesquite Health Facilities Dev. Corp. 5.50 2/15/2025 3,486
2,040 Midlothian Dev. Auth. (INS) 5.00 11/15/2018 2,112
2,235 Midlothian Dev. Auth. (INS) 5.00 11/15/2021 2,283
1,695 Midlothian Dev. Auth. (INS) 5.00 11/15/2026 1,722
2,295 Midlothian Dev. Auth. 5.13 11/15/2026 2,328
2,155 New Braunfels ISD (NBGA) 3.04(b) 2/01/2023 1,748
2,500 North Texas Tollway Auth. 6.00 1/01/2023 2,840
15,000 North Texas Tollway Auth. 6.00 1/01/2025 17,377
1,220 Nueces River Auth. (INS) 5.00 7/15/2023 1,264
1,530 Nueces River Auth. (INS) 5.00 7/15/2024 1,585
2,965 Plano ISD (NBGA) 4.50 2/15/2023 3,117
2,000 Red River Education Finance Corp. 4.38 3/15/2025 2,106
3,000 Red River Education Finance Corp. 4.38 3/15/2026 3,154
8,395 Rockwall ISD (NBGA) 5.14(b) 2/15/2022 6,123
9,205 Sabine River Auth. (INS) 4.95 3/01/2018 10,020
2,000 San Leanna Education Facilities Corp. 5.00 6/01/2018 2,167
1,965 San Leanna Education Facilities Corp. 5.13 6/01/2023 2,071
1,000 San Leanna Education Facilities Corp. 5.13 6/01/2024 1,050
1,545 San Leanna Education Facilities Corp. 5.13 6/01/2025 1,617
5,200 Schertz-Cibolo-Universal City ISD (NBGA) (PRE) 4.86(b) 2/01/2023 3,527
3,320 State 5.00 8/01/2016 3,345
3,750 Tarrant County Cultural Education
Facilities Finance Corp. 5.25 11/15/2022 4,088
1,100 Tarrant County Cultural Education
Facilities Finance Corp. 6.00 11/15/2026 1,146
8,300 Tarrant County Cultural Education
Facilities Finance Corp. 5.13 5/15/2027 8,421
5,000 Tarrant Regional Water District (INS) 4.38 3/01/2021 5,257
4,510 Transportation Commission (PRE) 4.38 4/01/2025 4,789
2,490 Transportation Commission 4.38 4/01/2025 2,628
13,000 Transportation Commission 4.50 4/01/2026 14,094
7,170 Tyler Health Facilities Dev. Corp. 5.25 11/01/2019 7,884
7,945 Tyler Health Facilities Dev. Corp. 5.25 11/01/2021 8,641
3,360 Tyler Health Facilities Dev. Corp. 5.25 11/01/2022 3,640
3,800 Tyler Health Facilities Dev. Corp. 5.25 11/01/2023 4,088
8,745 Tyler Health Facilities Dev. Corp. 5.25 7/01/2026 9,159
10,000 Tyler Health Facilities Dev. Corp. 5.50 7/01/2027 11,161
10,000 Univ. of Texas Board of Regents 4.25 8/15/2025 10,762
1,795 Weatherford ISD (NBGA) 4.73(b) 2/15/2023 1,275
1,795 Weatherford ISD (NBGA) 4.77(b) 2/15/2024 1,212
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 5,970 Williamson County (INS) 5.13% 2/15/2022 $ 6,556
1,690 Wylie ISD (NBGA) 5.10(b) 8/15/2015 1,686
----------
391,912
----------
UTAH (0.3%)
18,337 Jordanelle Special Service District,
acquired 6/18/2009; cost $18,337(d),(g),(h),(i) 4.44 8/01/2030 10,269
----------
VERMONT (0.3%)
9,000 EDA 5.00 12/15/2020 10,465
----------
VIRGINIA (1.0%)
1,750 Albemarle County IDA 5.00 1/01/2024 1,786
2,290 College Building Auth. 5.00 6/01/2021 2,379
11,280 College Building Auth. 5.00 6/01/2026 11,565
14,924 Farms of New Kent Community Dev. Auth., acquired
9/08/2006-10/04/2007; cost $14,395(d),(h),(i) 5.13 3/01/2036 7,462
10,000 Roanoke County EDA 5.00 7/01/2025 11,269
1,000 Small Business Financing Auth. 5.13 9/01/2022 1,068
----------
35,529
----------
WASHINGTON (0.2%)
400 Higher Education Facilities Auth. 5.20 10/01/2017 400
5,000 Tobacco Settlement Auth. 5.25 6/01/2031 5,469
----------
5,869
----------
WISCONSIN (0.7%)
8,300 Health and Educational Facilities Auth. 5.13 2/15/2026 8,700
1,500 Health and Educational Facilities Auth. 5.00 8/15/2026 1,719
2,000 Health and Educational Facilities Auth. 5.00 7/15/2028 2,176
1,935 Health and Educational Facilities Auth. 5.00 8/15/2029 2,180
5,000 Health and Educational Facilities Auth. 5.13 4/15/2031 5,518
3,920 Sheboygan (INS) 5.00 9/01/2015 4,085
----------
24,378
----------
Total Fixed-Rate Instruments (cost: $2,862,336) 3,042,805
----------
PUT BONDS (7.9%)
ARIZONA (1.3%)
16,000 Health Facilities Auth. 1.89(j) 2/01/2048 16,262
30,000 Health Facilities Auth. 1.89(j) 2/01/2048 30,338
----------
46,600
----------
CALIFORNIA (0.7%)
10,000 Bay Area Toll Auth. 0.94(j) 4/01/2045 9,927
17,000 Bay Area Toll Auth. 1.14(j) 4/01/2045 17,115
----------
27,042
----------
================================================================================
34 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
FLORIDA (0.7%)
$ 7,375 Miami-Dade County IDA 4.00% 10/01/2018 $ 7,507
16,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 18,291
----------
25,798
----------
ILLINOIS (0.4%)
5,000 Chicago Board of Education 0.87(j) 3/01/2036 4,869
7,500 Educational Facilities Auth. 4.75 11/01/2036 8,099
----------
12,968
----------
INDIANA (0.1%)
4,000 Rockport Pollution Control 1.75 6/01/2025 4,014
----------
LOUISIANA (0.5%)
16,750 St. Charles Parish 4.00 12/01/2040 17,925
----------
MASSACHUSETTS (0.2%)
6,000 Dev. Finance Agency (PRE) 5.75 12/01/2042 7,258
----------
MICHIGAN (0.5%)
15,000 Hospital Finance Auth. 6.00 12/01/2034 17,428
----------
NEW MEXICO (0.9%)
10,000 Farmington 4.75 6/01/2040 10,744
20,000 Farmington 5.20 6/01/2040 22,399
----------
33,143
----------
NORTH CAROLINA (0.3%)
10,000 Capital Facilities Finance Agency 0.30 7/01/2034 10,000
----------
OHIO (1.1%)
8,000 Air Quality Dev. Auth. 5.75 6/01/2033 8,557
30,000 Water Dev. Auth.(a) 4.00 12/01/2033 31,823
----------
40,380
----------
PENNSYLVANIA (0.8%)
8,800 Beaver County IDA 2.70 4/01/2035 8,916
11,000 Berks County Municipal Auth. 1.54(j) 11/01/2039 11,288
1,750 Economic Dev. Financing Auth. 1.75 12/01/2033 1,780
8,750 Economic Dev. Financing Auth. 2.55 11/01/2041 8,843
----------
30,827
----------
TEXAS (0.4%)
14,935 San Antonio Housing Trust Finance Corp. (NBGA) 3.50(j) 4/01/2043 15,016
----------
Total Put Bonds (cost: $273,678) 288,399
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
ADJUSTABLE-RATE NOTES (0.5%)
NEW JERSEY (0.5%)
$10,000 EDA 1.59% 9/01/2027 $ 9,999
10,000 EDA 1.64 3/01/2028 9,999
----------
19,998
----------
Total Adjustable-Rate Notes (cost: $20,000) 19,998
----------
VARIABLE-RATE DEMAND NOTES (8.2%)
CALIFORNIA (0.8%)
10,200 Golden State Tobacco Securitization
Corp. (INS) (LIQ)(g) 0.44 6/01/2045 10,200
15,230 State (LIQ) (LOC - Dexia Credit Local)(g) 0.29 8/01/2027 15,230
4,815 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.04 5/01/2040 4,815
----------
30,245
----------
CONNECTICUT (0.2%)
5,000 State(k) 0.34 7/01/2017 5,000
----------
IDAHO (0.9%)
19,885 American Falls Reservoir District 0.18 2/01/2025 19,885
13,550 Housing and Finance Association(k) 0.29 1/01/2038 13,550
----------
33,435
----------
ILLINOIS (0.4%)
14,100 State Toll Highway Auth. (INS) (LIQ) 0.25 1/01/2016 14,100
----------
KENTUCKY (0.1%)
5,000 Economic Dev. Finance Auth. (INS) (LIQ)(g) 0.29 6/01/2016 5,000
----------
LOUISIANA (0.4%)
15,100 St. James Parish 0.20 11/01/2040 15,100
----------
NEW JERSEY (0.6%)
22,160 EDA (LIQ) (LOC - Dexia Credit Local)(g) 0.29 9/01/2022 22,160
----------
NEW YORK (0.2%)
3,410 Oneida County IDA (LOC - RBS Citizens, N.A.) 0.07 7/01/2037 3,410
4,760 Urban Dev. Corp. (LIQ) (LOC - Dexia Credit Local)(g) 0.19 3/15/2024 4,760
----------
8,170
----------
PENNSYLVANIA (1.6%)
14,305 Butler County General Auth. (INS) (LIQ) 0.06 9/01/2027 14,305
43,265 Emmaus General Auth. (INS) (LIQ) 0.05 12/01/2028 43,265
----------
57,570
----------
================================================================================
36 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------
Principal Market
Amount Coupon Final Value
(000) Security Rate Maturity (000)
-----------------------------------------------------------------------------------------------------
RHODE ISLAND (0.3%)
$11,130 Health and Educational Building Corp.
(LOC - RBS Citizens, N.A.) 0.28% 4/01/2036 $ 11,130
----------
TEXAS (1.7%)
10,590 Port of Port Arthur Navigation District 0.17 12/01/2039 10,590
19,300 Port of Port Arthur Navigation District 0.17 12/01/2039 19,300
30,800 Port of Port Arthur Navigation District 0.17 12/01/2039 30,800
2,800 Port of Port Arthur Navigation District 0.17 11/01/2040 2,800
----------
63,490
----------
WASHINGTON (0.6%)
10,000 Health Care Facilities Auth. (LIQ)(g) 0.24 2/01/2019 10,000
11,910 Health Care Facilities Auth. (INS) (LIQ) 0.23 12/01/2036 11,910
----------
21,910
----------
WYOMING (0.4%)
14,200 Gillette 0.22 1/01/2018 14,200
----------
Total Variable-Rate Demand Notes (cost: $301,510) 301,510
----------
TOTAL INVESTMENTS (COST: $3,457,524) $3,652,712
==========
--------------------------------------------------------------------------------------------------------
($ 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 $- $3,032,536 $10,269 $3,042,805
Put Bonds - 288,399 - 288,399
Adjustable-Rate Notes - 19,998 - 19,998
Variable-Rate Demand Notes - 301,510 - 301,510
Total $- $3,642,443 $10,269 $3,652,712
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
FIXED-RATE INSTRUMENTS
-----------------------------------------------------------------------------------------
Balance as of March 31, 2014 $11,515
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/depreciation on investments (1,246)
-----------------------------------------------------------------------------------------
Balance as of September 30, 2014 $10,269
-----------------------------------------------------------------------------------------
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.
================================================================================
38 | USAA TAX EXEMPT INTERMEDIATE-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) At September 30, 2014, portions of these securities were segregated
to cover delayed-delivery and/or when-issued purchases.
(b) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(c) 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.
(d) Security deemed illiquid by USAA Asset Management Company (the
Manager), under liquidity guidelines approved by the USAA Mutual Funds
Trust's Board of Trustees (the Board). The aggregate market value of
these securities at September 30, 2014, was $20,981,000, which
represented 0.6% of the Fund's net assets.
(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 when-issued basis was $4,608,000.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
================================================================================
(g) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
(h) At September 30, 2014, the issuer was in default with respect to
interest and/or principal payments.
(i) 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 $17,731,000, which represented 0.5% of
the Fund's net assets.
(j) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2014.
(k) Variable-rate remarketed obligation - Structured similarly to
variable-rate demand notes and has a tender option that is supported by a
best efforts remarketing agent.
See accompanying notes to financial statements.
================================================================================
40 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
September 30, 2014 (unaudited)
-------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $3,457,524) $3,652,712
Receivables:
Capital shares sold 2,418
USAA Asset Management Company (Note 6C) 5
Interest 42,333
Securities sold 294
----------
Total assets 3,697,762
----------
LIABILITIES
Payables:
Securities purchased 19,489
Capital shares redeemed 1,758
Dividends on capital shares 1,566
Bank overdraft 62
Accrued management fees 1,000
Accrued transfer agent's fees 34
Other accrued expenses and payables 35
----------
Total liabilities 23,944
----------
Net assets applicable to capital shares outstanding $3,673,818
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,507,234
Overdistribution of net investment income (28)
Accumulated net realized loss on investments (28,576)
Net unrealized appreciation of investments 195,188
----------
Net assets applicable to capital shares outstanding $3,673,818
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $3,643,476/268,635 shares outstanding) $ 13.56
==========
Adviser Shares (net assets of $30,342/2,237 shares outstanding) $ 13.56
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended September 30, 2014 (unaudited)
-------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 69,658
----------
EXPENSES
Management fees 5,953
Administration and servicing fees:
Fund Shares 2,651
Adviser Shares 19
Transfer agent's fees:
Fund Shares 553
Adviser Shares 6
Distribution and service fees (Note 6E):
Adviser Shares 31
Custody and accounting fees:
Fund Shares 200
Adviser Shares 1
Postage:
Fund Shares 23
Shareholder reporting fees:
Fund Shares 16
Adviser Shares 1
Trustees' fees 12
Registration fees:
Fund Shares 23
Adviser Shares 16
Professional fees 143
Other 25
----------
Total expenses 9,673
Expenses reimbursed:
Adviser Shares (18)
----------
Net expenses 9,655
----------
NET INVESTMENT INCOME 60,003
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss (2,229)
Change in net unrealized appreciation/depreciation 54,943
----------
Net realized and unrealized gain 52,714
----------
Increase in net assets resulting from operations $ 112,717
==========
See accompanying notes to financial statements.
================================================================================
42 | USAA TAX EXEMPT INTERMEDIATE-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 $ 60,003 $ 117,675
Net realized loss on investments (2,229) (16,134)
Change in net unrealized appreciation/depreciation
of investments 54,943 (84,412)
--------------------------------
Increase in net assets resulting from operations 112,717 17,129
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (59,545) (117,287)
Adviser Shares (395) (328)
--------------------------------
Total distributions of net investment income (59,940) (117,615)
--------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 209,488 94,585
Adviser Shares 9,816 12,815
--------------------------------
Total net increase in net assets from capital
share transactions 219,304 107,400
--------------------------------
Capital contribution from USAA Transfer
Agency Company:
Fund Shares - 6
--------------------------------
Net increase in net assets 272,081 6,920
NET ASSETS
Beginning of period 3,401,737 3,394,817
--------------------------------
End of period $ 3,673,818 $ 3,401,737
================================
Overdistribution of net investment income:
End of period $ (28) $ (91)
================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 43
================================================================================
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 Intermediate- 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 Intermediate-Term Fund
Shares (Fund Shares) and Tax Exempt Intermediate-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 Board
oversight, the Committee administers and oversees the Fund's
================================================================================
44 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
valuation policies and procedures which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a wide
variety of sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used by
the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management Company
(the Manager). Among other things, these monthly meetings include a review
and analysis of back testing reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices or
the last sales price to price securities when, in the Service's judgment,
these prices are readily available and are representative of the
securities' market values. For many securities, such prices are not
readily available. The Service generally prices these securities based on
methods that include consideration of yields or prices of tax-exempt
securities of comparable quality, coupon, maturity, and type; indications
as to values from dealers in securities; and general market conditions.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities include
certain fixed-rate instruments, put bonds, and adjustable-rate
================================================================================
46 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
securities falling in the Level 3 category are primarily supported by quoted
prices discounted for liquidity and other relevant information related to
the security. However, these securities are included in the Level 3 category
due to limited market transparency and or a lack of corroboration to support
the quoted prices.
Refer to the portfolio of investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested. As of September 30, 2014, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $4,554,000;
all of which were when-issued securities.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended September 30, 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.
================================================================================
48 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended September 30, 2014, the Fund paid CAPCO facility
fees of $9,000, which represents 5.3% 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
At March 31, 2014, the Fund had no pre-enactment capital loss carryforwards and
post-enactment long-term capital loss carryfowards of $26,347,000, for federal
income tax purposes. It is unlikely that the Board will authorize a distribution
of capital gains realized in the future until the capital loss carryforwards
have been used.
POST-ENACTMENT CAPITAL LOSS CARRYFORWARDS
--------------------------------------------------------
TAX CHARACTER
--------------------------------------------------------
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $ 7,034,000
Long-Term 19,313,000
-----------
Total $26,347,000
===========
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
$255,822,000 and $69,688,000, 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 $221,400,000 and $26,212,000, respectively, resulting in net
unrealized appreciation of $195,188,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2014, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
50 | USAA TAX EXEMPT INTERMEDIATE-TERM 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 26,052 $ 351,618 50,004 $ 669,158
Shares issued from
reinvested dividends 3,627 49,048 7,124 94,802
Shares redeemed (14,164) (191,178) (50,411) (669,375)
-----------------------------------------------------
Net increase from capital
share transactions 15,515 $ 209,488 6,717 $ 94,585
=====================================================
ADVISER SHARES:
Shares sold 912 $ 12,303 1,209 $ 16,030
Shares issued from
reinvested dividends 21 290 10 129
Shares redeemed (205) (2,777) (251) (3,344)
-----------------------------------------------------
Net increase from capital
share transactions 728 $ 9,816 968 $ 12,815
=====================================================
(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.
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
Intermediate Municipal Debt Funds Index over the performance period. The
Lipper Intermediate Municipal Debt Funds Index tracks the total return
performance of the 30 largest funds in the Lipper
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
Intermediate 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 (0.01%). Average net assets of the share class are calculated over a
rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is 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 Intermediate 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 $5,953,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$965,000 and $3,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.05% and 0.02%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services,
================================================================================
52 | USAA TAX EXEMPT INTERMEDIATE-TERM FUNDS
================================================================================
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 $2,651,000 and $19,000, 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 $45,000 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 0.75% of average net assets. For the six-month period ended September
30, 2014, the Adviser Shares incurred reimbursable expenses of $18,000, of
which $5,000 was receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund. Transfer agent's fees for both the Fund Shares and
Adviser Shares are paid monthly based on an annual charge of $25.50 per
shareholder account plus out-of-pocket expenses. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
Fund Shares and Adviser Shares incurred transfer agent's fees, paid or
payable to SAS, of $553,000 and $6,000, 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 $31,000.
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 378,000 shares, which represent 16.9% of the
Adviser Shares and 0.1% 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.
================================================================================
54 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------
2014 2014 2013 2012 2011 2010
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.36 $ 13.75 $ 13.41 $ 12.56 $ 12.83 $ 11.88
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .50 .50 .54 .56 .57
Net realized and
unrealized gain (loss) .20 (.39) .34 .85 (.26) .96
--------------------------------------------------------------------------------------
Total from investment
operations .43 .11 .84 1.39 .30 1.53
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.50) (.50) (.54) (.56) (.57)
Realized capital gains - - - (.00)(a) (.01) (.01)
--------------------------------------------------------------------------------------
Total distributions (.23) (.50) (.50) (.54) (.57) (.58)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.56 $ 13.36 $ 13.75 $ 13.41 $ 12.56 $ 12.83
======================================================================================
Total return (%)* 3.22 .85 6.31 11.25 2.29 13.07(b)
Net assets at
end of period (000) $3,643,476 $3,381,571 $3,387,366 $3,231,474 $2,794,641 $2,859,691
Ratios to average
net assets:**
Expenses (%) .54(c),(d) .55(c) .54(c) .54(c) .52(c) .47(b),(c)
Net investment
income (%) 3.37(d) 3.72 3.63 4.11 4.35 4.55
Portfolio turnover (%) 2 10 11 13 14 7
* 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
$3,527,571,000.
(a) Represents less than $0.01 per share.
(b) During the year ended March 31, 2010, SAS reimbursed the Fund Shares $66,000
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
---------------------------------------------------------------------
2014 2014 2013 2012 2011***
---------------------------------------------------------------------
Net asset value at
beginning of period $ 13.36 $ 13.75 $13.41 $12.56 $13.05
---------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .47 .47 .51 .35
Net realized and
unrealized gain (loss) .20 (.39) .34 .85 (.48)
---------------------------------------------------------------
Total from investment
operations .41 .08 .81 1.36 (.13)
---------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.47) (.47) (.51) (.35)
Realized capital gains - - - (.00)(a) (.01)
---------------------------------------------------------------
Total distributions (.21) (.47) (.47) (.51) (.36)
---------------------------------------------------------------
Net asset value at
end of period $ 13.56 $ 13.36 $13.75 $13.41 $12.56
===============================================================
Total return (%)* 3.10 .64 6.10 11.03 (1.04)
Net assets at
end of period (000) $30,342 $20,166 $7,451 $5,843 $4,756
Ratios to average
net assets:**
Expenses (%)(d) .77(b),(c) .75(b) .75(b) .75(b) .75(b),(c)
Expenses, excluding
reimbursements (%) .91(b),(c) .96(b) 1.14(b) 1.38(b) 1.56(b),(c)
Net investment
income (%) 3.13(c) 3.51 3.41 3.90 4.15(c)
Portfolio turnover (%) 2 10 11 13 14
* 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
$25,203,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Represents less than $0.01 per share.
(b) 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%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Effective August 1, 2014, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 0.80% of the Adviser Shares' average net
assets. Prior to this date, the voluntary expense limit was 0.75%.
================================================================================
56 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, 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
================================================================================
EXPENSE EXAMPLE | 57
================================================================================
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 $1,032.20 $2.75
Hypothetical
(5% return before expenses) 1,000.00 1,022.36 2.74
ADVISER SHARES
Actual 1,000.00 1,031.00** 3.92**
Hypothetical
(5% return before expenses) 1,000.00 1,021.21** 3.90**
* Expenses are equal to the annualized expense ratio of 0.54% for Fund Shares
and 0.77% for Adviser Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account values are based on its actual
total returns of 3.22% for Fund Shares and 3.10% for Adviser Shares for the
six-month period of April 1, 2014, through September 30, 2014.
** The annualized expense ratio of 0.77% for the Adviser Shares above
reflects a change effective August 1, 2014, in the rate of the Manager's
voluntary expense limitation for the Adviser Shares from 0.75% to 0.80% of
the Adviser Share's average 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 1,031.00 4.07
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
================================================================================
58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 30,
2014, the Board, including the Trustees who are not "interested persons" of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with their counsel at which no representatives of
management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance,
================================================================================
ADVISORY AGREEMENT(S) | 59
================================================================================
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. The Manager's
================================================================================
60 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 similar investment
classifications/objectives as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was below the median of its
expense group and above the median of its expense universe. The data indicated
that the Fund's total expense ratio was below the median of its expense group
and its expense universe. The Board took into account the various services
provided to the Fund by the Manager and its affiliates, including the high
quality of services
================================================================================
ADVISORY AGREEMENT(S) | 61
================================================================================
provided by the Manager. The Board also took into account management's
discussion of the Fund's expenses. The Board also noted the level and method of
computing the management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the 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
15% of its performance universe for the one-year period ended December 31, 2013,
and was in the top 5% of its performance universe for the three- and five-year
periods 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
================================================================================
62 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services received by the Fund from
the Manager. The Trustees recognized that the Manager should be entitled to earn
a reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the effect of the
Fund's growth and size on its performance and fees, noting that if the Fund's
assets increase over time, the Fund may realize other economies of scale if
assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund is reasonable in light of the
nature and high quality of services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 63
================================================================================
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.
211745-1114
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R) 10%
=============================================================================
39594-1114 (C)2014, USAA. All rights reserved.
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 $1,032.20 $2.75
Hypothetical
(5% return before expenses) 1,000.00 1,022.36 2.74
ADVISER SHARES
Actual 1,000.00 1,031.00** 3.92**
Hypothetical
(5% return before expenses) 1,000.00 1,021.21** 3.90**
* Expenses are equal to the annualized expense ratio of 0.54% for Fund Shares
and 0.77% for Adviser Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account values are based on its actual
total returns of 3.22% for Fund Shares and 3.10% for Adviser Shares for the
six-month period of April 1, 2014, through September 30, 2014.
** The annualized expense ratio of 0.77% for the Adviser Shares above
reflects a change effective August 1, 2014, in the rate of the Manager's
voluntary expense limitation for the Adviser Shares from 0.75% to 0.80% of
the Adviser Share's average 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 1,031.00 4.07
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
================================================================================
58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2014 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 30,
2014, the Board, including the Trustees who are not "interested persons" of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with their counsel at which no representatives of
management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance,
================================================================================
ADVISORY AGREEMENT(S) | 59
================================================================================
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. The Manager's
================================================================================
60 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 similar investment
classifications/objectives as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was below the median of its
expense group and above the median of its expense universe. The data indicated
that the Fund's total expense ratio was below the median of its expense group
and its expense universe. The Board took into account the various services
provided to the Fund by the Manager and its affiliates, including the high
quality of services
================================================================================
ADVISORY AGREEMENT(S) | 61
================================================================================
provided by the Manager. The Board also took into account management's
discussion of the Fund's expenses. The Board also noted the level and method of
computing the management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the 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
15% of its performance universe for the one-year period ended December 31, 2013,
and was in the top 5% of its performance universe for the three- and five-year
periods 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
================================================================================
62 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services received by the Fund from
the Manager. The Trustees recognized that the Manager should be entitled to earn
a reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the effect of the
Fund's growth and size on its performance and fees, noting that if the Fund's
assets increase over time, the Fund may realize other economies of scale if
assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund is reasonable in light of the
nature and high quality of services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 63
================================================================================
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
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
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MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select 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)
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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.
211745-1114
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USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
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>> 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)
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39594-1114 (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
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Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 11/20/2014
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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
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Signature and Title: Daniel S. McNamara, President
Date: 11/21/2014
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By:* /S/ ROBERTO GALINDO, JR.
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Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 11/20/2014
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*Print the name and title of each signing officer under his or her signature.