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, 2016
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2016
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CALIFORNIA BOND FUND]
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SEMIANNUAL REPORT
USAA CALIFORNIA BOND FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2016
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PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
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NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
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This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 23
Financial Statements 25
Notes to Financial Statements 28
EXPENSE EXAMPLE 41
ADVISORY AGREEMENT(S) 43
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2016, USAA. All rights reserved.
211727-1116
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FUND OBJECTIVE
THE USAA CALIFORNIA BOND FUND (THE FUND) PROVIDES CALIFORNIA INVESTORS WITH A
HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND CALIFORNIA
STATE INCOME TAXES.
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TYPES OF INVESTMENTS
The Fund invests primarily in long-term investment-grade securities issued by
the state of California, its political subdivisions and instrumentalities, and
by other government entities, the interest on which is exempt from federal
income tax and California state income tax. During normal market conditions, at
least 80% of the Fund's net assets will consist of California tax-exempt
securities. The Fund's dollar-weighted average portfolio maturity is not
restricted, but is expected to be greater than 10 years.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF JOHN C. BONNELL] [PHOTO OF DALE R. HOFFMANN]
JOHN C. BONNELL, CFA DALE R. HOFFMANN
USAA Asset USAA Asset
Management Company Management Company
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o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period ended
September 30, 2016, as demand for municipal securities outweighed the amount
of available supply. Although new issuance picked up, it remained low by
historical standards. Furthermore, it was dominated by refunding bonds rather
than new issues. In a bond refunding, issuers call existing high-interest
bonds and replace them with new bonds that have lower coupon rates.
Meanwhile, as demand for municipal bonds increased, municipal bond mutual
funds also received positive investment inflows every week of the reporting
period. Investors continued to prefer municipal securities for their
tax-advantaged status as well as their relative stability.
Municipal bonds also benefited from the performance of the U.S. Treasury
market, which the tax-exempt bond market generally follows over time.
Longer-term U.S. Treasury securities rallied on strong demand, especially
from foreign investors who favored U.S. Treasuries because of their
relatively higher yields compared to the government bonds of other developed
countries. As U.S. Treasury prices rose, their yields (which move in the
opposite direction) fell. During the reporting period, the yield on a 30-year
U.S. Treasury security dropped from 2.61% as of 3/31/16 to 2.32% as of
9/30/16.
Municipal credit quality remained strong as state and local governments
continued to practice sound fiscal management and generally maintained
healthy reserves. State and local revenues rose, though at a more moderate
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2 | USAA CALIFORNIA BOND FUND
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pace than in the recent past. Numerous issuers also took steps to address
their pension risks, in some cases proposing tax increases to deal with
potential pension-funding shortfalls. Unlike corporate issuers, many state
and municipal governments have broad taxing powers and are required by law to
balance their budgets.
o HOW DID THE USAA CALIFORNIA BOND FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
reporting period ended September 30, 2016, the Fund Shares and Adviser Shares
had a total return of 2.20% and 2.06%, respectively, versus an average return
of 2.82% amongst the funds in the Lipper California Municipal Debt Funds
category. This compares to returns of 2.90% for the Lipper California
Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal
Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions
over the prior 12 months produced a dividend yield of 3.45% and 3.20%,
respectively, compared to the Lipper category average of 3.16%.
USAA Asset Management Company (the Manager) is the Fund's investment adviser.
The investment adviser provides day-to-day discretionary management for the
Fund's assets.
o WHAT ARE THE CONDITIONS IN THE STATE OF CALIFORNIA?
California's fiscal situation was relatively unchanged during the reporting
period. The state controller announced that after four consecutive months of
missed budget projections, California's August 2016 revenues had outpaced
expectations, based largely on the strength of personal income tax receipts.
State revenues are benefiting from a tax initiative approved
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's
benchmark is now called the Bloomberg Barclays Municipal Bond Index.
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MANAGERS' COMMENTARY ON THE FUND | 3
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by voters in November 2012. In addition to its slowly growing economy,
California has not recently experienced any dramatic swings in revenue, which
had troubled the state in the past. Importantly, state legislators appear
committed to spending cuts that are also contributing to stabilization in
California's finances. Recognizing California's fiscal progress, Fitch
Ratings upgraded the state's general obligation bonds one notch during the
reporting period. On September 30, 2016, the state's general obligation bonds
were rated Aa3 by Moody's Investors Service, AA- by Standard & Poor's Ratings
Services, and AA- by Fitch Ratings, Inc.
o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD?
We maintained our focus on income generation. Over the long-term, the Fund's
income distribution, not its price appreciation, accounts for most of its
total return.
During the reporting period, the Fund continued to benefit from our
independent research. In our efforts to find attractive opportunities, we
continued to work with our in-house team of analysts to select investments
for the Fund on a bond-by-bond basis. Each security is researched, using
fundamental analysis that emphasizes an issuer's ability and willingness to
repay its debt. Through our research, we seek both to recognize value and
avoid potential risks.
The Fund continues to be diversified by sector and issuer, limiting its
exposure to an unexpected event. We also 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. 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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4 | USAA CALIFORNIA BOND FUND
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INVESTMENT OVERVIEW
USAA CALIFORNIA BOND FUND SHARES (FUND SHARES)
(Ticker Symbol: USCBX)
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9/30/16 3/31/16
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Net Assets $718.9 Million $698.7 Million
Net Asset Value Per Share $11.35 $11.29
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.392 $0.418
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 16.4 Years 14.5 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 9/30/16
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3/31/16 - 9/30/16* 1 YEAR 5 YEARS 10 YEARS
2.20% 5.09% 6.02% 4.81%
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30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
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1.52% 0.56%
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 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, 2016, 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, 2016
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 YEARS 4.81% = 4.46% + 0.35%
5 YEARS 6.02% = 4.04% + 1.98%
1 YEAR 5.09% = 3.57% + 1.52%
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, 2007-SEPTEMBER 30, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN
RETURN RETURN SHARE PRICE
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9/30/07 1.76% 4.29% -2.53%
9/30/08 -5.92% 4.31% -10.23%
9/30/09 14.80% 5.97% 8.83%
9/30/10 5.18% 4.89% 0.29%
9/30/11 3.34% 4.95% -1.61%
9/30/12 12.25% 4.55% 7.70%
9/30/13 -1.67% 3.84% -5.51%
9/30/14 11.07% 4.38% 6.69%
9/30/15 3.96% 3.87% 0.09%
9/30/16 5.09% 1.52% 1.52%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD.
HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE
THAN SHARE PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
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 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 (including
capital gain distributions), redemptions of shares, or reinvested net investment
income.
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6 | USAA CALIFORNIA BOND FUND
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TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/16,
and assuming California state tax
rates of: 9.30% 9.30% 9.30% 9.30%
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 4.46% 6.83% 7.78% 8.03% 8.69%
5 Years 4.04% 6.19% 7.05% 7.28% 7.87%
1 Year 3.57% 5.47% 6.23% 6.43% 6.95%
To match the Fund Shares' closing 30-day SEC Yield of 1.52% on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 2.33% 2.65% 2.74% 2.96%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
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Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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]
LIPPER CALIFORNIA
USAA CALIFORNIA MUNICIPAL DEBT BLOOMBERG BARCLAYS
BOND FUND SHARES FUNDS INDEX MUNICIPAL BOND INDEX
09/30/06 $10,000.00 $10,000.00 $10,000.00
10/31/06 10,079.00 10,068.59 10,062.71
11/30/06 10,187.00 10,155.56 10,146.59
12/31/06 10,141.00 10,114.19 10,110.74
01/31/07 10,110.00 10,096.78 10,084.85
02/28/07 10,248.00 10,220.19 10,217.74
03/31/07 10,203.00 10,189.74 10,192.55
04/30/07 10,238.00 10,224.24 10,222.72
05/31/07 10,183.00 10,177.48 10,177.46
06/30/07 10,118.00 10,112.42 10,124.72
07/31/07 10,145.00 10,166.11 10,203.21
08/31/07 9,990.00 10,042.16 10,159.19
09/30/07 10,175.00 10,190.27 10,309.52
10/31/07 10,213.00 10,224.44 10,355.47
11/30/07 10,226.00 10,234.48 10,421.50
12/31/07 10,194.00 10,212.55 10,450.43
01/31/08 10,260.00 10,304.86 10,582.21
02/29/08 9,630.00 9,731.99 10,097.73
03/31/08 9,986.00 10,019.88 10,386.34
04/30/08 10,201.00 10,164.38 10,507.88
05/31/08 10,270.00 10,236.55 10,571.41
06/30/08 10,114.00 10,110.82 10,452.09
07/31/08 10,046.00 10,093.81 10,491.82
08/31/08 10,176.00 10,207.87 10,614.60
09/30/08 9,573.00 9,652.72 10,116.83
10/31/08 9,220.00 9,328.82 10,013.57
11/30/08 9,099.00 9,207.07 10,045.40
12/31/08 8,917.00 9,109.22 10,191.86
01/31/09 9,435.00 9,573.35 10,564.91
02/28/09 9,558.00 9,669.87 10,620.41
03/31/09 9,497.00 9,584.91 10,622.35
04/30/09 9,775.00 9,846.85 10,834.56
05/31/09 10,002.00 10,065.10 10,949.17
06/30/09 9,785.00 9,895.27 10,846.60
07/31/09 9,903.00 10,034.60 11,028.07
08/31/09 10,277.00 10,335.72 11,216.61
09/30/09 10,990.00 10,966.12 11,619.14
10/31/09 10,612.00 10,654.08 11,375.24
11/30/09 10,506.00 10,646.84 11,469.23
12/31/09 10,596.00 10,719.08 11,507.99
01/31/10 10,614.00 10,772.98 11,567.92
02/28/10 10,690.00 10,892.23 11,680.05
03/31/10 10,744.00 10,902.93 11,652.09
04/30/10 10,973.00 11,084.67 11,793.69
05/31/10 11,068.00 11,154.54 11,882.15
06/30/10 11,025.00 11,129.22 11,889.21
07/31/10 11,180.00 11,269.24 12,037.46
08/31/10 11,550.00 11,588.36 12,313.06
09/30/10 11,559.00 11,596.31 12,293.82
10/31/10 11,525.00 11,584.78 12,259.77
11/30/10 11,059.00 11,225.77 12,014.62
12/31/10 10,685.00 10,941.76 11,781.79
01/31/11 10,403.00 10,756.26 11,695.00
02/28/11 10,595.00 10,948.56 11,881.18
03/31/11 10,539.00 10,871.56 11,841.59
04/30/11 10,768.00 11,083.46 12,053.65
05/31/11 11,096.00 11,353.29 12,259.63
06/30/11 11,222.00 11,441.29 12,302.40
07/31/11 11,406.00 11,575.26 12,427.95
08/31/11 11,646.00 11,760.83 12,640.57
09/30/11 11,948.00 11,955.43 12,771.24
10/31/11 11,896.00 11,910.45 12,723.76
11/30/11 11,952.00 11,969.25 12,798.93
12/31/11 12,260.00 12,232.63 13,042.41
01/31/12 12,723.00 12,660.11 13,344.04
02/29/12 12,779.00 12,708.21 13,357.19
03/31/12 12,706.00 12,642.25 13,270.40
04/30/12 12,879.00 12,817.94 13,423.49
05/31/12 13,042.00 12,965.10 13,534.92
06/30/12 13,039.00 12,955.09 13,520.39
07/31/12 13,261.00 13,200.39 13,734.67
08/31/12 13,321.00 13,233.67 13,750.31
09/30/12 13,409.00 13,338.56 13,833.37
10/31/12 13,489.00 13,409.90 13,872.40
11/30/12 13,755.00 13,714.82 14,100.94
12/31/12 13,627.00 13,508.43 13,926.66
01/31/13 13,730.00 13,615.94 13,984.66
02/28/13 13,799.00 13,667.82 14,027.02
03/31/13 13,782.00 13,600.07 13,966.53
04/30/13 13,926.00 13,780.07 14,119.63
05/31/13 13,837.00 13,615.90 13,947.15
06/30/13 13,245.00 13,069.20 13,552.23
07/31/13 13,029.00 12,879.54 13,433.74
08/31/13 12,790.00 12,643.55 13,242.02
09/30/13 13,185.00 12,973.68 13,527.03
10/31/13 13,282.00 13,090.36 13,633.90
11/30/13 13,267.00 13,064.16 13,605.80
12/31/13 13,225.00 13,041.14 13,571.05
01/31/14 13,642.00 13,377.63 13,835.44
02/28/14 13,842.00 13,583.48 13,997.67
03/31/14 13,925.00 13,645.00 14,021.21
04/30/14 14,152.00 13,837.01 14,189.67
05/31/14 14,368.00 14,074.61 14,372.39
06/30/14 14,388.00 14,079.95 14,384.85
07/31/14 14,409.00 14,117.01 14,410.18
08/31/14 14,574.00 14,323.78 14,584.73
09/30/14 14,645.00 14,394.72 14,599.54
10/31/14 14,761.00 14,514.26 14,699.62
11/30/14 14,791.00 14,535.84 14,725.09
12/31/14 14,892.00 14,644.05 14,799.29
01/31/15 15,083.00 14,927.91 15,061.60
02/28/15 14,998.00 14,776.43 14,906.29
03/31/15 15,058.00 14,832.30 14,949.34
04/30/15 15,012.00 14,738.06 14,870.85
05/31/15 14,993.00 14,702.14 14,829.74
06/30/15 14,974.00 14,657.24 14,816.31
07/31/15 15,065.00 14,765.39 14,923.59
08/31/15 15,123.00 14,813.55 14,952.94
09/30/15 15,226.00 14,921.23 15,061.18
10/31/15 15,289.00 14,986.90 15,121.12
11/30/15 15,349.00 15,072.44 15,181.20
12/31/15 15,440.00 15,213.67 15,287.92
01/31/16 15,536.00 15,369.79 15,470.36
02/29/16 15,570.00 15,391.92 15,494.59
03/31/16 15,657.00 15,490.53 15,543.73
04/30/16 15,760.00 15,617.94 15,658.07
05/31/16 15,817.00 15,697.18 15,700.42
06/30/16 16,029.00 15,991.39 15,950.14
07/31/16 16,002.00 15,971.48 15,959.83
08/31/16 16,057.00 16,014.02 15,981.42
09/30/16 16,004.00 15,939.57 15,901.69
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA California Bond Fund Shares to the following benchmarks:
o The unmanaged Lipper California Municipal Debt Funds Index measures the
Fund's performance to that of the Lipper California Municipal Debt Funds
category that limit their assets to those securities exempt from taxation in
the state of California.
o The unmanaged, broad-based Bloomberg 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.
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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
8 | USAA CALIFORNIA BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER CALIFORNIA
USAA CALIFORNIA MUNICIPAL DEBT
BOND FUND SHARES FUNDS AVERAGE
09/30/07 4.44% 3.90%
09/30/08 5.08% 4.38%
09/30/09 4.72% 4.16%
09/30/10 4.61% 4.17%
09/30/11 4.64% 4.24%
09/30/12 4.02% 3.78%
09/30/13 4.16% 3.73%
09/30/14 3.92% 3.54%
09/30/15 3.81% 3.42%
09/30/16 3.45% 3.16%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/07 through 9/30/16.
The Lipper California Municipal Debt Funds Average is an average performance
level of all California municipal debt funds, reported by Lipper Inc., an
independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA CALIFORNIA BOND FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UXABX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $8.3 Million $8.3 Million
Net Asset Value Per Share $11.34 $11.28
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.363 $0.390
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16 - 9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.06% 4.83% 5.75% 5.72%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
1.26% 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 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, 2016, and is
calculated as a percentage of average net assets. This expense ratio 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 CALIFORNIA BOND FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 1.26% on 09/30/16
and assuming California state tax
rates of: 9.30% 9.30% 9.30% 9.30%
and assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 1.93% 2.20% 2.27% 2.45%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 tax rates or rates in effect as of the
issuance of this report. The above marginal rates assume married, filing
jointly.
*The above marginal rates assume income exceeds $250,000 and investment income
is subject to the 3.80% medicare tax which is applied for income over a specific
level, depending on the federal income tax filing status.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER CALIFORNIA USAA CALIFORNIA BLOOMBERG BARCLAYS
MUNICIPAL DEBT BOND FUND MUNICIPAL BOND
FUNDS INDEX ADVISER SHARES INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,283.17 10,327.02 10,228.95
09/30/10 10,290.23 10,342.20 10,212.97
10/31/10 10,280.00 10,308.42 10,184.68
11/30/10 9,961.43 9,878.64 9,981.03
12/31/10 9,709.40 9,551.35 9,787.61
01/31/11 9,544.79 9,296.62 9,715.50
02/28/11 9,715.44 9,465.58 9,870.17
03/31/11 9,647.11 9,412.89 9,837.28
04/30/11 9,835.14 9,614.75 10,013.45
05/31/11 10,074.58 9,895.21 10,184.57
06/30/11 10,152.67 10,005.14 10,220.10
07/31/11 10,271.55 10,166.77 10,324.40
08/31/11 10,436.22 10,378.91 10,501.03
09/30/11 10,608.91 10,655.90 10,609.58
10/31/11 10,568.99 10,608.40 10,570.14
11/30/11 10,621.17 10,646.51 10,632.58
12/31/11 10,854.88 10,929.25 10,834.86
01/31/12 11,234.21 11,340.94 11,085.43
02/29/12 11,276.90 11,377.94 11,096.35
03/31/12 11,218.36 11,309.99 11,024.25
04/30/12 11,374.27 11,472.97 11,151.44
05/31/12 11,504.86 11,616.02 11,244.01
06/30/12 11,495.97 11,600.98 11,231.93
07/31/12 11,713.65 11,796.92 11,409.94
08/31/12 11,743.18 11,847.72 11,422.94
09/30/12 11,836.25 11,923.87 11,491.93
10/31/12 11,899.56 11,993.17 11,524.36
11/30/12 12,170.14 12,227.90 11,714.22
12/31/12 11,987.00 12,110.44 11,569.44
01/31/13 12,082.39 12,200.13 11,617.62
02/28/13 12,128.43 12,259.65 11,652.81
03/31/13 12,068.31 12,242.45 11,602.56
04/30/13 12,228.03 12,367.64 11,729.74
05/31/13 12,082.36 12,283.42 11,586.46
06/30/13 11,597.23 11,758.34 11,258.38
07/31/13 11,428.93 11,563.45 11,159.95
08/31/13 11,219.52 11,346.35 11,000.68
09/30/13 11,512.47 11,696.97 11,237.45
10/31/13 11,616.01 11,780.42 11,326.23
11/30/13 11,592.76 11,764.63 11,302.88
12/31/13 11,572.34 11,724.90 11,274.02
01/31/14 11,870.92 12,090.44 11,493.66
02/28/14 12,053.58 12,265.86 11,628.43
03/31/14 12,108.18 12,339.39 11,647.98
04/30/14 12,278.57 12,538.43 11,787.93
05/31/14 12,489.40 12,726.15 11,939.72
06/30/14 12,494.14 12,742.24 11,950.07
07/31/14 12,527.03 12,757.86 11,971.12
08/31/14 12,710.51 12,900.16 12,116.12
09/30/14 12,773.46 12,961.86 12,128.43
10/31/14 12,879.54 13,046.90 12,211.57
11/30/14 12,898.68 13,085.37 12,232.73
12/31/14 12,994.71 13,170.14 12,294.37
01/31/15 13,246.60 13,336.63 12,512.28
02/28/15 13,112.18 13,258.43 12,383.26
03/31/15 13,161.75 13,309.37 12,419.02
04/30/15 13,078.13 13,266.59 12,353.82
05/31/15 13,046.25 13,247.47 12,319.66
06/30/15 13,006.42 13,227.24 12,308.51
07/31/15 13,102.38 13,301.82 12,397.63
08/31/15 13,145.12 13,353.04 12,422.01
09/30/15 13,240.67 13,440.51 12,511.93
10/31/15 13,298.95 13,492.18 12,561.73
11/30/15 13,374.85 13,543.84 12,611.63
12/31/15 13,500.17 13,617.60 12,700.29
01/31/16 13,638.71 13,703.35 12,851.86
02/29/16 13,658.35 13,730.57 12,871.98
03/31/16 13,745.85 13,805.49 12,912.80
04/30/16 13,858.91 13,893.00 13,007.79
05/31/16 13,929.22 13,940.00 13,042.97
06/30/16 14,190.30 14,124.00 13,250.42
07/31/16 14,172.63 14,097.00 13,258.47
08/31/16 14,210.38 14,142.00 13,276.41
09/30/16 14,144.32 14,092.00 13,210.17
[END CHART]
Data from 7/31/10 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA California Bond Fund Adviser Shares to the benchmarks listed above (see
page 8 for benchmark definitions).
*The performance of the Lipper California Municipal Debt Funds Index and the
Bloomberg Barclays Municipal Bond Index is calculated from the end of the month,
July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010.
There may be a slight variation of performance numbers because of this
difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
12 | USAA CALIFORNIA BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA CALIFORNIA LIPPER CALIFORNIA
BOND FUND MUNICIPAL DEBT
ADVISER SHARES FUNDS AVERAGE
09/30/11 4.34% 4.24%
09/30/12 3.82% 3.78%
09/30/13 3.92% 3.73%
09/30/14 3.68% 3.54%
09/30/15 3.55% 3.42%
09/30/16 3.20% 3.16%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/11 through 9/30/16.
The Lipper California Municipal Debt Funds Average is an average performance
level of all California municipal debt funds, reported by Lipper Inc., an
independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
General Obligation ...................................................... 16.0%
Hospital ................................................................ 14.1%
Appropriated Debt ....................................................... 14.0%
Special Assessment/Tax/Fee .............................................. 12.9%
Water/Sewer Utility ..................................................... 12.3%
Real Estate Tax/Fee ..................................................... 8.7%
Toll Roads .............................................................. 5.1%
Electric/Gas Utilities .................................................. 4.3%
Airport/Port ............................................................ 3.9%
Nursing/CCRC ............................................................ 3.3%
You will find a complete list of securities that the Fund owns on pages 16-22.
================================================================================
14 | USAA CALIFORNIA BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 0.8%
AA 64.4%
A 22.4%
BBB 9.0%
BELOW INVESTMENT-GRADE 2.3%
UNRATED 1.1%
[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 independent 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 and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated 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 16-22.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the
market price of a fixed-rate instrument generally varies inversely to the
movement of interest rates.
PUT BONDS - Provide the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the effective
maturity of the security.
VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CCD Community College District
PRE Pre-refunded to a date prior to maturity
USD Unified School District
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
================================================================================
16 | USAA CALIFORNIA BOND FUND
================================================================================
(INS) Principal and interest payments are insured by one of the following:
AMBAC Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal
Corp., Build America Mutual Assurance 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 Corp., Deutsche Bank A.G., Dexia Credit Local,
or JPMorgan Chase & Co.
(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 California Health Insurance Construction Loan Insurance Program.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (90.0%)
CALIFORNIA (87.0%)
$ 2,000 Alameda Corridor Transportation Auth. 5.00% 10/01/2037 $ 2,399
1,500 Anaheim Public Financing Auth. 5.00 5/01/2046 1,780
4,235 Association of Bay Area Governments (NBGA) 5.00 1/01/2033 5,010
17,520 Association of Bay Area Governments (INS) 4.75 3/01/2036 17,779
1,500 Association of Bay Area Governments 5.00 7/01/2042 1,675
3,085 Burbank USD, 4.30%, 8/01/2023 4.30(a) 8/01/2033 2,681
3,000 Burbank USD, 4.35%, 8/01/2023 4.35(a) 8/01/2034 2,598
5,265 Carlsbad USD (INS) 5.00 10/01/2034 5,820
9,500 Centinela Valley Union High School District (b) 4.00 8/01/2050 10,283
3,000 Central USD (INS) (PRE) 5.50 8/01/2029 3,389
5,000 Chula Vista 5.88 1/01/2034 5,604
6,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 6,701
1,350 Corona-Norco USD 5.00 9/01/2032 1,580
6,000 Educational Facilities Auth. 5.38 4/01/2034 6,774
1,000 Educational Facilities Auth. 5.00 10/01/2037 1,196
3,100 Educational Facilities Auth. 5.00 10/01/2049 3,769
1,500 Elk Grove Finance Auth. (INS) 5.00 9/01/2038 1,782
15,000 Foothill/Eastern Transportation
Corridor Agency (INS) 4.21(c) 1/15/2034 8,395
7,500 Foothill/Eastern Transportation
Corridor Agency (INS) 4.25(c) 1/15/2035 4,052
18,000 Golden State Tobacco Securitization (INS) 4.55(a) 6/01/2022 19,001
17,000 Golden State Tobacco Securitization 5.00 6/01/2033 17,147
610 Health Facilities Financing Auth. (NBGA) 5.50 1/01/2019 612
5,000 Health Facilities Financing Auth. 5.00 7/01/2033 5,905
2,000 Health Facilities Financing Auth. (PRE) 6.50 10/01/2033 2,227
8,105 Health Facilities Financing Auth. 4.00 3/01/2039 8,902
1,050 Health Facilities Financing Auth. (NBGA) 5.00 7/01/2039 1,247
2,100 Health Facilities Financing Auth. 5.00 11/15/2039 2,481
14,000 Health Facilities Financing Auth. 4.00 11/15/2041 15,317
7,805 Health Facilities Financing Auth. (NBGA) 5.00 6/01/2042 8,959
2,300 Health Facilities Financing Auth. (NBGA) 5.00 7/01/2044 2,722
10,000 Health Facilities Financing Auth. 4.00 10/01/2047 10,850
9,310 Indio Redevelopment Agency 5.25 8/15/2031 9,965
6,000 Inland Empire Tobacco Securitization Auth. 5.75(a) 6/01/2026 6,407
1,000 Jurupa Public Financing Auth. 5.00 9/01/2042 1,151
3,875 Long Beach Bond Finance Auth. 5.00 11/15/2035 4,990
2,000 Los Angeles County Public Works Financing Auth. 5.00 12/01/2044 2,380
================================================================================
18 | USAA CALIFORNIA BOND FUND
================================================================================
----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------
$ 6,000 Los Angeles County Public Works Financing Auth. 5.00% 12/01/2045 $ 7,244
10,000 Madera Redevelopment Agency 5.38 9/01/2038 10,695
5,790 March Joint Powers Redevelopment Agency (INS) 4.00 8/01/2041 6,357
6,000 Modesto Irrigation District 5.75 10/01/2034 6,659
3,435 Monrovia Financing Auth. 5.00 12/01/2045 4,094
2,345 Monrovia Financing Auth. (INS) 5.00 12/01/2045 2,795
7,500 Monterey Peninsula CCD (INS) (PRE) 5.11(c) 8/01/2029 4,142
2,000 Mountain View Shoreline Regional Park
Community(d) 5.63 8/01/2035 2,374
1,000 Municipal Finance Auth. 5.00 6/01/2050 1,143
1,500 Norco Redevelopment Agency 5.88 3/01/2032 1,725
1,250 Norco Redevelopment Agency 6.00 3/01/2036 1,444
5,000 Norwalk Redevelopment Agency (INS) 5.00 10/01/2030 5,016
3,500 Norwalk Redevelopment Agency (INS) 5.00 10/01/2035 3,513
7,500 Norwalk-La Mirada USD (INS) 5.00(c) 8/01/2030 5,067
6,205 Oakdale Irrigation District (PRE) 5.50 8/01/2034 7,008
5,500 Palomar Pomerado Health (INS) 4.89(c) 8/01/2026 4,268
12,230 Palomar Pomerado Health (INS) 6.05(c) 8/01/2031 7,687
2,000 Pittsburg Successor Redevelopment Agency (INS) 5.00 9/01/2029 2,496
4,000 Pollution Control Financing Auth.(e) 5.25 8/01/2040 4,487
10,000 Pollution Control Financing Auth. 5.00 11/21/2045 10,283
1,500 Pomona USD (INS) 5.00 8/01/2039 1,770
6,875 Public Works Board 5.00 4/01/2031 6,902
5,705 Public Works Board 5.00 4/01/2031 5,727
5,000 Regents of the Univ. of California Medical Center 4.00 5/15/2044 5,530
2,800 Rio Elementary School District (INS) 4.00 8/01/2045 3,090
9,880 Riverside County Public Financing Auth. (INS) (PRE) 4.75 10/01/2035 9,881
120 Riverside County Public Financing Auth. (INS) 4.75 10/01/2035 120
1,250 Riverside County Public Financing Auth. (INS) 4.00 10/01/2036 1,380
1,625 Riverside County Public Financing Auth. (INS) 4.00 10/01/2037 1,793
2,000 Riverside County Redevelopment Successor
Agency (INS) 4.00 10/01/2037 2,207
2,000 Riverside County Transportation Commission 5.25 6/01/2039 2,437
7,115 Roseville Finance Auth. 5.00 2/01/2037 7,987
2,000 Sacramento Area Flood Control Agency (INS) 5.00 10/01/2044 2,351
7,030 Sacramento City Financing Auth. (INS) (PRE) 5.00 12/01/2036 7,081
1,020 Sacramento USD (INS) 5.00 7/01/2038 1,196
2,000 San Diego County Regional Airport Auth. 5.00 7/01/2040 2,251
2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 3,016
1,000 San Diego Public Financing Auth. (PRE) 5.25 5/15/2029 1,155
3,500 San Francisco City and County Airport (PRE) 5.25 5/01/2026 3,747
10,000 San Jose Financing Auth. 5.00 6/01/2039 11,775
3,000 San Jose Redevelopment Agency (INS) 4.45 8/01/2032 3,071
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------
$ 1,500 San Luis & Delta-Mendota (INS) 5.00% 3/01/2038 $ 1,721
3,000 San Marcos USD Financing Auth. (INS) 5.00 8/15/2035 3,384
5,000 San Ramon Successor Redevelopment Agency (INS) 5.00 2/01/2038 5,894
3,500 Santa Barbara Financing Auth. 5.00 7/01/2029 3,854
9,000 Santa Barbara Financing Auth. 5.00 7/01/2039 9,891
2,000 Santa Clara 5.25 7/01/2032 2,354
5,250 Santa Clarita Community College District 4.00 8/01/2046 5,860
900 Santa Cruz County Redevelopment Successor
Agency (INS) 4.00 9/01/2035 1,004
6,000 Santa Cruz County Redevelopment Successor
Agency (INS) 5.00 9/01/2035 7,235
1,350 Santa Cruz County Redevelopment Successor
Agency (INS) 4.00 9/01/2036 1,500
1,750 School Finance Auth.(e) 5.00 8/01/2041 2,006
2,250 School Finance Auth.(e) 5.00 8/01/2046 2,566
1,750 Sierra View Local Health Care District (PRE) 5.25 7/01/2037 1,809
10,000 South Orange County Public Financing Auth. (INS) 5.00 8/15/2032 10,029
2,070 South Orange County Public Financing Auth. 5.00 4/01/2035 2,523
1,075 South Orange County Public Financing Auth. 5.00 4/01/2036 1,305
4,000 State 5.25 2/01/2030 4,807
6,000 State 4.50 8/01/2030 6,069
5,000 State 5.75 4/01/2031 5,583
3,000 State 5.00 2/01/2043 3,539
2,500 State 5.00 9/01/2045 3,078
8,000 State 4.00 9/01/2046 8,907
2,225 Statewide Communities Dev. Auth. (INS)(d) 4.50 2/01/2027 2,242
11,795 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.00 12/01/2027 12,384
4,225 Statewide Communities Dev. Auth. 5.50 7/01/2031 4,374
4,000 Statewide Communities Dev. Auth. (INS)(d) 4.60 2/01/2037 4,025
13,000 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.00 12/01/2037 13,649
3,500 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.75 8/15/2038 3,822
2,500 Statewide Communities Dev. Auth. 5.00 11/15/2038 2,658
2,000 Statewide Communities Dev. Auth. 5.00 5/15/2040 2,389
1,500 Statewide Communities Dev. Auth. 5.00 5/15/2042 1,680
500 Statewide Communities Dev. Auth. 5.00 11/01/2043 592
2,400 Statewide Communities Dev. Auth. (NBGA) 5.00 8/01/2044 2,804
1,500 Statewide Communities Dev. Auth. 5.00 5/15/2047 1,672
3,000 Statewide Communities Dev. Auth. 4.00 8/15/2051 3,247
1,575 Temecula Valley USD (INS) 5.00 9/01/2040 1,853
7,500 Temecula Valley USD (INS) 4.00 8/01/2045 8,280
5,710 Tulare (INS) 4.00 11/15/2041 6,302
5,000 Tulare (INS) 4.00 11/15/2044 5,505
7,190 Tuolumne Wind Project Auth. (PRE) 5.63 1/01/2029 7,953
================================================================================
20 | USAA CALIFORNIA BOND FUND
================================================================================
----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------
$ 4,000 Val Verde USD (INS) 5.00% 3/01/2029 $ 4,339
1,105 Val Verde USD (INS) 5.00 8/01/2034 1,331
1,530 Val Verde USD (INS) 5.00 8/01/2035 1,834
1,500 Val Verde USD (INS) 5.13 3/01/2036 1,630
4,000 Val Verde USD (INS) 5.00 8/01/2044 4,733
4,475 Val Verde USD (INS) 4.00 8/01/2045 4,902
4,813 Vallejo Sanitation and Flood Control District (INS)(d) 5.00 7/01/2019 5,045
5,000 Victor Valley Union High School District (INS) 4.00 8/01/2037 5,558
7,000 Vista (INS) (PRE) 5.00 5/01/2037 7,175
1,250 Washington Township Health Care District 6.00 7/01/2029 1,397
6,080 Washington Township Health Care District 5.00 7/01/2037 6,207
4,585 West Kern Water District(d) 5.00 6/01/2028 5,238
6,000 Western Placer USD (INS)(b) 4.00 8/01/2041 6,630
--------
632,862
--------
GUAM (1.9%)
1,000 Power Auth. 5.00 10/01/2034 1,103
4,000 Waterworks Auth. 5.50 7/01/2043 4,620
7,000 Waterworks Auth. 5.00 1/01/2046 8,080
--------
13,803
--------
U.S. VIRGIN ISLANDS (1.1%)
1,805 Public Finance Auth. 4.00 10/01/2022 1,775
1,500 Public Finance Auth. 5.00 10/01/2027 1,512
1,500 Public Finance Auth. 5.00 10/01/2032 1,495
3,000 Public Finance Auth.(e) 5.00 9/01/2033 3,394
--------
8,176
--------
Total Fixed-Rate Instruments (cost: $613,629) 654,841
--------
PUT BONDS (3.5%)
CALIFORNIA (3.5%)
15,000 Bay Area Toll Auth. 2.09(f) 4/01/2036 15,272
10,000 Twin Rivers USD (INS) 3.20 6/01/2041 10,018
--------
25,290
--------
Total Put Bonds (cost: $25,000) 25,290
--------
VARIABLE-RATE DEMAND NOTES (7.9%)
CALIFORNIA (7.9%)
10,120 Anaheim Public Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(e) 1.09 9/01/2030 10,120
1,800 Antioch USD (LIQ) (LOC - Deutsche Bank A.G.)(e) 0.99 8/01/2047 1,800
8,770 Bay Area Toll Auth. (LIQ)(e) 1.05 4/01/2039 8,770
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------
$ 5,355 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(e) 1.03% 12/01/2030 $ 5,355
9,595 Semitropic Improvement District (LIQ)(e) 1.09 6/01/2017 9,595
5,990 State (LIQ) (LOC - Dexia Credit Local)(e) 1.02 8/01/2027 5,990
15,895 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.49 5/01/2040 15,895
--------
57,525
--------
Total Variable-Rate Demand Notes (cost: $57,525) 57,525
--------
TOTAL INVESTMENTS (COST: $696,154) $737,656
========
----------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $654,841 $- $654,841
Put Bonds - 25,290 - 25,290
Variable-Rate Demand Notes - 57,525 - 57,525
----------------------------------------------------------------------------------------------------------------
Total $- $737,656 $- $737,656
----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
22 | USAA CALIFORNIA BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Stepped-coupon security that is initially issued in zero-coupon form and
converts to coupon form at the specified date and rate shown in the
security's description. The rate presented in the coupon rate column
represents the effective yield at the date of purchase.
(b) At September 30, 2016, the aggregate market value of securities purchased
on a delayed-delivery basis was $16,913,000, of which all were
when-issued securities.
(c) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(d) At September 30, 2016, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(e) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
Management Company (the Manager) under liquidity guidelines approved by
USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(f) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2016.
See accompanying notes to financial statements.
================================================================================
24 | USAA CALIFORNIA BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $696,154) $737,656
Cash 48
Receivables:
Capital shares sold 64
Interest 7,260
Other 23
--------
Total assets 745,051
--------
LIABILITIES
Payables:
Securities purchased 16,761
Capital shares redeemed 411
Dividends on capital shares 508
Accrued management fees 166
Accrued transfer agent's fees 5
Other accrued expenses and payables 49
--------
Total liabilities 17,900
--------
Net assets applicable to capital shares outstanding $727,151
========
NET ASSETS CONSIST OF:
Paid-in capital $691,257
Undistributed net investment income 1
Accumulated net realized loss on investments (5,609)
Net unrealized appreciation of investments 41,502
--------
Net assets applicable to capital shares outstanding $727,151
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $718,865/63,345
capital shares outstanding, no par value) $ 11.35
========
Adviser Shares (net assets of $8,286/731
capital shares outstanding, no par value) $ 11.34
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $13,677
-------
EXPENSES
Management fees 1,025
Administration and servicing fees:
Fund Shares 536
Adviser Shares 6
Transfer agent's fees:
Fund Shares 82
Adviser Shares 1
Distribution and service fees (Note 6D):
Adviser Shares 11
Custody and accounting fees:
Fund Shares 52
Adviser Shares 1
Postage:
Fund Shares 5
Shareholder reporting fees:
Fund Shares 9
Trustees' fees 15
Professional fees 45
Other 9
-------
Total expenses 1,797
-------
NET INVESTMENT INCOME 11,880
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 1,181
Change in net unrealized appreciation/(depreciation) 2,555
-------
Net realized and unrealized gain 3,736
-------
Increase in net assets resulting from operations $15,616
=======
See accompanying notes to financial statements.
================================================================================
26 | USAA CALIFORNIA BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
----------------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
----------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 11,880 $ 25,547
Net realized gain on investments 1,181 166
Change in net unrealized appreciation/(depreciation)
of investments 2,555 1,149
----------------------
Increase in net assets resulting from operations 15,616 26,862
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (11,732) (25,252)
Adviser Shares (127) (276)
----------------------
Distributions to shareholders (11,859) (25,528)
----------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 16,422 21,719
Adviser Shares (62) 339
----------------------
Total net increase in net assets from capital
share transactions 16,360 22,058
----------------------
Net increase in net assets 20,117 23,392
NET ASSETS
Beginning of period 707,034 683,642
----------------------
End of period $727,151 $707,034
======================
Undistributed (overdistribution of) net investment income:
End of period $ 1 $ (20)
======================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA California Bond Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to provide California investors with a high level of current
interest income that is exempt from federal and California state income taxes.
The Fund consists of two classes of shares: California Bond Fund Shares (Fund
Shares) and California Bond Fund Adviser Shares (Adviser Shares). Each class of
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, distribution and service (12b-1) fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class' 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 all 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.
================================================================================
28 | USAA CALIFORNIA BOND FUND
================================================================================
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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), an affiliate of the Fund. 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 value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
securities of comparable quality, coupon, maturity, and type; indications
as to values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
2. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized cost
represents the fair value of such securities.
3. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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, other pricing services, 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, evaluation of credit
quality, 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
================================================================================
30 | USAA CALIFORNIA BOND FUND
================================================================================
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 indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and to distribute substantially all of its taxable income and net
capital gains, if any, to its shareholders. Therefore, no federal income tax
provision is required.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using the
effective yield method for long-term securities and the straight-line method
for short-term securities. The Fund concentrates its investments in
California tax-exempt securities and, therefore, may be exposed to more
credit risk than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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, 2016, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $16,761,000; 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, 2016, custodian and other bank credits reduced the Fund's
expenses by less than $500.
G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or
exchanged shares. All redemption fees paid will be accounted for by the Fund
as an addition to paid in capital. For the six-month period ended September
30, 2016, the Fund Shares did not charge any redemption fees and the Adviser
Shares charged redemption fees which were less than $500.
H. 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.
I. USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management
================================================================================
32 | USAA CALIFORNIA BOND FUND
================================================================================
to make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $2,000, which represents 1.0% 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, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income
taxes.
At March 31, 2016, the Fund had long-term capital loss carryforwards of
$6,790,000, 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.
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$148,266,000 and $126,840,000, respectively.
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $42,354,000 and $852,000, respectively, resulting in net
unrealized appreciation of $41,502,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
34 | USAA CALIFORNIA BOND FUND
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016
-------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
FUND SHARES:
Shares sold 3,599 $ 40,954 6,098 $ 68,352
Shares issued from reinvested
dividends 782 8,906 1,723 19,287
Shares redeemed (2,938) (33,438) (5,887) (65,920)
----------------------------------------------------------
Net increase from capital
share transactions 1,443 $ 16,422 1,934 $ 21,719
==========================================================
ADVISER SHARES:
Shares sold 14 $ 153 123 $ 1,373
Shares issued from reinvested
dividends 3 39 7 79
Shares redeemed* (22) (254) (100) (1,113)
----------------------------------------------------------
Net increase (decrease) from
capital share transactions (5) $ (62) 30 $ 339
==========================================================
*Net of redemption fees, if any.
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for
directly managing the day-to-day investment of the Fund's assets, subject to
the authority of and supervision by the Board.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly
as a percentage of aggregate average net assets of the USAA California Bond
Fund and USAA California Money Market Fund combined, which on an annual basis
is equal to 0.50% of the first $50 million, 0.40% of that portion over $50
million but not over $100 million, and 0.30% of that portion over $100
million. These fees
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
are allocated on a proportional basis to each Fund monthly based on average
net assets. For the six-month period ended September 30, 2016, the Fund's
effective annualized base fee was 0.32% of the Fund's average net assets for
the same period.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class' performance over the performance
period to that of the Lipper California Municipal Debt Funds Index. The
Lipper California Municipal Debt Funds Index tracks the total return
performance of Funds that limit assets to those securities that are exempt
from taxation in California. 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
--------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant index, rounded to the nearest basis
point. Average net assets of the share class are calculated over a rolling
36-month period.
Each class' 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 California Municipal Debt Funds Index over that
period, even if the Fund had overall negative returns during the performance
period.
================================================================================
36 | USAA CALIFORNIA BOND FUND
================================================================================
For the six-month period ended September 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $1,025,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$(111,000) and $(2,000), respectively. For the Fund Shares and Adviser
Shares, the performance adjustments were (0.03)% and (0.04)%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2016, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable to
the Manager, of $536,000 and $6,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For the
six-month period ended September 30, 2016, the Fund reimbursed the Manager
$10,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
C. 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 Shares and Adviser Shares 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, 2016, the Fund Shares and Adviser Shares
incurred transfer agent's fees, paid or payable to SAS, of $82,000 and
$1,000, respectively.
D. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Management Company (IMCO), the distributor, for distribution and shareholder
services. IMCO 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, 2016, the Adviser Shares
incurred distribution and service (12b-1) fees of $11,000.
E. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution
of the Fund's shares on a continuing best-efforts basis and receives no fee
or other compensation for these services, but may receive 12b-1 fees as
described above, with respect to Adviser Shares.
(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,
2016, USAA and its affiliates owned 479,000 Adviser Shares, which represents
65.5% of the Adviser Shares outstanding and 0.7% of the Fund's total outstanding
shares.
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.
================================================================================
38 | USAA CALIFORNIA BOND 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,
------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.29 $ 11.27 $ 10.83 $ 11.17 $ 10.71 $ 9.31
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .42 .43 .44 .44 .46
Net realized and
unrealized gain (loss) .06 .02 .44 (.34) .46 1.41
-----------------------------------------------------------------------------
Total from investment
operations .25 .44 .87 .10 .90 1.87
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.42) (.43) (.44) (.44) (.46)
Realized capital gains - - - - - (.01)
-----------------------------------------------------------------------------
Total distributions (.19) (.42) (.43) (.44) (.44) (.47)
-----------------------------------------------------------------------------
Net asset value at end
of period $ 11.35 $ 11.29 $ 11.27 $ 10.83 $ 11.17 $ 10.71
=============================================================================
Total return (%)* 2.20 3.98 8.14 1.03 8.48 20.54
Net assets at end of
period (000) $718,865 $698,731 $675,694 $631,184 $689,365 $643,449
Ratios to average
net assets:**
Expenses (%)(b) .49(a) .56 .57 .58 .56 .53
Net investment income (%) 3.29(a) 3.74 3.85 4.12 3.95 4.57
Portfolio turnover (%) 19 9 4 8 4 4
* 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, 2016, average net assets were
$713,120,000.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
-----------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------
Net asset value at
beginning of period $11.28 $11.26 $10.82 $11.16 $10.70 $ 9.31
---------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .39 .40 .41 .41 .44
Net realized and
unrealized gain (loss) .06 .02 .44 (.34) .46 1.40
---------------------------------------------------------------------------
Total from investment
operations .23 .41 .84 .07 .87 1.84
---------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.39) (.40) (.41) (.41) (.44)
Realized capital gains - - - - - (.01)
---------------------------------------------------------------------------
Total distributions (.17) (.39) (.40) (.41) (.41) (.45)
---------------------------------------------------------------------------
Redemption fees added to
beneficial interests .00(a) - - - - -
---------------------------------------------------------------------------
Net asset value at end
of period $11.34 $11.28 $11.26 $10.82 $11.16 $10.70
===========================================================================
Total return (%)* 2.06 3.73 7.86 .79 8.26 20.14
Net assets at end
of period (000) $8,286 $8,303 $7,948 $5,606 $6,149 $8,689
Ratios to average
net assets:**
Expenses (%)(b) .74(c) .80 .83(d) .82 .77 .77
Expenses, excluding
reimbursements (%)(b) .74(c) .80 .83 .82 .77 .77
Net investment income (%) 3.04(c) 3.49 3.58 3.88 3.73 4.20
Portfolio turnover (%) 19 9 4 8 4 4
* 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, 2016, average net assets were
$8,402,000.
(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) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
================================================================================
40 | USAA CALIFORNIA BOND FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (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, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,022.00 $2.48
Hypothetical
(5% return before expenses) 1,000.00 1,022.61 2.48
ADVISER SHARES
Actual 1,000.00 1,020.60 3.75
Hypothetical
(5% return before expenses) 1,000.00 1,021.36 3.75
*Expenses are equal to the annualized expense ratio of 0.49% for Fund Shares
and 0.74% 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
2.20% for Fund Shares and 2.06% for Adviser Shares for the six-month period of
April 1, 2016, through September 30, 2016.
================================================================================
42 | USAA CALIFORNIA BOND FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
ADVISORY AGREEMENT(S) | 43
================================================================================
meeting at which the renewal of the Advisory Agreement is considered, particular
focus is given to information concerning Fund performance, fees and total
expenses, as compared to comparable investment companies and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional
================================================================================
44 | USAA CALIFORNIA BOND FUND
================================================================================
experience and qualifications of its senior and investment personnel, as well as
current staffing levels. The allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of 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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes all no-load retail open-end investment
companies with the same investment classification/objective as the Fund
regardless of asset size, excluding outliers (the "expense universe"). Among
other data, the Board noted that the Fund's management fee rate - which includes
advisory and administrative services and the effects of any performance
adjustment - was above the median of its expense group and below the median of
its expense universe. The data indicated that the Fund's total expense ratio was
equal to the median of its
================================================================================
ADVISORY AGREEMENT(S) | 45
================================================================================
expense group and below the median of its expense universe. The Board took into
account the various services provided to the Fund by the Manager and its
affiliates. The Board also took into account the high quality of services
received by the Fund from the Manager. The Board also noted the level and method
of computing the management fee, including any performance adjustment to such
fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the 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 lower than the average of its performance universe and its
Lipper index for the one-year period ended December 31, 2015 and was above the
average of its performance universe and its Lipper index for the three-, five-,
and ten-year periods ended December 31, 2015. The Board also noted that the
Fund's percentile performance ranking was in the top 50% of its performance
universe for the one-year period ended December 31, 2015, was in the top 25% of
its performance universe for the three- and ten-year periods ended December 31,
2015, and was in the top 10% of its performance universe for the five-year
period ended December 31, 2015.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's 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
================================================================================
46 | USAA CALIFORNIA BOND FUND
================================================================================
overall profitability of the management fee to the Manager, the Board also
considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services received by the Fund from
the Manager. The Trustees recognized that the Manager should be entitled to earn
a reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that the Fund may realize additional economies of scale if assets increase
proportionally more than some expenses. The Board determined that the current
investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and 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) | 47
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at usaa.com; and (iii) on the SEC's website at http://www.sec.gov. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39600-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CALIFORNIA MONEY MARKET FUND]
===============================================================
SEMIANNUAL REPORT
USAA CALIFORNIA MONEY MARKET FUND
SEPTEMBER 30, 2016
===============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 13
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 25
ADVISORY AGREEMENT(S) 27
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)2016, USAA. All rights reserved.
211729-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CALIFORNIA MONEY MARKET FUND (THE FUND) PROVIDES CALIFORNIA INVESTORS
WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND
CALIFORNIA STATE INCOME TAXES AND HAS A FURTHER OBJECTIVE OF PRESERVING CAPITAL
AND MAINTAINING LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund primarily invests in high-quality California tax-exempt securities with
remaining maturities of 397 days or less. During normal market conditions, at
least 80% of the Fund's net assets will consist of California tax-exempt
securities.
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGER'S COMMENTARY ON THE FUND
DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the reporting period began in April 2016, investors were still
digesting the change in the Federal Reserve's (the Fed) guidance on
short-term interest-rate increases. At its March policy meeting, the Fed
had called for two interest rate increases in 2016, down from the four it
had forecast in December 2015. Ultimately, however, the Fed remained
steady, leaving the federal funds target rate in a range between 0.25% and
0.50% throughout the reporting period.
Although the Fed did not change its monetary policy, interest rates on
money market securities rose, largely due to shifting market dynamics. At
the beginning of the reporting period, the SIFMA Municipal Swap Index*, the
index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It
stayed near that level through July 2016 and then climbed 44 basis points
to close the reporting period at 0.84%. (A basis point is 1/100th of a
percent.) During August and September 2016, shortly before the Securities
and Exchange Commission's money market fund reform became effective, a
large number of money market funds sold VRDNs as they liquidated,
consolidated, or shifted assets into treasury money market funds. This
caused inventories of VRDNs to increase, leading many dealers to raise
interest rates in order to attract buyers.
*The SIFMA Municipal Swap Index is a 7-day high-grade market index
comprised of tax-exempt Variable Rate Demand Obligations (VRDOs) with
certain characteristics. The index is calculated and published by
Bloomberg. The index is overseen by SIFMA's Municipal Swap Index Committee.
===============================================================================
2 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
o HOW DID THE USAA CALIFORNIA TAX EXEMPT MONEY MARKET FUND (THE FUND) PERFORM
DURING THE REPORTING PERIOD?
For the reporting period ended September 30, 2016, the Fund had a return
of 0.22%, compared to an average return of 0.08% for the tax-exempt money
market funds category, according to iMoneyNet, Inc.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary
management for the Fund's assets.
o WHAT ARE THE CONDITIONS IN THE STATE OF CALIFORNIA?
California's fiscal situation was relatively unchanged during the
reporting period. The state controller announced that after four
consecutive months of missed budget projections, California's August
revenues had outpaced expectations, based largely on the strength of
personal income tax receipts. State revenues are benefiting from a tax
initiative approved by voters in November 2012. In addition to its slowly
growing economy, California has not recently experienced any dramatic
swings in revenue, which had troubled the state in the past. Importantly,
state legislators appear committed to spending cuts that are also
contributing to stabilization in California's finances. Recognizing
California's fiscal progress, Fitch Ratings upgraded the state's general
obligation bonds one notch during the reporting period. On September 30,
2016, California's general obligation bonds were rated Aa3 by Moody's
Investors Service, AA- by Standard & Poor's Ratings, and AA- by Fitch
Ratings.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus our purchases on VRDNs, which added to the Fund's
yield during the reporting period. Because the VRDNs owned by the Fund can
be sold at par value (100% of face value) upon seven days or less notice,
the Fund's had the flexibility to take advantage of higher interest rates.
Many of the Fund's VRDNs also are guaranteed
Refer to page 6 for benchmark definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
by a bank letter-of-credit for the payment of both principal and interest,
providing the Fund with a certain degree of stability.
In addition, the Fund benefited from investments with longer maturities. We
continued to work with our in-house team of analysts to help us identify
attractive opportunities for the Fund. They also continue to analyze and
monitor the Fund's portfolio.
We appreciate the opportunity to help you with your investment needs.
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 VRDNs are securities for which the interest rate is
reset periodically; typically weekly, although reset intervals may vary.
o Investing in securities products involves risk, including possible loss
of principal. o Some income may be subject to state or local taxes but not
the federal alternative minimum tax.
================================================================================
4 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
INVESTMENT OVERVIEW
USAA CALIFORNIA MONEY MARKET FUND (THE FUND)
(Ticker Symbol: UCAXX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $273.9 Million $313.2 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 10 Days 9 Days
(+)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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
0.22% 0.31% 0.08% 0.71%
--------------------------------------------------------------------------------
7-DAY YIELD AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16**
--------------------------------------------------------------------------------
0.20% 0.59%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**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, 2016, 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.
YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT
WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY
TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS
BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN
INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY
OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL
OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT
THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares. Yields and returns fluctuate. The seven-day yield
quotation more closely reflects current earnings of the Fund than the total
return quotation.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA CALIFORNIA iMoneyNet
MONEY MARKET FUND AVERAGE
9/28/2015 0.01% 0.01%
10/26/2015 0.01 0.01
11/30/2015 0.01 0.01
12/28/2015 0.01 0.01
1/25/2016 0.01 0.01
2/29/2016 0.01 0.01
3/28/2016 0.01 0.02
4/25/2016 0.04 0.04
5/23/2016 0.04 0.04
6/27/2016 0.05 0.05
7/25/2016 0.05 0.05
8/29/2016 0.09 0.09
9/26/2016 0.18 0.18
[END CHART]
Data represents the last Monday of each month. Ending date 9/26/16.
The graph tracks the USAA California Money Market Fund's seven-day yield against
an average of money market fund yields of all state-specific and retail state
tax-free and municipal money funds calculated by iMoneyNet, Inc. iMoneyNet,
Inc. is an organization that tracks the performance of money market funds.
Past performance is no guarantee of future results.
================================================================================
6 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Hospital ............................................................... 20.8%
Education .............................................................. 17.6%
General Obligation ..................................................... 11.3%
Appropriated Debt ...................................................... 9.4%
Real Estate Tax/Fee .................................................... 9.0%
Water/Sewer Utility .................................................... 6.2%
Electric/Gas Utilities ................................................. 5.0%
Toll Roads ............................................................. 4.5%
Real Estate Development ................................................ 3.6%
Nursing/CCRC ........................................................... 3.3%
o PORTFOLIO MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 84.2%
FIXED-RATE INSTRUMENTS 8.6%
PUT BONDS 4.3%
ADJUSTABLE-RATE NOTES 2.9%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 9-12.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA CALIFORNIA
MONEY MARKET FUND
09/30/06 $10,000.00
10/31/06 10,025.00
11/30/06 10,050.00
12/31/06 10,078.00
01/31/07 10,103.00
02/28/07 10,127.00
03/31/07 10,154.00
04/30/07 10,181.00
05/31/07 10,210.00
06/30/07 10,238.00
07/31/07 10,264.00
08/31/07 10,295.00
09/30/07 10,321.00
10/31/07 10,348.00
11/30/07 10,376.00
12/31/07 10,402.00
01/31/08 10,425.00
02/29/08 10,445.00
03/31/08 10,469.00
04/30/08 10,487.00
05/31/08 10,508.00
06/30/08 10,522.00
07/31/08 10,536.00
08/31/08 10,553.00
09/30/08 10,581.00
10/31/08 10,613.00
11/30/08 10,627.00
12/31/08 10,640.00
01/31/09 10,649.00
02/28/09 10,655.00
03/31/09 10,662.00
04/30/09 10,669.00
05/31/09 10,675.00
06/30/09 10,678.00
07/31/09 10,680.00
08/31/09 10,682.00
09/30/09 10,683.00
10/31/09 10,684.00
11/30/09 10,684.00
12/31/09 10,687.00
01/31/10 10,688.00
02/28/10 10,688.00
03/31/10 10,688.00
04/30/10 10,688.00
05/31/10 10,688.00
06/30/10 10,688.00
07/31/10 10,688.00
08/31/10 10,688.00
09/30/10 10,688.00
10/31/10 10,688.00
11/30/10 10,688.00
12/31/10 10,689.00
01/31/11 10,689.00
02/28/11 10,690.00
03/31/11 10,690.00
04/30/11 10,690.00
05/31/11 10,690.00
06/30/11 10,690.00
07/31/11 10,690.00
08/31/11 10,690.00
09/30/11 10,690.00
10/31/11 10,690.00
11/30/11 10,690.00
12/31/11 10,691.00
01/31/12 10,692.00
02/29/12 10,692.00
03/31/12 10,692.00
04/30/12 10,693.00
05/31/12 10,693.00
06/30/12 10,693.00
07/31/12 10,693.00
08/31/12 10,693.00
09/30/12 10,693.00
10/31/12 10,693.00
11/30/12 10,693.00
12/31/12 10,694.00
01/31/13 10,694.00
02/28/13 10,694.00
03/31/13 10,694.00
04/30/13 10,694.00
05/31/13 10,694.00
06/30/13 10,694.00
07/31/13 10,694.00
08/31/13 10,694.00
09/30/13 10,694.00
10/31/13 10,694.00
11/30/13 10,695.00
12/31/13 10,695.00
01/31/14 10,696.00
02/28/14 10,696.00
03/31/14 10,696.00
04/30/14 10,696.00
05/31/14 10,696.00
06/30/14 10,696.00
07/31/14 10,696.00
08/31/14 10,696.00
09/30/14 10,696.00
10/31/14 10,696.00
11/30/14 10,696.00
12/31/14 10,697.00
01/31/15 10,697.00
02/28/15 10,698.00
03/31/15 10,698.00
04/30/15 10,698.00
05/31/15 10,698.00
06/30/15 10,698.00
07/31/15 10,698.00
08/31/15 10,698.00
09/30/15 10,698.00
10/31/15 10,698.00
11/30/15 10,698.00
12/31/15 10,708.00
01/31/16 10,708.00
02/29/16 10,708.00
03/31/16 10,708.00
04/30/16 10,708.00
05/31/16 10,708.00
06/30/16 10,708.00
07/31/16 10,708.00
08/31/16 10,708.00
09/30/16 10,732.00
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA California Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
reinvested net investment income and realized capital gain distributions or on
the redemption of shares. Some income may be subject to federal, state, or local
taxes. For seven-day yield information, please refer to the Fund's Investment
Overview.
================================================================================
8 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
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. The effective maturity of these instruments is deemed to be
less than 397 days in accordance with detailed regulatory requirements.
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.
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.
ADJUSTABLE-RATE NOTES - Similar to VRDNs in the fact that the interest
rate is adjusted periodically to reflect current market conditions. These
interest rates are adjusted at a given time, such as monthly or quarterly.
However, these securities do not offer the right to sell the security at
face value prior to maturity.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ABAG Association of Bay Area Governments
IDA Industrial Development Authority/Agency
SPEAR Short Puttable Exempt Adjustable Receipts
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
CREDIT ENHANCEMENTS - Adds 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 values of the securities.
The Fund's purchases consist of securities meeting the requirements to
qualify as "eligible securities" under the Securities and Exchange
Commission (SEC) regulations applicable to money market funds. In order to
qualify as an eligible security, the USAA Mutual Funds Trust's Board of
Trustees (the Board), must determine that the particular investment
presents minimal credit risk in accordance with these SEC regulations. With
respect to quality, eligible securities generally are rated or subject to a
guarantee that is rated in one of the two highest categories for short-term
securities by at least two Nationally Recognized Statistical Rating
Organizations (NRSROs), or by one NRSRO if the security is rated by only
one NRSRO, or if unrated, determined by USAA Asset Management Company (the
Manager) to be of comparable quality.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from one of the
following: Deutsche Bank A.G., Wells Fargo & Co., or JP Morgan
Chase & Co.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
================================================================================
10 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
INVESTMENTS
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (84.2%)
CALIFORNIA (84.2%)
$ 9,010 ABAG Finance Auth. for Nonprofit Corps.
(LOC - KBC Bank N.V.) 1.12% 5/15/2035 $ 9,010
11,100 ABAG Finance Auth. for Nonprofit Corps.
(LOC - Citigroup, Inc.) 0.81 8/01/2035 11,100
3,700 Alameda County IDA (LOC - BNP Paribas) 0.90 12/01/2040 3,700
5,050 Alameda County IDA (LOC - Comerica Bank, N.A.) 0.93 12/01/2040 5,050
12,400 Bay Area Toll Auth. (LOC - Mitsubishi
UFJ Financial Group Inc.) 0.84 4/01/2045 12,400
4,865 Chino Basin Regional Financing Auth.
(LOC - Sumitomo Mitsui Banking Corp.) 0.84 6/01/2032 4,865
10,000 Enterprise Dev. Auth. (LOC - Federal Home
Loan Bank of San Francisco)(a) 0.94 12/01/2042 10,000
14,950 Health Facilities Financing Auth.
(LOC - Mizuho Corporate Bank Ltd.) 0.88 7/01/2033 14,950
4,765 Infrastructure and Economic Dev. Bank
(LOC - Federal Home Loan Bank of San Francisco)(a) 0.89 12/01/2040 4,765
7,905 Irvine (LOC - Sumitomo Mitsui Banking Corp.) 0.82 9/02/2032 7,905
8,857 Irvine (LOC - Sumitomo Mitsui Banking Corp.) 0.82 9/02/2050 8,857
9,900 Irvine Assessment District
(LOC - Sumitomo Mitsui Banking Corp.) 0.82 9/02/2025 9,900
10,100 Long Beach Health Facility 0.82 10/01/2016 10,100
6,085 Los Angeles (LOC - U.S. Bancorp) 0.80 8/01/2035 6,085
7,150 Los Angeles (LOC - Federal Home Loan
Bank of San Francisco) 0.88 8/01/2038 7,150
2,045 Manhattan Beach (LOC - Mitsubishi UFJ
Financial Group Inc.) 0.89 8/01/2032 2,045
8,735 Municipal Finance Auth. (LOC - Comerica Bank, N.A.) 0.98 1/01/2040 8,735
800 Novato (LOC - BNP Paribas) 0.93 10/01/2032 800
11,570 Pasadena (LOC - Bank of America Corp.) 0.89 2/01/2035 11,570
3,200 Pollution Control Financing Auth.
(LOC - BNP Paribas) 0.93 11/01/2019 3,200
1,690 Pollution Control Financing Auth.
(LOC - Comerica Bank, N.A.) 0.91 12/01/2030 1,690
5,985 Rancho Water District (LOC - Wells Fargo & Co.) 0.78 9/01/2028 5,985
9,000 Riverside (LOC - Bank of America Corp.) 0.88 3/01/2037 9,000
13,600 Riverside Electric Public Utilities
(LOC - Barclays Bank PLC) 0.82 10/01/2029 13,600
3,395 Sacramento City Financing Auth.
(LIQ) (LOC - Deutsche Bank A.G.)(a) 1.04 12/01/2033 3,395
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 6,250 San Diego County (LOC - Comerica Bank, N.A.) 0.89% 1/01/2023 $ 6,250
3,200 San Diego County (LOC - Wells Fargo & Co.) 0.89 9/01/2030 3,200
7,958 SPEAR (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19 8/01/2031 7,958
548 SPEAR (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19 8/01/2041 548
2,500 State (LOC - U.S. Bancorp) 0.85 5/01/2033 2,500
12,000 State (LOC - Barclays Bank PLC) 0.85 5/01/2040 12,000
4,805 Statewide Communities Dev. Auth. (LIQ)(a) 1.04 10/01/2020 4,805
3,450 Statewide Communities Dev. Auth.
(LOC - Comerica Bank, N.A.) 0.91 12/01/2024 3,450
4,000 Statewide Communities Dev. Auth. 0.83 4/01/2038 4,000
--------
230,568
--------
Total Variable-Rate Demand Notes (cost: $230,568) 230,568
--------
PUT BONDS (4.3%)
CALIFORNIA (4.3%)
11,865 Statewide Communities Dev. Auth. (LIQ)
(LOC - Wells Fargo & Co.)(a) (cost: $11,865) 0.55(b) 10/01/2036 11,865
--------
FIXED-RATE INSTRUMENTS (8.6%)
CALIFORNIA (8.6%)
12,000 San Diego County Water Auth. 0.72 11/08/2016 12,000
11,600 Statewide Communities Dev. Auth. 0.77 11/04/2016 11,600
--------
23,600
--------
Total Fixed-Rate Instruments (cost: $23,600) 23,600
--------
ADJUSTABLE-RATE NOTES (2.9%)
CALIFORNIA (2.9%)
8,000 Golden Empire Schools Financing Auth. (cost: $8,000) 1.34(b) 5/01/2017 8,000
--------
TOTAL INVESTMENTS (COST: $274,033) $274,033
========
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $230,568 $- $230,568
Put Bonds - 11,865 - 11,865
Fixed-Rate Instruments - 23,600 - 23,600
Adjustable-Rate Notes - 8,000 - 8,000
------------------------------------------------------------------------------------------------------------
Total $- $274,033 $- $274,033
------------------------------------------------------------------------------------------------------------
================================================================================
12 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed
in Note 1A to the financial statements.
The cost of securities at September 30, 2016, for federal income tax
purposes, was approximately the same as that reported in 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) Restricted security that is not registered under the Securities
Act of 1933. A resale of this security in the United States may occur
in an exempt transaction to a qualified institutional buyer as defined
by Rule 144A, and as such has been deemed liquid by USAA Asset
Management Company (the Manager) under liquidity guidelines approved by
USAA Mutual Funds Trust's Board of Trustees (the Board), unless
otherwise noted as illiquid.
(b) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2016.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $274,033
Cash 30
Receivables:
Capital shares sold 528
Interest 215
--------
Total assets 274,806
--------
LIABILITIES
Payables:
Capital shares redeemed 756
Dividends on capital shares 6
Accrued management fees 73
Other accrued expenses and payables 65
--------
Total liabilities 900
--------
Net assets applicable to capital shares outstanding $273,906
========
NET ASSETS CONSIST OF:
Paid-in capital $273,907
Overdistribution of net investment income (1)
--------
Net assets applicable to capital shares outstanding $273,906
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 273,900
========
Net asset value, redemption price, and offering price per share $ 1.00
========
See accompanying notes to financial statements.
================================================================================
14 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 786
-----
EXPENSES
Management fees 472
Administration and servicing fees 150
Transfer agent's fees 181
Custody and accounting fees 50
Postage 7
Shareholder reporting fees 10
Trustees' fees 15
Professional fees 43
Other 7
-----
Total expenses 935
Expenses reimbursed (186)
-----
Net expenses 749
-----
NET INVESTMENT INCOME 37
-----
NET REALIZED GAIN ON INVESTMENTS
Net realized gain 491
-----
Increase in net assets resulting from operations $ 528
=====
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
-------------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
-------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 37 $ 31
Net realized gain on investments 491 339
-----------------------------
Increase in net assets resulting from operations 528 370
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (38) (31)
Net realized gains (571) (259)
-----------------------------
Distributions to shareholders (609) (290)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 188,641 211,269
Reinvested dividends 602 288
Cost of shares redeemed (228,408) (218,650)
-----------------------------
Decrease in net assets from capital share transactions (39,165) (7,093)
-----------------------------
Net decrease in net assets (39,246) (7,013)
NET ASSETS
Beginning of period 313,152 320,165
-----------------------------
End of period $ 273,906 $ 313,152
=============================
Overdistribution of net investment income:
End of period $ (1) $ -
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 188,641 211,269
Shares issued for dividends reinvested 602 288
Shares redeemed (228,408) (218,650)
-----------------------------
Decrease in shares outstanding (39,165) (7,093)
=============================
See accompanying notes to financial statements.
================================================================================
16 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA California Money Market Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide California investors with a high level of
current interest income that is exempt from federal and California state income
taxes, with a further objective of preserving capital and maintaining liquidity.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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), an affiliate of the Fund. 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. All securities held in the Fund are short-term debt securities which
are valued pursuant to Rule 2a-7 under the 1940 Act. This method values
a security at its purchase price, and thereafter, assumes a constant
amortization to maturity of any premiums or discounts.
2. Securities for which amortized cost valuations are considered
unreliable or whose values have been materially affected by a
significant event are valued in good faith at fair value, using methods
determined by the Committee, under procedures to stabilize net assets
and valuation procedures approved by the Board.
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 indexes.
================================================================================
18 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not
necessarily an indication of the risks associated with investing in those
securities. For example, money market securities are valued using
amortized cost, in accordance with rules under the 1940 Act. Generally,
amortized cost approximates the current fair value of a security, but since
the value is not obtained from a quoted price in an active market, such
securities are reflected as Level 2.
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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 straight-line method. The Fund concentrates its investments in
California tax-exempt securities and, therefore, may be exposed to more
credit risk than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
Fund's bank accounts may be used to directly reduce the Fund's expenses.
For the six-month period ended September 30, 2016, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase
================================================================================
20 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
the committed loan agreement, the assessed facility fee on the amount of the
additional commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $1,000, which represents 0.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal 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 income taxes.
At March 31, 2016, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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) 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
The Fund's investment management fee is accrued daily and paid monthly as
a percentage of aggregate average net assets of the USAA California Bond
Fund and USAA California Money Market Fund combined, which on an annual
basis is equal to 0.50% of the first $50 million, 0.40% of that portion
over $50 million but not over $100 million, and 0.30% of that portion over
$100 million. These fees are allocated on a proportional basis to each Fund
monthly based upon average net assets. For the six-month period ended
September 30, 2016, the Fund incurred total management fees, paid or
payable to the Manager, of $472,000, resulting in an effective annualized
management fee of 0.32% of the Fund's average net assets for the same
period.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
September 30, 2016, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $150,000.
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, 2016, the Fund
reimbursed the Manager $4,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
Statement of Operations.
C. 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. The Fund's transfer agent's fees are
accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's
average net assets, 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. Prior to June 1, 2016,
the Fund paid transfer agent service fees based on an annual charge of
$25.50 per shareholder account. For the six-month
================================================================================
22 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
period ended September 30, 2016, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $181,000.
D. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield. The Manager can
modify or terminate this arrangement at any time without prior notice to
shareholders. For the six-month period ended September 30, 2016, the Fund
incurred reimbursable expenses of $186,000.
E. 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 fee or other compensation for these
services.
(5) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution.
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.
(6) REGULATORY MATTERS
In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to
the rules that govern money market funds that will affect the manner in which
money market funds are structured and operated. The amendments also will allow
money market funds to impose liquidity fees and suspend redemptions temporarily
(redemption gates), and will impose new requirements related to diversification,
stress testing, and disclosure. Money market funds that qualify as "retail"
(Retail MMFs) or "government" will be permitted to continue to utilize amortized
cost to value their portfolio securities and to transact at a stable $1 net
asset value per share as they do today. Effective October 14, 2016, the Fund
operates as a Retail MMF and in doing so, will have the ability to impose
liquidity fees and redemption gates.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Income from investment
operations:
Net investment income(a) .00 .00 .00 .00 .00 .00
Net realized and
unrealized gain(a) .00 .00 .00 .00 .00 .00
----------------------------------------------------------------------------
Total from investment
operations(a) .00 .00 .00 .00 .00 .00
----------------------------------------------------------------------------
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00)
Realized capital gains(a) (.00) (.00) (.00) (.00) (.00) (.00)
----------------------------------------------------------------------------
Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00)
----------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total return(%)*,(c) .22 .10 .02 .02 .01 .03(b)
Net assets at
end of period (000) $273,906 $313,152 $320,165 $316,437 $329,421 $328,917
Ratios to average
net assets:**
Expenses(%)(c),(d) .50(e) .09 .12 .18 .32 .31(b)
Expenses, excluding
reimbursements(%)(d) .62(e) .61 .60 .58 .57 .58(b)
Net investment income(%) .02(e) .01 .01 .01 .01 .02
* 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 iMoneyNet reported return. Total returns for periods of
less than one year are not annualized.
** For the six-month period ended September 30, 2016, average net assets
were $298,994,000.
(a) Represents less than $0.01 per share.
(b) During the year ended March 31, 2012, SAS reimbursed the Fund $42,000
for corrections in fees paid for the administration and servicing of
certain accounts. The effect of this reimbursement on the Fund's total
return was less than 0.01%. The reimbursement decreased the Fund's expense
ratio by 0.01%. This decrease is excluded from the expense ratio in the
Financial Highlights table.
(c) The Manager voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses and
attempt to prevent a negative yield.
(d) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly. The Fund's expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
24 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" in the table 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 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" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio 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 use this information
================================================================================
EXPENSE EXAMPLE | 25
================================================================================
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, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
Actual $1,000.00 $1,002.20** $2.51**
Hypothetical
(5% return before expenses) 1,000.00 1,022.56** 2.54**
*Expenses are equal to the Fund's annualized expense ratio of 0.50%, which is
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 value is
based on its actual total return of 0.22% for the six-month period of April
1, 2016, through September 30, 2016.
**The Funds' annualized expense ratio of 0.50% above reflects a change in the
transfer agency fee structure from a per-account fee to an asset-based fee
effective June 1, 2016. Had this change been in effect for the entire
six-month period of April 1, 2016, through September 30, 2016, the Fund's
expense ratio would have been 0.53%, net of expenses paid indirectly, and the
values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
Actual $1,000.00 $1,002.20 $2.66
Hypothetical
(5% return before expenses) 1,000.00 1,022.41 2.69
================================================================================
26 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
ADVISORY AGREEMENT(S) | 27
================================================================================
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, fees and total expenses as
compared to comparable investment companies, and the Manager's profitability
with respect to the Fund. However, the Board noted that the evaluation process
with respect to the Manager is an ongoing one. In this regard, the Board's and
its committees' consideration of the Advisory Agreement included information
previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered
================================================================================
28 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
the level and depth of knowledge of the Manager, including the professional
experience and qualifications of its senior and investment personnel, as well as
current staffing levels. The allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of 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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes the Fund and all other no-load retail
open-end investment companies with the same 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
as well as any fee waivers or reimbursements - was
================================================================================
ADVISORY AGREEMENT(S) | 29
================================================================================
equal to the median of its expense group and its expense universe. The data
indicated that the Fund's total expense ratio, after reimbursements, was above
the median of its expense group and its expense universe. The Board took into
account the various services provided to the Fund by the Manager and its
affiliates, including the nature and high quality of services provided by the
Manager. The Board also noted the level and method of computing the management
fee. The Board took into account management's discussion of the Fund's expenses,
noting that the Manager had reimbursed a significant portion of Fund expenses
during the previous year.
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-, five-, and ten-year periods ended December 31, 2015.
The Board also noted that the Fund's percentile performance ranking was in the
top 5% of its performance universe for the one-year period ended December 31,
2015, was in the top 10% of its performance universe for the three- and ten-year
periods ended December 31, 2015, and was in the top 20% of its performance
universe for the five-year period ended December 31, 2015. The Board also took
into account management's discussion regarding current market conditions.
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
================================================================================
30 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
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. In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager reimbursed a portion of its management fees to
the Fund. The Trustees reviewed the profitability of the Manager's relationship
with the Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which they receive compensation. The Board also considered the possible
direct and indirect benefits to the Manager from its relationship with the
Trust, including that the Manager may derive reputational and other benefits
from its association with the Fund. The Board also took into account the high
quality of services received by the Fund from the Manager as well as the type of
fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that if the Fund's assets increase over time, the Fund may realize additional
economies of scale if assets increase proportionally more than some expenses.
The Board also considered the fee waiver and expense reimbursement arrangements
by the Manager. 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
================================================================================
ADVISORY AGREEMENT(S) | 31
================================================================================
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.
===============================================================================
32 | USAA CALIFORNIA MONEY MARKET FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39602-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GLOBAL EQUITY INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA GLOBAL EQUITY INCOME FUND
FUND SHARES o INSTITUTIONAL SHARES
SEPTEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A
GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL [PHOTO OF BROOKS ENGLEHARDT]
SITUATION WITH A GOAL OF GETTING YOUR
FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 18
Financial Statements 19
Notes to Financial Statements 23
EXPENSE EXAMPLE 38
ADVISORY AGREEMENT(S) 40
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)2016, USAA. All rights reserved.
225184-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GLOBAL EQUITY INCOME FUND (THE FUND) SEEKS TOTAL RETURN WITH AN
EMPHASIS ON CURRENT INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities. This
80% policy may be changed upon at least 60 days' written notice to shareholders.
The Fund's equity investments may include common stocks, depositary receipts,
real estate investment trusts (REITs), other investment companies, including
exchange-traded funds (ETFs), master limited partnerships (MLPs), securities
convertible into common stocks, and securities that carry the right to buy
common stocks.
The Fund will invest primarily in global equity securities with an emphasis on
companies that the Fund's management believes have attractive dividend policies
and/or those with the potential to grow their dividends. Under normal
circumstances, the Fund expects to invest at least 40% of its assets in foreign
securities (unless market conditions are not deemed favorable by Fund
management, in which case the Fund would invest at least 30% of its assets in
foreign securities).
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
STEPHAN KLAFFKE, CFA
DAN DENBOW, CFA
JOHN P. TOOHEY, CFA
--------------------------------------------------------------------------------
O WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Entering the reporting period ended September 30, 2016, global equity
markets faced ongoing concerns around weak global growth. However, investor
sentiment was supported by the highly favorable policies pursued by central
banks globally. The Bank of Japan and the European Central Bank both
maintained short-term interest rates below zero, pushing government bond
yields into negative territory across a number of overseas developed
markets. In the United States, U.S. Treasury yields remained at low levels
all along the curve due to concerns about growth. In addition, investors
viewed the Federal Reserve (the Fed) as likely to pursue a longer timetable
than initially indicated with respect to raising the Fed funds short-term
interest rate. With bonds seeming less attractive, many investors viewed
stocks as more compelling and the global search for yield fueled
outperformance by dividend-paying stocks.
In late June 2016, markets were rocked by the surprise result of the United
Kingdom's (U.K.) vote to withdraw from the European Union (commonly known as
Brexit). In the wake of Brexit, U.S. Treasury yields dipped from already low
levels on trades generally attributable to investor flight-to-safety.
However, investor sentiment stabilized as investors put into perspective the
likely impact of Brexit on global growth, and equities delivered solid gains
in July 2016. The remainder of the reporting period saw stocks trade more or
less within a range as investors awaited clarity as
================================================================================
2 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
to the direction of the economy. September 2016 saw rising speculation
regarding the potential for the Fed to raise interest rates before year-end,
leading to a shift in market leadership away from "bond surrogates" and
boosting financial stocks.
o HOW DID THE USAA GLOBAL EQUITY INCOME FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the semiannual period ended September 30, 2016, the Fund Shares and
Institutional Shares had a total return of 6.10% and 6.17%. This compares to
returns of 5.65% for the MSCI World High Dividend Yield Index (the Index)
and 4.71% for the Lipper Global Equity Income Funds Index.
USAA Asset Management Company (the Manager) 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?
The Fund focuses on income-oriented global equities, and will normally have
roughly equal weights in U.S. and international stocks, although this will
vary to some degree depending on where we see the better value. In
selecting stocks, emphasis is placed not only the current dividend but also
a company's potential to grow its dividend. As a result, the average current
dividend of stocks held by the Fund will generally be somewhat lower than
the Fund's benchmark. However, our view is that a focus on companies with
dividend growth potential should provide an improved total return profile as
we invest within the global dividend stock universe.
During the reporting period, stock selection was a significant positive
contributor to the Fund's performance relative to its benchmark, led
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
by holdings within the technology, financials, energy, and consumer staples
sectors. Security selection lagged within industrials. Sector allocation had
a slight negative impact on the Fund's relative performance overall. In
particular, an overweight allocation to energy and an underweight allocation
to materials and real estate detracted from performance which, more than
offset positive contributions from an underweight allocation to consumer
staples and consumer discretionary.
In terms of individual holdings, performance was led by holdings in storage
drive manufacturer Seagate Technology plc, oil and gas multinational Royal
Dutch Shell plc, U.K.-based global bank HSBC Holdings plc (HSBC), and frozen
food distributor B&G Foods, Inc. (B&G Foods). Seagate Technology plc saw its
shares rebound after being beaten down in 2015 and into the first quarter of
2016, as investors came to view the personal computer sales environment as
less dire than previously feared. Royal Dutch Shell plc and HSBC saw their
shares benefit despite difficult near-term operating conditions as both
companies pursued strong cost management and capital allocation measures.
B&G Foods was rewarded by investors as the company was able to realize cost
savings, due to its acquisition of the Green Giant frozen food brands, that
were above what Wall Street thought was possible. The company's shares were
further boosted on news of a potential acquisition of ACH Food Companies,
owner of a range of baking product and condiment brands. The Fund sold its
holdings of B&G Foods during the reporting period as the shares had reached
the price target.
On the downside, the Fund's positions in industrial conglomerate General
Electric Co. (GE) and biopharmaceutical company Gilead Sciences, Inc.
(Gilead) were the leading detractors from performance, along with a lack of
exposure to biopharmaceutical firm AstraZeneca. GE has seen its stock
underperform in recent quarters as the market digests the company's massive
business transformation. Over the past year, GE has reduced its financial
services exposure by exiting GE Capital and acquired more industrial
exposure by purchasing French railway vehicle and signaling manufacturer
Alstom. We believe that the stock will benefit from GE's
================================================================================
4 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
transformation into a pure play industrial company and its financial
reporting becomes more transparent. Gilead has faced increased price
competition and election-year debate around drug pricing has further
undermined investor sentiment with respect to its shares. Research indicates
that Gilead's stock is currently undervalued based on the company's drug
pipeline and potential capital allocation moves, and so we have maintained
the Fund's position in Gilead.
As always, the direction of global markets will ultimately be determined by
the economic outlook and how that translates to corporate earnings. A
number of factors have the potential to drive equity market volatility in
the near future. Investors will be watching headlines around the U.S.
elections, action or inaction by the Fed on interest rates, the impact of
Brexit on Western European economies, and the stability of the European
banking system.
While most of 2016 saw a continuation of the market's preference for sectors
such as utilities and consumer staples, which tend to offer high dividends
and low volatility attributes, this trend has shown signs of reversal. On a
long-term basis, focusing on quality companies with attractive valuations
and dividend income is a sound strategy from a total return perspective. In
the short-term, a focus on dividends may help provide a degree of relative
stability against a backdrop of economic uncertainty and potential market
volatility.
Investments in foreign securities are subject to additional and more diverse
risks, including but not limited to currency fluctuations, market illiquidity,
and political and economic instability. Foreign investing may result in more
rapid and extreme changes in value than investments made exclusively in the
securities of U.S. companies. There may be less publicly available information
relating to foreign companies than those in the U.S. Foreign securities may also
be subject to foreign taxes. Investments made in emerging market countries may
be particularly volatile. Economies of emerging market countries are generally
less diverse and mature than more developed countries and may have less stable
political systems. o Dividends are not guaranteed. In any year, dividends may be
higher, lower, or not paid at all.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA GLOBAL EQUITY INCOME FUND SHARES (FUND SHARES)
(Ticker Symbol: UGEIX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $56.7 Million $42.1 Million
Net Asset Value Per Share $9.84 $9.39
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR SINCE INCEPTION 8/7/15
6.10% 11.21% 0.37%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 8/1/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.38% AFTER REIMBURSEMENT 1.21%
(Includes acquired fund fees and expenses of 0.01%)
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 return
is cumulative.
**The expense ratio is reported in the Fund's prospectus dated August 1, 2016,
and is based on estimated expenses for the current fiscal year. USAA Asset
Management Company (the Manager) has agreed, through August 1, 2017, to make
payments or waive management, administration, and other fees to limit the
expenses of the Fund so that the total annual operating expenses of the Fund
Shares (exclusive of commission recapture, expense offset arrangements, acquired
fund fees and expenses, and extraordinary expenses) do not exceed an annual rate
of 1.20% of the Fund Shares' average net assets. This reimbursement arrangement
may not be changed or terminated during this time period without approval of the
Trust's Board of Trustees and may be changed or terminated by the Manager at any
time after August 1, 2017. If the total annual operating expense ratio of the
Fund Shares is lower than 1.20%, the Fund Shares will operate at the lower
expense ratio. These expense ratios may differ from the expense ratios
disclosed in the Financial Highlights, which excludes acquired fund fees and
expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
6 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI WORLD HIGH LIPPER GLOBAL EQUITY USAA GLOBAL EQUITY
DIVIDEND YIELD INCOME FUNDS INCOME FUND
INDEX INDEX SHARES
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 9,398.61 9,429.12 9,350.00
09/30/15 9,159.15 9,182.62 9,030.00
10/31/15 9,866.73 9,759.31 9,650.00
11/30/15 9,719.34 9,676.75 9,510.00
12/31/15 9,581.12 9,537.00 9,316.00
01/31/16 9,247.14 9,219.54 8,935.00
02/29/16 9,312.39 9,183.69 8,915.00
03/31/16 9,942.16 9,733.62 9,465.00
04/30/16 10,142.82 9,820.25 9,707.00
05/31/16 10,143.87 9,878.12 9,737.00
06/30/16 10,238.75 9,921.61 9,848.00
07/31/16 10,487.05 10,203.27 10,062.00
08/31/16 10,429.82 10,165.14 10,011.00
09/30/16 10,504.33 10,192.32 10,042.00
[END CHART]
Data from 7/31/15 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Global Equity Income Fund Shares to the following benchmarks:
o The unmanaged MSCI World High Dividend Yield Index is a free float-adjusted
market capitalization weighed index that is designed to measure the equity
market performance of developed and emerging markets.
o The unmanaged Lipper Global Equity Income Funds Index which measures the
Fund's performance to that of the Lipper Global Equity Income Funds
category.
*The performance of the Lipper Global Equity Income Funds Index and the MSCI
World High Dividend Yield Index is calculated from the end of the month, July
31, 2015, while the inception date of the Fund Shares is August 7, 2015. 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA GLOBAL EQUITY INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIGEX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $4.9 Million $4.7 Million
Net Asset Value Per Share $9.84 $9.39
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR SINCE INCEPTION 8/7/15
6.17% 1.32% 0.45%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 8/1/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.80% AFTER REIMBURSEMENT 1.11%
(Includes acquired fund fees and expenses of 0.01%)
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 return
is cumulative.
**The expense ratio is reported in the Fund's prospectus dated August 1, 2016,
and is based on estimated expenses for the current fiscal year. USAA Asset
Management Company (the Manager) has agreed, through August 1, 2017, to make
payments or waive management, administration, and other fees to limit the
expenses of the Fund so that the total annual operating expenses of the
Institutional Shares (exclusive of commission recapture, expense offset
arrangements, acquired fund fees and expenses, and extraordinary expenses) do
not exceed an annual rate of 1.10% of the Institutional Shares' average net
assets. This reimbursement arrangement may not be changed or terminated during
this time period without approval of the Trust's Board of Trustees and may be
changed or terminated by the Manager at any time after August 1, 2017. If the
total annual operating expense ratio of the Institutional Shares is lower than
1.10%, the Institutional Shares will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to time, or
for purchase by a USAA fund participating in a fund-of-funds investment strategy
(USAA fund-of-funds).
================================================================================
8 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI WORLD HIGH LIPPER GLOBAL EQUITY USAA GLOBAL EQUITY
DIVIDEND YIELD INCOME FUNDS INCOME FUND INSTITUTIONAL
INDEX INDEX SHARES
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 9,398.61 9,429.12 9,350.00
09/30/15 9,159.15 9,182.62 9,030.00
10/31/15 9,866.73 9,759.31 9,660.00
11/30/15 9,719.34 9,676.75 9,520.00
12/31/15 9,581.12 9,537.00 9,323.00
01/31/16 9,247.14 9,219.54 8,942.00
02/29/16 9,312.39 9,183.69 8,912.00
03/31/16 9,942.16 9,733.62 9,468.00
04/30/16 10,142.82 9,820.25 9,710.00
05/31/16 10,143.87 9,878.12 9,750.00
06/30/16 10,238.75 9,921.61 9,858.00
07/31/16 10,487.05 10,203.27 10,072.00
08/31/16 10,429.82 10,165.14 10,031.00
09/30/16 10,504.33 10,192.32 10,052.00
[END CHART]
Data from 7/31/15 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Global Equity Income Fund Institutional Shares to the Fund's benchmarks
listed above (see page 7 for benchmark definitions).
*The performance of the MSCI World High Dividend Yield Index and the Lipper
Global Equity Income Funds Index is calculated from the end of the month, July
31, 2015, while the inception date of the Institutional Shares is August 7,
2015. 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o TOP 10 HOLDINGS* - 9/30/16 o
(% of Net Assets)
Siemens AG ............................................................... 3.0%
Nestle S.A. .............................................................. 2.7%
Procter & Gamble Co. ..................................................... 2.7%
Pfizer, Inc. ............................................................. 2.5%
General Electric Co. ..................................................... 2.4%
Chevron Corp. ............................................................ 2.4%
Merck & Co., Inc. ........................................................ 2.3%
Cisco Systems, Inc. ...................................................... 2.3%
Exxon Mobil Corp. ........................................................ 2.2%
Novartis AG .............................................................. 2.1%
You will find a complete list of securities that the Fund owns on pages 12 -17.
*Excludes money market instruments.
================================================================================
10 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
o ASSET ALLOCATION - 9/30/16 o
[PIE CHART OF ASSET ALLOCATION]
HEALTH CARE 15.4%
CONSUMER STAPLES 12.5%
ENERGY 11.3%
MONEY MARKET INSTRUMENTS 11.2%
FINANCIALS 9.9%
INDUSTRIALS 9.6%
INFORMATION TECHNOLOGY 8.6%
UTILITIES 6.7%
TELECOMMUNICATION SERVICES 5.3%
MATERIALS 4.6%
CONSUMER DISCRETIONARY 4.2%
[END PIE CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 12-17.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (88.1%)
COMMON STOCKS (88.1%)
CONSUMER DISCRETIONARY (4.2%)
-----------------------------
ADVERTISING (0.4%)
2,700 Omnicom Group, Inc. $ 230
-------
AUTOMOBILE MANUFACTURERS (1.4%)
8,200 Daimler AG 578
23,400 Ford Motor Co. 282
-------
860
-------
CABLE & SATELLITE (0.7%)
36,200 Sky plc 419
-------
HOME IMPROVEMENT RETAIL (1.0%)
124,500 Kingfisher plc 608
-------
HOTELS, RESORTS & CRUISE LINES (0.5%)
6,300 Carnival Corp. 308
-------
RESTAURANTS (0.2%)
1,300 McDonald's Corp. 150
-------
Total Consumer Discretionary 2,575
-------
CONSUMER STAPLES (12.5%)
------------------------
HOUSEHOLD PRODUCTS (2.7%)
18,300 Procter & Gamble Co. 1,642
-------
HYPERMARKETS & SUPER CENTERS (0.7%)
5,900 Wal-Mart Stores, Inc. 426
-------
PACKAGED FOODS & MEAT (2.7%)
21,200 Nestle S.A. 1,671
-------
PERSONAL PRODUCTS (1.9%)
25,500 Unilever N.V. 1,177
-------
SOFT DRINKS (1.0%)
14,400 Coca-Cola Co. 609
-------
TOBACCO (3.5%)
7,000 Altria Group, Inc. 443
8,600 British American Tobacco plc 549
================================================================================
12 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
6,500 Imperial Tobacco Group plc $ 335
5,900 Philip Morris International, Inc. 573
5,700 Reynolds American, Inc. 269
-------
2,169
-------
Total Consumer Staples 7,694
-------
ENERGY (11.3%)
--------------
INTEGRATED OIL & GAS (9.9%)
14,100 Chevron Corp. 1,451
15,900 Exxon Mobil Corp. 1,388
13,200 Occidental Petroleum Corp. 963
33,894 Royal Dutch Shell plc "A" 841
7,100 Royal Dutch Shell plc ADR "A" 355
22,700 Total S.A. 1,075
-------
6,073
-------
OIL & GAS DRILLING (0.5%)
4,600 Helmerich & Payne, Inc. 310
-------
OIL & GAS EQUIPMENT & SERVICES (0.4%)
3,500 Schlumberger Ltd. 275
-------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
7,100 ConocoPhillips 309
-------
Total Energy 6,967
-------
FINANCIALS (9.9%)
-----------------
CONSUMER FINANCE (0.8%)
16,715 Synchrony Financial 468
-------
DIVERSIFIED BANKS (6.3%)
39,800 Australia and New Zealand Banking Group Ltd. 842
4,400 Bank of Montreal 288
7,500 Canadian Imperial Bank of Commerce 582
52,600 DBS Group Holdings Ltd. 594
57,800 HSBC Holdings plc 433
6,600 JPMorgan Chase & Co. 439
11,200 Royal Bank of Canada 694
-------
3,872
-------
MULTI-LINE INSURANCE (1.9%)
1,900 Allianz SE 282
42,200 AXA S.A. 898
-------
1,180
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.4%)
3,000 PNC Financial Services Group, Inc. $ 270
-------
REINSURANCE (0.5%)
3,300 Swiss Re AG 298
-------
Total Financials 6,088
-------
HEALTH CARE (15.4%)
-------------------
BIOTECHNOLOGY (2.1%)
17,000 AbbVie, Inc. 1,072
2,900 Gilead Sciences, Inc. 229
-------
1,301
-------
HEALTH CARE EQUIPMENT (0.7%)
5,200 Medtronic plc 449
-------
PHARMACEUTICALS (12.6%)
29,000 GlaxoSmithKline plc 618
7,900 GlaxoSmithKline plc ADR 341
9,900 Johnson & Johnson 1,169
22,800 Merck & Co., Inc. 1,423
16,200 Novartis AG 1,274
45,600 Pfizer, Inc. 1,544
4,700 Roche Holding AG 1,166
3,100 Sanofi 236
-------
7,771
-------
Total Health Care 9,521
-------
INDUSTRIALS (9.6%)
------------------
AEROSPACE & DEFENSE (1.1%)
42,400 BAE Systems plc 288
1,700 Lockheed Martin Corp. 407
-------
695
-------
CONSTRUCTION & ENGINEERING (1.0%)
7,500 Vinci S.A. 574
-------
ELECTRICAL COMPONENTS & EQUIPMENT (0.7%)
6,800 Eaton Corp. plc 447
-------
ENVIRONMENTAL & FACILITIES SERVICES (0.5%)
6,200 Republic Services, Inc. 313
-------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%)
5,000 Adecco Group AG 281
-------
================================================================================
14 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (5.4%)
49,368 General Electric Co. $ 1,462
16,000 Siemens AG 1,873
-------
3,335
-------
SECURITY & ALARM SERVICES (0.4%)
5,432 Johnson Controls International plc 253
-------
Total Industrials 5,898
-------
INFORMATION TECHNOLOGY (8.6%)
-----------------------------
COMMUNICATIONS EQUIPMENT (2.3%)
44,000 Cisco Systems, Inc. 1,396
-------
SEMICONDUCTORS (3.8%)
28,200 Intel Corp. 1,064
13,500 QUALCOMM, Inc. 925
4,900 Texas Instruments, Inc. 344
-------
2,333
-------
SYSTEMS SOFTWARE (0.9%)
9,900 Microsoft Corp. 570
-------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.6%)
300 Samsung Electronics Co. Ltd. 435
14,500 Seagate Technology plc 559
-------
994
-------
Total Information Technology 5,293
-------
MATERIALS (4.6%)
----------------
COMMODITY CHEMICALS (0.6%)
4,500 LyondellBasell Industries N.V. "A" 363
-------
DIVERSIFIED CHEMICALS (2.2%)
4,200 BASF SE 359
8,200 Dow Chemical Co. 425
36,100 Huntsman Corp. 587
-------
1,371
-------
DIVERSIFIED METALS & MINING (1.2%)
11,900 Freeport-McMoRan, Inc. 129
15,100 Rio Tinto Ltd. 597
-------
726
-------
GOLD (0.4%)
15,500 Goldcorp, Inc. 256
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
PAPER PRODUCTS (0.2%)
7,100 UPM-Kymmene Oyj $ 150
-------
Total Materials 2,866
-------
TELECOMMUNICATION SERVICES (5.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.8%)
20,200 AT&T, Inc. 820
7,200 Nippon Telegraph & Telephone Corp. 328
54,400 Singapore Telecommunications Ltd. 158
31,400 TeliaSonera AB 141
5,400 Verizon Communications, Inc. 281
-------
1,728
-------
WIRELESS TELECOMMUNICATION SERVICES (2.5%)
14,000 NTT DOCOMO, Inc. 354
10,300 Rogers Communications, Inc. 437
264,300 Vodafone Group plc 759
-------
1,550
-------
Total Telecommunication Services 3,278
-------
UTILITIES (6.7%)
----------------
ELECTRIC UTILITIES (4.9%)
5,100 American Electric Power Co., Inc. 328
5,200 Duke Energy Corp. 416
7,700 Edison International 556
50,300 EDP-Energias de Portugal S.A. 169
164,700 Enel S.p.A. 734
2,300 NextEra Energy, Inc. 281
16,100 PPL Corp. 557
-------
3,041
-------
MULTI-UTILITIES (1.8%)
53,600 E.ON SE 380
45,100 National Grid plc 638
5,360 Uniper SE* 66
-------
1,084
-------
Total Utilities 4,125
-------
Total Common Stocks 54,305
-------
Total Equity Securities (cost: $52,636) 54,305
-------
================================================================================
16 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (11.2%)
MONEY MARKET FUNDS (11.2%)
6,887,558 State Street Institutional Liquid Reserves Fund Premier Class, 0.40%(a)
(cost: $6,888) $ 6,888
-------
TOTAL INVESTMENTS (COST: $59,524) $61,193
=======
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $54,305 $- $- $54,305
Money Market Instruments:
Money Market Funds 6,888 - - 6,888
------------------------------------------------------------------------------------------------------------
Total $61,193 $- $- $61,193
------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
Investments in foreign securities were 40.8% of net assets at September 30,
2016.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
September 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
18 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $59,524) $61,193
Cash denominated in foreign currencies (identified cost of $160) 160
Receivables:
Capital shares sold 191
USAA Asset Management Company (Note 6C) 100
Dividends and interest 171
Other 17
-------
Total assets 61,832
-------
LIABILITIES
Payables:
Capital shares redeemed 18
Bank overdraft 106
Accrued management fees 23
Accrued transfer agent's fees 4
Other accrued expenses and payables 46
-------
Total liabilities 197
-------
Net assets applicable to capital shares outstanding $61,635
=======
NET ASSETS CONSIST OF:
Paid-in capital $60,840
Accumulated undistributed net investment income 22
Accumulated net realized loss on investments (896)
Net unrealized appreciation of investments 1,669
-------
Net assets applicable to capital shares outstanding $61,635
=======
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $56,714/5,763
capital shares outstanding, no par value) $ 9.84
=======
Institutional Shares (net assets of $4,921/500
capital shares outstanding, no par value) $ 9.84
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $47) $1,000
Interest 9
------
Total income 1,009
------
EXPENSES
Management fees 133
Administration and servicing fees:
Fund Shares 38
Institutional Shares 2
Transfer agent's fees:
Fund Shares 37
Institutional Shares 2
Custody and accounting fees:
Fund Shares 32
Institutional Shares 3
Postage:
Fund Shares 2
Shareholder reporting fees:
Fund Shares 7
Trustees' fees 15
Registration fees:
Fund Shares 25
Institutional Shares 23
Professional fees 42
Other 7
------
Total expenses 368
Expenses reimbursed:
Fund Shares (22)
Institutional Shares (21)
------
Net expenses 325
------
NET INVESTMENT INCOME 684
------
================================================================================
20 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on:
Investments (199)
Foreign currency transactions (10)
Change in net unrealized appreciation/(depreciation) of:
Investments 2,652
Foreign currency translations (6)
------
Net realized and unrealized gain 2,437
------
Increase in net assets resulting from operations $3,121
======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and period ended
March 31, 2016
------------------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016*
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 684 $ 514
Net realized loss on investments (199) (687)
Net realized loss on foreign currency transactions (10) (139)
Change in net unrealized appreciation/(depreciation) of:
Investments 2,652 (983)
Foreign currency translations (6) 6
----------------------
Increase (decrease) in net assets resulting from operations 3,121 (1,289)
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (626) (310)
Institutional Shares (63) (38)
----------------------
Distributions to shareholders (689) (348)
----------------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 12,428 43,411
Institutional Shares - 5,000
----------------------
Total net increase in net assets from capital share transactions 12,428 48,411
----------------------
Capital contribution from USAA Transfer Agency Company:
Fund Shares - 1
----------------------
Net increase in net assets 14,860 46,775
NET ASSETS
Beginning of period 46,775 -
----------------------
End of period $61,635 $46,775
======================
Accumulated undistributed net investment income:
End of period $ 22 $ 27
======================
*Fund commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
22 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Global Equity Income Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek total return with an emphasis on current income.
The Fund consists of two classes of shares: Global Equity Income Fund Shares
(Fund Shares) and Global Equity Income Fund Institutional Shares (Institutional
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, 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' 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 all classes. The Institutional Shares are available for
investment through a USAA discretionary managed account program, and certain
advisory programs sponsored by financial intermediaries, such as brokerage
firms, investment advisors, financial planners, third-party administrators, and
insurance companies. Institutional Shares also are available to institutional
investors, which include retirement plans, endowments, foundations, and bank
trusts, as well as other persons or legal entities that the Fund may
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
approve from time to time, or for purchase by a USAA fund participating in a
fund-of-funds investment strategy (USAA fund-of-funds).
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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), an affiliate of the Fund. 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. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sales price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued.
================================================================================
24 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
If no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sales or official closing prices
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities and
the Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
5. 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 value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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 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, other pricing services, 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, evaluation of
credit quality, 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
================================================================================
26 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Discounts and premiums on short-term securities are
amortized on a straight-line basis over the life of the respective
securities.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. 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, 2016, there were no custodian and other bank credits.
================================================================================
28 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
H. 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.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of less than $500, which represents 0.1% of the total fees paid to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during
the six-month period ended September 30, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal tax law.
Distributions of net investment income are made quarterly. 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 income taxes.
At March 31, 2016, the Fund had net capital loss carryforwards of $662,000, 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.
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$16,500,000 and $6,873,000, respectively.
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $3,567,000 and $1,898,000, respectively, resulting in net
unrealized appreciation of $1,669,000.
================================================================================
30 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016*
------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------
FUND SHARES:
Shares sold 1,579 $15,340 4,678 $45,192
Shares issued from reinvested dividends 34 328 13 125
Shares redeemed (333) (3,240) (208) (1,906)
-------------------------------------------------
Net increase from capital share transactions 1,280 $12,428 4,483 $43,411
=================================================
INSTITUTIONAL SHARES:
Shares sold - $ - 500 $ 5,000
Shares issued from reinvested dividends - - - -
Shares redeemed (-) (-) (-)** (-)**
-------------------------------------------------
Net increase from capital share transactions - $ - 500 $ 5,000
=================================================
*Fund commenced operations on August 7, 2015.
**Represents less than 500 shares or $500.
(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 Manager is authorized to
select (with approval of the Board
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
and without shareholder approval) one or more subadvisers to manage the
day-to-day investment of a portion of the Fund's assets. For the period
ended September 30, 2015, there were no subadviser(s).
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 0.50% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper Global Equity Income Funds Index. The Lipper
Global Equity Income Funds Index tracks the total return performance of
Funds that, by prospectus language and portfolio practice, seek relatively
high current income and growth of income by investing at least 65% or more
of their portfolio in dividend-paying equity securities of domestic and
foreign companies. The performance period for the Fund commenced on August
7, 2015, and will consist of the current month plus the preceding 12 months
through that date until a period of 36 months is included in the performance
period. Thereafter, the performance period will consist 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
Each class' 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
================================================================================
32 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 Global Equity Income 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, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $133,000, which included
a performance adjustment for the Fund Shares and Institutional Shares of
$(3,000) and less than $(500), respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were (0.01)% and (0.01)%,
respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and 0.10% of average net
assets of the Institutional Shares. For the six-month period ended September
30, 2016, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $38,000 and $2,000,
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, 2016, the Fund reimbursed the
Manager $1,000 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, 2017, to limit
the total annual operating expenses of the Fund Shares and Institutional
Shares to 1.20%, and 1.10%, respectively, of their average net assets,
excluding extraordinary expenses and before reductions of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
any expenses paid indirectly, and to reimburse the Fund Shares and
Institutional Shares for all expenses in excess of those amounts. This
expense limitation arrangement may not be changed or terminated through
August 1, 2017, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. For the six-month
period ended September 30, 2016, the Fund incurred reimbursable expenses
from the Manager for the Fund Shares and Institutional Shares of $22,000 and
$21,000, respectively. Due to a timing difference, $100,000 was receivable
from the Manager at September 30, 2016.
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 Shares based on an annual charge of $23 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. Transfer agent's fees for Institutional
Shares are paid monthly based on a fee accrued daily at an annualized rate
of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket
expenses. For the six-month period ended September 30, 2016, the Fund Shares
and Institutional Shares incurred transfer agent's fees, paid or payable to
SAS, of $37,000 and $2,000, respectively.
E. 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 fee or other compensation for these
services.
(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,
2016, USAA and its affiliates owned 2,500,000 Fund Shares and 500,000
Institutional Shares, which represents 43.4% of the Fund Shares outstanding,
100.0% of the Institutional Shares outstanding, and 47.9% of the Fund's total
outstanding shares.
================================================================================
34 | USAA GLOBAL EQUITY INCOME 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.
As of September 30, 2016, USAA and its affiliates owned approximately 47.9% of
the USAA Global Equity Income Fund; and it is considered a "control person" of
the Fund for purposes of the 1940 Act. Investment activities of these
shareholders could have a significant impact on the Fund. A control person
could potentially control the outcome of any proposal submitted to the
shareholders for approval, including changes to the Fund's fundamental policies
or terms of the investment advisory agreement with the investment advisor.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31,
2016 2016***
-------------------------------------
Net asset value at beginning of period $ 9.39 $ 10.00
---------------------------------
Income (loss) from investment operations:
Net investment income .12 .14(a)
Net realized and unrealized gain (loss) .45 (.68)(a)
---------------------------------
Total from investment operations .57 (.54)(a)
---------------------------------
Less distributions from:
Net investment income (.12) (.07)
---------------------------------
Net asset value at end of period $ 9.84 $ 9.39
=================================
Total return (%)* 6.10 (5.35)
Net assets at end of period (000) $56,714 $42,080
Ratios to average net assets:**
Expenses (%)(b) 1.20 1.20
Expenses, excluding reimbursements (%)(b) 1.28 1.37
Net investment income (%)(b) 2.50 2.12
Portfolio turnover (%) 14 16
* 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, 2016, average net assets were
$49,545,000.
*** Fund Shares commenced operations on August 7, 2015.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
36 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31,
2016 2016***
-------------------------------------
Net asset value at beginning of period $ 9.39 $10.00
---------------------------------
Income (loss) from investment operations:
Net investment income .13 .15(a)
Net realized and unrealized gain (loss) .44 (.68)(a)
---------------------------------
Total from investment operations .57 (.53)(a)
---------------------------------
Less distributions from:
Net investment income (.12) (.08)
---------------------------------
Net asset value at end of period $ 9.84 $ 9.39
=================================
Total return (%)* 6.17 (5.32)
Net assets at end of period (000) $4,921 $4,695
Ratios to average net assets:**
Expenses (%)(b) 1.10 1.10
Expenses, excluding reimbursements (%)(b) 1.98 1.79
Net investment income (%)(b) 2.64 2.20
Portfolio turnover (%) 14 16
* 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, 2016, average net assets were
$4,857,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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
================================================================================
38 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,061.00 $6.20
Hypothetical
(5% return before expenses) 1,000.00 1,019.05 6.07
INSTITUTIONAL SHARES
Actual 1,000.00 1,061.70 5.69
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.57
*Expenses are equal to the annualized expense ratio of 1.20% for Fund Shares
and 1.10% for Institutional 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 6.10% for Fund Shares and 6.17% for Institutional Shares for the six-month
period of April 1, 2016, through September 30, 2016.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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,
================================================================================
40 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. 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 to be 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 in connection with the other funds in the Trust. The Board considered the
fees to be paid to the Manager and the services to be provided to the Fund by
the Manager under the Advisory Agreement, as well as other services to be
provided by the Manager and its affiliates under other agreements, and the
personnel who would be responsible for providing these services. The Board also
took into consideration that, in addition to the investment advisory services to
be provided to the Fund, the Manager and its affiliates will provide
administrative services, compliance oversight, stockholder services, oversight
of Fund accounting, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement with respect to the other funds in
the Trust. The Board considered the level and depth of
================================================================================
ADVISORY AGREEMENT(S) | 41
================================================================================
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The expected allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," was also considered. The
Manager's role in coordinating the activities of the Fund's other service
providers also was considered. The Board also considered the Manager's risk
management processes. The Board considered the Manager's financial condition and
that it had the financial wherewithal to provide a 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 other funds in the Trust.
The Board also reviewed the compliance and administrative services to be
provided to the Fund by the Manager, including 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 other funds
managed by the Manager, 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 and no
sales loads), asset size, and expense components (the "expense group") and (ii)
a larger group of investment companies that includes the Fund and all other
front-end load and no-load retail open-end investment companies with the same
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 as well as any fee waivers or reimbursements - was above the median of
its expense group and below the median of its expense universe. The data
================================================================================
42 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
indicated that the Fund's total expense ratio, after reimbursements, was below
the median of its expense group and its expense universe. The Board took into
account the various services provided to the Fund by the Manager and its
affiliates, including the nature and high quality of services provided by the
Manager. The Board also noted the level and method of computing the management
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 lower than the average of its performance universe and its
Lipper index for the period August 31, 2015 to December 31, 2015. The Board
also noted that the Fund's percentile performance ranking was in the bottom 50%
of its performance universe for the period August 31, 2015 to December 31, 2015.
The Board noted that the Fund recently commenced operations and therefore has a
limited performance history.
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. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its management fees 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
================================================================================
ADVISORY AGREEMENT(S) | 43
================================================================================
considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services received by the Fund from
the Manager as well as the type of fund. 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 took into account management's discussions of the
Fund's 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 also
considered the fee waivers and expense reimbursement arrangements by the
Manager. The Board determined that the 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 in view of its limited performance history;
(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.
================================================================================
44 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
98352-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA NEW YORK BOND FUND]
==============================================================
SEMIANNUAL REPORT
USAA NEW YORK BOND FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 23
Financial Statements 24
Notes to Financial Statements 27
EXPENSE EXAMPLE 40
ADVISORY AGREEMENT(S) 42
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)2016, USAA. All rights reserved.
211733-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA NEW YORK BOND FUND (THE FUND) PROVIDES NEW YORK INVESTORS WITH A HIGH
LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX AND NEW
YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in long-term investment-grade securities issued by
the state of New York, its political subdivisions, municipalities and public
authorities, instrumentalities, and by other government entities, the interest
on which is exempt from federal income tax and New York State and New York City
personal income tax. During normal market conditions, at least 80% of the Fund's
net assets will consist of New York tax-exempt securities. The Fund's
dollar-weighted average portfolio maturity is not restricted, but is expected to
be greater than 10 years.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF REGINA G. SHAFER] [PHOTO OF DALE R. HOFFMANN]
REGINA G. SHAFER, CPA, CFA DALE R. HOFFMANN
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period ended
September 30, 2016, as demand for municipal securities outweighed the amount
of available supply. Although new issuance picked up, it remained low by
historical standards. Furthermore, it was dominated by refunding bonds
rather than new issues. In a bond refunding, issuers call existing
high-interest bonds and replace them with new bonds that have lower coupon
rates. Meanwhile, as demand for municipal bonds increased, municipal bond
mutual funds also received positive investment inflows every week of the
reporting period. Investors continued to prefer municipal securities for
their tax-advantaged status as well as their relative stability.
Municipal bonds also benefited from the performance of the U.S. Treasury
market, which the tax-exempt bond market generally follows over time.
Longer-term U.S. Treasury securities rallied on strong demand, especially
from foreign investors who favored U.S. Treasuries because of their
relatively higher yields compared to the government bonds of other developed
countries. As U.S. Treasury prices rose, their yields (which move in the
opposite direction) fell. During the reporting period, the yield on a
30-year U.S. Treasury security dropped from 2.61% at 3/31/16 to 2.32% at
9/30/16.
Municipal credit quality remained strong as state and local governments
continued to practice sound fiscal management and generally maintained
healthy reserves. State and local revenues rose, though at a more moderate
================================================================================
2 | USAA NEW YORK BOND FUND
================================================================================
pace than in the recent past. Numerous issuers also took steps to address
their pension risks, in some cases proposing tax increases to deal with
potential pension-funding shortfalls. Unlike corporate issuers, many state
and municipal governments have broad taxing powers and are required by law
to balance their budgets.
o HOW DID THE USAA NEW YORK BOND FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
reporting period ended September 30, 2016, the Fund Shares and Adviser
Shares had a total return of 2.19% and 2.08%, respectively, versus an
average return of 2.89% amongst the funds in the Lipper New York Municipal
Debt Funds category. This compares to returns of 3.26% for the Lipper New
York Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays
Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt
distributions over the prior 12 months produced a dividend yield of 3.43%
and 3.23%, respectively, compared to the Lipper category average of 3.12%.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o WHAT ARE THE CONDITIONS IN THE STATE OF NEW YORK?
New York, which has passed a series of on-time budgets, continues to be
highly rated by the credit rating agencies. The state's finances appear to
be in good shape due to a gradual economic recovery, but revenues are still
dependent in some measure on the financial services industry. Although New
York state is projecting future budget gaps, they appear
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's
benchmark is now called the Bloomberg Barclays Municipal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
to be very manageable. Budget flexibility is enhanced by the state's $1.8
billion "rainy day" reserves. At the end of the reporting period, New York's
general obligation bonds were rated Aa1 by Moody's Investors Service, AA+ by
Standard & Poor's Ratings Services, and AA+ by Fitch Ratings, Inc.
o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD?
We maintained our focus on income generation. Over the long-term, the Fund's
income distribution, not its price appreciation, accounts for most of its
total return.
During the reporting period, the Fund continued to benefit from our
independent research. In our efforts to find attractive opportunities, we
continued to work with our in-house team of analysts to select investments
for the Fund on a bond-by-bond basis. Each security is researched, using
fundamental analysis that emphasizes an issuer's ability and willingness to
repay its debt. Through our research, we seek both to recognize value and
avoid potential risks.
The Fund continues to be diversified by sector and issuer, limiting its
exposure to an unexpected event. We also avoid bonds subject to the federal
alternative minimum tax for individuals.
Thank you for allowing us to help you with your investment needs.
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 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.
================================================================================
4 | USAA NEW YORK BOND FUND
================================================================================
INVESTMENT OVERVIEW
USAA NEW YORK BOND FUND SHARES (FUND SHARES)
(Ticker Symbol: USNYX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $217.5 Million $211.1 Million
Net Asset Value Per Share $12.34 $12.28
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.424 $0.429
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 14.4 Years 14.6 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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
2.19% 5.20% 4.52% 4.43%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
1.43% 0.66%
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
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, 2016, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS
ENDED SEPTEMBER 30, 2016
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 4.43% = 4.08% + 0.35%
5 YEARS 4.52% = 3.71% + 0.81%
1 YEAR 5.20% = 3.55% + 1.65%
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, 2007-SEPTEMBER 30, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN
RETURN RETURN SHARE PRICE
9/30/07 1.84% 4.12% -2.28%
9/30/08 -4.50% 4.15% -8.65%
9/30/09 14.80% 5.23% 9.57%
9/30/10 6.60% 4.39% 2.21%
9/30/11 3.89% 4.32% -0.43%
9/30/12 9.86% 4.04% 5.82%
9/30/13 -3.59% 3.43% -7.02%
9/30/14 8.62% 3.99% 4.63%
9/30/15 3.08% 3.57% -0.49%
9/30/16 5.20% 3.55% 1.65%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD.
HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE
THAN SHARE PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
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 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 (including capital gain distributions), redemptions of shares, or
reinvested net investment income.
================================================================================
6 | USAA NEW YORK BOND FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/16, and
assuming New York state tax rates of: 6.65% 6.85% 6.85% 6.85%
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
--------------------------------------------------------------------------------
10 Years 4.08% 6.07% 6.93% 7.16% 7.74%
5 Years 3.71% 5.52% 6.30% 6.51% 7.04%
1 Year 3.55% 5.28% 6.03% 6.23% 6.73%
To match the Fund Shares' closing 30-day SEC Yield of 1.43% on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 2.13% 2.43% 2.51% 2.71%
--------------------------------------------------------------------------------
Assuming the same marginal federal tax rates and combined New York state and
city tax rates of: 10.30% 10.50% 10.50% 10.50%
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
--------------------------------------------------------------------------------
10 Years 4.08% 6.32% 7.21% 7.45% 8.05%
5 Years 3.71% 5.74% 6.56% 6.77% 7.32%
1 Year 3.55% 5.50% 6.28% 6.48% 7.01%
To match the Fund Shares' closing 30-day SEC Yield of 1.43% on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 2.21% 2.53% 2.61% 2.82%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA
family of funds. Taxable equivalent returns or yields will vary depending on
applicable tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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 | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA NEW LIPPER NEW
BARCLAYS YORK BOND YORK MUNICIPAL
MUNICIPAL FUND DEBT FUNDS
BOND INDEX SHARES INDEX
09/30/06 $10,000.00 $10,000.00 $10,000.00
10/31/06 10,062.71 10,058.00 10,068.50
11/30/06 10,146.59 10,159.00 10,150.66
12/31/06 10,110.74 10,108.00 10,107.92
01/31/07 10,084.85 10,089.00 10,083.61
02/28/07 10,217.74 10,217.00 10,210.26
03/31/07 10,192.55 10,177.00 10,174.85
04/30/07 10,222.72 10,219.00 10,209.09
05/31/07 10,177.46 10,160.00 10,161.44
06/30/07 10,124.72 10,094.00 10,105.29
07/31/07 10,203.21 10,145.00 10,162.64
08/31/07 10,159.19 10,021.00 10,074.20
09/30/07 10,309.52 10,183.00 10,212.49
10/31/07 10,355.47 10,237.00 10,256.03
11/30/07 10,421.50 10,241.00 10,279.86
12/31/07 10,450.43 10,228.00 10,285.62
01/31/08 10,582.21 10,343.00 10,396.46
02/29/08 10,097.73 9,774.00 9,872.03
03/31/08 10,386.34 10,094.00 10,140.87
04/30/08 10,507.88 10,257.00 10,270.57
05/31/08 10,571.41 10,331.00 10,345.04
06/30/08 10,452.09 10,242.00 10,239.93
07/31/08 10,491.82 10,227.00 10,235.73
08/31/08 10,614.60 10,331.00 10,337.13
09/30/08 10,116.83 9,725.00 9,776.78
10/31/08 10,013.57 9,493.00 9,519.89
11/30/08 10,045.40 9,438.00 9,439.14
12/31/08 10,191.86 9,434.00 9,428.20
01/31/09 10,564.91 9,833.00 9,840.07
02/28/09 10,620.41 9,937.00 9,947.80
03/31/09 10,622.35 9,956.00 9,908.39
04/30/09 10,834.56 10,191.00 10,169.13
05/31/09 10,949.17 10,333.00 10,360.44
06/30/09 10,846.60 10,269.00 10,285.93
07/31/09 11,028.07 10,433.00 10,436.78
08/31/09 11,216.61 10,688.00 10,697.71
09/30/09 11,619.14 11,164.00 11,204.14
10/31/09 11,375.24 10,889.00 10,946.90
11/30/09 11,469.23 10,956.00 10,991.28
12/31/09 11,507.99 11,036.00 11,074.85
01/31/10 11,567.92 11,081.00 11,125.80
02/28/10 11,680.05 11,188.00 11,231.63
03/31/10 11,652.09 11,188.00 11,252.53
04/30/10 11,793.69 11,338.00 11,399.40
05/31/10 11,882.15 11,453.00 11,491.13
06/30/10 11,889.21 11,444.00 11,455.89
07/31/10 12,037.46 11,574.00 11,586.99
08/31/10 12,313.06 11,880.00 11,862.98
09/30/10 12,293.82 11,901.00 11,878.72
10/31/10 12,259.77 11,851.00 11,861.73
11/30/10 12,014.62 11,562.00 11,530.27
12/31/10 11,781.79 11,274.00 11,263.61
01/31/11 11,695.00 11,100.00 11,111.46
02/28/11 11,881.18 11,314.00 11,259.30
03/31/11 11,841.59 11,271.00 11,206.11
04/30/11 12,053.65 11,508.00 11,408.27
05/31/11 12,259.63 11,773.00 11,624.21
06/30/11 12,302.40 11,825.00 11,682.54
07/31/11 12,427.95 11,949.00 11,794.59
08/31/11 12,640.57 12,156.00 11,959.67
09/30/11 12,771.24 12,367.00 12,175.51
10/31/11 12,723.76 12,322.00 12,124.97
11/30/11 12,798.93 12,385.00 12,158.56
12/31/11 13,042.41 12,649.00 12,393.24
01/31/12 13,344.04 13,035.00 12,753.49
02/29/12 13,357.19 13,042.00 12,780.25
03/31/12 13,270.40 12,955.00 12,706.69
04/30/12 13,423.49 13,111.00 12,854.47
05/31/12 13,534.92 13,259.00 12,987.12
06/30/12 13,520.39 13,248.00 12,978.02
07/31/12 13,734.67 13,481.00 13,213.15
08/31/12 13,750.31 13,514.00 13,235.52
09/30/12 13,833.37 13,583.00 13,310.51
10/31/12 13,872.40 13,634.00 13,367.26
11/30/12 14,100.94 13,918.00 13,631.89
12/31/12 13,926.66 13,685.00 13,410.53
01/31/13 13,984.66 13,755.00 13,514.39
02/28/13 14,027.02 13,806.00 13,550.87
03/31/13 13,966.53 13,746.00 13,460.04
04/30/13 14,119.63 13,907.00 13,630.52
05/31/13 13,947.15 13,729.00 13,469.39
06/30/13 13,552.23 13,168.00 12,956.26
07/31/13 13,433.74 12,988.00 12,745.14
08/31/13 13,242.02 12,776.00 12,439.40
09/30/13 13,527.03 13,095.00 12,701.97
10/31/13 13,633.90 13,194.00 12,799.02
11/30/13 13,605.80 13,171.00 12,751.52
12/31/13 13,571.05 13,135.00 12,678.86
01/31/14 13,835.44 13,440.00 12,929.45
02/28/14 13,997.67 13,620.00 13,128.95
03/31/14 14,021.21 13,660.00 13,169.50
04/30/14 14,189.67 13,829.00 13,328.65
05/31/14 14,372.39 14,011.00 13,566.13
06/30/14 14,384.85 14,018.00 13,521.04
07/31/14 14,410.18 14,014.00 13,544.63
08/31/14 14,584.73 14,185.00 13,761.40
09/30/14 14,599.54 14,224.00 13,797.19
10/31/14 14,699.62 14,315.00 13,872.13
11/30/14 14,725.09 14,331.00 13,902.63
12/31/14 14,799.29 14,410.00 13,993.27
01/31/15 15,061.60 14,640.00 14,245.26
02/28/15 14,906.29 14,529.00 14,121.10
03/31/15 14,949.34 14,583.00 14,157.80
04/30/15 14,870.85 14,507.00 14,078.35
05/31/15 14,829.74 14,478.00 14,093.26
06/30/15 14,816.31 14,437.00 14,004.46
07/31/15 14,923.59 14,554.00 14,093.51
08/31/15 14,952.94 14,594.00 14,139.71
09/30/15 15,061.18 14,662.00 14,237.72
10/31/15 15,121.12 14,719.00 14,291.33
11/30/15 15,181.20 14,773.00 14,351.80
12/31/15 15,287.92 14,893.00 14,438.88
01/31/16 15,470.36 15,018.00 14,578.29
02/29/16 15,494.59 15,025.00 14,612.33
03/31/16 15,543.73 15,093.00 14,675.29
04/30/16 15,658.07 15,212.00 14,771.39
05/31/16 15,700.42 15,266.00 14,850.40
06/30/16 15,950.14 15,508.00 15,157.97
07/31/16 15,959.83 15,475.00 15,160.60
08/31/16 15,981.42 15,493.00 15,191.48
09/30/16 15,901.69 15,427.00 15,154.26
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA New York Bond Fund Shares to the following benchmarks:
o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (the
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 New York Municipal Debt Funds Index measures the Fund's
performance to that of the Lipper New York 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
8 | USAA NEW YORK BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA NEW LIPPER NEW YORK
YORK BOND MUNICIPAL DEBT
FUND SHARES FUNDS AVERAGE
09/30/07 4.20% 3.79%
09/30/08 4.79% 4.14%
09/30/09 4.29% 3.91%
09/30/10 4.08% 3.80%
09/30/11 4.07% 3.85%
09/30/12 3.66% 3.46%
09/30/13 3.80% 3.60%
09/30/14 3.67% 3.50%
09/30/15 3.55% 3.39%
09/30/16 3.43% 3.12%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/07 through 9/30/16.
The Lipper New York Municipal Debt Funds Average is an average performance level
of all New York municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA NEW YORK BOND FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UNYBX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $6.1 Million $5.9 Million
Net Asset Value Per Share $12.31 $12.25
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.400 $0.405
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.08% 4.91% 4.25% 4.50%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
1.14% 0.85%
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
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, 2016, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
10 | USAA NEW YORK BOND FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 1.14% on 09/30/16 and
assuming New York state tax rates of: 6.65% 6.85% 6.85% 6.85%
and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 1.70% 1.94% 2.00% 2.16%
--------------------------------------------------------------------------------
Assuming the same marginal federal tax rates and combined New York state
and city tax rates of: 10.30% 10.50% 10.50% 10.50%
To match the Adviser Shares' closing 30-day SEC Yield of 1.14% on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 1.77% 2.02% 2.08% 2.25%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA
family of funds. Taxable equivalent returns or yields will vary depending on
applicable tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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]
BLOOMBERG USAA NEW LIPPER NEW
BARCLAYS YORK BOND YORK MUNICIPAL
MUNICIPAL FUND ADVISER DEBT FUNDS
BOND INDEX SHARES INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,228.95 10,261.40 10,238.20
09/30/10 10,212.97 10,276.56 10,251.78
10/31/10 10,184.68 10,230.94 10,237.11
11/30/10 9,981.03 9,978.54 9,951.05
12/31/10 9,787.61 9,727.30 9,720.91
01/31/11 9,715.50 9,575.63 9,589.60
02/28/11 9,870.17 9,758.50 9,717.20
03/31/11 9,837.28 9,721.10 9,671.29
04/30/11 10,013.45 9,923.55 9,845.76
05/31/11 10,184.57 10,150.34 10,032.13
06/30/11 10,220.10 10,193.17 10,082.47
07/31/11 10,324.40 10,298.51 10,179.17
08/31/11 10,501.03 10,475.33 10,321.64
09/30/11 10,609.58 10,655.04 10,507.92
10/31/11 10,570.14 10,615.08 10,464.30
11/30/11 10,632.58 10,667.43 10,493.29
12/31/11 10,834.86 10,893.33 10,695.83
01/31/12 11,085.43 11,223.57 11,006.74
02/29/12 11,096.35 11,227.44 11,029.83
03/31/12 11,024.25 11,149.74 10,966.35
04/30/12 11,151.44 11,282.60 11,093.89
05/31/12 11,244.01 11,408.15 11,208.37
06/30/12 11,231.93 11,397.03 11,200.51
07/31/12 11,409.94 11,595.30 11,403.44
08/31/12 11,422.94 11,612.22 11,422.75
09/30/12 11,491.93 11,678.65 11,487.47
10/31/12 11,524.36 11,720.66 11,536.44
11/30/12 11,714.22 11,962.68 11,764.82
12/31/12 11,569.44 11,758.73 11,573.79
01/31/13 11,617.62 11,818.02 11,663.42
02/28/13 11,652.81 11,860.35 11,694.90
03/31/13 11,602.56 11,806.98 11,616.51
04/30/13 11,729.74 11,943.25 11,763.65
05/31/13 11,586.46 11,775.73 11,624.58
06/30/13 11,258.38 11,275.81 11,181.73
07/31/13 11,159.95 11,118.64 10,999.53
08/31/13 11,000.68 10,932.66 10,735.67
09/30/13 11,237.45 11,206.55 10,962.27
10/31/13 11,326.23 11,289.22 11,046.03
11/30/13 11,302.88 11,267.28 11,005.03
12/31/13 11,274.02 11,234.14 10,942.33
01/31/14 11,493.66 11,491.20 11,158.59
02/28/14 11,628.43 11,643.01 11,330.77
03/31/14 11,647.98 11,677.47 11,365.77
04/30/14 11,787.93 11,820.04 11,503.12
05/31/14 11,939.72 11,972.41 11,708.07
06/30/14 11,950.07 11,977.14 11,669.15
07/31/14 11,971.12 11,971.27 11,689.52
08/31/14 12,116.12 12,113.80 11,876.60
09/30/14 12,128.43 12,146.25 11,907.48
10/31/14 12,211.57 12,218.74 11,972.17
11/30/14 12,232.73 12,232.09 11,998.48
12/31/14 12,294.37 12,295.50 12,076.71
01/31/15 12,512.28 12,500.71 12,294.19
02/28/15 12,383.26 12,393.97 12,187.03
03/31/15 12,419.02 12,437.74 12,218.71
04/30/15 12,353.82 12,380.72 12,150.13
05/31/15 12,319.66 12,343.71 12,163.00
06/30/15 12,308.51 12,306.07 12,086.37
07/31/15 12,397.63 12,401.62 12,163.22
08/31/15 12,422.01 12,446.71 12,203.09
09/30/15 12,511.93 12,502.33 12,287.68
10/31/15 12,561.73 12,537.27 12,333.95
11/30/15 12,611.63 12,593.11 12,386.14
12/31/15 12,700.29 12,679.89 12,461.29
01/31/16 12,851.86 12,787.71 12,581.60
02/29/16 12,871.98 12,792.28 12,610.98
03/31/16 12,912.80 12,848.52 12,665.32
04/30/16 13,007.79 12,948.00 12,748.26
05/31/16 13,042.97 12,992.00 12,816.45
06/30/16 13,250.42 13,196.00 13,081.89
07/31/16 13,258.47 13,166.00 13,084.16
08/31/16 13,276.41 13,178.00 13,110.81
09/30/16 13,210.17 13,118.00 13,078.69
[END CHART]
Data from 7/31/10 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA New York Bond Fund Adviser Shares to the benchmarks listed above (see
page 8 for benchmark definitions).
*The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper
New York 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
12 | USAA NEW YORK BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA NEW LIPPER NEW
YORK BOND YORK MUNICIPAL
FUND ADVISER DEBT FUNDS
SHARES AVERAGE
09/30/11 3.86% 3.85%
09/30/12 3.45 3.46
09/30/13 3.58 3.60
09/30/14 3.44 3.50
09/30/15 3.32 3.39
09/30/16 3.23 3.12
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/11 through 9/30/16.
The Lipper New York Municipal Debt Funds Average is an average performance
level of all New York municipal debt funds, reported by Lipper Inc., an
independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Education ............................................................... 18.4%
Hospital ................................................................ 14.8%
Special Assessment/Tax/Fee .............................................. 11.1%
Water/Sewer Utility ..................................................... 9.7%
Escrowed Bonds .......................................................... 8.8%
General Obligation ...................................................... 5.8%
Nursing/CCRC ............................................................ 4.5%
Appropriated Debt ....................................................... 4.2%
Toll Roads .............................................................. 4.0%
Buildings ............................................................... 3.3%
You will find a complete list of securities that the Fund owns on pages 16-22.
================================================================================
14 | USAA NEW YORK BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/16 O
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 10.3%
AA 35.8%
A 31.4%
BBB 14.1%
BELOW INVESTMENT-GRADE 2.1%
UNRATED 6.3%
[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 independent 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 and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated 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 16-22.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (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.
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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDC Industrial Development Corp.
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
CREDIT ENHANCEMENTS - Adds 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
================================================================================
16 | USAA NEW YORK BOND FUND
================================================================================
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 Municipal Corp., CIFG
Assurance, N.A., or XL Capital Assurance. Although bond insurance
reduces the risk of loss due to default by an issuer, such bonds
remain subject to the risk that value may fluctuate for other
reasons, and there is no assurance that the insurance company will
meet its obligations.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee
agreement from the Federal Housing Administration or the State of
New York Mortgage Agency.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (92.5%)
NEW YORK (87.0%)
$1,000 Albany Capital Resource Corp. (PRE) 6.00% 11/15/2025 $ 1,202
500 Albany IDA 5.00 7/01/2031 512
1,000 Albany IDA (PRE) 5.25 11/15/2032 1,050
1,000 Albany IDA (PRE) 5.25 11/15/2032 1,050
500 Buffalo and Erie County Industrial Land Dev. Corp. 6.00 10/01/2031 598
2,000 Buffalo and Erie County Industrial Land Dev. Corp. 5.00 7/01/2040 2,325
700 Build NYC Resource Corp. 5.00 6/01/2040 815
1,000 Build NYC Resource Corp. 5.00 8/01/2040 1,167
500 Build NYC Resource Corp. 5.00 7/01/2041 581
1,500 Build NYC Resource Corp. 5.00 8/01/2042 1,709
1,000 Build NYC Resource Corp. 5.50 4/01/2043 1,089
2,000 Build NYC Resource Corp. 5.00 7/01/2045 2,334
1,000 Canton Capital Resource Corp. (INS) (PRE) 5.00 5/01/2040 1,143
2,000 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2048 2,093
1,000 Convention Center Dev. Corp. 3.28(b) 11/15/2037 513
500 Convention Center Dev. Corp. 5.00 11/15/2045 599
500 Counties Tobacco Trust VI 5.00 6/01/2045 564
2,000 Dormitory Auth. (ETM) 5.30 2/15/2019 2,109
1,500 Dormitory Auth. (NBGA) 5.00 7/01/2024 1,504
3,500 Dormitory Auth. (INS) 5.00 7/01/2025 3,513
2,000 Dormitory Auth. 5.00 7/01/2026 2,268
1,000 Dormitory Auth. 5.00 7/01/2027 1,071
3,275 Dormitory Auth. (INS) 5.50 5/15/2030 4,495
500 Dormitory Auth. (INS) 5.00 7/01/2030 514
1,000 Dormitory Auth. 5.00 7/01/2031 1,127
1,000 Dormitory Auth. 5.00 1/15/2032 1,050
500 Dormitory Auth. (INS) 5.63 11/01/2032 594
2,500 Dormitory Auth. (NBGA) 5.00 6/01/2033 2,655
2,500 Dormitory Auth. (INS) (PRE) 5.00 7/01/2033 2,679
2,000 Dormitory Auth. (PRE) 5.25 7/01/2033 2,233
1,300 Dormitory Auth. 5.75 7/01/2033 1,435
2,000 Dormitory Auth. 5.00 2/15/2034 2,188
1,200 Dormitory Auth. (INS) (PRE) 5.00 7/01/2034 1,335
500 Dormitory Auth. 5.00 7/01/2034 597
1,000 Dormitory Auth. 5.25 7/01/2035 1,094
1,000 Dormitory Auth. (PRE) 5.00 7/01/2036 1,032
2,000 Dormitory Auth. (INS) 5.00 8/15/2036 2,058
1,950 Dormitory Auth. (NBGA) 4.75 2/15/2037 1,977
250 Dormitory Auth. (INS) 5.30 7/01/2037 258
================================================================================
18 | USAA NEW YORK BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 500 Dormitory Auth. 5.00% 5/01/2038 $ 556
2,000 Dormitory Auth. (PRE) 5.00 7/01/2038 2,142
500 Dormitory Auth. 5.50 3/01/2039 550
500 Dormitory Auth. 5.00 5/01/2039 574
1,000 Dormitory Auth. 5.50 7/01/2040 1,148
2,000 Dormitory Auth. (INS) 5.50 7/01/2040 2,846
2,000 Dormitory Auth. 5.00 5/01/2041 2,275
1,000 Dormitory Auth. 4.00 7/01/2041 1,115
250 Dormitory Auth. 5.00 7/01/2042 279
1,000 Dormitory Auth. 5.00 5/01/2043 1,170
1,000 Dormitory Auth. 5.75 7/01/2043 1,208
1,500 Dormitory Auth. 5.00 7/01/2044 1,725
1,000 Dutchess County IDA (INS) 5.50 4/01/2030 1,147
1,250 Dutchess County Local Dev. Corp. 5.75 7/01/2040 1,427
2,000 Dutchess County Local Dev. Corp. 4.00 7/01/2041 2,179
1,000 Dutchess County Local Dev. Corp. 5.00 7/01/2044 1,163
2,000 Dutchess County Local Dev. Corp. 5.00 7/01/2045 2,358
600 Dutchess County Local Dev. Corp. 5.00 7/01/2046 709
1,000 Environmental Facilities Corp. 4.00 8/15/2046 1,119
250 Erie County IDA 5.25 5/01/2032 291
15 Housing Finance Agency (INS) 6.13 11/01/2020 15
2,500 Liberty Dev. Corp. 5.25 10/01/2035 3,349
560 Liberty Dev. Corp. 5.50 10/01/2037 776
1,000 Liberty Dev. Corp.(a) 5.00 11/15/2044 1,155
2,000 Long Island Power Auth. 5.00 5/01/2038 2,266
2,000 Long Island Power Auth. 5.00 9/01/2044 2,349
500 Monroe County IDC 5.25 10/01/2031 571
1,000 Monroe County IDC 5.00 12/01/2037 1,139
500 Monroe County IDC (INS) 5.00 1/15/2038 581
2,100 Monroe County IDC (NBGA) 5.50 8/15/2040 2,454
2,000 Monroe County IDC 5.00 12/01/2042 2,262
3,000 MTA 5.00 11/15/2035 3,628
1,500 MTA 5.25 11/15/2038 1,784
1,000 Nassau County 5.00 1/01/2038 1,190
1,000 Nassau County (INS) 5.00 4/01/2038 1,176
1,000 Nassau County Local Economic Assistance Corp. 5.00 7/01/2037 1,132
2,000 New York City 5.25 8/15/2023 2,164
1,885 New York City Health and Hospital Corp. 5.00 2/15/2025 1,985
1,000 New York City Housing Dev. Corp. 5.00 11/01/2042 1,075
1,000 New York City IDA (INS) 5.25 11/01/2037 1,047
17,090 New York City Municipal Water Finance Auth. 5.12(b) 6/15/2020 16,263
2,000 New York City Municipal Water Finance Auth. 5.00 6/15/2039 2,212
3,000 New York City Transitional Finance Auth. 5.00 1/15/2034 3,154
1,000 New York City Transitional Finance Auth. 5.13 1/15/2034 1,090
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$1,000 New York City Transitional Finance Auth. 4.00% 8/01/2041 $ 1,107
1,250 New York City Transitional Finance Auth. 5.00 7/15/2043 1,487
2,000 New York City Trust for Cultural Resources 5.00 12/01/2039 2,228
1,000 New York City Trust for Cultural Resources 5.00 8/01/2043 1,158
1,000 New York City Trust for Cultural Resources 4.00 7/01/2046 1,089
825 Newburgh City 5.00 6/15/2023 944
870 Newburgh City 5.00 6/15/2024 989
1,000 Niagara Area Dev. Corp. 4.00 11/01/2024 1,013
750 Niagara Tobacco Asset Securitization Corp. 5.25 5/15/2040 866
1,500 Onondaga Civic Dev. Corp. 5.38 7/01/2040 1,655
1,000 Onondaga Civic Dev. Corp. 5.00 10/01/2040 1,162
1,000 Onondaga Civic Dev. Corp. 5.00 7/01/2042 1,122
1,000 Onondaga County Trust for Cultural Resources 5.00 12/01/2036 1,174
600 Rockland County 5.00 12/15/2021 676
1,265 Rockland County 3.75 10/01/2025 1,323
675 Saratoga County IDA 5.25 12/01/2032 704
1,000 Seneca County IDA (PRE) 5.00 10/01/2027 1,042
1,000 Southold Local Dev. Corp. 5.00 12/01/2045 1,117
500 St. Lawrence County IDA 4.00 7/01/2043 551
1,000 State 5.00 2/15/2039 1,096
220 Suffolk County EDC (PRE) 5.00 7/01/2028 260
1,280 Suffolk County EDC 5.00 7/01/2028 1,449
250 Suffolk County EDC 5.00 7/01/2033 291
2,600 Suffolk County IDA 5.00 11/01/2028 2,606
1,020 Suffolk Tobacco Asset Securitization Corp. 5.38 6/01/2028 1,059
1,450 Suffolk Tobacco Asset Securitization Corp. 5.00 6/01/2032 1,620
1,000 Thruway Auth. (PRE) 5.00 4/01/2028 1,082
1,000 Thruway Auth. 4.00 1/01/2056 1,067
1,000 Tompkins County Dev. Corp. (INS) 5.50 7/01/2033 1,153
1,500 Tompkins County Dev. Corp. 5.00 7/01/2044 1,691
1,500 Town of Hempstead IDA 4.50 7/01/2036 1,535
3,675 Triborough Bridge and Tunnel Auth. 5.00 11/15/2029 3,986
3,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 3,240
1,000 Triborough Bridge and Tunnel Auth. 3.70(b) 11/15/2032 653
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,265
310 Upper Mohawk Valley Regional Water
Finance Auth. (INS) 4.25 4/01/2036 310
1,685 Urban Dev. Corp. 5.00 1/01/2029 1,805
2,000 Urban Dev. Corp. 5.00 3/15/2036 2,188
870 Westchester County Health Care Corp. (PRE) 6.00 11/01/2030 1,044
130 Westchester County Health Care Corp. 6.00 11/01/2030 150
1,500 Westchester County Local Dev. Corp. 5.00 1/01/2034 1,693
1,000 Westchester County Local Dev. Corp. 5.00 11/01/2046 1,169
================================================================================
20 | USAA NEW YORK BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$1,000 Yonkers (INS) 5.00% 10/01/2024 $ 1,163
665 Yonkers (INS) 3.00 7/01/2025 714
--------
194,624
--------
GUAM (3.7%)
500 Government 5.00 1/01/2037 547
500 Government 5.00 12/01/2046 586
1,000 Government Business Privilege Tax 5.00 11/15/2039 1,151
1,000 International Airport Auth. (INS) 5.75 10/01/2043 1,217
1,000 Power Auth. (INS) 5.00 10/01/2030 1,175
500 Power Auth. (INS) 5.00 10/01/2039 586
1,000 Waterworks Auth. 5.00 7/01/2029 1,162
500 Waterworks Auth. 5.00 7/01/2035 568
1,000 Waterworks Auth. 5.50 7/01/2043 1,155
--------
8,147
--------
PUERTO RICO (0.6%)
1,390 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.13 4/01/2032 1,280
--------
U.S. VIRGIN ISLANDS (1.2%)
2,000 Public Finance Auth. 5.00 10/01/2032 1,994
750 Water and Power Auth. 5.00 7/01/2018 758
--------
2,752
--------
Total Fixed-Rate Instruments (cost: $189,278) 206,803
--------
VARIABLE-RATE DEMAND NOTES (6.2%)
NEW YORK (6.2%)
1,425 Albany IDA (LOC - Citizens Financial Group) 1.05 5/01/2035 1,425
1,000 East Rochester Housing Auth.
(LOC - Citizens Financial Group) 1.01 12/01/2036 1,000
6,000 Energy Research and Dev. Auth.
(LOC - Mizuho Corporate Bank Ltd.) 0.86 5/01/2039 6,000
4,200 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 4,200
1,170 Monroe County IDA (LOC - Citizens Financial Group) 1.01 7/01/2027 1,170
--------
13,795
--------
Total Variable-Rate Demand Notes (Cost: $13,795) 13,795
--------
UNITS
------------------------------------------------------------------------------------------------------------------
LIQUIDATING TRUST (0.2%)
200 Center for Medical Science, Inc.*(c),(d) (cost: $499) 560
--------
TOTAL INVESTMENTS (COST: $203,572) $221,158
========
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $206,803 $ - $206,803
Variable-Rate Demand Notes - 13,795 - 13,795
Liquidating Trust - - 560 560
------------------------------------------------------------------------------------------------------------------
Total $- $220,598 $560 $221,158
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
LIQUIDATING TRUST
------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2016 $550
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments 10
------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2016 $560
------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize
any transfers in and transfers out as of the beginning of the reporting
period in which the event or circumstance that caused the transfer occurred.
================================================================================
22 | USAA NEW YORK BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(b) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at September 30, 2016, was $560,000, which represented 0.2% of the
Fund's net assets.
(d) Restricted security that is not registered under the Securities Act of
1933.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $203,572) $221,158
Cash 164
Receivables:
Capital shares sold 139
Interest 2,505
Other 20
--------
Total assets 223,986
--------
LIABILITIES
Payables:
Capital shares redeemed 76
Dividends on capital shares 143
Accrued management fees 58
Accrued transfer agent's fees 1
Other accrued expenses and payables 55
--------
Total liabilities 333
--------
Net assets applicable to capital shares outstanding $223,653
========
NET ASSETS CONSIST OF:
Paid-in capital $209,526
Undistributed net investment income 1
Accumulated net realized loss on investments (3,460)
Net unrealized appreciation of investments 17,586
--------
Net assets applicable to capital shares outstanding $223,653
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $217,519/17,626 capital
shares outstanding, no par value) $ 12.34
========
Adviser Shares (net assets of $6,134/498 capital
shares outstanding, no par value) $ 12.31
========
See accompanying notes to financial statements.
================================================================================
24 | USAA NEW YORK BOND FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 4,440
--------
EXPENSES
Management fees 394
Administration and servicing fees:
Fund Shares 162
Adviser Shares 5
Transfer agent's fees:
Fund Shares 24
Distribution and service fees (Note 6D):
Adviser Shares 8
Custody and accounting fees:
Fund Shares 32
Adviser Shares 1
Postage:
Fund Shares 1
Shareholder reporting fees:
Fund Shares 7
Trustees' fees 15
Professional fees 46
Other 8
--------
Total expenses 703
--------
NET INVESTMENT INCOME 3,737
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 62
Change in net unrealized appreciation/(depreciation) 941
--------
Net realized and unrealized gain 1,003
--------
Increase in net assets resulting from operations $ 4,740
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
-----------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
-----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,737 $ 7,494
Net realized gain on investments 62 77
Change in net unrealized appreciation/(depreciation)
of investments 941 (278)
-----------------------
Increase in net assets resulting from operations 4,740 7,293
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (3,638) (7,304)
Adviser Shares (96) (186)
-----------------------
Distributions to shareholders (3,734) (7,490)
-----------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 5,402 (304)
Adviser Shares 253 221
-----------------------
Total net increase (decrease) in net assets from
capital share transactions 5,655 (83)
-----------------------
Net increase (decrease) in net assets 6,661 (280)
NET ASSETS
Beginning of period 216,992 217,272
-----------------------
End of period $223,653 $216,992
=======================
Undistributed (overdistribution of) net investment income:
End of period $ 1 $ (2)
=======================
See accompanying notes to financial statements.
================================================================================
26 | USAA NEW YORK BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate
funds. Additionally, the Fund qualifies as a registered investment company
under Accounting Standards Codification Topic 946. The information presented
in this semiannual report pertains only to the USAA New York Bond Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide New York investors with a high level of
current interest income that is exempt from federal income tax and New York
State and New York City personal income taxes.
The Fund consists of two classes of shares: New York Bond Fund Shares (Fund
Shares) and New York Bond Fund Adviser Shares (Adviser Shares). Each class of
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, distribution and service (12b-1) fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class' 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 all 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. 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 value a security when, in the
Service's judgment, these prices are readily available and are
representative of the security's market value. For many securities,
such prices are not readily available. The Service generally prices
those securities based on methods which include consideration of yields
or prices of securities of comparable quality, coupon, maturity, and
type; indications as to values from dealers in securities; and general
market conditions. Generally, debt securities are categorized in Level
2 of the fair value
================================================================================
28 | USAA NEW YORK BOND FUND
================================================================================
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
2. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
3. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
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.
The valuation of securities falling in the Level 3 category are primarily
supported by the value derived based upon the use of inputs such as real
property appraisals. 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities. The Fund concentrates its investments in
New York tax-exempt securities and, therefore, may be exposed to more credit
risk than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more
================================================================================
30 | USAA NEW YORK BOND FUND
================================================================================
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.
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, 2016, custodian and other bank credits reduced
the Fund's expenses by less than $500.
G. REDEMPTION FEES - All share classes held in the Fund less than 60 days
are subject to a redemption fee equal to 1.00% of the proceeds of the
redeemed or exchanged shares. All redemption fees paid will be accounted for
by the Fund as an addition to paid in capital. For the six-month period
ended September 30, 2016, the Fund Shares and Adviser Shares did not charge
any redemption fees.
H. 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.
I. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(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), plus 100.0 basis
points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $1,000, which represents 0.3% 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, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal 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 income
taxes.
================================================================================
32 | USAA NEW YORK BOND FUND
================================================================================
The Fund is permitted to carry forward post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and/or long-term capital losses.
Post-enactment capital loss carryforwards must be used before pre-enactment
capital loss carryforwards. As a result, pre-enactment capital loss
carryforwards may be more likely to expire unused.
At March 31, 2016, the Fund had both pre-enactment capital loss carryforwards
and post-enactment capital loss carryforwards for federal income tax purposes
as shown in the table below. If not offset by subsequent capital gains, the
pre-enactment capital loss carryforwards will expire as shown below. It is
unlikely that the Board will authorize a distribution of capital gains realized
in the future until the capital loss carryforwards have been used or expire.
CAPITAL LOSS CARRYFORWARDS
----------------------------------------------
EXPIRES SHORT-TERM LONG-TERM
------------- ---------- ----------
2019 $ 1,000 $ -
No Expiration 815,000 2,706,000
------------- -------- ----------
Total $816,000 $2,706,000
======== ==========
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$10,553,000 and $12,460,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $17,781,000 and $195,000, respectively, resulting in net
unrealized appreciation of $17,586,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital
stock at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016
-----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
FUND SHARES:
Shares sold 624 $ 7,733 885 $ 10,806
Shares issued from
reinvested dividends 240 2,979 496 6,035
Shares redeemed (428) (5,310) (1,412) (17,145)
------------------------------------------------------------
Net increase (decrease) from
capital share transactions 436 $ 5,402 (31) $ (304)
============================================================
ADVISER SHARES:
Shares sold 25 $ 307 25 $ 308
Shares issued from
reinvested dividends 1 13 1 16
Shares redeemed (6) (67) (8) (103)
------------------------------------------------------------
Net increase from capital
share transactions 20 $ 253 18 $ 221
============================================================
(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
================================================================================
34 | USAA NEW YORK BOND FUND
================================================================================
Fund, and for directly managing the day-to-day investment of the Fund's
assets, subject to the authority of and supervision by the Board.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly as a percentage of aggregate average net assets of the USAA New York
Bond Fund and USAA New York Money Market Fund combined, which on an annual
basis is equal to 0.50% of the first $50 million, 0.40% of that portion over
$50 million but not over $100 million, and 0.30% of that portion over $100
million. These fees are allocated on a proportional basis to each Fund
monthly based upon average net assets. For the six-month period ended
September 30, 2016, the Fund's effective annualized base fee was 0.35% of
the Fund's average net assets for the same period.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper New York Municipal Debt Funds Index. The Lipper
New York Municipal Debt Funds Index tracks the total return performance of
funds that limit their assets to those securities that are exempt from
taxation in New York State and New York City. The performance period for
each share 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
Each class' 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 share class will pay a positive
performance fee adjustment for a performance period whenever the share class
outperforms the Lipper New York Municipal Debt Funds Index over that period,
even if the share class had overall negative returns during the performance
period.
For the six-month period ended September 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $394,000, which included
a performance adjustment for the Fund Shares and Adviser Shares of $7,000
and less than $(500), respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.01% and (0.01%), respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2016, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $162,000 and $5,000, 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, 2016, the Fund reimbursed the
Manager $3,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. 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 Shares and Adviser Shares based on
================================================================================
36 | USAA NEW YORK BOND FUND
================================================================================
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, 2016, the Fund
Shares and Adviser Shares incurred transfer agent's fees, paid or payable to
SAS, of $24,000 and less than $500, respectively.
D. 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 (IMCO), the distributor, for distribution and shareholder
services. IMCO 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, 2016, the Adviser Shares
incurred distribution and service (12b-1) fees of $8,000.
E. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
receives no fee or other compensation for these services, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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, 2016, USAA and its affiliates owned 420,000 Adviser Shares, which
represents 84.3% of the Adviser Shares outstanding and 2.3% of the Fund's total
outstanding shares.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(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,
-------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.28 $ 12.29 $ 11.93 $ 12.47 $ 12.18 $ 11.03
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .43 .44 .45 .45 .47
Net realized and
unrealized gain (loss) .06 (.01) .36 (.54) .29 1.15
------------------------------------------------------------------------------
Total from investment
operations .27 .42 .80 (.09) .74 1.62
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.43) (.44) (.45) (.45) (.47)
------------------------------------------------------------------------------
Net asset value at end
of period $ 12.34 $ 12.28 $ 12.29 $ 11.93 $ 12.47 $ 12.18
==============================================================================
Total return (%)* 2.19 3.50 6.76 (.63) 6.12 14.93
Net assets at end
of period (000) $217,519 $211,136 $211,634 $194,083 $217,464 $196,957
Ratios to average
net assets:**
Expenses (%)(a) .63(b) .66 .66 .67 .65 .66
Net investment
income (%) 3.36(b) 3.53 3.58 3.80 3.59 4.01
Portfolio turnover (%) 5 10 5 6 8 11
* 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, 2016, average net assets were
$215,852,000.
(a) 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%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA NEW YORK BOND FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
-------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------
Net asset value at
beginning of period $12.25 $12.26 $11.90 $12.47 $12.18 $11.03
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .41 .41 .42 .42 .45
Net realized and
unrealized gain (loss) .05 (.01) .36 (.57) .29 1.15
----------------------------------------------------------------------------
Total from investment
operations .25 .40 .77 (.15) .71 1.60
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.41) (.41) (.42) (.42) (.45)
----------------------------------------------------------------------------
Net asset value at end
of period $12.31 $12.25 $12.26 $11.90 $12.47 $12.18
============================================================================
Total return (%)* 2.08 3.30 6.51 (1.10) 5.90 14.69
Net assets at end
of period (000) $6,134 $5,856 $5,638 $5,339 $6,334 $5,201
Ratios to average
net assets:**
Expenses (%)(a) .84(c) .85 .90(b) .89 .85 .87
Expenses, excluding
reimbursements (%)(a) .84(c) .85 .90 .89 .85 .87
Net investment income (%) 3.15(c) 3.34 3.34 3.57 3.39 3.79
Portfolio turnover (%) 5 10 5 6 8 11
* 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, 2016, average net assets
were $6,076,000.
(a) 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%.
(b) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (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, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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
================================================================================
40 | USAA NEW YORK BOND FUND
================================================================================
return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled
"hypothetical" is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,021.90 $3.19
Hypothetical
(5% return before expenses) 1,000.00 1,021.91 3.19
ADVISER SHARES
Actual 1,000.00 1,020.80 4.26
Hypothetical
(5% return before expenses) 1,000.00 1,020.86 4.26
*Expenses are equal to the Fund's annualized expense ratio of 0.63% for Fund
Shares and 0.84% for Adviser Shares, which are net of any 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 2.19% for Fund
Shares and 2.08% for Adviser Shares for the six-month period of April 1, 2016,
through September 30, 2016.
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
42 | USAA NEW YORK BOND FUND
================================================================================
considered, particular focus is given to information concerning Fund
performance, comparability of fees and total expenses as compared to comparable
investment companies, and the Manager's profitability with respect to the Fund.
However, the Board noted that the evaluation process with respect to the
Manager is an ongoing one. In this regard, the Board's and its committees'
consideration of the Advisory Agreement included information previously
received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its knowledge of
the Manager's management and the quality of the performance of the Manager's
duties through Board meetings, discussions, and reports during the preceding
year. The Board considered the fees paid to the Manager and the services
provided to the Fund by the Manager under the Advisory Agreement, as well as
other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, stockholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and
the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience
and qualifications of its senior and investment personnel, as well
================================================================================
ADVISORY AGREEMENT(S) | 43
================================================================================
as current staffing levels. The allocation of the Fund's brokerage, including
the Manager's process for monitoring "best execution," also was considered.
The Manager's role in coordinating the activities of 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 and no sales loads), asset size, and expense components (the
"expense group") and (ii) a larger group of investment companies that includes
all front-end load and no-load retail open-end investment companies with the
same investment classification/objective as the Fund regardless of asset size,
excluding outliers (the "expense universe"). Among other data, the Board noted
that the Fund's management fee rate - which includes advisory and
administrative services and the effects of any performance adjustment - was
equal to the median of its expense group and below the median of its expense
universe. The data indicated that the Fund's total expense ratio was below the
median of its expense group and its
================================================================================
44 | USAA NEW YORK BOND FUND
================================================================================
expense universe. The Board took into account the various services provided to
the Fund by the Manager and its affiliates, including the high quality of
services provided by the Manager. The Board also noted the level and method of
computing the management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed
to be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was above the average of its performance universe and its
Lipper index for the one-, three-, five-, and ten-year periods ended December
31, 2015. The Board also noted that the Fund's percentile performance ranking
was in the top 45% of its performance universe for the one- and three-year
periods ended December 31, 2015, and was in the top 20% of its performance
universe for the five- and ten-year periods ended December 31, 2015.
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
================================================================================
ADVISORY AGREEMENT(S) | 45
================================================================================
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
took into account the high quality of services received by the Fund from the
Manager. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such
economies of scale currently were reflected in the advisory fee. The Board also
considered the effect of the Fund's growth and size on its performance and
fees, noting that the Fund may realize additional economies of scale if assets
increase proportionally more than some expenses. The Board determined that the
current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and 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.
================================================================================
46 | USAA NEW YORK BOND FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210)
531-8722; (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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39608-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA NEW YORK MONEY MARKET FUND]
============================================================
SEMIANNUAL REPORT
USAA NEW YORK MONEY MARKET FUND
SEPTEMBER 30, 2016
=============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 10
Notes to Portfolio of Investments 14
Financial Statements 15
Notes to Financial Statements 18
EXPENSE EXAMPLE 27
ADVISORY AGREEMENT(S) 29
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)2016, USAA. All rights reserved.
211736-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA NEW YORK MONEY MARKET FUND (THE FUND) PROVIDES NEW YORK INVESTORS WITH
A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX
AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES AND HAS A FURTHER
OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund primarily invests in high-quality New York tax-exempt securities with
remaining maturities of 397 days or less. During normal market conditions, at
least 80% of the Fund's net assets will consist of New York tax-exempt
securities.
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGER'S COMMENTARY ON THE FUND
DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the reporting period began in April 2016, investors were still
digesting the change in the Federal Reserve's (the Fed) guidance on
short-term interest-rate increases. At its March policy meeting, the Fed had
called for two interest rate increases in 2016, down from the four it had
forecast in December 2015. Ultimately, however, the Fed remained steady,
leaving the federal funds target rate in a range between 0.25% and 0.50%
throughout the reporting period.
Although the Fed did not change its monetary policy, interest rates on money
market securities rose, largely due to shifting market dynamics. At the
beginning of the reporting period, the SIFMA Municipal Swap Index*, the
index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It
stayed near that level through July 2016 and then climbed 44 basis points to
close the reporting period at 0.84%. (A basis point is 1/100th of a
percent.) During August and September 2016, shortly before the Securities
and Exchanges Commission's money market fund reform became effective, a
large number of money market funds sold VRDNs as they liquidated,
consolidated, or shifted assets into treasury money market funds. This
caused inventories of VRDNs to increase, leading many dealers to raise
interest rates in order to attract buyers.
*The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised
of tax-exempt variable-rate demand obligations (VRDOs) with certain
characteristics. The index is calculated and published by Bloomberg. The
index is overseen by SIFMA's Municipal Swap Index Committee.
================================================================================
2 | USAA NEW YORK MONEY MARKET FUND
================================================================================
o HOW DID THE USAA NEW YORK MONEY MARKET FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended September 30, 2016, the Fund had a return of
0.02%, compared to an average return 0.05% for the tax-exempt money market
funds category, according to iMoneyNet, Inc.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o WHAT ARE THE CONDITIONS IN THE STATE OF NEW YORK?
New York, which has passed a series of on-time budgets, continues to be
highly rated by credit rating agencies. The state's finances appear to be in
good shape due to a gradual economic recovery, but revenues are still
dependent in some measure on the financial services industry. Although New
York State is projecting future budget gaps, they appear to be very
manageable. Budget flexibility is enhanced by the state's $1.8 billion
"rainy day" reserves. At the end of the reporting period, New York's general
obligation bonds were rated Aa1 by Moody's Investors Service, AA+ by
Standard & Poor's Ratings, and AA+ by Fitch Ratings.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus our purchases on VRDNs, which added to the Fund's
yield during the reporting period. Because the VRDNs owned by the Fund can
be sold at par value (100% of face value) upon seven days or less notice,
the Fund had the flexibility to take advantage of higher interest rates.
Many of the Fund's VRDNs also are guaranteed by a bank letter-of-credit for
the payment of both principal and interest, providing the Fund with a
certain degree of stability.
Refer to page 7 for benchmark definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
In addition, the Fund benefited from investments with longer maturities. We
continued to work with our in-house team of analysts to help us identify
attractive opportunities for the Fund. They also continue to analyze and
monitor in the Fund's portfolio.
We appreciate the opportunity to help you with your investment needs.
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 VRDNs are securities for which the interest rate is
reset periodically; typically weekly, although reset intervals may vary.
o Investing in securities products involves risk, including possible loss of
principal. o Some income may be subject to state or local taxes but not the
federal alternative minimum tax.
================================================================================
4 | USAA NEW YORK MONEY MARKET FUND
================================================================================
INVESTMENT OVERVIEW
USAA NEW YORK MONEY MARKET FUND (THE FUND)
(Ticker Symbol: UNYXX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $78.8 Million $85.7 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 18 Days 11 Days
(+)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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
0.02% 0.04% 0.02% 0.66%
--------------------------------------------------------------------------------
7-DAY YIELD AS OF 9/30/16
--------------------------------------------------------------------------------
UNSUBSIDIZED -0.01% SUBSIDIZED 0.27%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.88% AFTER REIMBURSEMENT 0.60%
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 return
is cumulative.
**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, 2016, and are
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through August 1, 2017, to make payments or waive
management, administration, and other fees so that the total annual operating
expenses of the Fund (exclusive of commission recapture, expense offset
arrangements, acquired fund fees and expenses, and extraordinary expenses) do
not exceed an annual rate of 0.60% of the Fund's average net assets. This
reimbursement
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
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, 2017. If the total annual operating expense
ratio of the Fund is lower than 0.60%, the Fund will operate at the lower
expense ratio. These expense ratios may differ from the expense ratios disclosed
in the Financial Highlights.
YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT
WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY
TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS
BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN
INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY
OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL
OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT
THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares. Yields and returns fluctuate. The seven-day yield
quotation more closely reflects current earnings of the Fund than the total
return quotation.
================================================================================
6 | USAA NEW YORK MONEY MARKET FUND
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
iMoneyNet USAA NEW YORK
AVERAGE MONEY MARKET FUND
9/28/2015 0.01% 0.01%
10/26/2015 0.01 0.01
11/30/2015 0.01 0.01
12/28/2015 0.01 0.01
1/25/2016 0.01 0.01
2/29/2016 0.01 0.01
3/28/2016 0.01 0.01
4/25/2016 0.03 0.03
5/23/2016 0.04 0.04
6/27/2016 0.05 0.05
7/25/2016 0.05 0.05
8/29/2016 0.09 0.09
9/26/2016 0.20 0.20
[END CHART]
Data represents the last Monday of each month. Ending date 9/26/16.
The graph tracks the USAA New York Money Market Fund's seven-day yield against
an average of money market fund yields of all state-specific and retail state
tax-free and municipal money funds calculated by iMoneyNet, Inc. iMoneyNet, Inc.
is an organization that tracks the performance of money market funds.
Past performance is no guarantee of future results.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Education ................................................................ 13.3%
Buildings ................................................................ 11.0%
Nursing/CCRC ............................................................. 10.8%
Community Service ........................................................ 10.0%
Multifamily Housing ...................................................... 8.2%
Special Assessment/Tax/Fee ............................................... 8.0%
Hospital ................................................................. 7.5%
General Obligation ....................................................... 7.2%
Electric Utilities ....................................................... 4.6%
Real Estate Tax/Fee ...................................................... 4.5%
o PORTFOLIO MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 92.2%
FIXED-RATE INSTRUMENTS 7.6%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 10-13.
================================================================================
8 | USAA NEW YORK MONEY MARKET FUND
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA NEW YORK
MONEY MARKET FUND
09/30/06 $10,000.00
10/31/06 10,024.00
11/30/06 10,049.00
12/31/06 10,077.00
01/31/07 10,101.00
02/28/07 10,125.00
03/31/07 10,151.00
04/30/07 10,177.00
05/31/07 10,205.00
06/30/07 10,232.00
07/31/07 10,258.00
08/31/07 10,288.00
09/30/07 10,313.00
10/31/07 10,339.00
11/30/07 10,366.00
12/31/07 10,391.00
01/31/08 10,413.00
02/29/08 10,431.00
03/31/08 10,452.00
04/30/08 10,469.00
05/31/08 10,489.00
06/30/08 10,502.00
07/31/08 10,517.00
08/31/08 10,532.00
09/30/08 10,559.00
10/31/08 10,592.00
11/30/08 10,603.00
12/31/08 10,613.00
01/31/09 10,616.00
02/28/09 10,619.00
03/31/09 10,624.00
04/30/09 10,630.00
05/31/09 10,637.00
06/30/09 10,643.00
07/31/09 10,648.00
08/31/09 10,652.00
09/30/09 10,655.00
10/31/09 10,656.00
11/30/09 10,656.00
12/31/09 10,663.00
01/31/10 10,664.00
02/28/10 10,664.00
03/31/10 10,664.00
04/30/10 10,664.00
05/31/10 10,664.00
06/30/10 10,664.00
07/31/10 10,664.00
08/31/10 10,664.00
09/30/10 10,664.00
10/31/10 10,665.00
11/30/10 10,665.00
12/31/10 10,669.00
01/31/11 10,669.00
02/28/11 10,669.00
03/31/11 10,669.00
04/30/11 10,669.00
05/31/11 10,669.00
06/30/11 10,669.00
07/31/11 10,669.00
08/31/11 10,669.00
09/30/11 10,669.00
10/31/11 10,670.00
11/30/11 10,670.00
12/31/11 10,670.00
01/31/12 10,670.00
02/29/12 10,670.00
03/31/12 10,670.00
04/30/12 10,670.00
05/31/12 10,670.00
06/30/12 10,670.00
07/31/12 10,670.00
08/31/12 10,671.00
09/30/12 10,671.00
10/31/12 10,671.00
11/30/12 10,671.00
12/31/12 10,672.00
01/31/13 10,672.00
02/28/13 10,672.00
03/31/13 10,672.00
04/30/13 10,672.00
05/31/13 10,672.00
06/30/13 10,672.00
07/31/13 10,672.00
08/31/13 10,673.00
09/30/13 10,673.00
10/31/13 10,673.00
11/30/13 10,673.00
12/31/13 10,673.00
01/31/14 10,673.00
02/28/14 10,673.00
03/31/14 10,673.00
04/30/14 10,673.00
05/31/14 10,673.00
06/30/14 10,673.00
07/31/14 10,673.00
08/31/14 10,674.00
09/30/14 10,674.00
10/31/14 10,674.00
11/30/14 10,674.00
12/31/14 10,677.00
01/31/15 10,677.00
02/28/15 10,677.00
03/31/15 10,677.00
04/30/15 10,677.00
05/31/15 10,677.00
06/30/15 10,678.00
07/31/15 10,678.00
08/31/15 10,678.00
09/30/15 10,678.00
10/31/15 10,678.00
11/30/15 10,678.00
12/31/15 10,679.00
01/31/16 10,679.00
02/29/16 10,679.00
03/31/16 10,679.00
04/30/16 10,679.00
05/31/16 10,679.00
06/30/16 10,679.00
07/31/16 10,680.00
08/31/16 10,680.00
09/30/16 10,682.00
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA New York Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
reinvested net investment income and realized capital gain distributions or on
the redemption of shares. Some income may be subject to federal, state, or local
taxes. For seven-day yield information, please refer to the Fund's Investment
Overview.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
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. The
effective maturity of these instruments is deemed to be less than 397 days
in accordance with detailed regulatory requirements.
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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CSD Central School District
IDA Industrial Development Authority/Agency
MTA Metropolitan Transportation Authority
CREDIT ENHANCEMENTS - Adds 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 values of the securities.
The Fund's purchases consist of securities meeting the requirements to
qualify as "eligible securities" under the Securities and Exchange
Commission (SEC) regulations applicable to money market funds. In order to
qualify as an eligible security, the USAA Mutual Funds Trust's
================================================================================
10 | USAA NEW YORK MONEY MARKET FUND
================================================================================
Board of Trustees (the Board), must determine that the particular investment
presents minimal credit risk in accordance with these SEC regulations. With
respect to quality, eligible securities generally are rated or subject to a
guarantee that is rated in one of the two highest categories for short-term
securities by at least two Nationally Recognized Statistical Rating
Organizations (NRSROs), or by one NRSRO if the security is rated by only one
NRSRO, or if unrated, determined by USAA Asset Management Company (the
Manager) to be of comparable quality.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from the Royal
Bank of Canada.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
INVESTMENTS
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (92.2%)
NEW YORK (92.2%)
$1,420 Albany IDA (LOC - Citizens Financial Group) 1.05% 5/01/2035 $ 1,420
6,170 Build New York City Resource Corp.
(LOC - Toronto-Dominion Bank) 1.08 12/01/2045 6,170
2,245 Chautauqua County IDA
(LOC - Citizens Financial Group) 0.95 8/01/2027 2,245
3,600 Energy Research and Development Auth.
(LOC - Mizuho Corporate Bank Ltd.) 0.86 5/01/2039 3,600
1,280 Erie County IDA (LOC - Key Bank, N.A.) 0.96 6/01/2022 1,280
3,600 Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.84 11/01/2037 3,600
2,800 Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.87 5/01/2042 2,800
3,500 Housing Finance Agency
(LOC - Wells Fargo & Co.) 0.88 11/01/2046 3,500
3,575 Hudson Yards (LIQ) (LOC - Royal Bank
of Canada)(a) 0.92 2/15/2019 3,575
2,500 Liberty Development Corp. (LIQ)
(LOC - Royal Bank of Canada)(a) 0.92 11/15/2019 2,500
2,585 Monroe County IDA (LOC - Manufacturers &
Traders Trust Co.) 0.89 12/01/2034 2,585
2,700 MTA (LOC - BNP Paribas) 0.89 11/15/2045 2,700
3,600 MTA (LOC - U.S. Bancorp) 0.88 11/15/2050 3,600
2,700 New York City (LOC - Sumitomo
Mitsui Banking Corp.) 0.85 9/01/2035 2,700
1,600 New York City (LOC - Manufacturers &
Traders Trust Co.) 1.08 12/01/2040 1,600
2,700 New York City Health and Hospitals Corp.
(LOC - JP Morgan Chase & Co.) 0.81 2/15/2026 2,700
765 New York City IDA
(LOC - Toronto-Dominion Bank) 1.08 12/01/2027 765
3,455 New York City IDA (LOC - JP Morgan
Chase & Co.) 1.08 12/01/2034 3,455
900 New York City IDA (LOC - Banco Santander SA) 1.11 5/01/2036 900
3,105 New York City IDA (LOC - Key Bank, N.A.) 0.92 7/01/2038 3,105
2,840 Onondaga County IDA (LOC - Manufacturers &
Traders Trust Co.) 0.89 12/01/2031 2,840
1,805 Ontario County IDA (LOC - Key Bank, N.A.) 0.88 7/01/2030 1,805
================================================================================
12 | USAA NEW YORK MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------
$2,630 Ramapo Housing Auth. (LOC - Manufacturers &
Traders Trust Co.) 0.94% 12/01/2029 $ 2,630
5,885 Tompkins County IDA (LOC - Bank
of America Corp.) 0.96 2/01/2037 5,885
3,570 Triborough Bridge and Tunnel Auth.
(LOC - State Street Bank and Trust Co.) 0.80 1/01/2032 3,570
1,145 Westchester County IDA (LOC - JP Morgan
Chase & Co.) 0.91 10/01/2028 1,145
-------
72,675
-------
Total Variable-Rate Demand Notes (cost: $72,675) 72,675
-------
FIXED-RATE INSTRUMENTS (7.6%)
NEW YORK (7.6%)
1,500 Chenango Valley CSD 1.50 7/14/2017 1,507
3,000 New York City Municipal Water Finance Auth. 0.70 10/06/2016 3,000
1,500 Waverly CSD 2.00 7/28/2017 1,512
-------
6,019
-------
Total Fixed-Rate Instruments (cost: $6,019) 6,019
-------
TOTAL INVESTMENTS (COST: $78,694) $78,694
=======
-----------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $72,675 $- $72,675
Fixed-Rate Instruments - 6,019 - 6,019
-----------------------------------------------------------------------------------------------------------------
Total $- $78,694 $- $78,694
-----------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
Note 1A to the financial statements.
The cost of securities at September 30, 2016, for federal income tax
purposes, was approximately the same as that reported in 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) 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 USAA Mutual Funds Trust's Board of
Trustees (the Board), unless otherwise noted as illiquid.
See accompanying notes to financial statements.
================================================================================
14 | USAA NEW YORK MONEY MARKET FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $78,694
Cash 323
Receivables:
Capital shares sold 88
USAA Asset Management Company (Note 4D) 40
Interest 62
-------
Total assets 79,207
-------
LIABILITIES
Payables:
Capital shares redeemed 303
Dividends on capital shares 1
Accrued management fees 23
Other accrued expenses and payables 57
-------
Total liabilities 384
-------
Net assets applicable to capital shares outstanding $78,823
=======
NET ASSETS CONSIST OF:
Paid-in capital $78,823
-------
Net assets applicable to capital shares outstanding $78,823
=======
Capital shares outstanding, unlimited number of shares authorized, no par value 78,824
=======
Net asset value, redemption price, and offering price per share $ 1.00
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 218
-----
EXPENSES
Management fees 146
Administration and servicing fees 42
Transfer agent's fees 71
Custody and accounting fees 40
Postage 2
Shareholder reporting fees 8
Trustees' fees 15
Professional fees 47
Other 7
-----
Total expenses 378
Expenses reimbursed (178)
-----
Net expenses 200
-----
NET INVESTMENT INCOME 18
-----
Increase in net assets resulting from operations $ 18
=====
See accompanying notes to financial statements.
================================================================================
16 | USAA NEW YORK MONEY MARKET FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
----------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 18 $ 8
Net realized gain on investments - 7
---------------------------
Increase in net assets resulting from operations 18 15
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18) (8)
Net realized gains - (7)
---------------------------
Distributions to shareholders (18) (15)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 40,804 72,202
Reinvested dividends 17 15
Cost of shares redeemed (47,694) (71,484)
---------------------------
Increase (decrease) in net assets from capital
share transactions (6,873) 733
---------------------------
Net increase (decrease) in net assets (6,873) 733
NET ASSETS
Beginning of period 85,696 84,963
---------------------------
End of period $ 78,823 $ 85,696
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 40,804 72,203
Shares issued for dividends reinvested 17 15
Shares redeemed (47,694) (71,484)
---------------------------
Increase (decrease) in shares outstanding (6,873) 734
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA New York Money Market Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide New York investors with a high level of
current interest income that is exempt from federal income tax and New York
State and New York City personal income taxes, with a further objective of
preserving capital and maintaining liquidity.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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.
================================================================================
18 | USAA NEW YORK MONEY MARKET FUND
================================================================================
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), an affiliate of the Fund. 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. All securities held in the Fund are short-term debt securities which are
valued pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its purchase price, and thereafter, assumes a constant
amortization to maturity of any premiums or discounts.
2. Securities for which amortized cost valuations are considered unreliable
or whose values have been materially affected by a significant event are
valued in good faith at fair value, using methods determined by the
Committee, under procedures to stabilize net assets and valuation
procedures approved by the Board.
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 indexes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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
straight-line method. The Fund concentrates its investments in New York
tax-exempt securities and, therefore, may be exposed to more credit risk
than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management
================================================================================
20 | USAA NEW YORK MONEY MARKET FUND
================================================================================
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, 2016, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of less than $500, which represents 0.1% 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, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal 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.
At March 31, 2016, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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) 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
================================================================================
22 | USAA NEW YORK MONEY MARKET FUND
================================================================================
of the Fund's assets, subject to the authority of and supervision by the
Board.
The Fund's investment management fee is accrued daily and paid monthly as a
percentage of aggregate average net assets of the USAA New York Bond Fund
and USAA New York Money Market Fund combined, which on an annual basis is
equal to 0.50% of the first $50 million, 0.40% of that portion over $50
million but not over $100 million, and 0.30% of that portion over $100
million. These fees are allocated on a proportional basis to each Fund
monthly based upon average net assets. For the six-month period ended
September 30, 2016, the Fund incurred total management fees, paid or payable
to the Manager, of $146,000, resulting in an effective annualized management
fee of 0.35% of the Fund's average net assets for the same period.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
September 30, 2016, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $42,000.
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, 2016, the Fund reimbursed the
Manager $1,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. 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. The Fund's transfer agent's fees are accrued daily and
paid monthly at an annualized rate of 0.15% of the Fund's average net
assets, 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. Prior to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
June 1, 2016, the Fund paid transfer agent service fees based on an annual
charge of $25.50 per shareholder account. For the six-month period ended
September 30, 2016, the Fund incurred transfer agent's fees, paid or payable
to SAS, of $71,000.
D. EXPENSE LIMITATION - The Manager agreed, through August 1, 2017, to limit
the total annual operating expenses of the Fund to 0.60% of its average net
assets, excluding extraordinary expenses, and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in
excess of that amount. This expense limitation arrangement may not be
changed or terminated through August 1, 2017, without approval of the Board,
and may be changed or terminated by the Manager at any time after that date.
The Manager also has voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses and
attempt to prevent a negative yield. The Manager may modify or terminate
this arrangement at any time. For the six-month period ended September 30,
2016, the Fund incurred reimbursable expenses of $178,000, of which $40,000
was receivable from the Manager.
E. 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 fee or other compensation for these
services.
(5) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
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.
(6) REGULATORY MATTERS
In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to
the rules that govern money market funds that will affect the manner in which
money market funds are structured and operated.
================================================================================
24 | USAA NEW YORK MONEY MARKET FUND
================================================================================
The amendments also will allow money market funds to impose liquidity fees and
suspend redemptions temporarily (redemption gates), and will impose new
requirements related to diversification, stress testing, and disclosure. Money
market funds that qualify as "retail" (Retail MMFs) or "government" will be
permitted to continue to utilize amortized cost to value their portfolio
securities and to transact at a stable $1 net asset value per share as they do
today. Effective October 14, 2016, the Fund operates as a Retail MMF and, in
doing so, will have the ability to impose liquidity fees and redemption gates.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income(a) .00 .00 .00 .00 .00 .00
Net realized and
unrealized gain (loss)(a) .00 .00 .00 (.00) .00 .00
-------------------------------------------------------------------------------
Total from investment
operations(a) .00 .00 .00 .00 .00 .00
-------------------------------------------------------------------------------
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00)(a) (.00)
Realized capital gains - (.00)(a) (.00)(a) - (.00) -
-------------------------------------------------------------------------------
Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00)
-------------------------------------------------------------------------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===============================================================================
Total return (%)*,(c) .02 .02 .04 .01 .02 .01(b)
Net assets at end of period (000) $78,823 $85,696 $84,963 $98,928 $97,796 $100,012
Ratios to average net assets:**
Expenses (%)(c),(d) .48(e) .14 .17 .21 .33 .45(b)
Expenses, excluding
reimbursements (%)(d) .91(e) .88 .79 .77 .73 .73
Net investment income (%) .04(e) .01 .01 .01 .01 .01
* 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
iMoneyNet reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended September 30, 2016, average net assets were
$83,200,000.
(a) Represents less than $0.01 per share.
(b) During the year ended March 31, 2012, SAS reimbursed the Fund $1,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratio by
0.01%. This decrease is excluded from the expense ratio in the Financial
Highlights table.
(c) In addition to the Fund's 0.60% annual expense cap, the Manager has
voluntarily agreed, on a temporary basis, to reimburse management,
administrative, or other fees to limit the Fund's expenses and attempt to
prevent a negative yield.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
26 | USAA NEW YORK MONEY MARKET FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" in the table 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 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" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio 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 use this information to
================================================================================
EXPENSE EXAMPLE | 27
================================================================================
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, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
-----------------------------------------------------------------
Actual $1,000.00 $1,000.20** $2.41**
Hypothetical
(5% return before expenses) 1,000.00 1,022.66** 2.43**
*Expenses are equal to the Fund's annualized expense ratio of 0.48%, which is
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 value is
based on its actual total return of 0.02% for the six-month period of April
1, 2016, through September 30, 2016.
**The Fund's annualized expense ratio of 0.48% above reflects a change in the
transfer agency fee structure from a per-account fee to an asset-based fee
effective June 1, 2016. Had this change been in effect for the entire
six-month period of April 1, 2016, through September 30, 2016, the Fund's
expense ratio would have been 0.52%, net of expenses paid indirectly, and
the values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
-----------------------------------------------------------------
Actual $1,000.00 $1,000.20 $2.61
Hypothetical
(5% return before expenses) 1,000.00 1,022.46 2.64
================================================================================
28 | USAA NEW YORK MONEY MARKET FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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.
================================================================================
ADVISORY AGREEMENT(S) | 29
================================================================================
At the meeting at which the renewal of the Advisory Agreement is considered,
particular focus is given to information concerning Fund performance,
comparability of fees and total expenses, and profitability. 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
================================================================================
30 | USAA NEW YORK MONEY MARKET FUND
================================================================================
process for monitoring "best execution," also was considered. The Manager's role
in coordinating the activities of the Fund's other service providers was also
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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes the Fund and all other no-load retail
open-end investment companies with same 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 as well as any fee waivers or
reimbursements - was equal to the median of its expense group and its expense
universe. The data indicated that the Fund's total expense ratio, after
reimbursements, was above the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the nature and high quality of the
services provided
================================================================================
ADVISORY AGREEMENT(S) | 31
================================================================================
by the Manager. The Board also noted the level and method of computing the
management fee. The Board took into account management's discussion of the
Fund's expenses, noting that the Manager had reimbursed all/a significant
portion of Fund expenses during the previous year.
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 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 ten-year periods ended December 31, 2015 and was
lower than the average of its performance universe and above its Lipper index
for the five-year period ended December 31, 2015. The Board also noted that the
Fund's percentile performance ranking was in the top 25% of its performance
universe for the one- and ten-year periods ended December 31, 2015, was in the
top 10% of its performance universe for the three-year period ended December 31,
2015, and was in the top 40% of its performance universe for the five-year
period ended December 31, 2015. The Board also took into account management's
discussion regarding current market conditions.
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, noting that the
================================================================================
32 | USAA NEW YORK MONEY MARKET FUND
================================================================================
Manager has reimbursed a portion of its management fee for the Fund. In
reviewing the overall profitability of the management fee to the Manager, the
Board also considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services provided by the Manager. The
Trustees recognized that the Manager should be entitled to earn a reasonable
level of profits in exchange for the level of services it provides to the Fund
and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that the Fund may realize additional economies of scale if assets increase
proportionally more than some expenses. The Board also considered the fee waiver
and expense reimbursement arrangements by the Manager. 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) | 33
================================================================================
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 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39610-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT INTERMEDIATE-TERM FUND]
==============================================================
SEMIANNUAL REPORT
USAA TAX EXEMPT INTERMEDIATE-TERM FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 45
Financial Statements 47
Notes to Financial Statements 50
EXPENSE EXAMPLE 63
ADVISORY AGREEMENT(S) 65
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)2016, USAA. All rights reserved.
211745-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TAX EXEMPT INTERMEDIATE-TERM FUND (THE FUND) PROVIDES INVESTORS WITH
INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
--------------------------------------------------------------------------------
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF REGINA G. SHAFER] [PHOTO OF DALE R. HOFFMANN]
REGINA G. SHAFER, CPA, CFA DALE R. HOFFMANN
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period ended
September 30, 2016, as demand for municipal securities outweighed the
amount of available supply. Although new issuance picked up, it remained
low by historical standards. Furthermore, it was dominated by refunding
bonds rather than new issues. In a bond refunding, issuers call existing
high-interest bonds and replace them with new bonds that have lower coupon
rates. Meanwhile, as demand for municipal bonds increased, municipal bond
mutual funds also received positive investment inflows every week of the
reporting period. Investors continue to prefer municipal securities for
their tax-advantaged status as well as their relative stability.
Municipal bonds also benefited from the performance of the U.S. Treasury
market, which the tax-exempt bond market generally follows over time.
Intermediate-term U.S. Treasury securities rallied on strong demand,
especially from foreign investors who favored U.S. Treasuries because of
their relatively higher yields compared to the government bonds of other
developed countries. As U.S. Treasury prices rose, their yields (which move
in the opposite direction) fell. During the reporting period, the yield on
a 10-year Treasury security dropped from 1.77% as of 3/31/16 to 1.60% as of
9/30/16.
Municipal credit quality remained strong as state and local governments
continued to practice sound fiscal management and generally maintained
healthy reserves. State and local revenues rose, though at a more moderate
================================================================================
2 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
pace than in the recent past. Numerous issuers also took steps to address
their pension risks, in some cases proposing tax increases to deal with
potential pension-funding shortfalls. Unlike corporate issuers, many state
and municipal governments have broad taxing powers and are required by law
to balance their budgets.
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
reporting period ended September 30, 2016, the Fund Shares and Adviser
Shares had a total return of 2.27% and 2.06%, respectively, versus an
average return of 1.84% amongst the funds in the Lipper Intermediate
Municipal Debt Funds category. This compares to returns of 1.82% for the
Lipper Intermediate Municipal Debt Funds Index and 2.30% for the Bloomberg
Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares'
tax-exempt distributions over the prior 12 months produced a dividend yield
of 3.13% and 2.86%, respectively, compared to the Lipper category average
of 2.11%.
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. Over the long-term, the
Fund's income distribution, not its price appreciation, accounts for most
of its total return. Due to the Fund's income orientation, it generally
invests in bonds in the BBB and A rated categories.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the
Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
During the reporting period, the Fund continued to benefit from our
independent research. In our efforts to find attractive opportunities, we
continued to work with our in-house team of analysts to select investments
for the Fund on a bond-by-bond basis. Each security is researched, using
fundamental analysis that emphasizes an issuer's ability and willingness to
repay its debt. Through our research, we seek both to recognize value and
avoid potential risks.
The Fund continued to maintain a diversified portfolio of more than 600
municipal bonds, primarily of investment-grade, that are continuously
monitored by our team of analysts. The Fund is diversified by sector,
issuer, and geography, limiting its exposure to an unexpected event. We
also avoid bonds subject to the federal alternative minimum tax for
individuals.
Thank you for allowing us to help you with your investment needs.
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 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.
================================================================================
4 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
INVESTMENT OVERVIEW
USAA TAX EXEMPT INTERMEDIATE-TERM FUND SHARES
(FUND SHARES) (Ticker Symbol: USATX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $4.7 Billion $4.3 Billion
Net Asset Value Per Share $13.71 $13.61
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.429 $0.442
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 9.9 Years 9.6 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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
2.27% 5.26% 4.39% 4.48%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
1.53% 0.54%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This 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, 2016, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
SEPTEMBER 30, 2016
----------------------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
----------------------------------------------------------------------------------------------
10 YEARS 4.48% = 4.07% + 0.41%
5 YEARS 4.39% = 3.57% + 0.82%
1 YEAR 5.26% = 3.25% + 2.01%
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, 2007-SEPTEMBER 30, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
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%
9/30/15 2.40% 3.28% -0.88%
9/30/16 5.26% 3.25% 2.01%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD.
HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE
THAN SHARE PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
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 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 (including
capital gain distributions), redemptions of shares, or reinvested net investment
income.
================================================================================
6 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/16,
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
--------------------------------------------------------------------------------
10 Years 4.07% 5.65% 6.44% 6.65% 7.19%
5 Years 3.57% 4.96% 5.65% 5.83% 6.31%
1 Year 3.25% 4.51% 5.14% 5.31% 5.74%
To match the Fund Shares' closing 30-day SEC Yield of 1.53% on 09/30/16
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
alternative minimum tax. Based on 2015 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 | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA TAX EXEMPT LIPPER
BARCLAYS MUNICIPAL INTERMEDIATE-TERM INTERMEDIATE MUNICIPAL
BOND INDEX FUND SHARES DEBT FUNDS INDEX
09/30/06 $10,000.00 $10,000.00 $10,000.00
10/31/06 10,062.71 10,049.00 10,046.75
11/30/06 10,146.59 10,129.00 10,108.81
12/31/06 10,110.74 10,094.00 10,073.79
01/31/07 10,084.85 10,080.00 10,052.39
02/28/07 10,217.74 10,208.00 10,159.61
03/31/07 10,192.55 10,175.00 10,149.62
04/30/07 10,222.72 10,209.00 10,175.56
05/31/07 10,177.46 10,159.00 10,136.01
06/30/07 10,124.72 10,102.00 10,097.77
07/31/07 10,203.21 10,161.00 10,162.47
08/31/07 10,159.19 10,083.00 10,155.33
09/30/07 10,309.52 10,242.00 10,278.10
10/31/07 10,355.47 10,279.00 10,307.18
11/30/07 10,421.50 10,310.00 10,377.07
12/31/07 10,450.43 10,286.00 10,396.74
01/31/08 10,582.21 10,427.00 10,566.43
02/29/08 10,097.73 9,931.00 10,187.94
03/31/08 10,386.34 10,219.00 10,405.87
04/30/08 10,507.88 10,322.00 10,464.48
05/31/08 10,571.41 10,403.00 10,526.83
06/30/08 10,452.09 10,303.00 10,422.49
07/31/08 10,491.82 10,301.00 10,469.40
08/31/08 10,614.60 10,415.00 10,582.66
09/30/08 10,116.83 9,943.00 10,186.13
10/31/08 10,013.57 9,688.00 10,070.76
11/30/08 10,045.40 9,651.00 10,088.92
12/31/08 10,191.86 9,533.00 10,160.25
01/31/09 10,564.91 10,037.00 10,572.43
02/28/09 10,620.41 10,079.00 10,529.40
03/31/09 10,622.35 10,094.00 10,522.61
04/30/09 10,834.56 10,340.00 10,701.27
05/31/09 10,949.17 10,577.00 10,822.60
06/30/09 10,846.60 10,490.00 10,736.63
07/31/09 11,028.07 10,689.00 10,914.58
08/31/09 11,216.61 10,858.00 11,029.42
09/30/09 11,619.14 11,307.00 11,345.76
10/31/09 11,375.24 11,123.00 11,122.06
11/30/09 11,469.23 11,232.00 11,291.95
12/31/09 11,507.99 11,275.00 11,314.20
01/31/10 11,567.92 11,349.00 11,375.94
02/28/10 11,680.05 11,461.00 11,487.74
03/31/10 11,652.09 11,414.00 11,425.89
04/30/10 11,793.69 11,556.00 11,535.54
05/31/10 11,882.15 11,640.00 11,614.01
06/30/10 11,889.21 11,638.00 11,616.48
07/31/10 12,037.46 11,780.00 11,767.12
08/31/10 12,313.06 12,028.00 12,005.00
09/30/10 12,293.82 12,024.00 11,965.77
10/31/10 12,259.77 11,985.00 11,937.04
11/30/10 12,014.62 11,772.00 11,757.94
12/31/10 11,781.79 11,595.00 11,587.65
01/31/11 11,695.00 11,497.00 11,525.57
02/28/11 11,881.18 11,698.00 11,690.05
03/31/11 11,841.59 11,675.00 11,656.35
04/30/11 12,053.65 11,860.00 11,833.13
05/31/11 12,259.63 12,042.00 11,999.57
06/30/11 12,302.40 12,113.00 12,028.07
07/31/11 12,427.95 12,232.00 12,135.97
08/31/11 12,640.57 12,388.00 12,298.54
09/30/11 12,771.24 12,499.00 12,350.61
10/31/11 12,723.76 12,464.00 12,301.36
11/30/11 12,798.93 12,554.00 12,393.43
12/31/11 13,042.41 12,773.00 12,613.43
01/31/12 13,344.04 13,062.00 12,853.38
02/29/12 13,357.19 13,064.00 12,857.09
03/31/12 13,270.40 12,990.00 12,750.63
04/30/12 13,423.49 13,147.00 12,893.53
05/31/12 13,534.92 13,257.00 12,973.77
06/30/12 13,520.39 13,260.00 12,951.96
07/31/12 13,734.67 13,428.00 13,120.69
08/31/12 13,750.31 13,463.00 13,133.52
09/30/12 13,833.37 13,539.00 13,209.34
10/31/12 13,872.40 13,590.00 13,237.52
11/30/12 14,100.94 13,823.00 13,424.00
12/31/12 13,926.66 13,693.00 13,273.73
01/31/13 13,984.66 13,750.00 13,313.66
02/28/13 14,027.02 13,830.00 13,365.61
03/31/13 13,966.53 13,809.00 13,324.11
04/30/13 14,119.63 13,929.00 13,442.20
05/31/13 13,947.15 13,801.00 13,280.00
06/30/13 13,552.23 13,454.00 12,965.07
07/31/13 13,433.74 13,405.00 12,923.88
08/31/13 13,242.02 13,257.00 12,785.82
09/30/13 13,527.03 13,481.00 13,007.89
10/31/13 13,633.90 13,585.00 13,105.14
11/30/13 13,605.80 13,558.00 13,067.99
12/31/13 13,571.05 13,550.00 13,044.36
01/31/14 13,835.44 13,781.00 13,243.72
02/28/14 13,997.67 13,907.00 13,368.23
03/31/14 14,021.21 13,926.00 13,342.32
04/30/14 14,189.67 14,060.00 13,478.11
05/31/14 14,372.39 14,206.00 13,612.33
06/30/14 14,384.85 14,202.00 13,605.60
07/31/14 14,410.18 14,232.00 13,627.59
08/31/14 14,584.73 14,357.00 13,753.11
09/30/14 14,599.54 14,374.00 13,759.19
10/31/14 14,699.62 14,459.00 13,827.44
11/30/14 14,725.09 14,475.00 13,832.85
12/31/14 14,799.29 14,548.00 13,876.70
01/31/15 15,061.60 14,726.00 14,086.50
02/28/15 14,906.29 14,604.00 13,963.90
03/31/15 14,949.34 14,641.00 13,987.46
04/30/15 14,870.85 14,584.00 13,933.23
05/31/15 14,829.74 14,548.00 13,881.61
06/30/15 14,816.31 14,523.00 13,867.88
07/31/15 14,923.59 14,609.00 13,945.69
08/31/15 14,952.94 14,625.00 13,967.20
09/30/15 15,061.18 14,719.00 14,052.76
10/31/15 15,121.12 14,761.00 14,109.69
11/30/15 15,181.20 14,821.00 14,152.29
12/31/15 15,287.92 14,931.00 14,240.07
01/31/16 15,470.36 15,077.00 14,389.13
02/29/16 15,494.59 15,088.00 14,397.87
03/31/16 15,543.73 15,150.00 14,439.73
04/30/16 15,658.07 15,247.00 14,527.94
05/31/16 15,700.42 15,307.00 14,539.46
06/30/16 15,950.14 15,548.00 14,734.44
07/31/16 15,959.83 15,530.00 14,734.48
08/31/16 15,981.42 15,557.00 14,754.15
09/30/16 15,901.69 15,496.00 14,702.85
[END CHART]
Data from 9/30/06 through 9/30/16.
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 Bloomberg Barclays Municipal Bond Index (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 measures the
Fund's performance to that of 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
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 MUNICIPAL DEBT
FUND SHARES FUNDS AVERAGE
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%
09/30/15 3.28% 2.21%
09/30/16 3.13% 2.11%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/07 to 9/30/16.
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)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $49.1 Million $42.1 Million
Net Asset Value Per Share $13.70 $13.61
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.392 $0.406
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.06% 4.90% 4.14% 4.30%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16
--------------------------------------------------------------------------------
UNSUBSIDIZED 1.20% SUBSIDIZED 1.27%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/16***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.88% 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 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, 2016, and is
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through August 1, 2017, 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, 2017. If the
total annual operating expense ratio of the Adviser Shares is lower than 0.80%,
the Adviser Shares will operate at the lower expense ratio. 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 SEC Yield of 1.27% on 09/30/16
and assuming marginal
federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 1.76% 2.01% 2.08% 2.24%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA
family of funds. Taxable equivalent returns or yields will vary depending on
applicable tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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]
BLOOMBERG USAA TAX EXEMPT LIPPER INTERMEDIATE
BARCLAYS 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
10/31/14 12,211.57 12,161.99 11,750.92
11/30/14 12,232.73 12,166.19 11,755.51
12/31/14 12,294.37 12,223.63 11,792.77
01/31/15 12,512.28 12,379.68 11,971.07
02/28/15 12,383.26 12,275.11 11,866.88
03/31/15 12,419.02 12,296.25 11,886.91
04/30/15 12,353.82 12,254.48 11,840.81
05/31/15 12,319.66 12,221.93 11,796.95
06/30/15 12,308.51 12,198.52 11,785.28
07/31/15 12,397.63 12,265.52 11,851.40
08/31/15 12,422.01 12,278.33 11,869.68
09/30/15 12,511.93 12,355.22 11,942.40
10/31/15 12,561.73 12,386.18 11,990.78
11/30/15 12,611.63 12,426.08 12,026.98
12/31/15 12,700.29 12,512.29 12,101.58
01/31/16 12,851.86 12,644.66 12,228.25
02/29/16 12,871.98 12,650.94 12,235.68
03/31/16 12,912.80 12,699.87 12,271.25
04/30/16 13,007.79 12,778.00 12,346.22
05/31/16 13,042.97 12,825.00 12,356.01
06/30/16 13,250.42 13,015.00 12,521.71
07/31/16 13,258.47 13,006.00 12,521.74
08/31/16 13,276.41 13,026.00 12,538.46
09/30/16 13,210.17 12,963.00 12,494.86
[END CHART]
Data from 7/31/10 through 9/30/16.*
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 Bloomberg 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
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
ADVISER SHARES FUNDS 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%
09/30/15 3.04% 2.21%
09/30/16 2.86% 2.11%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/11 to 9/30/16.
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 | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Hospital ............................................................ 20.7%
Special Assessment/Tax/Fee .......................................... 10.7%
Education ........................................................... 9.0%
General Obligation .................................................. 8.8%
Toll Roads .......................................................... 8.6%
Electric Utilities .................................................. 8.4%
Escrowed Bonds ...................................................... 6.2%
Appropriated Debt ................................................... 5.0%
Airport/Port ........................................................ 4.7%
Electric/Gas Utilities .............................................. 3.7%
You will find a complete list of securities that the Fund owns on pages 16-44.
================================================================================
14 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 4.1%
AA 32.7%
A 42.1%
BBB 14.7%
BELOW INVESTMENT-GRADE 3.5%
UNRATED 2.9%
[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 independent 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 and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated 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 16-44.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CCD Community College District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDC Industrial Development Corp.
================================================================================
16 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
ISD Independent School District
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
USD Unified School District
CREDIT ENHANCEMENTS - Adds 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 Municipal Corp., Build
America Mutual Assurance Co., Financial Guaranty Insurance Co.,
National Public Finance Guarantee Corp., or Radian Asset Assurance,
Inc. 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: Barclays Bank plc, Citibank, N.A., Deutsche Bank A.G.,
Dexia Credit Local, 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, Georgia-Pacific LLC, Michigan School Bond
Qualification and Loan Program, Pennsylvania Public School Intercept
Program, or Texas Permanent School Fund.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (84.2%)
ALABAMA (1.7%)
$ 5,000 Lower Alabama Gas District 5.00% 9/01/2027 $ 6,193
7,000 Lower Alabama Gas District 5.00 9/01/2028 8,688
35,000 Lower Alabama Gas District 5.00 9/01/2034 44,535
5,955 Montgomery Medical Clinic Board 5.00 3/01/2033 6,945
1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 2,013
4,605 Private Colleges and Universities Facilities Auth. (INS) 4.75 9/01/2026 4,620
8,000 Special Care Facilities Financing Auth. 5.00 2/01/2036 9,484
----------
82,478
----------
ARIZONA (1.8%)
20,310 Apache County IDA 4.50 3/01/2030 22,761
6,000 Health Facilities Auth. 5.00 2/01/2027 6,919
3,270 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2024 4,118
2,115 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2025 2,703
8,315 Phoenix IDA(a) 3.75 7/01/2024 8,550
11,100 Phoenix IDA(a) 5.00 7/01/2034 12,508
1,675 Phoenix IDA 5.00 7/01/2036 1,905
4,250 Phoenix IDA 5.00 10/01/2036 5,004
2,680 Pima County IDA 4.50 6/01/2030 3,017
2,000 Pinal County IDA (INS) 5.25 10/01/2020 2,005
1,250 Pinal County IDA (INS) 5.25 10/01/2022 1,253
2,000 Pinal County IDA (INS) 4.50 10/01/2025 2,002
3,540 State (INS) 5.00 10/01/2019 3,953
7,275 State (INS) 5.25 10/01/2020 8,156
----------
84,854
----------
ARKANSAS (0.1%)
4,290 Pulaski Technical College (INS) 5.00 9/01/2030 5,165
----------
CALIFORNIA (8.1%)
4,500 Alameda Corridor Transportation Auth. 5.00 10/01/2035 5,424
3,000 Alameda Corridor Transportation Auth. 5.00 10/01/2036 3,601
500 Anaheim Public Financing Auth. 5.00 5/01/2028 617
500 Anaheim Public Financing Auth. 5.00 5/01/2029 613
1,000 Anaheim Public Financing Auth. 5.00 5/01/2030 1,222
1,510 Cerritos CCD 5.02(b) 8/01/2025 1,242
1,000 Cerritos CCD 5.24(b) 8/01/2027 771
1,000 Cerritos CCD 5.41(b) 8/01/2028 740
1,520 Chula Vista Financing Auth. 5.00 9/01/2027 1,869
================================================================================
18 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,700 Chula Vista Financing Auth. 5.00% 9/01/2028 $ 2,072
1,785 Chula Vista Financing Auth. 5.00 9/01/2029 2,158
2,635 Chula Vista Financing Auth. 5.00 9/01/2030 3,187
2,095 Chula Vista Financing Auth. 5.00 9/01/2031 2,521
5,000 City and County of San Francisco Airport Commission 5.25 5/01/2022 5,557
7,000 City and County of San Francisco Airport Commission 5.25 5/01/2023 7,775
5,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 5,584
1,250 Communities Dev. Auth. 5.00 5/15/2032 1,525
2,000 Communities Dev. Auth. 5.00 5/15/2033 2,431
1,250 Communities Dev. Auth. 5.00 5/15/2034 1,511
2,000 Communities Dev. Auth. 5.00 5/15/2035 2,404
2,000 Coronado Community Dev. Agency (INS) 5.00 9/01/2024 2,007
6,810 El Camino CCD 4.25(b) 8/01/2026 5,411
7,665 El Camino CCD 4.42(b) 8/01/2027 5,871
5,500 El Camino CCD 4.58(b) 8/01/2028 4,032
5,500 Foothill/Eastern Transportation Corridor Agency (INS) 4.25(b) 1/15/2035 2,971
46,605 Golden State Tobacco Securitization Corp. (INS) 4.17(b) 6/01/2025 39,708
2,000 Health Facilities Financing Auth. 5.00 8/15/2027 2,365
5,000 Health Facilities Financing Auth.(c) 5.25 8/15/2031 5,956
2,540 Health Facilities Financing Auth. 4.00 3/01/2033 2,866
2,700 Health Facilities Financing Auth. 4.00 3/01/2034 3,020
3,000 Health Facilities Financing Auth. 4.00 3/01/2035 3,340
1,000 Irvine City 5.00 9/02/2029 1,169
5,000 Irvine USD Special Tax District (INS) 5.25 9/01/2019 5,605
2,500 Irvine USD Special Tax District (INS) 4.50 9/01/2020 2,741
6,745 Kern County Board of Education (INS) 5.00 6/01/2026 6,764
1,300 Los Angeles County 5.00 3/01/2023 1,595
3,500 Pittsburg Redevelopment Agency (INS) 5.00 9/01/2027 4,457
2,640 Pittsburg Redevelopment Agency (INS) 5.00 9/01/2028 3,322
6,400 Public Works Board 5.50 4/01/2021 7,138
6,755 Public Works Board 5.60 4/01/2022 7,549
3,000 Public Works Board 5.13 3/01/2023 3,423
3,130 Public Works Board 5.75 4/01/2023 3,509
1,185 Public Works Board 5.00 11/01/2023 1,441
2,500 Public Works Board 5.25 3/01/2024 2,857
2,000 Public Works Board 5.00 11/01/2024 2,449
1,250 Public Works Board 5.00 3/01/2025 1,513
2,000 Public Works Board 5.38 3/01/2025 2,287
1,365 Public Works Board 5.00 3/01/2026 1,661
10,000 Public Works Board 5.00 4/01/2028 11,894
7,000 Public Works Board 5.00 11/01/2028 8,439
5,000 Public Works Board 5.00 4/01/2029 5,920
11,465 Public Works Board 5.00 10/01/2031 14,016
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 2,000 Salinas Union High School District (INS) 4.37%(b) 10/01/2016 $ 2,000
775 San Diego Public Facilities Financing Auth. 5.00 10/15/2030 959
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2031 1,229
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2032 1,224
1,635 San Diego Public Facilities Financing Auth. 5.00 10/15/2033 1,994
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2034 1,215
1,250 San Diego Public Facilities Financing Auth. 5.00 10/15/2035 1,512
3,000 San Jose USD (INS) (PRE) 4.50 6/01/2024 3,019
500 School Finance Auth.(a) 5.00 8/01/2031 580
1,600 School Finance Auth.(a) 5.00 8/01/2036 1,845
4,035 South Orange County Public Financing Auth. (INS) 5.00 8/15/2022 4,048
4,920 South Orange County Public Financing Auth. (INS) 5.00 8/15/2025 4,936
20,000 State 5.25 10/01/2022 22,639
27,445 State 5.75 4/01/2027 30,743
10,240 State 5.00 8/01/2032 12,707
10,000 State Univ. 5.00 11/01/2029 12,477
10,000 State Univ. 5.00 11/01/2033 12,462
1,000 Statewide Communities Dev. Auth. 5.13 5/15/2031 1,154
6,930 Tobacco Securitization Auth. 4.75 6/01/2025 7,041
1,605 Tulare City (INS) 5.00 11/15/2032 1,958
1,570 Tulare City (INS) 5.00 11/15/2033 1,908
3,655 Tulare City (INS) 5.00 11/15/2034 4,433
2,340 Tulare City (INS) 5.00 11/15/2035 2,825
3,470 Tuolumne Wind Project Auth. (PRE) 5.00 1/01/2022 3,790
10,000 Upland City 6.00 1/01/2026 11,741
2,000 Washington Township Health Care District 5.75 7/01/2024 2,235
3,500 Washington Township Health Care District 5.00 7/01/2025 3,919
----------
386,713
----------
COLORADO (2.6%)
5,000 Adams and Arapahoe Counties Joint School
District No. 28J 3.20(b) 12/01/2022 4,524
30,955 Denver Health and Hospital Auth. 4.75 12/01/2027 31,138
255 Health Facilities Auth. 5.25 6/01/2023 256
2,750 Health Facilities Auth. 5.00 6/01/2028 3,196
1,000 Health Facilities Auth. 5.00 12/01/2028 1,173
1,500 Health Facilities Auth. 5.00 12/01/2029 1,751
2,310 Health Facilities Auth. 5.00 6/01/2031 2,665
2,000 Health Facilities Auth. 5.00 6/01/2032 2,286
2,470 Health Facilities Auth. 5.00 6/01/2033 2,819
6,385 Health Facilities Auth. 5.00 6/01/2034 7,272
3,385 Health Facilities Auth. 5.00 6/01/2035 3,847
4,000 Health Facilities Auth. 5.00 12/01/2035 4,582
1,250 Park Creek Metropolitan District 5.00 12/01/2032 1,478
================================================================================
20 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,000 Park Creek Metropolitan District 5.00% 12/01/2034 $ 1,172
10,000 Regional Transportation District 5.00 6/01/2025 11,310
7,585 Regional Transportation District 5.00 6/01/2029 8,840
14,175 Regional Transportation District 5.00 6/01/2030 16,634
15,005 Regional Transportation District 5.00 6/01/2031 17,547
----------
122,490
----------
CONNECTICUT (0.6%)
1,120 Hartford City (INS) 5.00 7/01/2028 1,316
2,400 Hartford City (INS) 5.00 7/01/2032 2,745
10,000 Health and Educational Facilities Auth. 5.00 7/01/2034 11,725
7,259 Mashantucket (Western) Pequot Tribe(d),(e) 6.05 7/01/2031 283
1,000 New Haven (INS) 5.00 8/15/2030 1,220
1,000 New Haven (INS) 5.00 8/15/2032 1,210
1,000 New Haven (INS) 5.00 8/15/2033 1,205
1,350 New Haven (INS) 5.00 8/15/2034 1,623
5,000 State 5.00 11/15/2035 5,991
----------
27,318
----------
DISTRICT OF COLUMBIA (0.4%)
375 District of Columbia 5.00 7/01/2023 433
3,870 District of Columbia 5.63 10/01/2025 4,171
5,000 District of Columbia 5.75 10/01/2026 5,401
6,000 District of Columbia 5.75 10/01/2027 6,468
1,280 District of Columbia 6.00 7/01/2033 1,559
----------
18,032
----------
FLORIDA (6.4%)
2,500 Broward County Airport System 5.00 10/01/2024 2,777
2,000 Broward County School Board 5.00 7/01/2029 2,439
2,000 Broward County School Board 5.00 7/01/2030 2,425
2,325 Halifax Hospital Medical Center 5.00 6/01/2035 2,743
2,750 Halifax Hospital Medical Center 5.00 6/01/2036 3,255
8,000 Hillsborough County IDA 5.65 5/15/2018 8,562
3,500 Jacksonville 5.00 10/01/2028 4,106
1,250 Lake County School Board (INS) 5.00 6/01/2029 1,497
2,225 Lake County School Board (INS) 5.00 6/01/2030 2,650
2,500 Lee County 5.00 10/01/2023 3,090
2,700 Lee County 5.00 10/01/2024 3,397
4,000 Lee County 5.00 10/01/2033 4,773
7,245 Lee County IDA 5.00 10/01/2028 7,794
3,750 Lee County School Board 5.00 8/01/2028 4,581
6,560 Miami Beach City Health Facilities Auth. 5.00 11/15/2029 7,559
7,500 Miami-Dade County 3.75 12/01/2018 7,920
8,375 Miami-Dade County (INS) (PRE) 4.75 11/01/2023 8,404
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 2,345 Miami-Dade County (INS) (PRE) 5.00% 10/01/2024 $ 2,442
9,830 Miami-Dade County (INS) (PRE) 4.75 11/01/2024 9,865
2,000 Miami-Dade County 5.00 10/01/2025 2,412
3,670 Miami-Dade County (INS) (PRE) 5.00 10/01/2025 3,821
6,440 Miami-Dade County 5.00 10/01/2026 7,378
2,500 Miami-Dade County (INS) (PRE) 5.00 10/01/2026 2,603
7,000 Miami-Dade County 5.00 10/01/2027 8,011
10,000 Miami-Dade County Expressway Auth. 5.00 7/01/2028 11,873
7,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 8,280
1,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 1,202
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2030 2,403
1,610 Miami-Dade County Expressway Auth. 5.00 7/01/2030 1,925
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2031 2,392
1,255 Miami-Dade County Expressway Auth. 5.00 7/01/2031 1,495
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2032 2,374
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2033 2,369
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2034 2,363
4,750 Miami-Dade County Health Facilities Auth. 5.00 8/01/2027 5,586
4,950 Miami-Dade County Health Facilities Auth. 5.00 8/01/2028 5,766
5,250 Miami-Dade County Health Facilities Auth. 5.00 8/01/2029 6,072
3,500 Miami-Dade County Health Facilities Auth. 5.00 8/01/2030 4,026
5,780 Miami-Dade County Health Facilities Auth. 5.00 8/01/2031 6,618
10,000 Miami-Dade County School Board (INS) (PRE) 5.00 2/01/2024 10,946
12,000 Miami-Dade County School Board (INS) (PRE) 5.25 5/01/2025 12,833
12,000 Orange County Health Facility Auth. 5.25 10/01/2022 13,473
5,000 Orange County Health Facility Auth. 5.38 10/01/2023 5,623
4,000 Orange County Health Facility Auth. 5.00 10/01/2035 4,851
3,055 Osceola County School Board 5.00 6/01/2028 3,625
7,595 Palm Beach County Health Facilities Auth. 5.00 11/15/2023 8,911
1,995 Pinellas County Educational Facilities Auth. 5.00 10/01/2021 2,305
1,080 Pinellas County Educational Facilities Auth. 4.00 10/01/2022 1,212
1,415 Pinellas County Educational Facilities Auth. 4.00 10/01/2023 1,579
2,045 Pinellas County Educational Facilities Auth.(c) 5.38 10/01/2026 2,365
1,895 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 2,140
2,615 Pinellas County Educational Facilities Auth.(c) 6.50 10/01/2031 3,142
3,195 Port St. Lucie Special Assessment 4.00 7/01/2031 3,529
2,000 Port St. Lucie Special Assessment 4.00 7/01/2032 2,198
2,785 Port St. Lucie Special Assessment 4.00 7/01/2033 3,048
1,500 Port St. Lucie Utility System 4.00 9/01/2030 1,698
1,000 Port St. Lucie Utility System 4.00 9/01/2031 1,124
7,370 Saint Lucie County (INS) 5.00 10/01/2028 8,793
2,045 Saint Lucie County School Board 5.00 7/01/2025 2,472
1,500 Saint Lucie County School Board 5.00 7/01/2026 1,801
================================================================================
22 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 3,195 Southeast Overtown/Park West Community
Redevelopment Agency(a) 5.00% 3/01/2030 $ 3,618
8,970 Sunshine State Governmental Financing Commission 5.00 9/01/2019 9,980
5,525 Sunshine State Governmental Financing Commission 5.00 9/01/2020 6,336
1,055 Sunshine State Governmental Financing
Commission (INS) 5.00 9/01/2021 1,242
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2028 1,199
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2029 1,194
1,500 Volusia County Educational Facilities Auth. 5.00 10/15/2030 1,784
1,560 Volusia County Educational Facilities Auth. 5.00 10/15/2032 1,844
----------
304,113
----------
GEORGIA (0.4%)
10,000 Burke County Dev. Auth. 7.00 1/01/2023 10,702
3,600 Glynn-Brunswick Memorial Hospital Auth. (PRE) 5.25 8/01/2023 3,885
400 Glynn-Brunswick Memorial Hospital Auth. 5.25 8/01/2023 431
3,000 Private Colleges and Universities Auth. 5.25 10/01/2027 3,480
2,000 Private Colleges and Universities Auth. 5.25 10/01/2027 2,348
----------
20,846
----------
GUAM (0.4%)
1,500 Guam 5.00 12/01/2030 1,809
2,000 Guam 5.00 12/01/2031 2,401
1,000 Power Auth. (INS) 5.00 10/01/2027 1,182
1,000 Power Auth. 5.00 10/01/2029 1,156
1,000 Power Auth. (INS) 5.00 10/01/2030 1,175
1,000 Power Auth. 5.00 10/01/2030 1,151
695 Power Auth. 5.00 10/01/2031 795
1,000 Power Auth. (INS) 5.00 10/01/2032 1,188
750 Waterworks Auth. 5.00 7/01/2023 887
600 Waterworks Auth. 5.00 7/01/2024 719
750 Waterworks Auth. 5.00 7/01/2025 893
1,000 Waterworks Auth. 5.00 7/01/2028 1,155
1,000 Waterworks Auth. 5.00 7/01/2029 1,162
3,000 Waterworks Auth. 5.25 7/01/2033 3,453
1,250 Waterworks Auth. 5.00 7/01/2036 1,455
----------
20,581
----------
ILLINOIS (11.9%)
260 Bedford Park Village 4.60 12/01/2017 260
3,328 Chicago 6.63 12/01/2022 3,343
30,000 Chicago (INS) 4.45(b) 1/01/2023 24,156
1,000 Chicago 5.00 1/01/2031 1,139
2,000 Chicago 5.00 11/01/2031 2,319
1,000 Chicago 5.00 1/01/2032 1,134
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 2,000 Chicago 5.00% 11/01/2033 $ 2,299
6,525 Chicago Midway Airport 5.00 1/01/2027 7,624
11,750 Chicago Midway Airport 5.00 1/01/2029 13,849
5,175 Chicago Midway Airport 5.00 1/01/2030 6,062
8,910 Chicago Midway Airport 5.00 1/01/2031 10,385
6,000 Chicago Midway Airport 5.00 1/01/2032 6,968
1,635 Chicago Midway Airport 5.25 1/01/2033 1,900
3,500 Chicago Midway Airport 4.00 1/01/2034 3,831
3,000 Chicago Midway Airport 4.00 1/01/2035 3,271
3,500 Chicago Wastewater Transmission 5.00 1/01/2033 4,019
1,000 Chicago Wastewater Transmission 5.00 1/01/2034 1,145
1,250 Chicago Wastewater Transmission 5.00 1/01/2035 1,428
1,500 Chicago Water 5.00 11/01/2028 1,802
725 Chicago Water 5.00 11/01/2029 868
1,000 Chicago Water 5.00 11/01/2029 1,201
1,000 Chicago Water 5.00 11/01/2030 1,191
1,000 Chicago Water 5.00 11/01/2031 1,182
9,000 Chicago-O'Hare International Airport 5.25 1/01/2024 10,025
3,620 Chicago-O'Hare International Airport (INS) 5.00 1/01/2028 4,293
1,500 Chicago-O'Hare International Airport (INS) 5.00 1/01/2029 1,776
13,480 Chicago-O'Hare International Airport 5.25 1/01/2029 16,104
2,150 Chicago-O'Hare International Airport (INS) 5.13 1/01/2030 2,545
11,560 Chicago-O'Hare International Airport 5.00 1/01/2033 13,788
5,675 Chicago-O'Hare International Airport 5.00 1/01/2034 6,750
2,500 Cook County 5.00 11/15/2031 2,977
4,500 Educational Facilities Auth. 4.45 11/01/2036 4,846
2,370 Finance Auth. (ETM) 5.50 5/01/2017 2,435
4,340 Finance Auth. (ETM) 5.75 5/01/2018 4,672
2,080 Finance Auth. 5.00 2/15/2020 2,313
1,710 Finance Auth. 5.00 2/15/2022 1,920
750 Finance Auth. 5.25 4/01/2022 759
2,000 Finance Auth. 5.00 4/01/2023 2,002
3,400 Finance Auth. (INS) (PRE) 5.00 11/01/2023 3,690
7,140 Finance Auth. 5.13 2/15/2025 8,005
4,165 Finance Auth. 5.00 4/01/2025 4,168
8,210 Finance Auth. 4.50 5/15/2025 9,226
7,665 Finance Auth. 5.38 8/15/2026 8,985
8,000 Finance Auth. 4.50 11/15/2026 8,038
1,750 Finance Auth. 5.40 4/01/2027 1,768
8,250 Finance Auth. 5.50 7/01/2028 9,849
20,000 Finance Auth. 3.90 3/01/2030 21,750
1,000 Finance Auth. 5.00 5/15/2030 1,198
1,875 Finance Auth. 5.00 5/15/2031 2,143
================================================================================
24 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,000 Finance Auth. 4.00% 10/01/2031 $ 1,110
1,000 Finance Auth. 4.00 10/01/2032 1,104
3,385 Finance Auth. 5.00 9/01/2034 3,840
1,000 Finance Auth. 4.00 10/01/2034 1,092
3,700 Finance Auth. 5.00 11/15/2034 4,369
3,500 Finance Auth. 5.00 12/01/2034 4,098
1,100 Finance Auth. 5.00 5/15/2035 1,293
4,000 Finance Auth. 5.00 8/15/2035 4,624
3,000 Finance Auth. 5.00 11/15/2035 3,535
5,000 Finance Auth. 4.00 12/01/2035 5,345
18,000 Finance Auth. 4.00 2/15/2036 18,068
1,400 Finance Auth. 5.00 5/15/2036 1,566
3,000 Finance Auth. 4.00 12/01/2036 3,202
1,835 Herrin Community USD (INS) 5.00 12/01/2028 2,121
1,925 Herrin Community USD (INS) 5.00 12/01/2029 2,214
2,025 Herrin Community USD (INS) 5.00 12/01/2030 2,320
6,000 Herrin Community USD (INS) 5.00 12/01/2034 6,766
315 Housing Dev. Auth. 4.55 7/01/2021 316
365 Housing Dev. Auth. 4.60 7/01/2023 366
2,800 Kane, Cook and Dupage Counties 5.00 1/01/2032 3,223
4,000 Kane, Cook and Dupage Counties 5.00 1/01/2033 4,591
5,000 Kendall Kane and Will Counties Community
Unit School District 5.00 2/01/2035 5,867
6,000 Kendall Kane and Will Counties Community
Unit School District 5.00 2/01/2036 7,013
3,495 Lake County Community Unit School
District (INS) (ETM) 5.13(b) 12/01/2016 3,490
4,555 Lake County Community Unit School District (INS) 5.13(b) 12/01/2016 4,545
2,500 Metropolitan Pier and Exposition Auth. (INS) 5.20 6/15/2017 2,563
1,290 Metropolitan Pier and Exposition Auth. (INS) (PRE) 5.30 6/15/2018 1,344
1,210 Metropolitan Pier and Exposition Auth. (INS) 5.30 6/15/2018 1,259
1,065 Metropolitan Pier and Exposition Auth. (INS) (PRE) 5.40 6/15/2019 1,110
2,935 Metropolitan Pier and Exposition Auth. (INS) 5.40 6/15/2019 3,054
5,000 Metropolitan Pier and Exposition Auth. (INS) 5.70(b) 6/15/2026 3,653
14,650 Municipal Electric Agency 4.00 2/01/2033 15,933
1,800 Northern Illinois Municipal Power Agency 4.00 12/01/2031 1,995
2,100 Northern Illinois Municipal Power Agency 4.00 12/01/2032 2,322
4,000 Northern Illinois Municipal Power Agency 4.00 12/01/2033 4,404
5,000 Northern Illinois Municipal Power Agency 4.00 12/01/2035 5,444
4,715 Northern Illinois Municipal Power Agency 4.00 12/01/2036 5,113
7,095 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 7,533
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,713
3,000 Sports Facilities Auth. (INS) 5.25 6/15/2030 3,484
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 5,000 Sports Facilities Auth. (INS) 5.25% 6/15/2031 $ 5,791
5,000 Sports Facilities Auth. (INS) 5.25 6/15/2032 5,750
8,500 Springfield 5.00 12/01/2030 10,279
3,000 Springfield (INS) 5.00 3/01/2034 3,534
3,700 Springfield School District No. 186 (INS) 5.00 2/01/2024 4,433
7,200 Springfield School District No. 186 (INS) 5.00 2/01/2025 8,555
4,215 Springfield School District No. 186 (INS) 5.00 2/01/2026 4,977
5,000 State (INS) 5.00 1/01/2021 5,468
10,000 State (INS) 5.00 4/01/2029 11,210
12,475 State Univ. 4.00 4/01/2033 13,478
5,000 Toll Highway Auth. 5.00 12/01/2032 6,082
6,000 Toll Highway Auth. 5.00 1/01/2033 7,314
5,870 Toll Highway Auth. 5.00 1/01/2034 7,032
2,500 Toll Highway Auth. 5.00 1/01/2034 3,043
5,600 Toll Highway Auth. 5.00 1/01/2035 6,680
2,000 Toll Highway Auth. 5.00 1/01/2035 2,421
7,000 Toll Highway Auth. 5.00 1/01/2036 8,319
2,500 Toll Highway Auth. 5.00 1/01/2036 3,011
5,225 Village of Gilberts (INS) 5.00 3/01/2030 5,972
3,000 Village of Volo (INS) 5.00 3/01/2034 3,538
1,250 Village of Volo (INS) 4.00 3/01/2036 1,307
14,070 Will County Forest Preserve District (INS) 5.40(b) 12/01/2017 13,870
----------
566,467
----------
INDIANA (1.1%)
1,470 Finance Auth. 5.00 5/01/2024 1,771
20,000 Finance Auth. (INS) 4.55 12/01/2024 20,125
1,200 Finance Auth. 5.00 5/01/2027 1,410
1,900 Finance Auth. 5.00 10/01/2027 1,970
10,500 Finance Auth. 5.00 6/01/2032 11,351
3,000 Jasper County (INS) 5.85 4/01/2019 3,297
6,500 Richmond Hospital Auth. 5.00 1/01/2035 7,565
6,000 Rockport (INS) 4.63 6/01/2025 6,121
----------
53,610
----------
IOWA (1.2%)
1,325 Finance Auth. (INS) 5.00 12/01/2021 1,335
1,390 Finance Auth. (INS) 5.00 12/01/2022 1,400
1,460 Finance Auth. (INS) 5.00 12/01/2023 1,470
1,535 Finance Auth. (INS) 5.00 12/01/2024 1,546
1,610 Finance Auth. (INS) 5.00 12/01/2025 1,621
1,690 Finance Auth. (INS) 5.00 12/01/2026 1,701
5,425 Finance Auth. 4.00 8/15/2035 5,861
30,555 Finance Auth. 4.00 8/15/2036 32,906
================================================================================
26 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 2,475 Waterloo Community School District 5.00% 7/01/2024 $ 2,725
2,775 Waterloo Community School District 5.00 7/01/2025 3,054
4,510 Waterloo Community School District 5.00 7/01/2027 4,956
----------
58,575
----------
KANSAS (0.0%)
35 Wyandotte County 6.07(b) 6/01/2021 27
----------
KENTUCKY (0.9%)
2,410 Ashland Medical Center 4.00 2/01/2036 2,499
2,000 Commonwealth Property and Buildings Commission 5.00 2/01/2032 2,399
2,250 Commonwealth Property and Buildings Commission 5.00 2/01/2033 2,689
6,130 Economic Dev. Finance Auth. 4.05(b) 10/01/2024 4,997
7,500 Economic Dev. Finance Auth. (INS) 5.75 12/01/2028 7,929
3,830 Louisville/Jefferson County Metro Government 5.00 12/01/2022 4,479
2,760 Louisville/Jefferson County Metro Government 5.00 12/01/2023 3,210
7,160 Louisville/Jefferson County Metro Government 5.00 12/01/2024 8,286
3,725 Pikeville City Hospital Improvement 5.75 3/01/2026 4,264
----------
40,752
----------
LOUISIANA (2.6%)
2,750 Jefferson Parish Hospital District No. 1 (INS) (PRE)(c) 5.50 1/01/2026 3,251
3,000 Jefferson Parish Hospital District No. 1 (INS) (PRE)(c) 5.38 1/01/2031 3,531
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,416
700 New Orleans 5.00 6/01/2031 832
1,150 New Orleans 5.00 6/01/2032 1,362
1,500 New Orleans 5.00 12/01/2033 1,772
1,500 New Orleans 5.00 6/01/2034 1,764
1,500 New Orleans 5.00 12/01/2035 1,760
14,000 Public Facilities Auth. 3.50 6/01/2030 14,609
8,995 Public Facilities Auth. 5.00 7/01/2033 10,686
2,250 Public Facilities Auth. 5.00 5/15/2034 2,693
13,550 Public Facilities Auth. 5.00 7/01/2034 16,005
3,500 Public Facilities Auth. 4.00 5/15/2035 3,786
1,500 Public Facilities Auth. 4.00 5/15/2036 1,620
2,000 Public Facilities Auth. (INS) 5.00 6/01/2036 2,318
5,330 Shreveport (INS) 5.00 12/01/2031 6,427
5,125 Shreveport (INS) 5.00 12/01/2032 6,158
1,515 Shreveport (INS) 5.00 12/01/2033 1,821
1,500 Shreveport (INS) 5.00 12/01/2034 1,797
1,510 Shreveport (INS) 5.00 12/01/2035 1,801
6,000 State 5.00 8/01/2028 7,514
2,440 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2022 2,742
2,570 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2023 2,885
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 2,000 Terrebonne Parish Hospital Service District No. 1 4.65% 4/01/2024 $ 2,197
4,250 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2028 4,705
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2023 5,964
10,000 Tobacco Settlement Financing Corp. 5.25 5/15/2031 11,309
----------
125,725
----------
MAINE (0.4%)
1,635 Health and Higher Educational Facilities Auth. 5.00 7/01/2024 1,924
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2026 1,161
11,500 Health and Higher Educational Facilities Auth. 6.00 7/01/2026 12,965
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2027 1,157
----------
17,207
----------
MARYLAND (0.4%)
2,500 EDC 6.20 9/01/2022 2,803
5,000 Health and Higher Educational Facilities Auth. (PRE) 6.00 1/01/2028 5,324
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 1,208
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 1,177
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 1,205
2,200 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 2,584
1,310 Health and Higher Educational Facilities Auth. 5.00 7/01/2035 1,567
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2036 1,195
----------
17,063
----------
MASSACHUSETTS (1.1%)
5,545 Bay Transportation Auth. (PRE) 4.60(b) 7/01/2022 4,383
5,000 Bay Transportation Auth. (PRE) 4.70(b) 7/01/2024 3,584
1,600 Bay Transportation Auth. (PRE) 4.73(b) 7/01/2025 1,092
640 Dev. Finance Agency 5.00 7/01/2020 707
1,480 Dev. Finance Agency 5.00 7/01/2022 1,694
4,500 Dev. Finance Agency 6.25 1/01/2027 5,325
1,720 Dev. Finance Agency 5.00 7/01/2027 1,915
2,000 Dev. Finance Agency 5.00 7/01/2030 2,180
2,000 Dev. Finance Agency 5.00 7/01/2030 2,414
1,675 Dev. Finance Agency 5.00 7/01/2031 2,009
2,155 Dev. Finance Agency 5.00 4/15/2033 2,470
1,500 Dev. Finance Agency 5.00 7/01/2035 1,762
2,000 Dev. Finance Agency 5.00 7/01/2036 2,359
1,000 Dev. Finance Agency 5.00 7/01/2036 1,169
3,110 Health and Educational Facilities Auth. 5.00 7/01/2019 3,411
9,000 Health and Educational Facilities Auth. 6.00 7/01/2024 10,104
4,000 Health and Educational Facilities Auth. 5.00 7/15/2027 4,109
110 Water Pollution Abatement Trust 4.75 8/01/2025 110
----------
50,797
----------
================================================================================
28 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
MICHIGAN (2.3%)
$ 3,000 Building Auth. 5.00% 10/15/2029 $ 3,617
2,000 Finance Auth. (NBGA) 5.00 5/01/2024 2,415
1,700 Finance Auth. (NBGA) 5.00 5/01/2025 2,078
8,200 Finance Auth. 5.00 12/01/2034 9,935
6,000 Finance Auth. 4.00 11/15/2035 6,388
4,600 Finance Auth. 5.00 12/01/2035 5,552
9,000 Finance Auth. 4.00 11/15/2036 9,574
10,000 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2029 11,346
2,675 Hospital Finance Auth. 5.00 11/15/2019 2,690
3,400 Hospital Finance Auth. 5.00 11/15/2022 3,418
12,000 Kent Hospital Finance Auth. 5.00 11/15/2029 13,774
2,775 Livonia Public Schools School District (INS) 5.00 5/01/2032 3,342
2,875 Livonia Public Schools School District (INS) 5.00 5/01/2033 3,449
2,965 Livonia Public Schools School District (INS) 5.00 5/01/2034 3,543
3,065 Livonia Public Schools School District (INS) 5.00 5/01/2035 3,651
2,770 Livonia Public Schools School District (INS) 5.00 5/01/2036 3,287
10,050 State Building Auth. (INS) (PRE) 4.81(b) 10/15/2022 7,554
7,950 State Building Auth. (INS) 4.81(b) 10/15/2022 5,975
3,000 State Trunk Line Fund 5.00 11/01/2019 3,370
2,000 State Trunk Line Fund 5.00 11/01/2020 2,248
----------
107,206
----------
MINNESOTA (0.3%)
1,080 Chippewa County 5.38 3/01/2022 1,094
5,120 Chippewa County 5.50 3/01/2027 5,182
1,650 Higher Education Facilities Auth. (PRE) 4.50 10/01/2027 1,650
850 Higher Education Facilities Auth. 4.50 10/01/2027 850
3,500 St. Paul Housing and Redevelopment Auth. (PRE) 5.25 5/15/2026 3,520
1,750 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2029 2,105
1,275 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2030 1,532
----------
15,933
----------
MISSISSIPPI (0.3%)
2,000 Dev. Bank 5.00 4/01/2028 2,367
7,000 Dev. Bank (INS) 5.00 9/01/2030 8,209
1,650 Hospital Equipment and Facilities Auth. 5.00 12/01/2016 1,658
1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2021 1,006
----------
13,240
----------
MISSOURI (1.1%)
1,780 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2025 2,085
17,545 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 17,580
2,555 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 2,966
2,740 Cape Girardeau County Health Care Facilities IDA 6.00 3/01/2033 3,001
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,000 Cass County 5.00% 5/01/2022 $ 1,003
3,315 Cass County 5.38 5/01/2022 3,325
2,000 Cass County 5.50 5/01/2027 2,006
1,000 Dev. Finance Board 5.00 6/01/2030 1,150
4,215 Dev. Finance Board 5.00 6/01/2031 4,825
2,310 Health and Educational Facilities Auth. 5.00 5/01/2030 2,594
2,350 Health and Educational Facilities Auth. 5.25 5/01/2033 2,656
1,760 Riverside IDA (INS) 5.00 5/01/2020 1,832
1,380 Saint Louis County IDA 5.00 9/01/2023 1,604
2,750 Saint Louis County IDA 5.50 9/01/2033 3,215
1,330 St. Joseph IDA (PRE) 5.00 4/01/2027 1,359
2,110 Stoddard County IDA 6.00 3/01/2037 2,287
----------
53,488
----------
MONTANA (0.2%)
8,500 Forsyth 3.90 3/01/2031 9,119
----------
NEBRASKA (0.1%)
1,250 Douglas County Hospital Auth. 5.00 11/01/2028 1,501
1,600 Douglas County Hospital Auth. 5.00 11/01/2030 1,902
2,400 Public Power Generation Agency 5.00 1/01/2037 2,880
----------
6,283
----------
NEVADA (1.7%)
2,865 Clark County 5.00 5/15/2020 2,875
3,660 Clark County 5.00 7/01/2026 4,640
2,220 Clark County 5.00 7/01/2027 2,833
20,470 Clark County 5.00 7/01/2032 24,534
10,845 Clark County 5.00 7/01/2033 12,955
18,000 Humboldt County 5.15 12/01/2024 19,776
2,000 Las Vegas Convention and Visitors Auth. 4.00 7/01/2033 2,186
4,560 Las Vegas Convention and Visitors Auth. 4.00 7/01/2034 4,963
5,075 Las Vegas Convention and Visitors Auth. 4.00 7/01/2035 5,501
----------
80,263
----------
NEW JERSEY (4.1%)
1,135 Bayonne City (INS) 5.00 7/01/2034 1,352
1,000 Bayonne City (INS) 5.00 7/01/2035 1,187
1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2029 1,133
1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2030 1,130
7,300 EDA (ETM) 5.25 9/01/2019 8,199
2,700 EDA 5.25 9/01/2019 2,964
5,000 EDA (INS) 5.00 7/01/2022 5,049
7,300 EDA (PRE) 5.25 9/01/2022 8,608
2,700 EDA 5.25 9/01/2022 3,037
================================================================================
30 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 3,500 EDA 4.45% 6/01/2023 $ 3,832
18,410 EDA 5.00 3/01/2025 20,931
10,000 EDA (INS) 5.00 6/15/2025 11,959
5,125 EDA 5.00 6/15/2025 5,961
2,500 EDA 5.00 6/15/2026 2,789
9,000 EDA 5.25 6/15/2033 10,282
500 Educational Facilities Auth. 4.00 7/01/2032 555
500 Educational Facilities Auth. 4.00 7/01/2033 553
750 Educational Facilities Auth. 4.00 7/01/2034 827
1,250 Educational Facilities Auth. 4.00 7/01/2035 1,373
1,800 Educational Facilities Auth. (INS) 4.00 7/01/2036 1,932
4,535 Essex County Improvement Auth. (INS) 6.00 11/01/2025 5,269
2,000 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2027 2,443
1,500 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2030 1,799
1,455 New Brunswick Parking Auth. (INS) 5.00 9/01/2035 1,770
2,000 New Brunswick Parking Auth. (INS) 5.00 9/01/2036 2,421
500 Newark Housing Auth. (INS) 4.00 12/01/2029 548
750 Newark Housing Auth. (INS) 4.00 12/01/2030 818
500 Newark Housing Auth. (INS) 4.00 12/01/2031 543
500 South Jersey Transportation Auth. 5.00 11/01/2030 584
750 South Jersey Transportation Auth. 5.00 11/01/2031 872
1,085 South Jersey Transportation Auth. 5.00 11/01/2034 1,249
1,000 State Building Auth. 4.00 6/15/2030 1,041
20,000 State Turnpike Auth. 5.00 1/01/2021 21,745
7,675 State Turnpike Auth. 5.00 1/01/2034 9,314
10,000 State Turnpike Auth. 5.00 1/01/2034 12,080
4,725 State Turnpike Auth. 5.00 1/01/2035 5,713
5,000 Tobacco Settlement Financing Corp. 5.00 6/01/2017 5,149
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,837
20,000 Transportation Trust Fund Auth. 4.47(b) 12/15/2025 14,256
2,000 Transportation Trust Fund Auth. 5.25 6/15/2033 2,280
3,000 Transportation Trust Fund Auth. 5.25 6/15/2034 3,413
----------
192,797
----------
NEW MEXICO (0.5%)
20,000 Farmington Pollution Control 4.70 5/01/2024 22,241
----------
NEW YORK (7.4%)
2,500 Albany IDA (PRE) 5.75 11/15/2022 2,639
3,700 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2034 4,015
4,760 Dormitory Auth. 5.30 2/15/2017 4,779
12,560 Dormitory Auth. (ETM) 5.30 2/15/2019 13,243
24,935 Dormitory Auth. (PRE) 5.00 7/01/2022 25,732
15 Dormitory Auth. (ETM) 5.00 5/01/2023 18
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 735 Dormitory Auth. 5.00% 5/01/2023 $ 861
15 Dormitory Auth. (PRE) 5.00 5/01/2024 18
735 Dormitory Auth. 5.00 5/01/2024 854
25 Dormitory Auth. (PRE) 5.00 5/01/2025 31
1,175 Dormitory Auth. 5.00 5/01/2025 1,355
20 Dormitory Auth. (PRE) 5.00 5/01/2026 25
980 Dormitory Auth. 5.00 5/01/2026 1,122
1,000 Dormitory Auth. (INS) 5.00 10/01/2027 1,245
1,000 Dormitory Auth. (INS) 5.00 10/01/2028 1,237
1,300 Dormitory Auth. (INS) 5.00 10/01/2029 1,600
20,000 Dormitory Auth. 5.00 2/15/2032 24,450
2,000 Erie County IDA 5.00 5/01/2028 2,424
17,075 Long Island Power Auth. 5.00 4/01/2023 18,404
5,000 Monroe County IDC (NBGA) 5.75 8/15/2030 5,909
2,000 MTA 6.25 11/15/2023 2,226
8,000 MTA (PRE) 6.25 11/15/2023 8,916
2,500 MTA (INS) (PRE) 5.00 11/15/2024 2,617
6,800 MTA (PRE) 5.00 11/15/2024 7,118
16,565 MTA 5.00 11/15/2024 16,656
2,000 MTA 5.00 11/15/2034 2,429
10,000 MTA 5.00 11/15/2034 12,146
3,000 MTA 5.00 11/15/2035 3,628
2,000 MTA 5.00 11/15/2035 2,418
29,550 MTA 4.00 11/15/2036 32,850
1,100 Nassau County 5.00 1/01/2035 1,319
1,150 Nassau County 5.00 1/01/2036 1,374
5,000 New York City 5.13 11/15/2022 5,453
2,625 New York City (PRE) 5.13 12/01/2022 2,757
1,705 New York City 5.13 12/01/2022 1,791
3,610 New York City (PRE) 5.13 12/01/2023 3,792
2,390 New York City 5.13 12/01/2023 2,510
815 New York City (PRE) 5.00 8/01/2024 844
4,425 New York City 5.00 8/01/2024 4,580
5,000 New York City 5.25 11/15/2024 5,461
2,995 New York City (PRE) 5.00 2/01/2025 3,162
2,005 New York City 5.00 2/01/2025 2,115
10,000 New York City 4.00 8/01/2032 11,375
3,500 New York City Transitional Finance Auth. 5.00 1/15/2022 3,831
5 New York City Transitional Finance Auth. (PRE) 5.00 5/01/2026 6
24,995 New York City Transitional Finance Auth. 5.00 5/01/2026 27,618
15,350 New York City Transitional Finance Auth. 5.00 7/15/2034 18,513
12,485 New York City Transitional Finance Auth. 5.00 7/15/2035 15,016
13,420 New York City Transitional Finance Auth. 4.00 2/01/2036 14,956
================================================================================
32 | 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 $ 658
2,250 Niagara Area Dev. Corp. 4.00 11/01/2024 2,280
1,670 Niagara Falls City School District (INS) 5.00 6/15/2023 2,036
1,450 Niagara Falls City School District (INS) 5.00 6/15/2024 1,795
1,670 Niagara Falls City School District (INS) 5.00 6/15/2025 2,050
1,585 Rockland County 3.50 10/01/2021 1,657
1,190 Rockland County 3.63 10/01/2022 1,245
1,560 Rockland County 3.63 10/01/2023 1,633
1,665 Rockland County 3.63 10/01/2024 1,743
790 Saratoga County Capital Resource Corp. 5.00 12/01/2028 942
220 Suffolk County EDC (PRE) 5.00 7/01/2028 260
1,280 Suffolk County EDC 5.00 7/01/2028 1,449
1,350 Westchester County Local Dev. Corp. 5.00 1/01/2028 1,559
2,600 Yonkers (INS)(c) 5.00 10/01/2023 3,045
----------
349,790
----------
NORTH CAROLINA (0.7%)
3,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2024 3,151
5,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2026 5,450
1,500 Medical Care Commission 5.00 10/01/2025 1,748
4,805 Medical Care Commission 6.38 7/01/2026 5,721
5,500 Medical Care Commission 5.00 7/01/2027 5,702
1,850 Medical Care Commission 5.00 10/01/2030 2,082
2,000 Municipal Power Agency No. 1 (PRE) 5.25 1/01/2020 2,109
3,600 Turnpike Auth. (INS) 5.00 1/01/2022 3,878
3,330 Turnpike Auth. (INS) 5.13 1/01/2024 3,604
----------
33,445
----------
NORTH DAKOTA (0.3%)
11,085 Grand Forks City Health Care System 5.00 12/01/2029 12,512
----------
OHIO (1.8%)
9,000 Air Quality Dev. Auth. 5.70 8/01/2020 8,667
3,000 American Municipal Power, Inc. (PRE) 5.00 2/15/2021 3,400
2,760 American Municipal Power, Inc. (PRE) 5.00 2/15/2022 3,128
7,165 Buckeye Tobacco Settlement Financing Auth. 5.13 6/01/2024 7,013
2,000 Cleveland Airport System 5.00 1/01/2030 2,286
1,000 Cleveland Airport System 5.00 1/01/2031 1,140
2,805 Dayton City School District 5.00 11/01/2028 3,649
3,655 Dayton City School District 5.00 11/01/2029 4,807
3,160 Dayton City School District 5.00 11/01/2030 4,173
2,000 Dayton City School District 5.00 11/01/2031 2,658
555 Fairview Park City (INS) 4.13 12/01/2020 557
4,365 Hamilton County (INS) 4.30(b) 12/01/2025 3,533
1,350 Hamilton County Healthcare(f) 5.00 1/01/2031 1,565
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,400 Hamilton County Healthcare(f) 5.00% 1/01/2036 $ 1,595
9,000 Hancock County Hospital Facilities 6.50 12/01/2030 10,830
750 Southeastern Ohio Port Auth. 5.50 12/01/2029 846
750 Southeastern Ohio Port Auth. 5.00 12/01/2035 810
1,000 State 5.00 5/01/2031 1,184
500 State 5.00 5/01/2033 588
7,210 State Hospital System 5.00 1/15/2034 8,640
6,000 State Hospital System 5.00 1/15/2035 7,168
3,070 State Hospital System 5.00 1/15/2036 3,656
2,000 Turnpike and Infrastructure Commission 5.25 2/15/2029 2,430
----------
84,323
----------
OKLAHOMA (0.6%)
5,360 Cherokee Nation (INS)(a) 4.60 12/01/2021 5,386
2,705 Chickasaw Nation(a) 5.38 12/01/2017 2,760
5,000 Chickasaw Nation(a) 6.00 12/01/2025 5,479
2,020 Comanche County Hospital Auth. 5.00 7/01/2021 2,219
1,400 Norman Regional Hospital Auth. 5.50 9/01/2024 1,406
13,100 Norman Regional Hospital Auth. 5.00 9/01/2027 13,378
----------
30,628
----------
OREGON (0.1%)
1,000 Washington, Yamhill and Multnomah Counties Hillsboro
School District No. 1J (INS) (PRE) 4.58(b) 6/15/2025 691
5,900 Washington, Yamhill and Multnomah Counties Hillsboro
School District No. 1J (INS) (PRE) 4.59(b) 6/15/2026 3,895
----------
4,586
----------
PENNSYLVANIA (5.0%)
1,410 Allegheny County Higher Education Building
Auth. (PRE) 5.13 3/01/2025 1,657
1,000 Allegheny County IDA 5.00 9/01/2021 1,002
1,220 Allegheny County IDA 5.10 9/01/2026 1,222
1,500 Allegheny County Sanitary Auth. (INS) 4.00 12/01/2033 1,677
1,475 Allegheny County Sanitary Auth. (INS) 4.00 12/01/2034 1,640
5,000 Beaver County IDA 2.15 3/01/2017 4,993
3,000 Bethlehem Auth. (INS) 5.00 11/15/2030 3,535
1,885 Butler County Hospital Auth. 5.00 7/01/2035 2,182
1,000 Chester County IDA 5.00 10/01/2034 1,105
6,000 Commonwealth 4.00 9/15/2031 6,710
5,000 Commonwealth 4.00 9/15/2032 5,550
5,000 Commonwealth 4.00 9/15/2034 5,532
5,000 Commonwealth Financing Auth. 5.00 6/01/2034 5,816
6,500 Cumberland County Municipal Auth. 4.00 12/01/2026 6,921
2,000 Dauphin County General Auth. 4.00 6/01/2030 2,214
================================================================================
34 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,000 Dauphin County General Auth. 4.00% 6/01/2031 $ 1,101
1,000 Delaware County Auth. 5.00 10/01/2025 1,094
2,720 Delaware River Port Auth. 5.00 1/01/2025 3,127
13,000 Economic Dev. Financing Auth. 4.00 10/01/2023 14,355
1,730 Higher Educational Facilities Auth. 5.25 7/15/2025 2,059
2,020 Higher Educational Facilities Auth. 5.25 7/15/2026 2,388
2,125 Higher Educational Facilities Auth. 5.25 7/15/2027 2,496
2,245 Higher Educational Facilities Auth. 5.25 7/15/2028 2,623
2,415 Higher Educational Facilities Auth. 5.00 7/15/2030 2,754
1,625 Higher Educational Facilities Auth. 5.00 7/01/2032 1,847
1,965 Higher Educational Facilities Auth. 5.25 7/15/2033 2,266
1,615 Lancaster County Hospital Auth. (PRE) 5.00 11/01/2026 1,621
5,000 Luzerne County (INS) 5.00 11/15/2029 5,835
1,200 Montgomery County IDA 5.00 11/15/2023 1,408
2,750 Montgomery County IDA 5.00 11/15/2024 3,210
1,000 Montour School District (INS) 5.00 4/01/2033 1,196
1,500 Montour School District (INS) 5.00 4/01/2034 1,786
1,500 Montour School District (INS) 5.00 4/01/2035 1,781
1,525 Northeastern Hospital and Education Auth. 5.00 3/01/2037 1,765
3,250 Philadelphia Gas Works 5.00 10/01/2031 3,946
2,050 Philadelphia Gas Works 4.00 10/01/2036 2,248
1,250 Public School Building Auth. (NBGA) 5.00 4/01/2023 1,398
15,380 Public School Building Auth. (INS) 4.00 12/01/2031 16,832
1,500 Turnpike Commission 5.00 12/01/2032 1,768
3,500 Turnpike Commission 5.00 12/01/2032 4,150
4,345 Turnpike Commission 5.00 12/01/2033 5,108
7,145 Turnpike Commission 5.00 12/01/2033 8,440
25,000 Turnpike Commission 4.00 6/01/2034 27,128
3,000 Turnpike Commission 5.00 12/01/2034 3,507
6,250 Turnpike Commission 5.00 12/01/2034 7,322
2,000 Turnpike Commission 5.00 12/01/2034 2,395
10,655 Turnpike Commission 5.00 6/01/2035 12,435
3,320 Turnpike Commission 5.00 12/01/2035 3,875
5,700 Turnpike Commission 5.00 12/01/2035 6,652
2,000 Turnpike Commission 5.00 12/01/2035 2,388
8,255 Turnpike Commission 5.00 6/01/2036 9,613
5,750 Turnpike Commission 5.00 6/01/2036 6,704
3,690 Turnpike Commission 5.00 12/01/2036 4,297
----------
236,674
----------
PUERTO RICO (0.1%)
2,600 Industrial, Tourist, Educational, Medical, and
Environmental Control Facilities Financing Auth. 5.00 4/01/2027 2,458
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
RHODE ISLAND (0.4%)
$ 2,000 Health and Educational Building Corp. 6.00% 9/01/2033 $ 2,595
2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2028 2,320
2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2029 2,288
2,500 Tobacco Settlement Financing Corp. 5.00 6/01/2030 2,848
1,350 Turnpike and Bridge Auth. 5.00 10/01/2033 1,621
4,345 Turnpike and Bridge Auth. 5.00 10/01/2035 5,182
----------
16,854
----------
SOUTH CAROLINA (1.4%)
5,870 Association of Governmental Organizations
Educational Facilities Corp. (INS) (PRE) 4.75 12/01/2026 5,910
6,325 Association of Governmental Organizations
Educational Facilities Corp. (INS) (PRE) 4.75 12/01/2026 6,368
5,000 Lexington County Health Services District, Inc. 5.00 11/01/2024 5,217
7,335 Lexington County Health Services District, Inc. 5.00 11/01/2026 7,651
7,200 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 8,238
2,700 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 3,089
9,835 Public Service Auth. 5.00 12/01/2034 11,992
7,000 Public Service Auth. 5.00 12/01/2035 8,501
8,500 Public Service Auth. 5.00 12/01/2036 10,226
----------
67,192
----------
SOUTH DAKOTA (0.0%)
1,700 Health and Educational Facilities Auth. 5.00 11/01/2024 1,894
----------
TENNESSEE (0.3%)
5,000 Davidson County Health and Educational
Facilities Board 5.00 7/01/2035 6,040
5,110 Jackson Health, Educational, and Housing
Facility Board (PRE) 5.25 4/01/2023 5,446
1,890 Jackson Health, Educational, and
Housing Facility Board 5.25 4/01/2023 2,012
----------
13,498
----------
TEXAS (11.3%)
2,300 Austin (INS) 5.00 11/15/2024 2,308
5,610 Austin Utility Systems (INS) 5.15(b) 5/15/2017 5,574
425 Bastrop ISD (NBGA) (ETM) 5.60(b) 2/15/2017 424
2,730 Bastrop ISD (NBGA) 5.60(b) 2/15/2017 2,722
3,485 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2027 3,556
2,740 Board of Managers, Joint Guadalupe County -
City of Seguin Hospital 5.00 12/01/2025 3,108
2,990 Board of Managers, Joint Guadalupe County -
City of Seguin Hospital 5.00 12/01/2027 3,324
================================================================================
36 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 1,640 Board of Managers, Joint Guadalupe County -
City of Seguin Hospital 5.00% 12/01/2028 $ 1,817
1,600 Board of Managers, Joint Guadalupe County -
City of Seguin Hospital 5.00 12/01/2029 1,772
1,700 Board of Managers, Joint Guadalupe County -
City of Seguin Hospital 5.00 12/01/2030 1,876
5,150 Board of Managers, Joint Guadalupe County -
City of Seguin Hospital 5.25 12/01/2035 5,757
4,240 Boerne ISD (NBGA) 3.66(b) 2/01/2026 3,204
2,680 Central Regional Mobility Auth. (INS) (PRE) 4.55 1/01/2020 2,706
3,445 Central Regional Mobility Auth. (INS) (PRE) 4.60 1/01/2021 3,478
700 Central Regional Mobility Auth. 5.00 1/01/2021 802
500 Central Regional Mobility Auth. 5.00 1/01/2022 588
885 Central Regional Mobility Auth. 5.90(b) 1/01/2022 762
500 Central Regional Mobility Auth. 5.00 1/01/2023 599
7,000 Central Regional Mobility Auth.(c) 6.25(b) 1/01/2024 5,638
2,500 Central Regional Mobility Auth. (PRE) 5.75 1/01/2025 2,880
2,535 Central Regional Mobility Auth. 6.50(b) 1/01/2026 1,892
3,500 Central Regional Mobility Auth. 5.00 1/01/2033 3,949
1,250 Central Regional Mobility Auth. 5.00 1/01/2034 1,472
1,700 Central Regional Mobility Auth. 5.00 1/01/2034 2,017
1,100 Central Regional Mobility Auth. 5.00 1/01/2035 1,290
1,650 Central Regional Mobility Auth. 5.00 1/01/2035 1,950
1,625 Central Regional Mobility Auth. 5.00 1/01/2036 1,916
1,750 Clifton Higher Education Finance Corp. (NBGA) 4.00 8/15/2029 2,001
1,300 Clifton Higher Education Finance Corp. (NBGA) 4.00 8/15/2032 1,459
1,800 Corpus Christi Utility System 4.00 7/15/2032 2,010
1,100 Corpus Christi Utility System 4.00 7/15/2033 1,225
1,050 Corpus Christi Utility System 4.00 7/15/2034 1,164
1,000 Corpus Christi Utility System 4.00 7/15/2035 1,104
2,000 Dallas/Fort Worth International Airport 5.25 11/01/2028 2,464
7,500 Dallas/Fort Worth International Airport 5.25 11/01/2029 9,230
1,000 Decatur Hospital Auth. 5.25 9/01/2029 1,117
1,000 Decatur Hospital Auth. 5.00 9/01/2034 1,077
1,215 Downtown Redevelopment Auth. (INS) 5.00 9/01/2029 1,450
1,380 Downtown Redevelopment Auth. (INS) 5.00 9/01/2030 1,639
2,000 Downtown Redevelopment Auth. (INS) 5.00 9/01/2031 2,361
1,500 Downtown Redevelopment Auth. (INS) 5.00 9/01/2032 1,763
2,680 Downtown Redevelopment Auth. (INS) 5.00 9/01/2033 3,140
4,710 Harris County Cultural Education Facilities
Finance Corp. 5.00 12/01/2027 5,581
1,400 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2028 1,593
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$40,000 Harris County IDC 5.00% 2/01/2023 $ 44,240
750 Harris County Municipal Utility District (INS) 5.00 3/01/2030 900
2,030 Harris County Municipal Utility District (INS) 5.00 3/01/2031 2,425
2,500 Harris County Municipal Utility District (INS) 5.00 3/01/2032 2,974
4,350 Harris County Regional Water Auth. 4.00 12/15/2035 4,811
5,615 Houston 5.00 9/01/2032 6,653
5,345 Houston 5.00 9/01/2033 6,312
2,150 Houston 5.00 9/01/2034 2,537
1,575 Houston 5.00 9/01/2035 1,851
4,000 Houston Airport System 5.00 7/01/2024 4,279
7,000 Houston Airport System 5.00 7/01/2025 7,485
2,300 Houston Convention & Entertainment Facilities Department 5.00 9/01/2029 2,765
1,000 Houston Convention & Entertainment Facilities Department 5.00 9/01/2030 1,194
3,850 Houston Higher Education Finance Corp. 5.25 9/01/2031 4,480
4,075 Houston Higher Education Finance Corp. 5.25 9/01/2032 4,727
3,885 Houston ISD Public Facility Corp. (INS) 5.40(b) 9/15/2017 3,841
10,000 Houston Utility System 5.00 11/15/2034 12,385
4,000 Karnes County Hospital District 5.00 2/01/2029 4,501
4,000 Karnes County Hospital District 5.00 2/01/2034 4,452
740 Laredo Waterworks and Sewer System 4.00 3/01/2032 820
1,000 Laredo Waterworks and Sewer System 4.00 3/01/2033 1,104
1,000 Laredo Waterworks and Sewer System 4.00 3/01/2034 1,100
1,500 Laredo Waterworks and Sewer System 4.00 3/01/2035 1,644
1,500 Laredo Waterworks and Sewer System 4.00 3/01/2036 1,638
605 Marlin ISD Public Facility Corp.(d) 5.85 2/15/2018 616
3,100 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2026 3,700
1,075 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2035 1,208
2,040 Midlothian Dev. Auth. (INS) 5.00 11/15/2018 2,050
2,235 Midlothian Dev. Auth. (INS) 5.00 11/15/2021 2,246
1,695 Midlothian Dev. Auth. (INS) 5.00 11/15/2026 1,699
2,025 Midlothian Dev. Auth. 5.13 11/15/2026 2,028
2,155 New Braunfels ISD (NBGA) 3.04(b) 2/01/2023 1,870
7,500 New Hope Cultural Education Facilities Corp. 5.00 7/01/2030 8,630
1,000 New Hope Cultural Education Facilities Corp. 5.00 11/01/2031 1,179
9,000 New Hope Cultural Education Facilities Corp. 5.00 7/01/2035 10,172
1,475 New Hope Cultural Education Facilities Corp. 4.00 11/01/2036 1,568
1,635 Newark Higher Education Finance Corp. 4.00 4/01/2032 1,799
2,000 Newark Higher Education Finance Corp. 4.00 4/01/2033 2,185
4,470 Newark Higher Education Finance Corp. 4.00 4/01/2034 4,868
1,650 Newark Higher Education Finance Corp. 4.00 4/01/2035 1,791
2,150 Newark Higher Education Finance Corp. 4.00 4/01/2036 2,327
================================================================================
38 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 7,000 North East Texas Regional Mobility Auth. 5.00% 1/01/2036 $ 8,198
5,485 North East Texas Regional Mobility Auth. 5.00 1/01/2036 6,361
2,190 North Texas Tollway Auth. (PRE) 6.00 1/01/2023 2,329
310 North Texas Tollway Auth. 6.00 1/01/2023 328
15,000 North Texas Tollway Auth. 6.00 1/01/2025 16,695
20,000 North Texas Tollway Auth. (INS) 3.85(b) 1/01/2029 14,286
1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,792
8,000 North Texas Tollway Auth. 5.00 1/01/2032 9,542
1,515 North Texas Tollway Auth. 5.00 1/01/2034 1,834
7,500 North Texas Tollway Auth. 5.00 1/01/2034 8,952
1,200 North Texas Tollway Auth. 5.00 1/01/2035 1,446
1,385 North Texas Tollway Auth. 5.00 1/01/2036 1,663
2,230 Permanent Univ. Fund 5.00 7/01/2032 2,759
3,250 Permanent Univ. Fund 5.00 7/01/2033 4,006
2,500 Permanent Univ. Fund 5.00 7/01/2034 3,070
9,205 Sabine River Auth. (INS) 4.95 3/01/2018 9,639
2,000 San Leanna Education Facilities Corp. 5.00 6/01/2018 2,049
940 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2023 967
1,025 San Leanna Education Facilities Corp. 5.13 6/01/2023 1,048
475 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2024 489
525 San Leanna Education Facilities Corp. 5.13 6/01/2024 536
1,270 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2025 1,306
275 San Leanna Education Facilities Corp. 5.13 6/01/2025 281
1,645 Tarrant County Cultural Education Facilities
Finance Corp. (PRE) 5.25 11/15/2022 1,727
2,105 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2022 2,199
1,100 Tarrant County Cultural Education Facilities
Finance Corp. 6.00 11/15/2026 1,105
8,890 Tarrant County Cultural Education Facilities
Finance Corp.(f) 4.00 5/15/2027 9,242
8,300 Tarrant County Cultural Education Facilities
Finance Corp. 5.13 5/15/2027 8,353
14,565 Tarrant County Cultural Education Facilities
Finance Corp.(f) 4.00 5/15/2031 14,868
13,000 Transportation Commission (PRE) 4.50 4/01/2026 13,246
7,235 Transportation Commission 5.00 10/01/2026 9,461
10,000 Transportation Commission 5.00 8/15/2033 11,738
8,500 Transportation Commission 5.00 8/15/2034 9,957
6,987 Trophy Club Public Improvement District No. 1 (INS) 5.00 6/01/2033 8,192
7,170 Tyler Health Facilities Dev. Corp. 5.25 11/01/2019 7,415
7,945 Tyler Health Facilities Dev. Corp. 5.25 11/01/2021 8,199
3,360 Tyler Health Facilities Dev. Corp. 5.25 11/01/2022 3,464
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
$ 3,800 Tyler Health Facilities Dev. Corp. 5.25% 11/01/2023 $ 3,914
8,745 Tyler Health Facilities Dev. Corp. (PRE) 5.25 7/01/2026 8,962
10,000 Tyler Health Facilities Dev. Corp. (PRE)(c) 5.50 7/01/2027 11,367
7,875 Univ. of Texas System (PRE) 4.25 8/15/2025 7,976
2,125 Univ. of Texas System 4.25 8/15/2025 2,151
5,970 Williamson County (INS) (PRE) 5.13 2/15/2022 6,066
----------
535,991
----------
U.S. VIRGIN ISLANDS (0.2%)
6,500 Public Finance Auth.(a) 5.00 9/01/2030 7,463
----------
UTAH (0.2%)
18,631 Jordanelle Special Service District(a),(d),(g) 4.44 8/01/2030 8,382
----------
VERMONT (0.3%)
9,000 EDA 5.00 12/15/2020 10,322
2,500 Educational and Health Buildings Financing Agency 5.00 12/01/2036 2,988
----------
13,310
----------
VIRGINIA (0.8%)
1,750 Albemarle County IDA 5.00 1/01/2024 1,759
2,290 College Building Auth. 5.00 6/01/2021 2,292
11,280 College Building Auth. 5.00 6/01/2026 11,286
2,150 Fairfax County Economic Dev. Auth. 5.00 10/01/2036 2,527
14,924 Farms of New Kent Community Dev. Auth.(d),(h) 5.13 3/01/2036 3,730
10,000 Roanoke County EDA 5.00 7/01/2025 11,369
1,000 Small Business Financing Auth. 5.13 9/01/2022 1,035
750 Stafford County EDA 5.00 6/15/2033 905
2,620 Stafford County EDA 5.00 6/15/2034 3,153
1,930 Stafford County EDA 5.00 6/15/2035 2,315
----------
40,371
----------
WASHINGTON (0.1%)
5,000 Tobacco Settlement Auth. 5.25 6/01/2031 5,591
----------
WISCONSIN (0.5%)
1,500 Health and Educational Facilities Auth. (PRE) 5.00 8/15/2026 1,830
2,000 Health and Educational Facilities Auth. 5.00 7/15/2028 2,281
1,935 Health and Educational Facilities Auth. (PRE) 5.00 8/15/2029 2,360
5,000 Health and Educational Facilities Auth. 5.13 4/15/2031 5,773
1,000 Health and Educational Facilities Auth. 5.00 8/15/2034 1,175
9,830 Health and Educational Facilities Auth. 4.00 11/15/2036 10,854
1,500 Public Finance Auth. 4.05 11/01/2030 1,575
----------
25,848
----------
Total Fixed-Rate Instruments (cost: $3,754,034) 3,994,193
----------
================================================================================
40 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
PUT BONDS (7.0%)
ARIZONA (1.0%)
$16,000 Health Facilities Auth. 2.69%(i) 2/01/2048 $ 16,287
30,000 Health Facilities Auth. 2.69(i) 2/01/2048 30,473
----------
46,760
----------
ARKANSAS (0.6%)
29,000 Dev. Finance Auth. 2.39(i) 9/01/2044 28,759
----------
CALIFORNIA (0.8%)
10,000 Bay Area Toll Auth. 1.74(i) 4/01/2045 9,998
17,000 Bay Area Toll Auth. 1.94(i) 4/01/2045 17,179
8,500 Health Facilities Financing Auth. 2.00 10/01/2036 8,552
----------
35,729
----------
FLORIDA (0.4%)
16,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 17,018
----------
ILLINOIS (0.2%)
7,500 Educational Facilities Auth. 4.75 11/01/2036 7,521
----------
INDIANA (0.1%)
4,000 Rockport Pollution Control 1.75 6/01/2025 4,021
----------
LOUISIANA (0.4%)
16,750 St. Charles Parish 4.00 12/01/2040 18,578
----------
MASSACHUSETTS (0.1%)
6,000 Dev. Finance Agency (PRE) 5.75 12/01/2042 6,735
----------
MICHIGAN (0.3%)
15,000 Hospital Finance Auth. 6.00 12/01/2034 15,876
----------
MISSISSIPPI (0.3%)
2,170 Hospital Equipment and Facilities Auth. 1.40 9/01/2018 2,170
14,000 Hospital Equipment and Facilities Auth. 1.40 9/01/2022 14,000
----------
16,170
----------
NEW JERSEY (0.4%)
20,000 Transportation Trust Fund Auth. 2.04(i) 6/15/2034 19,221
----------
NEW MEXICO (0.9%)
10,000 Farmington 4.75 6/01/2040 10,236
20,000 Farmington 5.20 6/01/2040 22,495
12,000 Farmington Pollution Control 1.88 4/01/2033 12,023
----------
44,754
----------
OHIO (0.6%)
30,000 Ohio Water Dev. Auth. 4.00 12/01/2033 27,912
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA (0.6%)
$ 8,800 Beaver County IDA 2.70% 4/01/2035 $ 8,389
11,000 Berks County Municipal Auth. 2.34(i) 11/01/2039 11,085
8,750 Economic Dev. Financing Auth. 2.55 11/01/2041 8,517
----------
27,991
----------
TEXAS (0.3%)
14,935 San Antonio Housing Trust Finance Corp. (NBGA) 3.50 4/01/2043 15,845
----------
Total Put Bonds (cost: $327,182) 332,890
----------
ADJUSTABLE-RATE NOTES (0.4%)
NEW JERSEY (0.4%)
10,000 EDA 2.39 9/01/2027 9,178
10,000 EDA 2.44 3/01/2028 9,114
----------
Total Adjustable-Rate Notes (cost: $20,000) 18,292
----------
VARIABLE-RATE DEMAND NOTES (8.3%)
ARIZONA (0.4%)
20,000 Phoenix IDA (LIQ) (LOC - Barclays Bank PLC)(a) 1.03 6/01/2036 20,000
----------
CALIFORNIA (0.5%)
2,300 Infrastructure and Economic Dev. Bank
(LOC - California Bank & Trust) 1.04 10/01/2028 2,300
5,780 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 5,780
10,985 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 10,985
4,815 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.49 5/01/2040 4,815
----------
23,880
----------
COLORADO (0.3%)
13,015 Health Facilities Auth. (LIQ)(a) 1.04 10/01/2034 13,015
----------
CONNECTICUT (0.1%)
5,000 State (j) 0.92 7/01/2017 5,000
----------
DISTRICT OF COLUMBIA (0.4%)
20,560 District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.11 10/01/2041 20,560
----------
FLORIDA (0.9%)
29,500 Escambia County 0.92 4/01/2039 29,500
8,000 Martin County 0.88 7/15/2022 8,000
3,400 Putnam County Dev. Auth. 0.88 9/01/2024 3,400
----------
40,900
----------
================================================================================
42 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
GEORGIA (0.1%)
$ 1,100 Appling County Dev. Auth. 0.93% 9/01/2029 $ 1,100
6,000 Appling County Dev. Auth. 0.93 9/01/2041 6,000
----------
7,100
----------
IDAHO (0.2%)
10,155 Housing and Finance Association(j) 1.03 1/01/2038 10,155
----------
ILLINOIS (1.1%)
7,000 Chicago Board of Education (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.36 12/01/2039 7,000
13,800 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.07 7/01/2033 13,800
29,495 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.17 2/01/2039 29,495
----------
50,295
----------
KENTUCKY (0.1%)
5,000 Economic Dev. Finance Auth. (INS) (LIQ)(a) 1.04 1/04/2018 5,000
----------
LOUISIANA (1.4%)
1,000 Public Facilities Auth. 0.83 12/01/2043 1,000
35,100 St. James Parish 1.02 11/01/2040 35,100
30,000 St. James Parish 1.02 11/01/2040 30,000
----------
66,100
----------
MISSISSIPPI (0.1%)
5,000 Perry County Pollution Control (NBGA)(a) 0.94 2/01/2022 5,000
----------
OKLAHOMA (0.2%)
8,300 Garfield County Industrial Auth. 0.84 1/01/2025 8,300
----------
PENNSYLVANIA (0.3%)
15,200 Emmaus General Auth. (INS) (LIQ) 0.88 12/01/2028 15,200
----------
SOUTH CAROLINA (0.0%)
1,545 Jobs EDA (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.03 11/01/2029 1,545
----------
TENNESSEE (0.6%)
30,000 Chattanooga Health, Educational and Housing
Facilities Board 0.98 5/01/2039 30,000
----------
TEXAS (1.2%)
12,000 Port of Port Arthur Navigation District 0.93 12/01/2039 12,000
3,100 Port of Port Arthur Navigation District 0.94 12/01/2039 3,100
5,100 Port of Port Arthur Navigation District 0.94 12/01/2039 5,100
23,900 Port of Port Arthur Navigation District 0.93 11/01/2040 23,900
1,300 Port of Port Arthur Navigation District 0.94 11/01/2040 1,300
9,800 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 1.24 6/01/2038 9,800
----------
55,200
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------
WYOMING (0.4%)
$17,700 Gillette 0.93% 1/01/2018 $ 17,700
----------
Total Variable-Rate Demand Notes (cost: $394,950) 394,950
----------
TOTAL INVESTMENTS (COST: $4,496,166) $4,740,325
==========
-------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $3,982,081 $12,112 $3,994,193
Put Bonds - 332,890 - 332,890
Adjustable-Rate Notes - 18,292 - 18,292
Variable-Rate Demand Notes - 394,950 - 394,950
-------------------------------------------------------------------------------------------------------------------
Total $- $4,728,213 $12,112 $4,740,325
-------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications.
-------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS
-------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2016 $12,117
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (5)
-------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2016 $12,112
-------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
44 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(b) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(c) At September 30, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at September 30, 2016, was $13,010,000, which represented 0.3% of the
Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
(e) 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.
(f) At September 30, 2016, the aggregate market value of securities
purchased on a delayed-delivery basis was $27,270,000, which included
when-issued securities of $24,110,000.
(g) At September 30, 2016, the issuer was in default with respect to
portions of interest and/or principal payments.
(h) At September 30, 2016, the issuer was in default with respect to
interest and/or principal payments.
(i) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2016.
(j) 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.
================================================================================
46 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $4,496,166) $4,740,325
Receivables:
Capital shares sold 3,504
USAA Asset Management Company (Note 6C) 5
Interest 50,411
----------
Total assets 4,794,245
----------
LIABILITIES
Payables:
Securities purchased 43,394
Capital shares redeemed 3,257
Dividends on capital shares 1,954
Bank overdraft 138
Accrued management fees 1,251
Accrued transfer agent's fees 74
Other accrued expenses and payables 126
----------
Total liabilities 50,194
----------
Net assets applicable to capital shares outstanding $4,744,051
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,533,872
Overdistribution of net investment income (16)
Accumulated net realized loss on investments (33,964)
Net unrealized appreciation of investments 244,159
----------
Net assets applicable to capital shares outstanding $4,744,051
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $4,694,936/342,582 capital shares
outstanding, no par value) $ 13.70
==========
Adviser Shares (net assets of $49,115/3,584 capital shares
outstanding, no par value) $ 13.70
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 47
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $81,815
-------
EXPENSES
Management fees 7,339
Administration and servicing fees:
Fund Shares 3,428
Adviser Shares 34
Transfer agent's fees:
Fund Shares 745
Adviser Shares 15
Distribution and service fees (Note 6E):
Adviser Shares 57
Custody and accounting fees:
Fund Shares 253
Adviser Shares 3
Postage:
Fund Shares 33
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 25
Trustees' fees 15
Registration fees:
Fund Shares 83
Adviser Shares 15
Professional fees 209
Other 26
-------
Total expenses 12,281
Expenses reimbursed:
Adviser Shares (13)
-------
Net expenses 12,268
-------
NET INVESTMENT INCOME 69,547
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss (895)
Change in net unrealized appreciation/(depreciation) 29,532
-------
Net realized and unrealized gain 28,637
-------
Increase in net assets resulting from operations $98,184
=======
See accompanying notes to financial statements.
================================================================================
48 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
--------------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 69,547 $ 131,923
Net realized loss on investments (895) (4,699)
Change in net unrealized appreciation/(depreciation)
of investments 29,532 14,350
---------------------------
Increase in net assets resulting from operations 98,184 141,574
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (69,034) (130,732)
Adviser Shares (631) (1,102)
---------------------------
Distributions to shareholders (69,665) (131,834)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 334,316 428,201
Adviser Shares 6,802 5,143
---------------------------
Total net increase in net assets from capital
share transactions 341,118 433,344
---------------------------
Net increase in net assets 369,637 443,084
NET ASSETS
Beginning of period 4,374,414 3,931,330
---------------------------
End of period $4,744,051 $4,374,414
===========================
Undistributed (overdistribution of) net investment income:
End of period $ (16) $ 102
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 49
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. 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' 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 all 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
================================================================================
50 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
Board oversight, the Committee administers and oversees the Fund's
valuation policies and procedures, which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a
wide variety of sources and information to establish and adjust the fair
value of securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. 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 value a security when, in the
Service's judgment, these prices are readily available and are
representative of the security's market value. For many securities,
such prices are not readily available. The Service generally prices
those securities based on methods which include consideration of yields
or prices of securities of comparable quality, coupon, maturity, and
type; indications as to values from dealers in securities; and general
market conditions. Generally, debt securities are
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
categorized in Level 2 of the fair value hierarchy; however, to the
extent the valuations include significant unobservable inputs, the
securities would be categorized in Level 3.
2. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
3. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, 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.
================================================================================
52 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 indexes.
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.
The valuation of securities falling in the Level 3 category are primarily
supported by the value derived based upon the use of inputs such as real
property appraisals and other relevant information related to the
securities. 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums
and discounts are amortized over the life of the respective securities,
using the effective yield method for long-term securities and the straight-
line method for short-term securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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, 2016, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were
$27,224,000; which included when-issued securities of $24,033,000.
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, 2016, custodian and other bank credits reduced
the Fund's expenses by less than $500.
G. REDEMPTION FEES - All shares classes held in the Fund less than 60 days
are subject to a redemption fee equal to 1.00% of the proceeds of the
redeemed or exchanged shares. All redemption fees paid will be accounted
for by the Fund as an addition to paid in capital. For the six-month
period ended September 30, 2016, the Fund Shares did not charge any
redemption fees and the Adviser Shares charged redemption fees which were
less than $500.
H. 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.
================================================================================
54 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that may affect the reported amounts in
the financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $15,000, which represents 6.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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 income taxes.
At March 31, 2016, the Fund had net capital loss carryforwards of $32,998,000,
for federal income tax purposes, as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $ 7,461,000
Long-Term 25,537,000
-----------
Total $32,998,000
===========
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$536,900,000 and $265,901,000, respectively.
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $276,329,000 and $32,170,000, respectively, resulting in net
unrealized appreciation of $244,159,000.
================================================================================
56 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016
-----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 39,421 $ 541,947 59,717 $ 806,744
Shares issued from
reinvested dividends 4,368 60,071 8,344 112,490
Shares redeemed (19,481) (267,702) (36,459) (491,033)
------------------------------------------------
Net increase from capital
share transactions 24,308 $ 334,316 31,602 $ 428,201
================================================
ADVISER SHARES:
Shares sold 980 $ 13,481 1,105 $ 14,935
Shares issued from
reinvested dividends 37 508 65 869
Shares redeemed* (523) (7,187) (793) (10,661)
------------------------------------------------
Net increase from capital
share transactions 494 $ 6,802 377 $ 5,143
================================================
*Net of redemption fees, if any.
(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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
The performance adjustment is calculated separately for each share class
on a monthly basis by comparing each class' performance over the
performance period to that of the Lipper Intermediate Municipal Debt Funds
Index. The Lipper Intermediate Municipal Debt Funds Index tracks the total
return performance of Funds that invest in municipal debt issues with
dollar-weighted average maturities of five to ten years. 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1) Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are
calculated over a rolling 36-month period.
Each class' 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, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $7,339,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$870,000 and $5,000, respectively. For the Fund
================================================================================
58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
Shares and Adviser Shares, the performance adjustments were 0.04% and 0.02%,
respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2016, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $3,428,000 and $34,000, 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, 2016, the Fund reimbursed the
Manager $64,000 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, 2017, 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 to 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, 2017, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended September 30, 2016, the Adviser
Shares incurred reimbursable expenses of $13,000, 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 Shares and Adviser Shares 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
intermediaries. For the six-month period ended September 30, 2016, the Fund
Shares and Adviser Shares incurred transfer agent's fees, paid or payable to
SAS, of $745,000 and $15,000, 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
(IMCO), the distributor, for distribution and shareholder services. IMCO
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, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $57,000.
F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
receives no fee or other compensation for these services, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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,
2016, USAA and its affiliates owned 378,000 Adviser Shares, which represents
10.5% of the Adviser Shares outstanding and 0.1% of the Fund's total outstanding
shares.
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.
================================================================================
60 | 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,
------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.61 $ 13.59 $ 13.36 $ 13.75 $ 13.41 $ 12.56
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .44 .45 .50 .50 .54
Net realized and
unrealized gain (loss) .09 .02 .23 (.39) .34 .85
------------------------------------------------------------------------------------
Total from investment
operations .30 .46 .68 .11 .84 1.39
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.44) (.45) (.50) (.50) (.54)
Realized capital gains - - - - - (.00)(a)
------------------------------------------------------------------------------------
Total distributions (.21) (.44) (.45) (.50) (.50) (.54)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.70 $ 13.61 $ 13.59 $ 13.36 $ 13.75 $ 13.41
====================================================================================
Total return (%)* 2.19 3.48 5.14 .85 6.31 11.25
Net assets at end
of period (000) $4,694,936 $4,332,360 $3,894,482 $3,381,571 $3,387,366 $3,231,474
Ratios to average
net assets:**
Expenses (%)(b) .53(c) .54 .55 .55 .54 .54
Net investment
income (%) 3.01(c) 3.28 3.31 3.72 3.63 4.11
Portfolio turnover (%) 6 10 4 10 11 13
* 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, 2016, average net assets were
$4,561,765,000.
(a) Represents less than $0.01 per share.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
--------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.61 $ 13.58 $ 13.36 $ 13.75 $13.41 $12.56
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .41 .42 .47 .47 .51
Net realized and
unrealized gain (loss) .09 .03 .22 (.39) .34 .85
--------------------------------------------------------------------------------
Total from investment
operations .28 .44 .64 .08 .81 1.36
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.41) (.42) (.47) (.47) (.51)
Realized capital gains - - - - - (.00)(a)
--------------------------------------------------------------------------------
Total distributions (.19) (.41) (.42) (.47) (.47) (.51)
--------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(a) .00(a) - - - -
--------------------------------------------------------------------------------
Net asset value at
end of period $ 13.70 $ 13.61 $ 13.58 $ 13.36 $13.75 $13.41
================================================================================
Total return (%)* 2.06 3.28 4.81 .64 6.10 11.03
Net assets at end
of period (000) $49,115 $42,054 $36,848 $20,166 $7,451 $5,843
Ratios to average
net assets:**
Expenses (%)(b) .80(d) .80 .79(c) .75 .75 .75
Expenses, excluding
reimbursements (%)(b) .86(d) .88 .88 .96 1.14 1.38
Net investment
income (%) 2.74(d) 3.02 3.06 3.51 3.41 3.90
Portfolio turnover (%) 6 10 4 10 11 13
* 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, 2016, average net assets were
$45,898,000.
(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) 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%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
62 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (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, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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
================================================================================
EXPENSE EXAMPLE | 63
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,021.90 $2.69
Hypothetical
(5% return before expenses) 1,000.00 1,022.41 2.69
ADVISER SHARES
Actual 1,000.00 1,020.60 4.05
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.53% for Fund Shares
and 0.80% for Adviser Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account values are based on its actual
total returns of 2.19% for Fund Shares and 2.06% for Adviser Shares for the
six-month period of April 1, 2016, through September 30, 2016.
================================================================================
64 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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) | 65
================================================================================
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 role
in coordinating the activities of the Fund's other service providers also
================================================================================
66 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes all no-load retail open-end investment
companies with same investment classifications/objectives as the Fund regardless
of asset size, excluding outliers (the "expense universe"). Among other data,
the Board noted that the Fund's management fee rate - which includes advisory
and administrative services and the effects of any performance adjustment - was
above the median of its expense group and its expense universe. The data
indicated that the Fund's total expense ratio was below the median of its
expense group and above the median of its expense universe. The Board took into
account the various services provided to the Fund by the Manager and its
affiliates, including the high quality of services provided by the Manager. The
Board also took into account management's discussion of the Fund's
================================================================================
ADVISORY AGREEMENT(S) | 67
================================================================================
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 equal to its Lipper index for the one-year
period ended December 31, 2015 and was above the average of its performance
universe and its Lipper index for the three-, five-, and ten-year periods ended
December 31, 2015. The Board also noted that the Fund's percentile performance
ranking was in the top 35% of its performance universe for the one-year period
ended December 31, 2015, was in the top 10% of its performance universe for the
three- and ten-year periods ended December 31, 2015, and was in the top 15% of
its performance universe for the five-year period ended December 31, 2015.
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
================================================================================
68 | 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) | 69
================================================================================
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 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39594-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT LONG-TERM FUND]
==============================================================
SEMIANNUAL REPORT
USAA TAX EXEMPT LONG-TERM FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate
increases were on tap for 2016. However, policymakers backed off that forecast
in March 2016, just before the reporting period began, indicating that only two
interest rate increases were on the table. They pointed to the global market
turmoil during the first six weeks of 2016 as a contributing factor.
Policymakers subsequently hinted there would be a single interest rate
increase, but ultimately left interest rates unchanged. In our view, December
2016 is the Fed's only remaining window of opportunity to increase short-term
interest rates. It is unlikely to act at its November 2016 meeting, which is
just days before the presidential election. We believe that as of this writing,
the futures market, which generally is a proxy for investor sentiment,
indicates approximately a two-thirds chance that the Fed would raise rates in
December 2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower
for longer than many market participants expect. Currently, there is no urgency
for the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a
few years ago, municipal governments have been reluctant to take on additional
debt. We believe eventually this will change, but likely not for the
foreseeable future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a
financial advisor. We are committed to helping you meet your financial
objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 34
Financial Statements 36
Notes to Financial Statements 39
EXPENSE EXAMPLE 52
ADVISORY AGREEMENT(S) 54
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2016, USAA. All rights reserved.
211741-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST
INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in investment-grade securities, the interest from
which is exempt from federal income tax. During normal market conditions, at
least 80% of the Fund's net assets will consist of tax-exempt securities. The
Fund's dollar-weighted average portfolio maturity is 10 years or more.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF JOHN C. BONNELL] [PHOTO OF DALE R. HOFFMANN]
JOHN C. BONNELL, CFA DALE R. HOFFMANN
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period ended
September 30, 2016, as demand for municipal securities outweighed the amount
of available supply. Although new issuance picked up, it remained low by
historical standards. Furthermore, it was dominated by refunding bonds
rather than new issues. In a bond refunding, issuers call existing
high-interest bonds and replace them with new bonds that have lower coupon
rates. Meanwhile, as demand for municipal bonds increased, municipal bond
mutual funds also received positive investment inflows every week of the
reporting period. Investors continued to prefer municipal securities for
their tax-advantaged status as well as their relative stability.
Municipal bonds also benefited from the performance of the U.S. Treasury
market, which the tax-exempt bond market generally follows over time.
Longer-term U.S. Treasury securities rallied on strong demand, especially
from foreign investors who favored U.S. Treasuries because of their
relatively higher yields compared to the government bonds of other developed
countries. As U.S. Treasury prices rose, their yields (which move in the
opposite direction) fell. During the reporting period, the yield on a
30-year U.S. Treasury security dropped from 2.61% as of 3/31/16 to 2.32% as
of 9/30/16.
Municipal credit quality remained strong as state and local governments
continued to practice sound fiscal management and generally maintained
healthy reserves. State and local revenues rose, though at a more moderate
================================================================================
2 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
pace than in the recent past. Numerous issuers also took steps to address
their pension risks, in some cases proposing tax increases to deal with
potential pension-funding shortfalls. Unlike corporate issuers, many state
and municipal governments have broad taxing powers and are required by law
to balance their budgets.
o HOW DID THE USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
reporting period ended September 30, 2016, the Fund Shares and Adviser
Shares had a total return of 2.53% and 2.37%, respectively, versus an
average return 2.48% amongst the funds in the Lipper General & Insured
Municipal Debt Funds category. This compares to returns of 2.78% for the
Lipper General & Insured Municipal Debt Funds Index and 2.30% for the
Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser
Shares' tax-exempt distributions over the prior 12 months produced a
dividend yield of 4.09% and 3.79%, respectively, compared to the Lipper
category average of 2.87%.
USAA Asset Management Company (the Manager) 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. Over the long-term, the Fund's
income distribution, not its price appreciation, accounts for most of its
total return . Due to our income orientation, the Fund generally invests in
bonds in the BBB and A rated categories.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's
benchmark is now called the Bloomberg Barclays Municipal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
During the reporting period, the Fund continued to benefit from our
independent research. In our efforts to find attractive opportunities, we
continued to work with our in-house team of analysts to select investments
for the Fund on a bond-by-bond basis. Each security is researched, using
fundamental analysis that emphasizes an issuer's ability and willingness to
repay its debt. Through our research, we seek both to recognize value and
avoid potential risks.
The Fund continued to maintain a diversified portfolio of more than 400
longer-term, primarily investment-grade municipal bonds, which are
continuously monitored by our team of analysts. The Fund is diversified by
sector, issuer, and geography, limiting its exposure to an unexpected event.
We also avoid bonds subject to the federal alternative minimum tax for
individuals.
Thank you for allowing us to help you with your investment needs.
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 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.
================================================================================
4 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
INVESTMENT OVERVIEW
USAA TAX EXEMPT LONG-TERM FUND SHARES (FUND SHARES)
(Ticker Symbol: USTEX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $2.5 Billion $2.4 Billion
Net Asset Value Per Share $13.80 $13.73
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.565 $0.578
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 15.4 Years 15.1 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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16 - 9/30/16* 1 YEAR 5 YEARS 10 YEARS
2.53% 5.71% 5.37% 4.64%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
1.83% 0.51%
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
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, 2016, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS
ENDED SEPTEMBER 30, 2016
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 4.64% = 4.65% + -0.01%
5 YEARS 5.37% = 4.25% + 1.12%
1 YEAR 5.71% = 4.24% + 1.47%
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, 2007-SEPTEMBER 30, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN
RETURN RETURN SHARE PRICE
9/30/2007 1.88% 4.46% -2.58%
9/30/2008 -5.63% 4.55% -10.18%
9/30/2009 14.62% 6.29% 8.33%
9/30/2010 6.30% 5.07% 1.23%
9/30/2011 3.49% 4.90% -1.41%
9/30/2012 11.04% 4.49% 6.55%
9/30/2013 -2.03% 3.79% -5.82%
9/30/2014 9.27% 4.54% 4.73%
9/30/2015 3.36% 4.23% -0.87%
9/30/2016 5.71% 4.24% 1.47%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO
PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS
VOLATILE THAN SHARE PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
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 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 (including capital gain distributions), redemptions of shares, or
reinvested net investment income.
================================================================================
6 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/16, 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
--------------------------------------------------------------------------------
10 Years 4.65% 6.46% 7.36% 7.60% 8.22%
5 Years 4.25% 5.90% 6.72% 6.94% 7.51%
1 Year 4.24% 5.89% 6.71% 6.93% 7.49%
To match the Fund Shares' closing 30-day SEC Yield of 1.83%, on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 2.54% 2.90% 2.99% 3.23%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA
family of funds. Taxable equivalent returns or yields will vary depending on
applicable tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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 | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA TAX EXEMPT LIPPER GENERAL & INSURED
BARCLAYS MUNICIPAL LONG-TERM MUNICIPAL DEBT
BOND INDEX FUND SHARES FUNDS INDEX
09/30/06 $10,000.00 $10,000.00 $10,000.00
10/31/06 10,062.71 10,071.00 10,064.88
11/30/06 10,146.59 10,179.00 10,149.19
12/31/06 10,110.74 10,124.00 10,112.56
01/31/07 10,084.85 10,101.00 10,092.51
02/28/07 10,217.74 10,233.00 10,213.28
03/31/07 10,192.55 10,199.00 10,187.30
04/30/07 10,222.72 10,228.00 10,218.90
05/31/07 10,177.46 10,178.00 10,175.25
06/30/07 10,124.72 10,114.00 10,118.74
07/31/07 10,203.21 10,151.00 10,167.62
08/31/07 10,159.19 9,994.00 10,070.62
09/30/07 10,309.52 10,187.00 10,214.14
10/31/07 10,355.47 10,227.00 10,243.86
11/30/07 10,421.50 10,232.00 10,261.18
12/31/07 10,450.43 10,186.00 10,252.43
01/31/08 10,582.21 10,308.00 10,374.07
02/29/08 10,097.73 9,695.00 9,844.31
03/31/08 10,386.34 9,996.00 10,106.60
04/30/08 10,507.88 10,169.00 10,241.99
05/31/08 10,571.41 10,267.00 10,320.05
06/30/08 10,452.09 10,145.00 10,181.81
07/31/08 10,491.82 10,086.00 10,171.58
08/31/08 10,614.60 10,185.00 10,266.56
09/30/08 10,116.83 9,613.00 9,722.10
10/31/08 10,013.57 9,177.00 9,426.38
11/30/08 10,045.40 9,083.00 9,317.10
12/31/08 10,191.86 8,909.00 9,283.25
01/31/09 10,564.91 9,381.00 9,721.18
02/28/09 10,620.41 9,459.00 9,817.31
03/31/09 10,622.35 9,463.00 9,783.24
04/30/09 10,834.56 9,753.00 10,063.36
05/31/09 10,949.17 10,069.00 10,294.94
06/30/09 10,846.60 9,982.00 10,189.98
07/31/09 11,028.07 10,154.00 10,350.84
08/31/09 11,216.61 10,405.00 10,614.00
09/30/09 11,619.14 11,018.00 11,154.30
10/31/09 11,375.24 10,773.00 10,865.58
11/30/09 11,469.23 10,784.00 10,898.65
12/31/09 11,507.99 10,877.00 11,000.68
01/31/10 11,567.92 10,943.00 11,054.80
02/28/10 11,680.05 11,039.00 11,159.07
03/31/10 11,652.09 11,033.00 11,167.08
04/30/10 11,793.69 11,176.00 11,313.68
05/31/10 11,882.15 11,244.00 11,373.31
06/30/10 11,889.21 11,238.00 11,359.44
07/31/10 12,037.46 11,381.00 11,494.26
08/31/10 12,313.06 11,678.00 11,787.86
09/30/10 12,293.82 11,712.00 11,797.57
10/31/10 12,259.77 11,677.00 11,772.72
11/30/10 12,014.62 11,324.00 11,447.62
12/31/10 11,781.79 11,027.00 11,183.41
01/31/11 11,695.00 10,856.00 11,043.81
02/28/11 11,881.18 11,055.00 11,221.93
03/31/11 11,841.59 11,012.00 11,180.21
04/30/11 12,053.65 11,223.00 11,367.38
05/31/11 12,259.63 11,496.00 11,610.16
06/30/11 12,302.40 11,588.00 11,689.08
07/31/11 12,427.95 11,744.00 11,812.98
08/31/11 12,640.57 11,881.00 11,971.70
09/30/11 12,771.24 12,124.00 12,151.66
10/31/11 12,723.76 12,092.00 12,113.89
11/30/11 12,798.93 12,155.00 12,163.69
12/31/11 13,042.41 12,405.00 12,408.72
01/31/12 13,344.04 12,803.00 12,798.01
02/29/12 13,357.19 12,848.00 12,836.25
03/31/12 13,270.40 12,808.00 12,776.17
04/30/12 13,423.49 12,956.00 12,941.13
05/31/12 13,534.92 13,104.00 13,077.96
06/30/12 13,520.39 13,120.00 13,072.52
07/31/12 13,734.67 13,325.00 13,322.44
08/31/12 13,750.31 13,382.00 13,358.51
09/30/12 13,833.37 13,459.00 13,449.10
10/31/12 13,872.40 13,541.00 13,513.81
11/30/12 14,100.94 13,792.00 13,793.76
12/31/12 13,926.66 13,620.00 13,588.64
01/31/13 13,984.66 13,729.00 13,679.12
02/28/13 14,027.02 13,773.00 13,721.33
03/31/13 13,966.53 13,717.00 13,646.37
04/30/13 14,119.63 13,879.00 13,809.53
05/31/13 13,947.15 13,738.00 13,636.07
06/30/13 13,552.23 13,223.00 13,131.31
07/31/13 13,433.74 13,071.00 12,957.75
08/31/13 13,242.02 12,841.00 12,724.80
09/30/13 13,527.03 13,185.00 13,029.10
10/31/13 13,633.90 13,283.00 13,131.11
11/30/13 13,605.80 13,252.00 13,097.87
12/31/13 13,571.05 13,240.00 13,066.31
01/31/14 13,835.44 13,616.00 13,370.69
02/28/14 13,997.67 13,776.00 13,550.83
03/31/14 14,021.21 13,831.00 13,601.92
04/30/14 14,189.67 14,026.00 13,786.65
05/31/14 14,372.39 14,191.00 14,004.13
06/30/14 14,384.85 14,220.00 14,001.66
07/31/14 14,410.18 14,250.00 14,027.86
08/31/14 14,584.73 14,353.00 14,210.09
09/30/14 14,599.54 14,408.00 14,270.01
10/31/14 14,699.62 14,516.00 14,366.46
11/30/14 14,725.09 14,531.00 14,388.27
12/31/14 14,799.29 14,635.00 14,493.26
01/31/15 15,061.60 14,887.00 14,755.44
02/28/15 14,906.29 14,744.00 14,605.30
03/31/15 14,949.34 14,771.00 14,656.00
04/30/15 14,870.85 14,704.00 14,576.78
05/31/15 14,829.74 14,680.00 14,532.76
06/30/15 14,816.31 14,667.00 14,500.87
07/31/15 14,923.59 14,789.00 14,594.87
08/31/15 14,952.94 14,816.00 14,627.68
09/30/15 15,061.18 14,891.00 14,723.89
10/31/15 15,121.12 14,940.00 14,796.42
11/30/15 15,181.20 15,012.00 14,871.58
12/31/15 15,287.92 15,124.00 14,989.29
01/31/16 15,470.36 15,248.00 15,126.95
02/29/16 15,494.59 15,267.00 15,135.72
03/31/16 15,543.73 15,353.00 15,220.88
04/30/16 15,658.07 15,464.00 15,335.84
05/31/16 15,700.42 15,538.00 15,407.49
06/30/16 15,950.14 15,759.00 15,663.77
07/31/16 15,959.83 15,754.00 15,666.03
08/31/16 15,981.42 15,793.00 15,709.06
09/30/16 15,901.69 15,746.00 15,644.37
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Tax Exempt Long-Term Fund Shares to the following benchmarks:
o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (Index)
tracks total return performance for the long-term, investment-grade,
tax-exempt bond market. All tax-exempt bond funds will find it difficult to
outperform the Index because the Index does not reflect any deduction for
fees, expenses, or taxes.
o The unmanaged Lipper General & Insured Municipal Debt Funds Index measures
the Fund's performance to that of the Lipper General & Insured Municipal
Debt Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
8 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX LIPPER GENERAL
EXEMPT LONG-TERM & INSURED MUNICIPAL
FUND SHARES DEBT FUNDS AVERAGE
09/30/07 4.60% 3.85%
09/30/08 5.35 4.29
09/30/09 5.06 4.01
09/30/10 4.76 3.84
09/30/11 4.66 3.91
09/30/12 4.01 3.37
09/30/13 4.12 3.26
09/30/14 4.17 3.22
09/30/15 4.22 3.14
09/30/16 4.09 2.87
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/07 to 9/30/16.
The Lipper General & Insured Municipal Debt Funds Average is an average
performance level of all general municipal debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA TAX EXEMPT LONG-TERM FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UTELX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $12.8 Million $11.2 Million
Net Asset Value Per Share $13.78 $13.71
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.522 $0.538
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16 - 9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.37% 5.39% 5.02% 5.06%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16
--------------------------------------------------------------------------------
UNSUBSIDIZED 1.30% SUBSIDIZED 1.49%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/16***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.90% 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
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, 2016, and is
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through August 1, 2017, 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, 2017.
If the total annual operating expense ratio of the Adviser Shares is lower than
0.80%, the Adviser Shares will operate at the lower expense ratio. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
10 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 1.49% on 09/30/16 and
assuming marginal
federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 2.07% 2.36% 2.43% 2.63%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA
family of funds. Taxable equivalent returns or yields will vary depending on
applicable tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 tax rates or rates in effect as of the
issuance of this report. The above marginal rates assume married, filing
jointly.
*The above marginal rates assume income exceeds $250,000 and investment income
is subject to the 3.80% medicare tax which is applied for income over a
specific level, depending on the federal income tax filing status.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER GENERAL USAA TAX BLOOMBERG
& INSURED MUNICIPAL EXEMPT LONG-TERM BARCLAYS
DEBT FUNDS FUND ADVISER MUNICIPAL BOND
INDEX SHARES INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,255.42 10,257.04 10,228.95
09/30/10 10,263.87 10,277.14 10,212.97
10/31/10 10,242.26 10,250.63 10,184.68
11/30/10 9,959.42 9,937.52 9,981.03
12/31/10 9,729.56 9,674.00 9,787.61
01/31/11 9,608.10 9,520.42 9,715.50
02/28/11 9,763.07 9,692.41 9,870.17
03/31/11 9,726.78 9,651.06 9,837.28
04/30/11 9,889.61 9,825.30 10,013.45
05/31/11 10,100.83 10,068.87 10,184.57
06/30/11 10,169.49 10,146.23 10,220.10
07/31/11 10,277.29 10,279.94 10,324.40
08/31/11 10,415.37 10,397.24 10,501.03
09/30/11 10,571.94 10,606.89 10,609.58
10/31/11 10,539.08 10,575.95 10,570.14
11/30/11 10,582.40 10,628.49 10,632.58
12/31/11 10,795.57 10,844.06 10,834.86
01/31/12 11,134.26 11,181.59 11,085.43
02/29/12 11,167.53 11,226.23 11,096.35
03/31/12 11,115.26 11,189.08 11,024.25
04/30/12 11,258.77 11,314.94 11,151.44
05/31/12 11,377.81 11,441.29 11,244.01
06/30/12 11,373.09 11,443.58 11,231.93
07/31/12 11,590.52 11,628.25 11,409.94
08/31/12 11,621.90 11,674.32 11,422.94
09/30/12 11,700.70 11,739.01 11,491.93
10/31/12 11,757.01 11,798.62 11,524.36
11/30/12 12,000.56 12,022.84 11,714.22
12/31/12 11,822.11 11,868.10 11,569.44
01/31/13 11,900.82 11,952.59 11,617.62
02/28/13 11,937.54 11,996.17 11,652.81
03/31/13 11,872.33 11,944.95 11,602.56
04/30/13 12,014.28 12,082.77 11,729.74
05/31/13 11,863.37 11,953.94 11,586.46
06/30/13 11,424.23 11,496.85 11,258.38
07/31/13 11,273.23 11,361.16 11,159.95
08/31/13 11,070.57 11,155.44 11,000.68
09/30/13 11,335.31 11,454.79 11,237.45
10/31/13 11,424.06 11,536.87 11,326.23
11/30/13 11,395.14 11,506.92 11,302.88
12/31/13 11,367.68 11,493.04 11,274.02
01/31/14 11,632.49 11,813.88 11,493.66
02/28/14 11,789.21 11,950.53 11,628.43
03/31/14 11,833.67 11,998.07 11,647.98
04/30/14 11,994.38 12,155.13 11,787.93
05/31/14 12,183.59 12,303.46 11,939.72
06/30/14 12,181.44 12,317.71 11,950.07
07/31/14 12,204.23 12,349.97 11,971.12
08/31/14 12,362.77 12,426.09 12,116.12
09/30/14 12,414.90 12,472.82 12,128.43
10/31/14 12,498.81 12,560.55 12,211.57
11/30/14 12,517.79 12,583.06 12,232.73
12/31/14 12,609.13 12,669.17 12,294.37
01/31/15 12,837.23 12,874.70 12,512.28
02/28/15 12,706.60 12,748.80 12,383.26
03/31/15 12,750.71 12,770.41 12,419.02
04/30/15 12,681.79 12,709.42 12,353.82
05/31/15 12,643.50 12,686.06 12,319.66
06/30/15 12,615.75 12,672.22 12,308.51
07/31/15 12,697.53 12,780.35 12,397.63
08/31/15 12,726.07 12,794.80 12,422.01
09/30/15 12,809.77 12,856.90 12,511.93
10/31/15 12,872.88 12,903.77 12,561.73
11/30/15 12,938.26 12,955.00 12,611.63
12/31/15 13,040.67 13,044.37 12,700.29
01/31/16 13,160.43 13,153.07 12,851.86
02/29/16 13,168.07 13,166.11 12,871.98
03/31/16 13,242.15 13,236.40 12,912.80
04/30/16 13,342.17 13,338.00 13,007.79
05/31/16 13,404.50 13,388.00 13,042.97
06/30/16 13,627.47 13,576.00 13,250.42
07/31/16 13,629.44 13,577.00 13,258.47
08/31/16 13,666.87 13,597.00 13,276.41
09/30/16 13,610.59 13,553.00 13,210.17
[END CHART]
Data from 7/31/10 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in
the USAA Tax Exempt Long-Term Fund Adviser Shares to the benchmarks listed
above (see page 8 for benchmark definitions).
*The performance of the Lipper General & Insured Municipal Debt Funds Index and
the Bloomberg Barclays Municipal Bond Index is calculated from the end of the
month, July 31, 2010, while the inception date of the Adviser Shares is August
1, 2010. There may be a slight variation of performance numbers because of this
difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
12 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER
USAA TAX GENERAL & INSURED
EXEMPT LONG-TERM FUND MUNICIPAL DEBT FUNDS
ADVISER SHARES AVERAGE
09/30/11 4.31% 3.91%
09/30/12 3.71 3.37
09/30/13 3.78 3.26
09/30/14 3.89 3.22
09/30/15 3.95 3.14
09/30/16 3.79 2.87
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/11 to 9/30/16.
The Lipper General & Insured Municipal Debt Funds Average is an average
performance level of all general municipal debt funds, reported by Lipper Inc.,
an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Hospital ................................................................ 19.3%
Education ............................................................... 11.9%
General Obligation ...................................................... 9.9%
Special Assessment/Tax/Fee .............................................. 8.9%
Escrowed Bonds .......................................................... 8.3%
Toll Roads .............................................................. 6.0%
Airport/Port ............................................................ 5.5%
Electric Utilities ...................................................... 5.4%
Nursing/CCRC ............................................................ 4.5%
Electric/Gas Utilities .................................................. 3.8%
You will find a complete list of securities that the Fund owns on pages 16-33.
================================================================================
14 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 3.5%
AA 36.8%
A 31.4%
BBB 19.4%
UNRATED 4.7%
BELOW INVESTMENT-GRADE 4.2%
[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 independent 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 and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated 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 16-33.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CCD Community College District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
================================================================================
16 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
IDC Industrial Development Corp.
ISD Independent School District
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
USD Unified School District
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
(INS) Principal and interest payments are insured by one of the
following: AMBAC Assurance Corp, Assured Guaranty Corp., Assured
Guaranty Municipal Corp, Build America Mutual Assurance Co., CIFG
Assurance, N.A., Federal Guaranty Insurance Corp., 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: Citigroup, Inc., Deutsche Bank A.G., or
JPMorgan Chase & Co.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages, are guaranteed by a nonbank guarantee
agreement from the Texas Permanent School Fund.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (93.3%)
ALABAMA (1.3%)
$ 4,245 Chatom IDB (INS) 5.00% 8/01/2037 $ 4,769
11,500 Lower Alabama Gas District 5.00 9/01/2046 15,225
1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 2,013
7,000 Port Auth. 6.00 10/01/2035 8,246
2,000 Selma IDB 5.80 5/01/2034 2,301
----------
32,554
----------
ARIZONA (2.3%)
5,000 Apache County IDA 4.50 3/01/2030 5,604
5,000 Goodyear 5.63 7/01/2039 5,791
6,000 Health Facilities Auth. 5.00 2/01/2042 6,708
7,000 Maricopa County 5.00 6/01/2035 7,830
1,600 Maricopa County IDA 5.00 7/01/2047 1,766
1,000 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2029 1,318
1,500 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2030 1,990
1,200 Phoenix IDA 5.00 7/01/2041 1,357
6,000 Phoenix IDA(a) 5.00 7/01/2044 6,695
3,000 Pima County IDA 4.00 9/01/2029 3,308
2,685 Pima County IDA 4.50 6/01/2030 3,023
3,000 Pima County IDA 5.25 10/01/2040 3,364
2,000 Yavapai County IDA 5.63 8/01/2033 2,108
7,500 Yavapai County IDA 5.63 8/01/2037 7,892
----------
58,754
----------
ARKANSAS (0.1%)
1,000 Dev. Finance Auth. (INS) 4.97(b) 7/01/2028 765
1,165 Dev. Finance Auth. (INS) 4.98(b) 7/01/2029 862
1,150 Dev. Finance Auth. (INS) 4.99(b) 7/01/2030 823
2,500 Dev. Finance Auth. (INS) 5.03(b) 7/01/2036 1,278
----------
3,728
----------
CALIFORNIA (9.7%)
1,000 Cerritos CCD 5.63(b) 8/01/2031 651
2,500 Cerritos CCD 5.67(b) 8/01/2032 1,571
2,175 Cerritos CCD 5.71(b) 8/01/2033 1,321
1,000 Cerritos CCD 5.76(b) 8/01/2034 586
1,500 Cerritos CCD 5.82(b) 8/01/2035 832
2,200 Cerritos CCD 5.88(b) 8/01/2036 1,175
8,500 Coachella Valley USD (INS) 5.95(b) 8/01/2041 3,508
================================================================================
18 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,700 Corona-Norco USD (INS) 5.50% 8/01/2039 $ 7,549
3,000 El Camino CCD 5.08(b) 8/01/2034 1,781
3,000 El Camino CCD 5.24(b) 8/01/2038 1,537
10,000 El Monte Union High School District (INS) 5.75(b) 6/01/2042 4,068
2,500 Escondido Union High School District (INS) 5.00 6/01/2037 2,800
2,410 Golden State Tobacco Securitization (INS) 4.55 6/01/2022 2,544
5,000 Golden State Tobacco Securitization (INS) 4.60 6/01/2023 5,283
2,000 Golden State Tobacco Securitization 5.00 6/01/2030 2,402
5,000 Indio Redevelopment Agency 5.25 8/15/2035 5,360
17,025 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 18,181
2,000 Jurupa Public Finance Auth. (INS) 5.00 9/01/2033 2,254
1,200 Los Alamitos USD, 5.95%, 8/01/2024 5.95(c) 8/01/2034 1,096
4,500 Los Alamitos USD, 6.05%, 8/01/2024 6.05(c) 8/01/2042 4,027
3,000 Monterey Peninsula USD (INS) 5.50 8/01/2034 3,591
15,000 Palomar Pomerado Health (INS) 5.13 8/01/2037 15,463
1,860 Paramount USD 6.82(b) 8/01/2034 1,032
2,000 Paramount USD 6.86(b) 8/01/2035 1,070
2,750 Paramount USD 6.88(b) 8/01/2036 1,416
2,750 Paramount USD 6.90(b) 8/01/2037 1,366
6,000 Pollution Control Financing Auth. 5.00 11/21/2045 6,170
2,500 Public Works Board 5.00 12/01/2029 2,951
2,000 Public Works Board (PRE)(d) 5.00 10/01/2030 2,391
2,950 Public Works Board 5.00 6/01/2031 3,549
1,110 Public Works Board (PRE)(d) 5.00 10/01/2031 1,327
2,000 Public Works Board 5.00 12/01/2031 2,355
3,500 Public Works Board 5.00 10/01/2039 4,193
2,560 Sacramento City Schools Joint Powers
Financing Auth. (INS) 5.00 3/01/2036 2,989
2,000 Sacramento City Schools Joint Powers
Financing Auth. (INS) 5.00 3/01/2040 2,328
2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 3,016
3,000 San Marcos Schools Financing Auth. (INS) 5.00 8/15/2040 3,384
13,605 San Ysidro School District (INS) 5.58(b) 8/01/2036 7,087
14,285 San Ysidro School District (INS) 5.64(b) 8/01/2037 7,186
15,000 Santa Ana USD (INS) 5.45(b) 4/01/2029 10,401
5,000 Southern California Public Power Auth. 5.00 7/01/2040 5,647
24,700 State 4.50 8/01/2030 24,985
5,000 State 5.75 4/01/2031 5,583
3,695 State (PRE) 5.00 11/01/2032 3,866
2,305 State 5.00 11/01/2032 2,405
5,000 State (PRE) 5.00 12/01/2032 5,250
8,000 State 5.25 4/01/2035 9,598
6,750 State 5.00 2/01/2038 7,993
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 8,000 State 4.00% 9/01/2046 $ 8,907
8,885 Stockton USD (INS) 7.33(b) 8/01/2034 4,800
2,500 Victor Elementary School District (INS) (PRE) 5.13 8/01/2034 2,800
5,180 Washington Township Health Care Dist. 5.25 7/01/2030 5,763
5,000 Washington Township Health Care Dist. 5.50 7/01/2038 5,558
----------
244,946
----------
COLORADO (2.2%)
3,500 Denver Convention Center Hotel Auth. (INS) 4.75 12/01/2035 3,506
15,765 Denver Health and Hospital Auth. 4.75 12/01/2034 15,837
2,000 E-470 Public Highway Auth. 5.38 9/01/2026 2,254
10,000 E-470 Public Highway Auth. (INS) 5.06(b) 9/01/2035 4,488
2,500 Educational and Cultural Facilities Auth. 5.25 4/01/2043 2,909
1,310 Health Facilities Auth. 5.00 6/01/2029 1,314
865 Health Facilities Auth. 5.25 6/01/2031 867
2,000 Health Facilities Auth. 5.00 6/01/2035 2,005
720 Health Facilities Auth. 5.25 6/01/2036 722
5,000 Health Facilities Auth. 5.00 12/01/2042 5,505
6,000 Health Facilities Auth. 5.00 6/01/2045 6,780
1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,154
5,000 Regional Transportation District 5.00 6/01/2044 5,743
2,000 Vista Ridge Metropolitan District (INS) 5.00 12/01/2036 2,004
----------
55,088
----------
CONNECTICUT (0.3%)
2,500 Health and Educational Facilities Auth. (INS) 5.13 7/01/2030 2,505
2,000 Health and Educational Facilities Auth. 5.00 7/01/2035 2,242
51,295 Mashantucket (Western) Pequot Tribe(e),(f) 6.05 7/01/2031 2,001
----------
6,748
----------
DELAWARE (0.2%)
4,000 EDA 5.40 2/01/2031 4,480
----------
DISTRICT OF COLUMBIA (2.1%)
1,305 District of Columbia 5.00 7/01/2036 1,444
1,500 District of Columbia 5.00 7/01/2042 1,670
1,700 District of Columbia 6.00 7/01/2043 2,053
1,450 District of Columbia 6.00 7/01/2048 1,747
7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 8,108
5,000 Metropolitan Washington Airports Auth. 5.00 10/01/2039 5,677
10,000 Metropolitan Washington Airports Auth. 5.63 10/01/2039 10,865
10,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 11,309
10,000 Washington Convention & Sports Auth. 5.00 10/01/2040 11,254
----------
54,127
----------
================================================================================
20 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FLORIDA (9.4%)
$ 7,000 Atlantic Beach Health Care Facilities Auth. 5.63% 11/15/2043 $ 8,124
2,000 Brevard County Health Facilities Auth. (PRE) 7.00 4/01/2039 2,302
20,000 Brevard County School Board (INS) (PRE) 5.00 7/01/2032 20,636
1,500 Broward County (PRE) 5.25 10/01/2034 1,630
350 Broward County School Board (INS) (PRE) 5.25 7/01/2027 391
10,000 Broward County School Board (INS) (PRE) 5.00 7/01/2032 10,321
2,000 Clearwater 5.25 12/01/2039 2,232
5,675 Department of Children and Family Services 5.00 10/01/2025 5,695
1,500 Escambia County 6.25 11/01/2033 1,725
1,000 Escambia County Housing Finance Auth. (INS) 5.75 6/01/2031 1,110
3,950 Gainesville 5.25 10/01/2034 4,540
3,000 Halifax Hospital Medical Center 5.00 6/01/2046 3,481
1,000 Hialeah Gardens Health Care Facilities Auth.
(LOC - SunTrust Bank) (PRE) 5.00 8/15/2037 1,036
600 Higher Educational Facility Auth. 5.00 4/01/2032 679
1,500 Higher Educational Facility Auth. 5.25 4/01/2042 1,701
2,270 Jacksonville 5.00 10/01/2029 2,649
500 Lakeland Educational Facility 5.00 9/01/2037 565
1,000 Lakeland Educational Facility 5.00 9/01/2042 1,128
4,000 Lee County IDA 5.75 10/01/2042 4,377
5,000 Lee County IDA 5.50 10/01/2047 5,429
1,500 Miami (INS) 5.00 10/01/2034 1,648
13,125 Miami (INS) 5.25 7/01/2035 14,604
4,000 Miami (INS) 5.25 7/01/2039 4,451
2,000 Miami Beach 5.00 9/01/2040 2,246
525 Miami-Dade County (PRE) 5.00 10/01/2029 607
6,350 Miami-Dade County 5.00 10/01/2029 7,253
3,950 Miami-Dade County 5.00 10/01/2034 4,493
23,205 Miami-Dade County 5.38 10/01/2035 26,508
5,000 Miami-Dade County 5.00 7/01/2039 5,868
5,000 Miami-Dade County 5.00 7/01/2040 5,637
1,750 Miami-Dade County 5.00 10/01/2043 1,999
5,000 Miami-Dade County School Board (INS) (PRE) 5.25 2/01/2027 5,502
5,000 Miami-Dade County School Board (INS) (PRE) 5.00 5/01/2033 5,327
2,500 Municipal Loan Council (INS) 5.25 10/01/2033 2,923
5,000 Orange County (INS) 5.00 10/01/2031 5,001
3,000 Orange County Health Facilities Auth. (PRE) 5.25 10/01/2035 3,258
1,500 Orange County Health Facilities Auth. 4.00 10/01/2045 1,603
5,000 Orange County School Board (INS) (PRE) 5.00 8/01/2032 5,174
10,000 Orange County School Board (INS) (PRE) 5.50 8/01/2034 11,283
6,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 6,727
2,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 2,242
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 155 Palm Beach County Solid Waste Auth. (PRE) 5.00% 10/01/2031 $ 184
9,845 Palm Beach County Solid Waste Auth. 5.00 10/01/2031 11,521
1,000 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,129
1,000 Pinellas County Educational Facilities Auth. 5.25 10/01/2030 1,130
3,650 Pinellas County Educational Facilities Auth.(d) 6.00 10/01/2041 4,247
1,000 Sarasota County Public Hospital District 5.63 7/01/2039 1,103
3,000 St. Petersburg Health Facilities Auth. (PRE) 6.50 11/15/2039 3,509
2,200 Tampa Housing Auth. 4.85 7/01/2036 2,204
3,050 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2042 3,502
2,350 Volusia County Educational Facilities Auth. (INS)(d) 5.00 10/15/2029 2,706
2,000 Volusia County Educational Facilities Auth. 5.00 10/15/2045 2,298
----------
237,638
----------
GEORGIA (1.5%)
3,500 Atlanta Airport 5.00 1/01/2035 3,892
10,000 Burke County Dev. Auth. 7.00 1/01/2023 10,702
4,000 Dahlonega Downtown Dev. Auth. (INS) 5.00 7/01/2040 4,485
3,600 Glynn-Brunswick Memorial Hospital Auth. (PRE) 5.63 8/01/2034 3,910
400 Glynn-Brunswick Memorial Hospital Auth. 5.63 8/01/2034 430
1,600 Private Colleges & Universities Auth. 5.00 10/01/2032 1,808
10,000 Savannah EDA 6.15 3/01/2017 10,182
1,000 Thomasville Hospital Auth. 5.25 11/01/2035 1,140
1,250 Thomasville Hospital Auth. 5.38 11/01/2040 1,429
----------
37,978
----------
HAWAII (0.3%)
6,000 Department of Budget and Finance 6.50 7/01/2039 6,762
----------
IDAHO (0.1%)
1,500 Health Facilities Auth. (INS) 5.00 7/01/2035 1,673
----------
ILLINOIS (12.6%)
520 Chicago (INS) 5.25 1/01/2029 522
4,020 Chicago 6.75 12/01/2032 4,036
3,000 Chicago 5.00 1/01/2039 3,410
4,000 Chicago 5.00 1/01/2044 4,474
3,000 Chicago 5.00 11/01/2044 3,398
6,000 Chicago-Midway Airport 5.00 1/01/2046 7,064
5,000 Chicago-O'Hare International Airport 5.75 1/01/2039 5,818
5,000 Chicago-O'Hare International Airport 5.75 1/01/2043 5,906
2,000 Finance Auth. 5.00 4/01/2026 2,001
5,000 Finance Auth. 5.50 8/15/2028 5,386
2,500 Finance Auth. (INS) (PRE) 5.75 11/01/2028 2,752
14,000 Finance Auth. 3.90 3/01/2030 15,225
5,000 Finance Auth. (PRE) 7.25 11/01/2030 5,659
4,500 Finance Auth. 5.00 4/01/2031 4,501
================================================================================
22 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 7,065 Finance Auth. 5.50% 4/01/2032 $ 7,132
8,000 Finance Auth. (PRE) 6.00 10/01/2032 9,753
13,275 Finance Auth. 4.50 11/15/2032 13,338
6,000 Finance Auth. 4.00 2/01/2033 6,473
5,000 Finance Auth. (PRE) 5.75 10/01/2035 5,482
7,000 Finance Auth. 5.00 4/01/2036 7,000
2,000 Finance Auth. 4.00 3/01/2038 2,149
5,000 Finance Auth. 4.00 7/01/2038 5,335
20,000 Finance Auth. 5.38 8/15/2039 21,339
1,205 Finance Auth. 5.25 10/01/2039 1,283
12,395 Finance Auth. 4.00 10/01/2040 13,359
11,000 Finance Auth. 4.00 2/15/2041 10,991
5,000 Finance Auth. 6.00 7/01/2043 6,065
2,000 Finance Auth. 5.00 8/15/2044 2,280
4,500 Finance Auth. 4.00 12/01/2046 4,715
2,500 Housing Dev. Auth. 4.85 1/01/2037 2,508
935 Metropolitan Pier and Expositon Auth. (INS) (PRE) 5.50 6/15/2020 975
4,065 Metropolitan Pier and Expositon Auth. (INS) 5.50 6/15/2020 4,231
770 Metropolitan Pier and Expositon Auth. (INS) (PRE) 5.55 6/15/2021 804
1,730 Metropolitan Pier and Expositon Auth. (INS) 5.55 6/15/2021 1,801
9,000 Municipal Power Agency 4.00 12/01/2041 9,677
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,713
23,980 Regional Transportation Auth. (INS) 5.75 6/01/2020 27,943
37,550 Regional Transportation Auth. (INS) 6.50 7/01/2030 52,706
3,000 Springfield (INS) 5.00 3/01/2040 3,494
2,000 Springfield Metro Sanitary District 5.75 1/01/2053 2,418
8,000 State (INS) 5.00 4/01/2029 8,968
1,000 Univ. of Illinois(d) 5.13 4/01/2036 1,122
1,467 Village of Montgomery Kane and
Kendall Counties (INS) 4.70 3/01/2030 1,469
1,487 Village of Round Lake (INS) 4.70 3/01/2033 1,509
----------
318,184
----------
INDIANA (1.9%)
5,540 Evansville Redevelopment Auth. (INS) 4.00 2/01/2038 6,024
3,605 Evansville Redevelopment Auth. (INS) 4.00 2/01/2039 3,910
3,440 Finance Auth. 5.00 10/01/2033 3,540
5,000 Finance Auth. 5.00 6/01/2039 5,388
1,495 Finance Auth. 5.00 2/01/2040 1,679
4,000 Finance Auth. 5.00 10/01/2044 4,549
6,000 Indianapolis (INS) 5.50 1/01/2038 6,631
7,000 Richmond Hospital Auth. 5.00 1/01/2039 8,086
7,500 Rockport (INS) 4.63 6/01/2025 7,651
----------
47,458
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
IOWA (0.4%)
$ 5,000 Finance Auth. (INS) 4.75% 12/01/2031 $ 5,028
5,000 Finance Auth. (INS) 5.00 12/01/2039 5,028
----------
10,056
----------
KANSAS (0.2%)
2,500 Coffeyville (INS)(a) 5.00 6/01/2042 2,742
45 Wyandotte County 6.07(b) 6/01/2021 34
2,000 Wyandotte County/Kansas City 5.00 9/01/2045 2,349
----------
5,125
----------
KENTUCKY (0.6%)
1,000 Ashland Medical Center 5.00 2/01/2040 1,132
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,067
4,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2038 4,261
1,100 Municipal Power Agency (INS) (PRE) 5.00 9/01/2037 1,142
3,900 Municipal Power Agency (INS) (PRE) 5.00 9/01/2037 4,049
2,000 Owen County 6.25 6/01/2039 2,221
----------
13,872
----------
LOUISIANA (2.7%)
2,500 Lafayette Public Trust Financing Auth. (INS) 5.50 10/01/2035 2,850
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,416
8,210 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 4.00 10/01/2046 8,732
25,000 Parish of St. John the Baptist 5.13 6/01/2037 25,426
1,250 Public Facilities Auth. 4.00 5/15/2041 1,342
6,000 Public Facilities Auth. 5.00 11/01/2045 6,879
5,000 Public Facilities Auth. (INS) 5.25 6/01/2051 5,816
9,000 Public Facilities Auth. 4.00 1/01/2056 9,292
1,000 Shreveport 5.00 12/01/2040 1,174
1,500 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,712
----------
67,639
----------
MAINE (0.4%)
9,000 Health and Higher Educational Facilities Auth. 4.00 7/01/2046 9,290
----------
MARYLAND (0.6%)
2,500 EDC 6.20 9/01/2022 2,803
5,000 Health and Higher Educational Facilities Auth. (PRE) 5.75 1/01/2033 5,308
6,000 Health and Higher Educational Facilities Auth. (PRE) 5.75 1/01/2038 6,370
----------
14,481
----------
MASSACHUSETTS (1.4%)
1,000 Dev. Finance Agency 4.00 7/01/2038 1,051
1,000 Dev. Finance Agency 5.00 4/15/2040 1,134
================================================================================
24 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,000 Dev. Finance Agency 5.00% 7/01/2044 $ 3,460
4,000 Dev. Finance Agency 5.50 7/01/2044 4,532
1,000 Dev. Finance Agency 5.00 7/01/2046 1,170
3,370 Dev. Finance Agency 4.00 10/01/2046 3,508
10,000 Health and Educational Facilities Auth. 6.25 7/01/2030 11,278
3,500 Health and Educational Facilities Auth. 5.00 7/15/2032 3,589
500 Health and Educational Facilities Auth. 5.00 7/15/2037 512
5,000 School Building Auth. (INS) (PRE) 4.75 8/15/2032 5,174
----------
35,408
----------
MICHIGAN (1.9%)
25,220 Building Auth. (INS) (PRE) 5.01(b) 10/15/2030 12,611
34,175 Building Auth. (INS) 5.01(b) 10/15/2030 17,088
2,000 Genesee County Water Supply System (INS) 4.00 2/01/2041 2,140
2,900 Genesee County Water Supply System (INS) 5.00 2/01/2046 3,395
4,500 Lansing Board of Water & Light 5.00 7/01/2037 5,175
4,000 Livonia Public Schools School District (INS) 5.00 5/01/2045 4,702
3,000 Strategic Fund 5.63 7/01/2020 3,452
----------
48,563
----------
MINNESOTA (0.4%)
4,000 Chippewa County 5.50 3/01/2037 4,041
2,500 Higher Educational Facilities Auth. 5.00 10/01/2039 2,763
3,000 St. Louis Park (PRE) 5.75 7/01/2030 3,256
----------
10,060
----------
MISSISSIPPI (0.2%)
1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2026 1,005
3,000 Warren County 5.38 12/01/2035 3,456
----------
4,461
----------
MISSOURI (2.7%)
2,745 Cape Girardeau County Health Care Facilities IDA 6.00 3/01/2033 3,006
20,000 Cape Girardeau County IDA 5.00 6/01/2036 20,000
1,000 Cape Girardeau County IDA 5.75 6/01/2039 1,107
8,000 Cass County 5.63 5/01/2038 8,020
17,775 Dev. Finance Board 4.00 6/01/2046 18,572
6,000 Health and Educational Facilities Auth. (PRE) 5.50 11/15/2033 6,586
1,500 Health and Educational Facilities Auth. 5.50 11/15/2033 1,627
5,000 St. Louis County IDA 5.88 9/01/2043 5,935
2,110 Stoddard County IDA 6.00 3/01/2037 2,286
----------
67,139
----------
MONTANA (0.4%)
4,000 Forsyth 3.90 3/01/2031 4,291
5,000 Forsyth 5.00 5/01/2033 5,652
----------
9,943
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
NEBRASKA (0.3%)
$ 975 Douglas County Hospital Auth. (PRE) 6.13% 8/15/2031 $ 1,021
1,275 Douglas County Hospital Auth. 6.13 8/15/2031 1,329
3,400 Douglas County Hospital Auth. 5.00 11/01/2048 3,937
----------
6,287
----------
NEVADA (2.1%)
4,000 Clark County (INS) 5.00 7/01/2026 4,411
11,000 Clark County 5.13 7/01/2034 12,209
5,000 Clark County (INS) 5.25 7/01/2039 5,566
12,410 Clark County EDC 5.00 5/15/2029 12,455
4,400 Las Vegas Convention and Visitors Auth. 4.00 7/01/2041 4,750
12,140 Las Vegas Convention and Visitors Auth. 4.00 7/01/2046 13,053
----------
52,444
----------
NEW JERSEY (2.3%)
6,000 EDA 5.00 9/01/2024 6,650
2,000 EDA 5.00 6/15/2028 2,201
10,000 EDA 5.00 6/15/2040 11,105
3,000 EDA 5.25 6/15/2040 3,394
11,435 Health Care Facilities Financing Auth. 5.00 7/01/2029 11,624
15,000 Health Care Facilities Financing Auth. (PRE)(d) 5.63 7/01/2032 18,154
1,250 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2046 1,452
2,000 Transportation Trust Fund Auth. 5.25 6/15/2041 2,266
----------
56,846
----------
NEW MEXICO (0.2%)
5,000 Farmington 5.90 6/01/2040 5,706
----------
NEW YORK (2.7%)
2,040 Buffalo and Erie County Industrial Land Dev. Corp. 5.38 10/01/2041 2,345
1,495 Dormitory Auth. (PRE) 5.25 7/01/2024 1,546
2,250 Dormitory Auth. 5.25 7/01/2029 2,450
16,130 Liberty Dev. Corp. 5.25 10/01/2035 21,610
5,000 MTA 3.55(b) 11/15/2032 3,248
60 New York City 5.88 8/01/2019 60
2,970 New York City (PRE) 5.13 12/01/2028 3,120
2,030 New York City 5.13 12/01/2028 2,130
220 New York City Municipal Water Finance Auth. (PRE) 5.00 6/15/2037 236
1,280 New York City Municipal Water Finance Auth. 5.00 6/15/2037 1,368
7,500 New York City Transitional Finance Auth. 5.00 1/15/2034 7,885
2,000 Thruway Auth. 5.00 1/01/2051 2,369
5,000 Triborough Bridge and Tunnel Auth. 3.62(b) 11/15/2031 3,288
10,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 10,800
3,000 Triborough Bridge and Tunnel Auth. 3.66(b) 11/15/2032 1,905
================================================================================
26 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,500 Triborough Bridge and Tunnel Auth. 3.70%(b) 11/15/2032 $ 1,633
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,265
----------
68,258
----------
NORTH CAROLINA (1.0%)
10,000 Capital Facilities Finance Agency 4.63 11/01/2040 11,042
3,750 Charlotte-Mecklenburg Hospital Auth. 5.25 1/15/2034 4,077
5,000 Columbus County Industrial Facilities &
Pollution Control Financing Auth. 6.25 11/01/2033 5,750
5,250 Medical Care Commission 5.00 7/01/2033 5,429
----------
26,298
----------
NORTH DAKOTA (0.3%)
4,685 Fargo 6.25 11/01/2031 5,704
2,500 McLean County 4.88 7/01/2026 2,736
----------
8,440
----------
OHIO (1.5%)
6,000 Air Quality Dev. Auth. 5.70 8/01/2020 5,778
10,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 9,955
10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 9,785
1,000 Cleveland (INS) 5.00 1/01/2031 1,144
2,500 Hamilton County Healthcare(g) 5.00 1/01/2051 2,795
4,640 Higher Education Facility Commission (INS) 5.00 5/01/2036 4,648
1,680 Lake County (PRE) 5.63 8/15/2029 1,829
320 Lake County 5.63 8/15/2029 346
2,000 Turnpike Commission 5.25 2/15/2033 2,405
----------
38,685
----------
OKLAHOMA (1.1%)
4,200 Comanche County Hospital Auth. 5.00 7/01/2032 4,496
10,000 Municipal Power Auth.(g) 4.00 1/01/2047 10,743
8,695 Norman Regional Hospital Auth. 5.38 9/01/2036 8,731
2,675 Tulsa Industrial Auth. (PRE) 5.00 10/01/2037 2,675
----------
26,645
----------
OREGON (0.2%)
2,000 Deschutes County Hospital Facility(g) 4.00 1/01/2046 2,146
1,155 Keizer 5.20 6/01/2031 1,223
1,180 Yamhill County Hospital Auth. 5.00 11/15/2051 1,295
----------
4,664
----------
PENNSYLVANIA (2.3%)
750 Allegheny County Higher Education
Building Auth. (PRE) 5.50 3/01/2031 894
460 Allegheny County IDA 5.13 9/01/2031 460
4,000 Allegheny County Sanitary Auth. (INS) 5.00 6/01/2040 4,543
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 7,000 Economic Dev. Financing Auth. 4.00% 10/01/2023 $ 7,730
480 Erie Parking Auth. (INS) (PRE) 5.13 9/01/2032 556
1,390 Erie Parking Auth. (INS) 5.13 9/01/2032 1,534
595 Erie Parking Auth. (INS) (PRE) 5.20 9/01/2035 691
1,700 Erie Parking Auth. (INS) 5.20 9/01/2035 1,878
1,970 Higher Educational Facilities Auth. 5.25 7/15/2033 2,272
2,750 Higher Educational Facilities Auth. 5.50 7/15/2038 3,179
4,000 Northampton County General Purpose Auth. 4.00 8/15/2040 4,229
1,250 Turnpike Commission, 5.00%, 12/01/2018 4.12(c) 12/01/2033 1,389
8,000 Turnpike Commission 5.00 6/01/2039 9,334
10,000 Turnpike Commission 5.25 12/01/2044 11,714
3,000 Turnpike Commission 5.00 12/01/2046 3,459
3,200 Washington County IDA 5.00 11/01/2036 3,566
----------
57,428
----------
PUERTO RICO (0.1%)
2,000 Industrial, Tourist, Educational, Medical,
Environmental Control Facilities Financing Auth. 5.38 4/01/2042 1,835
----------
RHODE ISLAND (0.8%)
5,700 EDC (INS) 5.00 7/01/2031 5,712
12,185 EDC (INS) 5.00 7/01/2036 12,207
2,000 Health and Educational Building Corp. 6.00 9/01/2033 2,595
245 Housing and Mortgage Finance Corp. 6.85 10/01/2024 246
----------
20,760
----------
SOUTH CAROLINA (0.4%)
2,250 Greenwood County 5.38 10/01/2039 2,489
7,000 Public Service Auth. 5.25 12/01/2055 8,385
----------
10,874
----------
SOUTH DAKOTA (0.4%)
500 Educational Enhancement Funding Corp. 5.00 6/01/2027 579
2,500 Health and Educational Facilities Auth. 5.25 11/01/2029 2,776
3,000 Health and Educational Facilities Auth. 5.25 7/01/2038 3,170
4,000 Health and Educational Facilities Auth. 5.00 7/01/2042 4,478
----------
11,003
----------
TENNESSEE (0.6%)
3,095 Jackson (PRE) 5.50 4/01/2033 3,310
1,145 Jackson 5.50 4/01/2033 1,218
2,000 Johnson City Health and Educational Facilities Board 5.00 8/15/2042 2,224
4,155 Knox County Health, Educational and
Housing Facilities Board 5.02(b) 1/01/2036 1,603
4,000 Knox County Health, Educational and
Housing Facilities Board 5.03(b) 1/01/2037 1,465
================================================================================
28 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,500 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00% 10/01/2045 $ 1,752
4,000 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 7/01/2046 4,741
----------
16,313
----------
TEXAS (18.2%)
3,000 Arlington Higher Education Finance Corp. (NBGA) 5.00 2/15/2046 3,579
15,075 Bell County Health Facilities Dev. Corp. (ETM) 6.50 7/01/2019 16,460
1,520 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2033 1,547
1,795 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2037 1,825
7,950 Bexar County Health Facilities Dev. Corp.(g) 4.00 7/15/2045 8,094
6,000 Central Texas Regional Mobility Auth. (PRE)(d) 5.75 1/01/2031 7,168
5,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 5,293
2,500 Central Texas Regional Mobility Auth. 5.00 1/01/2042 2,768
3,500 Central Texas Regional Mobility Auth. 5.00 1/01/2045 4,056
1,000 Clifton Higher Education Finance Corp. 6.00 8/15/2033 1,214
4,250 Clifton Higher Education Finance Corp. (NBGA) 5.00 8/15/2039 5,055
2,750 Clifton Higher Education Finance Corp. 6.00 8/15/2043 3,339
6,000 Corpus Christi Utility System 4.00 7/15/2039 6,543
4,825 Cypress Fairbanks ISD (NBGA) (PRE) 5.00 2/15/2035 4,902
175 Cypress Fairbanks ISD (NBGA) 5.00 2/15/2035 178
4,000 Dallas/Fort Worth International Airport 5.00 11/01/2034 4,564
9,000 Fort Worth 6.00 3/01/2029 10,091
8,085 Fort Worth (PRE) 6.25 3/01/2033 9,111
3,710 Guadalupe-Blanco River Auth. (INS) 5.00 5/15/2039 3,804
1,275 Harris County 4.75 10/01/2031 1,279
4,000 Harris County Cultural Education
Facilities Finance Corp. 5.25 10/01/2029 4,477
6,100 Harris County Cultural Education
Facilities Finance Corp. 5.00 6/01/2038 6,751
1,500 Harris County Health Facilities Dev. Corp. (PRE) 7.25 12/01/2035 1,705
15,000 Harris County Hospital District(g) 4.00 2/15/2042 15,871
7,000 Harris County IDC 5.00 2/01/2023 7,742
1,000 Hopkins County Hospital District 5.75 2/15/2028 1,034
3,715 Houston 5.00 9/01/2040 4,318
12,500 Houston Airport System 5.50 7/01/2034 13,496
10,000 Houston Higher Education Finance Corp. 5.00 9/01/2042 11,279
22,000 Houston ISD (NBGA) (PRE) 5.00 2/15/2033 22,351
2,390 Irving 5.00 8/15/2043 2,527
22,000 Judson ISD (NBGA) 4.50 2/01/2035 22,268
6,000 Karnes County Hospital District 5.00 2/01/2044 6,604
1,900 Kerrville Health Facilities Dev. Corp. 5.00 8/15/2035 2,182
3,000 Laredo CCD (INS) 5.25 8/01/2035 3,426
1,000 Laredo Waterworks & Sewer System 4.00 3/01/2041 1,086
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 5,300 Matagorda County 6.30% 11/01/2029 $ 5,980
9,615 Matagorda County 4.00 6/01/2030 10,453
6,000 Matagorda County 4.00 6/01/2030 6,523
655 Midlothian Dev. Auth. 5.13 11/15/2026 656
6,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 6,694
1,250 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2048 1,428
5,000 North Fort Bend Water Auth.(d) 5.00 12/15/2036 5,683
2,630 North Texas Tollway Auth. (PRE) 5.63 1/01/2028 2,785
370 North Texas Tollway Auth. 5.63 1/01/2028 388
2,280 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,414
10,385 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 10,995
2,105 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,229
2,770 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,933
615 North Texas Tollway Auth. 5.63 1/01/2033 648
1,845 North Texas Tollway Auth. 5.63 1/01/2033 1,945
15,000 North Texas Tollway Auth. (PRE) 5.75 1/01/2033 15,905
3,000 North Texas Tollway Auth. 7.55(b) 9/01/2037 1,375
6,245 North Texas Tollway Auth. (PRE) 5.75 1/01/2040 6,622
4,720 North Texas Tollway Auth. (PRE) 5.75 1/01/2040 5,005
1,535 North Texas Tollway Auth. 5.75 1/01/2040 1,620
5,000 North Texas Tollway Auth. 5.00 1/01/2045 5,882
2,000 Red River Education Finance Corp. 4.00 6/01/2041 2,165
4,950 San Leanna Education Facilities Corp. (PRE) 4.75 6/01/2032 5,079
1,075 San Leanna Education Facilities Corp. 4.75 6/01/2032 1,090
820 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2026 843
180 San Leanna Education Facilities Corp. 5.13 6/01/2026 184
1,490 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2027 1,533
325 San Leanna Education Facilities Corp. 5.13 6/01/2027 331
2,395 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2036 2,463
180 State (PRE) 4.50 4/01/2033 183
1,080 State (PRE) 4.50 4/01/2033 1,100
3,740 State 4.50 4/01/2033 3,811
6,315 Tarrant County Cultural Education
Facilities Finance Corp. 5.63 11/15/2027 6,483
3,600 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2036 4,083
14,895 Tarrant County Cultural Education
Facilities Finance Corp. 5.13 5/15/2037 14,912
4,000 Tarrant County Cultural Education
Facilities Finance Corp. 5.75 11/15/2037 4,085
4,500 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2045 4,970
7,000 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2046 8,231
================================================================================
30 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,850 Transportation Commission 5.00% 8/15/2041 $ 4,434
6,500 Transportation Commission 5.00 8/15/2042 7,504
18,530 Turnpike Auth. (INS) 5.25(b) 8/15/2030 12,442
22,000 Tyler Health Facilities Dev. Corp. 5.25 11/01/2032 22,459
10,000 Tyler Health Facilities Dev. Corp. (PRE) 5.00 7/01/2033 10,197
1,230 Tyler Health Facilities Dev. Corp. 5.38 11/01/2037 1,256
1,000 Uptown Dev. Auth. 5.50 9/01/2029 1,097
6,360 West Harris County Regional Water Auth. (INS) (PRE) 4.70 12/15/2030 6,413
4,770 Wood County Central Hospital District 6.00 11/01/2041 5,285
----------
458,783
----------
VIRGINIA (1.5%)
5,000 Alexandria IDA 5.00 10/01/2050 5,807
11,280 College Building Auth. 5.00 6/01/2026 11,286
5,000 College Building Auth. 5.00 6/01/2029 5,002
1,437 Farms of New Kent Community Dev. Auth.(e) 5.13 3/01/2036 359
8,665 Farms of New Kent Community Dev. Auth.(e) 5.45 3/01/2036 2,165
2,000 Farms of New Kent Community Dev. Auth.(e),(h) 5.80 3/01/2036 500
3,749 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 3,636
1,808 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,835
5,847 Lewistown Commerce Center Community Dev. Auth.(e) 6.05 3/01/2054 861
5,000 Small Business Financing Auth. 5.25 9/01/2037 5,148
1,588 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 1,592
----------
38,191
----------
WASHINGTON (0.1%)
2,500 Health Care Facilities Auth. (INS) (PRE) 6.00 8/15/2039 2,862
----------
WEST VIRGINIA (0.1%)
2,000 EDA 5.38 12/01/2038 2,256
----------
WISCONSIN (0.7%)
5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,589
2,500 Health & Educational Facilities Auth. 5.38 8/15/2037 2,784
1,000 Health & Educational Facilities Auth. 5.00 9/15/2045 1,095
7,800 Kaukauna (INS) 5.00 12/15/2035 9,080
----------
18,548
----------
WYOMING (0.5%)
2,360 Municipal Power Agency 5.50 1/01/2033 2,486
2,300 Municipal Power Agency 5.50 1/01/2038 2,423
6,000 Sweetwater County 5.25 7/15/2026 6,690
----------
11,599
----------
Total Fixed-Rate Instruments (cost: $2,195,218) 2,350,880
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
PUT BONDS (0.7%)
ARIZONA (0.2%)
$ 5,000 Health Facilities Auth. 2.69%(i) 2/01/2048 $ 5,079
----------
FLORIDA (0.2%)
4,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 4,255
----------
LOUISIANA (0.3%)
6,750 St. Charles Parish 4.00 12/01/2040 7,486
----------
Total Put Bonds (cost: $15,750) 16,820
----------
ADJUSTABLE-RATE NOTES (0.7%)
NEW JERSEY (0.7%)
20,000 EDA (cost: $20,000) 2.44 3/01/2028 18,227
----------
VARIABLE-RATE DEMAND NOTES (5.8%)
CALIFORNIA (0.4%)
8,430 Antioch USD (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.99 8/01/2047 8,430
----------
COLORADO (1.2%)
2,500 Health Facilities Auth. (LIQ)(a) 1.19 2/01/2019 2,500
17,850 Health Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.09 2/01/2041 17,850
10,000 Regional Transportation District (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.01 6/01/2044 10,000
----------
30,350
----------
ILLINOIS (1.5%)
7,500 Chicago Board of Education (INS) (LIQ)(a) 1.25 12/01/2039 7,500
5,000 Chicago Board of Education (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.36 12/01/2039 5,000
10,200 Chicago Park District (INS) (LIQ)(a) 1.14 1/01/2022 10,200
13,330 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.16 7/01/2031 13,330
1,990 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.15 4/01/2037 1,990
----------
38,020
----------
KENTUCKY (0.6%)
15,720 Economic Development Finance (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.11 1/01/2045 15,720
----------
PENNSYLVANIA (0.2%)
5,335 Bucks County Water and Sewer Auth. (INS) (LIQ)(a) 1.14 12/01/2019 5,335
----------
TEXAS (0.4%)
3,640 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 1.24 6/01/2031 3,640
================================================================================
32 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,915 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 1.24% 6/01/2038 $ 6,915
----------
10,555
----------
WASHINGTON (1.5%)
7,500 Health Care Facilities Auth. (LIQ)(a) 1.19 2/01/2019 7,500
30,000 Health Care Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.09 1/01/2035 30,000
----------
37,500
----------
Total Variable-Rate Demand Notes (cost: $145,910) 145,910
----------
TOTAL INVESTMENTS (COST: $2,376,878) $2,531,837
==========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $2,347,856 $3,024 $2,350,880
Put Bonds - 16,820 - 16,820
Adjustable-Rate Notes - 18,227 - 18,227
Variable-Rate Demand Notes - 145,910 - 145,910
------------------------------------------------------------------------------------------------------------------
Total $- $2,528,813 $3,024 $2,531,837
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS
------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2016 $3,026
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (2)
------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2016 $3,024
------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(b) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(c) Stepped-coupon security that is initially issued in zero-coupon form
and converts to coupon form at the specified date and rate shown in the
security's description. The rate presented in the coupon rate column
represents the effective yield at the date of purchase.
================================================================================
34 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(d) At September 30, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(e) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at September 30, 2016, was $5,886,000, which represented 0.2% of the
Fund's net assets.
(f) 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.
(g) At September 30, 2016, the aggregate market value of securities
purchased on a delayed-delivery basis was $39,649,000, which included
when-issued securities of $36,854,000.
(h) At September 30, 2016, the issuer was in default with respect to
interest and/or principal payments.
(i) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2016.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,376,878) $2,531,837
Receivables:
Capital shares sold 938
USAA Asset Management Company (Note 6C) 1
Interest 30,063
----------
Total assets 2,562,839
----------
LIABILITIES
Payables:
Securities purchased 39,610
Capital shares redeemed 1,415
Dividends on capital shares 2,128
Bank overdraft 988
Accrued management fees 501
Accrued transfer agent's fees 19
Other accrued expenses and payables 179
----------
Total liabilities 44,840
----------
Net assets applicable to capital shares outstanding $2,517,999
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,423,589
Overdistribution of net investment income (142)
Accumulated net realized loss on investments (60,407)
Net unrealized appreciation of investments 154,959
----------
Net assets applicable to capital shares outstanding $2,517,999
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,505,190/181,631
capital shares outstanding, no par value) $ 13.79
==========
Adviser Shares (net assets of $12,809/930
capital shares outstanding, no par value) $ 13.78
==========
See accompanying notes to financial statements.
================================================================================
36 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $54,854
-------
EXPENSES
Management fees 3,418
Administration and servicing fees:
Fund Shares 1,864
Adviser Shares 10
Transfer agent's fees:
Fund Shares 370
Adviser Shares 2
Distribution and service fees (Note 6E):
Adviser Shares 16
Custody and accounting fees:
Fund Shares 146
Adviser Shares 1
Postage:
Fund Shares 15
Shareholder reporting fees:
Fund Shares 16
Trustees' fees 15
Registration fees:
Fund Shares 30
Adviser Shares 13
Professional fees 66
Other 18
-------
Total expenses 6,000
Expenses reimbursed:
Adviser Shares (7)
-------
Net expenses 5,993
-------
NET INVESTMENT INCOME 48,861
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 818
Change in net unrealized appreciation/(depreciation) 11,408
-------
Net realized and unrealized gain 12,226
-------
Increase in net assets resulting from operations $61,087
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended March
31, 2016
----------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 48,861 $ 99,952
Net realized gain on investments 818 246
Change in net unrealized appreciation/(depreciation)
of investments 11,408 (8,895)
---------------------------
Increase in net assets resulting from operations 61,087 91,303
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (49,538) (99,805)
Adviser Shares (232) (410)
---------------------------
Distributions to shareholders (49,770) (100,215)
---------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 72,378 43,516
Adviser Shares 1,504 396
---------------------------
Total net increase in net assets from
capital share transactions 73,882 43,912
---------------------------
Net increase in net assets 85,199 35,000
NET ASSETS
Beginning of period 2,432,800 2,397,800
---------------------------
End of period $2,517,999 $2,432,800
===========================
Undistributed (overdistribution of) net investment income:
End of period $ (142) $ 767
===========================
See accompanying notes to financial statements.
================================================================================
38 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate
funds. Additionally, the Fund qualifies as a registered investment company
under Accounting Standards Codification Topic 946. The information presented
in this semiannual report pertains only to the USAA Tax Exempt Long-Term Fund
(the Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide investors with interest income that is
exempt from federal income tax.
The Fund consists of two classes of shares: Tax Exempt Long-Term Fund Shares
(Fund Shares) and Tax Exempt Long-Term Fund Adviser Shares (Adviser Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a
specific class, income, and realized gains or losses on investments are
allocated to each class of shares based on each class' 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 all 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. 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 value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
================================================================================
40 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
2. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
3. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 indexes. Level 2 securities
include fixed-rate instruments, put bonds, and adjustable-rate notes which
are valued based on methods discussed in Note 1A1 and variable-rate demand
notes which are valued at amortized cost.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by the value derived based upon the use of inputs such as real
property appraisals. 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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.
================================================================================
42 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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, 2016, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were
$39,610,000; of which $36,784,000 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, 2016, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. REDEMPTION FEES - All share classes held in the Fund less than 60 days
are subject to a redemption fee equal to 1.00% of the proceeds of the
redeemed or exchanged shares. All redemption fees paid will be accounted for
by the Fund as an addition to paid in capital. For the six-month period
ended September 30, 2016, the Fund Shares the Adviser Shares did not charge
any redemption fees.
H. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate
of the Manager. The purpose of the agreement is to meet temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability, the Fund may
borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest
rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis
points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $8,000, which represents 3.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal tax law.
================================================================================
44 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 income
taxes.
At March 31, 2016, the Fund had net capital loss carryforwards of $60,725,000,
for federal income tax purposes, as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
----------------------------------------
TAX CHARACTER
----------------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $11,439,000
Long-Term 49,286,000
-----------
Total $60,725,000
===========
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$23,298,000 and $73,969,000, respectively.
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $202,409,000 and $47,450,000, respectively, resulting in net
unrealized appreciation of $154,959,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital
stock at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016
-------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
FUND SHARES:
Shares sold 9,093 $125,978 14,061 $ 191,923
Shares issued from reinvested
dividends 2,744 38,014 5,588 76,185
Shares redeemed (6,614) (91,614) (16,485) (224,592)
---------------------------------------------------------
Net increase from capital
share transactions 5,223 $ 72,378 3,164 $ 43,516
=========================================================
ADVISER SHARES:
Shares sold 144 $ 1,977 146 $ 1,996
Shares issued from reinvested
dividends 9 122 13 183
Shares redeemed* (43) (595) (131) (1,783)
---------------------------------------------------------
Net increase from capital
share transactions 110 $ 1,504 28 $ 396
=========================================================
*Net of redemption fees, if any.
(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.
================================================================================
46 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper General & Insured Municipal Debt Funds Index.
The Lipper General & Insured Municipal Debt Funds Index tracks the total
return performance of Funds that invest primarily in municipal debt issues
in the top four credit ratings. 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1) Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper General & Insured 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, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $3,418,000, which
included a performance adjustment for the Fund Shares and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
Adviser Shares of $(78,000) and $(2,000), respectively. For the Fund Shares
and Adviser Shares, the performance adjustments were (0.01)% and (0.03)%,
respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2016, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,864,000 and $10,000, 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, 2016, the Fund reimbursed the
Manager $34,000 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, 2017, 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 to 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, 2017, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended September 30, 2016, the Adviser
Shares incurred reimbursable expenses of $7,000, of which $1,000 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 Shares and Adviser Shares 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
================================================================================
48 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
the administration and servicing of accounts that are held with such
intermediaries. For the six-month period ended September 30, 2016, the Fund
Shares and Adviser Shares incurred transfer agent's fees, paid or payable to
SAS, of $370,000 and $2,000, 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 (IMCO), the distributor, for distribution and shareholder
services. IMCO 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, 2016, the Adviser Shares
incurred distribution and service (12b-1) fees of $16,000.
F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
receives no fee or other compensation for these services, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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, 2016, USAA and its affiliates owned 377,000 Adviser Shares, which
represents 40.6% of the Adviser Shares outstanding and 0.2% of the Fund's total
outstanding shares.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(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,
----------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.73 $ 13.78 $ 13.45 $ 13.91 $ 13.50 $ 12.16
----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .27 .58 .58 .56 .54 .59
Net realized and
unrealized gain (loss) .07 (.05) .32 (.46) .41 1.36
----------------------------------------------------------------------------------------------
Total from investment
operations .34 .53 .90 .10 .95 1.95
----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.28) (.58) (.57) (.56) (.54) (.59)
Realized capital gains - - - - - (.02)
----------------------------------------------------------------------------------------------
Total distributions (.28) (.58) (.57) (.56) (.54) (.61)
----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.79 $ 13.73 $ 13.78 $ 13.45 $ 13.91 $ 13.50
==============================================================================================
Total return (%)* 2.46 3.94 6.79 .83 7.11 16.30
Net assets at end
of period (000) $2,505,190 $2,421,551 $2,386,904 $2,251,219 $2,837,758 $2,588,782
Ratios to average
net assets:**
Expenses (%)(a) .48(b) .51 .55 .54 .53 .52
Net investment
income (%) 3.91(b) 4.23 4.22 4.19 3.89 4.54
Portfolio turnover (%) 4 6 7 7 14 9
* 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, 2016, average net assets were
$2,480,006,000.
(a) 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%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
50 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
----------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.71 $ 13.76 $ 13.43 $ 13.91 $ 13.50 $ 12.16
-------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .54 .54 .51 .49 .55
Net realized and
unrealized gain (loss) .07 (.05) .32 (.47) .41 1.36
-------------------------------------------------------------------------------------------
Total from investment
operations .32 .49 .86 .04 .90 1.91
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.54) (.53) (.52) (.49) (.55)
Realized capital gains - - - - - (.02)
-------------------------------------------------------------------------------------------
Total distributions (.25) (.54) (.53) (.52) (.49) (.57)
-------------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.78 $ 13.71 $ 13.76 $ 13.43 $ 13.91 $ 13.50
===========================================================================================
Total return (%)* 2.37 3.65 6.52 .37 6.77 15.92
Net assets at end
of period (000) $12,809 $11,249 $10,896 $ 7,145 $ 6,809 $ 5,870
Ratios to average
net assets:**
Expenses (%)(b) .80(c) .80 .81(a) .85 .85 .85
Expenses, excluding
reimbursements (%)(b) .91(c) .90 .99 1.07 1.11 1.32
Net investment
income (%) 3.58(c) 3.94 3.94 3.88 3.56 4.20
Portfolio turnover (%) 4 6 7 7 14 9
* 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, 2016, average net assets were
$12,708,000.
(a) Effective August 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 0.80% of their annual average net
assets. Prior to August 1, 2014, the Manager voluntarily agreed to reimburse
the Adviser Shares for expenses in excess of 0.85% of their annual average
net assets.
(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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (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, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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.
================================================================================
52 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
-------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,024.60 $2.44
Hypothetical
(5% return before expenses) 1,000.00 1,022.66 2.43
ADVISER SHARES
Actual 1,000.00 1,023.70 4.06
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.48% for Fund Shares and
0.80% for Adviser Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 183 days/365 days (to reflect the one-half-year period). The Fund's actual
ending account values are based on its actual total returns of 2.46% for Fund
Shares and 2.37% for Adviser Shares for the six-month period of April 1, 2016,
through September 30, 2016.
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
54 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
meeting at which the renewal of the Advisory Agreement is considered, particular
focus is given to information concerning Fund performance, fees and total
expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. 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
================================================================================
ADVISORY AGREEMENT(S) | 55
================================================================================
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's role
in coordinating the activities of 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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes all no-load retail open-end investment
companies with the same investment classification/objective as the Fund
regardless of asset size, excluding outliers (the "expense universe"). Among
other data, the Board noted that the Fund's management fee rate - which includes
advisory and administrative services and the effects of any performance
adjustment - was below the median of its expense group and its expense universe.
The data indicated that the Fund's total expense ratio was below the median of
its expense group and its expense universe. The Board took into account the
various services provided to the Fund by the Manager and its affiliates,
================================================================================
56 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
including the high quality of services provided by the Manager. The Board also
noted the level and method of computing the management fee, including any
performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the 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 lower than its
Lipper index for the one-year period ended December 31, 2015 and was above the
average of its performance universe and its Lipper index for the three-, five-,
and ten-year periods ended December 31, 2015. The Board also noted that the
Fund's percentile performance ranking was in the top 35% of its performance
universe for the one-year period ended December 31, 2015, was in the top 20% of
its performance universe for the three- and five-year periods ended December 31,
2015, and was in the top 30% of its performance universe for the ten-year period
ended December 31, 2015.
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
================================================================================
ADVISORY AGREEMENT(S) | 57
================================================================================
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services received by the Fund from
the Manager. The Trustees recognized that the Manager should be entitled to earn
a reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the effect of the
Fund's growth and size on its performance and fees, noting that if the Fund's
assets increase over time, the Fund may realize other economies of scale if
assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund is reasonable in light of the
nature and high quality of the services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
58 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39596-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT MONEY MARKET FUND]
=======================================================
SEMIANNUAL REPORT
USAA TAX EXEMPT MONEY MARKET FUND
SEPTEMBER 30, 2016
=======================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 4
FINANCIAL INFORMATION
Portfolio of Investments 8
Notes to Portfolio of Investments 21
Financial Statements 22
Notes to Financial Statements 25
EXPENSE EXAMPLE 33
ADVISORY AGREEMENT(S) 35
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)2016, USAA. All rights reserved.
211738-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TAX EXEMPT MONEY MARKET FUND (THE FUND) PROVIDES INVESTORS WITH
INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX AND HAS A FURTHER
OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in high-quality securities, the interest of which is
exempt from federal income tax with remaining maturities of 397 days or less.
During normal market conditions, at least 80% of the Fund's net assets will
consist of tax-exempt securities.
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGER'S COMMENTARY ON THE FUND
DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the reporting period began in April 2016, investors were still
digesting the change in the Federal Reserve's (the Fed) guidance on
short-term interest-rate increases. At its March policy meeting, the Fed had
called for two interest rate increases in 2016, down from the four it had
forecasted in December 2015. Ultimately, however, the Fed remained steady,
leaving the federal funds target rate in a range between 0.25% and 0.50%
throughout the reporting period.
Although the Fed did not change its monetary policy, interest rates on money
market securities rose, largely due to shifting market dynamics. At the
beginning of the reporting period, the SIFMA Municipal Swap Index*, the
index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It
stayed near that level through July 2016 and then climbed 44 basis points to
close the reporting period at 0.84%. (A basis point is 1/100(th) of a
percent.) During August and September 2016, shortly before the Securities
and Exchange Commission's money market fund reform became effective, a large
number of money market funds sold VRDNs as they liquidated, consolidated, or
shifted assets into treasury money market funds. This caused inventories of
VRDNs to increase, leading many dealers to raise interest rates in order to
attract buyers.
*The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised
of tax-exempt variable-rate demand obligations (VRDOs) with certain
characteristics. The index is calculated and published by Bloomberg. The
index is overseen by SIFMA's Municipal Swap Index Committee.
================================================================================
2 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
o HOW DID THE USAA TAX EXEMPT MONEY MARKET FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended September 30, 2016, the Fund had a return of
0.02%, compared to an average return of 0.08% for the tax-exempt money
market funds category, according to iMoneyNet, Inc.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus our purchases on VRDNs, which added to the Fund's
yield during the reporting period. Because the VRDNs owned by the Fund can
be sold at par value (100% of face value) upon seven days or less notice,
the Fund had the flexibility to take advantage of higher interest rates.
Many of the Fund's VRDNs also are guaranteed by a bank letter-of-credit for
the payment of both principal and interest, providing the Fund with a
certain degree of stability.
In addition, the Fund benefited from investments with longer maturities. We
continued to work with our in-house team of analysts to help us identify
attractive opportunities for the Fund. They also continue to analyze and
monitor the Fund's portfolio.
We appreciate the opportunity to help you with your investment needs.
Refer to page 5 for benchmark definition.
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 Investing in securities products involves risk, including possible loss of
principal. o Some income may be subject to state or local taxes but not the
federal alternative minimum tax. o VRDNs are securities for which the
interest rate is reset periodically; typically weekly, although reset
intervals may vary.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
INVESTMENT OVERVIEW
USAA TAX EXEMPT MONEY MARKET FUND (THE FUND)
(Ticker Symbol: USEXX)
-------------------------------------------------------------------------------
9/30/16 3/31/16
-------------------------------------------------------------------------------
Net Assets $2.3 Billion $2.6 Billion
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 32 Days 25 Days
(+)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.
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
-------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
0.02% 0.04% 0.02% 0.73%
-------------------------------------------------------------------------------
7-DAY YIELD AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16**
-------------------------------------------------------------------------------
0.29% 0.56%
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 return
is cumulative.
**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, 2016, 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.
YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT
WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY
TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS
BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN
INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY
OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL
OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT
THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares. Yields and returns fluctuate. The seven-day yield
quotation more closely reflects current earnings of the Fund than the total
return quotation.
================================================================================
4 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
iMoneyNet USAA TAX EXEMPT
AVERAGE MONEY MARKET FUND
9/28/2015 0.01% 0.01%
10/26/2015 0.01 0.01
11/30/2015 0.01 0.01
12/28/2015 0.01 0.01
1/25/2016 0.01 0.01
2/29/2016 0.01 0.01
3/28/2016 0.01 0.01
4/25/2016 0.05 0.05
5/23/2016 0.05 0.05
6/27/2016 0.07 0.07
7/25/2016 0.07 0.07
8/29/2016 0.13 0.13
9/26/2016 0.26 0.26
[END CHART]
Data represents the last Monday of each month. Ending date 9/26/16.
The graph tracks the USAA Tax Exempt Money Market Fund's seven-day yield against
an average of money market fund yields of all tax-free national retail money
funds average of money market fund yields calculated by iMoneyNet, Inc.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
Past performance is no guarantee of future results.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
General Obligation ...................................................... 12.8%
Hospital ................................................................ 12.8%
Education ............................................................... 10.5%
Electric Utilities ...................................................... 10.0%
Electric/Gas Utilities .................................................. 6.9%
Community Service ....................................................... 6.8%
Sales Tax ............................................................... 4.2%
Nursing/CCRC ............................................................ 4.2%
Agricultural Products ................................................... 3.9%
Buildings ............................................................... 3.4%
o PORTFOLIO MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 74.6%
FIXED-RATE INSTRUMENTS 24.5%
PUT BONDS 1.2%
ADJUSTABLE-RATE NOTES 1.0%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 8-20.
================================================================================
6 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA TAX EXEMPT
MONEY MARKET FUND
09/30/06 $10,000.00
10/31/06 10,025.00
11/30/06 10,051.00
12/31/06 10,081.00
01/31/07 10,106.00
02/28/07 10,131.00
03/31/07 10,159.00
04/30/07 10,186.00
05/31/07 10,216.00
06/30/07 10,245.00
07/31/07 10,272.00
08/31/07 10,303.00
09/30/07 10,329.00
10/31/07 10,357.00
11/30/07 10,385.00
12/31/07 10,411.00
01/31/08 10,435.00
02/29/08 10,456.00
03/31/08 10,480.00
04/30/08 10,500.00
05/31/08 10,522.00
06/30/08 10,538.00
07/31/08 10,554.00
08/31/08 10,572.00
09/30/08 10,602.00
10/31/08 10,636.00
11/30/08 10,649.00
12/31/08 10,661.00
01/31/09 10,669.00
02/28/09 10,676.00
03/31/09 10,683.00
04/30/09 10,692.00
05/31/09 10,701.00
06/30/09 10,710.00
07/31/09 10,718.00
08/31/09 10,724.00
09/30/09 10,729.00
10/31/09 10,731.00
11/30/09 10,733.00
12/31/09 10,735.00
01/31/10 10,735.00
02/28/10 10,735.00
03/31/10 10,735.00
04/30/10 10,735.00
05/31/10 10,736.00
06/30/10 10,736.00
07/31/10 10,736.00
08/31/10 10,736.00
09/30/10 10,736.00
10/31/10 10,736.00
11/30/10 10,736.00
12/31/10 10,737.00
01/31/11 10,737.00
02/28/11 10,737.00
03/31/11 10,737.00
04/30/11 10,737.00
05/31/11 10,737.00
06/30/11 10,737.00
07/31/11 10,737.00
08/31/11 10,737.00
09/30/11 10,737.00
10/31/11 10,737.00
11/30/11 10,738.00
12/31/11 10,738.00
01/31/12 10,740.00
02/29/12 10,741.00
03/31/12 10,741.00
04/30/12 10,741.00
05/31/12 10,741.00
06/30/12 10,741.00
07/31/12 10,741.00
08/31/12 10,741.00
09/30/12 10,741.00
10/31/12 10,741.00
11/30/12 10,741.00
12/31/12 10,742.00
01/31/13 10,742.00
02/28/13 10,742.00
03/31/13 10,742.00
04/30/13 10,742.00
05/31/13 10,742.00
06/30/13 10,742.00
07/31/13 10,743.00
08/31/13 10,743.00
09/30/13 10,743.00
10/31/13 10,743.00
11/30/13 10,743.00
12/31/13 10,744.00
01/31/14 10,744.00
02/28/14 10,744.00
03/31/14 10,744.00
04/30/14 10,744.00
05/31/14 10,744.00
06/30/14 10,744.00
07/31/14 10,745.00
08/31/14 10,745.00
09/30/14 10,745.00
10/31/14 10,745.00
11/30/14 10,745.00
12/31/14 10,745.00
01/31/15 10,745.00
02/28/15 10,745.00
03/31/15 10,745.00
04/30/15 10,745.00
05/31/15 10,746.00
06/30/15 10,746.00
07/31/15 10,746.00
08/31/15 10,746.00
09/30/15 10,746.00
10/31/15 10,746.00
11/30/15 10,746.00
12/31/15 10,748.00
01/31/16 10,748.00
02/29/16 10,748.00
03/31/16 10,748.00
04/30/16 10,748.00
05/31/16 10,748.00
06/30/16 10,748.00
07/31/16 10,748.00
08/31/16 10,748.00
09/30/16 10,750.00
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA Tax Exempt Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
reinvested net investment income and realized capital gain distributions or on
the redemption of shares. Some income may be subject to federal, state, or local
taxes. For seven-day yield information, please refer to the Fund's Investment
Overview.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
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. The
effective maturity of these instruments is deemed to be less than 397 days
in accordance with detailed regulatory requirements.
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.
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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CSD Central School District
EDA Economic Development Authority
EDC Economic Development Corp.
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
================================================================================
8 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
IDC Industrial Development Corp.
MTA Metropolitan Transportation Authority
SPEAR Short Puttable Exempt Adjustable Receipts
CREDIT ENHANCEMENTS - Adds 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 values of the securities.
The Fund's purchases consist of securities meeting the requirements to
qualify as "eligible securities" under the Securities and Exchange
Commission (SEC) regulations applicable to money market funds. In order to
qualify as an eligible security, the USAA Mutual Funds Trust's Board of
Trustees (the Board), must determine that the particular investment presents
minimal credit risk in accordance with these SEC regulations. With respect
to quality, eligible securities generally are rated or subject to a
guarantee that is rated in one of the two highest categories for short-term
securities by at least two Nationally Recognized Statistical Rating
Organizations (NRSROs), or by one NRSRO if the security is rated by only one
NRSRO, or if unrated, determined by USAA Asset Management Company (the
Manager) to be of comparable quality.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from one of the
following: Citigroup Inc., Deutsche Bank A.G., Royal Bank of Canada,
or JPMorgan Chase & Co.
(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: Montana Board of Investments Intercap Program or
National Rural Utility Corp.
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (74.6%)
ALABAMA (6.5%)
$20,000 Chatom IDB (NBGA)(a) 1.06% 8/01/2041 $ 20,000
10,000 Columbia IDB 0.86 12/01/2037 10,000
1,175 Huntsville Educational Building Auth.
(LOC - BB&T Corp.) 0.92 12/01/2022 1,175
25,000 Mobile Count IDA (LOC - Swedbank AB) 0.92 7/01/2040 25,000
12,000 Mobile IDB 0.92 8/01/2017 12,000
30,000 Mobile IDB 0.86 6/01/2034 30,000
15,000 Tuscaloosa Count IDA (LOC - Bank of Nova Scotia) 0.84 4/01/2028 15,000
32,500 Tuscaloosa Count Port Auth.
(LOC - PNC Financial Services Group) 0.94 12/01/2031 32,500
5,190 West Jefferson IDB 0.92 6/01/2028 5,190
----------
150,865
----------
ARKANSAS (0.2%)
5,175 Texarkana (LOC - PNC Financial Services Group) 0.99 3/01/2021 5,175
----------
CALIFORNIA (3.3%)
9,010 ABAG Finance Auth. for Nonprofit Corps.
(LOC - KBC Bank N.V.) 1.12 5/15/2035 9,010
4,750 Bay Area Toll Auth. (LOC - Mitsubishi UFJ
Financial Group Inc.) 0.84 4/01/2045 4,750
10,275 Irvine (LOC - Sumitomo Mitsui Banking Corp.)(a) 0.82 9/02/2050 10,275
11,500 Pasadena (LOC - Bank of America Corp.) 0.89 2/01/2035 11,500
25,670 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(b) 1.04 12/01/2033 25,670
4,000 SPEAR (LIQ) (LOC - Deutsche Bank A.G.)(b) 1.19 8/01/2031 4,000
4,500 Statewide Communities Dev. Auth.
(LOC - Comerica Bank, N.A.) 0.91 12/01/2024 4,500
6,600 Statewide Communities Dev. Auth. 0.82 11/01/2030 6,600
----------
76,305
----------
COLORADO (0.4%)
9,425 Sheridan County (LOC - JP Morgan Chase & Co.) 0.96 12/01/2029 9,425
----------
CONNECTICUT (0.2%)
5,000 Health and Educational Facilities Auth.
(LOC - Bank of America Corp.) 0.90 7/01/2030 5,000
----------
DISTRICT OF COLUMBIA (0.9%)
1,800 District of Columbia (LOC - Bank of America Corp.) 0.95 7/01/2022 1,800
6,300 District of Columbia (LOC - SunTrust Bank) 0.90 10/01/2037 6,300
================================================================================
10 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,245 Metropolitan Washington Airports Auth.
(LOC - Toronto-Dominion Bank) 0.88% 10/01/2039 $ 1,245
12,000 Metropolitan Washington Airports Auth.
(LOC - Sumitomo Mitsui Banking Corp.) 0.90 10/01/2039 12,000
----------
21,345
----------
FLORIDA (2.6%)
6,150 Dade County IDA 0.88 6/01/2021 6,150
6,000 Escambia County 0.92 4/01/2039 6,000
11,500 Jacksonville 0.89 5/01/2029 11,500
2,560 Lee County IDA (LOC - Fifth Third Bank) 0.98 6/01/2025 2,560
16,500 Martin County 0.88 7/15/2022 16,500
9,310 St. Lucie County 0.89 9/01/2028 9,310
8,560 UCF Health Facilities Corp.
(LOC - Fifth Third Bank) 0.96 7/01/2037 8,560
----------
60,580
----------
GEORGIA (0.6%)
2,100 Cobb County Dev. Auth. (LOC - Federal Home
Loan Bank of Atlanta) 0.94 2/01/2030 2,100
12,600 Roswell Housing Auth. (LOC - Northern Trust Corp.) 0.85 9/01/2027 12,600
----------
14,700
----------
ILLINOIS (7.4%)
2,980 Dev. Finance Auth. (LOC - Bank of America Corp.) 0.93 9/01/2032 2,980
16,000 Dev. Finance Auth. (LOC - Fifth Third Bank) 0.96 2/01/2033 16,000
1,770 Educational Facilities Auth. (LOC - Fifth Third Bank) 0.96 7/01/2024 1,770
3,490 Educational Facilities Auth. (LOC - Huntington
National Bank) 1.15 10/01/2032 3,490
2,490 Finance Auth. (LOC - Fifth Third Bank) 1.04 3/01/2031 2,490
5,980 Finance Auth. (LOC - Northern Trust Corp.) 0.90 4/01/2033 5,980
12,410 Finance Auth. (LOC - Huntington National Bank) 1.15 10/01/2033 12,410
11,760 Finance Auth. (LOC - JP Morgan Chase & Co.) 0.86 5/01/2038 11,760
13,875 Finance Auth. (LOC - Fifth Third Bank) 1.10 6/01/2038 13,875
9,000 Finance Auth. (LOC - Key Bank, N.A.)(c) 0.90 11/01/2039 9,000
30,145 Finance Auth. (LOC - Bank of Montreal) 0.87 8/01/2040 30,145
15,400 Galesburg Revenue (LOC - PNC Financial
Services Group) 0.88 3/01/2031 15,400
13,200 Kane County (LOC - Fifth Third Bank) 0.96 2/01/2028 13,200
10,040 Metropolitan Pier & Exposition Auth. (LIQ)
(LOC - Royal Bank of Canada)(b),(c) 0.92 6/15/2020 10,040
4,249 Springfield Airport Auth. 1.26 10/15/2016 4,249
18,890 Village of Morton Grove
(LOC - Bank of America Corp.) 0.88 12/01/2041 18,890
----------
171,679
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
INDIANA (1.8%)
$ 5,655 Berne (LOC - Federal Home Loan Bank of
Indianapolis) 0.99% 10/01/2033 $ 5,655
11,025 Dearborn County EDA (LOC - Fifth Third Bank) 0.96 4/01/2036 11,025
3,865 Evansville (LOC - Fifth Third Bank) 0.96 1/01/2025 3,865
9,115 Finance Auth. (LOC - Federal Home Loan Bank of
Indianapolis) 0.99 7/01/2029 9,115
1,010 Finance Auth. (LOC - Fifth Third Bank) 0.98 9/01/2031 1,010
2,245 Finance Auth. (LOC - PNC Financial Services Group) 0.99 6/01/2037 2,245
4,000 Hospital Revenue Finance Auth.
(LOC - Bank of Montreal) 0.82 12/01/2031 4,000
4,550 Hospital Revenue Finance Auth.
(LOC - Bank of Montreal) 0.82 12/01/2031 4,550
----------
41,465
----------
IOWA (5.5%)
6,850 Chillicothe 0.90 1/01/2023 6,850
12,750 Council Bluffs 0.89 1/01/2025 12,750
9,600 Finance Auth 0.99 6/01/2039 9,600
31,160 Finance Auth. 0.99 6/01/2036 31,160
41,763 Finance Auth. 0.99 9/01/2036 41,763
19,900 Louisa County 0.88 10/01/2024 19,900
5,500 Urbandale (LOC - Wells Fargo & Co.) 0.97 11/01/2020 5,500
----------
127,523
----------
KENTUCKY (1.1%)
9,340 Georgetown (LOC - Fifth Third Bank) 0.96 11/15/2029 9,340
2,585 Lexington-Fayette Urban County (LOC -
Federal Home Loan Bank of Cincinnati) 1.09 12/01/2027 2,585
4,016 Lexington-Fayette Urban County
(LOC - Fifth Third Bank) 0.96 12/01/2031 4,016
8,430 Lexington-Fayette Urban County
(LOC - Fifth Third Bank) 0.96 1/01/2033 8,430
----------
24,371
----------
LOUISIANA (1.7%)
175 Environmental Facilities and Community Dev. Auth.
(LOC - Federal Home Loan Bank of Dallas) 0.92 4/01/2018 175
7,500 Environmental Facilities and Community Dev. Auth. 0.98 12/01/2030 7,500
1,550 Hammond Area Economic and Industrial Dev.
District (LOC - Federal Home Loan Bank of Dallas) 0.94 3/01/2033 1,550
5,905 New Orleans (LOC - Capital One, N.A.) 1.07 8/01/2024 5,905
7,915 Public Facilities Auth. 0.90 8/01/2017 7,915
270 Public Facilities Auth. (LOC - Capital One, N.A.) 1.11 7/01/2023 270
11,000 St. James Parish 1.02 11/01/2040 11,000
================================================================================
12 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,340 St. Tammany Parish Dev. District (LOC - Federal
Home Loan Bank of Dallas) 0.94% 3/01/2033 $ 6,340
----------
40,655
----------
MARYLAND (0.4%)
9,705 Williamsport (LOC - Manufacturers &
Traders Trust Co.) 0.89 11/01/2037 9,705
----------
MICHIGAN (2.4%)
1,750 Finance Auth. (LOC - Fifth Third Bank) 0.86 12/01/2032 1,750
5,000 Finance Auth. (LOC - Fifth Third Bank) 0.86 12/01/2032 5,000
7,500 Finance Auth. (LOC - Fifth Third Bank) 0.86 12/01/2032 7,500
26,340 Higher Educational Facilities Auth.
(LOC - Comerica Bank, N.A.) 0.92 11/01/2036 26,340
10,000 Oakland County EDC (LOC - Fifth Third Bank) 0.96 3/01/2029 10,000
3,115 Strategic Fund (LOC - Fifth Third Bank) 0.96 8/01/2023 3,115
940 Strategic Fund (LOC - Fifth Third Bank) 0.96 10/01/2027 940
2,265 Strategic Fund (LOC - Fifth Third Bank) 0.98 4/01/2035 2,265
----------
56,910
----------
MINNESOTA (0.3%)
2,120 Canby Community Hospital District No.1 1.22 11/01/2026 2,120
4,590 New Ulm (LOC - Federal Home Loan
Bank of Chicago) 0.97 10/01/2040 4,590
----------
6,710
----------
MISSISSIPPI (0.5%)
4,470 Business Finance Corp. (LOC - Federal Home Loan
Bank of Dallas) 0.94 3/01/2033 4,470
8,170 Business Finance Corp. (LOC - PNC Financial
Services Group) 0.92 12/01/2036 8,170
----------
12,640
----------
MISSOURI (1.3%)
1,050 Health and Educational Facilities Auth.
(LOC - Fifth Third Bank) 0.96 11/01/2020 1,050
20,000 Jackson County IDA (LOC -
Commerce Bank, N.A.) 0.90 7/01/2025 20,000
3,300 St. Louis County IDA (LOC - U.S. Bancorp) 0.96 6/15/2024 3,300
6,800 St. Louis County IDA (LOC - Fifth Third Bank) 0.96 9/01/2038 6,800
----------
31,150
----------
NEBRASKA (0.4%)
10,000 Washington County 0.99 12/01/2040 10,000
----------
NEW HAMPSHIRE (2.1%)
34,990 Business Finance (LOC - Landesbank
Hessen-Thuringen) 0.99 9/01/2030 34,990
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,185 Health and Education Facilities Auth.
(LOC - Citizens Financial Group) 0.95% 7/01/2038 $ 6,185
8,670 Health and Educational Facilities Auth.
(LOC - Citizens Financial Group) 1.02 10/01/2030 8,670
----------
49,845
----------
NEW JERSEY (1.0%)
3,465 EDA (LOC - Bank of America Corp.) 0.88 11/01/2027 3,465
18,840 Educational Facilities Auth.
(LOC - Citizens Financial Group) 0.97 7/01/2036 18,840
----------
22,305
----------
NEW MEXICO (0.2%)
5,000 Hospital Equipment Loan Council
(LOC - Fifth Third Bank) 0.98 7/01/2025 5,000
----------
NEW YORK (10.2%)
4,000 Albany IDA (LOC - Citizens Financial Group) 1.05 5/01/2035 4,000
9,420 Albany IDA (LOC - Key Bank, N.A.) 0.91 7/01/2035 9,420
15,745 Amherst IDA (LOC - Manufacturers &
Traders Trust Co.)(a) 0.89 10/01/2031 15,745
1,430 Clinton County IDA (LOC - Key Bank, N.A.) 0.91 7/01/2017 1,430
10,500 Clinton County IDA (LOC - Key Bank, N.A.) 0.91 7/01/2042 10,500
1,325 Erie County IDA (LOC - Key Bank, N.A.) 0.96 6/01/2022 1,325
4,140 Erie County IDA (LOC - Key Bank, N.A.) 0.96 3/01/2024 4,140
3,590 Guilderland IDA (LOC - Key Bank, N.A.) 0.96 7/01/2032 3,590
6,600 Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.84 11/01/2037 6,600
4,400 Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.87 5/01/2042 4,400
1,800 Housing Finance Agency (LOC - Landesbank
Hessen-Thuringen) 0.87 5/01/2042 1,800
10,000 Housing Finance Agency (LOC - Manufacturers &
Traders Trust Co.) 0.85 5/01/2046 10,000
16,170 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 16,170
12,500 Liberty Development Corp. (LIQ)
(LOC - Royal Bank of Canada)(b),(c) 0.92 11/15/2019 12,500
12,300 MTA (LOC - BNP Paribas) 0.89 11/15/2045 12,300
18,825 Hudson Yards Infrastructure Corp. (LIQ)
(LOC - Royal Bank of Canada)(b) 0.92 2/15/2019 18,825
5,800 New York City (LIQ)(b) 0.88 8/01/2020 5,800
7,300 New York City (LOC - Sumitomo Mitsui
Banking Corp.) 0.85 9/01/2035 7,300
5,900 New York City (LOC - Manufacturers &
Traders Trust Co.) 1.08 12/01/2040 5,900
================================================================================
14 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$15,125 New York City Health and Hospitals Corp.
(LOC - JP Morgan Chase & Co.) 0.81% 2/15/2026 $ 15,125
25,255 New York City IDA (LOC - Key Bank, N.A.) 0.92 7/01/2038 25,255
905 Niagara County IDA (LOC - Key Bank, N.A.) 0.96 9/01/2021 905
7,810 Oneida County IDA (LOC - Manufacturers &
Traders Trust Co.) 0.89 6/01/2030 7,810
4,175 Oneida County IDA (LOC - Citizens
Financial Group) 0.99 7/01/2037 4,175
4,160 Onondaga County IDA (LOC - Manufacturers &
Traders Trust Co.) 0.89 12/01/2031 4,160
7,595 Ontario County IDA (LOC - Key Bank, N.A.) 0.88 7/01/2030 7,595
7,955 Ramapo Housing Auth. (LOC - Manufacturers &
Traders Trust Co.) 0.94 12/01/2029 7,955
2,290 Seneca County IDA (LOC - Key Bank, N.A.) 0.96 4/01/2020 2,290
2,110 St. Lawrence County
(LOC - Citizens Financial Group) 0.96 7/01/2037 2,110
3,525 Syracuse IDA (LOC - Key Bank, N.A.) 0.96 1/01/2033 3,525
6,200 Tompkins County IDA
(LOC - Bank of America Corp.) 0.96 2/01/2037 6,200
----------
238,850
----------
OHIO (2.2%)
2,880 Akron Metropolitan Housing Auth.
(LOC - Huntington National Bank) 1.06 4/01/2018 2,880
2,800 Cincinnati and Hamilton County
(LOC - Fifth Third Bank) 0.96 9/01/2025 2,800
7,355 Delaware County (LOC - Fifth Third Bank) 0.96 10/01/2033 7,355
4,400 Hamilton County (LOC - Fifth Third Bank) 0.96 12/01/2024 4,400
11,200 Hamilton County (LOC - Fifth Third Bank) 0.96 12/01/2026 11,200
1,450 Highland County (LOC - Fifth Third Bank) 0.98 8/01/2024 1,450
2,920 Loraine Port Auth. (LOC - Key Bank, N.A.) 1.00 7/01/2028 2,920
11,355 Pike County Health Care Facilities
(LOC - Bank of America Corp.) 0.97 11/01/2033 11,355
2,095 Pike County Health Care Facilities
(LOC - Bank of America Corp.) 0.97 11/01/2033 2,095
3,790 Toledo-Lucas County Port Auth.
(LOC - Fifth Third Bank) 0.91 9/01/2019 3,790
1,640 Wayne County (LOC - Fifth Third Bank) 1.02 9/01/2021 1,640
----------
51,885
----------
OKLAHOMA (3.9%)
6,520 Edmond EDA (LOC - Bank of Oklahoma, N.A.) 0.99 6/01/2031 6,520
8,700 Garfield County Industrial Auth. 0.84 1/01/2025 8,700
30,400 Muskogee Industrial Trust 0.80 1/01/2025 30,400
36,000 Muskogee Industrial Trust 0.82 6/01/2027 36,000
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 8,615 Tulsa Industrial Auth. (LOC - Bank of
Oklahoma, N.A.) 0.99% 11/01/2026 $ 8,615
----------
90,235
----------
PENNSYLVANIA (2.5%)
8,355 Allegheny County Hospital Dev. Auth.
(LOC - PNC Financial Services Group) 0.88 6/01/2035 8,355
5,250 Chartiers Valley Industrial and Commercial
Dev. Auth. 1.38 11/15/2017 5,250
27,350 Delaware Valley Regional Finance Auth.
(LOC - Bayerische Landesbank) 0.95 6/01/2042 27,350
17,185 Derry Township Industrial and Commercial Dev.
Auth. (LOC - PNC Financial Services Group) 0.88 11/01/2030 17,185
----------
58,140
----------
RHODE ISLAND (0.5%)
4,285 EDC (LOC - Citizens Financial Group) 0.97 3/01/2038 4,285
7,465 Health and Educational Building Corp.
(LOC - Citizens Financial Group) 0.85 6/01/2035 7,465
----------
11,750
----------
SOUTH CAROLINA (1.0%)
3,800 EDA (LOC - Fifth Third Bank) 0.96 2/01/2028 3,800
13,510 Jobs EDA (LIQ) (LOC - Deutsche Bank A.G.)(b) 1.03 11/01/2029 13,510
6,060 Public Service Auth. (LIQ)(b) 0.96 6/01/2037 6,060
----------
23,370
----------
SOUTH DAKOTA (1.2%)
5,975 Health and Educational Facilities Auth. 1.22 11/01/2020 5,975
2,690 Health and Educational Facilities Auth. 1.22 11/01/2025 2,690
5,575 Health and Educational Facilities Auth. 1.22 11/01/2027 5,575
13,210 Health and Educational Facilities Auth.
(LIQ) (LOC - Deutsche Bank A.G.)(b) 1.03 11/01/2040 13,210
----------
27,450
----------
TENNESSEE (0.8%)
11,340 Chattanooga Health, Educational and
Housing Facilities Board 0.98 5/01/2039 11,340
5,560 Metropolitan Government of Nashville and
Davidson County (LOC - Fifth Third Bank) 0.96 12/01/2024 5,560
2,070 Williamson County IDB (LOC - Fifth Third Bank) 0.98 12/01/2027 2,070
----------
18,970
----------
TEXAS (4.2%)
26,300 Atascosa County IDC (NBGA) 0.96 6/30/2020 26,300
14,230 Austin (LOC - JP Morgan Chase & Co.) 0.88 11/15/2029 14,230
7,200 Brazos Harbor IDC 0.98 7/01/2022 7,200
================================================================================
16 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$15,000 Port Arthur 0.98% 12/01/2040 $ 15,000
25,000 Port Arthur 0.98 6/01/2041 25,000
11,000 Port of Port Arthur Navigation District 0.94 12/01/2039 11,000
----------
98,730
----------
VIRGINIA (3.2%)
3,000 Fairfax County IDA 0.87 5/15/2042 3,000
3,095 Greene County EDA (LOC - BB&T Corp.) 0.97 6/01/2026 3,095
3,000 Hampton Roads Sanitation District 0.85 8/01/2046 3,000
6,230 Hanover County EDA
(LOC - Bank of New York Mellon Corp.) 0.83 11/01/2025 6,230
11,015 Hanover County EDA (LOC - U.S. Bancorp) 0.83 11/01/2025 11,015
5,050 Lexington IDA 0.75 1/01/2035 5,050
5,500 Loudoun County IDA (LOC - Northern Trust Corp.) 0.85 6/01/2034 5,500
13,000 Loudoun County IDA 0.83 2/15/2038 13,000
5,700 Loudoun County IDA 0.84 2/15/2038 5,700
1,900 Lynchburg IDA (LOC - Federal Home
Loan Bank of Atlanta) 0.86 1/01/2028 1,900
1,200 Madison County IDA (LOC - SunTrust Bank) 0.91 10/01/2037 1,200
8,605 Montgomery County IDA (LOC - Bank
of New York Mellon Corp.) 0.90 6/01/2035 8,605
3,415 Norfolk EDA 0.86 11/01/2034 3,415
950 Small Business Financing Auth. (LOC - Bank
of America Corp.) 0.88 7/01/2030 950
2,215 Univ. of Virginia (LIQ)(b) 0.87 12/01/2017 2,215
----------
73,875
----------
WASHINGTON (1.3%)
19,400 Health Care Facilities Auth.
(LOC - Barclays Bank PLC) 0.83 8/15/2041 19,400
10,310 Higher Education Facilities Auth. 0.90 10/01/2031 10,310
130 Seattle Housing Auth. (LOC - Key Bank, N.A.) 0.96 9/01/2036 130
----------
29,840
----------
WEST VIRGINIA (2.0%)
36,065 Hospital Finance Auth. (LOC - Fifth Third Bank) 0.94 10/01/2033 36,065
9,630 Marshall County 0.88 3/01/2026 9,630
----------
45,695
----------
WISCONSIN (0.3%)
545 Health and Educational Facilities Auth.
(LOC - JP Morgan Chase & Co.) 0.96 5/01/2026 545
5,645 Wind Point (LOC - U.S. Bancorp) 1.00 9/01/2035 5,645
----------
6,190
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
WYOMING (0.5%)
$12,000 Gillette 0.93% 1/01/2018 $ 12,000
----------
Total Variable-Rate Demand Notes (cost: $1,740,333) 1,740,333
----------
PUT BONDS (1.2%)
MONTANA (1.2%)
7,335 Board of Investments (NBGA) 0.52(d) 3/01/2025 7,335
1,850 Board of Investments (NBGA) 0.52(d) 3/01/2028 1,850
18,080 Board of Investments (NBGA) 0.52(d) 3/01/2029 18,080
----------
27,265
----------
Total Put Bonds (cost: $27,265) 27,265
----------
ADJUSTABLE-RATE NOTES (1.0%)
CALIFORNIA (1.0%)
24,775 Golden Empire Schools Financing Auth.
(cost: $24,775) 1.34(d) 5/01/2017 24,775
----------
FIXED-RATE INSTRUMENTS (24.5%)
CALIFORNIA (2.7%)
26,900 San Diego County Water Auth. 0.48 10/06/2016 26,900
5,000 San Diego County Water Auth. 0.50 10/17/2016 5,000
5,000 San Diego County Water Auth. 0.72 11/08/2016 5,000
26,000 Statewide Communities Dev. Auth. 0.77 11/04/2016 26,000
----------
62,900
----------
MARYLAND (1.5%)
20,000 Johns Hopkins Univ. 0.45 10/04/2016 20,000
15,000 Johns Hopkins Univ. 0.45 10/05/2016 15,000
----------
35,000
----------
NEW YORK (8.7%)
13,000 Addison CSD 2.00 6/27/2017 13,103
3,490 Adirondack CSD 1.50 7/20/2017 3,507
10,000 Auburn 1.50 5/27/2017 10,031
3,025 Batavia CSD 1.50 2/16/2017 3,034
2,715 Berlin CSD 2.00 6/28/2017 2,734
16,540 Chenango Forks CSD 2.00 6/22/2017 16,657
6,500 Chenango Valley CSD 1.50 7/14/2017 6,530
8,351 Cuba Rushford CSD 2.00 6/23/2017 8,411
7,900 East Bloomfield CSD 2.00 7/07/2017 7,965
2,994 Fredonia CSD 2.00 6/27/2017 3,014
8,670 Gates Chili CSD 2.00 6/23/2017 8,737
6,000 Genesee County 1.50 12/16/2016 6,008
================================================================================
18 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,500 Johnstown School District 1.50% 7/20/2017 $ 6,533
17,388 Kendall CSD 1.25 6/30/2017 17,401
4,100 Lansing CSD 2.00 6/28/2017 4,131
7,500 Maine Endwell CSD 2.00 6/30/2017 7,565
7,000 Municipal Water Finance Auth. 0.70 10/06/2016 7,000
16,145 Oakfield CSD 2.00 7/06/2017 16,267
5,095 Pavilion CSD 2.00 6/23/2017 5,130
9,965 Salmon River CSD 2.00 7/21/2017 10,040
8,785 Silver Creek CSD 2.00 6/15/2017 8,848
4,035 Spencer Van Etten CSD 2.25 6/29/2017 4,071
7,300 Wallkill CSD 2.00 6/30/2017 7,358
3,100 Waverly CSD 2.00 7/28/2017 3,124
15,147 Yorkshire-Pioneer CSD 2.00 6/27/2017 15,268
----------
202,467
----------
SOUTH CAROLINA (1.2%)
3,768 Public Service Auth. 0.51 10/04/2016 3,768
22,548 Public Service Auth. 0.48 10/06/2016 22,548
2,207 Public Service Auth. 0.70 10/06/2016 2,207
----------
28,523
----------
TEXAS (9.8%)
10,000 Dallas Area Rapid Transit 0.50 10/06/2016 10,000
22,500 Dallas Area Rapid Transit 0.50 11/03/2016 22,500
10,000 Dallas Area Rapid Transit 0.54 11/10/2016 10,000
10,000 Dallas Area Rapid Transit 0.52 11/15/2016 10,000
30,000 Dallas Area Rapid Transit 0.78 12/01/2016 30,000
5,100 Houston 0.50 10/18/2016 5,100
10,000 Houston 0.50 10/18/2016 10,000
5,000 Houston 0.75 11/03/2016 5,000
15,000 Houston 0.75 11/10/2016 15,000
10,000 Houston (LOC - Citigroup, Inc.) 0.75 11/15/2016 10,000
15,000 Houston 0.60 11/22/2016 15,000
21,460 San Antonio 0.50 10/04/2016 21,460
33,000 San Antonio 0.50 10/05/2016 33,000
12,000 San Antonio 0.73 10/13/2016 12,000
15,000 San Antonio 0.75 11/03/2016 15,000
5,000 Univ. of Texas 0.45 10/06/2016 5,000
----------
229,060
----------
VIRGINIA (0.6%)
13,065 Stafford County & Staunton IDA
(LOC - Bank of America Corp.) 0.80 10/18/2016 13,065
Total Fixed-Rate Instruments (cost: $571,015) 571,015
----------
TOTAL INVESTMENTS (COST: $2,363,388) $2,363,388
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
---------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
---------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $1,740,333 $- $1,740,333
Put Bonds - 27,265 - 27,265
Adjustable-Rate Notes - 24,775 - 24,775
Fixed-Rate Instruments - 571,015 - 571,015
---------------------------------------------------------------------------------------------
Total $- $2,363,388 $- $2,363,388
---------------------------------------------------------------------------------------------
================================================================================
20 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
Note 1A to the financial statements.
The cost of securities at September 30, 2016, for federal income tax
purposes, was approximately the same as that reported in 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, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(c) At September 30, 2016, the aggregate market value of securities
purchased on a delayed-delivery basis was $31,540,000.
(d) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2016.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $2,363,388
Cash 392
Receivables:
Capital shares sold 3,657
Interest 2,525
----------
Total assets 2,369,962
----------
LIABILITIES
Payables:
Securities purchased 27,589
Capital shares redeemed 8,039
Dividends on capital shares 42
Accrued management fees 551
Other accrued expenses and Payables 399
----------
Total liabilities 36,620
----------
Net assets applicable to capital shares outstanding $2,333,342
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,330,778
Undistributed net investment income (1)
----------
Accumulated net realized gain on investments 2,565
----------
Net assets applicable to capital shares outstanding $2,333,342
==========
Capital shares outstanding, no par value 2,330,770
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 6,956
-------
EXPENSES
Management fees 3,568
Administration and servicing fees 1,274
Transfer agent's fees 2,303
Custody and accounting fees 146
Postage 83
Shareholder reporting fees 28
Trustees' fees 15
Registration fees 23
Professional fees 78
Other 18
-------
Total expenses 7,536
Expenses reimbursed (1,085)
-------
Net expenses 6,451
-------
NET INVESTMENT INCOME 505
-------
NET REALIZED GAIN ON INVESTMENTS
Net realized gain 2,546
-------
Increase in net assets resulting from operations $ 3,051
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
---------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 505 $ 262
Net realized gain on investments 2,546 334
---------------------------------
Increase in net assets resulting from operations 3,051 596
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (506) (262)
Net realized gains - (364)
---------------------------------
Distributions to shareholders (506) (626)
---------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,687,732 1,306,564
Reinvested dividends 482 622
Cost of shares redeemed (1,991,871) (1,349,410)
---------------------------------
Decrease in net assets from capital share transactions (303,657) (42,224)
---------------------------------
Net decrease in net assets (301,112) (42,254)
NET ASSETS
Beginning of period 2,634,454 2,676,708
---------------------------------
End of period $ 2,333,342 $ 2,634,454
=================================
Undistributed net investment income:
End of period $ (1) $ -
=================================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,687,732 1,306,564
Shares issued for dividends reinvested 482 622
Shares redeemed (1,991,871) (1,349,410)
---------------------------------
Decrease in shares outstanding (303,657) (42,224)
=================================
See accompanying notes to financial statements.
================================================================================
24 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate
funds. Additionally, the Fund qualifies as a registered investment Company
under Accounting Standards Codification Topic 946. The information presented
in this semiannual report pertains only to the USAA Tax Exempt Money Market
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, with a further objective of
preserving capital and maintaining liquidity.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
Asset Management Company (the Manager), an affiliate of the Fund. 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. All securities held in the Fund are short-term debt securities which are
valued pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its purchase price, and thereafter, assumes a constant
amortization to maturity of any premiums or discounts.
2. Securities for which amortized cost valuations are considered
unreliable or whose values have been materially affected by a
significant event are valued in good faith at fair value, using methods
determined by the Committee, under procedures to stabilize net assets
and valuation procedures approved by the Board.
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 indexes.
================================================================================
26 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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
straight-line method.
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. As of September 30, 2016, the Fund's
outstanding delayed-delivery commitments, including interest purchased,
were $27,589,000.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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, 2016, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
================================================================================
28 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $8,000, which represents 3.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net
investment income will be determined as of the Fund's tax year-end of March
31, 2017, in accordance with applicable federal 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 income taxes.
At March 31, 2016, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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) 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.28% of the Fund's average net assets. For the
six-month period ended September 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $3,568,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
September 30, 2016, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $1,274,000.
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, 2016, the Fund reimbursed the
Manager $35,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. 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. The Fund's transfer agent's fees are accrued daily and
paid monthly at an annualized rate of 0.15% of the Fund's average net
assets, 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. Prior to June 1, 2016, the Fund paid
transfer agent service fees based on an annual charge of $25.50 per
shareholder account plus out-of-pocket expenses. For the six-month period
ended September 30, 2016, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $2,303,000.
D. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield. The Manager can
modify or terminate this arrangement at any time without prior notice to
================================================================================
30 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
shareholders. For the six-month period ended September 30, 2016, the Fund
incurred reimbursable expenses of $1,085,000.
E. 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 fee or other compensation for these
services.
(5) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
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.
(6) REGULATORY MATTERS
In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to
the rules that govern money market funds that will affect the manner in which
money market funds are structured and operated. The amendments also will allow
money market funds to impose liquidity fees and suspend redemptions temporarily
(redemption gates), and will impose new requirements related to diversification,
stress testing, and disclosure. Money market funds that qualify as "retail"
(Retail MMFs) or "government" will be permitted to continue to utilize amortized
cost to value their portfolio securities and to transact at a stable $1 net
asset value per share as they do today. Effective October 14, 2016, the Fund
operates as a Retail MMF and, in doing so, will have the ability to impose
liquidity fees and redemption gates.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income(a) .00 .00 .00 .00 .00 .00
Net realized and
unrealized gain(a) .00 .00 .00 .00 .00 .00
-------------------------------------------------------------------------------------
Total from investment
operations .00 .00 .00 .00 .00 .00
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00)
Realized capital gains - (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.00)(a)
-------------------------------------------------------------------------------------
Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================================
Total return (%)*,(b) .02 .02 .01 .02 .01 .04(c)
Net assets at
end of period (000) $2,333,342 $2,634,454 $2,676,708 $2,747,771 $2,683,358 $2,640,375
Ratios to average
net assets:**
Expenses (%)(b),(d) .51(e) .17 .15 .21 .34 .42(c)
Expenses, excluding
reimbursements (%)(d) .59(e) .58 .58 .56 .56 .57(c)
Net investment income (%) .04(e) .01 .01 .01 .01 .03
* 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
iMoneyNet reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended September 30, 2016, average net assets were
$2,538,580,000.
(a) Represents less than $0.01 per share.
(b) The Manager voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses and
attempt to prevent a negative yield.
(c) During the year ended March 31, 2012, SAS reimbursed the Fund $654,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratio by
0.02%. This decrease is excluded from the expense ratio in the Financial
Highlights table.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" in the table 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 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" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio 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
================================================================================
EXPENSE EXAMPLE | 33
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
Actual $1,000.00 $1,000.20** $2.56**
Hypothetical
(5% return before expenses) 1,000.00 1,022.51** 2.59**
*Expenses are equal to the Fund's annualized expense ratio of 0.51%, which is
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 value is
based on its actual total return of 0.02% for the six-month period of April 1,
2016, through September 30, 2016.
**The Funds' annualized expense ratio of 0.51% above reflects a change in the
transfer agency fee structure from a per-account fee to an asset-based fee
effective June 1, 2016. Had this change been in effect for the entire
six-month period of April 1, 2016, through September 30, 2016, the Funds'
expense ratio would have been 0.55%, net of expenses paid indirectly, and the
values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
Actual $1,000.00 $1,000.20 $2.76
Hypothetical
(5% return before expenses) 1,000.00 1,022.31 2.79
================================================================================
34 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
ADVISORY AGREEMENT(S) | 35
================================================================================
meeting at which the renewal of the Advisory Agreement is considered, particular
focus is given to information concerning Fund performance, fees and total
expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust. The Board
considered the Manager's management style and the performance of the Manager's
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of
================================================================================
36 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
the Fund's brokerage, including the Manager's process for monitoring "best
execution," also was considered. The Manager's role in coordinating the
activities of 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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes the Fund and all other no-load retail
open-end investment companies with the same investment classification/objective
as the Fund regardless of asset size, excluding outliers (the "expense
universe"). Among other data, the Board noted that the Fund's management fee
rate - which includes advisory and administrative services as well as any fee
waivers or reimbursements - was below the median of its expense group and equal
to the median of its expense universe. The data indicated that the Fund's total
expense ratio, after reimbursements, was above the median of its expense group
and its expense universe. The Board took into account the various services
provided to the Fund by the Manager and its affiliates, including the nature and
high quality
================================================================================
ADVISORY AGREEMENT(S) | 37
================================================================================
of the services provided by the Manager. The Board also noted the level and
method of computing the management fee. The Board took into account management's
discussion of the Fund's expenses, noting that the Manager had reimbursed a
significant portion of Fund expenses during the previous year.
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 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-, five-, and ten-year periods ended December 31, 2015.
The Board also noted that the Fund's percentile performance ranking was in the
top 20% of its performance universe for the one-year period ended December 31,
2015, was in the top 40% of its performance universe for the three-year period
ended December 31, 2015, was in the top 30% of its performance universe for the
five-year period ended December 31, 2015, and was in the top 5% of its
performance universe for the ten-year period ended December 31, 2015.
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. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its management fees to the Fund. The
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. In reviewing the
================================================================================
38 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
overall profitability of the management fee to the Manager, the Board also
considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of the services received by the Fund
from the Manager as well as the type of fund. 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 also
considered the fee waiver and expense reimbursement arrangements by the Manager.
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) | 39
================================================================================
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 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39598-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT SHORT-TERM FUND]
==============================================================
SEMIANNUAL REPORT
USAA TAX EXEMPT SHORT-TERM FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 30
Financial Statements 32
Notes to Financial Statements 35
EXPENSE EXAMPLE 48
ADVISORY AGREEMENT(S) 50
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)2016, USAA. All rights reserved.
211749-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TAX EXEMPT SHORT-TERM FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST
INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in investment-grade securities, the interest from
which is exempt from federal income tax. During normal market conditions, at
least 80% of the Fund's net assets will consist of tax-exempt securities. The
Fund's dollar-weighted average portfolio maturity is three years or less.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF REGINA G. SHAFER] [PHOTO OF DALE R. HOFFMANN]
REGINA G. SHAFER, CPA, CFA DALE R. HOFFMANN
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period ended
September 30, 2016, as demand for municipal securities outweighed the
amount of available supply. Although new issuance picked up, it remained
low by historical standards. Furthermore, it was dominated by refunding
bonds rather than new issues. In a bond refunding, issuers call existing
high-interest bonds and replace them with new bonds that have lower coupon
rates. Meanwhile, as demand for municipal bonds increased, municipal bond
mutual funds also received positive investment inflows every week of the
reporting period. Investors continued to prefer municipal securities for
their tax-advantaged status as well as their relative stability.
Municipal bonds also benefited from the performance of the U.S. Treasury
market, which the tax-exempt bond market generally follows over time.
Longer-term U.S. Treasury securities rallied on strong demand, especially
from foreign investors who favored U.S. Treasuries because of their
relatively higher yields compared to the government bonds of other
developed countries. As U.S. Treasury prices rose, their yields (which
move in the opposite direction) fell. During the reporting period, the
yield on a 30-year U.S. Treasury security dropped from 2.61% at 3/31/16 to
2.32% at 9/30/16. The yield curve (or, spectrum of maturities) flattened
slightly as yields on Treasury Securities with maturities of three years
and less edged up in anticipation of a Federal Reserve interest rate
increase sometime later in 2016.
================================================================================
2 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
Municipal credit quality remained strong as state and local governments
continued to practice sound fiscal management and generally maintained
healthy reserves. State and local revenues rose, though at a more moderate
pace than in the recent past. Numerous issuers also took steps to address
their pension risks, in some cases proposing tax increases to deal with
potential pension-funding shortfalls. Unlike corporate issuers, many state
and municipal governments have broad taxing powers and are required by law
to balance their budgets.
o HOW DID THE USAA TAX EXEMPT SHORT-TERM FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
reporting period ended September 30, 2016, the Fund Shares and Adviser
Shares had a total return of 0.63% and 0.50%, respectively, versus an
average return of 0.40% amongst the funds in the Lipper Short Municipal
Debt Funds category. This compares to returns of 0.46% for the Lipper Short
Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal
Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions
over the prior 12 months produced a dividend yield of 1.41% and 1.15%,
respectively, compared to the Lipper category average of 0.78%.
USAA Asset Management Company (the Manager) 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. Over the long-term, the
Fund's income distribution, not its price appreciation, accounts for most
of its total return.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the
Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
During the reporting period, we continued to invest a portion of the Fund's
assets in variable rate demand notes (VRDNs). The VRDNs owned by the Fund
possess a "demand" feature that allows the holder to sell the bond at par
with notice of seven days or less. This helps us increase share price
stability and also gives us the flexibility to act when attractive
opportunities arise. During the reporting period, these VRDNs also
generated more income for the Fund. In August and September 2016, shortly
before the Securities Exchange Commission's money market fund reform rules
became effective, a large number of money market funds sold VRDNs to come
into compliance with the new regulations. This caused inventories of VRDNs
to increase, leading many dealers to raise interest rates. The increase in
interest rates generally benefited the Fund.
The Fund continued to benefit from our independent research during the
reporting period. In our efforts to find attractive opportunities, we
continued to work with our in-house team of analysts to select investments
for the Fund on a bond-by-bond basis. Each security is researched, using
fundamental analysis that emphasizes an issuer's ability and willingness to
repay its debt. Through our research, we seek both to recognize value and
avoid potential risks.
The Fund continued to maintain a diversified portfolio of more than 300
municipal bonds, primarily of investment grade. Our analysts continuously
monitored the Fund's holdings. The Fund is diversified by sector, issuer,
and geography, limiting its exposure to an unexpected event. We also avoid
bonds subject to the federal alternative minimum tax for individuals.
Thank you for allowing us to help you with your investment needs.
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 VRDNs are securities for which the interest rate is
reset periodically; typically weekly, although reset intervals may vary.
o 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.
================================================================================
4 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
INVESTMENT OVERVIEW
USAA TAX EXEMPT SHORT-TERM FUND SHARES (FUND SHARES)
(Ticker Symbol: USSTX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $1.7 Billion $1.8 Billion
Net Asset Value Per Share $10.58 $10.59
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.149 $0.156
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 2.0 Years 2.0 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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
0.63% 1.23% 1.39% 2.58%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
0.93% 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 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, 2016, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
SEPTEMBER 30, 2016
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
-----------------------------------------------------------------------------------------------------------
10 YEARS 2.58% = 2.62% + -0.04%
5 YEARS 1.39% = 1.76% + -0.37%
1 YEAR 1.23% = 1.42% + -0.19%
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, 2007-SEPTEMBER 30, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN
RETURN RETURN SHARE PRICE
9/30/07 3.26% 3.73% -0.47%
9/30/08 2.83% 4.15% -1.32%
9/30/09 5.53% 4.09% 1.44%
9/30/10 4.29% 2.68% 1.61%
9/30/11 3.00% 2.72% 0.28%
9/30/12 2.92% 2.27% 0.65%
9/30/13 0.64% 1.93% -1.29%
9/30/14 1.71% 1.71% 0.00%
9/30/15 0.48% 1.51% -1.03%
9/30/16 1.23% 1.42% -0.19%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER
TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER,
DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE
PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
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 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 (including
capital gain distributions), redemptions of shares, or reinvested net investment
income.
================================================================================
6 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/16,
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
-------------------------------------------------------------------------------------
10 Years 2.62% 3.64% 4.15% 4.28% 4.63%
5 Years 1.76% 2.44% 2.78% 2.88% 3.11%
1 Year 1.42% 1.97% 2.25% 2.32% 2.51%
To match the Fund Shares' closing 30-day SEC Yield of 0.93% on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 1.29% 1.47% 1.52% 1.64%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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 | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA TAX EXEMPT LIPPER SHORT MUNICIPAL
MUNICIPAL BOND SHORT-TERM FUND DEBT FUNDS
INDEX SHARES INDEX
09/30/06 $10,000.00 $10,000.00 $10,000.00
10/31/06 10,062.71 10,029.00 10,025.48
11/30/06 10,146.59 10,069.00 10,057.25
12/31/06 10,110.74 10,082.00 10,070.47
01/31/07 10,084.85 10,082.00 10,078.81
02/28/07 10,217.74 10,140.00 10,124.27
03/31/07 10,192.55 10,163.00 10,146.49
04/30/07 10,222.72 10,193.00 10,172.47
05/31/07 10,177.46 10,186.00 10,187.46
06/30/07 10,124.72 10,190.00 10,185.66
07/31/07 10,203.21 10,230.00 10,221.92
08/31/07 10,159.19 10,246.00 10,235.49
09/30/07 10,309.52 10,325.00 10,285.71
10/31/07 10,355.47 10,348.00 10,312.51
11/30/07 10,421.50 10,403.00 10,344.91
12/31/07 10,450.43 10,417.00 10,376.53
01/31/08 10,582.21 10,559.00 10,484.96
02/29/08 10,097.73 10,447.00 10,361.34
03/31/08 10,386.34 10,552.00 10,399.99
04/30/08 10,507.88 10,568.00 10,420.41
05/31/08 10,571.41 10,606.00 10,462.92
06/30/08 10,452.09 10,592.00 10,445.15
07/31/08 10,491.82 10,650.00 10,502.87
08/31/08 10,614.60 10,729.00 10,552.92
09/30/08 10,116.83 10,617.00 10,464.06
10/31/08 10,013.57 10,549.00 10,430.08
11/30/08 10,045.40 10,585.00 10,470.69
12/31/08 10,191.86 10,555.00 10,476.05
01/31/09 10,564.91 10,780.00 10,612.69
02/28/09 10,620.41 10,786.00 10,609.90
03/31/09 10,622.35 10,803.00 10,638.66
04/30/09 10,834.56 10,871.00 10,686.82
05/31/09 10,949.17 10,936.00 10,730.34
06/30/09 10,846.60 10,958.00 10,751.17
07/31/09 11,028.07 11,034.00 10,808.64
08/31/09 11,216.61 11,094.00 10,836.16
09/30/09 11,619.14 11,204.00 10,908.21
10/31/09 11,375.24 11,187.00 10,896.20
11/30/09 11,469.23 11,264.00 10,942.23
12/31/09 11,507.99 11,281.00 10,955.33
01/31/10 11,567.92 11,346.00 10,984.17
02/28/10 11,680.05 11,412.00 11,007.99
03/31/10 11,652.09 11,392.00 10,997.80
04/30/10 11,793.69 11,451.00 11,017.58
05/31/10 11,882.15 11,485.00 11,038.41
06/30/10 11,889.21 11,511.00 11,049.55
07/31/10 12,037.46 11,592.00 11,092.99
08/31/10 12,313.06 11,681.00 11,130.01
09/30/10 12,293.82 11,684.00 11,123.47
10/31/10 12,259.77 11,699.00 11,130.47
11/30/10 12,014.62 11,659.00 11,112.62
12/31/10 11,781.79 11,611.00 11,094.90
01/31/11 11,695.00 11,604.00 11,098.80
02/28/11 11,881.18 11,664.00 11,121.47
03/31/11 11,841.59 11,691.00 11,140.63
04/30/11 12,053.65 11,762.00 11,178.36
05/31/11 12,259.63 11,843.00 11,228.35
06/30/11 12,302.40 11,892.00 11,252.69
07/31/11 12,427.95 11,962.00 11,291.45
08/31/11 12,640.57 12,020.00 11,326.96
09/30/11 12,771.24 12,036.00 11,331.50
10/31/11 12,723.76 12,015.00 11,315.98
11/30/11 12,798.93 12,052.00 11,335.52
12/31/11 13,042.41 12,124.00 11,372.03
01/31/12 13,344.04 12,192.00 11,414.90
02/29/12 13,357.19 12,227.00 11,441.25
03/31/12 13,270.40 12,206.00 11,427.74
04/30/12 13,423.49 12,251.00 11,455.69
05/31/12 13,534.92 12,295.00 11,472.96
06/30/12 13,520.39 12,304.00 11,477.57
07/31/12 13,734.67 12,347.00 11,504.34
08/31/12 13,750.31 12,368.00 11,514.06
09/30/12 13,833.37 12,386.00 11,530.43
10/31/12 13,872.40 12,407.00 11,536.03
11/30/12 14,100.94 12,443.00 11,558.23
12/31/12 13,926.66 12,429.00 11,540.42
01/31/13 13,984.66 12,436.00 11,559.46
02/28/13 14,027.02 12,480.00 11,577.34
03/31/13 13,966.53 12,500.00 11,583.26
04/30/13 14,119.63 12,520.00 11,597.30
05/31/13 13,947.15 12,507.00 11,588.47
06/30/13 13,552.23 12,443.00 11,533.98
07/31/13 13,433.74 12,451.00 11,543.41
08/31/13 13,242.02 12,436.00 11,528.89
09/30/13 13,527.03 12,465.00 11,551.58
10/31/13 13,633.90 12,496.00 11,581.13
11/30/13 13,605.80 12,503.00 11,585.92
12/31/13 13,571.05 12,510.00 11,586.61
01/31/14 13,835.44 12,552.00 11,621.18
02/28/14 13,997.67 12,593.00 11,650.87
03/31/14 14,021.21 12,575.00 11,626.95
04/30/14 14,189.67 12,605.00 11,651.05
05/31/14 14,372.39 12,636.00 11,677.12
06/30/14 14,384.85 12,641.00 11,675.44
07/31/14 14,410.18 12,646.00 11,679.17
08/31/14 14,584.73 12,675.00 11,697.21
09/30/14 14,599.54 12,678.00 11,706.52
10/31/14 14,699.62 12,695.00 11,716.43
11/30/14 14,725.09 12,698.00 11,716.57
12/31/14 14,799.29 12,702.00 11,707.66
01/31/15 15,061.60 12,741.00 11,752.25
02/28/15 14,906.29 12,733.00 11,733.36
03/31/15 14,949.34 12,736.00 11,730.88
04/30/15 14,870.85 12,717.00 11,724.67
05/31/15 14,829.74 12,698.00 11,704.95
06/30/15 14,816.31 12,691.00 11,709.93
07/31/15 14,923.59 12,720.00 11,727.17
08/31/15 14,952.94 12,711.00 11,731.64
09/30/15 15,061.18 12,739.00 11,751.65
10/31/15 15,121.12 12,768.00 11,771.36
11/30/15 15,181.20 12,770.00 11,759.97
12/31/15 15,287.92 12,775.00 11,763.93
01/31/16 15,470.36 12,811.00 11,803.84
02/29/16 15,494.59 12,813.00 11,820.28
03/31/16 15,543.73 12,816.00 11,805.27
04/30/16 15,658.07 12,832.00 11,826.27
05/31/16 15,700.42 12,835.00 11,822.49
06/30/16 15,950.14 12,887.00 11,860.95
07/31/16 15,959.83 12,902.00 11,879.15
08/31/16 15,981.42 12,905.00 11,878.75
09/30/16 15,901.69 12,897.00 11,859.44
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Short-Term Fund Shares to the following benchmarks:
o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (Index)
tracks total return performance for the long-term, investment-grade,
tax-exempt bond market. All tax-exempt bond funds will find it difficult to
outperform the Index because the Index does not reflect any deduction for
fees, expenses, or taxes.
o The unmanaged Lipper Short Municipal Debt Funds Index, which measures the
Fund's performance to that of the Lipper Short Municipal Debt Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
8 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER SHORT MUNICIPAL
SHORT-TERM FUND DEBT FUNDS
SHARES AVERAGE
09/30/07 3.69% 3.18%
09/30/08 4.18% 3.23%
09/30/09 3.89% 3.04%
09/30/10 2.58% 1.42%
09/30/11 2.65% 1.45%
09/30/12 2.22% 1.21%
09/30/13 1.96% 0.86%
09/30/14 1.69% 0.77%
09/30/15 1.52% 0.72%
09/30/16 1.41% 0.78%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/07 to 9/30/16.
The Lipper Short Municipal Debt Funds Average is an average performance level of
all short-term municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA TAX EXEMPT SHORT-TERM FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UTESX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $23.6 Million $31.0 Million
Net Asset Value Per Share $10.58 $10.59
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.122 $0.129
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
0.50% 0.87% 1.14% 1.49%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16
--------------------------------------------------------------------------------
UNSUBSIDIZED 0.50% SUBSIDIZED 0.68%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 3/31/16***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.83% 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 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, 2016, and is
calculated as a percentage of average net assets. USAA Asset Management Company
(the Manager) has agreed, through August 1, 2017, 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, 2017. If the
total annual operating expense ratio of the Adviser Shares is lower than 0.80%,
the Adviser Shares will operate at the lower expense ratio. 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 SHORT-TERM FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 0.68% on 09/30/16
and assuming marginal federal tax
rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 0.94% 1.08% 1.11% 1.20%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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]
BLOOMBERG BARCLAYS USAA TAX EXEMPT SHORT-TERM LIPPER SHORT MUNICIPAL
MUNICIPAL BOND FUND ADVISER DEBT FUNDS
INDEX SHARES INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,228.95 10,074.87 10,033.38
09/30/10 10,212.97 10,085.31 10,027.48
10/31/10 10,184.68 10,086.35 10,033.79
11/30/10 9,981.03 10,049.96 10,017.70
12/31/10 9,787.61 10,006.37 10,001.73
01/31/11 9,715.50 9,997.77 10,005.25
02/28/11 9,870.17 10,048.12 10,025.68
03/31/11 9,837.28 10,068.74 10,042.95
04/30/11 10,013.45 10,128.54 10,076.96
05/31/11 10,184.57 10,196.15 10,122.02
06/30/11 10,220.10 10,235.65 10,143.97
07/31/11 10,324.40 10,293.76 10,178.91
08/31/11 10,501.03 10,341.92 10,210.92
09/30/11 10,609.58 10,353.30 10,215.01
10/31/11 10,570.14 10,333.20 10,201.02
11/30/11 10,632.58 10,362.76 10,218.64
12/31/11 10,834.86 10,422.38 10,251.55
01/31/12 11,085.43 10,478.59 10,290.19
02/29/12 11,096.35 10,506.75 10,313.95
03/31/12 11,024.25 10,486.24 10,301.77
04/30/12 11,151.44 10,522.87 10,326.96
05/31/12 11,244.01 10,558.72 10,342.54
06/30/12 11,231.93 10,564.12 10,346.69
07/31/12 11,409.94 10,598.09 10,370.82
08/31/12 11,422.94 10,614.24 10,379.58
09/30/12 11,491.93 10,627.28 10,394.34
10/31/12 11,524.36 10,643.48 10,399.39
11/30/12 11,714.22 10,671.47 10,419.40
12/31/12 11,569.44 10,657.30 10,403.34
01/31/13 11,617.62 10,661.62 10,420.51
02/28/13 11,652.81 10,697.12 10,436.63
03/31/13 11,602.56 10,711.77 10,441.96
04/30/13 11,729.74 10,726.76 10,454.63
05/31/13 11,586.46 10,711.89 10,446.67
06/30/13 11,258.38 10,656.80 10,397.54
07/31/13 11,159.95 10,660.80 10,406.04
08/31/13 11,000.68 10,645.13 10,392.95
09/30/13 11,237.45 10,668.85 10,413.41
10/31/13 11,326.23 10,692.49 10,440.05
11/30/13 11,302.88 10,696.72 10,444.37
12/31/13 11,274.02 10,689.91 10,444.99
01/31/14 11,493.66 10,732.65 10,476.15
02/28/14 11,628.43 10,756.27 10,502.91
03/31/14 11,647.98 10,749.21 10,481.35
04/30/14 11,787.93 10,773.15 10,503.08
05/31/14 11,939.72 10,796.81 10,526.58
06/30/14 11,950.07 10,799.71 10,525.07
07/31/14 11,971.12 10,801.48 10,528.43
08/31/14 12,116.12 10,822.91 10,544.69
09/30/14 12,128.43 10,824.00 10,553.09
10/31/14 12,211.57 10,835.30 10,562.01
11/30/14 12,232.73 10,836.28 10,562.15
12/31/14 12,294.37 10,837.09 10,554.11
01/31/15 12,512.28 10,868.36 10,594.31
02/28/15 12,383.26 10,859.73 10,577.28
03/31/15 12,419.02 10,850.33 10,575.04
04/30/15 12,353.82 10,852.11 10,569.45
05/31/15 12,319.66 10,823.46 10,551.67
06/30/15 12,308.51 10,815.02 10,556.16
07/31/15 12,397.63 10,836.38 10,571.70
08/31/15 12,422.01 10,827.52 10,575.73
09/30/15 12,511.93 10,859.78 10,593.77
10/31/15 12,561.73 10,870.75 10,611.53
11/30/15 12,611.63 10,871.34 10,601.27
12/31/15 12,700.29 10,871.47 10,604.84
01/31/16 12,851.86 10,911.45 10,640.81
02/29/16 12,871.98 10,911.03 10,655.63
03/31/16 12,912.80 10,900.13 10,642.10
04/30/16 13,007.79 10,922.00 10,661.04
05/31/16 13,042.97 10,922.00 10,657.63
06/30/16 13,250.42 10,954.00 10,692.30
07/31/16 13,258.47 10,964.00 10,708.70
08/31/16 13,276.41 10,964.00 10,708.34
09/30/16 13,210.17 10,955.00 10,690.94
[END CHART]
Data from 7/31/10 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Short-Term Fund Adviser Shares to the benchmarks listed above
(see page 8 for benchmark definitions).
*The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper
Short 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, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
12 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER SHORT MUNICIPAL
SHORT-TERM FUND DEBT FUNDS
ADVISER SHARES AVERAGE
09/30/11 2.41% 1.45%
09/30/12 1.97% 1.21%
09/30/13 1.70% 0.86%
09/30/14 1.45% 0.77%
09/30/15 1.27% 0.72%
09/30/16 1.15% 0.78%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/11 to 9/30/16.
The Lipper Short Municipal Debt Funds Average is an average performance level of
all short-term municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
General Obligation ....................................................... 28.9%
Hospital ................................................................. 17.2%
Electric Utilities ....................................................... 10.3%
Appropriated Debt ........................................................ 6.8%
Special Assessment/Tax/Fee ............................................... 6.0%
Education ................................................................ 5.9%
Toll Roads ............................................................... 5.5%
Environmental & Facilities Services ...................................... 3.1%
Nursing/CCRC ............................................................. 2.1%
Oil & Gas Refining & Marketing ........................................... 1.7%
You will find a complete list of securities that the Fund owns on pages 16-29.
================================================================================
14 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 2.2%
AA 29.2%
A 41.0%
BBB 18.9%
UNRATED 5.0%
BELOW INVESTMENT-GRADE 3.7%
[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 independent 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 and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated 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 16-29.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
ISD Independent School District
================================================================================
16 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
USD Unified School District
CREDIT ENHANCEMENTS - Adds 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: Assured Guaranty Corp., Assured Guaranty Municipal
Corp., Build America Mutual Assurance Co., National Public Finance
Guarantee Corp., or Radian Asset Assurance, Inc. 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 Corp., Citigroup, Inc.,
Deutsche Bank A.G., Dexia Credit Local, JPMorgan Chase & Co., 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: Georgia-Pacific LLC,
Pennsylvania Public School Intercept Program, or Texas Permanent
School Fund.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (48.8%)
ARIZONA (0.1%)
$ 1,000 Yavapai County IDA 5.00% 8/01/2019 $ 1,077
1,105 Yavapai County IDA 5.00 8/01/2020 1,219
----------
2,296
----------
CALIFORNIA (1.8%)
500 Anaheim Public Financing Auth. 5.00 5/01/2022 599
250 Anaheim Public Financing Auth. 5.00 5/01/2024 312
3,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2017 3,092
1,125 Irvine 5.00 9/02/2021 1,321
500 Los Angeles County 5.00 3/01/2021 584
1,000 Los Angeles County 5.00 9/01/2021 1,184
2,000 Public Works Board 5.00 4/01/2019 2,203
2,700 Public Works Board 5.00 11/01/2019 3,035
1,000 Public Works Board 5.00 4/01/2020 1,139
1,500 Public Works Board 5.00 4/01/2021 1,760
15,000 State 5.00 10/01/2017 15,631
----------
30,860
----------
COLORADO (0.4%)
1,475 Denver Health and Hospital Auth. 5.00 12/01/2016 1,484
160 Health Facilities Auth. (ETM) 5.00 11/15/2016 161
2,840 Health Facilities Auth. (ETM) 5.00 11/15/2016 2,855
1,100 Health Facilities Auth. 2.00 12/01/2016 1,102
1,250 Health Facilities Auth. 4.00 12/01/2019 1,339
----------
6,941
----------
CONNECTICUT (0.1%)
2,235 West Haven (INS) 5.00 8/01/2020 2,518
----------
FLORIDA (3.4%)
4,500 Gulf Breeze 3.10 12/01/2020 4,818
1,385 Higher Educational Facilities Financing Auth. 5.00 4/01/2021 1,589
3,500 Highlands County Health Facilities 5.00 11/15/2016 3,519
1,235 Highlands County Health Facilities 5.00 11/15/2016 1,242
1,000 Jacksonville 5.00 10/01/2019 1,118
4,580 Jacksonville 5.00 10/01/2020 5,271
1,165 Lee County IDA 3.75 10/01/2017 1,187
3,165 Lee County IDA 4.75 10/01/2022 3,468
1,775 Miami Beach Health Facilities Auth. 5.00 11/15/2019 1,974
1,250 Miami Beach Health Facilities Auth. 5.00 11/15/2020 1,430
7,500 Miami-Dade County IDA 3.75 12/01/2018 7,920
================================================================================
18 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 1,200 Orange County Health Facilities Auth. 5.00% 10/01/2016 $ 1,200
2,820 Pinellas County Educational Facilities Auth. 4.00 10/01/2020 3,078
1,325 Southeast Overtown / Park West Community
Redevelopment Agency(a) 5.00 3/01/2020 1,454
1,000 Southeast Overtown / Park West Community
Redevelopment Agency(a) 5.00 3/01/2023 1,154
10,000 Sunshine State Governmental Financing Commission 5.00 9/01/2017 10,367
8,975 Sunshine State Governmental Financing Commission 5.00 9/01/2018 9,648
----------
60,437
----------
GEORGIA (0.8%)
3,000 Fulton County Dev. Auth. (ETM) 4.00 11/15/2016 3,012
3,415 Private Colleges and Univ. Auth. 5.00 10/01/2018 3,663
1,265 Private Colleges and Univ. Auth. 5.00 10/01/2019 1,400
1,255 Private Colleges and Univ. Auth. 5.00 10/01/2019 1,389
3,770 Private Colleges and Univ. Auth. 5.00 10/01/2020 4,279
----------
13,743
----------
GUAM (0.5%)
1,500 Government 5.00 12/01/2023 1,795
2,000 Government 5.00 12/01/2024 2,425
860 Government Waterworks Auth. 5.00 7/01/2020 964
1,000 Power Auth. (INS) 5.00 10/01/2019 1,101
1,500 Power Auth. (INS) 5.00 10/01/2020 1,692
----------
7,977
----------
IDAHO (0.3%)
5,000 Nez Perce County 2.75 10/01/2024 5,001
----------
ILLINOIS (4.6%)
20,000 Chicago (INS) 3.18(b) 1/01/2018 19,247
4,000 Chicago Water 5.00 11/01/2025 4,827
2,000 Chicago Water 5.00 11/01/2025 2,421
2,500 Chicago Water 4.00 11/01/2026 2,815
1,000 Chicago Water 5.00 11/01/2026 1,220
5,940 Finance Auth. 4.50 2/15/2017 5,997
1,000 Finance Auth. 5.00 7/01/2018 1,064
2,410 Finance Auth. 5.00 8/15/2018 2,584
14,360 Finance Auth. 5.00 2/15/2019 14,969
1,000 Finance Auth. 5.00 7/01/2019 1,096
1,420 Finance Auth. 5.00 7/01/2020 1,601
10,000 Finance Auth. 4.00 2/15/2025 10,955
6,500 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 6,901
4,160 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2020 4,735
1,090 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2021 1,274
----------
81,706
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
INDIANA (2.0%)
$ 5,000 Finance Auth. 2.95% 10/01/2022 $ 5,342
20,000 Jasper County (INS) 5.60 11/01/2016 20,079
10,000 Whiting Environmental Facilities 5.00 7/01/2017 10,275
----------
35,696
----------
LOUISIANA (0.3%)
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2022 5,826
----------
MASSACHUSETTS (0.2%)
835 Dev. Finance Agency 5.00 1/01/2017 843
1,065 Dev. Finance Agency 5.00 1/01/2018 1,117
1,395 Dev. Finance Agency 5.00 1/01/2019 1,514
----------
3,474
----------
MICHIGAN (0.3%)
2,165 Grand Traverse County Hospital Finance Auth.(c) 5.00 7/01/2018 2,311
2,625 Grand Traverse County Hospital Finance Auth.(c) 5.00 7/01/2019 2,893
----------
5,204
----------
MINNESOTA (0.2%)
325 St. Paul Housing and Redevelopment Auth. (PRE) 5.25 5/15/2017 327
1,250 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2020 1,420
1,575 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2021 1,830
----------
3,577
----------
MISSISSIPPI (0.7%)
10,000 Hospital Equipment and Facilities Auth. 5.00 9/01/2024 12,080
----------
MISSOURI (0.4%)
1,000 Cape Girardeau County IDA 5.00 6/01/2017 1,003
5,000 Sikeston Electric System Revenue (INS) 5.00 6/01/2020 5,621
----------
6,624
----------
MONTANA (0.3%)
6,000 Forsyth 2.00 8/01/2023 6,020
----------
NEW JERSEY (10.3%)
10,378 Belleville Township 2.00 5/26/2017 10,432
1,000 Building Auth. 3.00 6/15/2023 1,022
4,000 Building Auth. 5.00 6/15/2024 4,646
1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2024 1,174
7,300 EDA (ETM) 5.25 9/01/2019 8,199
2,700 EDA 5.25 9/01/2019 2,964
5,000 EDA 5.00 6/15/2020 5,492
7,000 EDA 5.00 6/15/2021 7,830
20,000 EDA 5.00 6/15/2022 22,752
3,250 Fairview 1.50 2/03/2017 3,255
================================================================================
20 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 5,055 Health Care Facilities Financing Auth. 4.00% 11/15/2016 $ 5,075
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2018 2,136
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2019 2,207
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2020 2,276
10,000 Kearny 2.00 2/15/2017 10,004
15,000 Kearny Board of Education 2.00 10/07/2016 15,002
15,000 Kearny Board of Education(d) 2.00 10/06/2017 15,102
3,842 Lambertville 2.00 3/23/2017 3,857
6,933 Matawan 2.00 1/18/2017 6,947
6,500 Newark 2.50 2/15/2017 6,516
5,740 Ocean Township 2.00 2/24/2017 5,756
3,014 Southampton Board of Education 2.00 7/05/2017 3,014
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2020 5,649
3,160 Transportation Trust Fund Auth. (INS) 5.50 12/15/2020 3,602
1,500 Transportation Trust Fund Auth. 5.00 6/15/2022 1,713
3,835 Transportation Trust Fund Auth. 5.00 6/15/2023 4,437
13,956 Wall Township 2.00 6/30/2017 14,036
7,600 Willingboro Township School District 2.00 12/22/2016 7,600
----------
182,695
----------
NEW YORK (14.3%)
11,574 Auburn 1.50 5/27/2017 11,602
6,130 Auburn 2.00 7/06/2017 6,160
4,250 Bath 2.00 8/25/2017 4,275
2,395 Belleville Henderson Central School District 2.00 7/26/2017 2,406
10,000 Broome County 2.00 5/05/2017 10,059
8,468 Colonie 2.00 3/17/2017 8,496
5,000 Copiague Union Free School District 2.00 3/31/2017 5,020
3,183 Corning 1.50 8/16/2017 3,183
15,000 Enlarged Ogdensburg City School District 2.00 6/21/2017 15,064
2,000 Environmental Facilities Corp. 2.75 7/01/2017 2,024
2,005 Fishkill 2.00 7/14/2017 2,012
17,309 Geneva 1.50 5/10/2017 17,342
4,600 Glen Cove 2.00 12/15/2016 4,602
1,835 Glen Cove 2.00 4/06/2017 1,837
8,101 Glen Cove 2.50 4/06/2017 8,137
15,000 Hempstead 2.00 12/16/2016 15,027
1,500 Island Park 2.00 12/22/2016 1,503
3,990 Johnson City 2.00 10/07/2016 3,991
2,585 Mechanicville 2.00 12/30/2016 2,588
5,170 Monroe County 5.00 6/01/2020 5,866
6,000 Nassau Health Care Corp. 2.00 1/17/2017 6,011
2,467 Newburgh 2.00 7/21/2017 2,478
7,283 Norwich 1.50 3/24/2017 7,289
15,000 Oyster Bay 2.75 2/03/2017 15,034
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 3,000 Oyster Bay 3.88% 6/28/2017 $ 3,018
12,000 Oyster Bay 4.00 6/01/2018 12,102
3,693 Peekskill 2.00 9/22/2017 3,722
1,345 Rockland County 3.50 10/01/2016 1,345
550 Rockland County 5.00 12/15/2016 554
1,410 Rockland County 3.50 10/01/2017 1,431
550 Rockland County 5.00 12/15/2017 569
1,475 Rockland County 3.50 10/01/2018 1,520
550 Rockland County 5.00 12/15/2018 586
1,520 Rockland County 3.50 10/01/2019 1,590
1,575 Rockland County 3.50 10/01/2020 1,655
2,500 Rockland County (INS) 5.00 3/01/2023 2,998
1,600 Rockland County (INS) 5.00 3/01/2024 1,946
1,000 Suffern 2.50 11/18/2016 1,001
2,500 Suffolk County EDC 5.00 7/01/2019 2,758
2,640 Suffolk County EDC 5.00 7/01/2020 2,998
2,378 Troy 2.00 8/04/2017 2,388
3,950 Utica 1.50 2/23/2017 3,954
7,523 Utica 1.50 5/05/2017 7,531
2,000 Utica School District 2.00 12/09/2016 2,001
13,756 Utica School District 2.00 7/21/2017 13,798
2,160 Van Buren 2.00 1/20/2017 2,164
1,873 Wawarsing 2.00 12/16/2016 1,876
4,700 West Seneca Fire District No. 2 2.00 7/12/2017 4,700
3,930 Yonkers(c) 5.00 10/01/2017 4,082
7,310 Yonkers(c) 5.00 10/01/2018 7,863
----------
252,156
----------
NORTH CAROLINA (0.4%)
2,100 Medical Care Commission 4.38 7/01/2017 2,134
3,855 Medical Care Commission 5.00 7/01/2018 4,115
----------
6,249
----------
OHIO (0.9%)
4,515 American Municipal Power, Inc. 5.00 2/15/2017 4,585
1,530 Hancock County 4.00 12/01/2016 1,537
1,875 Hancock County 4.25 12/01/2017 1,933
1,000 Higher Educational Facility 5.00 5/01/2021 1,152
500 Higher Educational Facility 5.00 5/01/2022 585
550 Higher Educational Facility 5.00 5/01/2023 656
1,000 Higher Educational Facility 5.00 5/01/2024 1,212
1,800 Ohio Water Dev. Auth. 1.55 7/01/2021 1,796
1,150 Southeastern Ohio Port Auth. 5.00 12/01/2021 1,283
1,000 Southeastern Ohio Port Auth. 5.00 12/01/2025 1,125
----------
15,864
----------
================================================================================
22 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
PENNSYLVANIA (2.9%)
$ 1,000 Bethlehem Auth. (INS) 5.00% 11/15/2020 $ 1,139
1,000 Chester County IDA 3.75 10/01/2024 1,061
7,975 Coatesville School District 3.46(b) 8/15/2018 7,638
1,165 Coatesville School District 3.86(b) 8/15/2019 1,088
5,305 Coatesville School District 4.13(b) 8/15/2020 4,814
1,980 Cumberland County Municipal Auth. 3.25 12/01/2022 2,041
1,110 Delaware County Auth. 4.00 10/01/2016 1,110
1,155 Delaware County Auth. 5.00 10/01/2017 1,196
1,195 Delaware County Auth. 5.00 10/01/2018 1,271
600 Higher Educational Facilities Auth. 5.00 7/15/2020 675
1,090 Higher Educational Facilities Auth. 5.00 7/15/2021 1,253
1,500 Montgomery County IDA (ETM) 5.00 11/15/2016 1,508
2,000 Montgomery County IDA (PRE) 5.00 11/15/2017 2,011
5,000 School District of Philadelphia (NBGA) 5.00 9/01/2021 5,603
5,500 School District of Philadelphia (NBGA) 5.00 9/01/2022 6,179
5,175 St. Mary Hospital Auth. 4.00 11/15/2016 5,196
5,170 St. Mary Hospital Auth. 4.00 11/15/2016 5,191
1,570 West Mifflin Area School District (INS) 5.00 10/01/2021 1,798
----------
50,772
----------
PUERTO RICO (0.2%)
2,000 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.00 4/01/2017 2,001
1,000 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.00 4/01/2019 1,000
700 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 4.00 4/01/2020 675
----------
3,676
----------
SOUTH CAROLINA (0.1%)
1,485 SCAGO Educational Facilities Corp. for
Union School District (INS) (ETM) 4.00 12/01/2016 1,493
----------
TEXAS (2.0%)
3,000 Dallas Fort Worth International Airport 5.00 11/01/2016 3,011
700 Decatur Hospital Auth. 5.00 9/01/2021 788
780 Decatur Hospital Auth. 5.00 9/01/2024 885
2,105 Gregg County Health Facilities Dev. Corp. 5.00 10/01/2016 2,105
480 Harris County Municipal Utility District (INS) 3.00 3/01/2020 510
565 Harris County Municipal Utility District (INS) 3.00 3/01/2021 607
650 Harris County Municipal Utility District (INS) 3.00 3/01/2022 705
520 Harris County Municipal Utility District (INS) 3.00 3/01/2023 568
3,000 Karnes County Hospital District 5.00 2/01/2024 3,471
1,250 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2023 1,449
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,300 New Hope Cultural Facilities Finance Corp. 5.00% 7/01/2024 $ 2,690
2,135 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2025 2,514
7,175 Red River Auth. (INS) 4.45 6/01/2020 7,818
1,585 San Leanna Education Facilities Corp. 5.00 6/01/2017 1,624
440 Tarrant County Cultural Education Facilities
Finance Corp. (ETM) 5.00 11/15/2017 461
560 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2017 577
6,155 Tyler Health Facilities Dev. Corp. 5.25 11/01/2016 6,174
----------
35,957
----------
VIRGINIA (0.6%)
3,200 Housing Dev. Auth. 3.05 3/01/2018 3,290
3,200 Housing Dev. Auth. 3.05 9/01/2018 3,320
3,506 Marquis Community Dev. Auth.(e),(f) 5.10 9/01/2036 2,791
5,111 Marquis Community Dev. Auth.(e),(f) 5.63(b) 9/01/2041 725
1,074 Marquis Community Dev. Auth., 7.50%, 9/01/2021(a) 7.50(g) 9/01/2045 712
----------
10,838
----------
WEST VIRGINIA (0.6%)
10,000 EDA 3.25 5/01/2019 10,366
----------
WISCONSIN (0.1%)
1,200 Health and Educational Facilities Auth. (ETM) 5.00 8/15/2021 1,424
----------
Total Fixed-Rate Instruments (cost: $842,728) 861,470
----------
PUT BONDS (25.7%)
ARIZONA (2.4%)
16,000 Health Facilities Auth. 2.69(h) 2/01/2048 16,287
25,000 Health Facilities Auth. 2.69(h) 2/01/2048 25,394
----------
41,681
----------
ARKANSAS (1.2%)
22,000 Dev. Finance Auth. 1.94(h) 9/01/2044 21,884
----------
CALIFORNIA (4.1%)
5,000 Bay Area Toll Auth. 1.23(h) 4/01/2045 5,008
15,000 Bay Area Toll Auth. 1.54(h) 4/01/2047 15,003
15,000 Foothill-Eastern Transportation Corridor Agency 5.00 1/15/2053 16,309
8,285 Hemet USD 1.49(h) 10/01/2036 8,285
8,000 Infrastructure and Economic Dev. Bank 2.04(h) 8/01/2037 8,046
8,000 Municipal Finance Auth. 1.34(h) 10/01/2045 7,967
4,100 Pollution Control Financing Auth.(a) 0.60 8/01/2024 4,100
4,000 Twin Rivers USD (INS) 3.20 6/01/2027 4,007
4,000 Twin Rivers USD (INS) 3.20 6/01/2035 4,007
----------
72,732
----------
================================================================================
24 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
COLORADO (0.8%)
$10,500 E-470 Public Highway Auth. 2.02%(h) 9/01/2039 $ 10,482
3,000 E-470 Public Highway Auth. (INS) 2.59(h) 9/01/2039 3,005
----------
13,487
----------
GEORGIA (0.9%)
10,000 Appling County Dev. Auth 2.40 1/01/2038 10,303
5,000 Monroe County Dev. Auth. 2.00 9/01/2037 5,068
----------
15,371
----------
ILLINOIS (0.1%)
2,500 Educational Facilities Auth. 3.40 11/01/2036 2,544
----------
KENTUCKY (0.5%)
9,000 Economic Dev. Finance Auth. 0.70 4/01/2031 9,000
----------
LOUISIANA (0.2%)
4,000 St. Charles Parish 4.00 12/01/2040 4,436
----------
MASSACHUSETTS (1.1%)
8,000 Dev. Finance Agency 1.42(h) 10/01/2040 7,995
12,000 Dev. Finance Agency 1.32(h) 7/01/2050 11,769
----------
19,764
----------
MISSISSIPPI (0.4%)
7,000 Hospital Equipment and Facilities Auth. 2.14(h) 8/15/2036 6,943
----------
NEVADA (0.3%)
4,400 Washoe County Gas and Water Facilities 3.00 3/01/2036 4,746
----------
NEW JERSEY (1.6%)
20,000 Transportation Trust Fund Auth. 2.04(h) 6/15/2034 19,221
10,000 Turnpike Auth. 1.52(h) 1/01/2024 10,029
----------
29,250
----------
NEW MEXICO (1.3%)
5,000 Farmington 1.88 4/01/2029 5,097
5,000 Farmington 1.88 4/01/2029 5,097
7,000 Farmington 1.88 4/01/2029 7,136
6,000 Farmington 1.88 4/01/2033 6,012
----------
23,342
----------
NEW YORK (2.3%)
6,000 Energy Research and Development Auth. 2.00 2/01/2029 6,124
9,785 MTA 1.19(h) 11/01/2030 9,787
12,000 MTA 1.42(h) 11/01/2031 12,002
12,000 New York City 1.42(h) 8/01/2027 11,994
----------
39,907
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
NORTH CAROLINA (0.5%)
$ 8,500 Capital Facilities Finance Agency 0.70% 7/01/2034 $ 8,500
----------
OHIO (0.5%)
10,000 Water Dev. Auth. 4.00 6/01/2033 9,304
----------
PENNSYLVANIA (4.3%)
10,000 Beaver County IDA 4.75 8/01/2020 10,496
5,100 Beaver County IDA 2.70 4/01/2035 4,862
7,575 Berks County Municipal Auth. 2.34(h) 11/01/2039 7,633
7,000 Geisinger Auth. 1.42(h) 6/01/2028 6,987
3,500 Lehigh County IDA 0.90 2/15/2027 3,497
2,250 Lehigh County IDA 0.90 9/01/2029 2,248
5,000 Montgomery County IDA 2.60 3/01/2034 5,141
7,000 Northampton County General Purpose Auth. 2.24(h) 8/15/2043 7,007
15,005 Scranton School District 1.36(h) 4/01/2031 14,961
12,500 Turnpike Commission 1.64(h) 12/01/2045 12,499
----------
75,331
----------
TEXAS (2.7%)
2,310 Gregg County Health Facilities Dev. Corp.(a) 4.27(h) 10/01/2029 2,315
23,000 Mission EDC 0.60 1/01/2020 23,000
4,000 North Texas Tollway Auth. 1.51(h) 1/01/2038 4,011
4,000 North Texas Tollway Auth. 1.64(h) 1/01/2050 4,000
9,580 Northside ISD (NBGA) 2.13 8/01/2040 9,614
5,000 San Antonio 1.52(h) 5/01/2043 5,000
----------
47,940
----------
WEST VIRGINIA (0.5%)
5,500 EDA 1.90 3/01/2040 5,532
3,000 Mason County 1.63 10/01/2022 3,017
----------
8,594
----------
Total Put Bonds (cost: $453,099) 454,711
----------
ADJUSTABLE-RATE NOTES (2.0%)
NEW JERSEY (0.6%)
11,000 EDA 1.57 2/01/2017 10,993
----------
NEW YORK (0.1%)
2,000 New York City 1.39 8/01/2025 2,000
----------
PENNSYLVANIA (1.1%)
6,000 Turnpike Commission 1.99 12/01/2019 6,043
6,000 Turnpike Commission 2.11 12/01/2020 6,061
6,500 Turnpike Commission 1.82 12/01/2021 6,477
----------
18,581
----------
================================================================================
26 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
TEXAS (0.2%)
$ 1,750 Harris County Cultural Education Facilities
Finance Corp. 1.44% 6/01/2018 $ 1,750
2,250 Harris County Cultural Education Facilities
Finance Corp. 1.54 6/01/2019 2,253
----------
4,003
----------
Total Adjustable-Rate Notes (cost: $35,500) 35,577
----------
VARIABLE-RATE DEMAND NOTES (24.0%)
ARIZONA (0.5%)
9,200 Verrado Western Overlay Community Facilities
District (LOC - Compass Bank) 1.00 7/01/2029 9,200
----------
CALIFORNIA (3.1%)
20,000 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.04 12/01/2033 20,000
7,990 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 7,990
7,975 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 7,975
7,300 Statewide Communities Dev. Auth. 0.72 4/01/2046 7,300
11,445 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.49 5/01/2040 11,445
----------
54,710
----------
COLORADO (1.6%)
8,490 Arista Metropolitan District (LOC - Compass Bank) 1.00 12/01/2030 8,490
2,500 Health Facilities Auth. (LIQ)(a) 1.19 2/01/2019 2,500
17,500 Health Facilities Auth. (LIQ)(a) 1.09 10/01/2041 17,500
----------
28,490
----------
CONNECTICUT (0.3%)
5,000 State(i) 1.03 1/01/2018 5,000
----------
DISTRICT OF COLUMBIA (1.1%)
20,000 District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.11 10/01/2041 20,000
----------
FLORIDA (2.1%)
18,700 Escambia County 0.92 4/01/2039 18,700
7,000 Martin County 0.88 7/15/2022 7,000
10,000 Miami-Dade County School Board (INS) (LIQ)(a) 1.04 12/01/2017 10,000
1,500 St. Lucie County 0.89 9/01/2028 1,500
----------
37,200
----------
IDAHO (1.7%)
19,885 American Falls Reservoir District 0.91 2/01/2025 19,885
10,810 Housing and Finance Association(i) 1.03 1/01/2038 10,810
----------
30,695
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ILLINOIS (3.1%)
$16,480 Chicago Board of Education (INS) (LIQ)(a) 1.34% 12/01/2016 $ 16,480
10,000 Chicago Board of Education (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.36 12/01/2039 10,000
11,160 Cook County (LIQ)(a) 1.24 11/15/2020 11,160
17,390 Sports Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.10 6/15/2032 17,390
----------
55,030
----------
KENTUCKY (0.6%)
10,000 Economic Dev. Finance Auth. (INS) (LIQ)(a) 1.04 1/04/2018 10,000
----------
LOUISIANA (2.3%)
21,000 Public Facilities Auth. 0.83 12/01/2043 21,000
6,400 St. James Parish 1.02 11/01/2040 6,400
14,000 St. James Parish 1.02 11/01/2040 14,000
----------
41,400
----------
MARYLAND (0.6%)
10,760 Health and Higher Educational Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.05 8/15/2042 10,760
----------
MISSISSIPPI (0.9%)
15,100 Perry County Pollution Control (NBGA)(a) 0.94 2/01/2022 15,100
----------
NEW JERSEY (1.3%)
2,050 EDA (LOC - Valley National Bank) 1.06 3/01/2031 2,050
8,920 EDA (LOC - Valley National Bank) 1.13 11/01/2040 8,920
11,715 EDA (LOC - Valley National Bank) 1.13 11/01/2040 11,715
----------
22,685
----------
NEW YORK (0.2%)
3,500 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 3,500
----------
OHIO (0.3%)
5,500 State(i) 1.06 1/15/2045 5,500
----------
OKLAHOMA (0.6%)
10,000 Garfield County Industrial Auth. 0.84 1/01/2025 10,000
----------
PENNSYLVANIA (1.3%)
23,500 Emmaus General Auth. (INS) (LIQ) 0.88 12/01/2028 23,500
----------
TENNESSEE (0.2%)
3,500 Chattanooga Health, Educational and Housing
Facilities Board 0.98 5/01/2039 3,500
----------
TEXAS (1.8%)
5,600 Port of Port Arthur Navigation District 0.94 12/01/2039 5,600
11,575 Port of Port Arthur Navigation District 0.94 12/01/2039 11,575
================================================================================
28 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 9,800 Port of Port Arthur Navigation District 0.93% 11/01/2040 $ 9,800
3,590 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 1.24 6/01/2031 3,590
1,145 Weslaco Health Facilities Dev. Corp.
(LOC - Compass Bank) 1.24 6/01/2038 1,145
----------
31,710
----------
WASHINGTON (0.4%)
7,000 Health Care Facilities Auth.
(LOC - Barclays Bank PLC) 0.83 8/15/2041 7,000
----------
Total Variable-Rate Demand Notes (cost: $424,980) 424,980
----------
TOTAL INVESTMENTS (COST: $1,756,307) $1,776,738
==========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $ 861,470 $- $ 861,470
Put Bonds - 454,711 - 454,711
Adjustable-Rate Notes - 35,577 - 35,577
Variable-Rate Demand Notes - 424,980 - 424,980
--------------------------------------------------------------------------------------------------------
Total $- $1,776,738 $- $1,776,738
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management Company
(the Manager) under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees (the Board), unless otherwise noted as illiquid.
(b) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(c) At September 30, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(d) At September 30, 2016, the aggregate market value of securities
purchased on a delayed-delivery basis was $15,102,000, of which all were
when-issued securities.
================================================================================
30 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
(e) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
September 30, 2016, was $3,516,000, which represented 0.2% of the Fund's
net assets.
(f) Restricted security that is not registered under the Securities Act
of 1933.
(g) Stepped-coupon security that is initially issued in zero-coupon form
and converts to coupon form at the specified date and rate shown in the
security's description. The rate presented in the coupon rate column
represents the effective yield at the date of purchase.
(h) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
September 30, 2016.
(i) 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,756,307) $1,776,738
Receivables:
Capital shares sold 5,473
USAA Asset Management Company (Note 6C) 3
Interest 11,776
Other 1,086
----------
Total assets 1,795,076
----------
LIABILITIES
Payables:
Securities purchased 25,104
Capital shares redeemed 1,332
Dividends on capital shares 362
Bank overdraft 255
Accrued management fees 469
Accrued transfer agent's fees 34
Other accrued expenses and payables 98
----------
Total liabilities 27,654
----------
Net assets applicable to capital shares outstanding $1,767,422
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,766,324
Undistributed net investment income 3
Accumulated net realized loss on investments (19,336)
Net unrealized appreciation of investments 20,431
----------
Net assets applicable to capital shares outstanding $1,767,422
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,743,807/164,897 capital shares
outstanding, no par value) $ 10.58
==========
Adviser Shares (net assets of $23,615/2,233 capital shares
outstanding, no par value) $ 10.58
==========
See accompanying notes to financial statements.
================================================================================
32 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $17,646
-------
EXPENSES
Management fees 2,815
Administration and servicing fees:
Fund Shares 1,314
Adviser Shares 20
Transfer agent's fees:
Fund Shares 393
Adviser Shares 3
Distribution and service fees (Note 6E):
Adviser Shares 33
Custody and accounting fees:
Fund Shares 111
Adviser Shares 2
Postage:
Fund Shares 22
Shareholder reporting fees:
Fund Shares 17
Trustees' fees 15
Registration fees:
Fund Shares 50
Adviser Shares 15
Professional fees 57
Other 15
-------
Total expenses 4,882
Expenses reimbursed:
Adviser Shares (7)
-------
Net expenses 4,875
-------
NET INVESTMENT INCOME 12,771
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (761)
Change in net unrealized appreciation/(depreciation) (1,304)
-------
Net realized and unrealized loss (2,065)
-------
Increase in net assets resulting from operations $10,706
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended March 31,
2016
----------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 12,771 $ 27,289
Net realized loss on investments (761) (1,822)
Change in net unrealized appreciation/(depreciation)
of investments (1,304) (14,029)
------------------------------
Increase in net assets resulting from operations 10,706 11,438
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (12,572) (27,016)
Adviser Shares (155) (220)
------------------------------
Distributions to shareholders (12,727) (27,236)
------------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (14,268) (153,951)
Adviser Shares (7,380) 14,387
------------------------------
Total net decrease in net assets from capital
share transactions (21,648) (139,564)
------------------------------
Net decrease in net assets (23,669) (155,362)
NET ASSETS
Beginning of period 1,791,091 1,946,453
------------------------------
End of period $1,767,422 $1,791,091
==============================
Undistributed (overdistribution of ) net investment income:
End of period $ 3 $ (41)
==============================
See accompanying notes to financial statements.
================================================================================
34 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Tax Exempt Short-Term Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide investors with interest income that is exempt
from federal income tax.
The Fund consists of two classes of shares: Tax Exempt Short-Term Fund Shares
(Fund Shares) and Tax Exempt Short-Term Fund Adviser Shares (Adviser Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a specific
class, income, and realized gains or losses on investments are allocated to each
class of shares based on each class' 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 all 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. 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 value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications as to values
from dealers in securities; and general market conditions. Generally,
debt securities are categorized in Level 2 of the fair value hierarchy;
however, to the extent the
================================================================================
36 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
valuations include significant unobservable inputs, the securities would
be categorized in Level 3.
2. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
3. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
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, other pricing services, 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, evaluation of credit
quality, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for
on the date the securities are purchased or sold (trade date). Gains or
losses from sales of investment securities are computed on the identified
cost basis. Interest income is recorded daily on the accrual basis.
Premiums and discounts are amortized over the life of the respective
securities, using the effective yield method for long-term securities and
the straight-line method for short-term securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the extent
that the Fund makes such purchases while remaining substantially
================================================================================
38 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
fully invested. As of September 30, 2016, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $15,104,000;
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, 2016, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. REDEMPTION FEES - All share classes held in the Fund less than 60 days
are subject to a redemption fee equal to 1.00% of the proceeds of the
redeemed or exchanged shares. All redemption fees paid will be accounted
for by the Fund as an addition to paid in capital. For the six-month
period ended September 30, 2016, the Fund Shares and the Adviser Shares
did not charge any redemption fees.
H. 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.
I. USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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), plus 100.0 basis
points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $6,000, which represents 2.4% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal 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 income taxes.
================================================================================
40 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
At March 31, 2016, the Fund had net capital loss carryforwards of $18,575,000,
for federal income tax purposes, as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
-------------- -----------
Short-Term $ 689,000
Long-Term 17,886,000
-----------
Total $18,575,000
===========
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$226,326,000 and $209,283,000, respectively.
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $23,401,000 and $2,970,000, respectively, resulting in net
unrealized appreciation of $20,431,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital
stock at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
FUND SHARES:
Shares sold 16,978 $ 179,890 30,716 $ 325,942
Shares issued from reinvested
dividends 1,020 10,809 2,203 23,363
Shares redeemed (19,345) (204,967) (47,431) (503,256)
-------------------------------------------------------------
Net decrease from capital
share transactions (1,347) $ (14,268) (14,512) $(153,951)
=============================================================
ADVISER SHARES:
Shares sold 425 $ 4,510 3,380 $ 35,883
Shares issued from reinvested
dividends 10 103 8 82
Shares redeemed* (1,131) (11,993) (2,034) (21,578)
-------------------------------------------------------------
Net increase (decrease) from
capital share transactions (696) $ (7,380) 1,354 $ 14,387
=============================================================
*Net of redemption fees, if any.
(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.
================================================================================
42 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper Short Municipal Debt Funds Index. The Lipper
Short Municipal Debt Funds Index tracks the total return performance of
Funds that invest in municipal debt issues with dollar-weighted average
maturities of less than three years. 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant index, rounded to the nearest
basis point. Average net assets of the share class are calculated over a
rolling 36-month period.
Each class' 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 Short Municipal Debt Funds Index over that period,
even if the class had overall negative returns during the performance period.
For the six-month period ended September 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $2,815,000, which
included a 0.04% performance adjustment for the Fund Shares of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
$326,000. For the six-month period ended September 30, 2016, the Adviser
Shares did not incur any performance adjustment.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2016, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable to
the Manager, of $1,314,000 and $20,000, 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, 2016, the Fund reimbursed the Manager
$25,000 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, 2017, 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 to 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, 2017, without approval of the
Board, and may be changed or terminated by the Manager at any time after that
date. For the six-month period ended September 30, 2016, the Adviser Shares
incurred reimbursable expenses of $7,000, of which $3,000 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 Shares and Adviser Shares 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
================================================================================
44 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
intermediaries. For the six-month period ended September 30, 2016, the Fund
Shares and Adviser Shares incurred transfer agent's fees, paid or payable to
SAS, of $393,000 and $3,000, respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares.
Under the plan, the Adviser Shares pay fees to USAA Investment Management
Company (IMCO), the distributor, for distribution and shareholder services.
IMCO 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, 2016, the Adviser Shares
incurred distribution and service (12b-1) fees of $33,000.
F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
receives no fee or other compensation for these services, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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,
2016, USAA and its affiliates owned 465,000 Adviser Shares, which represents
20.8% of the Adviser Shares outstanding and 0.3% of the Fund's total outstanding
shares.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
(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,
------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.59 $ 10.68 $ 10.71 $ 10.84 $ 10.80 $ 10.61
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .16 .17 .19 .22 .27
Net realized and
unrealized gain (loss) (.01) (.09) (.03) (.13) .04 .19
------------------------------------------------------------------------------------------
Total from investment
operations .07 .07 .14 .06 .26 .46
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.16) (.17) (.19) (.22) (.27)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.58 $ 10.59 $ 10.68 $ 10.71 $ 10.84 $ 10.80
==========================================================================================
Total return (%)* .63 .62 1.29 .60 2.41 4.40
Net assets at end of
period (000) $1,743,807 $1,760,074 $1,929,648 $2,031,383 $2,185,741 $2,124,120
Ratios to average
net assets:**
Expenses (%)(a) .54(b) .55 .55 .55 .55 .55
Net investment income (%) 1.44(b) 1.47 1.56 1.81 2.02 2.54
Portfolio turnover (%) 18 25 30 14 3 16
* 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, 2016, average net assets were
$1,746,605,000.
(a) 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%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
46 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
--------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.59 $ 10.67 $ 10.71 $ 10.84 $10.80 $10.61
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .13 .14 .17 .19 .25
Net realized and
unrealized gain (loss) (.01) (.08) (.04) (.13) .04 .19
-----------------------------------------------------------------------------
Total from investment
operations .05 .05 .10 .04 .23 .44
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.06) (.13) (.14) (.17) (.19) (.25)
-----------------------------------------------------------------------------
Redemption fees added
to beneficial interests - .00(a) - - - -
-----------------------------------------------------------------------------
Net asset value at
end of period $ 10.58 $ 10.59 $ 10.67 $ 10.71 $10.84 $10.80
=============================================================================
Total return (%)* .50 .46 .94 .35 2.16 4.14
Net assets at end of
period (000) $23,615 $31,017 $16,805 $11,186 $6,604 $6,011
Ratios to average
net assets:**
Expenses (%)(b) .80(c) .80 .80 .80 .80 .80
Expenses, excluding
reimbursements (%)(b) .86(c) .83 .98 .94 1.17 1.30
Net investment income (%) 1.19(c) 1.17 1.32 1.55 1.77 2.28
Portfolio turnover (%) 18 25 30 14 3 16
* 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, 2016, average net assets were
$26,290,000.
(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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (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, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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
================================================================================
48 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,006.30 $2.72
Hypothetical
(5% return before expenses) 1,000.00 1,022.36 2.74
ADVISER SHARES
Actual 1,000.00 1,005.00 4.02
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.54% for Fund Shares
and 0.80% for Adviser Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns
of 0.63% for Fund Shares and 0.50% for Adviser Shares for the six-month period
of April 1, 2016, through September 30, 2016.
================================================================================
EXPENSE EXAMPLE | 49
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
50 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
Fund performance, fees and total expenses as compared to comparable investment
companies, and the Manager's profitability with respect to the Fund.
However, the Board noted that the evaluation process with respect to the Manager
is an ongoing one. In this regard, the Board's and its committees' consideration
of the Advisory Agreement included information previously received at such
meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of its duties through
Board meetings, discussions, and reports during the preceding year. The Board
considered the fees paid to the Manager and the services provided to the Fund by
the Manager under the Advisory Agreement, as well as other services provided by
the Manager and its affiliates under other agreements, and the personnel who
provide these services. In addition to the investment advisory services provided
to the Fund, the Manager and its affiliates provide administrative services,
stockholder services, oversight of Fund accounting, marketing services,
assistance in meeting legal and regulatory requirements, and other services
necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
as current staffing levels. The allocation of the Fund's brokerage, including
the Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of 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 objectives and classifications,
sales load type (in this case, investment companies with front-end loads and 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 with same 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 equal to 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
================================================================================
52 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
expense universe. The Board took into account the various services provided to
the Fund by the Manager and its affiliates, including the high quality of
services provided by the 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-, five-, and ten- year periods ended December 31,
2015. The Board also noted that the Fund's percentile performance ranking was in
the top 35% of its performance universe for the one-year period ended December
31, 2015, was in the top 15% of its performance universe for the three- and
five-year periods ended December 31, 2015, and was in the top 5% of its
performance universe for the ten-year period ended December 31, 2015.
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
================================================================================
ADVISORY AGREEMENT(S) | 53
================================================================================
considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation.
The Board also considered the possible direct and indirect benefits to the
Manager from its relationship with the Trust, including that the Manager may
derive reputational and other benefits from its association with the Fund. The
Board also took into account the high quality of services received by the Fund
from the Manager. The Trustees recognized that the Manager should be entitled to
earn a reasonable level of profits in exchange for the level of services it
provides to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the effect of the
Fund's growth and size on its performance and fees, noting that if the Fund's
assets increase over time, the Fund may realize other economies of scale if
assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund is reasonable in light of the
nature and high quality of the services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
54 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39592-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TARGET MANAGED ALLOCATION FUND]
===============================================================
SEMIANNUAL REPORT
USAA TARGET MANAGED ALLOCATION FUND
SEPTEMBER 30, 2016
===============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated
positive returns during the reporting period. Municipal bonds performed well,
as investors continued to favor them for their tax-advantaged status. At the
same time, municipal issuance remained low, though it has increased since
January 2016. Still, the supply is far from enough to satisfy demand and we
expect municipal bonds to continue to benefit from this situation for some
time to come. Although state and local finances are in better shape than they
were a few years ago, municipal governments have been reluctant to take on
additional debt. We believe eventually this will change, but likely not for the
foreseeable future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 11
Financial Statements 12
Notes to Financial Statements 15
EXPENSE EXAMPLE 25
ADVISORY AGREEMENT(S) 27
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)2016, USAA. All rights reserved.
225186-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TARGET MANAGED ALLOCATION FUND (THE FUND) SEEKS TO MAXIMIZE TOTAL
RETURN PRIMARILY THROUGH CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in U.S. and/or foreign (to include emerging markets)
equity securities and fixed-income securities through investments in shares of
other investment companies, including exchange-traded funds (ETFs) and real
estate securities, including real estate investment trusts (REITs). Consistent
with its investment strategy, the Fund may at times invest directly in U.S.
and/or foreign equity securities and fixed-income securities as well as
derivatives, including futures and options contracts.*
*This Fund is not offered for sale directly to the general public and currently
is available for investment only to other USAA funds participating in a
fund-of-funds investment strategy and other accounts managed by USAA Asset
Management Company (AMCO) or an affiliate. The Fund may be offered to other
persons and legal entities that AMCO may approve from time to time. There are no
minimum initial or subsequent purchase amounts for investments in the Fund.
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF JOHN P. TOOHEY] [PHOTO OF WASIF A. LATIF]
JOHN P. TOOHEY, CFA WASIF A. LATIF
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
After a challenging environment through late 2015 and the initial weeks of
2016, the global financial markets produced favorable returns for the
reporting period ended September 30, 2016.
In the months leading up to the reporting period, higher-risk market segments
were under pressure from a variety of factors, including concerns about
slowing global growth, falling commodity prices, and the possibility that the
Federal Reserve (the Fed) would begin to raise interest rates more
aggressively. These fears were largely alleviated in mid-February 2016, when
the aggressive stimulus programs initiated by the world's central banks,
together with comments by Fed officials that interest rates would rise only
gradually, sparked a recovery in commodities and a revival of investor risk
appetites.
This improved backdrop was reflected in the performance of the major asset
classes during the reporting period. U.S. equities gained ground across the
market capitalization spectrum, with energy- and commodity-related stocks
performing particularly well thanks to the rebound in oil prices.
Emerging-market equities also generated gains, reflecting both the surge in
commodity prices and the signs of improving economic conditions for a number
of the key countries in the asset class. The developed international markets
lagged, however, as European and British
================================================================================
2 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
stocks were disproportionately hindered by the United Kingdom's vote to leave
the European Union (commonly known as Brexit) in late June 2016. Concerns
about the impact of Brexit prevented European and United Kingdom stocks from
regaining lost ground as other regions recovered.
Investment-grade bonds finished in positive territory, although with lower
gains than many other segments of the financial markets. The combination of
paltry yields overseas and the Fed's lower-for-longer interest rate policy
kept U.S. Treasuries on a positive footing, leading to falling yields (and
rising prices) for issues with maturities of five years and longer. In
addition, both investment-grade corporate and high-yield bonds performed
particularly well amid the strong global demand for income-producing
investments.
o HOW DID THE USAA TARGET MANAGED ALLOCATION FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended September 30, 2016, the Fund had a total
return of 7.90%. This compares to total returns of 6.34% for the MSCI
All-Country World Index and 3.51% for the Bloomberg Barclays U.S. Universal
Bond Index*.
USAA Asset Management Company (the Manager) is the Fund's investment adviser.
The investment adviser provides day-to-day discretionary management for the
Fund's assets.
Consistent with the trends in the broader market, the Fund's allocations to
commodities and commodity-related equities delivered strong returns. The
Fund's position in the emerging markets also performed very well, highlighted
by an investment in the PowerShares FTSE RAFI Emerging Markets Portfolio--a
fund that uses four fundamental metrics (firm size,
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's
benchmark is now called the Bloomberg Barclays U.S. Universal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
book value, cash flow, sales and dividends) to select its holdings. On the
domestic side, the Fund benefited from the favorable relative performance of
mid-cap stocks through its position in Vanguard Mid-Cap ETF. Additionally,
the Fund's allocation to real estate investment trusts produced hearty
performances at a time of falling bond yields and continued strength in
property prices. While the Fund's developed-market allocation did not produce
returns as high as those of its holdings, it nonetheless provided a positive
total return.
The Fund's allocation to investment-grade bonds--which it achieves through
investments in three exchange-traded funds (ETFs)--generated a steady, low
single-digit gain. While it did not make a substantial contribution to the
Fund's overall return, it helped stabilize some of the volatility that
surrounded the Brexit vote. The Fund also had a position in high-yield bonds
through the iShares iBoxx $ High Yield Corporate Bond ETF, allowing it to
capture the strong outperformance of the asset class relative to the rest of
the fixed-income market.
o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD?
USAA offers six funds in the Target Retirement Series, each of which employs
a different strategic asset allocation based on investor risk tolerance and
time horizon. Depending on our changing views on market opportunities and
risks, we apply tactical asset allocation decisions, overweighting or
underweighting the various asset classes within each fund compared to its
strategic allocation.
We utilize the Target Managed Allocation Fund to allow for more flexibility
in implementing allocation changes more quickly and with less disruption to
the other underlying funds within the Fund's portfolio. The Fund primarily
uses ETFs to implement its asset allocation because ETFs tend to be highly
liquid vehicles that allow us to apply our tactical asset allocation
decisions quickly and efficiently. With this as background,
================================================================================
4 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
the Fund's asset allocations--as well as the changes within its portfolio
that occurred during the course of the reporting period--generally reflect
the need to round out the portfolios of the other funds in the Target
Retirement series, rather than an active strategy.
Thank you for allowing us to help you with your investment needs.
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 ETFs are subject to risks similar to those of stocks.
o Non-investment-grade securities are considered speculative and are subject
to significant credit risk. They are sometimes referred to as "junk" bonds
since they represent a greater risk of default than more creditworthy
investment-grade securities. o Investments in foreign securities are subject
to additional and more diverse risks, including but not limited to currency
fluctuations, market illiquidity, and political and economic instability.
Foreign investing may result in more rapid and extreme changes in value than
investments made exclusively in the securities of U.S. companies. There may
be less publicly available information relating to foreign companies than
those in the U.S. Foreign securities may also be subject to foreign taxes.
Investments made in emerging market countries may be particularly volatile.
Economies of emerging market countries are generally less diverse and mature
than more developed countries and may have less stable political systems.
o Investing in REITs has some of the same risks associated with the direct
ownership of real estate. o Asset allocation does not protect against a loss
or guarantee that an investor's goal will be met.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA TARGET MANAGED ALLOCATION FUND (THE FUND)
(Ticker Symbol: UTMAX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $433.6 Million $415.9 Million
Net Asset Value Per Share $10.24 $9.49
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR SINCE INCEPTION 8/7/15
7.90% 9.02% 3.19%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 8/1/16**
--------------------------------------------------------------------------------
0.92%
(Includes acquired fund fees and expenses of 0.27%)
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 return
is cumulative.
**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, 2016, 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.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares.
================================================================================
6 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA TARGET MANAGED MSCI ALL-COUNTRY
U.S. UNIVERSAL INDEX ALLOCATION FUND WORLD INDEX
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 9,970.55 9,680.00 9,314.49
09/30/15 10,009.49 9,510.00 8,977.04
10/31/15 10,041.51 9,820.00 9,681.60
11/30/15 10,004.94 9,750.00 9,601.65
12/31/15 9,954.93 9,578.19 9,428.49
01/31/16 10,064.84 9,304.82 8,859.65
02/29/16 10,136.40 9,365.57 8,798.91
03/31/16 10,260.54 9,608.57 9,450.98
04/30/16 10,330.51 9,730.00 9,590.49
05/31/16 10,338.62 9,740.00 9,602.57
06/30/16 10,520.48 10,014.00 9,544.44
07/31/16 10,607.26 10,287.00 9,955.75
08/31/16 10,618.72 10,297.00 9,989.24
09/30/16 10,621.29 10,368.00 10,050.45
[END CHART]
Data from 7/31/15 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Managed Allocation Fund to the following benchmarks:
o The unmanaged Bloomberg Barclays U.S. Universal Bond Index comprising of U.S.
dollar-denominated, taxable bonds that are related investment grade or below
investment grade.
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
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.
*The performance of the MSCI All-Country World Index and Bloomberg Barclays U.S.
Universal Bond Index is calculated from the end of the month, July 31, 2015,
while the inception date of the Fund is August 7, 2015. There may be a slight
variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o ASSET ALLOCATION - 9/30/16 o
[PIE CHART OF ASSET ALLOCATION]
FIXED-INCOME EXCHANGE-TRADED FUNDS* 45.7%
INTERNATIONAL EXCHANGE-TRADED FUNDS* 22.9%
DOMESTIC EXCHANGE-TRADED FUNDS* 22.4%
COMMODITY-RELATED EXCHANGE-TRADED FUNDS* 8.6%
MONEY MARKET INSTRUMENTS 0.4%
[END CHART]
*The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 9-10.
================================================================================
8 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.6%)
EXCHANGE-TRADED FUNDS (99.6%)
COMMODITY-RELATED EXCHANGE-TRADED FUNDS (8.6%)
208,020 First Trust Global Tactical Commodity Strategy Fund* $ 4,281
1,257,000 PowerShares DB Commodity Index Tracking Fund* 18,868
345,540 United States Commodity Index Fund* 14,326
--------
Total Commodity-Related Exchange-Traded Funds 37,475
--------
DOMESTIC EXCHANGE-TRADED FUNDS (22.4%)
77,700 SPDR S&P Oil & Gas Exploration & Production ETF 2,988
16,100 VanEck Vectors Oil Services ETF 471
494,117 Vanguard Mid-Cap ETF 63,959
273,710 Vanguard REIT ETF 23,742
24,500 Vanguard Small-Cap ETF 2,993
27,000 Vanguard Small-Cap Value ETF 2,988
--------
Total Domestic Exchange-Traded Funds 97,141
--------
FIXED-INCOME EXCHANGE-TRADED FUNDS (45.7%)
570,908 iShares 7-10 Year Treasury Bond ETF 63,873
354,720 iShares iBoxx $ High Yield Corporate Bond ETF 30,953
261,250 iShares TIPS Bond ETF 30,433
868,820 Vanguard Total Bond Market ETF 73,102
--------
Total Fixed-Income Exchange-Traded Funds 198,361
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (22.9%)
426,120 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 23,036
334,520 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 12,294
2,086,238 PowerShares FTSE RAFI Emerging Markets Portfolio 37,385
615,009 WisdomTree Japan Hedged Equity Fund 26,390
--------
Total International Exchange-Traded Funds 99,105
--------
Total Exchange-Traded Funds 432,082
--------
Total Equity Securities (cost: $413,090) 432,082
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.4%)
MONEY MARKET FUNDS (0.4%)
1,775,302 State Street Institutional Liquid Reserves Fund
Premier Class, 0.40%(a) (cost: $1,775) $ 1,775
--------
TOTAL INVESTMENTS (COST: $414,865) $433,857
========
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Exchange-Traded Funds:
Commodity-Related Exchange-
Traded Funds $ 37,475 $- $- $ 37,475
Domestic Exchange-
Traded Funds 97,141 - - 97,141
Fixed-Income Exchange-
Traded Funds 198,361 - - 198,361
International Exchange-
Traded Funds 99,105 - - 99,105
Money Market Instruments:
Money Market Funds 1,775 - - 1,775
-------------------------------------------------------------------------------------------------------------
Total $433,857 $- $- $433,857
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
10 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A 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.
Investments in foreign securities were 26.6% of net assets at September 30,
2016.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
REIT Real estate investment trust
TIPS Treasury Inflation Protected Securities
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
September 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $414,865) $433,857
Cash 18
--------
Total assets 433,875
--------
LIABILITIES
Accrued management fees 177
Other accrued expenses and payables 55
--------
Total liabilities 232
--------
Net assets applicable to capital shares outstanding $433,643
========
NET ASSETS CONSIST OF:
Paid-in capital $415,916
Accumulated undistributed net investment income 3,486
Accumulated net realized loss on investments (4,751)
Net unrealized appreciation of investments 18,992
--------
Net assets applicable to capital shares outstanding $433,643
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 42,358
========
Net asset value, redemption price, and offering price per share $ 10.24
========
See accompanying notes to financial statements.
================================================================================
12 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 4,847
Interest 3
-------
Total income 4,850
-------
EXPENSES
Management fees 1,062
Administration and servicing fees 106
Transfer agent's fees 106
Custody and accounting fees 28
Shareholder reporting fees 1
Trustees' fees 15
Professional fees 35
Other 11
-------
Total expenses 1,364
-------
NET INVESTMENT INCOME 3,486
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Unaffiliated transactions 11,352
Affiliated transactions (Note 7) (222)
Change in net unrealized appreciation/(depreciation) 17,560
-------
Net realized and unrealized gain 28,690
-------
Increase in net assets resulting from operations $32,176
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and period ended
March 31, 2016
--------------------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016*
--------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,486 $ 4,603
Net realized gain(loss) on investments 11,130 (15,920)
Change in net unrealized appreciation/(depreciation)
of investments 17,560 1,432
---------------------
Increase (decrease) in net assets resulting from operations 32,176 (9,885)
---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (4,930)
---------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 4,047 448,524
Reinvested dividends - 4,930
Cost of shares redeemed (18,476) (22,743)
---------------------
Increase (decrease) in net assets from capital
share transactions (14,429) 430,711
---------------------
Net increase in net assets 17,747 415,896
NET ASSETS
Beginning of period 415,896 -
---------------------
End of period $433,643 $415,896
=====================
Accumulated undistributed net investment income:
End of period $ 3,486 $ -
=====================
CHANGE IN SHARES OUTSTANDING
Shares sold 423 45,726
Shares issued for dividends reinvested - 527
Shares redeemed (1,905) (2,413)
---------------------
Increase (decrease) in shares outstanding (1,482) 43,840
=====================
*Fund commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
14 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Target Managed Allocation Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek maximum total return primarily through capital
appreciation. The Fund is not offered for sale directly to the general public
and is available currently for investment only to other USAA funds participating
in a fund-of-funds investment strategy or other persons or legal entities that
the Fund may approve from time to time.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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), an affiliate of the Fund. 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. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sales price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average of the bid
and asked prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities traded
in inactive markets generally are categorized in Level 2 of the fair
value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sales or official closing prices
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for
================================================================================
16 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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 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, other pricing services, or widely used quotation
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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, evaluation of
credit quality, 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 indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not
necessarily an indication of the risks associated with investing in those
securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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. Dividend income, less foreign taxes, if any, is recorded on the
================================================================================
18 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
E. 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, 2016, there were no custodian
and other bank credits.
F. 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.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $1,000, which represents 0.6% 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, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal tax law.
Distributions of net investment income and 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 income
taxes.
At March 31, 2016, the Fund had net capital loss carryforwards of $14,659,000,
for federal income tax purposes, as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
-------------- -----------
Short-Term $13,134,000
Long-Term 1,525,000
-------------- -----------
Total $14,659,000
===========
================================================================================
20 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$289,795,000 and $300,468,000, respectively.
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $19,623,000 and $631,000, respectively, resulting in net
unrealized appreciation of $18,992,000.
(5) 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 the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of a
portion of the Fund's assets. For the six-month period ended September 30,
2016, the Fund had no subadviser(s).
The Fund's management fee is accrued daily and paid monthly at an
annualized rate of 0.50% of the Fund's average net assets. For the six-
month period ended September 30, 2016, the Fund incurred total management
fees, paid or payable to the Manager, of $1,062,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.05% of the Fund's average net assets for the fiscal year. For the
six-month period ended September 30, 2016, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $106,000.
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, 2016, the Fund
reimbursed the Manager $6,000 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 7, 2016, to
limit the total annual operating expenses of the Fund to 0.70% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the Fund for all expenses
in excess of those amounts. Effective August 1, 2016, the Manager
terminated this agreement. For the six-month period ended September 30,
2016, the Fund incurred no reimburseable expenses.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. The Fund's transfer agent's fees are
accrued daily and paid monthly at an annualized rate of 0.05% of the Fund's
average net assets for the fiscal year. For the six-month period ended
September 30, 2016, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $106,000.
E. 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 fee or other compensation for
these services.
================================================================================
22 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
(6) TRANSACTIONS WITH AFFILIATES
The Fund offers its shares for investment by other USAA funds and is one of 20
USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA
fund-of-funds do not invest in the Fund for the purpose of exercising management
or control. As of September 30, 2016, the USAA fund-of-funds owned the following
percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Target Retirement Income 2.1
Target Retirement 2020 8.0
Target Retirement 2030 27.2
Target Retirement 2040 38.0
Target Retirement 2050 22.8
Target Retirement 2060 1.9
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
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.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended September 30, 2016, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN (LOSS)
SELLER PURCHASER PURCHASER TO SELLER
------------------------------------------------------------------------------------------------------
Target Managed Allocation Cornerstone Moderate $1,213,000 $ 8,000
Target Managed Allocation Cornerstone Moderately Aggressive 6,834,000 (26,000)
Target Managed Allocation First Start Growth 3,496,000 (204,000)
Cornerstone Moderately
Conservative Target Managed Allocation 3,181,000 195,000
Cornerstone Moderately
Aggressive Target Managed Allocation 3,820,000 238,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31,
------------------------------------
2016 2016***
------------------------------------
Net asset value at beginning of period $ 9.49 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income .08 .12(b)
Net realized and unrealized gain(loss) .67 (.51)(b)
----------------------------------
Total from investment operations .75 (.39)
----------------------------------
Less distributions from:
Net investment income - (.12)
----------------------------------
Net asset value at end of period $ 10.24 $ 9.49
==================================
Total return (%)* 7.90 (3.91)
Net assets at end of period (000) $433,643 $415,896
Ratios to average net assets:**
Expenses (%)(a) .64 .65
Expenses, excluding reimbursements (%)(a) .64(c) .65
Net investment income (%)(a) 1.64 1.88
Portfolio turnover (%) 69 84
* 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, 2016, average net assets
were $423,542,000.
*** Fund commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Calculated using average shares.
(c) Prior to August 1, 2016, the Manager voluntarily agreed to limit the annual
expenses of the Fund to 0.70% of the Fund's average net assets.
================================================================================
24 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" in the table 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 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" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio 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
================================================================================
EXPENSE EXAMPLE | 25
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
----------------------------------------------------------------
Actual $1,000.00 $1,079.00 $3.34
Hypothetical
(5% return before expenses) 1,000.00 1,021.86 3.24
*Expenses are equal to the Fund's annualized expense ratio of 0.64%, which is
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 value is
based on its actual total return of 7.90% for the six-month period of April 1,
2016, through September 30, 2016.
================================================================================
26 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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
================================================================================
ADVISORY AGREEMENT(S) | 27
================================================================================
meeting at which the renewal of the Advisory Agreement is considered, particular
focus is given to information concerning Fund performance, fees and total
expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. 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 to be 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 in connection with the other funds in the Trust. The Board considered the
fees paid to the Manager and the services to be provided to the Fund by the
Manager under the Advisory Agreement, as well as other services to be provided
by the Manager and its affiliates under other agreements, and the personnel who
would be responsible for providing these services. The Board also took into
consideration that, in addition to the investment advisory services to be
provided to the Fund, the Manager and its affiliates will provide administrative
services, compliance oversight, stockholder services, oversight of Fund
accounting, assistance in meeting legal and regulatory requirements, and other
services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement with respect to the other funds in
the Trust. The Board considered the level and depth of
================================================================================
28 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The expected allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," was also considered. The
Manager's role in coordinating the activities of the Fund's other service
providers also was considered. The Board also considered the Manager's risk
management processes. The Board considered the Manager's financial condition and
that it had the financial wherewithal to provide a 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 other funds in the Trust.
The Board also reviewed the compliance and administrative services to be
provided to the Fund by the Manager, including 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 other funds managed
by the Manager, 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, unaffiliated actively managed institutional ETF
investment companies), asset size, and expense components (the "expense group")
and (ii) a larger group of investment companies that includes the Fund and all
other unaffiliated actively managed institutional ETF investment companies with
a 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 - was above the median of its expense group and its
expense universe. The data indicated that the Fund's total expense ratio,
including underlying fund expenses, was below the median of its expense
================================================================================
ADVISORY AGREEMENT(S) | 29
================================================================================
group and its expense universe. The Board took into account the various services
provided to the Fund by the Manager and its affiliates, including the nature and
high quality of services provided by the Manager. The Board also noted the level
and method of computing the management 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 lower than the average of its performance universe and its
Lipper index for the period August 31, 2015 to December 31, 2015. The Board also
noted that the Fund's percentile performance ranking was in the bottom 50% of
its performance universe for the period August 31, 2015 to December 31, 2015.
The Board also noted that the Funds recently commenced operations and therefore
has a limited performance history.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. The
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. In reviewing the overall profitability of the management
fee to the Manager, the Board also considered the fact that affiliates provide
shareholder servicing and administrative services to the Fund for which they
receive compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive
================================================================================
30 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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 as well as the type of fund. 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 took into account management's discussions of the
Fund's 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 also
considered the fee waivers and expense reimbursement arrangements by the
Manager. The Board determined that the 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 in view of its limited performance history;
(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) | 31
================================================================================
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 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
98356-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VIRGINIA BOND FUND]
===============================================
SEMIANNUAL REPORT
USAA VIRGINIA BOND FUND
FUND SHARES o ADVISER SHARES
SEPTEMBER 30, 2016
===============================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGERS' COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 24
Financial Statements 26
Notes to Financial Statements 29
EXPENSE EXAMPLE 42
ADVISORY AGREEMENT(S) 44
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)2016, USAA. All rights reserved.
211759-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA VIRGINIA BOND FUND (THE FUND) PROVIDES VIRGINIA INVESTORS WITH A HIGH
LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND VIRGINIA STATE
INCOME TAXES.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in long-term investment-grade securities issued by
the Commonwealth of Virginia, its political subdivisions, instrumentalities, and
by other government entities, the interest on which is exempt from federal
income tax and Virginia state income tax. During normal market conditions, at
least 80% of the Fund's net assets will consist of Virginia tax-exempt
securities. The Fund's dollar-weighted average portfolio maturity is not
restricted, but is expected to be greater than 10 years.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF JOHN C. BONNELL] [PHOTO OF DALE R. HOFFMANN]
JOHN C. BONNELL, CFA DALE R. HOFFMANN
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
The tax-exempt bond market advanced during the reporting period ended
September 30, 2016, as demand for municipal securities outweighed the amount
of available supply. Although new issuance picked up, it remained low by
historical standards. Furthermore, it was dominated by refunding bonds
rather than new issues. In a bond refunding, issuers call existing
high-interest bonds and replace them with new bonds that have lower coupon
rates. Meanwhile, as demand for municipal bonds increased, municipal bond
mutual funds also received positive investment inflows every week of the
reporting period. Investors continued to prefer municipal securities for
their tax-advantaged status as well as their relative stability.
Municipal bonds also benefited from the performance of the U.S. Treasury
market, which the tax-exempt bond market generally follows over time.
Longer-term U.S. Treasury securities rallied on strong demand, especially
from foreign investors who favored U.S. Treasuries because of their
relatively higher yields compared to the government bonds of other developed
countries. As U.S. Treasury prices rose, their yields (which move in the
opposite direction) fell. During the reporting period, the yield on a
30-year U.S. Treasury security dropped from 2.61% at 3/31/16 to 2.32% at
9/30/16.
Municipal credit quality remained strong as state and local governments
continued to practice sound fiscal management and generally maintained
healthy reserves. State and local revenues rose, though at a more moderate
================================================================================
2 | USAA VIRGINIA BOND FUND
================================================================================
pace than in the recent past. Numerous issuers also took steps to address
their pension risks, in some cases proposing tax increases to deal with
potential pension-funding shortfalls. Unlike corporate issuers, many state
and municipal governments have broad taxing powers and are required by law
to balance their budgets.
o HOW DID THE USAA VIRGINIA BOND FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
reporting period ended September 30, 2016, the Fund Shares and Adviser
Shares had a total return of 2.30% and 2.18%, respectively, versus an
average return of 2.94% amongst the funds in the Lipper Virginia Municipal
Debt Funds category. This compares to returns of 2.97% for the Lipper
Virginia Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays
Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt
distributions over the prior 12 months produced a dividend yield of 3.34%
and 3.10%, respectively, compared to the Lipper category average of 3.27%.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o WHAT ARE THE CONDITIONS IN THE COMMONWEALTH OF VIRGINIA?
Given its proximity to Washington, D.C. and its dependency on government and
government-related jobs, Virginia's economy appears to be feeling the
effects of federal spending cuts. However, at the end of the reporting
period, its economy continued to be stronger than that of most states.
Virginia has been proactive in cutting expenditures to maintain
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and
Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's
benchmark is now called the Bloomberg Barclays Municipal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
overall balance and has been able to post budget surpluses to restore
financial reserves. Virginia's conservative fiscal practices seem to be
serving it well, as it remains one of the minority of states rated AAA by
all three credit-rating agencies at the end of the reporting period.
Virginia is characterized by a broad-based economy, with a well-educated
work force and high wealth levels, as well as a history of conservative
fiscal management.
o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD?
We maintained our focus on income generation. Over the long-term, the Fund's
income distribution, not its price appreciation, accounts for most of its
total return.
During the reporting period, the Fund continued to benefit from our
independent research. In our efforts to find attractive opportunities, we
continued to work with our in-house team of analysts to select investments
for the Fund on a bond-by-bond basis. Each security is researched, using
fundamental analysis that emphasizes an issuer's ability and willingness to
repay its debt. Through our research, we seek both to recognize value and
avoid potential risks.
The Fund continues to be diversified by sector and issuer, limiting its
exposure to an unexpected event. We also avoid bonds subject to the federal
alternative minimum tax for individuals.
Thank you for allowing us to help you with your investment needs.
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 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.
================================================================================
4 | USAA VIRGINIA BOND FUND
================================================================================
INVESTMENT OVERVIEW
USAA VIRGINIA BOND FUND SHARES (FUND SHARES)
(Ticker Symbol: USVAX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $690.0 Million $648.9 Million
Net Asset Value Per Share $11.60 $11.52
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.387 $0.412
Capital Gain Distributions Per Share - -
Dollar-Weighted Average
Portfolio Maturity(+) 13.0 Years 14.8 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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
2.30% 5.22% 4.64% 4.26%
-------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
-------------------------------------------------------------------------------
1.41% 0.60%
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 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, 2016, 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
SEPTEMBER 30, 2016
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 4.26% = 4.19% + 0.07%
5 YEARS 4.64% = 3.83% + 0.81%
1 YEAR 5.22% = 3.47% + 1.75%
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, 2007-SEPTEMBER 30, 2016
[CHART OF TOTAL RETURN, DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
9/30/2007 1.58% 4.21% -2.63%
9/30/2008 -3.49% 4.31% -7.80%
9/30/2009 12.03% 5.37% 6.66%
9/30/2010 5.88% 4.52% 1.36%
9/30/2011 4.02% 4.33% -0.31%
9/30/2012 8.91% 4.15% 4.76%
9/30/2013 -3.12% 3.65% -6.77%
9/30/2014 9.91% 4.21% 5.70%
9/30/2015 2.80% 3.67% -0.87%
9/30/2016 5.22% 3.47% 1.75%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD.
HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE
THAN SHARE PRICES.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any.
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 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 (including
capital gain distributions), redemptions of shares, or reinvested net investment
income.
================================================================================
6 | USAA VIRGINIA BOND FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund Shares' Dividend Return for the period ended 9/30/16, and
assuming Virginia state tax rates of: 5.75% 5.75% 5.75% 5.75%
and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
--------------------------------------------------------------------------------
10 Years 4.19% 6.17% 7.03% 7.26% 7.85%
5 Years 3.83% 5.64% 6.43% 6.64% 7.18%
1 Year 3.47% 5.11% 5.83% 6.02% 6.50%
To match the Fund Shares' closing 30-day SEC Yield of 1.41% on 09/30/16
A FULLY TAXABLE INVESTMENT MUST PAY: 2.08% 2.37% 2.44% 2.64%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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 | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA VIRGINIA LIPPER VIRGINIA
MUNICIPAL BOND BOND FUND MUNICIPAL DEBT
INDEX SHARES FUNDS INDEX
09/30/06 $10,000.00 $10,000.00 $10,000.00
10/31/06 10,062.71 10,068.00 10,060.90
11/30/06 10,146.59 10,164.00 10,141.76
12/31/06 10,110.74 10,109.00 10,099.91
01/31/07 10,084.85 10,090.00 10,082.07
02/28/07 10,217.74 10,222.00 10,202.69
03/31/07 10,192.55 10,179.00 10,170.21
04/30/07 10,222.72 10,222.00 10,206.86
05/31/07 10,177.46 10,160.00 10,161.15
06/30/07 10,124.72 10,091.00 10,100.99
07/31/07 10,203.21 10,135.00 10,160.51
08/31/07 10,159.19 9,979.00 10,048.65
09/30/07 10,309.52 10,157.00 10,200.49
10/31/07 10,355.47 10,204.00 10,239.19
11/30/07 10,421.50 10,244.00 10,269.14
12/31/07 10,450.43 10,218.00 10,256.65
01/31/08 10,582.21 10,347.00 10,368.02
02/29/08 10,097.73 9,801.00 9,872.84
03/31/08 10,386.34 10,058.00 10,130.52
04/30/08 10,507.88 10,218.00 10,272.34
05/31/08 10,571.41 10,332.00 10,359.87
06/30/08 10,452.09 10,240.00 10,238.80
07/31/08 10,491.82 10,215.00 10,235.75
08/31/08 10,614.60 10,301.00 10,319.38
09/30/08 10,116.83 9,803.00 9,885.36
10/31/08 10,013.57 9,543.00 9,647.77
11/30/08 10,045.40 9,504.00 9,574.84
12/31/08 10,191.86 9,460.00 9,598.76
01/31/09 10,564.91 9,799.00 10,026.95
02/28/09 10,620.41 9,917.00 10,122.86
03/31/09 10,622.35 9,928.00 10,124.96
04/30/09 10,834.56 10,134.00 10,370.14
05/31/09 10,949.17 10,283.00 10,533.04
06/30/09 10,846.60 10,236.00 10,466.15
07/31/09 11,028.07 10,359.00 10,601.28
08/31/09 11,216.61 10,575.00 10,800.80
09/30/09 11,619.14 10,982.00 11,190.48
10/31/09 11,375.24 10,836.00 11,031.99
11/30/09 11,469.23 10,886.00 11,044.21
12/31/09 11,507.99 10,971.00 11,124.51
01/31/10 11,567.92 11,039.00 11,165.14
02/28/10 11,680.05 11,131.00 11,262.82
03/31/10 11,652.09 11,142.00 11,258.76
04/30/10 11,793.69 11,237.00 11,374.53
05/31/10 11,882.15 11,285.00 11,423.78
06/30/10 11,889.21 11,273.00 11,395.50
07/31/10 12,037.46 11,367.00 11,513.64
08/31/10 12,313.06 11,589.00 11,751.02
09/30/10 12,293.82 11,628.00 11,773.55
10/31/10 12,259.77 11,602.00 11,742.47
11/30/10 12,014.62 11,328.00 11,458.74
12/31/10 11,781.79 11,092.00 11,221.26
01/31/11 11,695.00 10,971.00 11,085.39
02/28/11 11,881.18 11,182.00 11,265.00
03/31/11 11,841.59 11,138.00 11,225.74
04/30/11 12,053.65 11,341.00 11,426.79
05/31/11 12,259.63 11,584.00 11,650.17
06/30/11 12,302.40 11,658.00 11,709.86
07/31/11 12,427.95 11,774.00 11,814.08
08/31/11 12,640.57 11,935.00 11,960.59
09/30/11 12,771.24 12,098.00 12,132.76
10/31/11 12,723.76 12,050.00 12,093.46
11/30/11 12,798.93 12,091.00 12,133.15
12/31/11 13,042.41 12,310.00 12,362.26
01/31/12 13,344.04 12,645.00 12,737.63
02/29/12 13,357.19 12,653.00 12,737.31
03/31/12 13,270.40 12,629.00 12,655.65
04/30/12 13,423.49 12,757.00 12,801.84
05/31/12 13,534.92 12,876.00 12,922.94
06/30/12 13,520.39 12,895.00 12,911.01
07/31/12 13,734.67 13,058.00 13,138.82
08/31/12 13,750.31 13,103.00 13,159.54
09/30/12 13,833.37 13,174.00 13,231.15
10/31/12 13,872.40 13,238.00 13,279.10
11/30/12 14,100.94 13,430.00 13,535.43
12/31/12 13,926.66 13,266.00 13,304.05
01/31/13 13,984.66 13,339.00 13,399.24
02/28/13 14,027.02 13,380.00 13,431.92
03/31/13 13,966.53 13,340.00 13,337.86
04/30/13 14,119.63 13,474.00 13,490.79
05/31/13 13,947.15 13,334.00 13,350.12
06/30/13 13,552.23 12,899.00 12,845.50
07/31/13 13,433.74 12,710.00 12,660.92
08/31/13 13,242.02 12,477.00 12,355.90
09/30/13 13,527.03 12,763.00 12,602.59
10/31/13 13,633.90 12,864.00 12,693.01
11/30/13 13,605.80 12,886.00 12,660.52
12/31/13 13,571.05 12,848.00 12,592.83
01/31/14 13,835.44 13,166.00 12,865.28
02/28/14 13,997.67 13,330.00 13,060.33
03/31/14 14,021.21 13,371.00 13,094.91
04/30/14 14,189.67 13,546.00 13,248.57
05/31/14 14,372.39 13,758.00 13,463.43
06/30/14 14,384.85 13,776.00 13,426.52
07/31/14 14,410.18 13,759.00 13,422.43
08/31/14 14,584.73 13,985.00 13,629.03
09/30/14 14,599.54 14,027.00 13,679.74
10/31/14 14,699.62 14,122.00 13,746.43
11/30/14 14,725.09 14,139.00 13,763.96
12/31/14 14,799.29 14,232.00 13,840.73
01/31/15 15,061.60 14,447.00 14,049.59
02/28/15 14,906.29 14,279.00 13,911.02
03/31/15 14,949.34 14,320.00 13,949.76
04/30/15 14,870.85 14,238.00 13,867.38
05/31/15 14,829.74 14,218.00 13,861.63
06/30/15 14,816.31 14,210.00 13,771.93
07/31/15 14,923.59 14,295.00 13,832.36
08/31/15 14,952.94 14,350.00 13,863.10
09/30/15 15,061.18 14,420.00 13,974.25
10/31/15 15,121.12 14,465.00 14,032.90
11/30/15 15,181.20 14,533.00 14,081.67
12/31/15 15,287.92 14,631.00 14,170.58
01/31/16 15,470.36 14,746.00 14,283.59
02/29/16 15,494.59 14,751.00 14,326.31
03/31/16 15,543.73 14,832.00 14,388.57
04/30/16 15,658.07 14,940.00 14,470.15
05/31/16 15,700.42 15,019.00 14,543.35
06/30/16 15,950.14 15,228.00 14,846.91
07/31/16 15,959.83 15,202.00 14,839.86
08/31/16 15,981.42 15,226.00 14,863.93
09/30/16 15,901.69 15,176.00 14,815.22
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Virginia Bond Fund Shares to the following benchmarks:
o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index tracks
total return performance for the long-term, investment-grade, tax-exempt
bond market. All tax-exempt bond funds will find it difficult to outperform
the index because the index does not reflect any deduction for fees,
expenses, or taxes.
o The unmanaged Lipper Virginia Municipal Debt Funds Index, which measures the
Fund's performance to that of the Lipper Virginia Municipal Debt Funds
category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
8 | USAA VIRGINIA BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA VIRGINIA LIPPER VIRGINIA
BOND FUND MUNICIPAL DEBT
SHARES FUNDS AVERAGE
09/30/07 4.20% 3.79%
09/30/08 4.79% 4.14%
09/30/09 4.29% 3.91%
09/30/10 4.08% 3.80%
09/30/11 4.07% 3.85%
09/30/12 3.66% 3.46%
09/30/13 3.80% 3.60%
09/30/14 3.67% 3.50%
09/30/15 3.55% 3.39%
09/30/16 3.43% 3.12%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/07 to 9/30/16.
The Lipper Virginia Municipal Debt Funds Average is an average performance level
of all Virginia municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA VIRGINIA BOND FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UVABX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $27.1 Million $23.0 Million
Net Asset Value Per Share $11.59 $11.51
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.360 $0.385
Capital Gain Distributions Per Share - -
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
2.18% 4.88% 4.39% 4.54%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16***
--------------------------------------------------------------------------------
1.17% 0.84%
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 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, 2016, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
================================================================================
10 | USAA VIRGINIA BOND FUND
================================================================================
TAXABLE EQUIVALENT ILLUSTRATION
To match the Adviser Shares' closing 30-day SEC Yield of 1.17% on 09/30/16 and
assuming Virginia state tax rates of: 5.75% 5.75% 5.75% 5.75%
and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%*
A FULLY TAXABLE INVESTMENT MUST PAY: 1.72% 1.96% 2.03% 2.19%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
--------------------------------------------------------------------------------
Some income may be subject to federal, state, or local taxes, but not the
alternative minimum tax. Based on 2015 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]
BLOOMBERG BARCLAYS USAA VIRGINIA LIPPER VIRGINIA
MUNICIPAL BOND BOND FUND MUNICIPAL DEBT
INDEX ADVISER SHARES FUNDS INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,228.95 10,192.19 10,206.18
09/30/10 10,212.97 10,222.70 10,225.75
10/31/10 10,184.68 10,196.69 10,198.75
11/30/10 9,981.03 9,952.02 9,952.32
12/31/10 9,787.61 9,741.82 9,746.05
01/31/11 9,715.50 9,633.52 9,628.05
02/28/11 9,870.17 9,816.40 9,784.05
03/31/11 9,837.28 9,766.84 9,749.95
04/30/11 10,013.45 9,952.12 9,924.57
05/31/11 10,184.57 10,163.27 10,118.58
06/30/11 10,220.10 10,226.11 10,170.42
07/31/11 10,324.40 10,317.16 10,260.95
08/31/11 10,501.03 10,465.37 10,388.20
09/30/11 10,609.58 10,606.52 10,537.72
10/31/11 10,570.14 10,562.58 10,503.59
11/30/11 10,632.58 10,597.09 10,538.07
12/31/11 10,834.86 10,777.74 10,737.06
01/31/12 11,085.43 11,079.06 11,063.08
02/29/12 11,096.35 11,084.08 11,062.80
03/31/12 11,024.25 11,059.90 10,991.87
04/30/12 11,151.44 11,160.75 11,118.85
05/31/12 11,244.01 11,272.50 11,224.02
06/30/12 11,231.93 11,287.75 11,213.67
07/31/12 11,409.94 11,428.16 11,411.52
08/31/12 11,422.94 11,455.60 11,429.52
09/30/12 11,491.93 11,526.22 11,491.72
10/31/12 11,524.36 11,570.41 11,533.37
11/30/12 11,714.22 11,736.71 11,755.99
12/31/12 11,569.44 11,589.94 11,555.03
01/31/13 11,617.62 11,664.31 11,637.71
02/28/13 11,652.81 11,688.99 11,666.09
03/31/13 11,602.56 11,662.23 11,584.40
04/30/13 11,729.74 11,776.88 11,717.22
05/31/13 11,586.46 11,650.37 11,595.05
06/30/13 11,258.38 11,270.46 11,156.77
07/31/13 11,159.95 11,103.25 10,996.45
08/31/13 11,000.68 10,895.31 10,731.53
09/30/13 11,237.45 11,135.56 10,945.79
10/31/13 11,326.23 11,232.88 11,024.33
11/30/13 11,302.88 11,249.95 10,996.10
12/31/13 11,274.02 11,214.46 10,937.31
01/31/14 11,493.66 11,477.65 11,173.95
02/28/14 11,628.43 11,618.75 11,343.36
03/31/14 11,647.98 11,665.55 11,373.39
04/30/14 11,787.93 11,805.90 11,506.85
05/31/14 11,939.72 11,988.11 11,693.46
06/30/14 11,950.07 12,002.50 11,661.40
07/31/14 11,971.12 11,995.70 11,657.85
08/31/14 12,116.12 12,188.98 11,837.29
09/30/14 12,128.43 12,213.54 11,881.33
10/31/14 12,211.57 12,302.10 11,939.25
11/30/14 12,232.73 12,316.47 11,954.48
12/31/14 12,294.37 12,383.75 12,021.16
01/31/15 12,512.28 12,568.27 12,202.56
02/28/15 12,383.26 12,430.24 12,082.20
03/31/15 12,419.02 12,463.43 12,115.85
04/30/15 12,353.82 12,389.50 12,044.30
05/31/15 12,319.66 12,369.54 12,039.31
06/30/15 12,308.51 12,350.10 11,961.40
07/31/15 12,397.63 12,429.45 12,013.89
08/31/15 12,422.01 12,477.06 12,040.58
09/30/15 12,511.93 12,535.74 12,137.12
10/31/15 12,561.73 12,560.19 12,188.06
11/30/15 12,611.63 12,617.42 12,230.42
12/31/15 12,700.29 12,707.67 12,307.64
01/31/16 12,851.86 12,797.69 12,405.79
02/29/16 12,871.98 12,799.52 12,442.90
03/31/16 12,912.80 12,867.39 12,496.97
04/30/16 13,007.79 12,958.00 12,567.83
05/31/16 13,042.97 13,024.00 12,631.41
06/30/16 13,250.42 13,203.00 12,895.06
07/31/16 13,258.47 13,178.00 12,888.94
08/31/16 13,276.41 13,196.00 12,909.84
09/30/16 13,210.17 13,149.00 12,867.54
[END CHART]
Data from 7/31/10 through 9/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Virginia Bond Fund Adviser Shares to the benchmarks listed above (see page
8 for benchmark definitions).
*The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper
Virginia Municipal Debt Funds Index is calculated from the end of the month,
July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010.
There may be a slight variation of performance numbers because of this
difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares. Indexes are unmanaged
and you cannot invest directly in an index. The return information for the
indexes does not reflect the deduction of any fees, expenses, or taxes, except
that the Lipper index reflects the fees and expenses of the underlying funds
included in the index.
================================================================================
12 | USAA VIRGINIA BOND FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA VIRGINIA LIPPER VIRGINIA
BOND FUND MUNICIPAL DEBT
ADVISER SHARES FUNDS AVERAGE
09/30/11 3.84% 3.90%
09/30/12 3.62% 3.49%
09/30/13 3.83% 3.56%
09/30/14 3.60% 3.47%
09/30/15 3.42% 3.43%
09/30/16 3.10% 3.27%
[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 yields quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles. The net asset value is adjusted for a portion of the
capital gains, if any, distributed during the previous nine months. The graph
represents data for periods ending 9/30/11 to 9/30/16.
The Lipper Virginia Municipal Debt Funds Average is an average performance level
of all Virginia municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Hospital ................................................................ 21.3%
Education ............................................................... 18.4%
Escrowed Bonds .......................................................... 12.8%
Water/Sewer Utility ..................................................... 6.2%
Airport/Port ............................................................ 6.1%
Nursing/CCRC ............................................................ 5.2%
Toll Roads .............................................................. 4.8%
Health Miscellaneous .................................................... 4.3%
Appropriated Debt ....................................................... 3.5%
Multifamily Housing ..................................................... 2.8%
You will find a complete list of securities that the Fund owns on
pages 16-23.
================================================================================
14 | USAA VIRGINIA BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 14.4%
AA 52.6%
A 11.3%
BBB 9.4%
BELOW INVESTMENT-GRADE 4.3%
UNRATED 8.0%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent 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 and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated 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 16-23.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the
market price of a fixed-rate instrument generally varies inversely to the
movement of interest rates.
PUT BONDS - Provide the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the effective
maturity of the security.
VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
CREDIT ENHANCEMENTS - Adds 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
================================================================================
16 | USAA VIRGINIA BOND FUND
================================================================================
collateral trust. The enhancements do not guarantee the market values of the
securities.
(INS) Principal and interest payments are insured by one of the following:
AMBAC Assurance Corp., Assured Guaranty Corp., Assured Guaranty
Municipal Corp., or National Public Finance Guarantee Corp. Although
bond insurance reduces the risk of loss due to default by an issuer,
such bonds remain subject to the risk that value may fluctuate for
other reasons, and there is no assurance that the insurance company
will meet its obligations.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from Barclays
Bank plc, Northern Trust Co., U.S. Bancorp, or Wells Fargo & Co.
(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 Fannie Mae.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
INVESTMENTS
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (82.0%)
VIRGINIA (73.8%)
$ 2,500 Albemarle County IDA 5.00% 1/01/2031 $ 2,510
1,000 Alexandria IDA 4.75 1/01/2036 1,081
2,000 Amherst IDA 5.00 9/01/2026 1,932
2,000 Amherst IDA 4.75 9/01/2030 1,837
15,000 Arlington County IDA 5.00 7/01/2031 16,607
2,615 Capital Region Airport Commission (INS) (PRE) 5.00 7/01/2031 2,803
700 Capital Region Airport Commission 4.00 7/01/2036 785
750 Capital Region Airport Commission 4.00 7/01/2038 840
5,000 Chesapeake Bay Bridge and Tunnel District 5.50 7/01/2025 6,339
6,520 Chesapeake, 4.75%, 7/15/2023 4.65(a) 7/15/2032 5,527
3,000 Chesapeake, 4.88%, 7/15/2023 4.88(a) 7/15/2040 2,479
5,000 College Building Auth. 5.00 6/01/2029 5,002
2,725 College Building Auth. 5.00 9/01/2031 3,325
5,615 College Building Auth. 5.00 9/01/2032 6,820
6,380 College Building Auth. 5.00 9/01/2033 7,723
10,000 College Building Auth. 5.00 3/01/2034 11,195
8,000 College Building Auth. 4.00 2/01/2035 8,834
11,710 College Building Auth. 5.00 6/01/2036 11,711
2,540 College Building Auth. 5.00 3/01/2041 2,843
7,100 Fairfax County EDA (PRE) 5.00 10/01/2027 7,400
2,000 Fairfax County EDA 5.00 10/01/2029 2,452
2,000 Fairfax County EDA 5.00 10/01/2030 2,453
2,000 Fairfax County EDA 5.00 10/01/2031 2,445
1,500 Fairfax County EDA 5.00 10/01/2032 1,825
1,500 Fairfax County EDA 5.00 12/01/2032 1,621
2,200 Fairfax County EDA 5.00 10/01/2033 2,668
2,000 Fairfax County EDA 5.00 10/01/2034 2,417
5,750 Fairfax County EDA 4.88 10/01/2036 5,768
7,500 Fairfax County EDA (PRE) 5.13 10/01/2037 7,826
1,500 Fairfax County EDA 4.00 10/01/2042 1,604
2,800 Fairfax County EDA 5.00 12/01/2042 2,998
1,500 Fairfax County IDA (PRE) 5.25 5/15/2026 1,670
14,000 Fairfax County IDA 5.00 5/15/2037 16,313
1,000 Fairfax County IDA 4.00 5/15/2042 1,061
6,900 Fairfax County IDA 4.00 5/15/2044 7,421
5,770 Farms of New Kent Community Dev. Auth.,
acquired 9/08/2006-10/03/2007;
cost $5,630(b),(h) 5.45 3/01/2036 1,442
================================================================================
18 | USAA VIRGINIA BOND FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 1,000 Fauquier County IDA (PRE) 5.00% 10/01/2027 $ 1,043
8,825 Fauquier County IDA (PRE) 5.25 10/01/2037 9,224
1,500 Greater Richmond Convention Center Auth. 5.00 6/15/2032 1,818
3,340 Hampton Roads Sanitation District (PRE) 5.00 4/01/2033 3,548
5,660 Hampton Roads Sanitation District (PRE) 5.00 4/01/2033 6,013
4,700 Hampton Roads Sanitation District 5.00 8/01/2043 5,788
2,795 Hanover County EDA 4.50 7/01/2030 2,950
1,100 Hanover County EDA 4.50 7/01/2032 1,155
2,000 Hanover County EDA 5.00 7/01/2042 2,136
3,630 Hanover County IDA (INS) 6.38 8/15/2018 3,803
1,200 Henrico County EDA 5.00 6/01/2024 1,382
140 Henrico County EDA 4.25 6/01/2026 153
2,105 Henrico County EDA 5.00 11/01/2030 2,453
2,500 Henrico County EDA 4.00 10/01/2035 2,586
3,175 Housing Dev. Auth. 4.50 10/01/2036 3,385
5,000 Housing Dev. Auth. 4.80 7/01/2038 5,480
5,000 Housing Dev. Auth. 5.10 10/01/2038 5,547
4,480 Housing Dev. Auth. 4.60 9/01/2040 4,677
7,000 Housing Dev. Auth. 3.60 5/01/2046 7,145
1,539 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,493
741 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 752
2,401 Lewistown Commerce Center Community Dev. Auth.,
acquired 10/12/2007; cost $2,402(b) 6.05 3/01/2054 354
750 Lexington IDA(c) 4.00 1/01/2031 817
5,000 Lexington IDA (PRE) 5.00 12/01/2036 5,543
1,000 Lexington IDA(c) 4.00 1/01/2037 1,062
2,000 Lexington IDA 5.00 1/01/2043 2,324
1,135 Loudoun County EDA 5.00 12/01/2031 1,392
800 Loudoun County EDA 5.00 12/01/2032 977
775 Loudoun County EDA 5.00 12/01/2033 943
805 Loudoun County EDA 5.00 12/01/2034 976
5,000 Lynchburg 4.00 6/01/2044 5,466
3,000 Lynchburg EDA 5.00 9/01/2043 3,331
5,389 Marquis Community Dev. Auth.,
acquired 3/01/2012; cost $468(b),(d) 5.63(e) 9/01/2041 764
3,532 Marquis Community Dev. Auth.,
acquired 3/01/2012; cost $2,926(b),(d) 5.63 9/01/2041 2,858
1,093 Marquis Community Dev. Auth.,
7.50%, 9/01/2021(f) 7.50(a) 9/01/2045 724
5,000 Montgomery County EDA 5.00 6/01/2035 5,614
5,500 Montgomery County IDA (PRE) 5.00 2/01/2029 5,806
1,000 Norfolk EDA 5.00 11/01/2030 1,165
3,500 Norfolk EDA 5.00 11/01/2043 4,053
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 1,300 Norfolk Redevelopment and Housing Auth. 5.50% 11/01/2019 $ 1,305
4,816 Peninsula Town Center Community Dev. Auth. 6.45 9/01/2037 4,986
3,000 Port Auth. 5.00 7/01/2030 3,302
10,000 Port Auth. 5.00 7/01/2040 10,990
1,000 Portsmouth 5.00 2/01/2033 1,195
2,815 Powhatan County EDA (INS) (PRE) 5.00 3/15/2032 2,870
3,370 Prince William County IDA 4.88 1/01/2020 3,378
8,000 Prince William County IDA 5.13 1/01/2026 8,015
1,705 Prince William County IDA(g) 5.50 9/01/2031 2,007
2,000 Prince William County IDA 5.50 9/01/2031 2,359
1,000 Prince William County IDA 5.50 9/01/2034 1,177
10,000 Prince William County IDA 5.00 11/01/2046 11,310
10,000 Public School Auth. 5.00 8/01/2024 12,676
4,000 Radford IDA (NBGA) 3.50 9/15/2029 4,233
5,310 Rappahannock Regional Jail Auth. (INS) (PRE) 4.75 12/01/2031 5,346
2,340 Rappahannock Regional Jail Auth. 5.00 10/01/2034 2,853
1,165 Rappahannock Regional Jail Auth. 5.00 10/01/2035 1,415
6,280 Rappahannock Regional Jail Auth. (INS) (PRE) 4.50 12/01/2036 6,320
1,030 Resources Auth. 5.00 11/01/2032 1,255
420 Resources Auth. (PRE) 4.38 11/01/2036 421
1,580 Resources Auth. 4.38 11/01/2036 1,584
1,435 Resources Auth. 5.00 11/01/2040 1,634
7,310 Resources Auth. 4.00 11/01/2041 7,874
2,500 Richmond Public Utility (INS) 4.50 1/15/2033 2,527
2,000 Richmond Public Utility 5.00 1/15/2035 2,175
6,000 Richmond Public Utility 5.00 1/15/2038 7,098
4,500 Richmond Public Utility 5.00 1/15/2040 4,895
5,120 Roanoke County EDA (INS) (PRE) 5.00 10/15/2027 5,548
2,850 Roanoke County EDA (INS) (PRE) 5.00 10/15/2032 3,088
1,150 Roanoke County EDA 5.00 7/01/2033 1,292
4,285 Roanoke County EDA (INS) (PRE) 5.13 10/15/2037 4,654
110 Roanoke County EDA (INS) (PRE) 5.00 7/01/2038 126
6,890 Roanoke County EDA (INS) 5.00 7/01/2038 7,597
420 Small Business Financing Auth. 5.00 4/01/2025 470
185 Small Business Financing Auth. 5.25 4/01/2026 207
1,500 Small Business Financing Auth. 5.25 9/01/2027 1,550
855 Small Business Financing Auth. 5.50 4/01/2028 968
750 Small Business Financing Auth. 5.50 4/01/2033 846
15,000 Small Business Financing Auth. 5.25 9/01/2037 15,444
11,945 Small Business Financing Auth. 5.00 11/01/2040 13,373
520 Stafford County and City of Stauton IDA (INS) 5.25 8/01/2036 522
2,700 Stafford County EDA 5.00 6/15/2036 3,231
================================================================================
20 | USAA VIRGINIA BOND FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
$ 3,995 Stafford County EDA 4.00% 6/15/2037 $ 4,289
10,000 Tobacco Settlement Financing Corp. 5.00 6/01/2047 9,821
6,315 Univ. Health System Auth. 4.75 7/01/2036 6,963
3,000 Univ. Health System Auth. 4.75 7/01/2041 3,301
4,405 Univ. of Virginia 5.00 6/01/2037 5,343
5,000 Univ. of Virginia 4.00 4/01/2045 5,624
5,000 Upper Occoquan Sewage Auth. 4.00 7/01/2039 5,624
5,000 Upper Occoquan Sewage Auth. (PRE) 5.00 7/01/2041 5,160
1,795 Virginia Beach Dev. Auth. 5.00 5/01/2029 2,183
2,165 Washington County IDA (PRE) 5.25 8/01/2030 2,514
2,160 Washington County IDA (PRE) 5.50 8/01/2040 2,529
2,645 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 2,651
2,000 Western Virginia Regional Jail Auth. 5.00 12/01/2038 2,436
3,250 Winchester EDA 5.00 1/01/2044 3,754
3,250 Winchester EDA 5.00 1/01/2044 3,836
3,000 Winchester IDA (PRE) 5.63 1/01/2044 3,317
--------
529,738
--------
DISTRICT OF COLUMBIA (5.3%)
2,825 Metropolitan Washington Airports Auth. 5.00 10/01/2029 3,122
12,465 Metropolitan Washington Airports Auth. 5.00 10/01/2030 13,432
5,500 Metropolitan Washington Airports Auth. (INS) 5.32(e) 10/01/2030 3,465
11,230 Metropolitan Washington Airports Auth. 5.00 10/01/2039 12,379
4,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 4,524
1,000 Washington MTA 5.13 7/01/2032 1,105
--------
38,027
--------
GUAM (2.6%)
1,250 Government 5.00 12/01/2046 1,464
2,000 Government Business Privilege Tax 5.00 11/15/2039 2,302
1,500 Government Business Privilege Tax 5.00 1/01/2042 1,637
1,255 International Airport Auth. (INS) 5.75 10/01/2043 1,527
500 Power Auth. 5.00 10/01/2031 572
1,000 Power Auth. 5.00 10/01/2034 1,103
750 Power Auth. (INS) 5.00 10/01/2039 879
1,000 Power Auth. (INS) 5.00 10/01/2044 1,166
2,850 Waterworks Auth. 5.00 7/01/2035 3,240
4,000 Waterworks Auth. 5.50 7/01/2043 4,620
--------
18,510
--------
U.S. VIRGIN ISLANDS (0.3%)
2,000 Public Finance Auth. 5.00 10/01/2032 1,994
--------
Total Fixed-Rate Instruments (cost: $556,606) 588,269
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
---------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------------------
PUT BONDS (1.2%)
VIRGINIA (1.2%)
$ 5,000 Wise County IDA 2.15% 10/01/2040 $ 5,156
3,000 York County EDA 1.88 5/01/2033 3,052
--------
8,208
--------
Total Put Bonds (cost: $8,000) 8,208
--------
VARIABLE-RATE DEMAND NOTES (16.0%)
VIRGINIA (14.6%)
3,335 College Building Auth. (LIQ)(f) 0.92 2/18/2017 3,335
8,500 College Building Auth. (LIQ) 0.84 8/01/2034 8,500
6,885 College Building Auth. (LIQ) 0.78 11/01/2036 6,885
2,600 College Building Auth. 0.75 1/01/2043 2,600
8,925 Fairfax County EDA (LIQ) 0.84 12/01/2033 8,925
4,200 Fairfax County EDA (LIQ) 0.86 12/01/2033 4,200
4,400 Fauquier County IDA (LOC - BB&T Corp.) 0.95 12/01/2033 4,400
10,000 Hanover County EDA (LOC - U.S. Bancorp) 0.83 11/01/2025 10,000
1,435 Hanover County EDA (LOC - Bank of New
York Mellon Corp.) 0.83 11/01/2025 1,435
28,850 Loudoun County IDA 0.84 2/15/2038 28,850
12,600 Lynchburg IDA (LOC - Federal Home
Loan Bank of Atlanta) 0.86 1/01/2028 12,600
8,800 Madison County IDA (LOC - SunTrust Bank) 0.91 10/01/2037 8,800
4,555 Small Business Financing Auth. (LOC - Bank
of America Corp.) 0.88 7/01/2030 4,555
--------
105,085
--------
DISTRICT OF COLUMBIA (1.4%)
10,000 Metropolitan Washington Airports Auth.
(LOC - Toronto-Dominion Bank) 0.88 10/01/2039 10,000
--------
Total Variable-Rate Demand Notes (cost: $115,085) 115,085
--------
TOTAL INVESTMENTS (COST: $679,691) $711,562
========
================================================================================
22 | USAA VIRGINIA BOND FUND
================================================================================
---------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
---------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $586,827 $1,442 $588,269
Put Bonds - 8,208 - 8,208
Variable-Rate Demand Notes - 115,085 - 115,085
---------------------------------------------------------------------------------------------------------------
Total $- $710,120 $1,442 $711,562
---------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
---------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
---------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS
---------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2016 $1,443
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (1)
---------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2016 $1,442
---------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Stepped-coupon security that is initially issued in zero-coupon form
and converts to coupon form at the specified date and rate shown in
the security's description. The rate presented in the coupon rate
column represents the effective yield at the date of purchase.
(b) 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, 2016, was $5,418,000, which
represented 0.8% of the Fund's net assets.
(c) At September 30, 2016, the aggregate market value of securities
purchased on a delayed-delivery basis was $1,879,000, of which all
were when-issued securities.
(d) Restricted security that is not registered under the Securities Act of
1933.
================================================================================
24 | USAA VIRGINIA BOND FUND
================================================================================
(e) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(f) 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.
(g) At September 30, 2016, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(h) At September 30, 2016, the issuer was in default with respect to
interest and/or principal payments.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $679,691) $711,562
Cash 87
Receivables:
Capital shares sold 234
Interest 8,011
--------
Total assets 719,894
--------
LIABILITIES
Payables:
Securities purchased 1,889
Capital shares redeemed 220
Dividends on capital shares 419
Accrued management fees 206
Accrued transfer agent's fees 7
Other accrued expenses and payables 51
--------
Total liabilities 2,792
--------
Net assets applicable to capital shares outstanding $717,102
========
NET ASSETS CONSIST OF:
Paid-in capital $691,840
Undistributed net investment income 2
Accumulated net realized loss on investments (6,611)
Net unrealized appreciation of investments 31,871
--------
Net assets applicable to capital shares outstanding $717,102
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $689,965/59,499 capital shares
outstanding, no par value) $ 11.60
========
Adviser Shares (net assets of $27,137/2,341 capital shares
outstanding, no par value) $ 11.59
========
See accompanying notes to financial statements.
================================================================================
26 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $13,164
-------
EXPENSES
Management fees 1,276
Administration and servicing fees:
Fund Shares 506
Adviser Shares 19
Transfer agent's fees:
Fund Shares 98
Adviser Shares 5
Distribution and service fees (Note 6D):
Adviser Shares 32
Custody and accounting fees:
Fund Shares 50
Adviser Shares 2
Postage:
Fund Shares 5
Shareholder reporting fees:
Fund Shares 11
Adviser Shares 1
Trustees' fees 15
Professional fees 44
Other 10
-------
Total expenses 2,074
-------
NET INVESTMENT INCOME 11,090
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 76
Change in net unrealized appreciation/(depreciation) 4,470
-------
Net realized and unrealized gain 4,546
-------
Increase in net assets resulting from operations $15,636
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
----------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 11,090 $ 23,366
Net realized gain on investments 76 248
Change in net unrealized appreciation/(depreciation)
of investments 4,470 (1,202)
---------------------------
Increase in net assets resulting from operations 15,636 22,412
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (10,673) (22,859)
Adviser Shares (367) (717)
---------------------------
Distributions to shareholders (11,040) (23,576)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 36,599 1,716
Adviser Shares 4,043 1,952
---------------------------
Total net increase in net assets from
capital share transactions 40,642 3,668
---------------------------
Net increase in net assets 45,238 2,504
NET ASSETS
Beginning of period 671,864 669,360
---------------------------
End of period $717,102 $671,864
===========================
Undistributed (overdistribution of) net investment income:
End of period $ 2 $ (48)
===========================
See accompanying notes to financial statements.
================================================================================
28 | USAA VIRGINIA BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Virginia Bond Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to provide Virginia investors with a high level of current interest income
that is exempt from federal and Virginia state income taxes.
The Fund consists of two classes of shares: Virginia Bond Fund Shares (Fund
Shares) and Virginia Bond Fund Adviser Shares (Adviser Shares). Each class of
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, distribution and service (12b-1) fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class' 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 all 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. 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 value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the
================================================================================
30 | USAA VIRGINIA BOND FUND
================================================================================
extent the valuations include significant unobservable inputs, the
securities would be categorized in Level 3.
2. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
3. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with 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, other pricing services, 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, evaluation of
credit quality, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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 indexes.
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.
The valuation of securities falling in the Level 3 category are primarily
supported by the value derived based upon the use of inputs such as real
property appraisals. 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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities. The Fund concentrates its investments in
Virginia tax-exempt securities and, therefore, may be exposed to more credit
risk than portfolios with a broader geographical diversification.
================================================================================
32 | USAA VIRGINIA BOND FUND
================================================================================
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, 2016, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $1,889,000;
all of which included 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, 2016, custodian and other bank credits reduced the
Fund's expenses by less than $500.
G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are
subject to a redemption fee equal to 1.00% of the proceeds of the redeemed
or exchanged shares. All redemption fees paid will be accounted for by the
Fund as an addition to paid in capital. For the six-month period ended
September 30, 2016, the Fund Shares and Adviser Shares did not charge any
redemption fees.
H. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
that have not yet occurred. However, the Trust expects the risk of loss to
be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $2,000, which represents 1.0% 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, 2016.
================================================================================
34 | USAA VIRGINIA BOND FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal 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 income taxes.
At March 31, 2016, the Fund had net capital loss carryforwards of $6,687,000,
for federal income tax purposes, as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $1,027,000
Long-Term 5,660,000
----------
Total $6,687,000
==========
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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, 2016, were
$23,298,000 and $73,969,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
As of September 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of September
30, 2016, were $38,739,000 and $6,868,000, respectively, resulting in net
unrealized appreciation of $31,871,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2016, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2016 MARCH 31, 2016
------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
FUND SHARES:
Shares sold 4,508 $ 52,426 4,756 $ 54,371
Shares issued from reinvested
dividends 723 8,421 1,560 17,821
Shares redeemed (2,084) (24,248) (6,183) (70,476)
------------------------------------------------------
Net increase from capital
share transactions 3,147 $ 36,599 133 $ 1,716
======================================================
ADVISER SHARES:
Shares sold 469 $ 5,458 585 $ 6,684
Shares issued from reinvested
dividends 25 286 47 537
Shares redeemed* (147) (1,701) (462) (5,269)
------------------------------------------------------
Net increase from capital
share transactions 347 $ 4,043 170 $ 1,952
======================================================
*Net of redemption fees, if any.
(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
================================================================================
36 | USAA VIRGINIA BOND FUND
================================================================================
affairs of the Fund, and for directly managing the day-to-day investment of
the Fund's assets, subject to the authority of and supervision by the Board.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly as a percentage of aggregate average net assets of the USAA Virginia
Bond Fund and USAA Virginia Money Market Fund combined, which on an annual
basis is equal to 0.50% of the first $50 million, 0.40% of that portion over
$50 million but not over $100 million, and 0.30% of that portion over $100
million. These fees are allocated on a proportional basis to each Fund
monthly based upon average net assets. For the six-month period ended
September 30, 2016, the Fund's effective annualized base fee was 0.32% of
the Fund's average net assets for the same period.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper Virginia Municipal Debt Funds Index. The Lipper
Virginia Municipal Debt Funds Index tracks the total return performance of
Funds that limit their assets to those securities that are exempt from
taxation in the Commonwealth of Virginia. 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
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Virginia Municipal Debt Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended September 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $1,276,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$162,000 and $3,000, respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.05% and 0.03%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2016, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $506,000 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, 2016, the Fund reimbursed the
Manager $10,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
================================================================================
38 | USAA VIRGINIA BOND FUND
================================================================================
C. 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 Shares and Adviser Shares 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, 2016, the Fund Shares and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of $98,000
and $5,000, respectively.
D. 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
(IMCO), the distributor, for distribution and shareholder services. IMCO
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, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $32,000.
E. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
receives no fee or other compensation for these services, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(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,
2016, USAA and its affiliates owned 448,000 Adviser Shares, which represents
19.1% of the Adviser Shares outstanding and 0.7% of the Fund's total outstanding
shares.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(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,
------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.52 $ 11.53 $ 11.17 $ 11.60 $ 11.40 $ 10.48
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .41 .43 .44 .44 .46
Net realized and
unrealized gain (loss) .07 (.01) .35 (.43) .20 .92
------------------------------------------------------------------------------
Total from investment
operations .26 .40 .78 .01 .64 1.38
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.41) (.42) (.44) (.44) (.46)
------------------------------------------------------------------------------
Net asset value at end
of period $ 11.60 $ 11.52 $ 11.53 $ 11.17 $ 11.60 $ 11.40
==============================================================================
Total return (%)* 2.30 3.58 7.10 .23 5.65 13.37
Net assets at end
of period (000) $689,965 $648,913 $648,331 $595,246 $671,320 $628,271
Ratios to average
net assets:**
Expenses (%)(a) .58(b) .60 .59 .59 .57 .55
Net investment income (%) 3.17(b) 3.57 3.70 4.01 3.77 4.14
Portfolio turnover (%) 4 3 12 7 6 5
* 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, 2016, average net assets were
$673,597,000.
(a) 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%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA VIRGINIA BOND FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER 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,
-----------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-----------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.51 $ 11.53 $ 11.17 $ 11.60 $ 11.40 $10.47
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .38 .40 .42 .42 .43
Net realized and
unrealized gain (loss) .08 (.02) .36 (.43) .20 .93
-----------------------------------------------------------------------------
Total from investment
operations .25 .36 .76 (.01) .62 1.36
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.38) (.40) (.42) (.42) (.43)
Redemption fees added
to beneficial interests - .00(a) - - - -
-----------------------------------------------------------------------------
Net asset value at end
of period $ 11.59 $ 11.51 $ 11.53 $ 11.17 $ 11.60 $11.40
=============================================================================
Total return (%)* 2.18 3.24 6.84 .03 5.46 13.23
Net assets at end
of period (000) $27,137 $22,951 $21,029 $12,701 $11,912 $7,028
Ratios to average
net assets:**
Expenses (%)(c) .82(d) .84 .84(b) .79 .76 .78
Expenses, excluding
reimbursements (%)(c) .82(d) .84 .84 .79 .76 .78
Net investment income (%) 2.92(d) 3.34 3.44 3.80 3.57 3.90
Portfolio turnover (%) 4 3 12 7 6 5
* 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, 2016, average net assets were
$25,186,000.
(a) Represents less than $0.01 per share.
(b) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (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, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table 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
================================================================================
42 | USAA VIRGINIA BOND FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,023.00 $2.94
Hypothetical
(5% return before expenses) 1,000.00 1,022.16 2.94
ADVISER SHARES
Actual 1,000.00 1,021.80 4.16
Hypothetical
(5% return before expenses) 1,000.00 1,020.96 4.15
*Expenses are equal to the annualized expense ratio of 0.58% for Fund Shares and
0.82% 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 2.30% for Fund
Shares and 2.18% for Adviser Shares for the six-month period of April 1, 2016,
through September 30, 2016.
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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.
================================================================================
44 | USAA VIRGINIA BOND FUND
================================================================================
At the meeting at which the renewal of the Advisory Agreement is considered,
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment
================================================================================
ADVISORY AGREEMENT(S) | 45
================================================================================
personnel, as well as current staffing levels. The allocation of the Fund's
brokerage, including the Manager's process for monitoring "best execution," also
was considered. The Manager's role in coordinating the activities of 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 with the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was above the median of its
expense group and equal to 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
================================================================================
46 | USAA VIRGINIA BOND FUND
================================================================================
to the Fund by the Manager and its affiliates, including the nature and high
quality of services provided by the Manager. The Board took into account
management's discussion of the Fund's expenses. The Board also noted the level
and method of computing the management fee, including any performance adjustment
to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the 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, five-, and ten-year periods ended December 31, 2015.
The Board also noted that the Fund's percentile performance ranking was in the
top 25% of its performance universe for the one-year period ended December 31,
2015, was in the top 5% of its performance universe for the three- and five-year
periods ended December 31, 2015, and was in the top 20% of its performance
universe for the ten-year period ended December 31, 2015.
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
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of services received by the Fund from
the Manager. The Trustees recognized that the Manager should be entitled to earn
a reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also
considered the effect of the Fund's growth and size on its performance and fees,
noting that the Fund may realize additional economies of scale if assets
increase proportionally more than some expenses. The Board determined that the
current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's 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.
================================================================================
48 | USAA VIRGINIA BOND FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39604-1116 (C)2016, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VIRGINIA MONEY MARKET FUND]
==============================================================
SEMIANNUAL REPORT
USAA VIRGINIA MONEY MARKET FUND
SEPTEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"THE CLOSING WEEKS OF A YEAR CAN BE A GOOD
TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT]
WITH A GOAL OF GETTING YOUR FINANCES IN ORDER."
--------------------------------------------------------------------------------
NOVEMBER 2016
Investors were generally rewarded during the reporting period ended September
30, 2016. Most asset classes posted gains as global growth concerns eased and
many of the world's central banks, including the Federal Reserve (the Fed),
maintained accommodative monetary policies.
Stock prices generally climbed, despite two brief setbacks. In June 2016, a
brief retreat followed the United Kingdom's unexpected vote to withdraw from the
European Union (commonly known as Brexit). In September 2016, stocks
fell--before quickly recovering--on concerns about a potential Fed interest rate
increase.
Meanwhile, bond prices recorded positive returns during the reporting period.
As bond prices rose, longer-term interest rates, which move in the opposite
direction, fell. As you know, the Fed only has direct control over short-term
interest rates. Bond prices and longer-term interest rates are determined by
buyers and sellers, sometimes based on their views of Fed policy. During the
reporting period, market expectations about potential Fed interest rate
increases shifted into the future.
The Fed, which in December 2015 had raised short-term interest rates for the
first time since 2008, also initially signaled that four interest rate increases
were on tap for 2016. However, policymakers backed off that forecast in March
2016, just before the reporting period began, indicating that only two interest
rate increases were on the table. They pointed to the global market turmoil
during the first six weeks of 2016 as a contributing factor. Policymakers
subsequently hinted there would be a single interest rate increase, but
ultimately left interest rates unchanged. In our view, December 2016 is the
Fed's only remaining window of opportunity to increase short-term interest
rates. It is unlikely to act at its November 2016 meeting, which is just days
before the presidential election. We believe that as of this writing, the
futures market, which generally is a proxy for investor sentiment, indicates
approximately a two-thirds chance that the Fed would raise rates in December
2016.
================================================================================
================================================================================
This begs the question: Is it good or bad if low interest rates persist? We
think it depends on your perspective. On one hand, consumers and businesses are
able to continue borrowing at affordable interest rates. On the other hand,
savers may continue to see returns lower than the rate of inflation.
At USAA Investments, we believe the Fed is likely to raise interest rates at a
gradual pace. We've long held the belief that interest rates will stay lower for
longer than many market participants expect. Currently, there is no urgency for
the Fed to act. Interest rate increases are typically a response to an
overheating economy, and the U.S. remains in slow-growth mode with low
inflation. Americans are still carrying large amounts of household debt, so
higher interest rates are likely to hinder their spending and slow what little
growth there is.
Tax-exempt bonds, like most other fixed-income investments, generated positive
returns during the reporting period. Municipal bonds performed well, as
investors continued to favor them for their tax-advantaged status. At the same
time, municipal issuance remained low, though it has increased since January
2016. Still, the supply is far from enough to satisfy demand and we expect
municipal bonds to continue to benefit from this situation for some time to
come. Although state and local finances are in better shape than they were a few
years ago, municipal governments have been reluctant to take on additional debt.
We believe eventually this will change, but likely not for the foreseeable
future.
Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year
can be a good time to take a look at your financial situation with a goal of
getting your finances in order. One way to help ensure you're doing the most
with what you have is to consider investing a set amount each month, also known
as dollar-cost averaging. Please call USAA Investments to speak with a financial
advisor. We are committed to helping you meet your financial objectives.
On behalf of everyone at USAA Investments, thank you for relying on us to help
you with your investment needs. We appreciate the opportunity to serve you.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
Investments provided by USAA Investment Management Company and USAA Financial
Advisors, Inc., both registered broker-dealers, and affiliates. Financial
planning services and financial advice provided by USAA Financial Planning
Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in
California, License # 0E36312), a registered investment adviser and insurance
agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a
registered broker dealer.
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
MANAGER'S COMMENTARY ON THE FUND 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 13
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 25
ADVISORY AGREEMENT(S) 27
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)2016, USAA. All rights reserved.
211760-1116
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA VIRGINIA MONEY MARKET FUND (THE FUND) PROVIDES VIRGINIA INVESTORS WITH
A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND VIRGINIA
STATE INCOME TAXES AND HAS A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND
MAINTAINING LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund primarily invests in high-quality Virginia tax-exempt securities with
remaining maturities of 397 days or less. During normal market conditions, at
least 80% of the Fund's net assets will consist of Virginia tax-exempt
securities.
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 tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. 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.
================================================================================
FUND OBJECTIVE | 1
================================================================================
MANAGER'S COMMENTARY ON THE FUND
DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the reporting period began in April 2016, investors were still
digesting the change in the Federal Reserve's (the Fed) guidance on
short-term interest-rate increases. At its March 2016 policy meeting, the
Fed had called for two interest rate increases in 2016, down from the four
it had forecasted in December 2015. Ultimately, however, the Fed remained
steady, leaving the federal funds target rate in a range between 0.25% and
0.50% throughout the reporting period.
Although the Fed did not change its monetary policy, interest rates on money
market securities rose, largely due to shifting market dynamics. At the
beginning of the reporting period, the SIFMA Municipal Swap Index*, the
index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It
stayed near that level through July 2016 and then climbed 44 basis points to
close the reporting period at 0.84%. (A basis point is 1/100(th) of a
percent.) During August and September 2016, shortly before the Securities
and Exchange Commission's money market fund reform became effective, a large
number of money market funds sold VRDNs as they liquidated, consolidated, or
shifted assets into treasury
*The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised
of tax-exempt variable-rate demand obligations (VRDOs) with certain
characteristics. The index is calculated and published by Bloomberg. The
index is overseen by SIFMA's Municipal Swap Index Committee.
================================================================================
2 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
money market funds. This caused inventories of VRDNs to increase, leading
many dealers to raise interest rates in order to attract buyers.
o HOW DID THE USAA VIRGINIA MONEY MARKET FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended September 30, 2016, the Fund had a return of
0.01%, compared to an average return of 0.06% for the tax-exempt money
market funds category, according to iMoneyNet, Inc.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. The investment adviser provides day-to-day discretionary management
for the Fund's assets.
o WHAT ARE THE CONDITIONS IN THE COMMONWEALTH OF VIRGINIA?
Given its proximity to Washington, D.C. and its dependency on government and
government-related jobs, Virginia's economy appears to be feeling the
effects of federal spending cuts. However, at the end of the reporting
period, its economy continued to be stronger than that of most states.
Virginia has been proactive in cutting expenditures to maintain overall
balance and has been able to post budget surpluses to restore financial
reserves. Virginia's conservative fiscal practices seem to be serving it
well, as it remains one of the few states rated AAA by all three
credit-rating companies at the end of the reporting period. Virginia is
characterized by a broad-based economy, with a well-educated work force and
high wealth levels, as well as a history of conservative fiscal management.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
We continued to focus our purchases on VRDNs, which added to the Fund's
yield during the reporting period. Because the VRDNs owned by
Refer to page 6 for benchmark definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
the Fund can be sold at par value (100% of face value) upon seven days or
less notice, the Fund had the flexibility to take advantage of higher
interest rates. Many of the Fund's VRDNs also are guaranteed by a bank
letter-of-credit for the payment of both principal and interest, providing
the Fund with a certain degree of stability.
In addition, the Fund benefited from investments with longer maturities. We
continued to work with our in-house team of analysts to help us identify
attractive opportunities for the Fund. They also continue to analyze and
monitor the Fund's portfolio.
We appreciate the opportunity to help you with your investment needs.
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 VRDNs are securities for which the interest rate is
reset periodically; typically weekly, although reset intervals may vary. o
Investing in securities products involves risk, including possible loss of
principal. o Some income may be subject to state or local taxes but not the
federal alternative minimum tax.
================================================================================
4 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
INVESTMENT OVERVIEW
USAA VIRGINIA MONEY MARKET FUND (THE FUND)
(Ticker Symbol: UVAXX)
--------------------------------------------------------------------------------
9/30/16 3/31/16
--------------------------------------------------------------------------------
Net Assets $161.2 Million $172.1 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 19 Days 10 Days
(+)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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16
--------------------------------------------------------------------------------
3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS
0.01% 0.02% 0.03% 0.65%
--------------------------------------------------------------------------------
7-DAY YIELD AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16**
--------------------------------------------------------------------------------
0.07% 0.70%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**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, 2016, 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.
YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT
WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY
TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS
BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN
INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY
OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL
OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT
THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. 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 net investment income and
realized capital gain distributions, including reinvested distributions, or
redemptions of shares. Yields and returns fluctuate. The seven-day yield
quotation more closely reflects current earnings of the Fund than the total
return quotation.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA VIRGINIA
iMoneyNet MONEY MARKET
AVERAGE FUND
9/28/2015 0.01% 0.01%
10/26/2015 0.01 0.01
11/30/2015 0.01 0.01
12/28/2015 0.01 0.01
1/25/2016 0.01 0.01
2/29/2016 0.01 0.01
3/28/2016 0.02 0.01
4/25/2016 0.03 0.01
5/23/2016 0.04 0.01
6/27/2016 0.05 0.01
7/25/2016 0.05 0.01
8/29/2016 0.09 0.01
9/26/2016 0.20 0.04
[END CHART]
Data represents the last Monday of each month. Ending date 9/26/16.
The graph tracks the USAA Virginia Money Market Fund's seven-day yield against
an average of money market fund yields of all state-specific retail state
tax-free and municipal money funds, calculated by iMoneyNet, Inc. iMoneyNet,
Inc. is an organization that tracks the performance of money market funds.
Past performance is no guarantee of future results.
================================================================================
6 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
o TOP 10 INDUSTRIES - 9/30/16 o
(% of Net Assets)
Education ................................................................ 23.5%
Hospital ................................................................. 21.0%
Airport/Port ............................................................. 9.9%
Community Service ........................................................ 9.2%
Special Assessment/Tax/Fee ............................................... 8.6%
General Obligation ....................................................... 6.0%
Appropriated Debt ........................................................ 5.7%
Health Miscellaneous ..................................................... 5.0%
Water/Sewer Utility ...................................................... 5.0%
Multifamily Housing ...................................................... 3.0%
o PORTFOLIO MIX - 9/30/16 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 86.6%
FIXED-RATE INSTRUMENTS 12.8%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 9-12.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA VIRGINIA
MONEY MARKET
FUND
09/30/06 $10,000.00
10/31/06 10,025.00
11/30/06 10,050.00
12/31/06 10,078.00
01/31/07 10,102.00
02/28/07 10,127.00
03/31/07 10,154.00
04/30/07 10,180.00
05/31/07 10,209.00
06/30/07 10,237.00
07/31/07 10,263.00
08/31/07 10,294.00
09/30/07 10,319.00
10/31/07 10,347.00
11/30/07 10,374.00
12/31/07 10,400.00
01/31/08 10,423.00
02/29/08 10,442.00
03/31/08 10,464.00
04/30/08 10,481.00
05/31/08 10,500.00
06/30/08 10,514.00
07/31/08 10,527.00
08/31/08 10,542.00
09/30/08 10,569.00
10/31/08 10,600.00
11/30/08 10,610.00
12/31/08 10,621.00
01/31/09 10,625.00
02/28/09 10,628.00
03/31/09 10,632.00
04/30/09 10,636.00
05/31/09 10,641.00
06/30/09 10,645.00
07/31/09 10,649.00
08/31/09 10,652.00
09/30/09 10,653.00
10/31/09 10,653.00
11/30/09 10,653.00
12/31/09 10,655.00
01/31/10 10,655.00
02/28/10 10,655.00
03/31/10 10,655.00
04/30/10 10,656.00
05/31/10 10,656.00
06/30/10 10,656.00
07/31/10 10,656.00
08/31/10 10,656.00
09/30/10 10,656.00
10/31/10 10,656.00
11/30/10 10,656.00
12/31/10 10,656.00
01/31/11 10,657.00
02/28/11 10,657.00
03/31/11 10,657.00
04/30/11 10,657.00
05/31/11 10,657.00
06/30/11 10,657.00
07/31/11 10,657.00
08/31/11 10,657.00
09/30/11 10,657.00
10/31/11 10,657.00
11/30/11 10,657.00
12/31/11 10,658.00
01/31/12 10,659.00
02/29/12 10,659.00
03/31/12 10,659.00
04/30/12 10,659.00
05/31/12 10,659.00
06/30/12 10,659.00
07/31/12 10,659.00
08/31/12 10,659.00
09/30/12 10,659.00
10/31/12 10,660.00
11/30/12 10,660.00
12/31/12 10,660.00
01/31/13 10,660.00
02/28/13 10,661.00
03/31/13 10,661.00
04/30/13 10,661.00
05/31/13 10,661.00
06/30/13 10,661.00
07/31/13 10,661.00
08/31/13 10,661.00
09/30/13 10,661.00
10/31/13 10,661.00
11/30/13 10,661.00
12/31/13 10,666.00
01/31/14 10,667.00
02/28/14 10,667.00
03/31/14 10,667.00
04/30/14 10,667.00
05/31/14 10,667.00
06/30/14 10,667.00
07/31/14 10,667.00
08/31/14 10,667.00
09/30/14 10,667.00
10/31/14 10,667.00
11/30/14 10,667.00
12/31/14 10,668.00
01/31/15 10,668.00
02/28/15 10,668.00
03/31/15 10,668.00
04/30/15 10,668.00
05/31/15 10,668.00
06/30/15 10,668.00
07/31/15 10,668.00
08/31/15 10,668.00
09/30/15 10,668.00
10/31/15 10,668.00
11/30/15 10,669.00
12/31/15 10,670.00
01/31/16 10,670.00
02/29/16 10,670.00
03/31/16 10,670.00
04/30/16 10,670.00
05/31/16 10,670.00
06/30/16 10,670.00
07/31/16 10,670.00
08/31/16 10,671.00
09/30/16 10,671.00
[END CHART]
Data from 9/30/06 through 9/30/16.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA Virginia Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
reinvested net investment income and realized capital gain distributions or on
the redemption of shares. Some income may be subject to federal, state, or local
taxes. For seven-day yield information, please refer to the Fund's Investment
Overview.
================================================================================
8 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
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. The
effective maturity of these instruments is deemed to be less than 397 days
in accordance with detailed regulatory requirements.
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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
CREDIT ENHANCEMENTS - Adds 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 values of the securities.
The Fund's purchases consist of securities meeting the requirements to
qualify as "eligible securities" under the Securities and Exchange
Commission (SEC) regulations applicable to money market funds. In order to
qualify as an eligible security, the USAA Mutual Funds Trust's Board of
Trustees (the Board), must determine that the particular
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
investment presents minimal credit risk in accordance with these SEC
regulations. With respect to quality, eligible securities generally are
rated or subject to a guarantee that is rated in one of the two highest
categories for short-term securities by at least two Nationally Recognized
Statistical Rating Organizations (NRSROs), or by one NRSRO if the security
is rated by only one NRSRO, or if unrated, determined by USAA Asset
Management Company (the Manager) to be of comparable quality.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from JPMorgan
Chase & Co. or Royal Bank of Canada.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
================================================================================
10 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
INVESTMENTS
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (86.6%)
VIRGINIA (76.7%)
$ 3,630 Albemarle County IDA (LOC - Wells Fargo & Co.) 0.83% 10/01/2022 $ 3,630
6,400 Albemarle County IDA (LOC - SunTrust Bank) 0.90 10/01/2037 6,400
1,510 Alexandria IDA (LOC - Bank of America Corp.) 0.97 7/01/2026 1,510
1,400 Fairfax County EDA (LOC - SunTrust Bank) 0.90 6/01/2037 1,400
7,000 Fairfax County IDA 0.87 5/15/2042 7,000
6,955 Fauquier County IDA (LOC - PNC Financial Services Group) 0.87 4/01/2038 6,955
8,000 Hampton Roads Sanitation District 0.85 8/01/2046 8,000
4,205 Hanover County EDA (LOC - U.S. Bancorp) 0.83 11/01/2025 4,205
3,370 Hanover County EDA (LOC - Bank of New York Mellon Corp.) 0.83 11/01/2025 3,370
7,820 Lexington IDA 0.75 1/01/2035 7,820
7,000 Loudoun County IDA (LOC - Northern Trust Corp.) 0.85 6/01/2034 7,000
8,000 Loudoun County IDA 0.83 2/15/2038 8,000
3,605 Loudoun County IDA (LOC - PNC Financial Services Group) 0.87 3/01/2038 3,605
7,595 Lynchburg IDA (LOC - Federal Home Loan Bank of Atlanta) 0.86 1/01/2028 7,595
5,000 Madison County IDA (LOC - SunTrust Bank) 0.91 10/01/2037 5,000
4,000 Montgomery County IDA (LOC - Bank of New York Mellon Corp.) 0.90 6/01/2035 4,000
8,000 Norfolk EDA 0.86 11/01/2034 8,000
4,850 Norfolk Redevelopment and Housing Auth. (LOC - Bank of America Corp.) 0.94 7/01/2034 4,850
2,640 Roanoke County EDA (LOC - BB&T Corp.) 0.99 10/01/2028 2,640
2,495 Stafford County EDA (LIQ)(a) 0.92 4/01/2017 2,495
910 Stafford County IDA (LOC - U.S. Bancorp) 0.89 5/01/2049 910
6,775 Transportation Board (LIQ)(a) 0.88 5/15/2020 6,775
3,700 Univ. of Virginia (LIQ)(a) 0.87 12/01/2017 3,700
2,000 Virginia Beach (LIQ)(a) 0.87 4/01/2017 2,000
6,825 Virginia College Building Auth. (LIQ)(a) 0.87 2/01/2021 6,825
--------
123,685
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA (9.9%)
$ 8,055 Metropolitan Washington Airports Auth. (LOC - Toronto-Dominion Bank) 0.88% 10/01/2039 $ 8,055
7,800 Metropolitan Washington Airports Auth. (LOC - Sumitomo Mitsui Banking
Corp.) 0.90 10/01/2039 7,800
--------
15,855
--------
Total Variable-Rate Demand Notes (cost: $139,540) 139,540
--------
FIXED-RATE INSTRUMENTS (12.8%)
VIRGINIA (12.8%)
7,480 Commonwealth 5.00 6/01/2017 7,706
13,000 Stafford County & Staunton IDA (LOC - Bank of America Corp.) 0.80 10/18/2016 13,000
--------
20,706
--------
Total Fixed-Rate Instruments (cost: $20,706) 20,706
--------
TOTAL INVESTMENTS (COST: $160,246) $160,246
========
----------------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $139,540 $- $139,540
Fixed-Rate Instruments - 20,706 - 20,706
----------------------------------------------------------------------------------------------------------------------------
Total $- $160,246 $- $160,246
----------------------------------------------------------------------------------------------------------------------------
================================================================================
12 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
Note 1A to the financial statements.
The cost of securities at September 30, 2016, for federal income tax
purposes, was approximately the same as that reported in 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) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $160,246
Cash 90
Receivables:
Capital shares sold 1,069
Interest 232
--------
Total assets 161,637
--------
LIABILITIES
Payables:
Capital shares redeemed 293
Dividends on capital shares 4
Accrued management fees 43
Other accrued expenses and payables 62
--------
Total liabilities 402
--------
Net assets applicable to capital shares outstanding $161,235
========
NET ASSETS CONSIST OF:
Paid-in capital $161,187
Overdistribution of net investment income (1)
Accumulated net realized gain on investments 49
--------
Net assets applicable to capital shares outstanding $161,235
========
Capital shares outstanding, unlimited number of shares authorized, no par value 161,187
========
Net asset value, redemption price, and offering price per share $ 1.00
========
See accompanying notes to financial statements.
================================================================================
14 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 403
-----
EXPENSES
Management fees 274
Administration and servicing fees 86
Transfer agent's fees 144
Custody and accounting fees 44
Postage 7
Shareholder reporting fees 6
Trustees' fees 15
Professional fees 43
Other 7
-----
Total expenses 626
Expenses reimbursed (233)
-----
Net expenses 393
-----
NET INVESTMENT INCOME 10
-----
NET REALIZED GAIN ON INVESTMENTS
Net realized gain 49
-----
Increase in net assets resulting from operations $ 59
=====
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2016 (unaudited), and year ended
March 31, 2016
---------------------------------------------------------------------------------------------------------
9/30/2016 3/31/2016
---------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10 $ 17
Net realized gain on investments 49 20
-----------------------------
Increase in net assets resulting from operations 59 37
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (11) (17)
Net realized gains - (20)
-----------------------------
Distributions to shareholders (11) (37)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 108,459 104,952
Reinvested dividends 10 37
Cost of shares redeemed (119,372) (117,276)
-----------------------------
Decrease in net assets from capital share transactions (10,903) (12,287)
-----------------------------
Net decrease in net assets (10,855) (12,287)
NET ASSETS
Beginning of period 172,090 184,377
-----------------------------
End of period $ 161,235 $ 172,090
=============================
Overdistribution of net investment income:
End of period $ (1) $ -
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 108,459 104,952
Shares issued for dividends reinvested 10 37
Shares redeemed (119,372) (117,276)
-----------------------------
Decrease in shares outstanding (10,903) (12,287)
=============================
See accompanying notes to financial statements.
================================================================================
16 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2016 (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 54 separate funds.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Virginia Money Market Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide Virginia investors with a high level of
current interest income that is exempt from federal and Virginia state income
taxes, with a further objective of preserving capital and maintaining liquidity.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
meetings to review prior actions taken by the Committee and USAA Asset
Management Company (the Manager), an affiliate of the Fund. 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. All securities held in the Fund are short-term debt securities which are
valued pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its purchase price, and thereafter, assumes a constant
amortization to maturity of any premiums or discounts.
2. Securities for which amortized cost valuations are considered unreliable
or whose values have been materially affected by a significant event are
valued in good faith at fair value, using methods determined by the
Committee, under procedures to stabilize net assets and valuation
procedures approved by the Board.
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 indexes.
================================================================================
18 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
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 taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities 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
straight-line method. The Fund concentrates its investments in Virginia
tax-exempt securities and, therefore, may be exposed to more credit risk
than portfolios with a broader geographical diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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, 2016, custodian and other bank
credits reduced the Fund's expenses by less than $500.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 12.0 basis points of the amount of the committed loan
agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0
basis points of the amount of the committed loan agreement. The facility fees
are allocated among the USAA Funds based on their respective average net assets
for the period.
================================================================================
20 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
The USAA Funds may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the USAA Funds increase the committed
loan agreement, the assessed facility fee on the amount of the additional
commitment will be 13.0 basis points.
For the six-month period ended September 30, 2016, the Fund paid CAPCO facility
fees of $1,000, which represents 0.2% 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, 2016.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of March 31, 2017, in
accordance with applicable federal 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 income taxes.
At March 31, 2016, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended September 30, 2016, 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 the Fund's tax basis 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) 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 Fund's investment management fee is accrued daily and paid monthly as a
percentage of aggregate average net assets of the USAA Virginia Bond Fund
and USAA Virginia Money Market Fund combined, which on an annual basis is
equal to 0.50% of the first $50 million, 0.40% of that portion over $50
million but not over $100 million, and 0.30% of that portion over $100
million. These fees are allocated on a proportional basis to each Fund
monthly based upon average net assets. For the six-month period ended
September 30, 2016, the Fund incurred total management fees, paid or payable
to the Manager, of $274,000, resulting in an effective annualized management
fee of 0.32% of the Fund's average net assets for the same period.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
September 30, 2016, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $86,000.
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, 2016, the Fund reimbursed the
Manager $2,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield. The Manager can
modify or terminate this arrangement at any time without prior notice to
shareholders. For the six-month period ended September 30, 2016, the Fund
incurred reimbursable expenses of $233,000.
================================================================================
22 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
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. The Fund's transfer agent's fees are accrued daily and
paid monthly at an annualized rate of 0.15% of the Fund's average net
assets, 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. Prior to June 1, 2016, the Fund paid
transfer agent service fees based on an annual charge of $25.50 per
shareholder account plus out-of-pocket expenses. For the six-month period
ended September 30, 2016, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $144,000.
E. 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 fee or other compensation for these
services.
(5) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
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.
(6) REGULATORY MATTERS
In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to
the rules that govern money market funds that will affect the manner in which
money market funds are structured and operated. The amendments also will allow
money market funds to impose liquidity fees and suspend redemptions temporarily
(redemption gates), and will impose new requirements related to diversification,
stress testing, and disclosure. Money market funds that qualify as "retail"
(Retail MMFs) or "government" will be permitted to continue to utilize amortized
cost to value their portfolio securities and to transact at a stable $1 net
asset value per share as they do today. Effective October 14, 2016, the Fund
operates as a Retail MMF and, in doing so, will have the ability to impose
liquidity fees and redemption gates.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .00 .00 .00 .00 .00 .00
Net realized and unrealized gain - .00(a) .00(a) .00(a) .00(a) -
------------------------------------------------------------------------------
Total from investment operations(a) .00 .00 .00 .00 .00 .00
------------------------------------------------------------------------------
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00)
Realized capital gains - (.00)(a) (.00)(a) (.00)(a) (.00)(a) -
------------------------------------------------------------------------------
Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00)
------------------------------------------------------------------------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================
Total return (%)*,(c) .01 .02 .01 .06 .02 .02(b)
Net assets at end of period (000) $161,235 $172,090 $184,377 $189,070 $177,326 $187,423
Ratios to average net assets:**
Expenses (%)(c),(d) .46(e) .04 .05 .08 .19 .20(b)
Expenses, excluding reimbursements (%)(d) .73(e) .70 .66 .65 .64 .64(b)
Net investment income (%) .01(e) .01 .01 .01 .01 .02
* 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
iMoneyNet reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended September 30, 2016, average net assets were
$172,101,000.
(a) Represents less than $0.01 per share.
(b) During the year ended March 31, 2012, SAS reimbursed the Fund $20,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratio by
0.01%. This decrease is excluded from the expense ratio in the Financial
Highlights table.
(c) The Manager voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses and
attempt to prevent a negative yield.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
24 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of April 1, 2016, through
September 30, 2016.
ACTUAL EXPENSES
The line labeled "actual" in the table 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 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" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio 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 use this information to
================================================================================
EXPENSE EXAMPLE | 25
================================================================================
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, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
--------------------------------------------------------------
Actual $1,000.00 $1,000.10** $2.31**
Hypothetical
(5% return before expenses) 1,000.00 1,022.76** 2.33**
*Expenses are equal to the Fund's annualized expense ratio of 0.46%, which is
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 value is
based on its actual total return of 0.01% for the six-month period of April 1,
2016, through September 30, 2016.
**The Funds' annualized expense ratio of 0.46% above reflects a change in the
transfer agency fee structure from a per-account fee to an asset-based fee
effective June 1, 2016. Had this change been in effect for the entire
six-month period of April 1, 2016, through September 30, 2016, the Funds'
expense ratio would have been 0.50%, net of expenses paid indirectly, and the
values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 -
APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016
--------------------------------------------------------------
Actual $1,000.00 $1,000.10 $2.51
Hypothetical
(5% return before expenses) 1,000.00 1,022.56 2.54
================================================================================
26 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
ADVISORY AGREEMENT(S)
September 30, 2016 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 22,
2016, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) 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
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent 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 Independent 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(S) | 27
================================================================================
Advisory Agreement is considered, particular focus is given to information
concerning Fund performance, fees and total expenses as compared to comparable
investment companies, and the Manager's profitability with respect to the Fund.
However, the Board noted that the evaluation process with respect to the Manager
is an ongoing one. In this regard, the Board's and its committees' consideration
of the Advisory Agreement included information previously received at such
meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well
================================================================================
28 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
as current staffing levels. The allocation of the Fund's brokerage, including
the Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of 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 no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes the Fund and all other no-load retail "other
states" tax-exempt money market funds 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
as well as any fee waivers or reimbursements - was equal to the median of its
expense group and its expense universe. The data indicated that the Fund's total
expense ratio, after reimbursements, was below the median of its expense group
and its expense universe. The Board took into account the various services
provided to the
================================================================================
ADVISORY AGREEMENT(S) | 29
================================================================================
Fund by the Manager and its affiliates, including the nature and high quality of
the services provided by the Manager. The Board also noted the level and method
of computing the management fee. The Board took into account management's
discussion of the Fund's expenses, noting that the Manager had reimbursed a
significant portion of Fund expenses during the previous year. 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 "other states" tax-exempt money market funds regardless of
asset size or primary channel of distribution. This comparison indicated that,
among other data, the Fund's performance was lower than the average of its
performance universe and above its Lipper index for the one-year period ended
December 31, 2015, and was above the average of its performance universe and its
Lipper index for the three-, five-, and ten-year periods ended December 31,
2015. The Board also noted that the Fund's percentile performance ranking was in
the top 40% of its performance universe for the one-and five-year periods ended
December 31, 2015 and was in the top 25% of its performance universe for the
three-and ten-year periods ended December 31, 2015. The Board also took into
account management's discussion regarding current market conditions.
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, noting that the Manager has reimbursed a portion of its
management fee for the Fund.
================================================================================
30 | USAA VIRGINIA MONEY MARKET FUND
================================================================================
In reviewing the overall profitability of the management fee to the Manager, the
Board also considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Board
also took into account the high quality of the services received by the Fund
from the Manager as well as the type of fund. The Trustees recognized that the
Manager should be entitled to earn a reasonable level of profits in exchange for
the level of services it provides to the Fund and the entrepreneurial risk that
it assumes as Manager.
ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that the Fund may realize additional economies of scale if assets increase
proportionally more than some expenses. The Board also considered the fee waiver
and expense reimbursement arrangements by the Manager. 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) | 31
================================================================================
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 1700
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)
(210) 531-8722
--------------------------------------------------------------------------------
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) or (210) 531-8722;
(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) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
39606-1116 (C)2016, 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 trustees. The Corporate Governance
Committee has adopted procedures to consider Board candidates suggested by
shareholders. The procedures are initiated by the receipt of nominations
submitted by a fund shareholder sent to Board member(s) at the address specified
in fund disclosure documents or as received by AMCO or a fund officer. Any
recommendations for a nomination by a shareholder, to be considered by the
Board, must include at least the following information: name; date of birth;
contact information; education; business profession and other expertise;
affiliations; experience relating to serving on the Board; and references. The
Corporate Governance Committee gives shareholder recommendations the same
consideration as any other candidate.
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, 2016
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 11/28/2016
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 11/28/2016
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 11/28/2016
------------------------------
*Print the name and title of each signing officer under his or her signature.