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: KRISTEN MILLAN
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, 2017
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2017
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CALIFORNIA BOND FUND]
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SEMIANNUAL REPORT
USAA CALIFORNIA BOND FUND
FUND SHARES (USCBX) o ADVISER SHARES (UXABX)
SEPTEMBER 30, 2017
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 11
Financial Statements 13
Notes to Financial Statements 16
EXPENSE EXAMPLE 29
ADVISORY AGREEMENT 31
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)2017, USAA. All rights reserved.
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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, instrumentalities, and by
other government entities, the interest on which is excludable from gross income
for federal income tax and California state income tax purposes (referred to
herein as "California tax-exempt securities"). During normal market conditions,
at least 80% of the Fund's net assets will consist of California tax-exempt
securities. This policy may be changed only by shareholder vote. The Fund's
dollar-weighted average portfolio maturity is not restricted, but is expected to
be greater than 10 years.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income dividends will be tax-exempt and excludable from the
calculation of the federal alternative minimum tax (AMT) for individual
taxpayers. This policy may be changed only by a shareholder vote.
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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INVESTMENT OVERVIEW
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o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
General Obligation ...................................................... 15.2%
Appropriated Debt ....................................................... 12.8%
Water/Sewer Utility ..................................................... 11.7%
Special Assessment/Tax/Fee .............................................. 11.5%
Escrowed Bonds .......................................................... 11.0%
Hospital ................................................................ 10.4%
Real Estate Tax/Fee ..................................................... 7.4%
Toll Roads .............................................................. 4.1%
Airport/Port ............................................................ 3.9%
Nursing/CCRC ............................................................ 3.5%
You will find a complete list of securities that the Fund owns on pages 4-10.
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2 | USAA CALIFORNIA BOND FUND
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o PORTFOLIO RATINGS MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AA 62.8%
A 24.7%
BBB 8.0%
BELOW INVESTMENT-GRADE 2.9%
UNRATED 1.6%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide 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 4-10.
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INVESTMENT OVERVIEW | 3
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PORTFOLIO OF INVESTMENTS
September 30, 2017 (unaudited)
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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
MUNIPSA Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index
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
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4 | USAA CALIFORNIA BOND FUND
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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.,
National Public Finance Guarantee Corp., 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.,
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.
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PORTFOLIO OF INVESTMENTS | 5
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INVESTMENTS
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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FIXED-RATE INSTRUMENTS (89.7%)
CALIFORNIA (86.9%)
$ 2,000 Alameda Corridor Transportation Auth. 5.00% 10/01/2037 $ 2,280
1,500 Anaheim Public Financing Auth. 5.00 5/01/2046 1,722
4,235 Association of Bay Area Governments (NBGA) 5.00 1/01/2033 4,883
17,520 Association of Bay Area Governments (INS) 4.75 3/01/2036 17,760
1,500 Association of Bay Area Governments 5.00 7/01/2042 1,615
1,300 Atwater Wastewater (INS) 5.00 5/01/2043 1,487
3,085 Burbank USD, 4.30%, 8/01/2023 4.30(a) 8/01/2033 2,663
3,000 Burbank USD, 4.35%, 8/01/2023 4.35(a) 8/01/2034 2,582
5,265 Carlsbad USD (INS) (PRE) 5.00 10/01/2034 5,690
9,500 Centinela Valley Union High School District 4.00 8/01/2050 9,851
3,000 Central USD (INS) (PRE) 5.50 8/01/2029 3,250
5,000 Chula Vista 5.88 1/01/2034 5,372
6,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 6,464
2,000 City of Fillmore Wastewater 5.00 5/01/2047 2,288
1,350 Corona-Norco USD 5.00 9/01/2032 1,506
6,000 Educational Facilities Auth. 5.38 4/01/2034 6,541
1,000 Educational Facilities Auth. 5.00 10/01/2037 1,144
3,100 Educational Facilities Auth. 5.00 10/01/2049 3,601
1,500 Elk Grove Finance Auth. (INS) 5.00 9/01/2038 1,697
15,000 Foothill/Eastern Transportation Corridor Agency (INS) 4.21(b) 1/15/2034 8,071
7,500 Foothill/Eastern Transportation Corridor Agency (INS) 4.25(b) 1/15/2035 3,852
18,000 Golden State Tobacco Securitization (INS) 4.55 6/01/2022 18,411
16,675 Golden State Tobacco Securitization 5.00 6/01/2033 16,657
5,000 Health Facilities Financing Auth. 5.00 7/01/2033 5,698
2,000 Health Facilities Financing Auth. (PRE) 6.50 10/01/2033 2,114
8,105 Health Facilities Financing Auth. 4.00 3/01/2039 8,398
1,050 Health Facilities Financing Auth. (NBGA) 5.00 7/01/2039 1,201
2,100 Health Facilities Financing Auth. 5.00 11/15/2039 2,367
14,000 Health Facilities Financing Auth. 4.00 11/15/2041 14,443
7,805 Health Facilities Financing Auth. (NBGA) 5.00 6/01/2042 8,752
1,000 Health Facilities Financing Auth. 5.00 8/15/2042 1,124
2,300 Health Facilities Financing Auth. (NBGA) 5.00 7/01/2044 2,614
10,000 Health Facilities Financing Auth. 4.00 10/01/2047 10,375
9,310 Indio Redevelopment Agency 5.25 8/15/2031 9,613
6,000 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 6,271
1,000 Irvine USD 5.00 9/01/2042 1,136
1,000 Irvine USD 5.00 9/01/2042 1,136
525 Irvine USD 5.00 9/01/2047 594
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6 | USAA CALIFORNIA BOND FUND
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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$ 1,000 Irvine USD 5.00% 9/01/2047 $ 1,131
1,000 Irvine USD 5.00 9/01/2049 1,126
1,000 Jurupa Public Financing Auth. 5.00 9/01/2042 1,127
1,500 Local Public Schools Funding Auth. (INS) 4.00 8/01/2052 1,562
3,875 Long Beach Bond Finance Auth. 5.00 11/15/2035 4,668
2,000 Los Angeles County Public Works Financing Auth. 5.00 12/01/2044 2,311
6,000 Los Angeles County Public Works Financing Auth. 5.00 12/01/2045 6,934
10,000 Madera Redevelopment Agency 5.38 9/01/2038 10,331
5,790 March Joint Powers Redevelopment Agency (INS) 4.00 8/01/2041 6,071
6,000 Modesto Irrigation District 5.75 10/01/2034 6,397
2,345 Monrovia Financing Auth. (INS) 5.00 12/01/2045 2,688
3,435 Monrovia Financing Auth. 5.00 12/01/2045 3,986
7,500 Monterey Peninsula CCD (INS) (PRE) 5.11(b) 8/01/2029 4,185
2,000 Mountain View Shoreline Regional Park Community 5.63 8/01/2035 2,288
750 Municipal Finance Auth. 5.00 2/01/2037 849
1,900 Municipal Finance Auth. (NBGA) 4.13 5/15/2039 1,995
1,000 Municipal Finance Auth. 5.00 2/01/2042 1,122
2,100 Municipal Finance Auth. (NBGA) 4.13 5/15/2046 2,183
1,000 Municipal Finance Auth. 5.00 2/01/2047 1,116
1,000 Municipal Finance Auth. 5.00 7/01/2047 1,120
1,000 Municipal Finance Auth. 5.00 6/01/2050 1,093
1,500 Norco Redevelopment Agency 5.88 3/01/2032 1,658
1,250 Norco Redevelopment Agency 6.00 3/01/2036 1,386
5,000 Norwalk Redevelopment Agency (INS) 5.00 10/01/2030 5,015
3,500 Norwalk Redevelopment Agency (INS) 5.00 10/01/2035 3,511
7,500 Norwalk-La Mirada USD (INS) 5.00(b) 8/01/2030 5,098
6,205 Oakdale Irrigation District (PRE) 5.50 8/01/2034 6,722
5,500 Palomar Pomerado Health (INS) 4.89(b) 8/01/2026 4,267
12,230 Palomar Pomerado Health (INS) 6.05(b) 8/01/2031 7,670
2,000 Pittsburg Successor Redevelopment Agency (INS) 5.00 9/01/2029 2,371
4,000 Pollution Control Financing Auth.(c) 5.25 8/01/2040 4,351
10,000 Pollution Control Financing Auth. 5.00 11/21/2045 10,019
1,500 Pomona USD (INS) 5.00 8/01/2039 1,727
1,000 Public Finance Auth. 5.00 10/15/2037 1,115
3,000 Public Finance Auth. 5.00 10/15/2047 3,297
5,705 Public Works Board 5.00 4/01/2031 5,725
6,875 Public Works Board 5.00 4/01/2031 6,900
2,000 Regents of the Univ. of California 4.00 5/15/2044 2,080
2,800 Rio Elementary School District (INS) 4.00 8/01/2045 2,921
1,250 Riverside County Public Financing Auth. (INS) 4.00 10/01/2036 1,319
1,625 Riverside County Public Financing Auth. (INS) 4.00 10/01/2037 1,710
2,000 Riverside County Redevelopment Successor Agency (INS) 4.00 10/01/2037 2,108
2,000 Riverside County Transportation Commission 5.25 6/01/2039 2,350
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PORTFOLIO OF INVESTMENTS | 7
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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$ 2,000 RNR School Financing Auth. (INS) 5.00% 9/01/2041 $ 2,286
7,115 Roseville Finance Auth. (PRE) 5.00 2/01/2037 7,775
2,000 Sacramento Area Flood Control Agency (INS) 5.00 10/01/2044 2,297
1,100 Sacramento County Airport Systems 5.00 7/01/2041 1,266
1,020 Sacramento USD (INS) 5.00 7/01/2038 1,168
2,000 San Diego County Regional Airport Auth. 5.00 7/01/2040 2,187
1,500 San Diego County Regional Airport Auth. 5.00 7/01/2047 1,742
1,000 San Diego Public Facilities Financing Auth. (PRE) 5.25 5/15/2029 1,111
2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 2,886
3,500 San Francisco City and County Airport (PRE) 5.25 5/01/2026 3,591
10,000 San Jose Financing Auth. 5.00 6/01/2039 11,399
3,000 San Jose Redevelopment Agency (INS) 4.45 8/01/2032 3,006
1,500 San Luis & Delta-Mendota (INS) 5.00 3/01/2038 1,687
3,000 San Marcos USD Financing Auth. (INS) (PRE) 5.00 8/15/2035 3,341
5,000 San Ramon Successor Redevelopment Agency (INS) 5.00 2/01/2038 5,711
3,500 Santa Barbara Financing Auth. 5.00 7/01/2029 3,731
9,000 Santa Barbara Financing Auth. 5.00 7/01/2039 9,553
2,000 Santa Clara 5.25 7/01/2032 2,293
5,250 Santa Clarita CCD 4.00 8/01/2046 5,497
6,000 Santa Cruz County Redevelopment Successor Agency (INS) 5.00 9/01/2035 6,974
1,750 School Finance Auth.(c) 5.00 8/01/2041 1,931
2,250 School Finance Auth.(c) 5.00 8/01/2046 2,471
1,370 School Finance Auth.(c) 5.00 7/01/2047 1,539
10,000 South Orange County Public Financing Auth. (INS) 5.00 8/15/2032 10,025
4,000 State 5.25 2/01/2030 4,646
75 State 4.50 8/01/2030 75
5,000 State 5.75 4/01/2031 5,360
3,000 State 5.00 2/01/2043 3,421
2,500 State 5.00 9/01/2045 2,902
9,500 State 5.00 8/01/2046 11,005
7,000 State 5.00 11/01/2047 8,204
11,795 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.00 12/01/2027 11,882
13,000 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.00 12/01/2037 13,096
3,500 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.75 8/15/2038 3,651
2,500 Statewide Communities Dev. Auth. (PRE) 5.00 11/15/2038 2,566
2,000 Statewide Communities Dev. Auth. 5.00 5/15/2040 2,284
1,500 Statewide Communities Dev. Auth. 5.00 5/15/2042 1,640
500 Statewide Communities Dev. Auth. 5.00 11/01/2043 557
2,400 Statewide Communities Dev. Auth. (NBGA) 5.00 8/01/2044 2,739
2,750 Statewide Communities Dev. Auth. 5.00 10/01/2046 3,051
4,000 Statewide Communities Dev. Auth. (NBGA) 4.00 11/01/2046 4,189
1,000 Statewide Communities Dev. Auth. 5.00 5/15/2047 1,148
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8 | USAA CALIFORNIA BOND FUND
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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$ 1,500 Statewide Communities Dev. Auth. 5.00% 5/15/2047 $ 1,634
1,000 Statewide Communities Dev. Auth. 5.00 5/15/2050 1,141
3,000 Statewide Communities Dev. Auth. 4.00 8/15/2051 3,088
1,575 Temecula Valley USD (INS) 5.00 9/01/2040 1,797
7,500 Temecula Valley USD (INS) 4.00 8/01/2045 7,807
5,710 Tulare (INS) 4.00 11/15/2041 5,968
5,000 Tulare (INS) 4.00 11/15/2044 5,204
7,190 Tuolumne Wind Project Auth. (PRE) 5.63 1/01/2029 7,616
4,000 Val Verde USD (INS) 5.00 3/01/2029 4,207
1,105 Val Verde USD (INS) 5.00 8/01/2034 1,285
1,530 Val Verde USD (INS) 5.00 8/01/2035 1,776
1,500 Val Verde USD (INS) 5.13 3/01/2036 1,574
4,000 Val Verde USD (INS) 5.00 8/01/2044 4,567
4,475 Val Verde USD (INS) 4.00 8/01/2045 4,668
3,287 Vallejo Sanitation and Flood Control District (INS) 5.00 7/01/2019 3,397
5,000 Victor Valley Union High School District (INS) 4.00 8/01/2037 5,310
1,250 Washington Township Health Care District 6.00 7/01/2029 1,334
1,000 Washington Township Health Care District 5.00 7/01/2042 1,101
4,585 West Kern Water District 5.00 6/01/2028 5,179
6,000 Western Placer USD (INS) 4.00 8/01/2041 6,291
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605,653
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GUAM (1.9%)
1,000 Power Auth. 5.00 10/01/2034 1,057
4,000 Waterworks Auth. 5.50 7/01/2043 4,425
7,000 Waterworks Auth. 5.00 1/01/2046 7,475
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12,957
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U.S. VIRGIN ISLANDS (0.9%)
1,590 Public Finance Auth. 4.00 10/01/2022 1,163
1,500 Public Finance Auth. 5.00 10/01/2027 1,053
1,500 Public Finance Auth. 5.00 10/01/2032 1,019
3,000 Public Finance Auth.(c) 5.00 9/01/2033 3,285
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6,520
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Total Fixed-Rate Instruments (cost: $603,476) 625,130
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PUT BONDS (3.4%)
CALIFORNIA (3.4%)
15,000 Bay Area Toll Auth., MUNIPSA + 1.25% 2.19(d) 4/01/2036 15,235
8,485 Twin Rivers USD (INS) 3.20 6/01/2041 8,499
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23,734
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Total Put Bonds (cost: $23,485) 23,734
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PORTFOLIO OF INVESTMENTS | 9
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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VARIABLE-RATE DEMAND NOTES (5.9%)
CALIFORNIA (5.9%)
$ 3,230 Antioch USD (LIQ) (LOC - Deutsche Bank A.G.)(c) 0.99%(e) 8/01/2047 $ 3,230
1,650 Bay Area Toll Auth. (LIQ)(c) 1.03(e) 4/01/2039 1,650
1,600 Pollution Control Financing Auth.
(LOC - Mizuho Corporate Bank Ltd.) 0.92(e) 11/01/2026 1,600
8,100 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(c) 1.04(e) 12/01/2033 8,100
9,595 Semitropic Improvement District (LIQ)(c) 1.19(e) 12/01/2018 9,595
1,400 Statewide Communities Dev. Auth. 0.90(e) 4/01/2046 1,400
15,550 Victorville Joint Powers Financing Auth. (LOC - BNP Paribas) 1.44(e) 5/01/2040 15,550
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41,125
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Total Variable-Rate Demand Notes (cost: $41,125) 41,125
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TOTAL INVESTMENTS (COST: $668,086) $689,989
========
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($ IN 000s) VALUATION HIERARCHY
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ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
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Fixed-Rate Instruments $- $625,130 $- $625,130
Put Bonds - 23,734 - 23,734
Variable-Rate Demand Notes - 41,125 - 41,125
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Total $- $689,989 $- $689,989
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Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2017, through September 30, 2017, 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.
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10 | USAA CALIFORNIA BOND FUND
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NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(c) 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 under liquidity guidelines approved by USAA Mutual Funds Trust's
Board of Trustees, unless otherwise noted as illiquid.
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NOTES TO PORTFOLIO OF INVESTMENTS | 11
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(d) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2017.
(e) Variable-rate demand notes - interest rate is determined by the issuer
or agent based on current market conditions, and is not based on a
published reference rate and spread. These securities do not indicate a
reference rate and spread in their description.
See accompanying notes to financial statements.
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12 | USAA CALIFORNIA BOND FUND
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STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $668,086) $689,989
Cash 149
Receivables:
Capital shares sold 85
Interest 7,471
--------
Total assets 697,694
--------
LIABILITIES
Payables:
Capital shares redeemed 313
Dividends on capital shares 445
Accrued management fees 161
Accrued transfer agent's fees 5
Other accrued expenses and payables 67
--------
Total liabilities 991
--------
Net assets applicable to capital shares outstanding $696,703
========
NET ASSETS CONSIST OF:
Paid-in capital $680,500
Accumulated net realized loss on investments (5,700)
Net unrealized appreciation of investments 21,903
--------
Net assets applicable to capital shares outstanding $696,703
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $689,477/62,419 capital shares outstanding, no par value) $ 11.05
========
Adviser Shares (net assets of $7,226/655 capital shares outstanding, no par value) $ 11.04
========
See accompanying notes to financial statements.
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FINANCIAL STATEMENTS | 13
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STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $13,288
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EXPENSES
Management fees 960
Administration and servicing fees:
Fund Shares 512
Adviser Shares 5
Transfer agent's fees:
Fund Shares 80
Adviser Shares 1
Distribution and service fees (Note 6D):
Adviser Shares 9
Custody and accounting fees:
Fund Shares 58
Adviser Shares 1
Postage:
Fund Shares 4
Shareholder reporting fees:
Fund Shares 9
Trustees' fees 16
Professional fees 47
Other 11
-------
Total expenses 1,713
-------
NET INVESTMENT INCOME 11,575
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 427
Change in net unrealized appreciation/(depreciation) 7,065
-------
Net realized and unrealized gain 7,492
-------
Increase in net assets resulting from operations $19,067
=======
See accompanying notes to financial statements.
================================================================================
14 | USAA CALIFORNIA BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
------------------------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 11,575 $ 23,528
Net realized gain on investments 427 644
Change in net unrealized appreciation/(depreciation) of investments 7,065 (24,109)
-----------------------
Increase in net assets resulting from operations 19,067 63
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (11,444) (23,262)
Adviser Shares (112) (246)
-----------------------
Distributions to shareholders (11,556) (23,508)
-----------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 12,610 (6,120)
Adviser Shares 64 (951)
-----------------------
Total net increase (decrease) in net assets from capital share transactions 12,674 (7,071)
-----------------------
Net increase (decrease) in net assets 20,185 (30,516)
NET ASSETS
Beginning of period 676,518 707,034
-----------------------
End of period $696,703 $676,518
=======================
Overdistribution of net investment income:
End of period $ - $ (19)
=======================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA California Bond Fund (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 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.
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
================================================================================
16 | USAA CALIFORNIA BOND FUND
================================================================================
valuation policies and procedures, which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a wide
variety of sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of backtesting 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 ask 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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
================================================================================
18 | USAA CALIFORNIA BOND FUND
================================================================================
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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, 2017, there were no custodian and other bank credits.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
================================================================================
20 | USAA CALIFORNIA BOND FUND
================================================================================
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had long-term capital loss carryforwards of
$6,126,000, 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, 2017, 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, 2017, were
$27,527,000 and $25,311,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
As of September 30, 2017, 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, 2017, were $28,226,000 and $6,323,000, respectively, resulting in net
unrealized appreciation of $21,903,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, 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, 2017 MARCH 31, 2017
----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
FUND SHARES:
Shares sold 3,178 $ 35,100 6,391 $ 71,482
Shares issued from reinvested dividends 808 8,922 1,599 17,832
Shares redeemed (2,846) (31,412) (8,613) (95,434)
----------------------------------------------------------
Net increase (decrease) from capital
share transactions 1,140 $ 12,610 (623) $ (6,120)
==========================================================
ADVISER SHARES:
Shares sold 9 $ 105 33 $ 364
Shares issued from reinvested dividends 2 24 6 70
Shares redeemed (5) (65) (126)* (1,385)*
----------------------------------------------------------
Net increase (decrease) from capital
share transactions 6 $ 64 (87) $ (951)
==========================================================
*Net of redemption fees.
(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
================================================================================
22 | USAA CALIFORNIA 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 the average net assets of the Fund, 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.
Prior to July 27, 2017, the Fund's base fee was 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. These
fees were allocated on a proportional basis to each Fund monthly based on
average net assets.
For the six-month period ended September 30, 2017, the Fund's effective
annualized base fee was 0.32% of the Fund's average net assets for the same
period.
The performance adjustment for each share class is calculated monthly by
comparing the Fund's performance to that of the Lipper California Municipal
Debt Funds Index. The Lipper California Municipal Debt Funds Index tracks
the total return performance of funds within the Lipper California Municipal
Debt Funds category.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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.
For the six-month period ended September 30, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $960,000, which included
a performance adjustment for the Fund Shares and Adviser Shares of
$(136,000) and $(2,000), respectively. For the Fund Shares and Adviser
Shares, the performance adjustments were (0.04)% and (0.05)%, 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, 2017, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $512,000 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, 2017, the Fund reimbursed the
Manager $8,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
================================================================================
24 | USAA CALIFORNIA 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, 2017, the Fund
Shares and Adviser Shares incurred transfer agent's fees, paid or payable to
SAS, of $80,000 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
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, 2017, the Adviser Shares
incurred distribution and service (12b-1) fees of $9,000.
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,
2017, USAA and its affiliates owned 479,000 Adviser Shares, which represents
73.1% of the Adviser Shares outstanding and 0.8% of the Fund's total outstanding
shares.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
26 | USAA CALIFORNIA BOND FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.92 $ 11.29 $ 11.27 $ 10.83 $ 11.17 $ 10.71
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .37 .42 .43 .44 .44
Net realized and
unrealized gain (loss) .13 (.37) .02 .44 (.34) .46
--------------------------------------------------------------------------------
Total from investment
operations .32 .00(c) .44 .87 .10 .90
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.37) (.42) (.43) (.44) (.44)
--------------------------------------------------------------------------------
Net asset value at end
of period $ 11.05 $ 10.92 $ 11.29 $ 11.27 $ 10.83 $ 11.17
================================================================================
Total return (%)* 2.90 (.01) 3.98 8.14 1.03 8.48
Net assets at end
of period (000) $689,477 $669,435 $698,731 $675,694 $631,184 $689,365
Ratios to average
net assets:**
Expenses (%)(b) .49(a) .51 .56 .57 .58 .56
Net investment
income (%) 3.36(a) 3.34 3.74 3.85 4.12 3.95
Portfolio turnover (%) 4 26 9 4 8 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, 2017, average net assets were
$680,878,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets
(c) Represents less than $0.01 per share.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(9) 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,
--------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------
Net asset value at
beginning of period $10.91 $11.28 $11.26 $10.82 $11.16 $10.70
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .35 .39 .40 .41 .41
Net realized and
unrealized gain (loss) .13 (.37) .02 .44 (.34) .46
------------------------------------------------------------------------------
Total from investment
operations .30 (.02) .41 .84 .07 .87
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.35) (.39) (.40) (.41) (.41)
------------------------------------------------------------------------------
Redemption fees added to
beneficial interests - .00(d) - - - -
------------------------------------------------------------------------------
Net asset value at end
of period $11.04 $10.91 $11.28 $11.26 $10.82 $11.16
==============================================================================
Total return (%)* 2.77 (.24) 3.73 7.86 .79 8.26
Net assets at end
of period (000) $7,226 $7,083 $8,303 $7,948 $5,606 $6,149
Ratios to average
net assets:**
Expenses (%)(a) .74(b) .75 .80 .83(c) .82 .77
Expenses, excluding
reimbursements (%)(a) .74(b) .75 .80 .83 .82 .77
Net investment income (%) 3.11(b) 3.09 3.49 3.58 3.88 3.73
Portfolio turnover (%) 4 26 9 4 8 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, 2017, average net assets were
$7,191,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets
(b) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(c) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the annual
expenses of the Adviser Shares to 0.90% of the Adviser Shares' average
net assets.
(d) Represents less than $0.01 per share.
================================================================================
28 | USAA CALIFORNIA BOND FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,029.00 $2.49
Hypothetical
(5% return before expenses) 1,000.00 1,022.61 2.48
ADVISER SHARES
Actual 1,000.00 1,027.70 3.76
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 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 2.90% for Fund Shares
and 2.77% for Adviser Shares for the six-month period of April 1, 2017, through
September 30, 2017.
================================================================================
30 | USAA CALIFORNIA BOND FUND
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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 meeting at
which the renewal of the Advisory Agreement is considered,
================================================================================
ADVISORY AGREEMENT | 31
================================================================================
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, shareholder 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 experience 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
================================================================================
32 | USAA CALIFORNIA BOND FUND
================================================================================
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 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 equal to the median of its 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
================================================================================
ADVISORY AGREEMENT | 33
================================================================================
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 above the average of its performance universe and below its
Lipper index for the one-year period ended December 31, 2016 and was above the
average of its performance universe and its Lipper index for the three-, five-,
and ten-year periods ended December 31, 2016. The Board also noted that the
Fund's percentile performance ranking was in the top 35% of its performance
universe for the one- and three-year periods ended December 31, 2016, was in the
top 25% of its performance universe for the five-year period ended December 31,
2016, and was in the top 30% of its performance universe for the ten-year period
ended December 31, 2016.
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 overall profitability of the
management fee to the Manager, the Board also considered the fact that the
Manager and its affiliates provide shareholder servicing and administrative
services to the Fund for which they receive
================================================================================
34 | USAA CALIFORNIA BOND FUND
================================================================================
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 and other risks 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 | 35
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
39600-1117 (C)2017, 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 (UGEIX) o INSTITUTIONAL SHARES (UIGEX)
SEPTEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 11
Financial Statements 13
Notes to Financial Statements 17
EXPENSE EXAMPLE 32
ADVISORY AGREEMENT 34
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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 9/30/17 o
(% of Net Assets)
Siemens AG ............................................................... 2.9%
Unilever N.V. ............................................................ 2.8%
Pfizer, Inc. ............................................................. 2.8%
Nestle S.A. .............................................................. 2.6%
Novartis AG .............................................................. 2.6%
Total S.A. ............................................................... 2.5%
AbbVie, Inc. ............................................................. 2.5%
Merck & Co., Inc. ........................................................ 2.3%
Exxon Mobil Corp. ........................................................ 2.3%
Procter & Gamble Co. ..................................................... 2.2%
You will find a complete list of securities that the Fund owns on pages 4-10.
*Does not include money market instruments.
================================================================================
2 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
o ASSET ALLOCATION - 9/30/17 o
[PIE CHART OF ASSET ALLOCATION]
HEALTH CARE 16.5%
CONSUMER STAPLES 14.6%
FINANCIALS 11.6%
INDUSTRIALS 10.9%
ENERGY 10.3%
INFORMATION TECHNOLOGY 9.0%
UTILITIES 7.3%
CONSUMER DISCRETIONARY 6.6%
TELECOMMUNICATION SERVICES 5.9%
MATERIALS 4.7%
MONEY MARKET INSTRUMENTS 2.4%
[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 4-10.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.4%)
COMMON STOCKS (97.4%)
CONSUMER DISCRETIONARY (6.6%)
-----------------------------
ADVERTISING (0.3%)
4,790 Omnicom Group, Inc. $ 355
--------
AUTO PARTS & EQUIPMENT (0.9%)
17,040 Magna International, Inc. 910
--------
AUTOMOBILE MANUFACTURERS (1.0%)
12,830 Daimler AG 1,023
--------
CABLE & SATELLITE (1.0%)
81,631 Sky plc 1,001
--------
CASINOS & GAMING (0.5%)
8,060 Las Vegas Sands Corp. 517
--------
HOME IMPROVEMENT RETAIL (0.9%)
223,900 Kingfisher plc 895
--------
HOTELS, RESORTS & CRUISE LINES (0.5%)
7,900 Carnival Corp. 510
--------
RESTAURANTS (1.5%)
9,600 McDonald's Corp. 1,504
--------
Total Consumer Discretionary 6,715
--------
CONSUMER STAPLES (14.6%)
------------------------
HOUSEHOLD PRODUCTS (2.2%)
24,770 Procter & Gamble Co. 2,254
--------
HYPERMARKETS & SUPER CENTERS (1.5%)
19,340 Wal-Mart Stores, Inc. 1,511
--------
PACKAGED FOODS & MEAT (2.6%)
32,370 Nestle S.A. 2,711
--------
PERSONAL PRODUCTS (2.8%)
49,050 Unilever N.V. 2,901
--------
================================================================================
4 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SOFT DRINKS (1.5%)
13,080 Coca-Cola Co. $ 589
8,395 PepsiCo, Inc. 935
--------
1,524
--------
TOBACCO (4.0%)
10,240 Altria Group, Inc. 650
24,012 British American Tobacco plc 1,503
13,180 Imperial Tobacco Group plc 562
13,590 Japan Tobacco, Inc. 446
8,180 Philip Morris International, Inc. 908
--------
4,069
--------
Total Consumer Staples 14,970
--------
ENERGY (10.3%)
--------------
INTEGRATED OIL & GAS (7.2%)
29,160 Exxon Mobil Corp. 2,390
50,310 Galp Energia SGPS S.A. 892
24,710 Occidental Petroleum Corp. 1,587
47,570 Total S.A. 2,555
--------
7,424
--------
OIL & GAS DRILLING (0.5%)
9,620 Helmerich & Payne, Inc. 501
--------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
7,540 Schlumberger Ltd. 526
--------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
13,230 ConocoPhillips 662
56,950 Peyto Exploration & Development Corp. 931
--------
1,593
--------
OIL & GAS REFINING & MARKETING (0.5%)
17,140 Keyera Corp. 524
--------
Total Energy 10,568
--------
FINANCIALS (11.6%)
------------------
CONSUMER FINANCE (0.8%)
26,585 Synchrony Financial 826
--------
DIVERSIFIED BANKS (6.8%)
47,510 Australia and New Zealand Banking Group Ltd. 1,103
7,090 Bank of Montreal 537
16,000 Bank of Nova Scotia 1,028
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
67,190 DBS Group Holdings Ltd. $ 1,031
113,350 HSBC Holdings plc 1,120
8,500 JPMorgan Chase & Co. 812
16,880 Royal Bank of Canada 1,306
--------
6,937
--------
MULTI-LINE INSURANCE (2.6%)
4,642 Allianz SE 1,042
55,170 AXA S.A. 1,669
--------
2,711
--------
PROPERTY & CASUALTY INSURANCE (0.4%)
11,290 XL Group Ltd. 445
--------
REGIONAL BANKS (0.5%)
3,630 PNC Financial Services Group, Inc. 489
--------
SPECIALIZED FINANCE (0.5%)
3,950 CME Group, Inc. 536
--------
Total Financials 11,944
--------
HEALTH CARE (16.5%)
-------------------
BIOTECHNOLOGY (2.9%)
28,380 AbbVie, Inc. 2,522
5,860 Gilead Sciences, Inc. 474
--------
2,996
--------
HEALTH CARE EQUIPMENT (0.7%)
9,100 Medtronic plc 708
--------
PHARMACEUTICALS (12.9%)
50,920 GlaxoSmithKline plc 1,016
15,300 Johnson & Johnson 1,989
37,630 Merck & Co., Inc. 2,409
31,140 Novartis AG 2,666
79,690 Pfizer, Inc. 2,845
7,800 Roche Holding AG 1,991
3,530 Sanofi 351
--------
13,267
--------
Total Health Care 16,971
--------
INDUSTRIALS (10.9%)
-------------------
AEROSPACE & DEFENSE (2.0%)
118,140 BAE Systems plc 1,000
3,480 Lockheed Martin Corp. 1,080
--------
2,080
--------
================================================================================
6 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS (1.0%)
25,551 Johnson Controls International plc $ 1,029
--------
CONSTRUCTION & ENGINEERING (1.6%)
17,500 Vinci S.A. 1,663
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.8%)
10,370 Eaton Corp. plc 796
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.6%)
8,460 Republic Services, Inc. 559
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%)
6,450 Adecco Group AG 502
--------
INDUSTRIAL CONGLOMERATES (3.9%)
42,126 General Electric Co. 1,019
21,340 Siemens AG 3,006
--------
4,025
--------
TRADING COMPANIES & DISTRIBUTORS (0.5%)
21,550 Mitsubishi Corp. 501
--------
Total Industrials 11,155
--------
INFORMATION TECHNOLOGY (9.0%)
-----------------------------
COMMUNICATIONS EQUIPMENT (1.8%)
54,810 Cisco Systems, Inc. 1,843
--------
SEMICONDUCTORS (4.2%)
54,931 Cypress Semiconductor Corp. 825
35,635 Intel Corp. 1,357
10,740 Maxim Integrated Products, Inc. 513
17,870 QUALCOMM, Inc. 926
7,450 Texas Instruments, Inc. 668
--------
4,289
--------
SYSTEMS SOFTWARE (1.5%)
13,980 Microsoft Corp. 1,041
9,835 Oracle Corp. 476
--------
1,517
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.5%)
55,720 HP, Inc. 1,112
5,600 Western Digital Corp. 484
--------
1,596
--------
Total Information Technology 9,245
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MATERIALS (4.7%)
----------------
CONSTRUCTION MATERIALS (0.5%)
8,610 LafargeHolcim Ltd. $ 503
--------
DIVERSIFIED CHEMICALS (2.9%)
12,870 BASF SE 1,370
15,400 DowDuPont, Inc. 1,066
19,900 Huntsman Corp. 546
--------
2,982
--------
DIVERSIFIED METALS & MINING (0.5%)
9,854 Rio Tinto Ltd. 514
--------
PAPER PRODUCTS (0.2%)
9,590 UPM-Kymmene Oyj 260
--------
SPECIALTY CHEMICALS (0.6%)
4,440 Albemarle Corp. 605
--------
Total Materials 4,864
--------
TELECOMMUNICATION SERVICES (5.9%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.9%)
39,040 AT&T, Inc. 1,529
12,310 Nippon Telegraph & Telephone Corp. 564
109,650 Singapore Telecommunications Ltd. 298
10,920 Verizon Communications, Inc. 540
--------
2,931
--------
WIRELESS TELECOMMUNICATION SERVICES (3.0%)
25,800 NTT DOCOMO, Inc. 589
21,170 Rogers Communications, Inc. "B" 1,092
500,040 Vodafone Group plc 1,399
--------
3,080
--------
Total Telecommunication Services 6,011
--------
UTILITIES (7.3%)
----------------
ELECTRIC UTILITIES (4.6%)
14,850 Duke Energy Corp. 1,246
12,110 Edison International 935
255,410 Enel S.p.A. 1,538
7,010 NextEra Energy, Inc. 1,027
--------
4,746
--------
================================================================================
8 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (2.7%)
153,365 E.ON SE $ 1,736
85,025 National Grid plc 1,053
--------
2,789
--------
Total Utilities 7,535
--------
Total Common Stocks (cost: $89,624) 99,978
--------
Total Equity Securities (cost: $89,624) 99,978
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.4%)
COMMERCIAL PAPER (2.0%)
CONSUMER STAPLES (1.0%)
-----------------------
PACKAGED FOODS & MEAT (1.0%)
$ 1,000 Campbell Soup Co.(a),(b) 1.25% 10/04/2017 1,000
--------
UTILITIES (1.0%)
----------------
ELECTRIC UTILITIES (1.0%)
1,040 Eversource Energy(a),(b) 1.25 10/05/2017 1,040
--------
Total Commercial Paper (cost: $2,040) 2,040
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
441,122 State Street Institutional Treasury Money Market Fund Premier Class, 0.92%(c)
(cost: $441)
441
--------
Total Money Market Instruments (cost: $2,481) 2,481
--------
TOTAL INVESTMENTS (COST: $92,105) $102,459
========
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $ 99,978 $ - $- $ 99,978
Money Market Instruments:
Commercial Paper - 2,040 - 2,040
Government & U.S. Treasury
Money Market Funds 441 - - 441
------------------------------------------------------------------------------------------------------------------
Total $100,419 $2,040 $- $102,459
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2017, through September 30, 2017, 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 GLOBAL EQUITY INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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 48.4% of net assets at September 30,
2017.
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) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(a)(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(a)(2) Commercial Paper is normally resold to other investors
through or with the assistance of the issuer or an
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
investment dealer who makes a market in this security, and as such has
been deemed liquid by the Manager under liquidity guidelines approved
by the Board, unless otherwise noted as illiquid.
(c) Rate represents the money market fund annualized seven-day yield at
September 30, 2017.
See accompanying notes to financial statements.
================================================================================
12 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $92,105) $102,459
Cash denominated in foreign currencies (identified cost of $21) 21
Receivables:
Capital shares sold 76
USAA Asset Management Company (Note 6C) 2
Dividends and interest 325
--------
Total assets 102,883
--------
LIABILITIES
Payables:
Capital shares redeemed 70
Accrued management fees 42
Accrued transfer agent's fees 7
Other accrued expenses and payables 62
--------
Total liabilities 181
--------
Net assets applicable to capital shares outstanding $102,702
========
NET ASSETS CONSIST OF:
Paid-in capital $ 91,961
Accumulated undistributed net investment income 38
Accumulated net realized gain on investments 343
Net unrealized appreciation of investments 10,354
Net unrealized appreciation of foreign currency translations 6
--------
Net assets applicable to capital shares outstanding $102,702
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $97,206/8,850 capital shares
outstanding, no par value) $ 10.98
========
Institutional Shares (net assets of $5,496/500 capital shares
outstanding, no par value) $ 10.99
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $99) $1,679
Interest 13
------
Total income 1,692
------
EXPENSES
Management fees 236
Administration and servicing fees:
Fund Shares 70
Institutional Shares 3
Transfer agent's fees:
Fund Shares 71
Institutional Shares 3
Custody and accounting fees:
Fund Shares 33
Institutional Shares 2
Postage:
Fund Shares 5
Shareholder reporting fees:
Fund Shares 8
Trustees' fees 16
Registration fees:
Fund Shares 24
Institutional Shares 17
Professional fees 49
Other 9
------
Total expenses 546
Expenses reimbursed:
Institutional Shares (12)
------
Net expenses 534
------
NET INVESTMENT INCOME 1,158
------
================================================================================
14 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments $ 353
Foreign currency transactions 21
Change in net unrealized appreciation/(depreciation) of:
Investments 4,867
Foreign currency translations 7
------
Net realized and unrealized gain 5,248
------
Increase in net assets resulting from operations $6,406
======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
--------------------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,158 $ 1,461
Net realized gain on investments 353 654
Net realized gain (loss) on foreign currency transactions 21 (35)
Change in net unrealized appreciation/(depreciation) of:
Investments 4,867 6,470
Foreign currency translations 7 (7)
------------------------------
Increase in net assets resulting from operations 6,406 8,543
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (1,124) (1,278)
Institutional Shares (64) (105)
------------------------------
Distributions to shareholders (1,188) (1,383)
------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 6,440 37,109
Institutional Shares - -
------------------------------
Total net increase in net assets from capital
share transactions 6,440 37,109
------------------------------
Net increase in net assets 11,658 44,269
NET ASSETS
Beginning of period 91,044 46,775
------------------------------
End of period $102,702 $91,044
==============================
Accumulated undistributed net investment income:
End of period $ 38 $ 68
==============================
See accompanying notes to financial statements.
================================================================================
16 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate
funds. Additionally, USAA Global Equity Income Fund (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
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 approve
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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 backtesting 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 sale price, or the most recently
determined official closing price calculated according to
================================================================================
18 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 ask 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 sale or official closing price 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 | 19
================================================================================
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 ask 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.
================================================================================
20 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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
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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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
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
================================================================================
22 | USAA GLOBAL EQUITY INCOME 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, 2017, there were no custodian and
other bank credits.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide temporary or
emergency cash needs, including redemption requests that might otherwise
require the untimely disposition of securities. Subject to availability
(including usage of the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of
the committed loan agreement. The facility fees are allocated among the funds
of the Trusts based on their respective average net assets for the period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
The Trusts may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of less than $500, which represents 0.1% of the total fees paid to CAPCO
by the Funds. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended September 30, 2017, 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, 2017, were
$20,431,000 and $10,583,000, respectively.
================================================================================
24 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
As of September 30, 2017, 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, 2017, were $11,837,000 and $1,483,000, respectively, resulting in net
unrealized appreciation of $10,354,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, 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 YEAR ENDED
SEPTEMBER 30, 2017 MARCH 31, 2017
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
FUND SHARES:
Shares sold 1,188 $12,557 5,313 $ 52,558
Shares issued from reinvested
dividends 74 803 76 759
Shares redeemed (650) (6,920) (1,634) (16,208)
------------------------------------------------------
Net increase from capital
share transactions 612 $ 6,440 3,755 $ 37,109
======================================================
INSTITUTIONAL SHARES:
Shares sold - $ - - $ -
Shares issued from reinvested
dividends - - - -
Shares redeemed - - - -
------------------------------------------------------
Net increase from capital
share transactions - $ - - $ -
======================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
(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 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, 2017, 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 for each share class is calculated monthly by
comparing the Fund's performance to that of the Lipper Global Equity Income
Funds Index. The Lipper Global Equity Income Funds Index tracks the total
return performance of funds within the Lipper Global Equity Income Funds
category.
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.
================================================================================
26 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $236,000, which included
a performance adjustment for the Fund Shares and Institutional Shares of
$(9,000) and $(1,000), respectively. For the Fund Shares and Institutional
Shares, the performance adjustments were (0.02)% 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% and 0.10% of average net assets of the Funds Shares and
Institutional Shares, respectively. For the six-month period ended September
30, 2017, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $70,000 and $3,000,
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, 2017, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
C. EXPENSE LIMITATION - The Manager agreed, through July 31, 2018, 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 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 July 31, 2018, 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, 2017, the
Institutional Shares incurred reimbursable expenses of $12,000, of which
$2,000 was receivable from the Manager. For the six-month period ended
September 30, 2017, the Fund Shares did not incur any reimbursable expenses.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund 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,
2017, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $71,000 and $3,000, 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, 2017, USAA and its affiliates owned 2,500,000 Fund Shares and
500,000 Institutional Shares, which represents 28.2% of the Fund Shares
================================================================================
28 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
outstanding, 100.0% of the Institutional Shares outstanding, and 32.1% 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.
As of September 30, 2017, USAA and its affiliates owned approximately 32.1% 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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend
Regulation S-X to require standardized, enhanced disclosure about derivatives
in investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures
regarding funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms
N-PORT and N-CEN is June 1, 2018, with other staggered compliance dates
extending through December 2018. The Fund is expected to comply with the June
1, 2018 compliance date for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31, MARCH 31,
----------------------------------------------------------
2017 2017 2016***
----------------------------------------------------------
Net asset value at beginning of period $ 10.42 $ 9.39 $ 10.00
-----------------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .21 .14(a)
Net realized and unrealized gain (loss) .57 1.03 (.68)(a)
-----------------------------------------------------
Total from investment operations .69 1.24 (.54)(a)
-----------------------------------------------------
Less distributions from:
Net investment income (.13) (.21) (.07)
-----------------------------------------------------
Net asset value at end of period $ 10.98 $ 10.42 $ 9.39
=====================================================
Total return (%)* 6.63 13.33 (5.35)
Net assets at end of period (000) $97,206 $85,830 $42,080
Ratios to average net assets:**
Expenses (%) 1.08(b) 1.20 1.20(b)
Expenses, excluding reimbursements (%) 1.08(b) 1.26 1.37(b)
Net investment income (%) 2.35(b) 2.28 2.12(b)
Portfolio turnover (%) 11 22 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, 2017, average net assets
were $93,013,000.
*** 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.
================================================================================
30 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31, MARCH 31,
----------------------------------------------------------
2017 2017 2016***
----------------------------------------------------------
Net asset value at beginning of period $10.43 $ 9.39 $10.00
----------------------------------------------------
Income (loss) from investment operations:
Net investment income .13 .23 .15(a)
Net realized and unrealized gain (loss) .56 1.02 (.68)(a)
----------------------------------------------------
Total from investment operations .69 1.25 (.53)(a)
----------------------------------------------------
Less distributions from:
Net investment income (.13) (.21) (.08)
----------------------------------------------------
Net asset value at end of period $10.99 $10.43 $ 9.39
====================================================
Total return (%)* 6.62 13.49 (5.32)
Net assets at end of period (000) $5,496 $5,214 $4,695
Ratios to average net assets:**
Expenses (%) 1.10(b) 1.10 1.10(b)
Expenses, excluding reimbursements (%) 1.54(b) 1.55 1.79(b)
Net investment income (%) 2.34(b) 2.40 2.20(b)
Portfolio turnover (%) 11 22 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, 2017, average net assets
were $5,339,000.
*** 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 | 31
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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
================================================================================
32 | 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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,066.30 $5.59
Hypothetical
(5% return before expenses) 1,000.00 1,019.65 5.47
INSTITUTIONAL SHARES
Actual 1,000.00 1,066.20 5.70
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.57
*Expenses are equal to the annualized expense ratio of 1.08% 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 6.63% for Fund Shares and 6.62% for Institutional Shares for the six-month
period of April 1, 2017, through September 30, 2017.
================================================================================
EXPENSE EXAMPLE | 33
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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
================================================================================
34 | USAA GLOBAL EQUITY INCOME 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 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, shareholder 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
================================================================================
ADVISORY AGREEMENT | 35
================================================================================
other funds in the Trust. 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
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 and the effects of any
performance adjustment as well as any fee waivers or reimbursements - was
================================================================================
36 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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, 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, 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-year period ended December 31, 2016. 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, 2016. 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 considered the fact that the
Manager and its affiliates provide shareholder
================================================================================
ADVISORY AGREEMENT | 37
================================================================================
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 and other risks 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.
================================================================================
38 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
98352-1117 (C)2017, 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 (USNYX) o ADVISER SHARES (UNYBX)
SEPTEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 11
Financial Statements 13
Notes to Financial Statements 16
EXPENSE EXAMPLE 30
ADVISORY AGREEMENT 32
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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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 excludable from gross income for federal income tax and New York
State and New York City personal income tax purposes (referred to herein as "New
York tax-exempt securities"). During normal market conditions, at least 80% of
the Fund's net assets will consist of New York tax-exempt securities. This
policy may be changed only by shareholder vote. The Fund's dollar-weighted
average portfolio maturity is not restricted, but is expected to be greater than
10 years.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income dividends will be tax-exempt and excludable from the
calculation of the federal alternative minimum tax (AMT) for individual
taxpayers. This policy may be changed only by a shareholder vote.
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
Education ............................................................... 18.9%
Escrowed Bonds .......................................................... 14.5%
Hospital ................................................................ 13.2%
Special Assessment/Tax/Fee .............................................. 9.8%
Water/Sewer Utility ..................................................... 9.6%
General Obligation ...................................................... 7.1%
Electric/Gas Utilities .................................................. 3.6%
Buildings ............................................................... 3.2%
Nursing/CCRC ............................................................ 3.1%
Community Service ....................................................... 2.7%
You will find a complete list of securities that the Fund owns on pages 4-10.
================================================================================
2 | USAA NEW YORK BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 10.4%
AA 31.6%
A 34.0%
BBB 13.5%
BELOW INVESTMENT-GRADE 2.9%
UNRATED 7.6%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide 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 4-10.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (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 collateral trust.
The enhancements do not guarantee the market values of the securities.
================================================================================
4 | USAA NEW YORK BOND FUND
================================================================================
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured
Guaranty Corp., or Assured Guaranty Municipal 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.
(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 | 5
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (92.3%)
NEW YORK (87.3%)
$ 1,000 Albany Capital Resource Corp. (PRE) 6.00% 11/15/2025 $ 1,150
1,000 Albany IDA (PRE) 5.25 11/15/2032 1,006
1,000 Albany IDA (PRE) 5.25 11/15/2032 1,006
1,500 Brookhaven Local Dev. Corp. 5.25 11/01/2036 1,703
1,000 Buffalo & Erie County Industrial Land Dev. Corp. 5.00 8/01/2052 1,027
500 Buffalo & Erie County Industrial Land Dev. Corp. 6.00 10/01/2031 573
1,000 Buffalo & Erie County Industrial Land Dev. Corp. 5.00 6/01/2035 1,083
2,000 Buffalo & Erie County Industrial Land Dev. Corp. 5.00 7/01/2040 2,172
700 Build NYC Resource Corp. 5.00 6/01/2040 788
1,000 Build NYC Resource Corp. 5.00 8/01/2040 1,128
500 Build NYC Resource Corp. 5.00 7/01/2041 551
1,000 Build NYC Resource Corp. 4.00 8/01/2042 1,041
1,500 Build NYC Resource Corp. 5.00 8/01/2042 1,633
1,000 Build NYC Resource Corp. 5.50 4/01/2043 1,060
2,000 Build NYC Resource Corp. 5.00 7/01/2045 2,282
1,000 Canton Capital Resource Corp. (INS) (PRE) 5.00 5/01/2040 1,101
2,000 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2048 2,038
1,000 Convention Center Dev. Corp. 3.28(a) 11/15/2037 465
500 Convention Center Dev. Corp. 5.00 11/15/2045 572
500 Counties Tobacco Trust VI 5.00 6/01/2045 529
1,365 Dormitory Auth. (ETM) 5.30 2/15/2019 1,411
2,000 Dormitory Auth. 5.00 7/01/2026 2,197
1,000 Dormitory Auth. 5.00 7/01/2027 1,030
3,275 Dormitory Auth. (INS) 5.50 5/15/2030 4,284
500 Dormitory Auth. (INS) 5.00 7/01/2030 502
1,000 Dormitory Auth. 5.00 7/01/2031 1,101
1,000 Dormitory Auth. 5.00 1/15/2032 1,011
500 Dormitory Auth. (INS) 5.63 11/01/2032 570
2,500 Dormitory Auth. (NBGA) 5.00 6/01/2033 2,562
2,500 Dormitory Auth. (INS) (PRE) 5.00 7/01/2033 2,578
2,000 Dormitory Auth. (PRE) 5.25 7/01/2033 2,148
1,300 Dormitory Auth. 5.75 7/01/2033 1,384
1,895 Dormitory Auth. (PRE) 5.00 2/15/2034 1,999
105 Dormitory Auth. 5.00 2/15/2034 111
1,200 Dormitory Auth. (INS) (PRE) 5.00 7/01/2034 1,284
500 Dormitory Auth. 5.00 7/01/2034 573
1,000 Dormitory Auth. 5.25 7/01/2035 1,031
1,300 Dormitory Auth.(b) 5.00 12/01/2037 1,419
================================================================================
6 | USAA NEW YORK BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 500 Dormitory Auth. 5.00% 5/01/2038 $ 540
2,000 Dormitory Auth. (PRE) 5.00 7/01/2038 2,062
500 Dormitory Auth. (PRE) 5.50 3/01/2039 532
500 Dormitory Auth. 5.00 5/01/2039 548
1,000 Dormitory Auth. (PRE) 5.50 7/01/2040 1,119
2,000 Dormitory Auth. (INS) 5.50 7/01/2040 2,710
2,000 Dormitory Auth. (PRE) 5.00 5/01/2041 2,267
1,000 Dormitory Auth. 4.00 7/01/2041 1,051
250 Dormitory Auth. 5.00 7/01/2042 266
1,000 Dormitory Auth. 5.00 5/01/2043 1,123
2,000 Dormitory Auth. 4.00 7/01/2043 2,077
1,000 Dormitory Auth. 5.75 7/01/2043 1,139
1,500 Dormitory Auth. 5.00 7/01/2044 1,684
1,000 Dutchess County IDA (INS) 5.50 4/01/2030 1,100
1,250 Dutchess County Local Dev. Corp. 5.75 7/01/2040 1,375
2,000 Dutchess County Local Dev. Corp. 4.00 7/01/2041 2,070
1,000 Dutchess County Local Dev. Corp. 5.00 7/01/2044 1,102
2,000 Dutchess County Local Dev. Corp. 5.00 7/01/2045 2,282
600 Dutchess County Local Dev. Corp. 5.00 7/01/2046 670
1,000 Environmental Facilities Corp. 4.00 8/15/2046 1,054
250 Erie County IDA 5.25 5/01/2032 282
600 Hempstead Town Local Dev Co. 5.00 7/01/2047 687
10 Housing Finance Agency (INS) 6.13 11/01/2020 10
2,000 Hudson Yards Infrastructure Co. 4.00 2/15/2044 2,119
2,500 Liberty Dev. Corp. 5.25 10/01/2035 3,205
560 Liberty Dev. Corp. 5.50 10/01/2037 741
1,000 Liberty Dev. Corp.(b) 5.00 11/15/2044 1,092
2,000 Long Island Power Auth. 5.00 5/01/2038 2,219
1,000 Long Island Power Auth. 5.00 9/01/2041 1,156
2,000 Long Island Power Auth. 5.00 9/01/2044 2,260
500 Monroe County IDC 5.25 10/01/2031 549
1,000 Monroe County IDC 5.00 12/01/2037 1,092
500 Monroe County IDC (INS) 5.00 1/15/2038 557
2,100 Monroe County IDC (NBGA) 5.50 8/15/2040 2,353
2,000 Monroe County IDC 5.00 12/01/2042 2,165
1,000 Monroe County IDC 5.00 12/01/2046 1,114
3,000 MTA 5.00 11/15/2035 3,536
1,500 MTA 5.25 11/15/2038 1,713
1,000 MTA 5.25 11/15/2057 1,180
1,000 Nassau County 5.00 1/01/2038 1,134
1,000 Nassau County (INS) 5.00 4/01/2038 1,136
1,000 Nassau County Local Economic Assistance Corp. 5.00 7/01/2037 1,080
2,000 New York City 5.25 8/15/2023 2,075
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,885 New York City Health and Hospital Corp. 5.00% 2/15/2025 $ 1,913
1,000 New York City Housing Dev. Corp. 5.00 11/01/2042 1,068
1,000 New York City IDA (INS) (PRE) 5.25 11/01/2037 1,004
17,090 New York City Municipal Water Finance Auth. 5.12(a) 6/15/2020 16,503
2,000 New York City Municipal Water Finance Auth. 5.00 6/15/2039 2,128
3,000 New York City Transitional Finance Auth. 5.00 1/15/2034 3,035
1,000 New York City Transitional Finance Auth. 5.13 1/15/2034 1,052
1,000 New York City Transitional Finance Auth. 4.00 8/01/2041 1,063
1,250 New York City Transitional Finance Auth. 5.00 7/15/2043 1,427
2,000 New York City Trust for Cultural Resources 5.00 12/01/2039 2,145
1,000 New York City Trust for Cultural Resources 5.00 8/01/2043 1,136
1,000 New York City Trust for Cultural Resources 4.00 7/01/2046 1,031
825 Newburgh City 5.00 6/15/2023 914
870 Newburgh City 5.00 6/15/2024 959
1,000 Niagara Area Dev. Corp. 4.00 11/01/2024 1,001
750 Niagara Tobacco Asset Securitization Corp. 5.25 5/15/2040 830
1,500 Onondaga Civic Dev. Corp. 5.38 7/01/2040 1,609
1,000 Onondaga Civic Dev. Corp. 5.00 10/01/2040 1,092
1,000 Onondaga Civic Dev. Corp. 5.00 7/01/2042 1,056
1,000 Onondaga County Trust for Cultural Resources 5.00 12/01/2036 1,130
800 Onondaga County Trust for Cultural Resources 5.00 5/01/2040 914
2,000 Oyster Bay 4.00 6/01/2018 2,018
600 Rockland County 5.00 12/15/2021 671
1,265 Rockland County 3.75 10/01/2025 1,299
675 Saratoga County IDA (PRE) 5.25 12/01/2032 680
1,000 Seneca County IDA (PRE) 5.00 10/01/2027 1,000
1,000 Southold Local Dev. Corp. 5.00 12/01/2045 1,055
500 St. Lawrence County IDA 4.00 7/01/2043 519
1,770 St. Lawrence County IDA 5.00 9/01/2047 2,004
1,000 State 5.00 2/15/2039 1,055
220 Suffolk County EDC (PRE) 5.00 7/01/2028 251
1,280 Suffolk County EDC 5.00 7/01/2028 1,402
250 Suffolk County EDC 5.00 7/01/2033 280
1,020 Suffolk Tobacco Asset Securitization Corp. 5.38 6/01/2028 1,029
1,450 Suffolk Tobacco Asset Securitization Corp. 5.00 6/01/2032 1,566
1,000 Thruway Auth. (PRE) 5.00 4/01/2028 1,040
1,000 Thruway Auth. 4.00 1/01/2056 1,024
1,000 Tompkins County Dev. Corp. (INS) 5.50 7/01/2033 1,122
1,500 Tompkins County Dev. Corp. 5.00 7/01/2044 1,596
2,265 Triborough Bridge and Tunnel Auth. (PRE) 5.00 11/15/2029 2,370
1,410 Triborough Bridge and Tunnel Auth. 5.00 11/15/2029 1,471
1,850 Triborough Bridge and Tunnel Auth. (PRE) 5.00 11/15/2031 1,936
1,150 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 1,198
================================================================================
8 | USAA NEW YORK BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Triborough Bridge and Tunnel Auth. 3.70%(a) 11/15/2032 $ 642
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,191
1,000 TSASC, Inc. 5.00 6/01/2041 1,109
1,685 Urban Dev. Corp. 5.00 1/01/2029 1,735
2,000 Urban Dev. Corp. (PRE) 5.00 3/15/2036 2,118
870 Westchester County Health Care Corp. (PRE) 6.00 11/01/2030 999
130 Westchester County Health Care Corp. 6.00 11/01/2030 144
1,500 Westchester County Local Dev. Corp. 5.00 1/01/2034 1,632
1,000 Westchester County Local Dev. Corp. 5.00 11/01/2046 1,088
500 Westchester Tobacco Asset Securitization Corp. 5.00 6/01/2041 537
1,000 Yonkers (INS) (ETM) 5.00 10/01/2024 1,150
665 Yonkers (INS) 3.00 7/01/2025 690
--------
193,960
--------
GUAM (3.5%)
500 Government 5.00 1/01/2037 520
1,000 Government 5.00 11/15/2039 1,068
500 Government 5.00 12/01/2046 544
1,000 International Airport Auth. (INS) 5.75 10/01/2043 1,176
1,000 Power Auth. (INS) 5.00 10/01/2030 1,123
500 Power Auth. (INS) 5.00 10/01/2039 554
1,000 Waterworks Auth. 5.00 7/01/2029 1,100
500 Waterworks Auth. 5.00 7/01/2035 542
1,000 Waterworks Auth. 5.50 7/01/2043 1,106
--------
7,733
--------
PUERTO RICO (0.6%)
1,390 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.13 4/01/2032 1,325
--------
U.S. VIRGIN ISLANDS (0.9%)
2,000 Public Finance Auth. 5.00 10/01/2032 1,360
750 Water and Power Auth. 5.00 7/01/2018 625
--------
1,985
--------
Total Fixed-Rate Instruments (cost: $194,455) 205,003
--------
VARIABLE-RATE DEMAND NOTES (6.3%)
NEW YORK (6.3%)
1,315 Albany IDA (LOC - Citizens Financial Group) 1.00(e) 5/01/2035 1,315
990 East Rochester Housing Auth.
(LOC - Citizens Financial Group) 1.06(e) 12/01/2036 990
3,300 Energy Research and Dev. Auth.
(LOC - Mizuho Corporate Bank Ltd.) 0.93(e) 5/01/2039 3,300
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 5,400 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.95%(e) 11/01/2046 $ 5,400
1,075 Monroe County IDA (LOC - Citizens Financial Group) 1.06(e) 7/01/2027 1,075
2,000 New York City (LOC - Bank of America, N.A.) 0.95(e) 4/01/2036 2,000
--------
14,080
--------
Total Variable-Rate Demand Notes (cost: $14,080) 14,080
--------
UNITS
------------------------------------------------------------------------------------------------------------------
LIQUIDATING TRUST (0.3%)
200 Center for Medical Science, Inc.*(c),(d),(f) (cost: $499) 545
--------
TOTAL INVESTMENTS (COST: $209,034) $219,628
========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $205,003 $ - $205,003
Variable-Rate Demand Notes - 14,080 - 14,080
Liquidating Trust - - 545 545
------------------------------------------------------------------------------------------------------------------
Total $- $219,083 $545 $219,628
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
($ IN 000s) LIQUIDATING TRUST
------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2017 $545
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 -
------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2017 $545
------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2017, through September 30, 2017, 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 NEW YORK BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(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) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
September 30, 2017, was $545,000, which represented 0.2% of the Fund's
net assets.
(d) Restricted security that is not registered under the Securities Act of
1933.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
(e) Variable-rate demand notes - interest rate is determined by the issuer
or agent based on current market conditions, and is not based on a
published reference rate and spread. These securities do not indicate
a reference rate and spread in their description.
(f) Security was fair valued at Level 3.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
12 | USAA NEW YORK BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $209,034) $219,628
Cash 155
Receivables:
Capital shares sold 62
Interest 2,581
--------
Total assets 222,426
--------
LIABILITIES
Payables:
Capital shares redeemed 49
Dividends on capital shares 122
Accrued management fees 60
Accrued transfer agent's fees 1
Other accrued expenses and payables 55
--------
Total liabilities 287
--------
Net assets applicable to capital shares outstanding $222,139
========
NET ASSETS CONSIST OF:
Paid-in capital $214,956
Overdistribution of net investment income (1)
Accumulated net realized loss on investments (3,410)
Net unrealized appreciation of investments 10,594
--------
Net assets applicable to capital shares outstanding $222,139
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $215,747/18,038 capital
shares outstanding, no par value) $ 11.96
========
Adviser Shares (net assets of $6,392/536 capital
shares outstanding, no par value) $ 11.93
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $4,444
------
EXPENSES
Management fees 343
Administration and servicing fees:
Fund Shares 160
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 40
Adviser Shares 1
Postage:
Fund Shares 1
Shareholder reporting fees:
Fund Shares 8
Trustees' fees 16
Professional fees 39
Other 9
------
Total expenses 654
------
NET INVESTMENT INCOME 3,790
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 26
Change in net unrealized appreciation/(depreciation) 1,448
------
Net realized and unrealized gain 1,474
------
Increase in net assets resulting from operations $5,264
======
See accompanying notes to financial statements.
================================================================================
14 | USAA NEW YORK BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
---------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
---------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,790 $ 7,462
Net realized gain on investments 26 85
Change in net unrealized appreciation/(depreciation)
of investments 1,448 (7,499)
---------------------------
Increase in net assets resulting from operations 5,264 48
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (3,687) (7,265)
Adviser Shares (103) (195)
---------------------------
Distributions to shareholders (3,790) (7,460)
---------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 5,804 4,584
Adviser Shares 46 651
---------------------------
Total net increase in net assets from
capital share transactions 5,850 5,235
---------------------------
Net increase (decrease) in net assets 7,324 (2,177)
NET ASSETS
Beginning of period 214,815 216,992
---------------------------
End of period $222,139 $214,815
===========================
Overdistribution of net investment income:
End of period $ (1) $ (1)
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA New York Bond Fund (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 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.
================================================================================
16 | USAA NEW YORK 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 backtesting 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
ask 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;
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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
liability as of the measurement date. The three levels are defined as
follows:
================================================================================
18 | USAA NEW YORK BOND FUND
================================================================================
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.
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
exposed to more credit risk than portfolios with a broader geographical
diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
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, 2017, there were no custodian and other bank credits.
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.
================================================================================
20 | USAA NEW YORK BOND FUND
================================================================================
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points. For the six-month period ended September 30, 2017,
the Fund paid CAPCO facility fees of $1,000, which represents 0.3% of the total
fees paid to CAPCO by the Funds. The Fund had no borrowings under this agreement
during the six-month period ended September 30, 2017.
(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, 2018, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
fiscal year or as otherwise required to avoid the payment of federal income
taxes.
The Fund is permitted to carry forward post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and/or long-term capital losses. Post-
enactment capital loss carryforwards must be used before pre-enactment capital
loss carryforwards. As a result, pre-enactment capital loss carryforwards may be
more likely to expire unused.
At March 31, 2017, 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 2,620,000
------------- -------- ----------
Total $816,000 $2,620,000
======== ==========
For the six-month period ended September 30, 2017, 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, 2017, were
$8,990,000 and $6,755,000, respectively.
================================================================================
22 | USAA NEW YORK BOND FUND
================================================================================
As of September 30, 2017, 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, 2017, were $11,934,000 and $1,340,000, respectively, resulting in net
unrealized appreciation of $10,594,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, 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, 2017 MARCH 31, 2017
--------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------
FUND SHARES:
Shares sold 913 $10,952 1,401 $ 17,021
Shares issued from
reinvested dividends 255 3,053 491 5,964
Shares redeemed (684) (8,201) (1,528) (18,401)
-----------------------------------------------
Net increase from
capital share transactions 484 $ 5,804 364 $ 4,584
===============================================
ADVISER SHARES:
Shares sold 4 $ 47 71 $ 851
Shares issued from
reinvested dividends 2 20 2 29
Shares redeemed (2) (21) (19) (229)
-----------------------------------------------
Net increase from
capital share transactions 4 $ 46 54 $ 651
===============================================
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 the average net assets of the Fund, 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.
Prior to July 27, 2017, the Fund's base fee was 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. These fees
were allocated on a proportional basis to each Fund monthly based upon
average net assets.
For the six-month period ended September 30, 2017, the Fund's effective
annualized base fee was 0.36% of the Fund's average net assets for the same
period.
The performance adjustment for each share class is calculated monthly by
comparing the Fund's performance 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 within the Lipper New York Municipal Debt
Funds category.
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.
================================================================================
24 | USAA NEW YORK BOND FUND
================================================================================
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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $343,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$(51,000) and $(1,000), respectively. For the Fund Shares and Adviser
Shares, the performance adjustments were (0.05)% and (0.05)%, 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, 2017, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $160,000 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, 2017, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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, 2017, 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, 2017, 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,
2017, USAA and its affiliates owned 420,000 Adviser Shares, which represents
78.4% of the Adviser Shares outstanding and 2.3% of the Fund's total outstanding
shares.
================================================================================
26 | USAA NEW YORK BOND FUND
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms
N-PORT and N-CEN is June 1, 2018, with other staggered compliance dates
extending through December 2018. The Fund is expected to comply with the
June 1, 2018 compliance date for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.88 $ 12.28 $ 12.29 $ 11.93 $ 12.47 $ 12.18
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .42 .43 .44 .45 .45
Net realized and
unrealized gain (loss) .08 (.41) (.01) .36 (.54) .29
-------------------------------------------------------------------------
Total from investment
operations .29 .01 .42 .80 (.09) .74
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.41) (.43) (.44) (.45) (.45)
-------------------------------------------------------------------------
Net asset value at
end of period $ 11.96 $ 11.88 $ 12.28 $ 12.29 $ 11.93 $ 12.47
=========================================================================
Total return (%)* 2.43 .10 3.50 6.76 (.63) 6.12
Net assets at
end of period (000) $215,747 $208,513 $211,136 $211,634 $194,083 $217,464
Ratios to average net
assets:**
Expenses (%)(a) .59(b) .61 .66 .66 .67 .65
Net investment
income (%) 3.45(b) 3.41 3.53 3.58 3.80 3.59
Portfolio turnover (%) 3 10 10 5 6 8
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one
year are not annualized.
** For the six-month period ended September 30, 2017, average net assets
were $213,276,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
28 | USAA NEW YORK BOND FUND
================================================================================
(9) 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,
-------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-------------------------------------------------------------------------
Net asset value at
beginning of period $11.85 $12.25 $12.26 $11.90 $12.47 $12.18
-----------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .39 .41 .41 .42 .42
Net realized and
unrealized gain (loss) .08 (.40) (.01) .36 (.57) .29
-----------------------------------------------------------------------
Total from investment
operations .27 (.01) .40 .77 (.15) .71
-----------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.39) (.41) (.41) (.42) (.42)
-----------------------------------------------------------------------
Net asset value at
end of period $11.93 $11.85 $12.25 $12.26 $11.90 $12.47
=======================================================================
Total return (%)* 2.30 (.13) 3.30 6.51 (1.10) 5.90
Net assets at
end of period (000) $6,392 $6,302 $5,856 $5,638 $5,339 $6,334
Ratios to average net
assets:**
Expenses (%)(a) .83(c) .83 .85 .90(b) .89 .85
Expenses, excluding
reimbursements (%)(a) .83(c) .83 .85 .90 .89 .85
Net investment
income (%) 3.21(c) 3.19 3.34 3.34 3.57 3.39
Portfolio turnover (%) 3 10 10 5 6 8
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended September 30, 2017, average net assets
were $6,374,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets
(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 | 29
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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
================================================================================
30 | 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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,024.30 $2.99
Hypothetical
(5% return before expenses) 1,000.00 1,022.11 2.99
ADVISER SHARES
Actual 1,000.00 1,023.00 4.21
Hypothetical
(5% return before expenses) 1,000.00 1,020.91 4.20
*Expenses are equal to the Fund's annualized expense ratio of 0.59% for Fund
Shares and 0.83% 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 2.43% for Fund
Shares and 2.30% for Adviser Shares for the six-month period of April 1, 2017,
through September 30, 2017.
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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
================================================================================
32 | USAA NEW YORK BOND FUND
================================================================================
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 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, shareholder 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 experience of the Manager, including the professional
================================================================================
ADVISORY AGREEMENT | 33
================================================================================
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 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 below the median of its
expense group and its expense universe. The data indicated that the Fund's total
expense ratio was
================================================================================
34 | USAA NEW YORK BOND FUND
================================================================================
below the median of its expense group and its expense universe. The Board took
into account the various services provided to the Fund by the Manager and its
affiliates, including the high quality of services provided by the 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 below the average of its performance universe and its Lipper
index for the one-and three-year period ended December 31, 2016, and was above
the average of its performance universe and its Lipper index for the five-and
ten-year periods ended December 31, 2016. 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, 2016, was in the top 40%
of its performance universe for the five-year period ended December 31, 2016,
and was in the top 25% of its performance universe for the ten-year period ended
December 31, 2016.
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
================================================================================
ADVISORY AGREEMENT | 35
================================================================================
overall profitability of the management fee to the Manager, the Board also
considered the fact that the Manager and its 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 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 and other risks 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.
================================================================================
36 | USAA NEW YORK BOND FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
39608-1117 (C)2017, 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 (USATX) o ADVISER SHARES (UTEIX)
SEPTEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 33
Financial Statements 35
Notes to Financial Statements 38
EXPENSE EXAMPLE 52
ADVISORY AGREEMENT 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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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 excludable from gross income for federal income tax purposes (referred
to herein as "tax-exempt securities"). 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.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income dividends will be tax-exempt and excludable from the
calculation of the federal alternative minimum tax (AMT) for individual
taxpayers. This policy may be changed only by a shareholder vote.
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
Hospital ..................................................................... 19.0%
General Obligation ........................................................... 9.8%
Education .................................................................... 9.1%
Special Assessment/Tax/Fee ................................................... 8.8%
Toll Roads ................................................................... 8.1%
Electric Utilities ........................................................... 7.1%
Escrowed Bonds ............................................................... 7.0%
Appropriated Debt ............................................................ 5.7%
Airport/Port ................................................................. 4.7%
Nursing/CCRC ................................................................. 3.4%
You will find a complete list of securities that the Fund owns on pages 4-32.
================================================================================
2 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 3.0%
AA 29.9%
A 42.9%
BBB 17.3%
BELOW INVESTMENT-GRADE 2.5%
UNRATED 4.4%
[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 4-32.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (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.
================================================================================
4 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
ISD Independent School District
MTA Metropolitan Transportation Authority
MUNIPSA Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index
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., 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 one
of the following: Citibank, Inc., Deutsche Bank A.G., 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 one of the following: Federal Home Loan Mortgage Corp., Federal
Housing Administration, Michigan School Board Qualification and Loan
Program, or Texas Permanent School Fund.
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
INVESTMENTS
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (83.8%)
ALABAMA (1.6%)
$ 5,000 Lower Alabama Gas District 5.00% 9/01/2027 $ 5,885
7,000 Lower Alabama Gas District 5.00 9/01/2028 8,288
35,000 Lower Alabama Gas District 5.00 9/01/2034 41,909
5,955 Montgomery Medical Clinic Board 5.00 3/01/2033 6,611
1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 1,923
8,000 Special Care Facilities Financing Auth. 5.00 2/01/2036 8,910
----------
73,526
----------
ARIZONA (1.8%)
20,310 Apache County IDA 4.50 3/01/2030 22,095
6,000 Health Facilities Auth. 5.00 2/01/2027 6,580
3,270 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2024 3,935
2,115 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2025 2,565
7,555 Phoenix IDA(a) 3.75 7/01/2024 7,913
11,100 Phoenix IDA(a) 5.00 7/01/2034 11,941
1,675 Phoenix IDA 5.00 7/01/2036 1,812
4,250 Phoenix IDA 5.00 10/01/2036 4,798
2,680 Pima County IDA 4.50 6/01/2030 2,910
2,000 Pinal County IDA (INS) 5.25 10/01/2020 2,004
1,250 Pinal County IDA (INS) 5.25 10/01/2022 1,252
2,000 Pinal County IDA (INS) 4.50 10/01/2025 2,002
3,540 State (INS) 5.00 10/01/2019 3,814
7,275 State (INS) 5.25 10/01/2020 7,874
----------
81,495
----------
ARKANSAS (0.1%)
4,290 Pulaski Technical College (INS) 5.00 9/01/2030 5,079
----------
CALIFORNIA (8.0%)
4,500 Alameda Corridor Transportation Auth. 5.00 10/01/2035 5,160
500 Anaheim Public Financing Auth. 5.00 5/01/2028 593
500 Anaheim Public Financing Auth. 5.00 5/01/2029 594
1,000 Anaheim Public Financing Auth. 5.00 5/01/2030 1,183
1,510 Cerritos CCD 5.02(b) 8/01/2025 1,270
1,000 Cerritos CCD 5.24(b) 8/01/2027 779
1,000 Cerritos CCD 5.41(b) 8/01/2028 748
1,520 Chula Vista Financing Auth. 5.00 9/01/2027 1,815
1,700 Chula Vista Financing Auth. 5.00 9/01/2028 2,011
1,785 Chula Vista Financing Auth. 5.00 9/01/2029 2,097
================================================================================
6 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,635 Chula Vista Financing Auth. 5.00% 9/01/2030 $ 3,074
2,095 Chula Vista Financing Auth. 5.00 9/01/2031 2,435
5,000 City and County of San Francisco Airport Commission 5.25 5/01/2022 5,332
7,000 City and County of San Francisco Airport Commission 5.25 5/01/2023 7,462
5,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 5,386
1,250 Communities Dev. Auth. 5.00 5/15/2032 1,453
2,000 Communities Dev. Auth. 5.00 5/15/2033 2,314
1,250 Communities Dev. Auth. 5.00 5/15/2034 1,442
2,000 Communities Dev. Auth. 5.00 5/15/2035 2,300
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 5,502
7,665 El Camino CCD 4.42(b) 8/01/2027 5,980
5,500 El Camino CCD 4.58(b) 8/01/2028 4,121
5,500 Foothill/Eastern Transportation Corridor Agency (INS) 4.25(b) 1/15/2035 2,825
1,000 Fresno Joint Power Financing Auth. (INS) 5.00 4/01/2032 1,182
1,000 Fresno Joint Power Financing Auth. (INS) 5.00 4/01/2035 1,169
420 Fresno Joint Power Financing Auth. (INS) 5.00 4/01/2036 489
46,605 Golden State Tobacco Securitization Corp. (INS) 4.17(b) 6/01/2025 39,220
2,000 Health Facilities Financing Auth. 5.00 8/15/2027 2,270
5,000 Health Facilities Financing Auth. 5.25 8/15/2031 5,722
2,540 Health Facilities Financing Auth. 4.00 3/01/2033 2,687
2,700 Health Facilities Financing Auth. 4.00 3/01/2034 2,836
1,000 Irvine City 5.00 9/02/2029 1,119
5,000 Irvine USD Special Tax District (INS) 5.25 9/01/2019 5,393
2,500 Irvine USD Special Tax District (INS) 4.50 9/01/2020 2,656
1,300 Los Angeles County 5.00 3/01/2023 1,528
3,500 Pittsburg Redevelopment Agency (INS) 5.00 9/01/2027 4,215
2,640 Pittsburg Redevelopment Agency (INS) 5.00 9/01/2028 3,152
6,400 Public Works Board (PRE) 5.50 4/01/2021 6,839
6,755 Public Works Board (PRE) 5.60 4/01/2022 7,229
3,000 Public Works Board 5.13 3/01/2023 3,287
3,130 Public Works Board (PRE) 5.75 4/01/2023 3,357
1,185 Public Works Board 5.00 11/01/2023 1,380
2,500 Public Works Board 5.25 3/01/2024 2,743
2,000 Public Works Board 5.00 11/01/2024 2,353
1,250 Public Works Board 5.00 3/01/2025 1,453
2,000 Public Works Board 5.38 3/01/2025 2,195
1,365 Public Works Board 5.00 3/01/2026 1,598
10,000 Public Works Board 5.00 4/01/2028 11,438
7,000 Public Works Board 5.00 11/01/2028 8,121
5,000 Public Works Board 5.00 4/01/2029 5,698
11,465 Public Works Board 5.00 10/01/2031 13,506
775 San Diego Public Facilities Financing Auth. 5.00 10/15/2030 924
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2031 1,189
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,000 San Diego Public Facilities Financing Auth. 5.00% 10/15/2032 $ 1,184
1,635 San Diego Public Facilities Financing Auth. 5.00 10/15/2033 1,931
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2034 1,177
1,250 San Diego Public Facilities Financing Auth. 5.00 10/15/2035 1,468
500 School Finance Auth.(a) 5.00 8/01/2031 564
1,600 School Finance Auth.(a) 5.00 8/01/2036 1,778
4,035 South Orange County Public Financing Auth. (INS) 5.00 8/15/2022 4,047
4,920 South Orange County Public Financing Auth. (INS) 5.00 8/15/2025 4,935
20,000 State 5.25 10/01/2022 21,664
27,445 State 5.75 4/01/2027 29,357
10,240 State 5.00 8/01/2032 12,140
10,000 State Univ. 5.00 11/01/2029 12,072
10,000 State Univ. 5.00 11/01/2033 11,909
1,000 Statewide Communities Dev. Auth. 5.13 5/15/2031 1,110
6,185 Tobacco Securitization Auth. 4.75 6/01/2025 6,227
1,605 Tulare City (INS) 5.00 11/15/2032 1,891
1,570 Tulare City (INS) 5.00 11/15/2033 1,842
3,655 Tulare City (INS) 5.00 11/15/2034 4,271
2,340 Tulare City (INS) 5.00 11/15/2035 2,728
3,470 Tuolumne Wind Project Auth. (PRE) 5.00 1/01/2022 3,649
10,000 Upland City 6.00 1/01/2026 11,291
2,000 Washington Township Health Care District 5.75 7/01/2024 2,138
3,500 Washington Township Health Care District 5.00 7/01/2025 3,770
----------
357,974
----------
COLORADO (2.4%)
5,000 Adams and Arapahoe Counties Joint School
District No. 28J 3.20(b) 12/01/2022 4,565
7,355 Denver Health and Hospital Auth.(a) 5.00 12/01/2034 8,139
135 Health Facilities Auth. 5.25 6/01/2023 135
2,750 Health Facilities Auth. 5.00 6/01/2028 3,064
1,000 Health Facilities Auth. 5.00 12/01/2028 1,123
1,500 Health Facilities Auth. 5.00 12/01/2029 1,672
2,310 Health Facilities Auth. 5.00 6/01/2031 2,573
2,000 Health Facilities Auth. 5.00 6/01/2032 2,217
2,470 Health Facilities Auth. 5.00 6/01/2033 2,726
4,455 Health Facilities Auth. 5.00 6/01/2034 4,999
6,385 Health Facilities Auth. 5.00 6/01/2034 7,024
2,000 Health Facilities Auth. 5.00 6/01/2035 2,237
3,385 Health Facilities Auth. 5.00 6/01/2035 3,714
4,000 Health Facilities Auth. 5.00 12/01/2035 4,347
4,000 Health Facilities Auth. 5.00 6/01/2036 4,461
1,250 Park Creek Metropolitan District 5.00 12/01/2032 1,390
1,000 Park Creek Metropolitan District 5.00 12/01/2034 1,101
================================================================================
8 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 9,135 Regional Transportation District (PRE) 5.00% 6/01/2025 $ 10,077
865 Regional Transportation District 5.00 6/01/2025 947
7,585 Regional Transportation District 5.00 6/01/2029 8,788
14,175 Regional Transportation District 5.00 6/01/2030 16,370
15,005 Regional Transportation District 5.00 6/01/2031 17,268
----------
108,937
----------
CONNECTICUT (0.6%)
1,120 Hartford City (INS) 5.00 7/01/2028 1,243
2,400 Hartford City (INS) 5.00 7/01/2032 2,607
10,000 Health and Educational Facilities Auth. 5.00 7/01/2034 11,214
7,479 Mashantucket (Western) Pequot Tribe(c),(d) 6.05(e) 7/01/2031 286
1,000 New Haven (INS) 5.00 8/15/2030 1,158
1,000 New Haven (INS) 5.00 8/15/2032 1,149
1,000 New Haven (INS) 5.00 8/15/2033 1,142
1,350 New Haven (INS) 5.00 8/15/2034 1,536
5,000 State 5.00 11/15/2035 5,583
----------
25,918
----------
DISTRICT OF COLUMBIA (0.4%)
375 District of Columbia 5.00 7/01/2023 419
3,870 District of Columbia 5.63 10/01/2025 4,183
5,000 District of Columbia 5.75 10/01/2026 5,399
6,000 District of Columbia (PRE) 5.75 10/01/2027 6,941
1,280 District of Columbia 6.00 7/01/2033 1,496
----------
18,438
----------
FLORIDA (6.1%)
2,500 Broward County Airport System 5.00 10/01/2024 2,684
2,000 Broward County School Board 5.00 7/01/2029 2,338
2,000 Broward County School Board 5.00 7/01/2030 2,328
2,325 Halifax Hospital Medical Center 5.00 6/01/2035 2,606
2,750 Halifax Hospital Medical Center 5.00 6/01/2036 3,065
8,000 Hillsborough County IDA 5.65 5/15/2018 8,218
3,500 Jacksonville 5.00 10/01/2028 3,985
1,250 Lake County School Board (INS) 5.00 6/01/2029 1,430
2,225 Lake County School Board (INS) 5.00 6/01/2030 2,535
2,500 Lee County 5.00 10/01/2023 2,958
2,700 Lee County 5.00 10/01/2024 3,244
4,000 Lee County 5.00 10/01/2033 4,671
7,245 Lee County IDA 5.00 10/01/2028 7,524
3,750 Lee County School Board 5.00 8/01/2028 4,397
6,560 Miami Beach City Health Facilities Auth. 5.00 11/15/2029 7,201
7,500 Miami-Dade County 3.75 12/01/2018 7,728
2,345 Miami-Dade County (INS) (PRE) 5.00 10/01/2024 2,346
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,670 Miami-Dade County (INS) (PRE) 5.00% 10/01/2025 $ 3,671
2,000 Miami-Dade County 5.00 10/01/2025 2,320
2,500 Miami-Dade County (INS) (PRE) 5.00 10/01/2026 2,501
6,440 Miami-Dade County 5.00 10/01/2026 7,120
7,000 Miami-Dade County 5.00 10/01/2027 7,737
10,000 Miami-Dade County Expressway Auth. 5.00 7/01/2028 11,318
7,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 7,890
1,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 1,161
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2030 2,325
1,610 Miami-Dade County Expressway Auth. 5.00 7/01/2030 1,863
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2031 2,316
1,255 Miami-Dade County Expressway Auth. 5.00 7/01/2031 1,448
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2032 2,300
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2033 2,290
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2034 2,282
4,750 Miami-Dade County Health Facilities Auth. 5.00 8/01/2027 5,408
4,950 Miami-Dade County Health Facilities Auth. 5.00 8/01/2028 5,609
5,250 Miami-Dade County Health Facilities Auth. 5.00 8/01/2029 5,924
3,500 Miami-Dade County Health Facilities Auth. 5.00 8/01/2030 3,932
5,780 Miami-Dade County Health Facilities Auth. 5.00 8/01/2031 6,470
10,000 Miami-Dade County School Board (INS) (PRE) 5.00 2/01/2024 10,534
12,000 Miami-Dade County School Board (INS) (PRE) 5.25 5/01/2025 12,303
12,000 Orange County Health Facility Auth. 5.25 10/01/2022 12,954
5,000 Orange County Health Facility Auth. 5.38 10/01/2023 5,405
4,000 Orange County Health Facility Auth. 5.00 10/01/2035 4,556
3,055 Osceola County School Board 5.00 6/01/2028 3,500
7,595 Palm Beach County Health Facilities Auth. 5.00 11/15/2023 8,595
1,995 Pinellas County Educational Facilities Auth. 5.00 10/01/2021 2,196
1,080 Pinellas County Educational Facilities Auth. 4.00 10/01/2022 1,155
1,415 Pinellas County Educational Facilities Auth. 4.00 10/01/2023 1,502
2,045 Pinellas County Educational Facilities Auth.(f) 5.38 10/01/2026 2,266
1,895 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 2,048
2,615 Pinellas County Educational Facilities Auth.(f) 6.50 10/01/2031 2,996
3,195 Port St. Lucie Special Assessment 4.00 7/01/2031 3,376
2,000 Port St. Lucie Special Assessment 4.00 7/01/2032 2,101
2,785 Port St. Lucie Special Assessment 4.00 7/01/2033 2,904
1,000 Port St. Lucie Utility System 4.00 9/01/2031 1,079
7,370 Saint Lucie County (INS) 5.00 10/01/2028 8,493
2,045 Saint Lucie County School Board 5.00 7/01/2025 2,378
1,500 Saint Lucie County School Board 5.00 7/01/2026 1,737
3,195 Southeast Overtown/Park West Community
Redevelopment Agency(a) 5.00 3/01/2030 3,484
8,970 Sunshine State Governmental Financing Commission 5.00 9/01/2019 9,614
5,525 Sunshine State Governmental Financing Commission 5.00 9/01/2020 6,107
================================================================================
10 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,055 Sunshine State Governmental Financing
Commission (INS) 5.00% 9/01/2021 $ 1,198
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2028 1,165
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2029 1,159
1,500 Volusia County Educational Facilities Auth. 5.00 10/15/2030 1,727
1,560 Volusia County Educational Facilities Auth. 5.00 10/15/2032 1,782
----------
273,457
----------
GEORGIA (0.4%)
10,000 Burke County Dev. Auth. 7.00 1/01/2023 10,149
3,600 Glynn-Brunswick Memorial Hospital Auth. (PRE) 5.25 8/01/2023 3,730
400 Glynn-Brunswick Memorial Hospital Auth. 5.25 8/01/2023 413
3,000 Private Colleges and Universities Auth. 5.25 10/01/2027 3,298
2,000 Private Colleges and Universities Auth. 5.25 10/01/2027 2,216
----------
19,806
----------
GUAM (0.4%)
1,500 Government 5.00 12/01/2030 1,710
2,000 Government 5.00 12/01/2031 2,262
1,000 Power Auth. (INS) 5.00 10/01/2027 1,126
1,000 Power Auth. 5.00 10/01/2029 1,106
1,000 Power Auth. (INS) 5.00 10/01/2030 1,123
1,000 Power Auth. 5.00 10/01/2030 1,101
695 Power Auth. 5.00 10/01/2031 762
1,000 Power Auth. (INS) 5.00 10/01/2032 1,130
750 Waterworks Auth. 5.00 7/01/2023 851
600 Waterworks Auth. 5.00 7/01/2024 689
750 Waterworks Auth. 5.00 7/01/2025 847
1,000 Waterworks Auth. 5.00 7/01/2028 1,090
1,000 Waterworks Auth. 5.00 7/01/2029 1,100
3,000 Waterworks Auth. 5.25 7/01/2033 3,294
1,250 Waterworks Auth. 5.00 7/01/2036 1,353
----------
19,544
----------
ILLINOIS (14.5%)
2,974 Chicago 6.63 12/01/2022 2,975
30,000 Chicago (INS) 4.45(b) 1/01/2023 25,416
6,525 Chicago Midway Airport 5.00 1/01/2027 7,420
11,750 Chicago Midway Airport 5.00 1/01/2029 13,536
5,175 Chicago Midway Airport 5.00 1/01/2030 5,939
8,910 Chicago Midway Airport 5.00 1/01/2031 10,187
6,000 Chicago Midway Airport 5.00 1/01/2032 6,837
1,635 Chicago Midway Airport 5.25 1/01/2033 1,850
3,500 Chicago Midway Airport 4.00 1/01/2034 3,694
3,000 Chicago Midway Airport 4.00 1/01/2035 3,157
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,000 Chicago Wastewater Transmission 5.00% 1/01/2031 $ 1,104
1,000 Chicago Wastewater Transmission 5.00 1/01/2032 1,096
3,500 Chicago Wastewater Transmission 5.00 1/01/2033 3,845
1,000 Chicago Wastewater Transmission 5.00 1/01/2034 1,095
1,250 Chicago Wastewater Transmission 5.00 1/01/2035 1,365
8,000 Chicago Wastewater Transmission 5.00 1/01/2035 8,928
1,500 Chicago Water 5.00 11/01/2028 1,748
725 Chicago Water 5.00 11/01/2029 839
1,000 Chicago Water 5.00 11/01/2029 1,157
2,000 Chicago Water 5.00 11/01/2030 2,304
1,000 Chicago Water 5.00 11/01/2031 1,147
2,000 Chicago Water 5.00 11/01/2031 2,239
2,000 Chicago Water 5.00 11/01/2033 2,216
2,105 Chicago Water (INS) 5.25 11/01/2034 2,478
1,635 Chicago Water (INS) 5.25 11/01/2035 1,919
2,665 Chicago Water 5.00 11/01/2036 3,014
9,000 Chicago-O'Hare International Airport 5.25 1/01/2024 9,743
3,620 Chicago-O'Hare International Airport (INS) 5.00 1/01/2028 4,153
1,500 Chicago-O'Hare International Airport (INS) 5.00 1/01/2029 1,719
13,480 Chicago-O'Hare International Airport 5.25 1/01/2029 15,582
2,150 Chicago-O'Hare International Airport (INS) 5.13 1/01/2030 2,439
11,560 Chicago-O'Hare International Airport 5.00 1/01/2033 13,325
5,675 Chicago-O'Hare International Airport 5.00 1/01/2034 6,493
1,000 Community College District No. 536 5.00 11/01/2031 1,155
2,000 Community College District No. 536 5.00 11/01/2032 2,292
750 Community College District No. 536 5.00 11/01/2033 854
2,500 Cook County 5.00 11/15/2031 2,869
3,750 Cook County 4.00 11/15/2034 3,961
7,000 Cook County 5.00 11/15/2035 8,155
5,000 Cook County 5.00 11/15/2036 5,801
9,750 Educational Facilities Auth. 4.00 11/01/2036 10,073
4,500 Educational Facilities Auth. 4.45 11/01/2036 4,782
4,340 Finance Auth. (ETM) 5.75 5/01/2018 4,461
2,080 Finance Auth. 5.00 2/15/2020 2,239
1,710 Finance Auth. 5.00 2/15/2022 1,846
750 Finance Auth. 5.25 4/01/2022 750
2,070 Finance Auth. 3.25 5/15/2022 2,123
2,000 Finance Auth. 5.00 4/01/2023 2,001
3,400 Finance Auth. (INS) (PRE) 5.00 11/01/2023 3,546
7,140 Finance Auth. 5.13 2/15/2025 7,683
4,165 Finance Auth. 5.00 4/01/2025 4,166
8,210 Finance Auth. 4.50 5/15/2025 8,986
7,665 Finance Auth. 5.38 8/15/2026 8,658
1,750 Finance Auth. 5.40 4/01/2027 1,750
================================================================================
12 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,065 Finance Auth. 4.00% 5/15/2027 $ 3,205
8,250 Finance Auth. 5.50 7/01/2028 9,476
20,000 Finance Auth. 3.90 3/01/2030 21,085
1,000 Finance Auth. 5.00 5/15/2030 1,122
1,875 Finance Auth. 5.00 5/15/2031 2,045
1,000 Finance Auth. 4.00 10/01/2031 1,072
1,500 Finance Auth. 5.00 8/15/2032 1,657
1,000 Finance Auth. 4.00 10/01/2032 1,065
1,155 Finance Auth. 5.00 8/15/2033 1,270
1,000 Finance Auth. 5.00 8/15/2034 1,092
3,385 Finance Auth. 5.00 9/01/2034 3,637
1,000 Finance Auth. 4.00 10/01/2034 1,053
3,700 Finance Auth. 5.00 11/15/2034 4,142
3,500 Finance Auth. 5.00 12/01/2034 3,865
1,100 Finance Auth. 5.00 5/15/2035 1,209
4,000 Finance Auth. 5.00 8/15/2035 4,372
3,000 Finance Auth. 5.00 11/15/2035 3,350
5,000 Finance Auth. 4.00 12/01/2035 5,044
18,000 Finance Auth. 4.00 2/15/2036 18,510
1,400 Finance Auth. 5.00 5/15/2036 1,497
3,000 Finance Auth. 4.00 12/01/2036 3,013
1,835 Herrin Community USD (INS) 5.00 12/01/2028 2,061
1,925 Herrin Community USD (INS) 5.00 12/01/2029 2,150
2,025 Herrin Community USD (INS) 5.00 12/01/2030 2,251
6,000 Herrin Community USD (INS) 5.00 12/01/2034 6,541
2,800 Kane, Cook and Dupage Counties 5.00 1/01/2032 3,210
4,000 Kane, Cook and Dupage Counties 5.00 1/01/2033 4,566
5,000 Kendall Kane and Will Counties Community
Unit School District 5.00 2/01/2035 5,689
6,000 Kendall Kane and Will Counties Community
Unit School District 5.00 2/01/2036 6,804
1,210 Metropolitan Pier and Exposition Auth. (INS) 5.30 6/15/2018 1,226
2,935 Metropolitan Pier and Exposition Auth. (INS) 5.40 6/15/2019 2,975
5,000 Metropolitan Pier and Exposition Auth. (INS) 5.70(b) 6/15/2026 3,774
14,650 Municipal Electric Agency 4.00 2/01/2033 15,539
1,800 Northern Illinois Municipal Power Agency 4.00 12/01/2031 1,903
2,100 Northern Illinois Municipal Power Agency 4.00 12/01/2032 2,207
4,000 Northern Illinois Municipal Power Agency 4.00 12/01/2033 4,172
5,000 Northern Illinois Municipal Power Agency 4.00 12/01/2035 5,163
7,095 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 7,277
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,294
23,160 Regional Transportation Auth. 4.00 7/01/2034 24,344
11,650 Regional Transportation Auth. 4.00 7/01/2035 12,206
2,010 Rosemont (INS) 5.00 12/01/2025 2,322
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,110 Rosemont (INS) 5.00% 12/01/2026 $ 2,451
3,000 Sports Facilities Auth. (INS) 5.25 6/15/2030 3,358
5,000 Sports Facilities Auth. (INS) 5.25 6/15/2031 5,573
5,000 Sports Facilities Auth. (INS) 5.25 6/15/2032 5,551
8,500 Springfield 5.00 12/01/2030 9,786
3,000 Springfield (INS) 5.00 3/01/2034 3,392
3,700 Springfield School District No. 186 (INS) 5.00 2/01/2024 4,348
7,200 Springfield School District No. 186 (INS) 5.00 2/01/2025 8,253
4,215 Springfield School District No. 186 (INS) 5.00 2/01/2026 4,940
5,000 State (INS) 5.00 1/01/2021 5,290
10,000 State (INS) 5.00 4/01/2029 11,121
7,000 State (INS) 4.00 2/01/2030 7,218
9,000 State 5.25 2/01/2031 9,723
10,000 State 5.00 11/01/2032 10,763
12,475 State Univ. 4.00 4/01/2033 12,947
5,000 Toll Highway Auth. 5.00 12/01/2032 5,806
6,000 Toll Highway Auth. 5.00 1/01/2033 6,973
2,500 Toll Highway Auth. 5.00 1/01/2034 2,893
5,870 Toll Highway Auth. 5.00 1/01/2034 6,773
2,000 Toll Highway Auth. 5.00 1/01/2035 2,309
5,600 Toll Highway Auth. 5.00 1/01/2035 6,449
7,000 Toll Highway Auth. 5.00 1/01/2036 8,035
5,225 Village of Gilberts (INS) 5.00 3/01/2030 5,810
3,000 Village of Volo (INS) 5.00 3/01/2034 3,386
1,250 Village of Volo (INS) 4.00 3/01/2036 1,267
14,070 Will County Forest Preserve District (INS) 5.40(b) 12/01/2017 14,047
----------
648,027
----------
INDIANA (0.8%)
1,470 Finance Auth. 5.00 5/01/2024 1,704
6,000 Finance Auth. 3.13 12/01/2024 6,189
1,200 Finance Auth. 5.00 5/01/2027 1,361
1,900 Finance Auth. 5.00 10/01/2027 1,900
1,250 Finance Auth. 5.00 9/01/2030 1,467
1,500 Finance Auth. 5.00 9/01/2031 1,751
10,500 Finance Auth. 5.00 6/01/2032 10,690
3,000 Jasper County (INS) 5.85 4/01/2019 3,182
6,500 Richmond Hospital Auth. 5.00 1/01/2035 7,261
----------
35,505
----------
IOWA (0.7%)
5,425 Finance Auth. 4.00 8/15/2035 5,596
16,305 Finance Auth. 4.00 8/15/2036 16,773
2,475 Waterloo Community School District (PRE) 5.00 7/01/2024 2,646
2,775 Waterloo Community School District (PRE) 5.00 7/01/2025 2,967
================================================================================
14 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 4,510 Waterloo Community School District (PRE) 5.00% 7/01/2027 $ 4,821
----------
32,803
----------
KANSAS (0.3%)
3,000 Wichita 4.20 9/01/2027 3,024
10,000 Wichita 4.63 9/01/2033 10,000
----------
13,024
----------
KENTUCKY (1.6%)
2,410 Ashland Medical Center 4.00 2/01/2036 2,417
2,000 Commonwealth Property and Buildings Commission 5.00 2/01/2032 2,280
2,250 Commonwealth Property and Buildings Commission 5.00 2/01/2033 2,551
6,130 Economic Dev. Finance Auth. 4.05(b) 10/01/2024 5,068
7,500 Economic Dev. Finance Auth. (INS) 5.75 12/01/2028 7,635
7,205 Economic Dev. Finance Auth. 5.00 5/15/2031 7,544
2,500 Economic Dev. Finance Auth. 5.00 5/15/2036 2,581
6,750 Finance Auth. 5.00 5/15/2026 7,245
3,830 Louisville/Jefferson County Metro Government 5.00 12/01/2022 4,278
2,760 Louisville/Jefferson County Metro Government 5.00 12/01/2023 3,056
7,160 Louisville/Jefferson County Metro Government 5.00 12/01/2024 7,879
3,725 Pikeville City Hospital Improvement 5.75 3/01/2026 4,138
15,000 Trimble County Environmental Facilities 3.75 6/01/2033 15,214
----------
71,886
----------
LOUISIANA (3.0%)
2,750 Jefferson Parish Hospital District No. 1 (INS) (PRE) 5.50 1/01/2026 3,134
3,000 Jefferson Parish Hospital District No. 1 (INS) (PRE) 5.38 1/01/2031 3,407
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,230
700 New Orleans 5.00 6/01/2031 808
1,150 New Orleans 5.00 6/01/2032 1,321
1,500 New Orleans 5.00 12/01/2033 1,716
1,500 New Orleans 5.00 6/01/2034 1,711
1,500 New Orleans 5.00 12/01/2035 1,705
1,745 Public Facilities Auth. 5.00 7/01/2028 2,017
14,000 Public Facilities Auth. 3.50 6/01/2030 14,225
1,695 Public Facilities Auth. 5.00 7/01/2030 1,933
2,735 Public Facilities Auth. 4.00 12/15/2032 2,924
8,995 Public Facilities Auth. 5.00 7/01/2033 10,238
750 Public Facilities Auth. 5.00 7/01/2033 841
3,095 Public Facilities Auth. 4.00 12/15/2033 3,286
25 Public Facilities Auth. (PRE) 5.00 5/15/2034 31
2,225 Public Facilities Auth. 5.00 5/15/2034 2,516
2,975 Public Facilities Auth. 5.00 5/15/2034 3,413
13,550 Public Facilities Auth. 5.00 7/01/2034 15,372
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 35 Public Facilities Auth. (PRE) 4.00% 5/15/2035 $ 41
3,465 Public Facilities Auth. 4.00 5/15/2035 3,609
2,000 Public Facilities Auth. 5.00 5/15/2035 2,287
15 Public Facilities Auth. (PRE) 4.00 5/15/2036 17
1,485 Public Facilities Auth. 4.00 5/15/2036 1,541
1,560 Public Facilities Auth. 5.00 5/15/2036 1,777
2,000 Public Facilities Auth. (INS) 5.00 6/01/2036 2,220
5,330 Shreveport (INS) 5.00 12/01/2031 6,219
5,125 Shreveport (INS) 5.00 12/01/2032 5,998
1,515 Shreveport (INS) 5.00 12/01/2033 1,774
1,500 Shreveport (INS) 5.00 12/01/2034 1,749
1,510 Shreveport (INS) 5.00 12/01/2035 1,757
1,000 State University 4.00 7/01/2031 1,065
1,000 State University 4.00 7/01/2032 1,058
1,000 State University 4.00 7/01/2033 1,051
2,440 Terrebonne Parish Hospital Service Dist. No. 1 5.00 4/01/2022 2,643
2,570 Terrebonne Parish Hospital Service Dist. No. 1 5.00 4/01/2023 2,778
2,000 Terrebonne Parish Hospital Service Dist. No. 1 4.65 4/01/2024 2,128
4,250 Terrebonne Parish Hospital Service Dist. No. 1 5.00 4/01/2028 4,539
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2023 5,749
10,000 Tobacco Settlement Financing Corp. 5.25 5/15/2031 10,778
----------
135,606
----------
MAINE (0.4%)
1,635 Health and Higher Educational Facilities Auth. 5.00 7/01/2024 1,810
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2026 1,078
11,500 Health and Higher Educational Facilities Auth. 6.00 7/01/2026 12,469
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2027 1,071
----------
16,428
----------
MARYLAND (1.0%)
2,500 EDC 6.20 9/01/2022 2,682
5,000 Health and Higher Educational Facilities Auth. (PRE) 6.00 1/01/2028 5,065
1,415 Health and Higher Educational Facilities Auth. 5.50 1/01/2029 1,694
1,750 Health and Higher Educational Facilities Auth. 5.50 1/01/2030 2,087
1,585 Health and Higher Educational Facilities Auth. 5.50 1/01/2031 1,878
3,190 Health and Higher Educational Facilities Auth. 5.00 7/01/2031 3,588
6,505 Health and Higher Educational Facilities Auth. 5.00 7/01/2032 7,277
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 1,117
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 1,115
3,600 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 4,005
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 1,112
2,200 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 2,446
2,500 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 2,771
1,310 Health and Higher Educational Facilities Auth. 5.00 7/01/2035 1,453
================================================================================
16 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 5,000 Health and Higher Educational Facilities Auth. 5.50% 1/01/2036 $ 5,810
1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2036 1,104
----------
45,204
----------
MASSACHUSETTS (1.1%)
640 Dev. Finance Agency 5.00 7/01/2020 694
1,480 Dev. Finance Agency 5.00 7/01/2022 1,671
4,500 Dev. Finance Agency 6.25 1/01/2027 5,083
1,720 Dev. Finance Agency 5.00 7/01/2027 1,877
2,000 Dev. Finance Agency 5.00 7/01/2030 2,126
2,000 Dev. Finance Agency 5.00 7/01/2030 2,310
450 Dev. Finance Agency 5.00 1/01/2031 524
1,675 Dev. Finance Agency 5.00 7/01/2031 1,924
645 Dev. Finance Agency 5.00 1/01/2032 747
1,250 Dev. Finance Agency 5.00 7/01/2032 1,446
535 Dev. Finance Agency 5.00 1/01/2033 616
2,155 Dev. Finance Agency 5.00 4/15/2033 2,365
1,250 Dev. Finance Agency 5.00 7/01/2033 1,435
700 Dev. Finance Agency 5.00 1/01/2034 802
1,000 Dev. Finance Agency 5.00 7/01/2034 1,143
735 Dev. Finance Agency 5.00 1/01/2035 840
1,500 Dev. Finance Agency 5.00 7/01/2035 1,676
1,000 Dev. Finance Agency 5.00 1/01/2036 1,140
2,000 Dev. Finance Agency 5.00 7/01/2036 2,232
1,000 Dev. Finance Agency 5.00 7/01/2036 1,113
3,110 Health and Educational Facilities Auth. 5.00 7/01/2019 3,294
5,780 Health and Educational Facilities Auth. (PRE) 6.00 7/01/2024 6,280
3,220 Health and Educational Facilities Auth. 6.00 7/01/2024 3,480
4,000 Health and Educational Facilities Auth. 5.00 7/15/2027 4,011
110 Water Pollution Abatement Trust 4.75 8/01/2025 110
----------
48,939
----------
MICHIGAN (2.0%)
3,000 Building Auth. 5.00 10/15/2029 3,485
2,000 Finance Auth. (NBGA) 5.00 5/01/2024 2,347
1,700 Finance Auth. (NBGA) 5.00 5/01/2025 2,008
8,200 Finance Auth. 5.00 12/01/2034 9,484
6,000 Finance Auth. 4.00 11/15/2035 6,228
4,600 Finance Auth. 5.00 12/01/2035 5,305
1,000 Finance Auth. 4.00 11/15/2036 1,034
10,000 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2029 11,170
13,560 Great Lakes Water Auth. 4.00 7/01/2032 14,192
12,000 Kent Hospital Finance Auth. 5.00 11/15/2029 13,238
2,775 Livonia Public Schools School District (INS) 5.00 5/01/2032 3,213
2,875 Livonia Public Schools School District (INS) 5.00 5/01/2033 3,310
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,965 Livonia Public Schools School District (INS) 5.00% 5/01/2034 $ 3,399
3,065 Livonia Public Schools School District (INS) 5.00 5/01/2035 3,504
2,770 Livonia Public Schools School District (INS) 5.00 5/01/2036 3,155
3,000 State Trunk Line Fund 5.00 11/01/2019 3,243
2,000 State Trunk Line Fund 5.00 11/01/2020 2,160
----------
90,475
----------
MINNESOTA (0.1%)
1,750 St. Paul Housing and Redevelopment Auth. (PRE) 5.00 11/15/2029 2,160
1,275 St. Paul Housing and Redevelopment Auth. (PRE) 5.00 11/15/2030 1,573
----------
3,733
----------
MISSISSIPPI (0.2%)
2,000 Dev. Bank 5.00 4/01/2028 2,285
7,000 Dev. Bank (INS) 5.00 9/01/2030 7,842
----------
10,127
----------
MISSOURI (0.6%)
1,780 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2025 2,009
2,555 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 2,851
2,675 Cape Girardeau County Health Care Facilities IDA 6.00 3/01/2033 3,091
500 Cape Girardeau County IDA 5.00 3/01/2032 562
750 Cape Girardeau County IDA 5.00 3/01/2036 829
1,000 Dev. Finance Board 5.00 6/01/2030 1,117
4,215 Dev. Finance Board 5.00 6/01/2031 4,691
2,310 Health and Educational Facilities Auth. 5.00 5/01/2030 2,537
2,350 Health and Educational Facilities Auth. 5.25 5/01/2033 2,588
1,350 Riverside IDA (INS) 5.00 5/01/2020 1,391
1,380 Saint Louis County IDA 5.00 9/01/2023 1,554
2,750 Saint Louis County IDA 5.50 9/01/2033 3,081
2,110 Stoddard County IDA 6.00 3/01/2037 2,421
----------
28,722
----------
MONTANA (0.2%)
8,500 Forsyth 3.90 3/01/2031 8,859
----------
NEBRASKA (0.1%)
1,250 Douglas County Hospital Auth. 5.00 11/01/2028 1,458
1,600 Douglas County Hospital Auth. 5.00 11/01/2030 1,847
2,400 Public Power Generation Agency 5.00 1/01/2037 2,751
----------
6,056
----------
NEVADA (1.7%)
3,660 Clark County 5.00 7/01/2026 4,438
2,220 Clark County 5.00 7/01/2027 2,713
20,470 Clark County 5.00 7/01/2032 23,770
10,845 Clark County 5.00 7/01/2033 12,535
================================================================================
18 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 18,000 Humboldt County 5.15% 12/01/2024 $ 19,217
2,000 Las Vegas Convention and Visitors Auth. 4.00 7/01/2033 2,095
4,560 Las Vegas Convention and Visitors Auth. 4.00 7/01/2034 4,755
5,075 Las Vegas Convention and Visitors Auth. 4.00 7/01/2035 5,280
----------
74,803
----------
NEW JERSEY (5.2%)
630 Atlantic City (INS) 5.00 3/01/2032 728
1,660 Atlantic City (INS)(g) 5.00 3/01/2032 1,919
750 Atlantic City (INS) 5.00 3/01/2037 850
1,250 Atlantic City (INS)(g) 5.00 3/01/2037 1,416
1,135 Bayonne City (INS) 5.00 7/01/2034 1,292
1,000 Bayonne City (INS) 5.00 7/01/2035 1,136
1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2029 1,119
1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2030 1,114
7,300 EDA (ETM) 5.25 9/01/2019 7,888
2,700 EDA 5.25 9/01/2019 2,871
5,000 EDA (INS) 5.00 7/01/2022 5,012
7,300 EDA (PRE) 5.25 9/01/2022 8,299
2,700 EDA 5.25 9/01/2022 2,937
3,500 EDA 4.45 6/01/2023 3,721
18,410 EDA 5.00 3/01/2025 20,208
5,125 EDA 5.00 6/15/2025 5,794
10,000 EDA (INS) 5.00 6/15/2025 11,397
2,500 EDA 5.00 6/15/2026 2,721
1,500 EDA 3.13 7/01/2029 1,483
1,000 EDA 3.38 7/01/2030 975
9,000 EDA 5.25 6/15/2033 9,928
4,000 Educational Facilities Auth. 5.50 9/01/2029 4,603
3,000 Educational Facilities Auth. 5.50 9/01/2030 3,450
4,590 Educational Facilities Auth. 5.50 9/01/2031 5,265
8,075 Educational Facilities Auth. 5.50 9/01/2032 9,217
5,740 Educational Facilities Auth. 5.50 9/01/2028 6,648
500 Educational Facilities Auth. 4.00 7/01/2033 526
750 Educational Facilities Auth. 4.00 7/01/2034 785
3,000 Educational Facilities Auth. (INS) 5.00 7/01/2034 3,487
1,250 Educational Facilities Auth. 4.00 7/01/2035 1,304
3,350 Educational Facilities Auth. (INS) 5.00 7/01/2035 3,882
1,800 Educational Facilities Auth. (INS) 4.00 7/01/2036 1,870
4,535 Essex County Improvement Auth. (INS) 6.00 11/01/2025 5,031
2,000 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2027 2,361
1,500 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2030 1,740
1,455 New Brunswick Parking Auth. (INS) 5.00 9/01/2035 1,699
2,000 New Brunswick Parking Auth. (INS) 5.00 9/01/2036 2,326
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 500 Newark Housing Auth. (INS) 4.00% 12/01/2029 $ 535
750 Newark Housing Auth. (INS) 4.00 12/01/2030 799
500 Newark Housing Auth. (INS) 4.00 12/01/2031 530
500 South Jersey Transportation Auth. 5.00 11/01/2030 561
750 South Jersey Transportation Auth. 5.00 11/01/2031 839
1,085 South Jersey Transportation Auth. 5.00 11/01/2034 1,197
400 State Building Auth. (PRE) 4.00 6/15/2030 463
600 State Building Auth. 4.00 6/15/2030 617
7,000 State Turnpike Auth. (PRE) 5.00 1/01/2021 7,356
13,000 State Turnpike Auth. 5.00 1/01/2021 13,627
7,675 State Turnpike Auth. 5.00 1/01/2034 8,869
10,000 State Turnpike Auth. 5.00 1/01/2034 11,599
3,500 State Turnpike Auth. 4.00 1/01/2035 3,756
4,725 State Turnpike Auth. 5.00 1/01/2035 5,419
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,659
20,000 Transportation Trust Fund Auth. 4.47(b) 12/15/2025 14,737
3,000 Transportation Trust Fund Auth. 5.00 6/15/2030 3,332
2,000 Transportation Trust Fund Auth. 5.25 6/15/2033 2,208
3,000 Transportation Trust Fund Auth. 5.25 6/15/2034 3,300
----------
232,405
----------
NEW MEXICO (0.5%)
20,000 Farmington 4.70 5/01/2024 21,555
----------
NEW YORK (5.1%)
2,500 Albany IDA (PRE) 5.75 11/15/2022 2,516
3,700 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2034 3,895
8,590 Dormitory Auth. (ETM) 5.30 2/15/2019 8,882
15 Dormitory Auth. (ETM) 5.00 5/01/2023 18
735 Dormitory Auth. 5.00 5/01/2023 830
15 Dormitory Auth. (PRE) 5.00 5/01/2024 18
735 Dormitory Auth. 5.00 5/01/2024 826
25 Dormitory Auth. (PRE) 5.00 5/01/2025 30
1,175 Dormitory Auth. 5.00 5/01/2025 1,311
20 Dormitory Auth. (PRE) 5.00 5/01/2026 24
980 Dormitory Auth. 5.00 5/01/2026 1,091
1,000 Dormitory Auth. (INS) 5.00 10/01/2027 1,188
1,000 Dormitory Auth. (INS) 5.00 10/01/2028 1,182
1,300 Dormitory Auth. (INS) 5.00 10/01/2029 1,528
20,000 Dormitory Auth. 5.00 2/15/2032 23,719
600 Dormitory Auth.(a) 5.00 12/01/2035 658
2,000 Erie County IDA 5.00 5/01/2028 2,331
2,500 Hudson Yards Infrastructure Corp. 5.00 2/15/2037 2,939
17,075 Long Island Power Auth. 5.00 4/01/2023 17,914
5,000 Monroe County IDC (NBGA) 5.75 8/15/2030 5,701
================================================================================
20 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 8,000 MTA (PRE) 6.25% 11/15/2023 $ 8,484
80 MTA (PRE) 6.25 11/15/2023 85
1,920 MTA 6.25 11/15/2023 2,034
2,500 MTA (INS) (PRE) 5.00 11/15/2024 2,514
6,800 MTA (PRE) 5.00 11/15/2024 6,837
2,000 MTA 5.00 11/15/2034 2,361
10,000 MTA 5.00 11/15/2034 11,804
3,000 MTA 5.00 11/15/2035 3,536
2,000 MTA 5.00 11/15/2035 2,358
1,100 Nassau County 5.00 1/01/2035 1,257
1,150 Nassau County 5.00 1/01/2036 1,310
5,000 New York City 5.13 11/15/2022 5,231
2,625 New York City (PRE) 5.13 12/01/2022 2,645
1,705 New York City 5.13 12/01/2022 1,717
3,610 New York City (PRE) 5.13 12/01/2023 3,637
2,390 New York City 5.13 12/01/2023 2,408
5,000 New York City 5.25 11/15/2024 5,239
4,975 New York City (PRE) 5.00 2/01/2025 5,045
25 New York City 5.00 2/01/2025 25
3,500 New York City Transitional Finance Auth. 5.00 1/15/2022 3,675
25,000 New York City Transitional Finance Auth. (PRE) 5.00 5/01/2026 26,589
15,350 New York City Transitional Finance Auth. 5.00 7/15/2034 17,750
4,000 New York City Transitional Finance Auth. 5.00 7/15/2035 4,745
575 Newburgh City 5.00 6/15/2023 637
2,250 Niagara Area Dev. Corp. 4.00 11/01/2024 2,251
1,670 Niagara Falls City School District (INS) 5.00 6/15/2023 1,951
1,450 Niagara Falls City School District (INS) 5.00 6/15/2024 1,719
1,670 Niagara Falls City School District (INS) 5.00 6/15/2025 1,959
5,000 Oyster Bay 2.50 6/01/2018 5,020
2,255 Oyster Bay 3.50 6/01/2018 2,279
1,585 Rockland County 3.50 10/01/2021 1,653
1,190 Rockland County 3.63 10/01/2022 1,238
1,560 Rockland County 3.63 10/01/2023 1,615
1,665 Rockland County 3.63 10/01/2024 1,715
790 Saratoga County Capital Resource Corp. 5.00 12/01/2028 904
220 Suffolk County EDC (PRE) 5.00 7/01/2028 251
1,280 Suffolk County EDC 5.00 7/01/2028 1,402
1,350 Westchester County Local Dev. Corp. 5.00 1/01/2028 1,502
2,600 Yonkers (INS) (ETM) 5.00 10/01/2023 2,991
----------
226,974
----------
NORTH CAROLINA (0.6%)
3,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2024 3,031
5,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2026 5,251
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,500 Medical Care Commission 5.00% 10/01/2025 $ 1,663
4,805 Medical Care Commission 6.38 7/01/2026 5,487
1,850 Medical Care Commission 5.00 10/01/2030 1,933
2,000 Municipal Power Agency No. 1 (PRE) 5.25 1/01/2020 2,023
3,600 Turnpike Auth. (INS) (PRE) 5.00 1/01/2022 3,779
3,330 Turnpike Auth. (INS) (PRE) 5.13 1/01/2024 3,501
----------
26,668
----------
NORTH DAKOTA (0.3%)
11,085 Grand Forks City Health Care System 5.00 12/01/2029 12,087
----------
OHIO (2.0%)
9,000 Air Quality Dev. Auth. 5.70 8/01/2020 4,117
3,000 American Municipal Power, Inc. (PRE) 5.00 2/15/2021 3,277
2,760 American Municipal Power, Inc. (PRE) 5.00 2/15/2022 3,015
7,165 Buckeye Tobacco Settlement Financing Auth. 5.13 6/01/2024 6,811
2,250 Centerville 5.25 11/01/2037 2,401
2,000 Cleveland Airport System 5.00 1/01/2030 2,203
1,000 Cleveland Airport System 5.00 1/01/2031 1,099
7,430 Cuyahoga County 4.00 2/15/2029 7,690
4,000 Cuyahoga County 5.00 2/15/2037 4,330
2,805 Dayton City School District 5.00 11/01/2028 3,459
3,655 Dayton City School District 5.00 11/01/2029 4,521
3,160 Dayton City School District 5.00 11/01/2030 3,936
2,000 Dayton City School District 5.00 11/01/2031 2,509
420 Fairview Park City (INS) 4.13 12/01/2020 421
4,365 Hamilton County (INS) 4.30(b) 12/01/2025 3,520
1,350 Hamilton County Healthcare 5.00 1/01/2031 1,479
1,400 Hamilton County Healthcare 5.00 1/01/2036 1,507
9,000 Hancock County Hospital Facilities 6.50 12/01/2030 10,311
750 Southeastern Ohio Port Auth. 5.50 12/01/2029 812
750 Southeastern Ohio Port Auth. 5.00 12/01/2035 773
1,000 State 5.00 5/01/2031 1,135
500 State 5.00 5/01/2033 562
7,210 State Hospital System 5.00 1/15/2034 8,121
6,000 State Hospital System 5.00 1/15/2035 6,739
3,070 State Hospital System 5.00 1/15/2036 3,436
2,000 Turnpike and Infrastructure Commission 5.25 2/15/2029 2,364
----------
90,548
----------
OKLAHOMA (0.2%)
1,160 Chickasaw Nation(a) 5.38 12/01/2017 1,166
5,000 Chickasaw Nation(a) 6.00 12/01/2025 5,240
2,020 Comanche County Hospital Auth. 5.00 7/01/2021 2,150
940 Tulsa County Industrial Auth. 5.00 11/15/2028 1,074
================================================================================
22 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,780 Tulsa County Industrial Auth. 5.00% 11/15/2030 $ 2,014
----------
11,644
----------
PENNSYLVANIA (5.7%)
1,410 Allegheny County Higher Education Building
Auth. (PRE) 5.13 3/01/2025 1,598
820 Allegheny County IDA 5.00 9/01/2021 821
1,220 Allegheny County IDA 5.10 9/01/2026 1,221
1,500 Allegheny County Sanitary Auth. (INS) 4.00 12/01/2033 1,615
1,475 Allegheny County Sanitary Auth. (INS) 4.00 12/01/2034 1,580
3,000 Bethlehem Auth. (INS) 5.00 11/15/2030 3,384
1,885 Butler County Hospital Auth. 5.00 7/01/2035 2,093
1,000 Chester County IDA 5.00 10/01/2034 1,074
2,750 Chester County IDA 5.13 10/15/2037 2,806
5,000 Commonwealth Financing Auth. 5.00 6/01/2034 5,784
6,500 Cumberland County Municipal Auth. 4.00 12/01/2026 6,755
2,000 Dauphin County General Auth. 4.00 6/01/2030 2,141
1,000 Dauphin County General Auth. 4.00 6/01/2031 1,064
1,000 Delaware County Auth. 5.00 10/01/2025 1,085
3,000 Delaware River Joint Toll Bridge Commission 5.00 7/01/2034 3,535
2,720 Delaware River Port Auth. 5.00 1/01/2025 3,039
13,000 Economic Dev. Financing Auth. 4.00 10/01/2023 13,955
1,730 Higher Educational Facilities Auth. 5.25 7/15/2025 1,963
2,020 Higher Educational Facilities Auth. 5.25 7/15/2026 2,278
2,125 Higher Educational Facilities Auth. 5.25 7/15/2027 2,382
2,245 Higher Educational Facilities Auth. 5.25 7/15/2028 2,516
2,415 Higher Educational Facilities Auth. 5.00 7/15/2030 2,650
1,625 Higher Educational Facilities Auth. (PRE) 5.00 7/01/2032 1,892
1,965 Higher Educational Facilities Auth. 5.25 7/15/2033 2,160
5,000 Luzerne County (INS) 5.00 11/15/2029 5,639
1,200 Montgomery County IDA 5.00 11/15/2023 1,347
2,750 Montgomery County IDA 5.00 11/15/2024 3,069
1,000 Montour School District (INS) 5.00 4/01/2033 1,168
1,500 Montour School District (INS) 5.00 4/01/2034 1,745
1,500 Montour School District (INS) 5.00 4/01/2035 1,741
1,525 Northeastern Hospital and Education Auth. 5.00 3/01/2037 1,679
9,895 Philadelphia School District 5.00 9/01/2031 11,153
5,000 Philadelphia School District 5.00 9/01/2032 5,607
4,000 Philadelphia School District 5.00 9/01/2033 4,463
5,100 Philadelphia School District 5.00 9/01/2034 5,665
1,250 Public School Building Auth. 5.00 4/01/2023 1,394
10,000 Public School Building Auth. 5.00 6/01/2029 11,298
6,100 Public School Building Auth. (INS) 5.00 6/01/2031 6,972
15,380 Public School Building Auth. (INS) 4.00 12/01/2031 16,214
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 Reading School District (INS) 5.00% 3/01/2036 $ 2,312
1,500 Reading School District (INS) 5.00 3/01/2037 1,731
3,500 Turnpike Commission 5.00 12/01/2032 3,985
1,500 Turnpike Commission 5.00 12/01/2032 1,695
7,145 Turnpike Commission 5.00 12/01/2033 8,085
4,345 Turnpike Commission 5.00 12/01/2033 4,884
25,000 Turnpike Commission 4.00 6/01/2034 25,851
6,250 Turnpike Commission 5.00 12/01/2034 7,044
2,000 Turnpike Commission 5.00 12/01/2034 2,332
3,000 Turnpike Commission 5.00 12/01/2034 3,381
10,655 Turnpike Commission 5.00 6/01/2035 11,983
5,700 Turnpike Commission 5.00 12/01/2035 6,411
2,000 Turnpike Commission 5.00 12/01/2035 2,327
3,320 Turnpike Commission 5.00 12/01/2035 3,734
8,255 Turnpike Commission 5.00 6/01/2036 9,259
5,750 Turnpike Commission 5.00 6/01/2036 6,486
3,690 Turnpike Commission 5.00 12/01/2036 4,139
----------
254,184
----------
PUERTO RICO (0.1%)
2,600 Industrial, Tourist, Educational, Medical, and
Environmental Control Facilities Financing Auth. 5.00 4/01/2027 2,533
----------
RHODE ISLAND (0.4%)
2,000 Health and Educational Building Corp. (PRE) 6.00 9/01/2033 2,476
2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2028 2,248
2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2029 2,234
2,500 Tobacco Settlement Financing Corp. 5.00 6/01/2030 2,778
1,350 Turnpike and Bridge Auth. 5.00 10/01/2033 1,568
4,345 Turnpike and Bridge Auth. 5.00 10/01/2035 5,011
----------
16,315
----------
SOUTH CAROLINA (1.2%)
5,000 Lexington County Health Services District, Inc. 5.00 11/01/2024 5,018
7,335 Lexington County Health Services District, Inc. 5.00 11/01/2026 7,361
7,200 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 7,917
2,700 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 2,969
9,835 Public Service Auth. 5.00 12/01/2034 11,166
7,000 Public Service Auth. 5.00 12/01/2035 7,930
8,500 Public Service Auth. 5.00 12/01/2036 9,602
----------
51,963
----------
SOUTH DAKOTA (0.0%)
1,700 Health and Educational Facilities Auth. 5.00 11/01/2024 1,820
----------
================================================================================
24 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TENNESSEE (0.3%)
$ 5,000 Davidson County Health and Educational
Facilities Board 5.00% 7/01/2035 $ 5,678
5,110 Jackson Health, Educational, and Housing
Facility Board (PRE) 5.25 4/01/2023 5,224
1,890 Jackson Health, Educational, and Housing
Facility Board 5.25 4/01/2023 1,929
----------
12,831
----------
TEXAS (9.0%)
550 Austin Convention Enterprises, Inc. 5.00 1/01/2034 611
1,105 Austin Convention Enterprises, Inc. 5.00 1/01/2034 1,261
2,650 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2027 2,655
2,740 Board of Managers, Joint Guadalupe
County - City of Seguin Hospital 5.00 12/01/2025 2,949
2,990 Board of Managers, Joint Guadalupe
County - City of Seguin Hospital 5.00 12/01/2027 3,175
1,640 Board of Managers, Joint Guadalupe
County - City of Seguin Hospital 5.00 12/01/2028 1,742
1,600 Board of Managers, Joint Guadalupe
County - City of Seguin Hospital 5.00 12/01/2029 1,693
1,700 Board of Managers, Joint Guadalupe
County - City of Seguin Hospital 5.00 12/01/2030 1,793
5,150 Board of Managers, Joint Guadalupe
County - City of Seguin Hospital 5.25 12/01/2035 5,484
4,240 Boerne ISD (NBGA) 3.66(b) 2/01/2026 3,232
700 Central Regional Mobility Auth. 5.00 1/01/2021 775
500 Central Regional Mobility Auth. 5.00 1/01/2022 566
885 Central Regional Mobility Auth. 5.90(b) 1/01/2022 798
500 Central Regional Mobility Auth. 5.00 1/01/2023 577
7,000 Central Regional Mobility Auth. 6.25(b) 1/01/2024 5,908
2,500 Central Regional Mobility Auth. (PRE) 5.75 1/01/2025 2,755
2,535 Central Regional Mobility Auth. 6.50(b) 1/01/2026 1,976
3,500 Central Regional Mobility Auth. 5.00 1/01/2033 3,838
1,250 Central Regional Mobility Auth. 5.00 1/01/2034 1,422
1,100 Central Regional Mobility Auth. 5.00 1/01/2035 1,246
1,300 Clifton Higher Education Finance Corp. (NBGA) 4.00 8/15/2032 1,409
1,800 Corpus Christi Utility System 4.00 7/15/2032 1,940
1,100 Corpus Christi Utility System 4.00 7/15/2033 1,177
1,050 Corpus Christi Utility System 4.00 7/15/2034 1,118
1,000 Corpus Christi Utility System 4.00 7/15/2035 1,062
2,000 Dallas/Fort Worth International Airport 5.25 11/01/2028 2,370
7,500 Dallas/Fort Worth International Airport 5.25 11/01/2029 8,895
1,000 Decatur Hospital Auth. 5.25 9/01/2029 1,095
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,000 Decatur Hospital Auth. 5.00% 9/01/2034 $ 1,066
1,215 Downtown Redevelopment Auth. (INS) 5.00 9/01/2029 1,389
1,380 Downtown Redevelopment Auth. (INS) 5.00 9/01/2030 1,571
2,000 Downtown Redevelopment Auth. (INS) 5.00 9/01/2031 2,267
1,500 Downtown Redevelopment Auth. (INS) 5.00 9/01/2032 1,692
2,680 Downtown Redevelopment Auth. (INS) 5.00 9/01/2033 3,003
4,710 Harris County Cultural Education Facilities
Finance Corp. 5.00 12/01/2027 5,336
1,400 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/202 1,5468
40,000 Harris County IDC (PRE) 5.00 2/01/2023 43,382
750 Harris County Municipal Utility District (INS) 5.00 3/01/2030 880
2,030 Harris County Municipal Utility District (INS) 5.00 3/01/2031 2,369
2,500 Harris County Municipal Utility District (INS) 5.00 3/01/2032 2,903
6,500 Houston 0.95 10/12/2017 6,500
10,000 Houston 0.95 10/31/2017 10,000
5,615 Houston 5.00 9/01/2032 6,399
5,345 Houston 5.00 9/01/2033 6,062
2,150 Houston 5.00 9/01/2034 2,430
1,575 Houston 5.00 9/01/2035 1,776
4,000 Houston Airport System 5.00 7/01/2024 4,119
7,000 Houston Airport System 5.00 7/01/2025 7,208
2,300 Houston Convention & Entertainment Facilities
Department 5.00 9/01/2029 2,648
1,000 Houston Convention & Entertainment Facilities
Department 5.00 9/01/2030 1,148
3,850 Houston Higher Education Finance Corp. 5.25 9/01/2031 4,300
4,075 Houston Higher Education Finance Corp. 5.25 9/01/2032 4,537
4,000 Karnes County Hospital District 5.00 2/01/2029 4,342
4,000 Karnes County Hospital District 5.00 2/01/2034 4,261
740 Laredo Waterworks and Sewer System 4.00 3/01/2032 796
1,000 Laredo Waterworks and Sewer System 4.00 3/01/2033 1,068
1,000 Laredo Waterworks and Sewer System 4.00 3/01/2034 1,062
1,500 Laredo Waterworks and Sewer System 4.00 3/01/2036 1,581
255 Marlin ISD Public Facility Corp.(c) 5.85 2/15/2018 260
3,100 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2026 3,471
1,075 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2035 1,121
2,155 New Braunfels ISD (NBGA) 3.04(b) 2/01/2023 1,887
7,500 New Hope Cultural Education Facilities Corp. 5.00 7/01/2030 8,371
1,000 New Hope Cultural Education Facilities Corp. 5.00 11/01/2031 1,108
9,000 New Hope Cultural Education Facilities Corp. 5.00 7/01/2035 9,877
1,475 New Hope Cultural Education Facilities Corp. 4.00 11/01/2036 1,448
1,635 Newark Higher Education Finance Corp. 4.00 4/01/2032 1,723
2,000 Newark Higher Education Finance Corp. 4.00 4/01/2033 2,092
================================================================================
26 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 4,470 Newark Higher Education Finance Corp. 4.00% 4/01/2034 $ 4,657
1,650 Newark Higher Education Finance Corp. 4.00 4/01/2035 1,715
2,150 Newark Higher Education Finance Corp. 4.00 4/01/2036 2,227
7,000 North East Texas Regional Mobility Auth. 5.00 1/01/2036 7,821
5,485 North East Texas Regional Mobility Auth. 5.00 1/01/2036 6,029
310 North Texas Tollway Auth. 6.00 1/01/2023 314
2,190 North Texas Tollway Auth. (PRE) 6.00 1/01/2023 2,218
15,000 North Texas Tollway Auth. 6.00 1/01/2025 15,925
20,000 North Texas Tollway Auth. (INS) 3.85(b) 1/01/2029 14,384
1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,725
8,000 North Texas Tollway Auth. 5.00 1/01/2032 9,210
1,515 North Texas Tollway Auth. 5.00 1/01/2034 1,760
7,500 North Texas Tollway Auth. 5.00 1/01/2034 8,487
2,230 Permanent Univ. Fund 5.00 7/01/2032 2,643
3,250 Permanent Univ. Fund 5.00 7/01/2033 3,835
2,500 Permanent Univ. Fund 5.00 7/01/2034 2,938
9,205 Sabine River Auth. (INS) 4.95 3/01/2018 9,336
2,000 Tarrant County Cultural Education Facilities
Finance Corp. 3.88 11/15/2022 2,035
1,645 Tarrant County Cultural Education Facilities
Finance Corp. (PRE) 5.25 11/15/2022 1,654
2,105 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2022 2,117
2,145 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2030 2,508
2,250 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2031 2,619
2,365 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2032 2,737
2,175 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2037 2,467
5,000 Tarrant County Cultural Education Facilities
Finance Corp. 6.63 11/15/2037 5,431
7,235 Transportation Commission 5.00 10/01/2026 9,009
10,000 Transportation Commission 5.00 8/15/2033 11,234
8,500 Transportation Commission 5.00 8/15/2034 9,515
6,969 Trophy Club Public Improvement District No. 1 (INS) 5.00 6/01/2033 7,826
3,360 Tyler Health Facilities Dev. Corp. 5.25 11/01/2022 3,363
3,800 Tyler Health Facilities Dev. Corp. 5.25 11/01/2023 3,803
10,000 Tyler Health Facilities Dev. Corp. (PRE) 5.50 7/01/2027 11,499
----------
405,562
----------
U.S. VIRGIN ISLANDS (0.2%)
6,500 Public Finance Auth.(a) 5.00 9/01/2030 7,234
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
UTAH (0.3%)
$ 18,631 Jordanelle Special Service District(a),(c),(h) 12.00% 8/01/2030 $ 13,973
----------
VERMONT (0.3%)
9,000 EDA 5.00 12/15/2020 9,965
2,500 Educational and Health Buildings Financing Agency 5.00 12/01/2036 2,818
----------
12,783
----------
VIRGINIA (1.2%)
1,875 College Building Auth. 5.00 6/01/2021 1,875
11,280 College Building Auth. 5.00 6/01/2026 11,026
10,000 College Building Auth. 4.00 2/01/2034 10,834
5,000 College Building Auth. 4.00 2/01/2036 5,367
2,150 Fairfax County Economic Dev. Auth. 5.00 10/01/2036 2,390
14,924 Farms of New Kent Community Dev. Auth.(c),(h),(l) 5.13 3/01/2036 3,729
10,000 Roanoke County EDA 5.00 7/01/2025 10,955
750 Stafford County EDA 5.00 6/15/2033 845
2,620 Stafford County EDA 5.00 6/15/2034 2,942
1,930 Stafford County EDA 5.00 6/15/2035 2,161
----------
52,124
----------
WASHINGTON (0.3%)
3,090 Health Care Facilities Auth. 5.00 8/15/2033 3,524
3,470 Health Care Facilities Auth. 5.00 8/15/2034 3,942
5,000 Tobacco Settlement Auth. 5.25 6/01/2031 5,378
----------
12,844
----------
WEST VIRGINIA (0.2%)
1,850 Hospital Finance Auth. 5.00 6/01/2033 2,118
2,970 Hospital Finance Auth. 5.00 6/01/2034 3,375
2,405 Hospital Finance Auth. 5.00 6/01/2035 2,726
----------
8,219
----------
WISCONSIN (0.6%)
1,500 Health and Educational Facilities Auth. (PRE) 5.00 8/15/2026 1,757
2,000 Health and Educational Facilities Auth. 5.00 7/15/2028 2,198
1,935 Health and Educational Facilities Auth. (PRE) 5.00 8/15/2029 2,266
5,000 Health and Educational Facilities Auth. 5.13 4/15/2031 5,561
1,000 Health and Educational Facilities Auth. 5.00 8/15/2034 1,123
9,830 Health and Educational Facilities Auth. 4.00 11/15/2036 10,200
1,250 Public Finance Auth.(a) 3.95 11/15/2024 1,275
1,500 Public Finance Auth. 4.05 11/01/2030 1,558
1,000 Public Finance Auth.(a) 5.25 5/15/2037 1,076
----------
27,014
----------
Total Fixed-Rate Instruments (cost: $3,612,459) 3,755,651
----------
================================================================================
28 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
PUT BONDS (6.0%)
ARIZONA (1.1%)
$ 16,000 Health Facilities Auth., MUNIPSA + 1.85% 2.79%(i) 2/01/2048 $ 16,286
30,000 Health Facilities Auth., MUNIPSA + 1.85% 2.79(i) 2/01/2048 30,478
----------
46,764
----------
ARKANSAS (0.6%)
29,000 Dev. Finance Auth., MUNIPSA + 1.55% 2.49(i) 9/01/2044 28,794
----------
CALIFORNIA (0.8%)
10,000 Bay Area Toll Auth., MUNIPSA + 0.9% 1.84(i) 4/01/2045 10,090
17,000 Bay Area Toll Auth., MUNIPSA + 1.1% 2.04(i) 4/01/2045 17,299
8,500 Health Facilities Financing Auth. 2.00 10/01/2036 8,376
----------
35,765
----------
FLORIDA (0.4%)
16,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 16,386
----------
INDIANA (0.1%)
4,000 Rockport Pollution Control 1.75 6/01/2025 4,003
----------
LOUISIANA (0.4%)
16,750 St. Charles Parish 4.00 12/01/2040 17,716
----------
MASSACHUSETTS (0.1%)
6,000 Dev. Finance Agency (PRE) 5.75 12/01/2042 6,447
----------
MICHIGAN (0.3%)
15,000 Hospital Finance Auth. 6.00 12/01/2034 15,131
----------
MISSISSIPPI (0.1%)
1,250 Hospital Equipment and Facilities Auth. 1.55 9/01/2018 1,250
2,400 Hospital Equipment and Facilities Auth. 1.55 9/01/2022 2,399
----------
3,649
----------
NEW JERSEY (0.2%)
10,000 Transportation Trust Fund Auth., MUNIPSA + 1.2% 2.14(i) 6/15/2034 9,909
----------
NEW MEXICO (0.8%)
12,000 Farmington 1.88 4/01/2033 11,952
20,000 Farmington 5.20 6/01/2040 21,770
----------
33,722
----------
OHIO (0.3%)
30,000 Water Dev. Auth. 4.00 12/01/2033 13,725
----------
PENNSYLVANIA (0.4%)
8,800 Beaver County IDA 2.70 4/01/2035 4,026
11,000 Berks County Municipal Auth., MUNIPSA + 1.5% 2.44 (i) 11/01/2039 11,069
8,750 Economic Dev. Financing Auth. 2.55 11/01/2041 4,003
----------
19,098
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TEXAS (0.4%)
$14,935 San Antonio Housing Trust Finance Corp.
(NBGA) 3.50% 4/01/2043 $ 15,478
----------
Total Put Bonds (cost: $287,119) 266,587
----------
ADJUSTABLE-RATE NOTES (0.4%)
NEW JERSEY (0.4%)
10,000 EDA, MUNIPSA + 1.55% 2.49(i) 9/01/2027 9,752
10,000 EDA, MUNIPSA + 1.6% 2.54(i) 3/01/2028 9,709
----------
19,461
----------
Total Adjustable-Rate Notes (cost: $20,000) 19,461
----------
VARIABLE-RATE DEMAND NOTES (8.8%)
CALIFORNIA (0.3%)
2,150 Infrastructure and Economic Dev. Bank
(LOC - California Bank & Trust) 1.04(k) 10/01/2028 2,150
5,355 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.05(k) 12/01/2030 5,355
4,710 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.44(k) 5/01/2040 4,710
----------
12,215
----------
DISTRICT OF COLUMBIA (0.5%)
20,560 District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19(k) 10/01/2041 20,560
----------
FLORIDA (0.5%)
5,000 Escambia County 0.99(k) 4/01/2039 5,000
2,500 Manatee County 0.98(k) 9/01/2024 2,500
13,350 St. Lucie County 0.99(k) 9/01/2028 13,350
----------
20,850
----------
GEORGIA (0.8%)
9,000 Burke County Dev. Auth. 1.04(k) 10/01/2032 9,000
23,340 Burke County Dev. Auth. 1.04(k) 7/01/2049 23,340
4,400 Heard County Dev. Auth. 1.04(k) 9/01/2029 4,400
----------
36,740
----------
IDAHO (0.1%)
6,245 Housing and Finance Association(j) 1.02(k) 1/01/2038 6,245
----------
ILLINOIS (1.0%)
7,000 Chicago Board of Education (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.27(k) 12/01/2039 7,000
10,200 Chicago Park District (INS) (LIQ)(a) 1.24(k) 1/01/2022 10,200
2,990 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19(k) 4/01/2037 2,990
================================================================================
30 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$25,995 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19%(k) 2/01/2039 $ 25,995
----------
46,185
----------
KENTUCKY (0.5%)
10,125 Economic Dev. Finance Auth. 1.25(k) 5/01/2034 10,125
10,000 Economic Dev. Finance Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.11(k) 1/01/2045 10,000
----------
20,125
----------
LOUISIANA (1.7%)
1,900 East Baton Rouge Parish 0.98(k) 11/01/2019 1,900
8,090 Public Facilities Auth. 0.95(k) 5/01/2042 8,090
30,000 St. James Parish 1.05(k) 11/01/2040 30,000
35,100 St. James Parish 1.05(k) 11/01/2040 35,100
----------
75,090
----------
MISSISSIPPI (0.0%)
1,500 Business Finance Corp. 0.94(k) 12/01/2030 1,500
----------
NEW YORK (0.1%)
4,100 New York City (LOC - Mizuho Corporate Bank Ltd.) 1.01(k) 10/01/2040 4,100
----------
OKLAHOMA (0.5%)
8,300 Garfield County Industrial Auth. 0.94(k) 1/01/2025 8,300
14,310 Muskogee Industrial Trust 0.97(k) 1/01/2025 14,310
----------
22,610
----------
PENNSYLVANIA (0.1%)
5,360 Emmaus General Auth. (INS) (LIQ) 0.97(k) 12/01/2028 5,360
----------
SOUTH CAROLINA (0.3%)
15,055 Jobs EDA (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.01(k) 11/01/2029 15,055
----------
SOUTH DAKOTA (0.3%)
13,210 Health and Educational Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.01(k) 11/01/2040 13,210
----------
TENNESSEE (0.4%)
18,300 Chattanooga Health, Educational and Housing
Facilities Board 1.40(k) 5/01/2039 18,300
----------
TEXAS (1.7%)
23,170 Port of Port Arthur Navigation District 1.41(k) 4/01/2040 23,170
9,000 Port of Port Arthur Navigation District 1.41(k) 4/01/2040 9,000
17,050 Port of Port Arthur Navigation District 1.41(k) 11/01/2040 17,050
25,720 Port of Port Arthur Navigation District 1.41(k) 11/01/2040 25,720
----------
74,940
----------
Total Variable-Rate Demand Notes (cost: $393,085) 393,085
----------
TOTAL INVESTMENTS (COST: $4,312,663) $4,434,784
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $3,751,922 $3,729 $3,755,651
Put Bonds - 266,587 - 266,587
Adjustable-Rate Notes - 19,461 - 19,461
Variable-Rate Demand Notes - 393,085 - 393,085
-----------------------------------------------------------------------------------------------------------------------
Total $- $4,431,055 $3,729 $4,434,784
-----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
<CPATION>
-----------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) FIXED-RATE INSTRUMENTS
-----------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2017 $12,111
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (8,382)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
-----------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2017 $ 3,729
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
-----------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2017, through September 30, 2017, the table below
shows the transfers between Level 1, Level 2, and Level 3. 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.
TRANSFERS TRANSFERS TRANSFERS
INTO (OUT OF) INTO (OUT OF) INTO (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
-----------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments(I) $- $8,382 $(8,382)
-----------------------------------------------------------------------------------------------------------------------
Total $- $8,382 $(8,382)
-----------------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 3 to Level 2 due to the availability of significant
observable inputs.
================================================================================
32 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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, 2017, was $18,248,000, which represented 0.4% of the Fund's
net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
(d) Pay-in-kind (PIK) - security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments in
additional securities in lieu of cash.
(e) Up to 6.05% of the coupon may be PIK.
(f) At September 30, 2017, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(g) At September 30, 2017, the aggregate market value of securities purchased
on a delayed-delivery basis was $3,335,000, of which all were when-issued
securities.
(h) At September 30, 2017, the issuer was in default with respect to interest
and/or principal payments.
(i) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2017.
(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.
(k) Variable-rate demand notes - interest rate is determined by the issuer or
agent based on current market conditions, and is not based on a published
reference rate and spread. These securities do not indicate a reference
rate and spread in their description.
(l) Security was fair valued at Level 3.
See accompanying notes to financial statements.
================================================================================
34 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $4,312,663) $4,434,784
Cash 3,367
Receivables:
Capital shares sold 5,472
USAA Asset Management Company (Note 6C) 6
Interest 48,961
----------
Total assets 4,492,590
----------
LIABILITIES
Payables:
Securities purchased 6,648
Capital shares redeemed 3,511
Dividends on capital shares 1,503
Accrued management fees 1,167
Accrued transfer agent's fees 73
Other accrued expenses and payables 363
----------
Total liabilities 13,265
----------
Net assets applicable to capital shares outstanding $4,479,325
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,403,718
Overdistribution of net investment income (135)
Accumulated net realized loss on investments (46,379)
Net unrealized appreciation of investments 122,121
----------
Net assets applicable to capital shares outstanding $4,479,325
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $4,444,459/333,377 capital shares
outstanding, no par value) $ 13.33
==========
Adviser Shares (net assets of $34,866/2,615 capital shares
outstanding, no par value) $ 13.33
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 80,486
--------
EXPENSES
Management fees 6,320
Administration and servicing fees:
Fund Shares 3,286
Adviser Shares 27
Transfer agent's fees:
Fund Shares 740
Adviser Shares 12
Distribution and service fees (Note 6E):
Adviser Shares 45
Custody and accounting fees:
Fund Shares 253
Adviser Shares 2
Postage:
Fund Shares 43
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 34
Trustees' fees 16
Registration fees:
Fund Shares 95
Adviser Shares 17
Professional fees 186
Other 33
--------
Total expenses 11,110
Expenses reimbursed:
Adviser Shares (13)
--------
Net expenses 11,097
--------
NET INVESTMENT INCOME 69,389
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss (1,011)
Change in net unrealized appreciation/(depreciation) 86,050
--------
Net realized and unrealized gain 85,039
--------
Increase in net assets resulting from operations $154,428
========
See accompanying notes to financial statements.
================================================================================
36 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
--------------------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 69,389 $ 141,310
Net realized loss on investments (1,011) (12,376)
Change in net unrealized appreciation/(depreciation)
of investments 86,050 (178,556)
------------------------
Increase (decrease) in net assets resulting from operations 154,428 (49,622)
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (69,072) (140,009)
Adviser Shares (521) (1,257)
------------------------
Distributions to shareholders (69,593) (141,266)
------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 79,449 137,392
Adviser Shares (3,202) (2,675)
------------------------
Total net increase in net assets from capital
share transactions 76,247 134,717
------------------------
Net increase (decrease) in net assets 161,082 (56,171)
NET ASSETS
Beginning of period 4,318,243 4,374,414
------------------------
End of period $4,479,325 $4,318,243
========================
Undistributed (overdistribution of) net investment income:
End of period $ (135) $ 69
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA Tax Exempt Intermediate-Term Fund (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 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
================================================================================
38 | 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 backtesting 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 ask 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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.
================================================================================
40 | 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.
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
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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, 2017, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $3,345,000, of which all 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, 2017, there were no custodian and other bank credits.
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.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide
================================================================================
42 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
temporary or emergency cash needs, including redemption requests that might
otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $15,000, which represents 6.4% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had net capital loss carryforwards of $45,297,000,
for federal income tax purposes, as shown in the table below. It
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 $18,758,000
Long-Term 26,539,000
-----------
Total $45,297,000
===========
For the six-month period ended September 30, 2017, 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, 2017, were
$238,610,000 and $264,458,000, respectively.
As of September 30, 2017, 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, 2017, were $184,377,000 and $62,256,000, respectively, resulting in net
unrealized appreciation of $122,121,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
44 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2017 MARCH 31, 2017
----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 25,249 $ 335,154 72,691 $ 979,119
Shares issued from
reinvested dividends 4,582 60,870 9,157 122,902
Shares redeemed (23,862) (316,575) (72,714) (964,629)
--------------------------------------------------
Net increase from capital
share transactions 5,969 $ 79,449 9,134 $ 137,392
==================================================
ADVISER SHARES:
Shares sold 89 $ 1,177 1,406 $ 19,057
Shares issued from
reinvested dividends 31 413 75 1,019
Shares redeemed (362) (4,792) (1,714)* (22,751)*
--------------------------------------------------
Net decrease from capital
share transactions (242) $ (3,202) (233) $ (2,675)
==================================================
*Net of redemption fees.
(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.
The performance adjustment for each share class is calculated monthly by
comparing the Fund's performance to that of the Lipper Intermediate Municipal
Debt Funds Index. The Lipper Intermediate Municipal Debt Funds Index tracks
the total return performance of funds within the Lipper Intermediate
Municipal Debt Funds category.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $6,320,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$137,000 and $(3,000), 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
================================================================================
46 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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, 2017, the Fund
Shares and Adviser Shares incurred administration and servicing fees, paid or
payable to the Manager, of $3,286,000 and $27,000, 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, 2017, the Fund reimbursed the Manager
$54,000 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 July 31, 2018, to limit the
total annual operating expenses of the Adviser Shares to 0.75% 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 July 31, 2018, without approval of the
Board, and may be changed or terminated by the Manager at any time after that
date. Prior to August 1, 2017, the Adviser Shares' expense limitation was
0.80% of average net assets. For the six-month period ended September 30,
2017, the Adviser Shares incurred reimbursable expenses of $13,000, of which
$6,000 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 intermediaries. For the
six-month period ended September 30, 2017, the Fund Shares and Adviser Shares
incurred transfer agent's fees, paid or payable to SAS, of $740,000 and
$12,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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, 2017, the Adviser Shares incurred distribution and
service (12b-1) fees of $45,000.
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,
2017, USAA and its affiliates owned 377,833 Adviser Shares, which represents
14.4% 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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
================================================================================
48 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.08 $ 13.61 $ 13.59 $ 13.36 $ 13.75 $ 13.41
-------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .42 .44 .45 .50 .50
Net realized and
unrealized gain (loss) .25 (.53) .02 .23 (.39) .34
-------------------------------------------------------------------------------------------
Total from investment
operations .46 (.11) .46 .68 .11 .84
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.42) (.44) (.45) (.50) (.50)
-------------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests _ .00(a) _ _ _ _
-------------------------------------------------------------------------------------------
Net asset value at end
of period $ 13.33 $ 13.08 $ 13.61 $ 13.59 $ 13.36 $ 13.75
===========================================================================================
Total return (%)* 3.53 (.84) 3.48 5.14 .85 6.31
Net assets at end
of period (000) $4,444,459 $4,280,892 $4,332,360 $3,894,482 $3,381,571 $3,387,366
Ratios to average
net assets:**
Expenses (%)(b) .50(c) .52 .54 .55 .55 .54
Net investment income (%) 3.14(c) 3.13 3.28 3.31 3.72 3.63
Portfolio turnover (%) 6 16 10 4 10 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, 2017, average net assets were
$4,370,903,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
50 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.07 $ 13.61 $ 13.58 $ 13.36 $ 13.75 $ 13.41
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .38 .41 .42 .47 .47
Net realized and
unrealized gain (loss) .26 (.54) .03 .22 (.39) .34
----------------------------------------------------------------------------------------
Total from investment
operations .45 (.16) .44 .64 .08 .81
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.38) (.41) (.42) (.47) (.47)
----------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests - .00(a) .00(a) - - -
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.33 $ 13.07 $ 13.61 $ 13.58 $ 13.36 $ 13.75
========================================================================================
Total return (%)* 3.46 (1.19) 3.28 4.81 .64 6.10
Net assets at end
of period (000) $34,866 $37,351 $42,054 $36,848 $20,166 $ 7,451
Ratios to average
net assets:**
Expenses (%)(b) .78(c)(e) .80 .80 .79(d) .75 .75
Expenses, excluding
reimbursements (%)(b) .86(e) .83 .88 .88 .96 1.14
Net investment income (%) 2.86(e) 2.84 3.02 3.06 3.51 3.41
Portfolio turnover (%) 6 16 10 4 10 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, 2017, average net assets were
$36,228,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets
(c) Effective August 1, 2017, the Manager agreed to limit the annual expense of
the Adviser Shares to 0.75% of the Adviser Shares' average net assets. Prior
to this date, the voluntary expense limit was 0.80%.
(d) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.75% of the Adviser Shares'
average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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 estimate the
================================================================================
52 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,035.30 $2.55
Hypothetical
(5% return before expenses) 1,000.00 1,022.56 2.54
ADVISER SHARES
Actual 1,000.00 1,034.60 3.98
Hypothetical
(5% return before expenses) 1,000.00 1,021.16 3.95
*Expenses are equal to the annualized expense ratio of 0.50% for Fund Shares and
0.78% for Adviser Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 183 days/365 days (to reflect the one-half-year period). The Fund's actual
ending account values are based on its actual total returns of 3.53% for Fund
Shares and 3.46% for Adviser Shares for the six-month period of April 1, 2017,
through September 30, 2017.
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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 INTERMEDIATE-TERM FUND
================================================================================
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, shareholder 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
================================================================================
ADVISORY AGREEMENT | 55
================================================================================
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 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 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
================================================================================
56 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 below the average of its performance universe and its Lipper
index for the one-year period ended December 31, 2016 and was above the average
of its performance universe and its Lipper index for the three-, five-, and
ten-year periods ended December 31, 2016. The Board also noted that the Fund's
percentile performance ranking was in the bottom 50% of its performance universe
for the one-year period ended December 31, 2016, was in the top 35% of its
performance universe for the three-year period ended December 31, 2016, was in
the top 10% of its performance universe for the five-year period ended December
31, 2016 and was in the top 15% of its performance universe for the ten-year
period ended December 31, 2016. The Board also took into account management's
discussion of the impact of market conditions on its recent performance.
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
================================================================================
ADVISORY AGREEMENT | 57
================================================================================
overall profitability of the management fee to the Manager, the Board also
considered the fact that the Manager and its 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 and other risks 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.
================================================================================
58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
39594-1117 (C)2017, 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 (USTEX) o ADVISER SHARES (UTELX)
SEPTEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 23
Financial Statements 25
Notes to Financial Statements 28
EXPENSE EXAMPLE 42
ADVISORY AGREEMENT 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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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 excludable from gross income for federal income tax purposes (referred
to herein as "tax-exempt securities"). 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.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income dividends will be tax-exempt and excludable from the
calculation of the federal alternative minimum tax (AMT) for individual
taxpayers. This policy may be changed only by a shareholder vote.
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
Escrowed Bonds .......................................................... 13.5%
Hospital ................................................................ 11.6%
Education ............................................................... 10.2%
Special Assessment/Tax/Fee .............................................. 9.2%
General Obligation ...................................................... 7.9%
Electric Utilities ...................................................... 7.2%
Toll Roads .............................................................. 6.0%
Airport/Port ............................................................ 5.4%
Nursing/CCRC ............................................................ 5.3%
Electric/Gas Utilities .................................................. 4.0%
You will find a complete list of securities that the Fund owns on pages 4-22.
================================================================================
2 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 2.2%
AA 33.0%
A 35.9%
BBB 19.0%
BELOW INVESTMENT-GRADE 4.5%
UNRATED 5.4%
[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 4-22.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (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
================================================================================
4 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
IDC Industrial Development Corp.
MTA Metropolitan Transportation Authority
MUNIPSA Securities Industry and Financial Markets Association
(SIFMA) Municipal Swap Index
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., 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., Barclays Bank plc,
Deutsche Bank A.G., JP Morgan Chase & Co., 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 the Texas Permanent School Fund.
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (86.2%)
ALABAMA (1.5%)
$ 4,245 Chatom IDB (INS) 5.00% 8/01/2037 $ 4,613
4,500 Homewood Educational Building Auth. 5.00 12/01/2047 5,109
11,500 Lower Alabama Gas District 5.00 9/01/2046 14,140
1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 1,923
7,000 Port Auth. (PRE) 6.00 10/01/2035 7,995
2,000 Selma IDB 5.80 5/01/2034 2,200
----------
35,980
----------
ARIZONA (2.8%)
5,000 Apache County IDA 4.50 3/01/2030 5,439
5,000 Goodyear 5.63 7/01/2039 5,559
6,000 Health Facilities Auth. 5.00 2/01/2042 6,361
7,000 Maricopa County 5.00 6/01/2035 7,574
1,600 Maricopa County IDA 5.00 7/01/2047 1,705
1,000 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2029 1,254
1,500 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2030 1,898
1,200 Phoenix IDA 5.00 7/01/2041 1,290
6,000 Phoenix IDA(a) 5.00 7/01/2044 6,388
3,000 Pima County IDA 4.00 9/01/2029 3,163
2,685 Pima County IDA 4.50 6/01/2030 2,915
3,000 Pima County IDA 5.25 10/01/2040 3,218
10,000 Pinal County Electrical District 4.00 7/01/2041 10,513
2,000 Yavapai County IDA (PRE) 5.63 8/01/2033 2,076
7,500 Yavapai County IDA (PRE) 5.63 8/01/2037 7,787
----------
67,140
----------
ARKANSAS (0.1%)
1,000 Dev. Finance Auth. (INS) 4.97(b) 7/01/2028 749
1,165 Dev. Finance Auth. (INS) 4.98(b) 7/01/2029 842
1,150 Dev. Finance Auth. (INS) 4.99(b) 7/01/2030 804
2,500 Dev. Finance Auth. (INS) 5.03(b) 7/01/2036 1,216
----------
3,611
----------
CALIFORNIA (8.1%)
1,000 Cerritos CCD 5.63(b) 8/01/2031 660
2,500 Cerritos CCD 5.67(b) 8/01/2032 1,577
2,175 Cerritos CCD 5.71(b) 8/01/2033 1,305
1,000 Cerritos CCD 5.76(b) 8/01/2034 572
1,500 Cerritos CCD 5.82(b) 8/01/2035 815
2,200 Cerritos CCD 5.88(b) 8/01/2036 1,134
8,500 Coachella Valley USD (INS) 5.95(b) 8/01/2041 3,345
================================================================================
6 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,700 Corona-Norco USD (INS) (PRE) 5.50% 8/01/2039 $ 7,259
3,000 El Camino CCD 5.08(b) 8/01/2034 1,737
3,000 El Camino CCD 5.24(b) 8/01/2038 1,403
10,000 El Monte Union High School District (INS) 5.75(b) 6/01/2042 3,903
2,500 Escondido Union High School District (INS) 5.00 6/01/2037 2,710
2,410 Golden State Tobacco Securitization (INS) 4.55 6/01/2022 2,465
5,000 Golden State Tobacco Securitization (INS) 4.60 6/01/2023 5,116
2,000 Golden State Tobacco Securitization 5.00 6/01/2030 2,312
1,000 Health Facilities Financing Auth. 5.00 11/15/2056 1,148
5,000 Indio Redevelopment Agency 5.25 8/15/2035 5,166
17,025 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 17,795
2,000 Jurupa Public Finance Auth. (INS) 5.00 9/01/2033 2,182
1,200 Los Alamitos USD, 5.95%, 8/01/2024 5.95(c) 8/01/2034 1,094
4,500 Los Alamitos USD, 6.05%, 8/01/2024 6.05(c) 8/01/2042 4,018
3,000 Monterey Peninsula USD (INS) (PRE) 5.50 8/01/2034 3,497
1,860 Paramount USD 6.82(b) 8/01/2034 1,007
2,000 Paramount USD 6.86(b) 8/01/2035 1,033
2,750 Paramount USD 6.88(b) 8/01/2036 1,338
2,750 Paramount USD 6.90(b) 8/01/2037 1,278
5,000 Pollution Control Financing Auth.(a) 5.00 7/01/2037 5,010
6,000 Pollution Control Financing Auth. 5.00 11/21/2045 6,012
2,500 Public Works Board 5.00 12/01/2029 2,835
2,000 Public Works Board (PRE) 5.00 10/01/2030 2,304
2,950 Public Works Board 5.00 6/01/2031 3,402
1,110 Public Works Board (PRE) 5.00 10/01/2031 1,279
2,000 Public Works Board 5.00 12/01/2031 2,259
3,500 Public Works Board 5.00 10/01/2039 4,045
2,560 Sacramento City Schools Joint Powers
Financing Auth. (INS) 5.00 3/01/2036 2,887
2,000 Sacramento City Schools Joint Powers
Financing Auth. (INS) 5.00 3/01/2040 2,249
2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 2,886
3,000 San Marcos Schools Financing Auth. (INS) (PRE) 5.00 8/15/2040 3,341
13,605 San Ysidro School District (INS) 5.58(b) 8/01/2036 6,819
14,285 San Ysidro School District (INS) 5.64(b) 8/01/2037 6,835
15,000 Santa Ana USD (INS) 5.45(b) 4/01/2029 10,595
5,000 Southern California Public Power Auth. 5.00 7/01/2040 5,458
300 State 4.50 8/01/2030 301
5,000 State 5.75 4/01/2031 5,360
3,695 State (PRE) 5.00 11/01/2032 3,709
320 State (PRE) 5.00 11/01/2032 321
1,985 State 5.00 11/01/2032 1,992
5,000 State (PRE) 5.00 12/01/2032 5,037
8,000 State 5.25 4/01/2035 9,314
6,750 State 5.00 2/01/2038 7,745
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 8,885 Stockton USD (INS) 7.33%(b) 8/01/2034 $ 4,943
2,500 Victor Elementary School District (INS) (PRE) 5.13 8/01/2034 2,691
5,180 Washington Township Health Care Dist. 5.25 7/01/2030 5,570
5,000 Washington Township Health Care Dist. 5.50 7/01/2038 5,362
----------
196,430
----------
COLORADO (1.4%)
2,000 E-470 Public Highway Auth. 5.38 9/01/2026 2,166
10,000 E-470 Public Highway Auth. (INS) 5.06(b) 9/01/2035 4,566
2,500 Educational and Cultural Facilities Auth. 5.25 4/01/2043 2,780
1,310 Health Facilities Auth. 5.00 6/01/2029 1,314
865 Health Facilities Auth. 5.25 6/01/2031 868
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 5,338
6,000 Health Facilities Auth. 5.00 6/01/2045 6,475
1,250 Health Facilities Auth. 5.00 6/01/2047 1,368
1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,079
5,000 Regional Transportation District 5.00 6/01/2044 5,626
----------
34,307
----------
CONNECTICUT (0.2%)
2,000 Health and Educational Facilities Auth. 5.00 7/01/2035 2,169
52,847 Mashantucket (Western) Pequot Tribe(d),(e) 6.05(f) 7/01/2031 2,021
----------
4,190
----------
DELAWARE (0.2%)
4,000 EDA 5.40 2/01/2031 4,365
----------
DISTRICT OF COLUMBIA (2.2%)
1,305 District of Columbia 5.00 7/01/2036 1,414
1,500 District of Columbia 5.00 7/01/2042 1,635
1,700 District of Columbia 6.00 7/01/2043 1,966
1,450 District of Columbia 6.00 7/01/2048 1,673
7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 7,799
5,000 Metropolitan Washington Airports Auth. 5.00 10/01/2039 5,485
10,000 Metropolitan Washington Airports Auth. 5.63 10/01/2039 10,424
10,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 10,801
10,000 Washington Convention & Sports Auth. 5.00 10/01/2040 10,894
----------
52,091
----------
FLORIDA (8.2%)
7,000 Atlantic Beach Health Care Facilities Auth. 5.63 11/15/2043 7,765
2,000 Brevard County Health Facilities Auth. (PRE) 7.00 4/01/2039 2,180
1,500 Broward County (PRE) 5.25 10/01/2034 1,565
350 Broward County School Board (INS) (PRE) 5.25 7/01/2027 376
================================================================================
8 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,000 Clearwater (PRE) 5.25% 12/01/2039 $ 2,184
5,675 Department of Children and Family Services 5.00 10/01/2025 5,693
1,500 Escambia County 6.25 11/01/2033 1,636
1,000 Escambia County Housing Finance Auth. (INS) (PRE) 5.75 6/01/2031 1,079
3,950 Gainesville 5.25 10/01/2034 4,387
3,000 Halifax Hospital Medical Center 5.00 6/01/2046 3,302
600 Higher Educational Facility Auth. 5.00 4/01/2032 663
1,500 Higher Educational Facility Auth. 5.25 4/01/2042 1,671
2,270 Jacksonville 5.00 10/01/2029 2,580
500 Lakeland Educational Facility 5.00 9/01/2037 547
1,000 Lakeland Educational Facility 5.00 9/01/2042 1,090
4,000 Lee County IDA 5.75 10/01/2042 4,217
5,000 Lee County IDA 5.50 10/01/2047 5,230
1,500 Miami (INS) 5.00 10/01/2034 1,594
13,125 Miami (INS) 5.25 7/01/2035 14,169
4,000 Miami (INS) 5.25 7/01/2039 4,318
2,000 Miami Beach 5.00 9/01/2040 2,174
525 Miami-Dade County (PRE) 5.00 10/01/2029 585
6,350 Miami-Dade County 5.00 10/01/2029 7,013
3,950 Miami-Dade County 5.00 10/01/2034 4,357
23,205 Miami-Dade County 5.38 10/01/2035 25,647
5,000 Miami-Dade County 5.00 7/01/2039 5,659
5,000 Miami-Dade County 5.00 7/01/2040 5,437
1,750 Miami-Dade County 5.00 10/01/2043 1,983
2,000 Miami-Dade County Health Facilities Auth. 4.00 8/01/2047 2,039
5,000 Miami-Dade County School Board (INS) (PRE) 5.25 2/01/2027 5,283
5,000 Miami-Dade County School Board (INS) (PRE) 5.00 5/01/2033 5,119
2,500 Municipal Loan Council (INS) 5.25 10/01/2033 2,817
3,000 Orange County Health Facilities Auth. (PRE) 5.25 10/01/2035 3,129
1,500 Orange County Health Facilities Auth. 4.00 10/01/2045 1,525
10,000 Orange County School Board (INS) (PRE) 5.50 8/01/2034 10,826
2,000 Orlando-Orange County Expressway Auth. (PRE) 5.00 7/01/2035 2,210
4,745 Orlando-Orange County Expressway Auth. (PRE) 5.00 7/01/2035 5,243
1,255 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 1,371
5,000 Palm Beach County Health Facilities Auth. 5.00 5/15/2041 5,531
155 Palm Beach County Solid Waste Auth. (PRE) 5.00 10/01/2031 178
9,845 Palm Beach County Solid Waste Auth. 5.00 10/01/2031 11,178
1,000 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,080
1,000 Pinellas County Educational Facilities Auth. 5.25 10/01/2030 1,082
3,650 Pinellas County Educational Facilities Auth.(g) 6.00 10/01/2041 4,060
1,000 Sarasota County Public Hospital District 5.63 7/01/2039 1,057
3,000 St. Petersburg Health Facilities Auth. (PRE) 6.50 11/15/2039 3,343
2,200 Tampa Housing Auth. 4.85 7/01/2036 2,204
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,050 Tampa-Hillsborough County Expressway Auth. 5.00% 7/01/2042 $ 3,428
2,350 Volusia County Educational Facilities Auth.
(INS) (PRE) 5.00 10/15/2029 2,698
2,000 Volusia County Educational Facilities Auth. 5.00 10/15/2045 2,232
----------
196,734
----------
GEORGIA (1.1%)
3,500 Atlanta Airport 5.00 1/01/2035 3,758
10,000 Burke County Dev. Auth. 7.00 1/01/2023 10,149
4,000 Dahlonega Downtown Dev. Auth. (INS) 5.00 7/01/2040 4,338
3,600 Glynn-Brunswick Memorial Hospital Auth. (PRE) 5.63 8/01/2034 3,741
400 Glynn-Brunswick Memorial Hospital Auth. 5.63 8/01/2034 412
1,600 Private Colleges & Universities Auth. 5.00 10/01/2032 1,719
1,000 Thomasville Hospital Auth. (PRE) 5.25 11/01/2035 1,126
1,250 Thomasville Hospital Auth. (PRE) 5.38 11/01/2040 1,413
----------
26,656
----------
HAWAII (0.3%)
6,000 Department of Budget and Finance 6.50 7/01/2039 6,467
----------
IDAHO (0.1%)
1,500 Health Facilities Auth. (INS) 5.00 7/01/2035 1,605
----------
ILLINOIS (13.7%)
520 Chicago (INS) 5.25 1/01/2029 524
3,965 Chicago 6.75 12/01/2032 3,966
3,000 Chicago 5.00 1/01/2039 3,248
3,000 Chicago Park District 5.00 1/01/2040 3,320
4,000 Chicago Water 5.00 1/01/2044 4,272
3,000 Chicago Water 5.00 11/01/2044 3,255
3,000 Chicago Water 5.00 1/01/2047 3,271
6,000 Chicago-Midway Airport 5.00 1/01/2046 6,764
4,200 Chicago-O'Hare International Airport (PRE) 5.75 1/01/2039 4,808
800 Chicago-O'Hare International Airport 5.75 1/01/2039 904
5,000 Chicago-O'Hare International Airport 5.00 1/01/2041 5,699
5,000 Chicago-O'Hare International Airport 5.75 1/01/2043 5,790
7,750 Cook County 5.00 11/15/2038 8,948
2,000 Finance Auth. 5.00 4/01/2026 2,000
5,000 Finance Auth. (PRE) 5.50 8/15/2028 5,196
2,500 Finance Auth. (INS) (PRE) 5.75 11/01/2028 2,628
14,000 Finance Auth. 3.90 3/01/2030 14,759
5,000 Finance Auth. (PRE) 7.25 11/01/2030 5,335
4,500 Finance Auth. 5.00 4/01/2031 4,500
7,065 Finance Auth. 5.50 4/01/2032 7,065
8,000 Finance Auth. (PRE) 6.00 10/01/2032 9,326
================================================================================
10 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,000 Finance Auth. 4.00% 2/01/2033 $ 6,262
5,000 Finance Auth. (PRE) 5.75 10/01/2035 5,241
7,000 Finance Auth. 5.00 4/01/2036 6,892
700 Finance Auth. 5.00 5/15/2037 746
2,000 Finance Auth. 4.00 3/01/2038 2,087
5,000 Finance Auth. 4.00 7/01/2038 5,048
20,000 Finance Auth. (PRE) 5.38 8/15/2039 20,761
1,205 Finance Auth. 5.25 10/01/2039 1,247
12,395 Finance Auth. 4.00 10/01/2040 12,812
11,000 Finance Auth. 4.00 2/15/2041 11,207
750 Finance Auth. 5.00 8/01/2042 813
5,000 Finance Auth. 6.00 7/01/2043 5,725
2,000 Finance Auth. 5.00 8/15/2044 2,126
4,500 Finance Auth. 4.00 12/01/2046 4,394
1,155 Finance Auth. 5.00 5/15/2047 1,214
750 Finance Auth. 5.00 8/01/2047 803
4,065 Metropolitan Pier and Expositon Auth. (INS) 5.50 6/15/2020 4,121
1,730 Metropolitan Pier and Expositon Auth. (INS) 5.55 6/15/2021 1,754
9,000 Municipal Power Agency 4.00 12/01/2041 9,166
10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,294
23,980 Regional Transportation Auth. (INS) 5.75 6/01/2020 26,753
37,550 Regional Transportation Auth. (INS) 6.50 7/01/2030 50,469
10,000 Rosemont (INS) 5.00 12/01/2046 11,044
3,000 Springfield (INS) 5.00 3/01/2040 3,342
2,000 Springfield Metro Sanitary District 5.75 1/01/2053 2,304
8,000 State (INS) 5.00 4/01/2029 8,896
1,000 State (INS) 4.00 2/01/2031 1,029
1,000 State (INS) 4.00 2/01/2032 1,019
1,530 Township High School District No. 502 (INS) 5.00 12/01/2037 1,753
1,555 Township High School District No. 502 (INS) 5.00 12/01/2038 1,777
1,400 Township High School District No. 502 (INS) 5.00 12/01/2039 1,596
1,000 Univ. of Illinois 5.13 4/01/2036 1,086
1,388 Village of Montgomery Kane and Kendall
Counties (INS) 4.70 3/01/2030 1,390
----------
331,749
----------
INDIANA (1.8%)
5,540 Evansville Redevelopment Auth. (INS) 4.00 2/01/2038 5,754
3,605 Evansville Redevelopment Auth. (INS) 4.00 2/01/2039 3,739
3,440 Finance Auth. 5.00 10/01/2033 3,441
5,000 Finance Auth. 5.00 6/01/2039 5,090
1,495 Finance Auth. 5.00 2/01/2040 1,687
4,000 Finance Auth. 5.00 10/01/2044 4,365
5,000 Finance Auth. 5.50 4/01/2046 5,431
1,175 Local Public Improvement Bond Bank (INS) (PRE) 5.50 1/01/2038 1,242
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 4,825 Local Public Improvement Bond Bank (INS) 5.50% 1/01/2038 $ 5,067
7,000 Richmond Hospital Auth. 5.00 1/01/2039 7,772
----------
43,588
----------
IOWA (0.3%)
6,235 Finance Auth. 5.00 5/15/2041 6,897
----------
KANSAS (0.2%)
2,500 Coffeyville (INS)(a) 5.00 6/01/2042 2,719
2,000 Wyandotte County/Kansas City 5.00 9/01/2045 2,281
----------
5,000
----------
KENTUCKY (0.7%)
1,000 Ashland Medical Center 5.00 2/01/2040 1,078
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,018
4,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2038 4,066
3,000 Economic Dev. Finance Auth. 5.00 8/15/2041 3,279
5,500 Economic Dev. Finance Auth. 5.00 5/15/2046 5,612
2,000 Owen County 6.25 6/01/2039 2,134
----------
17,187
----------
LOUISIANA (3.9%)
2,500 Lafayette Public Trust Financing Auth. (INS) (PRE) 5.50 10/01/2035 2,822
3,750 Local Government Environmental Facilities and
Community Dev. Auth. 6.50 8/01/2029 4,230
1,685 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 5.00 10/01/2039 1,911
8,210 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 4.00 10/01/2046 8,434
25,000 Parish of St. John the Baptist 5.13 6/01/2037 25,062
1,500 Public Facilities Auth. 5.00 7/01/2037 1,658
15 Public Facilities Auth. (PRE) 4.00 5/15/2041 17
1,235 Public Facilities Auth. 4.00 5/15/2041 1,270
6,000 Public Facilities Auth. 5.00 11/01/2045 6,437
5,000 Public Facilities Auth. 5.00 5/15/2046 5,595
5,000 Public Facilities Auth. (INS) 5.25 6/01/2051 5,548
400 Public Facilities Auth.(h) 5.00 7/01/2052 444
9,000 Public Facilities Auth. 4.00 1/01/2056 8,943
2,000 Public Facilities Auth.(h) 5.00 7/01/2057 2,204
1,100 Shreveport (INS) 4.00 12/01/2037 1,158
1,000 Shreveport 5.00 12/01/2040 1,136
5,500 Shreveport 5.00 12/01/2041 6,211
2,100 Shreveport (INS) 5.00 12/01/2041 2,397
6,000 State 5.00 5/01/2045 6,964
1,500 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,652
----------
94,093
----------
================================================================================
12 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MAINE (0.3%)
$ 9,000 Health and Higher Education Facilities Auth. 4.00% 7/01/2046 $ 7,820
----------
MARYLAND (0.6%)
2,500 EDC 6.20 9/01/2022 2,682
5,000 Health and Higher Educational Facilities Auth. (PRE) 5.75 1/01/2033 5,062
6,000 Health and Higher Educational Facilities Auth. (PRE) 5.75 1/01/2038 6,074
----------
13,818
----------
MASSACHUSETTS (1.3%)
1,000 Dev. Finance Agency 4.00 7/01/2038 1,013
1,000 Dev. Finance Agency 5.00 4/15/2040 1,082
3,000 Dev. Finance Agency 5.00 7/01/2044 3,261
4,000 Dev. Finance Agency 5.50 7/01/2044 4,303
1,000 Dev. Finance Agency 5.00 7/01/2046 1,098
3,370 Dev. Finance Agency 4.00 10/01/2046 3,413
2,280 Dev. Finance Agency 5.00 7/01/2047 2,487
6,385 Health and Educational Facilities Auth. (PRE) 6.25 7/01/2030 6,964
3,615 Health and Educational Facilities Auth. 6.25 7/01/2030 3,913
3,500 Health and Educational Facilities Auth. 5.00 7/15/2032 3,508
500 Health and Educational Facilities Auth. 5.00 7/15/2037 501
----------
31,543
----------
MICHIGAN (0.7%)
2,000 Genesee County Water Supply System (INS) 4.00 2/01/2041 2,047
2,900 Genesee County Water Supply System (INS) 5.00 2/01/2046 3,250
4,500 Lansing Board of Water & Light 5.00 7/01/2037 5,008
4,000 Livonia Public Schools School District (INS) 5.00 5/01/2045 4,495
3,000 Strategic Fund 5.63 7/01/2020 3,328
----------
18,128
----------
MINNESOTA (0.2%)
2,500 Higher Education Facilities Auth. 5.00 10/01/2039 2,666
3,000 St. Louis Park (PRE) 5.75 7/01/2030 3,111
----------
5,777
----------
MISSISSIPPI (0.1%)
3,000 Warren County 5.38 12/01/2035 3,305
----------
MISSOURI (1.8%)
2,680 Cape Girardeau County Health Care Facilities IDA 6.00 3/01/2033 3,097
750 Cape Girardeau County Health Care Facilities IDA 5.00 3/01/2036 829
1,000 Cape Girardeau County IDA (PRE) 5.75 6/01/2039 1,078
17,775 Dev. Finance Board 4.00 6/01/2046 18,101
6,000 Health and Educational Facilities Auth. (PRE) 5.50 11/15/2033 6,309
1,500 Health and Educational Facilities Auth. 5.50 11/15/2033 1,560
5,000 St. Louis County IDA 5.88 9/01/2043 5,613
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,065 St. Louis Municipal Finance Corp. (INS) 5.00% 10/01/2038 $ 3,514
2,110 Stoddard County IDA 6.00 3/01/2037 2,421
----------
42,522
----------
MONTANA (0.4%)
4,000 Forsyth 3.90 3/01/2031 4,169
5,000 Forsyth 5.00 5/01/2033 5,454
----------
9,623
----------
NEBRASKA (0.2%)
3,400 Douglas County Hospital Auth. 5.00 11/01/2048 3,751
----------
NEVADA (1.6%)
4,000 Clark County (INS) 5.00 7/01/2026 4,266
11,000 Clark County 5.13 7/01/2034 11,927
5,000 Clark County (INS) 5.25 7/01/2039 5,419
4,400 Las Vegas Convention and Visitors Auth. 4.00 7/01/2041 4,534
12,140 Las Vegas Convention and Visitors Auth. 4.00 7/01/2046 12,464
----------
38,610
----------
NEW JERSEY (2.2%)
6,000 EDA 5.00 9/01/2024 6,428
2,000 EDA 5.00 6/15/2028 2,157
10,000 EDA 5.00 6/15/2040 10,589
3,000 EDA 5.25 6/15/2040 3,265
4,000 EDA 5.00 6/15/2041 4,290
5,000 Educational Facilities Auth. 5.00 9/01/2036 5,380
15,000 Health Care Facilities Financing Auth. (PRE) 5.63 7/01/2032 17,412
1,250 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2046 1,394
2,000 Transportation Trust Fund Auth. 5.25 6/15/2041 2,177
----------
53,092
----------
NEW MEXICO (0.2%)
5,000 Farmington 5.90 6/01/2040 5,482
----------
NEW YORK (2.7%)
2,040 Buffalo and Erie County Industrial Land Dev. Corp. 5.38 10/01/2041 2,291
2,250 Dormitory Auth. 5.25 7/01/2029 2,385
16,130 Liberty Dev. Corp. 5.25 10/01/2035 20,680
5,000 MTA 3.55(b) 11/15/2032 3,211
60 New York City 5.88 8/01/2019 60
2,970 New York City (PRE) 5.13 12/01/2028 2,992
2,030 New York City 5.13 12/01/2028 2,045
220 New York City Municipal Water Finance Auth. (PRE) 5.00 6/15/2037 226
1,280 New York City Municipal Water Finance Auth. 5.00 6/15/2037 1,316
7,500 New York City Transitional Finance Auth. 5.00 1/15/2034 7,589
2,000 New York Thruway Auth. 5.00 1/01/2051 2,245
================================================================================
14 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 5,000 Triborough Bridge and Tunnel Auth. 3.62%(b) 11/15/2031 $ 3,288
6,170 Triborough Bridge and Tunnel Auth. (PRE) 5.00 11/15/2031 6,457
3,830 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 3,991
3,000 Triborough Bridge and Tunnel Auth. 3.66(b) 11/15/2032 1,898
2,500 Triborough Bridge and Tunnel Auth. 3.70(b) 11/15/2032 1,605
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,191
1,000 TSASC, Inc. 5.00 6/01/2041 1,109
----------
65,579
----------
NORTH CAROLINA (0.8%)
10,000 Capital Facilities Finance Agency 4.63 11/01/2040 10,756
3,750 Charlotte-Mecklenburg Hospital Auth. 5.25 1/15/2034 3,936
5,000 Columbus County Industrial Facilities & Pollution
Control Financing Auth. 6.25 11/01/2033 5,455
----------
20,147
----------
NORTH DAKOTA (0.3%)
4,685 Fargo 6.25 11/01/2031 5,489
2,500 McLean County 4.88 7/01/2026 2,653
----------
8,142
----------
OHIO (1.8%)
6,000 Air Quality Dev. Auth. 5.70 8/01/2020 2,745
10,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 9,726
10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 9,681
2,700 Centerville 5.25 11/01/2047 2,849
1,000 Cleveland (INS) 5.00 1/01/2031 1,101
9,000 Cuyahoga County 4.75 2/15/2047 9,247
2,500 Hamilton County Healthcare 5.00 1/01/2051 2,654
1,680 Lake County (PRE) 5.63 8/15/2029 1,749
320 Lake County 5.63 8/15/2029 331
2,000 Turnpike Commission 5.25 2/15/2033 2,343
----------
42,426
----------
OKLAHOMA (0.9%)
4,200 Comanche County Hospital Auth. 5.00 7/01/2032 4,330
4,500 Development Finance Auth. 5.25 8/01/2057 4,954
10,000 Municipal Power Auth. 4.00 1/01/2047 10,326
2,000 Tulsa County Industrial Auth. 5.25 11/15/2045 2,231
----------
21,841
----------
OREGON (0.2%)
2,000 Deschutes County Hospital Facility 4.00 1/01/2046 2,047
1,095 Keizer 5.20 6/01/2031 1,120
1,180 Yamhill County Hospital Auth. 5.00 11/15/2051 1,239
----------
4,406
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA (3.4%)
$ 750 Allegheny County Higher Education Building
Auth. (PRE) 5.50% 3/01/2031 $ 859
460 Allegheny County IDA 5.13 9/01/2031 460
4,000 Allegheny County Sanitary Auth. (INS) 5.00 6/01/2040 4,412
5,000 Allentown Commercial and Industrial Dev. Auth. 6.25(a) 7/01/2047 5,002
3,250 Chester County IDA 5.25 10/15/2047 3,311
5,000 Delaware River Joint Toll Bridge Commission 5.00 7/01/2047 5,757
7,000 Economic Dev. Financing Auth. 4.00 10/01/2023 7,514
480 Erie Parking Auth. (INS) (PRE) 5.13 9/01/2032 535
1,390 Erie Parking Auth. (INS) 5.13 9/01/2032 1,482
595 Erie Parking Auth. (INS) (PRE) 5.20 9/01/2035 665
1,700 Erie Parking Auth. (INS) 5.20 9/01/2035 1,812
1,970 Higher Educational Facilities Auth. 5.25 7/15/2033 2,166
2,750 Higher Educational Facilities Auth. 5.50 7/15/2038 3,039
4,000 Northampton County General Purpose Auth. 4.00 8/15/2040 4,039
1,000 Philadelphia School District 5.00 9/01/2037 1,100
2,000 Philadelphia School District 5.00 9/01/2038 2,194
1,250 Turnpike Commission, 5.00%, 12/01/2018 5.00(c) 12/01/2033 1,376
8,000 Turnpike Commission 5.00 6/01/2039 8,967
4,000 Turnpike Commission 5.00 6/01/2042 4,513
10,000 Turnpike Commission 5.25 12/01/2044 11,195
3,000 Turnpike Commission 5.00 12/01/2046 3,320
4,000 Turnpike Commission(h) 5.00 12/01/2047 4,572
3,200 Washington County IDA 5.00 11/01/2036 3,451
----------
81,741
----------
PUERTO RICO (0.1%)
2,000 Industrial, Tourist, Educational, Medical,
Environmental Control Facilities Financing Auth. 5.38 4/01/2042 1,882
----------
RHODE ISLAND (0.9%)
5,700 EDC (INS) 5.00 7/01/2031 5,710
12,185 EDC (INS) 5.00 7/01/2036 12,203
2,000 Health and Educational Building Corp. (PRE) 6.00 9/01/2033 2,476
240 Housing and Mortgage Finance Corp. 6.85 10/01/2024 241
----------
20,630
----------
SOUTH CAROLINA (0.4%)
2,250 Greenwood County 5.38 10/01/2039 2,384
7,000 Public Service Auth. 5.25 12/01/2055 7,899
----------
10,283
----------
SOUTH DAKOTA (0.4%)
500 Educational Enhancement Funding Corp. 5.00 6/01/2027 557
2,500 Health and Educational Facilities Auth. 5.25 11/01/2029 2,666
================================================================================
16 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,000 Health and Educational Facilities Auth. 5.25% 7/01/2038 $ 3,064
4,000 Health and Educational Facilities Auth. 5.00 7/01/2042 4,312
----------
10,599
----------
TENNESSEE (0.5%)
3,095 Jackson (PRE) 5.50 4/01/2033 3,168
1,145 Jackson 5.50 4/01/2033 1,168
2,000 Johnson City Health and Educational Facilities Board 5.00 8/15/2042 2,133
1,500 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 10/01/2045 1,663
4,000 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 7/01/2046 4,452
----------
12,584
----------
TEXAS (14.5%)
3,000 Arlington Higher Education Finance Corp. (NBGA) 5.00 2/15/2046 3,406
10,365 Bell County Health Facilities Dev. Corp. (ETM) 6.50 7/01/2019 11,028
1,240 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2033 1,242
1,465 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2037 1,467
8,450 Bexar County Health Facilities Dev. Corp. 4.00 7/15/2045 8,450
6,000 Central Texas Regional Mobility Auth. (PRE)(g) 5.75 1/01/2031 6,863
5,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 5,035
2,500 Central Texas Regional Mobility Auth. 5.00 1/01/2042 2,717
3,500 Central Texas Regional Mobility Auth. 5.00 1/01/2045 3,891
1,000 Clifton Higher Education Finance Corp. 6.00 8/15/2033 1,172
4,250 Clifton Higher Education Finance Corp. (NBGA) 5.00 8/15/2039 4,834
2,750 Clifton Higher Education Finance Corp. 6.00 8/15/2043 3,214
5,900 Corpus Christi Utility System 4.00 7/15/2039 6,181
4,000 Dallas/Fort Worth International Airport 5.00 11/01/2034 4,426
9,000 Fort Worth 6.00 3/01/2029 9,631
8,085 Fort Worth (PRE) 6.25 3/01/2033 8,687
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 4,321
6,100 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2038 6,525
1,500 Harris County Health Facilities Dev. Corp. (PRE) 7.25 12/01/2035 1,609
15,000 Harris County Hospital District 4.00 2/15/2042 15,375
7,000 Harris County IDC (PRE) 5.00 2/01/2023 7,592
3,715 Houston 5.00 9/01/2040 4,152
12,500 Houston Airport System 5.50 7/01/2034 12,920
10,000 Houston Higher Education Finance Corp. 5.00 9/01/2042 10,818
2,390 Irving 5.00 8/15/2043 2,458
6,000 Karnes County Hospital District 5.00 2/01/2044 6,261
1,900 Kerrville Health Facilities Dev. Corp. 5.00 8/15/2035 2,071
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,000 Laredo CCD (INS) (PRE) 5.25% 8/01/2035 $ 3,347
700 Laredo Waterworks and Sewer System 4.00 3/01/2041 730
5,300 Matagorda County 6.30 11/01/2029 5,846
9,615 Matagorda County 4.00 6/01/2030 10,128
6,000 Matagorda County 4.00 6/01/2030 6,320
6,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 6,475
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 1,057
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 1,050
1,250 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2048 1,347
5,000 North Fort Bend Water Auth. 5.00 12/15/2036 5,499
2,630 North Texas Tollway Auth. (PRE) 5.63 1/01/2028 2,661
370 North Texas Tollway Auth. 5.63 1/01/2028 374
2,280 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,307
10,385 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 10,508
2,105 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,130
2,770 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,803
615 North Texas Tollway Auth. 5.63 1/01/2033 622
1,845 North Texas Tollway Auth. 5.63 1/01/2033 1,866
15,000 North Texas Tollway Auth. (PRE) 5.75 1/01/2033 15,183
3,000 North Texas Tollway Auth. 7.55(b) 9/01/2037 1,197
6,245 North Texas Tollway Auth. (PRE) 5.75 1/01/2040 6,321
4,720 North Texas Tollway Auth. (PRE) 5.75 1/01/2040 4,777
1,535 North Texas Tollway Auth. 5.75 1/01/2040 1,552
5,000 North Texas Tollway Auth. 5.00 1/01/2045 5,575
2,000 Red River Education Finance Corp. 4.00 6/01/2041 2,015
3,000 Red River Education Finance Corp. 5.50 10/01/2046 3,341
6,315 Tarrant County Cultural Education Facilities
Finance Corp. 5.63 11/15/2027 6,329
3,600 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2036 3,756
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.75 11/15/2037 4,006
4,500 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2045 4,642
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2046 1,117
7,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2046 7,751
2,500 Tarrant County Cultural Education Facilities
Finance Corp. 6.75 11/15/2047 2,711
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 6.75 11/15/2052 4,323
================================================================================
18 | 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 $ 4,286
6,500 Transportation Commission 5.00 8/15/2042 7,192
18,530 Turnpike Auth. (INS) 5.25(b) 8/15/2030 12,201
22,000 Tyler Health Facilities Dev. Corp. 5.25 11/01/2032 21,913
1,000 Uptown Dev. Auth. (PRE) 5.50 9/01/2029 1,084
4,770 Wood County Central Hospital District 6.00 11/01/2041 4,880
----------
348,847
----------
VERMONT (0.1%)
3,000 Educational and Health Buildings Financing Agency 5.00 10/15/2046 3,269
----------
VIRGINIA (1.3%)
5,000 Alexandria IDA 5.00 10/01/2050 5,458
11,280 College Building Auth. 5.00 6/01/2026 11,026
5,000 College Building Auth. 5.00 6/01/2029 4,734
1,437 Farms of New Kent Community Dev. Auth.(d),(i),(l) 5.13 3/01/2036 359
8,665 Farms of New Kent Community Dev. Auth.(d),(i),(l) 5.45 3/01/2036 2,165
2,000 Farms of New Kent Community Dev. Auth.(d),(i),(l) 5.80 3/01/2036 500
3,693 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 3,390
1,782 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,712
5,771 Lewistown Commerce Center Community Dev. Auth.(d) 6.05 3/01/2054 860
1,244 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 1,246
----------
31,450
----------
WASHINGTON (0.1%)
2,500 Health Care Facilities Auth. (INS) (PRE) 6.00 8/15/2039 2,728
----------
WEST VIRGINIA (0.1%)
2,000 EDA 5.38 12/01/2038 2,188
----------
WISCONSIN (0.8%)
5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,330
2,500 Health & Educational Facilities Auth. 5.38 8/15/2037 2,672
1,000 Health & Educational Facilities Auth. 5.00 9/15/2045 1,043
7,800 Kaukauna (INS) 5.00 12/15/2035 8,771
2,200 Public Finance Auth.(a) 5.25 5/15/2042 2,360
----------
20,176
----------
WYOMING (0.5%)
2,360 Municipal Power Agency (PRE) 5.50 1/01/2033 2,388
2,300 Municipal Power Agency (PRE) 5.50 1/01/2038 2,328
6,000 Sweetwater County 5.25 7/15/2026 6,451
----------
11,167
----------
Total Fixed-Rate Instruments (cost: $2,003,413) 2,081,646
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
PUT BONDS (0.7%)
ARIZONA (0.2%)
$ 5,000 Health Facilities Auth., MUNIPSA + 1.85% 2.79%(j) 2/01/2048 $ 5,080
----------
FLORIDA (0.2%)
4,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 4,096
----------
LOUISIANA (0.3%)
6,750 St. Charles Parish 4.00 12/01/2040 7,139
----------
Total Put Bonds (cost: $15,750) 16,315
----------
ADJUSTABLE-RATE NOTES (0.8%)
NEW JERSEY (0.8%)
20,000 EDA , MUNIPSA + 1.6% (cost: $20,000) 2.54(j) 3/01/2028 19,419
----------
VARIABLE-RATE DEMAND NOTES (11.4%)
CALIFORNIA (0.7%)
8,045 Bay Area Toll Auth. (LIQ)(a) 1.03(k) 4/01/2039 8,045
9,665 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.04(k) 12/01/2033 9,665
----------
17,710
----------
FLORIDA (1.2%)
22,000 Escambia County 0.99(k) 4/01/2039 22,000
8,050 Jacksonville 0.99(k) 5/01/2029 8,050
----------
30,050
----------
GEORGIA (0.7%)
6,100 Burke County Dev. Auth. 1.04(k) 10/01/2032 6,100
7,200 Floyd County Dev. Auth. 1.04(k) 9/01/2026 7,200
2,900 Heard County Dev. Auth. 1.06(k) 9/01/2026 2,900
100 Monroe County Dev. Auth. 1.04(k) 11/01/2048 100
----------
16,300
----------
ILLINOIS (3.1%)
5,000 Chicago Board of Education (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.27(k) 12/01/2039 5,000
10,000 Chicago Board of Education (INS) (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.27(k) 12/01/2039 10,000
20,850 Chicago Board of Education (LIQ)
(LOC - Barclays Bank plc)(a) 1.14(k) 4/01/2046 20,850
10,000 Metropolitan Pier & Exposition Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.27(k) 6/15/2050 10,000
11,410 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19(k) 7/01/2031 11,410
================================================================================
20 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 16,500 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19%(k) 3/01/2033 $ 16,500
----------
73,760
----------
KENTUCKY (1.1%)
20,325 Economic Dev. Finance Auth. 1.25(k) 5/01/2034 20,325
5,720 Economic Dev. Finance Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.11(k) 1/01/2045 5,720
----------
26,045
----------
NEW YORK (0.8%)
4,700 New York City (LIQ) 0.97(k) 8/01/2038 4,700
14,230 New York City (LOC - Mizuho Corporate Bank Ltd.) 1.01(k) 10/01/2038 14,230
----------
18,930
----------
PENNSYLVANIA (0.7%)
5,335 Bucks County Water and Sewer Auth. (INS) (LIQ)(a) 1.12(k) 12/01/2019 5,335
12,530 Emmaus General Auth. (INS) (LIQ) 0.97(k) 12/01/2028 12,530
----------
17,865
----------
TEXAS (2.6%)
8,000 Harris County Health Facilities Dev. Corp. 0.98(k) 12/01/2041 8,000
600 Port of Port Arthur Navigation District 1.41(k) 4/01/2040 600
1,900 Port of Port Arthur Navigation District 1.41(k) 4/01/2040 1,900
21,075 Port of Port Arthur Navigation District 1.41(k) 4/01/2040 21,075
31,050 Port of Port Arthur Navigation District 1.41(k) 11/01/2040 31,050
----------
62,625
----------
VIRGINIA (0.2%)
3,700 Hanover County EDA (LOC - U.S. Bancorp) 0.94(k) 11/01/2025 3,700
----------
WASHINGTON (0.3%)
7,800 Health Care Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.11(k) 1/01/2035 7,800
----------
Total Variable-Rate Demand Notes (cost: $274,785) 274,785
----------
TOTAL INVESTMENTS (COST: $2,313,948) $2,392,165
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $2,078,622 $3,024 $2,081,646
Put Bonds - 16,315 - 16,315
Adjustable-Rate Notes - 19,419 - 19,419
Variable-Rate Demand Notes - 274,785 - 274,785
------------------------------------------------------------------------------------------------------------------
Total $- $2,389,141 $3,024 $2,392,165
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
($ IN 000s) FIXED-RATE INSTRUMENTS
------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2017 $3,024
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 -
------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2017 $3,024
------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2017, through September 30, 2017, 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 TAX EXEMPT LONG-TERM FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at September 30, 2017, was $5,905,000, which represented 0.2% of the
Fund's net assets.
(e) Pay-in-kind (PIK) - security in which the issuer has or will have
the option to make all or a portion of the interest or dividend
payments in additional securities in lieu of cash.
(f) Up to 6.05% of the coupon may be PIK.
(g) At September 30, 2017, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(h) At September 30, 2017, the aggregate market value of securities
purchased on a delayed-delivery basis was $7,220,000, of which all were
when-issued securities.
(i) At September 30, 2017, the issuer was in default with respect to
interest and/or principal payments.
(j) Floating-rate security - interest rate is adjusted periodically.
The interest rate disclosed represents the rate at September 30, 2017.
(k) Variable-rate demand notes - interest rate is determined by the
issuer or agent based on current market conditions, and is not based on
a published reference rate and spread. These securities do not indicate
a reference rate and spread in their description.
(l) Security was fair valued at Level 3.
See accompanying notes to financial statements.
================================================================================
24 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,313,948) $2,392,165
Cash 8
Receivables:
Capital shares sold 656
USAA Asset Management Company (Note 6C) 1
Interest 30,755
----------
Total assets 2,423,585
----------
LIABILITIES
Payables:
Securities purchased 7,210
Capital shares redeemed 944
Dividends on capital shares 1,699
Accrued management fees 554
Accrued transfer agent's fees 19
Other accrued expenses and payables 146
----------
Total liabilities 10,572
----------
Net assets applicable to capital shares outstanding $2,413,013
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,391,097
Undistributed net investment income 5
Accumulated net realized loss on investments (56,306)
Net unrealized appreciation of investments 78,217
----------
Net assets applicable to capital shares outstanding $2,413,013
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,403,830/179,393
capital shares outstanding, no par value) $ 13.40
==========
Adviser Shares (net assets of $9,183/686
capital shares outstanding, no par value) $ 13.38
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $52,211
-------
EXPENSES
Management fees 3,031
Administration and servicing fees:
Fund Shares 1,788
Adviser Shares 7
Transfer agent's fees:
Fund Shares 359
Adviser Shares 2
Distribution and service fees (Note 6E):
Adviser Shares 12
Custody and accounting fees:
Fund Shares 141
Adviser Shares 1
Postage:
Fund Shares 22
Shareholder reporting fees:
Fund Shares 20
Trustees' fees 16
Registration fees:
Fund Shares 24
Adviser Shares 12
Professional fees 74
Other 18
-------
Total expenses 5,527
Expenses reimbursed:
Adviser Shares (9)
-------
Net expenses 5,518
-------
NET INVESTMENT INCOME 46,693
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 2,490
Change in net unrealized appreciation/(depreciation) 25,714
-------
Net realized and unrealized gain 28,204
-------
Increase in net assets resulting from operations $74,897
=======
See accompanying notes to financial statements.
================================================================================
26 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
------------------------------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 46,693 $ 96,985
Net realized gain on investments 2,490 2,270
Change in net unrealized appreciation/(depreciation)
of investments 25,714 (91,048)
--------------------------
Increase in net assets resulting from operations 74,897 8,207
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (47,378) (96,282)
Adviser Shares (177) (444)
--------------------------
Distributions to shareholders (47,555) (96,726)
--------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 33,445 9,678
Adviser Shares (1,915) 180
--------------------------
Total net increase in net assets from
capital share transactions 31,530 9,858
--------------------------
Capital contribution from USAA Transfer
Agency Company - 2
--------------------------
Net increase (decrease) in net assets 58,872 (78,659)
NET ASSETS
Beginning of period 2,354,141 2,432,800
--------------------------
End of period $2,413,013 $2,354,141
==========================
Undistributed net investment income:
End of period $ 5 $ 867
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA Tax Exempt Long-Term Fund (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 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
================================================================================
28 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used by
the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management Company
(the Manager), an affiliate of the Fund. Among other things, these monthly
meetings include a review and analysis of backtesting 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 ask 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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:
================================================================================
30 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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.
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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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, 2017, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $7,210,000, of which all 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, 2017, there were no custodian and other bank credits.
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.
================================================================================
32 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $8,000, which represents 3.4% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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, 2017, the Fund had net capital loss carryforwards of $58,297,000,
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 $12,289,000
Long-Term 46,008,000
-----------
Total $58,297,000
===========
For the six-month period ended September 30, 2017, 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, 2017, were
$143,669,000 and $239,062,000, respectively.
As of September 30, 2017, 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, 2017, were $137,219,000 and $59,002,000, respectively, resulting in net
unrealized appreciation of $78,217,000.
================================================================================
34 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, 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, 2017 MARCH 31, 2017
---------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 7,510 $ 100,527 16,079 $ 218,941
Shares issued from reinvested
dividends 2,758 36,919 5,490 74,495
Shares redeemed (7,772) (104,001) (21,080) (283,758)
------------------------------------------------
Net increase from capital
share transactions 2,496 $ 33,445 489 $ 9,678
================================================
ADVISER SHARES:
Shares sold 11 $ 144 152 $ 2,083
Shares issued from reinvested
dividends 5 72 17 230
Shares redeemed (160) (2,131) (159) (2,133)
------------------------------------------------
Net increase (decrease) from capital
share transactions (144) $ (1,915) 10 $ 180
================================================
(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 | 35
================================================================================
The performance adjustment for each share class is calculated monthly by
comparing the Fund's performance 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 within the Lipper General
& Insured Municipal Debt Funds category.
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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $3,031,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
$(318,000) and $(3,000), respectively. For the Fund Shares and Adviser
Shares, the performance adjustments were (0.03)% and (0.05)%, respectively.
================================================================================
36 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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, 2017, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable to
the Manager, of $1,788,000 and $7,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For the
six-month period ended September 30, 2017, the Fund reimbursed the Manager
$29,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through July 31, 2018, to limit the
total annual operating expenses of the Adviser Shares to 0.70% 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 July 31, 2018, without approval of the
Board, and may be changed or terminated by the Manager at any time after that
date. Prior to August 1, 2017, the Adviser Shares' expense limitation was
0.80% of average net assets. For the six-month period ended September 30,
2017, the Adviser Shares incurred reimbursable expenses of $9,000, 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 the administration and
servicing of accounts that are held with such intermediaries. For the
six-month period ended September 30, 2017, the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Fund Shares and Adviser Shares incurred transfer agent's fees, paid or
payable to SAS, of $359,000 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, 2017, the Adviser Shares incurred distribution and
service (12b-1) fees of $12,000.
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,
2017, USAA and its affiliates owned 377,000 Adviser Shares, which represents
55.0% 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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT
================================================================================
38 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
and N-CEN, and amend Regulation S-X to require standardized, enhanced disclosure
about derivatives in investment company financial statements, as well as other
amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.25 $ 13.73 $ 13.78 $ 13.45 $ 13.91 $ 13.50
-----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .26 .54 .58 .58 .56 .54
Net realized and
unrealized gain (loss) .16 (.48) (.05) .32 (.46) .41
-----------------------------------------------------------------------------------------------
Total from investment
operations .42 .06 .53 .90 .10 .95
-----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.27) (.54) (.58) (.57) (.56) (.54)
-----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.40 $ 13.25 $ 13.73 $ 13.78 $ 13.45 $ 13.91
===============================================================================================
Total return (%)* 3.16 .41 3.94 6.79 .83 7.11
Net assets at end
of period (000) $2,403,830 $2,343,165 $2,421,551 $2,386,904 $2,251,219 $2,837,758
Ratios to average
net assets:**
Expenses (%)(a) .46(b) .48 .51 .55 .54 .53
Net investment
income (%) 3.90(b) 3.97 4.23 4.22 4.19 3.89
Portfolio turnover (%) 7 15 6 7 7 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended September 30, 2017, average net assets were
$2,378,726,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $13.23 $ 13.71 $ 13.76 $ 13.43 $13.91 $13.50
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .49 .54 .54 .51 .49
Net realized and
unrealized gain (loss) .16 (.48) (.05) .32 (.47) .41
--------------------------------------------------------------------------------------
Total from investment
operations .40 .01 .49 .86 .04 .90
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.49) (.54) (.53) (.52) (.49)
--------------------------------------------------------------------------------------
Net asset value at
end of period $13.38 $ 13.23 $ 13.71 $ 13.76 $13.43 $13.91
======================================================================================
Total return (%)* 3.01 .07 3.65 6.52 .37 6.77
Net assets at end
of period (000) $9,183 $10,976 $11,249 $10,896 $7,145 $6,809
Ratios to average net assets:**
Expenses (%)(b) .77(c),(d) .80 .80 .81(a) .85 .85
Expenses, excluding
reimbursements (%)(b) .94(c) .87 .90 .99 1.07 1.11
Net investment income (%) 3.60(c) 3.64 3.94 3.94 3.88 3.56
Portfolio turnover (%) 7 15 6 7 7 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended September 30, 2017, average net assets were
$9,601,000.
(a) Prior to August 1, 2014, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 0.85% of the Adviser Shares' 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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Prior to August 1, 2017, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 0.80% of the Adviser Shares' average net
assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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
================================================================================
42 | USAA TAX EXEMPT LONG-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, 8 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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,031.60 $2.34
Hypothetical
(5% return before expenses) 1,000.00 1,022.76 2.33
ADVISER SHARES
Actual 1,000.00 1,030.10 3.92
Hypothetical
(5% return before expenses) 1,000.00 1,021.21 3.90
*Expenses are equal to the annualized expense ratio of 0.46% for Fund Shares
and 0.77% for Adviser Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
3.16% for Fund Shares and 3.01% for Adviser Shares for the six-month period of
April 1, 2017, through September 30, 2017.
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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
================================================================================
44 | 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, shareholder 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
================================================================================
ADVISORY AGREEMENT | 45
================================================================================
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 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
================================================================================
46 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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-, five-, and ten-year periods ended December 31, 2016, and was
above the average of its performance universe and below its Lipper index for the
three-year period ended December 31, 2016. The Board also noted that the Fund's
percentile performance ranking was in the top 15% of its performance universe
for the one-year period ended December 31, 2016, was in the top 35% of its
performance universe for the three-year period ended December 31, 2016, and was
in the top 25% of its performance universe for the five- and ten-year periods
ended December 31, 2016.
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 the Manager and its
affiliates provide shareholder
================================================================================
ADVISORY AGREEMENT | 47
================================================================================
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 and other risks 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.
================================================================================
48 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
39596-1117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT MONEY MARKET FUND (USEXX)]
============================================================
SEMIANNUAL REPORT
USAA TAX EXEMPT MONEY MARKET FUND (USEXX)
SEPTEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 14
Financial Statements 15
Notes to Financial Statements 18
EXPENSE EXAMPLE 27
ADVISORY AGREEMENT 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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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
excludable from gross income for federal income tax purposes (referred to herein
as "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 tax-exempt securities.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income will be tax-exempt and excludable from the calculation of
the federal alternative minimum tax (AMT) for individual taxpayers. This policy
may be changed only by a shareholder vote.
In pursuing its investment objective and implementing its investment strategies,
the Fund will comply with Rule 2a-7 under the Investment Company Act of 1940, as
amended (Rule 2a-7). Accordingly, the Fund restricts its investments to
instruments that meet certain maturity and quality requirements under Rule 2a-7.
Generally, such investments will be limited to a security with a remaining
maturity of 397 calendar days or less that is determined to present minimal
credit risk; issued by a money market fund; or issued or guaranteed by the U.S.
government or any agency or instrumentality thereof.
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
Education ................................................................ 14.3%
General Obligation ....................................................... 12.8%
Electric Utilities ....................................................... 11.9%
Hospital ................................................................. 8.1%
Community Service ........................................................ 6.6%
Buildings ................................................................ 5.9%
Nursing/CCRC ............................................................. 4.5%
Multifamily Housing ...................................................... 3.4%
Special Assessment/Tax/Fee ............................................... 3.3%
Electric/Gas Utilities ................................................... 3.3%
o PORTFOLIO MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 79.1%
FIXED-RATE INSTRUMENTS 19.1%
PUT BONDS 1.3%
[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 3-13.
================================================================================
2 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (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.
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
IDC Industrial Development Corp.
MTA Metropolitan Transportation Authority
USD Unified School District
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
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, must determine that the particular investment presents minimal
credit risk in accordance with these SEC regulations.
(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, Deutsche Bank A.G., 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.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages, are guaranteed by a nonbank guarantee agreement
from one of the following: Montana Board of Investments Intercap
Program or National Rural Utility Corp.
================================================================================
4 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (79.1%)
ALABAMA (6.6%)
$ 20,000 Chatom IDB (NBGA) 1.06%(b) 8/01/2041 $ 20,000
10,000 Columbia IDB 1.08(b) 12/01/2037 10,000
1,020 Huntsville Educational Building Auth.
(LOC - BB&T Corp.) 0.98(b) 12/01/2022 1,020
25,000 Mobile County IDA (LOC - Swedbank AB) 0.98(b) 7/01/2040 25,000
30,000 Mobile IDB 1.08(b) 6/01/2034 30,000
32,500 Tuscaloosa County Port Auth.
(LOC - PNC Financial Services Group) 1.01(b) 12/01/2031 32,500
5,190 West Jefferson IDB 1.08(b) 6/01/2028 5,190
----------
123,710
----------
ARKANSAS (0.3%)
5,175 Texarkana (LOC - PNC Financial Services Group) 1.09(b) 3/01/2021 5,175
----------
CALIFORNIA (6.0%)
3,700 Alameda County IDA (LOC - BNP Paribas) 1.02(b) 12/01/2040 3,700
4,150 Alameda County IDA (LOC - Comerica Bank, N.A.) 1.05(b) 12/01/2040 4,150
7,000 Antioch USD (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.99(b) 8/01/2047 7,000
10,000 Enterprise Dev. Auth. (LOC - Federal
Home Loan Bank of San Francisco)(a) 0.99(b) 12/01/2042 10,000
14,960 Health Facilities Financing Auth. (LIQ)
(LOC - Barclays Bank plc)(a) 0.99(b) 3/01/2042 14,960
4,765 Infrastructure and Economic Dev. Bank
(LOC - Federal Home Loan Bank of San Francisco)(a) 0.96(b) 12/01/2040 4,765
5,985 Los Angeles (LOC - U.S. Bancorp) 0.89(b) 8/01/2035 5,985
400 Novato (LOC - BNP Paribas) 1.00(b) 10/01/2032 400
3,200 Pollution Control Financing Auth.
(LOC - BNP Paribas) 0.98(b) 11/01/2019 3,200
1,435 Pollution Control Financing Auth.
(LOC - Comerica Bank, N.A.) 1.05(b) 12/01/2030 1,435
11,300 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.04(b) 12/01/2033 11,300
6,050 San Diego County (LOC - Comerica Bank, N.A.) 1.00(b) 1/01/2023 6,050
4,805 Statewide Communities Dev. Auth. (LIQ)(a) 1.14(b) 10/01/2020 4,805
7,845 Statewide Communities Dev. Auth.
(LOC - Comerica Bank, N.A.) 1.00(b) 12/01/2024 7,845
19,725 Statewide Communities Dev. Auth.
(LOC - Federal Home Loan Bank of Des Moines)
(LOC - Federal Home Loan Bank of San Francisco) 0.98(b) 3/01/2057 19,725
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 7,110 Statewide Communities Dev. Auth.
(LOC - Comerica Bank, N.A.) 1.00%(b) 3/01/2057 $ 7,110
----------
112,430
----------
COLORADO (0.5%)
9,085 Sheridan County (LOC - JP Morgan Chase & Co.) 1.00(b) 12/01/2029 9,085
----------
CONNECTICUT (0.3%)
5,000 Health and Educational Facilities Auth.
(LOC - Bank of America Corp.) 0.96(b) 7/01/2030 5,000
----------
DISTRICT OF COLUMBIA (0.4%)
1,500 District of Columbia (LOC - Bank of America Corp.) 1.15(b) 7/01/2022 1,500
6,300 District of Columbia (LOC - SunTrust Bank) 1.05(b) 10/01/2037 6,300
----------
7,800
----------
FLORIDA (4.7%)
8,150 Dade County IDA 0.99(b) 6/01/2021 8,150
20,200 Escambia County 0.99(b) 4/01/2039 20,200
16,360 Grove Resort Community Dev. District (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.29(b) 4/15/2022 16,360
20,100 Jacksonville 0.99(b) 5/01/2029 20,100
2,360 Lee County IDA (LOC - Fifth Third Bank) 1.07(b) 6/01/2025 2,360
6,700 Martin County 0.99(b) 7/15/2022 6,700
6,000 St. Lucie County 0.99(b) 9/01/2028 6,000
8,310 UCF Health Facilities Corp. (LOC - Fifth Third Bank) 1.04(b) 7/01/2037 8,310
----------
88,180
----------
GEORGIA (0.8%)
1,950 Cobb County Dev. Auth. (LOC - Federal
Home Loan Bank of Atlanta) 0.98(b) 2/01/2030 1,950
12,600 Roswell Housing Auth. (LOC - Northern Trust Corp.) 0.94(b) 9/01/2027 12,600
----------
14,550
----------
ILLINOIS (4.9%)
2,880 Dev. Finance Auth. (LOC - Bank of America Corp.) 0.98(b) 9/01/2032 2,880
16,000 Dev. Finance Auth. (LOC - Fifth Third Bank) 1.05(b) 2/01/2033 16,000
1,570 Educational Facilities Auth. (LOC - Fifth Third Bank) 1.04(b) 7/01/2024 1,570
3,490 Educational Facilities Auth.
(LOC - Huntington National Bank) 1.21(b) 10/01/2032 3,490
5,310 Finance Auth. (LOC - Northern Trust Corp.) 1.01(b) 4/01/2033 5,310
10,100 Finance Auth. (LOC - Huntington National Bank) 1.21(b) 10/01/2033 10,100
8,800 Finance Auth. (LOC - Key Bank, N.A.) 0.98(b) 11/01/2039 8,800
9,600 Galesburg Revenue (LOC - PNC
Financial Services Group) 0.95(b) 3/01/2031 9,600
11,900 Kane County (LOC - Fifth Third Bank) 1.05(b) 2/01/2028 11,900
================================================================================
6 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 22,490 Metropolitan Pier & Exposition Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.27%(b) 6/15/2050 $ 22,490
----------
92,140
----------
INDIANA (1.1%)
5,445 Berne (LOC - Federal Home Loan
Bank of Indianapolis) 0.99(b) 10/01/2033 5,445
3,505 Evansville (LOC - Fifth Third Bank) 1.04(b) 1/01/2025 3,505
8,585 Finance Auth. (LOC - Federal Home Loan
Bank of Indianapolis) 1.00(b) 7/01/2029 8,585
1,000 Finance Auth. (LOC - Fifth Third Bank) 1.07(b) 9/01/2031 1,000
2,095 Finance Auth. (LOC - PNC Financial Services Group) 1.09(b) 6/01/2037 2,095
----------
20,630
----------
IOWA (5.7%)
6,850 Chillicothe 0.98(b) 1/01/2023 6,850
12,750 Council Bluffs 0.98(b) 1/01/2025 12,750
9,600 Finance Auth. 0.97(b) 6/01/2039 9,600
41,763 Finance Auth. 0.97(b) 9/01/2036 41,763
31,300 Louisa County 0.97(b) 10/01/2024 31,300
5,500 Urbandale (LOC - Wells Fargo & Co.) 1.02(b) 11/01/2020 5,500
----------
107,763
----------
KENTUCKY (1.2%)
11,490 Georgetown (LOC - Fifth Third Bank) 1.04(b) 11/15/2029 11,490
2,495 Lexington-Fayette Urban County
(LOC - Federal Home Loan Bank of Cincinnati) 1.19(b) 12/01/2027 2,495
8,430 Lexington-Fayette Urban County
(LOC - Fifth Third Bank) 1.04(b) 1/01/2033 8,430
----------
22,415
----------
LOUISIANA (1.7%)
7,500 Environmental Facilities and Community Dev. Auth. 1.04(b) 12/01/2030 7,500
1,485 Hammond Area Economic and Industrial Dev. District
(LOC - Federal Home Loan Bank of Dallas) 0.98(b) 3/01/2033 1,485
5,280 New Orleans (LOC - Capital One, N.A.) 1.17(b) 8/01/2024 5,280
135 Public Facilities Auth. (LOC - Capital One, N.A.) 1.21(b) 7/01/2023 135
11,000 St. James Parish 1.05(b) 11/01/2040 11,000
6,080 St. Tammany Parish Dev. District
(LOC - Federal Home Loan Bank of Dallas) 0.98(b) 3/01/2033 6,080
----------
31,480
----------
MARYLAND (0.5%)
9,420 Williamsport (LOC - Manufacturers
& Traders Trust Co.) 0.99(b) 11/01/2037 9,420
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
MICHIGAN (2.3%)
$ 800 Finance Auth. (LOC - Fifth Third Bank) 1.01%(b) 12/01/2032 $ 800
2,500 Finance Auth. (LOC - Fifth Third Bank) 1.01(b) 12/01/2032 2,500
4,500 Finance Auth. (LOC - Fifth Third Bank) 1.01(b) 12/01/2032 4,500
19,345 Higher Educational Facilities Auth.
(LOC - Comerica Bank, N.A.) 1.00(b) 11/01/2036 19,345
10,000 Oakland County EDC (LOC - Fifth Third Bank) 1.05(b) 3/01/2029 10,000
2,715 Strategic Fund (LOC - Fifth Third Bank) 1.05(b) 8/01/2023 2,715
845 Strategic Fund (LOC - Fifth Third Bank) 1.05(b) 10/01/2027 845
1,880 Strategic Fund (LOC - Fifth Third Bank) 1.07(b) 4/01/2035 1,880
----------
42,585
----------
MINNESOTA (0.3%)
1,970 Canby Community Hospital District No.1 1.32(b) 11/01/2026 1,970
4,515 New Ulm (LOC - Federal Home Loan Bank of Chicago) 1.05(b) 10/01/2040 4,515
----------
6,485
----------
MISSISSIPPI (0.2%)
4,290 Business Finance Corp. (LOC - Federal
Home Loan Bank of Dallas) 0.98(b) 3/01/2033 4,290
----------
MISSOURI (1.5%)
1,050 Health and Educational Facilities Auth.
(LOC - Fifth Third Bank) 1.05(b) 11/01/2020 1,050
20,000 Jackson County IDA (LOC - Commerce Bank, N.A.) 0.99(b) 7/01/2025 20,000
6,800 St. Louis County IDA (LOC - Fifth Third Bank) 1.02(b) 9/01/2038 6,800
----------
27,850
----------
NEBRASKA (1.1%)
10,000 Central Plains Energy Project (LIQ)
(LOC - Royal Bank of Canada)(a) 1.00(b) 3/01/2020 10,000
10,000 Washington County 0.96(b) 12/01/2040 10,000
----------
20,000
----------
NEVADA (1.3%)
24,150 Clark County EDA (LOC - Bank of America Corp.) 2.14(b) 12/01/2041 24,150
----------
NEW HAMPSHIRE (2.6%)
34,990 Business Finance
(LOC - Landesbank Hessen-Thuringen) 1.00(b) 9/01/2030 34,990
6,005 Health and Education Facilities Auth.
(LOC - Citizens Financial Group) 1.04(b) 7/01/2038 6,005
7,890 Health and Educational Facilities Auth.
(LOC - Citizens Financial Group) 1.13(b) 10/01/2030 7,890
----------
48,885
----------
================================================================================
8 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
NEW JERSEY (1.2%)
$ 3,210 EDA (LOC - Bank of America Corp.) 0.93%(b) 11/01/2027 $ 3,210
20,000 State (LIQ) (LOC - Royal Bank of Canada)(a) 0.97(b) 6/28/2018 20,000
----------
23,210
----------
NEW MEXICO (0.3%)
5,000 Hospital Equipment Loan Council
(LOC - Fifth Third Bank) 1.07(b) 7/01/2025 5,000
----------
NEW YORK (10.7%)
3,850 Albany IDA (LOC - Citizens Financial Group) 1.00(b) 5/01/2035 3,850
1,310 Albany IDA (LOC - Citizens Financial Group) 1.00(b) 5/01/2035 1,310
2,350 Albany IDA (LOC - Key Bank, N.A.) 0.99(b) 7/01/2035 2,350
15,045 Amherst IDA (LOC - Manufacturers &
Traders Trust Co.) 0.99(b) 10/01/2031 15,045
5,995 Build NYC Resource Corp.
(LOC - Toronto-Dominion Bank) 1.04(b) 12/01/2045 5,995
2,085 Chautauqua County IDA
(LOC - Citizens Financial Group) 1.04(b) 8/01/2027 2,085
32,510 Dormitory Auth. (LOC - Citizens Financial Group) 1.09(b) 6/01/2038 32,510
740 Erie County IDA (LOC - Key Bank, N.A.) 1.02(b) 6/01/2022 740
1,140 Erie County IDA (LOC - Key Bank, N.A.) 1.02(b) 6/01/2022 1,140
3,420 Guilderland IDA (LOC - Key Bank, N.A.) 1.02(b) 7/01/2032 3,420
22,400 Hudson Yards Infrastructure Corp. (LIQ)
(LOC - Royal Bank of Canada)(a) 0.99(b) 2/15/2019 22,400
15,000 Liberty Dev. Corp. (LIQ)
(LOC - Royal Bank of Canada)(a) 0.99(b) 11/15/2019 15,000
2,420 Monroe County IDA
(LOC - Manufacturers & Traders Trust Co.) 0.99(b) 12/01/2034 2,420
4,760 MTA (LOC - BNP Paribas) 0.97(b) 11/15/2045 4,760
7,500 New York City
(LOC - Manufacturers & Traders Trust Co.) 1.06(b) 12/01/2040 7,500
740 New York City IDA (LOC - Toronto-Dominion Bank) 1.04(b) 12/01/2027 740
3,135 New York City IDA (LOC - JP Morgan Chase & Co.) 1.04(b) 12/01/2034 3,135
27,595 New York City IDA (LOC - Key Bank, N.A.) 0.99(b) 7/01/2038 27,595
660 Niagara County IDA (LOC - Key Bank, N.A.) 1.02(b) 9/01/2021 660
4,060 Oneida County IDA (LOC - Citizens Financial Group) 0.97(b) 7/01/2037 4,060
6,650 Onondaga County IDA
(LOC - Manufacturers & Traders Trust Co.) 0.99(b) 12/01/2031 6,650
9,000 Ontario County IDA (LOC - Key Bank, N.A.) 0.97(b) 7/01/2030 9,000
10,045 Ramapo Housing Auth.
(LOC - Manufacturers & Traders Trust Co.) 1.04(b) 12/01/2029 10,045
1,745 Seneca County IDA (LOC - Key Bank, N.A.) 1.02(b) 4/01/2020 1,745
2,055 St. Lawrence County (LOC - Citizens Financial Group) 1.09(b) 7/01/2037 2,055
3,385 Syracuse IDA (LOC - Key Bank, N.A.) 1.02(b) 1/01/2033 3,385
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 11,675 Tompkins County IDA
(LOC - Bank of America Corp.) 1.06%(b) 2/01/2037 $ 11,675
----------
201,270
----------
OHIO (2.0%)
2,525 Akron Metropolitan Housing Auth.
(LOC - Huntington National Bank) 1.11(b) 4/01/2018 2,525
2,500 Cincinnati and Hamilton County
(LOC - Fifth Third Bank) 1.02(b) 9/01/2025 2,500
3,900 Hamilton County (LOC - Fifth Third Bank) 1.04(b) 12/01/2024 3,900
10,500 Hamilton County (LOC - Fifth Third Bank) 1.05(b) 12/01/2026 10,500
1,240 Highland County (LOC - Fifth Third Bank) 1.07(b) 8/01/2024 1,240
2,695 Loraine Port Auth. (LOC - Key Bank, N.A.) 1.09(b) 7/01/2028 2,695
1,965 Pike County Health Care Facilities
(LOC - Bank of America Corp.) 0.99(b) 11/01/2033 1,965
10,945 Pike County Health Care Facilities
(LOC - Bank of America Corp.) 0.99(b) 11/01/2033 10,945
1,345 Wayne County (LOC - Fifth Third Bank) 1.09(b) 9/01/2021 1,345
----------
37,615
----------
OKLAHOMA (3.7%)
6,230 Edmond EDA (LOC - Bank of Oklahoma, N.A.) 1.09(b) 6/01/2031 6,230
28,700 Garfield County Industrial Auth. 0.94(b) 1/01/2025 28,700
26,000 Muskogee Industrial Trust 0.98(b) 6/01/2027 26,000
8,165 Tulsa Industrial Auth. (LOC - Bank of Oklahoma, N.A.) 1.09(b) 11/01/2026 8,165
----------
69,095
----------
PENNSYLVANIA (0.3%)
5,250 Chartiers Valley Industrial and Commercial Dev. Auth. 1.47(b) 11/15/2017 5,250
----------
RHODE ISLAND (0.6%)
4,120 EDC (LOC - Citizens Financial Group) 1.21(b) 3/01/2038 4,120
6,890 Health and Educational Building Corp.
(LOC - Citizens Financial Group) 0.97(b) 6/01/2035 6,890
----------
11,010
----------
SOUTH DAKOTA (0.7%)
5,975 Health and Educational Facilities Auth. 1.32(b) 11/01/2020 5,975
2,475 Health and Educational Facilities Auth. 1.32(b) 11/01/2025 2,475
5,105 Health and Educational Facilities Auth. 1.32(b) 11/01/2027 5,105
----------
13,555
----------
TENNESSEE (1.6%)
15,000 Chattanooga Health, Educational and Housing Facilities
Board (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.12(b) 1/01/2045 15,000
4,530 Memphis-Shelby County IDB (LOC - SunTrust Bank) 1.05(b) 1/01/2028 4,530
================================================================================
10 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 10,245 Metropolitan Government of Nashville and Davidson
County (LOC - Fifth Third Bank) 1.04%(b) 12/01/2024 $ 10,245
----------
29,775
----------
TEXAS (6.8%)
32,200 Atascosa County IDC (NBGA) 0.98(b) 6/30/2020 32,200
7,200 Brazos Harbor IDC 1.04(b) 7/01/2022 7,200
23,700 Brooks Dev. Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.29(b) 8/15/2052 23,700
16,000 Port Arthur 1.00(b) 12/01/2040 16,000
25,000 Port Arthur 1.00(b) 6/01/2041 25,000
11,800 Port of Port Arthur Navigation District 1.41(b) 4/01/2040 11,800
11,000 Port of Port Arthur Navigation District 1.41(b) 11/01/2040 11,000
----------
126,900
----------
VIRGINIA (2.9%)
9,500 Albemarle County IDA (LOC - SunTrust Bank) 1.05(b) 10/01/2037 9,500
1,355 Alexandria IDA (LOC - Bank of America Corp.) 1.06(b) 7/01/2026 1,355
2,800 College Building Auth. (LIQ)(a) 0.96(b) 2/01/2021 2,800
1,400 Fairfax County EDA (LOC - SunTrust Bank) 1.05(b) 6/01/2037 1,400
3,665 Fairfax County IDA 0.99(b) 5/15/2042 3,665
2,190 Fauquier County IDA
(LOC - PNC Financial Services Group) 0.96(b) 4/01/2038 2,190
1,700 Hanover County EDA
(LOC - Bank of New York Mellon Corp.) 0.91(b) 11/01/2025 1,700
7,000 Loudoun County IDA (LOC - Northern Trust Corp.) 0.95(b) 6/01/2034 7,000
4,770 Norfolk Redevelopment and Housing Auth.
(LOC - Bank of America Corp.) 1.05(b) 7/01/2034 4,770
2,640 Roanoke County EDA (LOC - BB&T Corp.) 1.03(b) 10/01/2028 2,640
5,190 Small Business Financing Auth.
(LOC - Bank of America Corp.) 0.95(b) 7/01/2030 5,190
6,775 Transportation Board (LIQ)(a) 0.97(b) 5/15/2020 6,775
5,915 Univ. of Virginia (LIQ)(a) 0.96(b) 12/01/2017 5,915
----------
54,900
----------
WASHINGTON (1.8%)
23,685 Health Care Facilities Auth. (LOC - Barclays Bank plc) 0.92(b) 8/15/2041 23,685
9,905 Higher Education Facilities Auth. 0.99(b) 10/01/2031 9,905
----------
33,590
----------
WEST VIRGINIA (1.9%)
26,545 Hospital Finance Auth. (LOC - Fifth Third Bank) 1.01(b) 10/01/2033 26,545
9,630 Marshall County 0.95(b) 3/01/2026 9,630
----------
36,175
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
WISCONSIN (0.0%)
$ 540 Health and Educational Facilities Auth.
(LOC - JP Morgan Chase & Co.) 0.99%(b) 5/01/2026 $ 540
----------
WYOMING (0.6%)
12,000 Gillette 1.03(b) 1/01/2018 12,000
----------
Total Variable-Rate Demand Notes (cost: $1,483,908) 1,483,908
----------
PUT BONDS (1.3%)
MONTANA (1.3%)
5,000 Board of Investments (NBGA) 1.20 3/01/2025 5,000
10,100 Board of Investments (NBGA) 1.20 3/01/2028 10,100
10,000 Board of Investments (NBGA) 1.20 3/01/2029 10,000
----------
25,100
----------
Total Put Bonds (cost: $25,100) 25,100
----------
FIXED-RATE INSTRUMENTS (19.1%)
CALIFORNIA (3.4%)
26,900 San Diego County Water Auth. 0.87 10/04/2017 26,900
17,000 San Diego County Water Auth. 0.83 11/06/2017 17,000
20,000 Statewide Communities Dev. Auth. 0.94 10/17/2017 20,000
----------
63,900
----------
CONNECTICUT (0.3%)
5,300 New Haven 2.50 5/15/2018 5,337
----------
MARYLAND (0.8%)
15,000 Health & Higher Educational Facilities Auth. 0.87 11/02/2017 15,000
----------
NEW YORK (8.4%)
8,146 Adirondack CSD 2.00 7/19/2018 8,194
13,759 Bath CSD 2.00 6/22/2018 13,838
1,405 Berlin CSD 2.00 6/27/2018 1,412
9,411 Cambridge CSD 2.00 6/29/2018 9,461
10,500 Chenango Valley CSD 2.00 6/29/2018 10,559
6,000 Cortland CSD 2.00 6/22/2018 6,031
11,889 Dunkirk CSD 2.00 6/27/2018 11,951
7,830 East Bloomfield CSD 2.00 7/06/2018 7,873
10,000 Geneva CSD 2.00 7/13/2018 10,056
9,990 Herkimer CSD 2.00 6/29/2018 10,041
10,060 Mechanicville CSD 2.00 6/22/2018 10,121
4,469 Moravia CSD 2.00 6/29/2018 4,492
4,040 Mount Markham CSD 2.00 6/28/2018 4,062
6,000 Newark Valley CSD 2.00 6/29/2018 6,030
4,255 Pavilion CSD 2.00 6/22/2018 4,279
================================================================================
12 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 10,000 Salmon River CSD 2.00% 6/29/2018 $ 10,048
6,000 Spencerport CSD 2.00 6/28/2018 6,033
4,000 Troy CSD 2.00 6/13/2018 4,020
10,719 Union Endicott CSD 2.00 6/29/2018 10,784
8,209 Wallkill CSD 2.50 6/29/2018 8,286
----------
157,571
----------
TEXAS (5.7%)
9,650 Dallas 0.98 10/12/2017 9,650
5,000 Dallas Area Rapid Transit 0.90 10/05/2017 5,000
10,000 Dallas Area Rapid Transit 0.90 11/08/2017 10,000
22,500 Dallas Area Rapid Transit 0.92 12/04/2017 22,500
5,000 Houston 0.91 10/04/2017 5,000
15,000 Houston 0.88 10/12/2017 15,000
10,000 Houston (LOC - Citigroup, Inc.) 0.95 10/17/2017 10,000
15,000 Houston 0.88 10/24/2017 15,000
10,000 Houston 0.94 10/24/2017 10,000
5,100 Houston 0.94 10/24/2017 5,100
----------
107,250
----------
VIRGINIA (0.5%)
9,835 Stafford County & Staunton IDA
(LOC - Bank of America Corp.) 0.84 10/12/2017 9,835
----------
Total Fixed-Rate Instruments (cost: $358,893) 358,893
----------
TOTAL INVESTMENTS (COST: $1,867,901) $1,867,901
==========
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $1,483,908 $- $1,483,908
Put Bonds - 25,100 - 25,100
Fixed-Rate Instruments - 358,893 - 358,893
------------------------------------------------------------------------------------------------------------
Total $- $1,867,901 $- $1,867,901
------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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, 2017, for federal income tax
purposes, was $1,867,901,000.
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 under liquidity guidelines approved by USAA Mutual Funds Trust's
Board of Trustees, unless otherwise noted as illiquid.
(b) Variable-rate demand notes - interest rate is determined by the issuer
or agent based on current market conditions, and is not based on a
published reference rate and spread. These securities do not indicate a
reference rate and spread in their description.
See accompanying notes to financial statements.
================================================================================
14 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $1,867,901
Cash 332
Receivables:
Capital shares sold 10,924
Interest 2,456
Securities sold 7
----------
Total assets 1,881,620
----------
LIABILITIES
Payables:
Capital shares redeemed 4,562
Dividends on capital shares 24
Accrued management fees 435
Other accrued expenses and payables 204
----------
Total liabilities 5,225
----------
Net assets applicable to capital shares outstanding $1,876,395
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,876,399
Undistributed net investment income 5
Accumulated net realized loss on investments (9)
----------
Net assets applicable to capital shares outstanding $1,876,395
==========
Capital shares outstanding, no par value 1,876,391
==========
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, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 9,144
-------
EXPENSES
Management fees 2,720
Administration and servicing fees 971
Transfer agent's fees 1,457
Custody and accounting fees 133
Postage 93
Shareholder reporting fees 28
Trustees' fees 16
Registration fees 33
Professional fees 73
Other 21
-------
Total expenses 5,545
-------
NET INVESTMENT INCOME 3,599
-------
NET REALIZED LOSS ON INVESTMENTS
Net realized loss (9)
-------
Increase in net assets resulting from operations $ 3,590
=======
See accompanying notes to financial statements.
================================================================================
16 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
----------------------------------------------------------------------------------------
9/30/2017 3/31/2017
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,599 $ 2,573
Net realized gain (loss) on investments (9) 2,545
------------------------
Increase in net assets resulting from operations 3,590 5,118
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,594) (2,573)
Net realized gains - (2,564)
------------------------
Distributions to shareholders (3,594) (5,137)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 605,014 2,295,385
Reinvested dividends 3,584 5,083
Cost of shares redeemed (739,290) (2,927,812)
------------------------
Decrease in net assets from capital share transactions (130,692) (627,344)
------------------------
Net decrease in net assets (130,696) (627,363)
NET ASSETS
Beginning of period 2,007,091 2,634,454
------------------------
End of period $1,876,395 $ 2,007,091
========================
Undistributed net investment income:
End of period $ 5 $ -
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 605,014 2,295,385
Shares issued for dividends reinvested 3,584 5,083
Shares redeemed (739,290) (2,927,812)
------------------------
Decrease in shares outstanding (130,692) (627,344)
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA Tax Exempt Money Market Fund (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 Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. 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.
The Fund operates as a retail money market fund in compliance with the
requirements of Rule 2a-7 under the 1940 Act; and as a retail money market fund,
shares of the Fund are available for sale only to accounts that are beneficially
owned by natural persons.
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
================================================================================
18 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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 backtesting 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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.
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. The purchase of securities on
================================================================================
20 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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, 2017, there were no custodian and other bank credits.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), 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 | 21
================================================================================
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $8,000, which represents 3.4% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had no capital loss carryforwards, for federal
income tax purposes.
For the six-month period ended September 30, 2017, 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.
================================================================================
22 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
(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.
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $2,720,000.
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, 2017, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $971,000.
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, 2017, the Fund reimbursed the
Manager $24,000 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 for the fiscal year. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
period ended September 30, 2017, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $1,457,000.
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. Effective August 1, 2017, the Manager terminated this
agreement. For the six-month period ended September 30, 2017, the Fund did
not incur any reimbursable expenses.
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) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
24 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
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,
------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------------
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 - (.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 (%)* .19(b) .23 .02 .01 .02 .01
Net assets at
end of period (000) $1,876,395 $2,007,091 $2,634,454 $2,676,708 $2,747,771 $2,683,358
Ratios to average
net assets:**
Expenses (%)(c) 0.57(b),(d) .54 .17 .15 .21 .34
Expenses, excluding
reimbursements (%)(c) 0.57(d) .58 .58 .58 .56 .56
Net investment income (%) 0.37(d) .11 .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, 2017, average net assets were
$1,936,383,000.
(a) Represents less than $0.01 per share.
(b) Prior to August 1, 2017, the Manager had 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) 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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
26 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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 | 27
================================================================================
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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
----------------------------------------------------------
Actual $1,000.00 $1,001.90 $2.86
Hypothetical
(5% return before expenses) 1,000.00 1,022.21 2.89
*Expenses are equal to the Fund's annualized expense ratio of 0.57%, which is
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 value is based on its actual total
return of 0.19% for the six-month period of April 1, 2017, through September
30, 2017.
================================================================================
28 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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,
================================================================================
ADVISORY AGREEMENT | 29
================================================================================
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, shareholder 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
experience 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
================================================================================
30 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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 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 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.
================================================================================
ADVISORY AGREEMENT | 31
================================================================================
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, 2016.
The Board also noted that the Fund's percentile performance ranking was in the
top 40% of its performance universe for the one-year period ended December 31,
2016, was in the top 50% of its performance universe for the three-year period
ended December 31, 2016, was in the top 45% of its performance universe for the
five-year period ended December 31, 2016, and was in the top 20% of its
performance universe for the ten-year period ended December 31, 2016.
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 considered the fact that the Manager and its
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
================================================================================
32 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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 and other risks 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 | 33
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
39598-1117 (C)2017, 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 (USSTX) o ADVISER SHARES (UTESX)
SEPTEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 18
Financial Statements 20
Notes to Financial Statements 23
EXPENSE EXAMPLE 37
ADVISORY AGREEMENT 39
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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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 excludable from gross income for federal income tax purposes (referred
to herein as "tax-exempt securities"). 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.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income dividends will be tax-exempt and excludable from the
calculation of the federal alternative minimum tax (AMT) for individual
taxpayers. This policy may be changed only by a shareholder vote.
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
General Obligation ...................................................... 21.9%
Hospital ................................................................ 17.0%
Electric Utilities ...................................................... 13.4%
Appropriated Debt ....................................................... 7.2%
Education ............................................................... 6.8%
Special Assessment/Tax/Fee .............................................. 6.4%
Toll Roads .............................................................. 5.1%
Environmental & Facilities Services ..................................... 2.5%
Oil & Gas Refining & Marketing .......................................... 2.2%
Nursing/CCRC ............................................................ 1.9%
You will find a complete list of securities that the Fund owns on pages 4-17.
================================================================================
2 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 1.3%
AA 30.9%
A 40.7%
BBB 22.1%
BELOW INVESTMENT-GRADE 1.5%
UNRATED 3.5%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide 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 4-17.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (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
CSD Central School District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
================================================================================
4 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
LIBOR London Interbank Offered Rate
ISD Independent School District
MTA Metropolitan Transportation Authority
MUNIPSA Securities Industry and Financial Markets Association
(SIFMA) Municipal Swap Index
USD U.S. Dollar
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., 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 one of the
following: Bank of America Corp., Barclays Bank plc, Citigroup,
Inc., Deutsche Bank A.G., JPMorgan Chase & Co., 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 Georgia-Pacific LLC or Texas Permanent School Fund.
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
INVESTMENTS
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (40.8%)
ARIZONA (0.1%)
$ 1,000 Yavapai County IDA 5.00% 8/01/2019 $ 1,062
1,105 Yavapai County IDA 5.00 8/01/2020 1,206
----------
2,268
----------
CALIFORNIA (1.7%)
500 Anaheim Public Financing Auth. 5.00 5/01/2022 579
250 Anaheim Public Financing Auth. 5.00 5/01/2024 299
1,125 Irvine 5.00 9/02/2021 1,265
500 Los Angeles County 5.00 3/01/2021 563
1,000 Los Angeles County 5.00 9/01/2021 1,141
2,000 Public Works Board 5.00 4/01/2019 2,120
2,700 Public Works Board 5.00 11/01/2019 2,922
1,000 Public Works Board 5.00 4/01/2020 1,097
1,500 Public Works Board 5.00 4/01/2021 1,696
15,000 State 5.00 10/01/2017 15,004
----------
26,686
----------
COLORADO (0.1%)
1,250 Health Facilities Auth. 4.00 12/01/2019 1,310
----------
CONNECTICUT (0.2%)
2,235 West Haven (INS) 5.00 8/01/2020 2,434
----------
FLORIDA (2.6%)
4,500 Gulf Breeze 3.10 12/01/2020 4,722
1,385 Higher Educational Facilities Financing Auth. 5.00 4/01/2021 1,548
1,000 Jacksonville 5.00 10/01/2019 1,077
4,580 Jacksonville 5.00 10/01/2020 5,078
595 Lee County IDA 3.75 10/01/2017 595
3,165 Lee County IDA 4.75 10/01/2022 3,342
1,775 Miami Beach Health Facilities Auth. 5.00 11/15/2019 1,897
1,250 Miami Beach Health Facilities Auth. 5.00 11/15/2020 1,371
7,500 Miami-Dade County IDA 3.75 12/01/2018 7,728
2,820 Pinellas County Educational Facilities Auth. 4.00 10/01/2020 2,964
1,325 Southeast Overtown / Park West Community
Redevelopment Agency(a) 5.00 3/01/2020 1,413
1,000 Southeast Overtown / Park West Community
Redevelopment Agency(a) 5.00 3/01/2023 1,115
8,975 Sunshine State Governmental Financing Commission 5.00 9/01/2018 9,300
----------
42,150
----------
================================================================================
6 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
GEORGIA (0.6%)
$ 3,415 Private Colleges and Univ. Auth. 5.00% 10/01/2018 $ 3,526
1,265 Private Colleges and Univ. Auth. 5.00 10/01/2019 1,344
1,255 Private Colleges and Univ. Auth. 5.00 10/01/2019 1,333
3,770 Private Colleges and Univ. Auth. 5.00 10/01/2020 4,101
----------
10,304
----------
GUAM (0.5%)
1,500 Government 5.00 12/01/2023 1,716
2,000 Government 5.00 12/01/2024 2,311
860 Government Waterworks Auth. 5.00 7/01/2020 927
1,000 Power Auth. (INS) 5.00 10/01/2019 1,069
1,500 Power Auth. (INS) 5.00 10/01/2020 1,647
----------
7,670
----------
IDAHO (0.3%)
5,000 Nez Perce County 2.75 10/01/2024 4,849
----------
ILLINOIS (5.3%)
20,000 Chicago (INS) 3.18(b) 1/01/2018 19,885
1,720 Chicago Transit Auth. 5.00 6/01/2025 2,015
1,000 Chicago Transit Auth. 5.00 6/01/2026 1,178
4,000 Chicago Water 5.00 11/01/2025 4,696
2,000 Chicago Water 5.00 11/01/2025 2,348
2,500 Chicago Water 4.00 11/01/2026 2,734
1,000 Chicago Water 5.00 11/01/2026 1,180
1,000 Finance Auth. 5.00 7/01/2018 1,027
2,410 Finance Auth. 5.00 8/15/2018 2,489
14,360 Finance Auth. 5.00 2/15/2019 14,574
1,000 Finance Auth. 5.00 7/01/2019 1,060
1,420 Finance Auth. 5.00 7/01/2020 1,547
10,000 Finance Auth. 4.00 2/15/2025 10,950
6,500 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 6,667
4,160 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2020 4,580
1,090 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2021 1,235
1,735 Rosemont (INS) 5.00 12/01/2022 1,963
1,825 Rosemont (INS) 5.00 12/01/2023 2,086
1,915 Rosemont (INS) 5.00 12/01/2024 2,206
----------
84,420
----------
INDIANA (0.3%)
5,000 Finance Auth. 2.95 10/01/2022 5,277
----------
KANSAS (0.1%)
2,055 Wichita 3.00 9/01/2023 2,073
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
LOUISIANA (0.4%)
$ 5,000 Tobacco Settlement Financing Corp. 5.00% 5/15/2022 $ 5,669
----------
MASSACHUSETTS (0.4%)
1,065 Dev. Finance Agency 5.00 1/01/2018 1,075
1,395 Dev. Finance Agency 5.00 1/01/2019 1,456
1,250 Dev. Finance Agency 5.00 7/01/2025 1,488
1,500 Dev. Finance Agency 5.00 7/01/2026 1,795
----------
5,814
----------
MICHIGAN (0.3%)
2,165 Grand Traverse County Hospital Finance Auth.(c) 5.00 7/01/2018 2,227
2,625 Grand Traverse County Hospital Finance Auth.(c) 5.00 7/01/2019 2,793
----------
5,020
----------
MINNESOTA (0.2%)
1,250 St. Paul Housing and Redevelopment Auth. (ETM) 5.00 11/15/2020 1,396
1,575 St. Paul Housing and Redevelopment Auth. (ETM) 5.00 11/15/2021 1,807
----------
3,203
----------
MISSISSIPPI (0.7%)
10,000 Hospital Equipment and Facilities Auth. 5.00 9/01/2024 11,626
----------
MISSOURI (0.3%)
5,000 Sikeston Electric System Revenue (INS) 5.00 6/01/2020 5,447
----------
MONTANA (0.4%)
6,000 Forsyth 2.00 8/01/2023 5,946
----------
NEW JERSEY (10.7%)
1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2024 1,150
7,300 EDA (ETM) 5.25 9/01/2019 7,888
2,700 EDA 5.25 9/01/2019 2,871
5,000 EDA 5.00 6/15/2020 5,387
7,000 EDA 5.00 6/15/2021 7,698
20,000 EDA 5.00 6/15/2022 22,186
7,000 EDA 5.00 6/15/2023 7,831
4,735 Educational Facilities Auth. 5.00 9/01/2022 5,268
4,000 Educational Facilities Auth. 5.00 9/01/2023 4,485
4,730 Educational Facilities Auth. 4.00 9/01/2024 5,021
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2018 2,059
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2019 2,132
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2020 2,200
15,000 Kearny Board of Education 2.00 10/06/2017 15,002
15,000 Kearny Board of Education(d) 2.25 10/05/2018 15,123
13,546 Linden 2.25 12/13/2017 13,578
5,057 Little Falls Township 2.50 12/15/2017 5,071
8,961 Orange Township 2.50 12/12/2017 8,983
================================================================================
8 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 3,455 Roselle 2.50% 12/12/2017 $ 3,464
400 State Building Auth. (ETM) 3.00 6/15/2023 431
600 State Building Auth. 3.00 6/15/2023 602
1,595 State Building Auth. (ETM) 5.00 6/15/2024 1,932
2,405 State Building Auth. 5.00 6/15/2024 2,710
5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2020 5,525
3,160 Transportation Trust Fund Auth. (INS) 5.50 12/15/2020 3,503
1,500 Transportation Trust Fund Auth. 5.00 6/15/2022 1,665
3,835 Transportation Trust Fund Auth. 5.00 6/15/2023 4,294
5,095 Transportation Trust Fund Auth. 5.00 6/15/2024 5,748
8,380 Union City 2.50 3/26/2018 8,412
----------
172,219
----------
NEW YORK (7.9%)
1,200 Dormitory Auth(a) 5.00 12/01/2024 1,367
1,200 Dormitory Auth(a) 5.00 12/01/2025 1,374
8,000 East Ramapo CSD 1.50 10/27/2017 8,001
4,000 Elmira City 3.00 5/25/2018 4,021
7,600 Lackawanna City School District 1.50 11/15/2017 7,603
10,000 Long Beach 2.00 2/15/2018 10,027
5,170 Monroe County 5.00 6/01/2020 5,656
7,500 Nassau Health Care Corp. 2.75 1/16/2018 7,520
7,140 Newburgh 2.00 8/03/2018 7,174
10,000 Oyster Bay 3.50 6/01/2018 10,105
12,000 Oyster Bay 4.00 6/01/2018 12,106
1,200 Poughkeepsie 4.00 5/04/2018 1,207
1,410 Rockland County 3.50 10/01/2017 1,410
550 Rockland County 5.00 12/15/2017 554
8,000 Rockland County 2.50 3/22/2018 8,043
1,475 Rockland County 3.50 10/01/2018 1,504
550 Rockland County 5.00 12/15/2018 573
1,520 Rockland County 3.50 10/01/2019 1,576
1,575 Rockland County 3.50 10/01/2020 1,652
2,500 Rockland County (INS) 5.00 3/01/2023 2,892
1,600 Rockland County (INS) 5.00 3/01/2024 1,879
2,500 Suffolk County EDC 5.00 7/01/2019 2,660
2,640 Suffolk County EDC 5.00 7/01/2020 2,894
14,347 Troy 2.00 2/09/2018 14,378
3,930 Yonkers(c) 5.00 10/01/2017 3,931
7,310 Yonkers(c) (ETM) 5.00 10/01/2018 7,613
----------
127,720
----------
NORTH CAROLINA (0.3%)
3,855 Medical Care Commission 5.00 7/01/2018 3,967
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
OHIO (0.6%)
$ 1,875 Hancock County 4.25% 12/01/2017 $ 1,885
1,000 Higher Educational Facility 5.00 5/01/2021 1,110
500 Higher Educational Facility 5.00 5/01/2022 565
550 Higher Educational Facility 5.00 5/01/2023 630
1,000 Higher Educational Facility 5.00 5/01/2024 1,160
1,150 Southeastern Ohio Port Auth. 5.00 12/01/2021 1,240
1,000 Southeastern Ohio Port Auth. 5.00 12/01/2025 1,076
1,800 Water Dev. Auth. 1.55 7/01/2021 1,793
----------
9,459
----------
PENNSYLVANIA (2.5%)
1,000 Bethlehem Auth. (INS) 5.00 11/15/2020 1,109
905 Chester County IDA 3.75 10/01/2024 937
7,975 Coatesville School District 3.46(b) 8/15/2018 7,860
1,165 Coatesville School District 3.86(b) 8/15/2019 1,119
5,305 Coatesville School District 4.13(b) 8/15/2020 4,967
1,000 Coatesville School District (INS) 5.00 8/01/2024 1,187
800 Coatesville School District (INS) 5.00 8/01/2025 960
1,980 Cumberland County Municipal Auth. 3.25 12/01/2022 2,016
1,155 Delaware County Auth. 5.00 10/01/2017 1,155
1,195 Delaware County Auth. 5.00 10/01/2018 1,236
600 Higher Educational Facilities Auth. 5.00 7/15/2020 646
1,090 Higher Educational Facilities Auth. 5.00 7/15/2021 1,197
5,000 School District of Philadelphia 5.00 9/01/2021 5,540
5,500 School District of Philadelphia 5.00 9/01/2022 6,187
2,435 Scranton School District 5.00 6/01/2023 2,745
1,570 West Mifflin Area School District (INS) 5.00 10/01/2021 1,751
----------
40,612
----------
PUERTO RICO (0.1%)
1,000 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.00 4/01/2019 1,008
700 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 4.00 4/01/2020 691
----------
1,699
----------
TEXAS (2.4%)
1,100 Austin Convention Enterprises, Inc. 5.00 1/01/2024 1,258
400 Austin Convention Enterprises, Inc. 5.00 1/01/2025 460
400 Austin Convention Enterprises, Inc. 5.00 1/01/2027 467
700 Decatur Hospital Auth. 5.00 9/01/2021 764
780 Decatur Hospital Auth. 5.00 9/01/2024 854
480 Harris County Municipal Utility District (INS) 3.00 3/01/2020 499
565 Harris County Municipal Utility District (INS) 3.00 3/01/2021 594
================================================================================
10 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 650 Harris County Municipal Utility District (INS) 3.00% 3/01/2022 $ 687
520 Harris County Municipal Utility District (INS) 3.00 3/01/2023 552
15,000 Houston 0.95 10/12/2017 15,000
3,000 Karnes County Hospital District 5.00 2/01/2024 3,364
1,250 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2023 1,422
2,300 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2024 2,637
2,135 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2025 2,457
7,175 Red River Auth. (INS) 4.45 6/01/2020 7,664
440 Tarrant County Cultural Education Facilities
Finance Corp. (ETM) 5.00 11/15/2017 442
560 Tarrant County Cultural Education Facilities
Finance Corp. (ETM) 5.00 11/15/2017 563
----------
39,684
----------
VIRGINIA (0.7%)
3,200 Housing Dev. Auth. 3.05 3/01/2018 3,227
3,200 Housing Dev. Auth. 3.05 9/01/2018 3,257
3,506 Marquis Community Dev. Auth.(e), (f) 5.10 9/01/2036 2,757
5,111 Marquis Community Dev. Auth.(e), (f) 5.63(b) 9/01/2041 701
1,074 Marquis Community Dev. Auth.,
7.50%, 9/01/2021, (a), (f) 7.50(g) 9/01/2045 717
----------
10,659
----------
WASHINGTON (0.3%)
2,000 Health Care Facilities Auth. 5.00 8/15/2026 2,361
2,175 Health Care Facilities Auth. 5.00 8/15/2027 2,575
----------
4,936
----------
WEST VIRGINIA (0.6%)
10,000 EDA 3.25 5/01/2019 10,171
----------
WISCONSIN (0.2%)
1,200 Health and Educational Facilities Auth. (ETM) 5.00 8/15/2021 1,373
1,500 Public Finance Auth.(a) 3.50 11/15/2023 1,524
----------
2,897
----------
Total Fixed-Rate Instruments (cost: $642,523) 656,189
----------
PUT BONDS (23.7%)
ARIZONA (2.6%)
16,000 Health Facilities Auth., MUNIPSA + 1.85% 2.79(h) 2/01/2048 16,287
25,000 Health Facilities Auth., MUNIPSA + 1.85% 2.79(h) 2/01/2048 25,398
----------
41,685
----------
ARKANSAS (1.4%)
22,000 Dev. Finance Auth., MUNIPSA + 1.1% 2.04(h) 9/01/2044 21,923
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
CALIFORNIA (3.2%)
$ 15,000 Bay Area Toll Auth., MUNIPSA + 0.7% 1.64%(h) 4/01/2047 $ 15,076
15,000 Foothill-Eastern Transportation Corridor Agency 5.00 1/15/2053 15,811
8,000 Infrastructure and Economic Dev. Bank,
MUNIPSA + 1.2% 2.14(h) 8/01/2037 8,062
8,000 Municipal Finance Auth., MUNIPSA + 0.5% 1.44(h) 10/01/2045 7,995
4,000 Pollution Control Financing Auth.(a) 0.95 8/01/2024 4,000
----------
50,944
----------
COLORADO (0.1%)
2,000 E-470 Public Highway Auth., 1 mo.
USD LIBOR + 0.9% 1.73(h) 9/01/2039 2,011
----------
GEORGIA (0.9%)
10,000 Appling County Dev. Auth 2.40 1/01/2038 10,035
5,000 Monroe County Dev. Auth. 2.00 9/01/2037 5,028
----------
15,063
----------
ILLINOIS (0.2%)
2,500 Educational Facilities Auth. 3.40 11/01/2036 2,504
----------
KENTUCKY (0.2%)
3,500 Economic Dev. Finance Auth. 1.00 4/01/2031 3,500
----------
LOUISIANA (0.3%)
4,000 St. Charles Parish 4.00 12/01/2040 4,231
----------
MASSACHUSETTS (0.7%)
12,000 Dev. Finance Agency, MUNIPSA + 0.48% 1.42(h) 7/01/2050 11,982
----------
MISSISSIPPI (0.4%)
7,000 Hospital Equipment and Facilities Auth.,
MUNIPSA + 1.3% 2.24(h) 8/15/2036 7,007
----------
NEVADA (0.3%)
4,400 Washoe County Gas and Water Facilities 3.00 3/01/2036 4,620
----------
NEW JERSEY (1.9%)
20,000 Transportation Trust Fund Auth., MUNIPSA + 1.2% 2.14(h) 6/15/2034 19,817
10,000 Turnpike Auth., MUNIPSA + 0.68% 1.62(h) 1/01/2024 10,000
----------
29,817
----------
NEW MEXICO (1.6%)
5,000 Farmington 1.88 4/01/2029 5,059
5,000 Farmington 1.88 4/01/2029 5,058
7,000 Farmington 1.88 4/01/2029 7,090
6,000 Farmington 1.88 4/01/2033 5,976
2,000 Farmington 2.13 6/01/2040 2,012
----------
25,195
----------
================================================================================
12 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
NEW YORK (2.5%)
$ 6,000 Energy Research and Dev. Auth. 2.00% 2/01/2029 $ 6,074
9,735 MTA, 1 mo. USD LIBOR + 0.84% 1.67(h) 11/01/2030 9,740
12,000 MTA, MUNIPSA + 0.58% 1.52(h) 11/01/2031 12,033
12,000 New York City, MUNIPSA + 0.58% 1.52(h) 8/01/2027 12,005
----------
39,852
----------
NORTH CAROLINA (0.5%)
8,000 Capital Facilities Finance Agency 1.00 7/01/2034 8,000
----------
OHIO (0.3%)
10,000 Water Dev. Auth. 4.00 6/01/2033 4,575
----------
PENNSYLVANIA (4.1%)
10,000 Beaver County IDA 4.75 8/01/2020 10,187
5,100 Beaver County IDA 2.70 4/01/2035 2,333
7,575 Berks County Municipal Auth., MUNIPSA + 1.5% 2.44(h) 11/01/2039 7,622
7,000 Geisinger Auth., 1 mo. USD LIBOR + 1.07% 1.90(h) 6/01/2028 6,962
5,000 Montgomery County IDA 2.60 3/01/2034 5,043
7,000 Northampton County General Purpose Auth.,
MUNIPSA + 1.4% 2.34(h) 8/15/2043 7,050
14,900 Scranton School District, 1 mo. USD LIBOR + 1% 1.84(h) 4/01/2031 14,925
12,500 Turnpike Commission, MUNIPSA + 0.8% 1.74(h) 12/01/2045 12,499
----------
66,621
----------
TEXAS (2.0%)
15,000 Mission EDC 1.05 1/01/2020 15,000
4,000 North Texas Tollway Auth., MUNIPSA + 0.67% 1.61(h) 1/01/2038 4,005
4,000 North Texas Tollway Auth., MUNIPSA + 0.8% 1.74(h) 1/01/2050 4,014
9,355 Northside ISD (NBGA) 2.13 8/01/2040 9,384
----------
32,403
----------
WEST VIRGINIA (0.5%)
5,500 EDA 1.90 3/01/2040 5,516
3,000 Mason County 1.63 10/01/2022 3,018
----------
8,534
----------
Total Put Bonds (cost: $386,551) 380,467
----------
ADJUSTABLE-RATE NOTES (1.5%)
NEW YORK (0.1%)
2,000 New York City, MUNIPSA + 0.55% 1.49(h) 8/01/2025 2,000
----------
PENNSYLVANIA (1.2%)
6,000 Turnpike Commission MUNIPSA + 1.15% 2.09(h) 12/01/2019 6,081
6,000 Turnpike Commission MUNIPSA + 1.27% 2.21(h) 12/01/2020 6,124
6,500 Turnpike Commission MUNIPSA + 0.98% 1.92(h) 12/01/2021 6,593
----------
18,798
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
TEXAS (0.2%)
$ 1,750 Harris County Cultural Education Facilities
Finance Corp. MUNIPSA + 0.60% 1.54%(h) 6/01/2018 $ 1,750
2,250 Harris County Cultural Education Facilities
Finance Corp. MUNIPSA + 0.70% 1.64(h) 6/01/2019 2,253
----------
4,003
----------
Total Adjustable-Rate Notes (cost: $24,500) 24,801
----------
VARIABLE-RATE DEMAND NOTES (34.8%)
ARIZONA (1.8%)
20,000 Phoenix IDA (LIQ) (LOC - Barclays Bank plc)(a) 0.98(j) 6/01/2036 20,000
8,600 Verrado Western Overlay Community Facilities
District (LOC - Compass Bank) 1.07(j) 7/01/2029 8,600
----------
28,600
----------
CALIFORNIA (1.9%)
20,000 Sacramento City Financing Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.04(j) 12/01/2033 20,000
11,200 Victorville Joint Powers Financing Auth.
(LOC - BNP Paribas) 1.44(j) 5/01/2040 11,200
----------
31,200
----------
COLORADO (1.9%)
8,145 Arista Metropolitan District (LOC - Compass Bank) 1.07(j) 12/01/2030 8,145
5,000 Health Facilities Auth. (LIQ)(a) 1.29(j) 2/01/2019 5,000
17,500 Health Facilities Auth. (LIQ)(a) 1.15(j) 10/01/2041 17,500
----------
30,645
----------
DISTRICT OF COLUMBIA (1.2%)
20,000 District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19(j) 10/01/2041 20,000
----------
FLORIDA (3.8%)
6,400 Dade County IDA 0.99(j) 6/01/2021 6,400
10,000 Escambia County 0.99(j) 4/01/2039 10,000
7,540 Jacksonville 0.99(j) 5/01/2029 7,540
9,300 Lee Memorial Health System (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.00(j) 4/01/2037 9,300
2,800 Martin County 0.99(j) 7/15/2022 2,800
11,250 Miami-Dade County School Board (INS) (LIQ)(a) 1.09(j) 12/01/2017 11,250
13,500 St. Lucie County 0.99(j) 9/01/2028 13,500
----------
60,790
----------
================================================================================
14 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
GEORGIA (1.0%)
$ 13,600 Burke County Dev. Auth. 1.04%(j) 7/01/2049 $ 13,600
3,000 Monroe County Dev. Auth. 1.04(j) 11/01/2048 3,000
----------
16,600
----------
IDAHO (1.4%)
15,000 American Falls Reservoir District 1.08(j) 2/01/2025 15,000
6,650 Housing and Finance Association(i) 1.02(j) 1/01/2038 6,650
----------
21,650
----------
ILLINOIS (3.4%)
16,480 Chicago Board of Education (INS) (LIQ)(a) 1.44(j) 7/01/2018 16,480
10,000 Chicago Board of Education (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.27(j) 12/01/2039 10,000
11,160 Cook County (LIQ)(a) 1.24(j) 11/15/2020 11,160
17,390 Sports Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.12(j) 6/15/2032 17,390
----------
55,030
----------
KENTUCKY (1.3%)
15,000 Economic Dev. Finance Auth. (INS) (LIQ)(a) 1.14(j) 1/04/2018 15,000
5,500 Economic Dev. Finance Auth. 1.25(j) 5/01/2034 5,500
----------
20,500
----------
LOUISIANA (3.2%)
2,600 East Baton Rouge Parish 0.98(j) 11/01/2019 2,600
2,000 Public Facilities Auth. 0.95(j) 5/01/2042 2,000
13,000 Public Facilities Auth. 0.95(j) 12/01/2043 13,000
13,000 Public Facilities Auth. 0.94(j) 12/01/2043 13,000
6,400 St. James Parish 1.05(j) 11/01/2040 6,400
14,000 St. James Parish 1.05(j) 11/01/2040 14,000
----------
51,000
----------
MARYLAND (0.7%)
10,760 Health and Higher Educational Facilities Auth. (LIQ)
(LOC - Deutsche Bank A.G.)(a) 1.02(j) 8/15/2042 10,760
----------
MISSISSIPPI (2.1%)
13,575 Business Finance Commission 0.94(j) 12/01/2030 13,575
20,100 Perry County Pollution Control (NBGA)(a) 1.17(j) 2/01/2022 20,100
----------
33,675
----------
NEW JERSEY (1.4%)
1,950 EDA (LOC - Valley National Bank) 1.11(j) 3/01/2031 1,950
8,725 EDA (LOC - Valley National Bank) 1.24(j) 11/01/2040 8,725
11,415 EDA (LOC - Valley National Bank) 1.24(j) 11/01/2040 11,415
----------
22,090
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
NEW YORK (1.6%)
$ 2,700 Energy Research and Dev. Auth.
(LOC - Mizuho Corporate Bank Ltd.) 0.93%(j) 5/01/2039 $ 2,700
20,500 Housing Finance Agency
(LOC - Landesbank Hessen-Thuringen) 0.98(j) 5/01/2042 20,500
2,300 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.95(j) 11/01/2046 2,300
----------
25,500
----------
OHIO (0.3%)
5,500 State(i) 1.02(j) 1/15/2045 5,500
----------
OKLAHOMA (1.7%)
10,000 Garfield County Industrial Auth. 0.94(j) 1/01/2025 10,000
17,000 Muskogee Industrial Trust 0.97(j) 1/01/2025 17,000
----------
27,000
----------
PENNSYLVANIA (1.6%)
25,735 Emmaus General Auth. (INS) (LIQ) 0.97(j) 12/01/2028 25,735
----------
TENNESSEE (0.1%)
1,700 Chattanooga Health, Educational and Housing
Facilities Board 1.40(j) 5/01/2039 1,700
----------
TEXAS (2.9%)
11,760 Harris County Health Facilities Dev. Corp. 0.98(j) 12/01/2041 11,760
14,225 Port of Port Arthur Navigation District 1.41(j) 11/01/2040 14,225
17,300 Port of Port Arthur Navigation District 1.41(j) 11/01/2040 17,300
3,100 Rockwall ISD (LIQ) (NBGA) 0.92(j) 8/01/2037 3,100
----------
46,385
----------
WASHINGTON (0.3%)
4,460 Health Care Facilities Auth. (LOC - Barclays Bank plc) 0.92(j) 8/15/2041 4,460
----------
WYOMING (1.2%)
20,000 Gillette 1.03(j) 1/01/2018 20,000
----------
Total Variable-Rate Demand Notes (cost: $558,820) 558,820
----------
TOTAL INVESTMENTS (COST: $1,612,394) $1,620,277
==========
================================================================================
16 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $ 656,189 $- $ 656,189
Put Bonds - 380,467 - 380,467
Adjustable-Rate Notes - 24,801 - 24,801
Variable-Rate Demand Notes - 558,820 - 558,820
------------------------------------------------------------------------------------------------------------
Total $- $1,620,277 $- $1,620,277
------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2017, through September 30, 2017, 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, 2017 (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, 2017, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(d) At September 30, 2017, the aggregate market value of securities purchased
on a delayed-delivery basis was $15,123,000, of which all were
when-issued securities.
================================================================================
18 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
(e) Restricted security that is not registered under the Securities Act of
1933.
(f) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
September 30, 2017, was $4,175,000, which represented 0.3% of the Fund's
net assets.
(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) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2017.
(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.
(j) Variable-rate demand notes - interest rate is determined by the issuer or
agent based on current market conditions, and is not based on a published
reference rate and spread. These securities do not indicate a reference
rate and spread in their description.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,612,394) $1,620,277
Cash 1,415
Receivables:
Capital shares sold 605
USAA Asset Management Company (Note 6C) 1
Interest 10,102
----------
Total assets 1,632,400
----------
LIABILITIES
Payables:
Securities purchased 22,629
Capital shares redeemed 1,065
Dividends on capital shares 291
Accrued management fees 372
Accrued transfer agent's fees 34
Other accrued expenses and payables 124
----------
Total liabilities 24,515
----------
Net assets applicable to capital shares outstanding $1,607,885
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,619,155
Undistributed net investment income 2
Accumulated net realized loss on investments (19,155)
Net unrealized appreciation of investments 7,883
----------
Net assets applicable to capital shares outstanding $1,607,885
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,590,118/151,402 capital shares
outstanding, no par value) $ 10.50
==========
Adviser Shares (net assets of $17,767/1,690 capital shares
outstanding, no par value) $ 10.51
==========
See accompanying notes to financial statements.
================================================================================
20 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $16,619
-------
EXPENSES
Management fees 2,306
Administration and servicing fees:
Fund Shares 1,217
Adviser Shares 19
Transfer agent's fees:
Fund Shares 374
Adviser Shares 2
Distribution and service fees (Note 6E):
Adviser Shares 32
Custody and accounting fees:
Fund Shares 115
Adviser Shares 2
Postage:
Fund Shares 17
Shareholder reporting fees:
Fund Shares 15
Trustees' fees 16
Registration fees:
Fund Shares 63
Adviser Shares 17
Professional fees 58
Other 18
-------
Total expenses 4,271
Expenses reimbursed:
Adviser Shares (7)
-------
Net expenses 4,264
-------
NET INVESTMENT INCOME 12,355
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 125
Change in net unrealized appreciation/(depreciation) 8,787
-------
Net realized and unrealized gain 8,921
-------
Increase in net assets resulting from operations $21,267
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
------------------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 12,355 $ 24,889
Net realized gain (loss) on investments 125 (744)
Change in net unrealized appreciation/(depreciation)
of investments 8,787 (22,639)
--------------------------
Increase in net assets resulting from operations 21,267 1,506
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (12,161) (24,526)
Adviser Shares (153) (322)
--------------------------
Distributions to shareholders (12,314) (24,848)
--------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (88,370) (67,403)
Adviser Shares (14,580) 1,536
--------------------------
Total net decrease in net assets from capital
share transactions (102,950) (65,867)
--------------------------
Net decrease in net assets (93,997) (89,209)
NET ASSETS
Beginning of period 1,701,882 1,791,091
--------------------------
End of period $1,607,885 $1,701,882
==========================
Undistributed (overdistribution of) net investment income:
End of period $ 2 $ (39)
==========================
See accompanying notes to financial statements.
================================================================================
22 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA Tax Exempt Short-Term Fund (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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 backtesting 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 ask 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,
================================================================================
24 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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.
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
================================================================================
26 | USAA TAX EXEMPT SHORT-TERM 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, 2017, the Fund's
outstanding delayed-delivery commitments, including interest purchased, were
$15,129,000, of which all 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, 2017, there were no custodian and other bank credits.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), 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 provide temporary or emergency
cash needs, including redemption requests that
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
might otherwise require the untimely disposition of securities. Subject to
availability (including usage of the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $6,000, which represents 2.4% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had net capital loss carryforwards of $19,280,000,
for federal income tax purposes, as shown in the table below. It is unlikely
================================================================================
28 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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 $ 670,000
Long-Term 18,610,000
-----------
Total $19,280,000
===========
For the six-month period ended September 30, 2017, 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, 2017, were
$72,374,000 and $182,370,000, respectively.
As of September 30, 2017, 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, 2017, were $17,306,000 and $9,423,000, respectively, resulting in net
unrealized appreciation of $7,883,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2017 MARCH 31, 2017
----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 13,376 $ 140,239 39,459 $ 414,993
Shares issued from reinvested
dividends 1,001 10,503 2,014 21,204
Shares redeemed (22,810) (239,112) (47,882) (503,600)
--------------------------------------------------
Net decrease from capital
share transactions (8,433) $ (88,370) (6,409) $ (67,403)
==================================================
ADVISER SHARES:
Shares sold 325 $ 3,415 3,742 $ 39,240
Shares issued from reinvested
dividends 10 104 20 210
Shares redeemed (1,724) (18,099) (3,612) (37,914)
--------------------------------------------------
Net increase (decrease) from
capital share transactions (1,389) $ (14,580) 150 $ 1,536
==================================================
(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.
The performance adjustment for each share class is calculated monthly by
comparing the Fund's performance to that of the Lipper Short Municipal Debt
Funds Index. The Lipper Short Municipal Debt Funds Index tracks the total
return performance of funds within the Lipper Short Municipal Debt Funds
category.
================================================================================
30 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $2,306,000, which
included a (0.01)% performance adjustment for the Adviser Shares of
$(1,000). For the six-month period ended September 30, 2017, the Fund
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
and Adviser Shares. For the six-month period ended September 30, 2017, the
Fund Shares and Adviser Shares incurred administration and servicing fees,
paid or payable to the Manager, of $1,217,000 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, 2017, the Fund reimbursed the
Manager $20,000 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 July 31, 2018, 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 July 31, 2018, 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,
2017, 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
the administration and servicing of accounts that are held with such
intermediaries. For the six-month period ended September 30, 2017, the Fund
Shares and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $374,000 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
================================================================================
32 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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, 2017, the Adviser Shares incurred distribution and service (12b-1) fees
of $32,000.
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,
2017, USAA and its affiliates owned 465,000 Adviser Shares, which represents
27.5% 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.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
34 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.45 $ 10.59 $ 10.68 $ 10.71 $ 10.84 $ 10.80
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .15 .16 .17 .19 .22
Net realized and
unrealized gain (loss) .05 (.14) (.09) (.03) (.13) .04
---------------------------------------------------------------------------------------
Total from investment
operations .13 .01 .07 .14 .06 .26
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.15) (.16) (.17) (.19) (.22)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.50 $ 10.45 $ 10.59 $ 10.68 $ 10.71 $ 10.84
=======================================================================================
Total return (%)* 1.24 .09 .62 1.29 .60 2.41
Net assets at end of
period (000) $1,590,118 $1,669,691 $1,760,074 $1,929,648 $2,031,383 $2,185,741
Ratios to average
net assets:**
Expenses (%)(a) .51(b) .54 .55 .55 .55 .55
Net investment
income (%) 1.50(b) 1.43 1.47 1.56 1.81 2.02
Portfolio turnover (%) 7 34 25 30 14 3
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended September 30, 2017, average net assets were
$1,617,746,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(9) 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,
---------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.46 $ 10.59 $ 10.67 $ 10.71 $ 10.84 $ 10.80
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .12 .13 .14 .17 .19
Net realized and
unrealized gain (loss) .05 (.13) (.08) (.04) (.13) .04
---------------------------------------------------------------------------------
Total from investment
operations .11 (.01) .05 .10 .04 .23
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (.06) (.12) (.13) (.14) (.17) (.19)
---------------------------------------------------------------------------------
Redemption fees added
to beneficial interests - - .00(a) - - -
---------------------------------------------------------------------------------
Net asset value at
end of period $ 10.51 $ 10.46 $ 10.59 $ 10.67 $ 10.71 $ 10.84
=================================================================================
Total return (%)* 1.09 (.08) .46 .94 .35 2.16
Net assets at end of
period (000) $17,767 $32,191 $31,017 $16,805 $11,186 $ 6,604
Ratios to average
net assets:**
Expenses (%)(b) .80(c) .80 .80 .80 .80 .80
Expenses, excluding
reimbursements (%)(b) .86(c) .81 .83 .98 .94 1.17
Net investment
income (%) 1.22(c) 1.16 1.17 1.32 1.55 1.77
Portfolio turnover (%) 7 34 25 30 14 3
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended September 30, 2017, average net assets were
$25,171,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
36 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
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 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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,012.40 $2.57
Hypothetical
(5% return before expenses) 1,000.00 1,022.51 2.59
ADVISER SHARES
Actual 1,000.00 1,010.90 4.03
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.51% 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
1.24% for Fund Shares and 1.09% for Adviser Shares for the six-month period of
April 1, 2017, through September 30, 2017.
================================================================================
38 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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 | 39
================================================================================
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 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,
shareholder 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 experience of the Manager, including the professional experience
and qualifications of its senior and investment personnel, as well as
================================================================================
40 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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 below the median of its
expense group and above the median of its expense universe. The data indicated
that the Fund's total expense ratio was below the median of its expense group
and its expense universe. The Board took into account the various services
provided to the
================================================================================
ADVISORY AGREEMENT | 41
================================================================================
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 below the average of its performance universe and its Lipper
index for the one-year period ended December 31, 2016, and was above the average
of its performance universe and its Lipper index for the three-, five-, and
ten-year periods ended December 31, 2016. The Board also noted that the Fund's
percentile performance ranking was in the bottom 50% of its performance universe
for the one-year period ended December 31, 2016, was in the top 20% of its
performance universe for the three-year period ended December 31, 2016, was in
the top 15% of its performance universe for the five-year period ended December
31, 2016, and was in the top 10% of its performance universe for the ten-year
period ended December 31, 2016.
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
================================================================================
42 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
overall profitability of the management fee to the Manager, the Board also
considered the fact that the Manager and its 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 and other risks 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.
================================================================================
ADVISORY AGREEMENT | 43
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
39592-1117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TARGET MANAGED ALLOCATION FUND]
============================================================
SEMIANNUAL REPORT
USAA TARGET MANAGED ALLOCATION FUND (UTMAX)
SEPTEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 6
Financial Statements 8
Notes to Financial Statements 11
EXPENSE EXAMPLE 25
ADVISORY AGREEMENT 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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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. Derivatives investments
are typically used as a liquid and economical means of managing tactical
allocations to asset classes. The Fund may also use derivatives for hedging and
risk-management purposes.*
*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 set 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 9/30/17 o
[PIE CHART OF ASSET ALLOCATION]
DOMESTIC EXCHANGE-TRADED FUNDS* 54.2%
INTERNATIONAL EXCHANGE-TRADED FUNDS* 24.3%
FIXED-INCOME EXCHANGE-TRADED FUNDS* 19.2%
BONDS 0.8%
MONEY MARKET INSTRUMENTS 0.6%
[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 3-5.
================================================================================
2 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.7%)
EXCHANGE-TRADED FUNDS (97.7%)
DOMESTIC EXCHANGE-TRADED FUNDS (54.2%)
110,000 iShares Core U.S. REIT ETF(a) $ 5,419
419,656 SPDR S&P Oil & Gas Exploration & Production ETF(a) 14,306
323,162 VanEck Vectors Oil Services ETF 8,425
1,484,054 Vanguard Mid-Cap ETF(a) 218,156
201,085 Vanguard REIT ETF(a) 16,708
--------
Total Domestic Exchange-Traded Funds 263,014
--------
FIXED-INCOME EXCHANGE-TRADED FUNDS (19.2%)
431,243 iShares 7-10 Year Treasury Bond ETF(a) 45,936
372,113 iShares iBoxx $ High Yield Corporate Bond ETF(a) 33,029
126,708 iShares TIPS Bond ETF(a) 14,391
--------
Total Fixed-Income Exchange-Traded Funds 93,356
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (24.3%)
404,270 iShares Core MSCI Emerging Markets ETF 21,839
211,980 iShares Currency Hedged MSCI Eurozone ETF 6,383
259,831 iShares Edge MSCI Min Vol Emerging Markets ETF 15,096
161,380 iShares MSCI Eurozone ETF(a) 6,991
177,452 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 7,831
1,646,238 PowerShares FTSE RAFI Emerging Markets Portfolio 35,114
448,809 WisdomTree Japan Hedged Equity Fund 24,550
--------
Total International Exchange-Traded Funds 117,804
--------
Total Exchange-Traded Funds 474,174
--------
Total Equity Securities (cost: $423,282) 474,174
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------------------------
BONDS (0.8%)
U.S. TREASURY SECURITIES (0.8%)
NOTES (0.8%)(b)
$ 4,000 1.88%, 4/30/2022(c) (cost: $4,011) 3,997
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
2,843,263 State Street Institutional Treasury Money Market Fund Premier
Class, 0.92%(d) (cost: $2,843) $ 2,843
--------
TOTAL INVESTMENTS (COST: $430,136) $481,014
========
------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS DATE AMOUNT (000) VALUE (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(e)
LONG FUTURES
EQUITY CONTRACTS
15 Amsterdam Exchange Index 10/20/2017 1,579 EURO $ 1,904 $ 37
110 CAC 40 10 Euro 10/20/2017 5,721 EURO 6,925 163
17 DAX Index 12/15/2017 5,329 EURO 6,429 131
92 FTSE Bursa Malaysia
KLCI Index 10/31/2017 8,089 MYR 1,908 (8)
11 FTSE MIB Index 12/15/2017 1,217 EURO 1,471 32
92 Hang Seng China
Enterprises Index 10/30/2017 50,145 HKD 6,422 3
72 Hang Seng Index 10/30/2017 98,423 HKD 12,680 81
14 IBEX 35 Index 10/20/2017 1,445 EURO 1,709 2
244 MSCI Taiwan Stock Index 10/30/2017 9,394 USD 9,387 (7)
96 OMX Stockholm 30 Index 10/20/2017 15,187 SEK 1,929 65
288 SET 50 Index 12/28/2017 62,020 THB 1,855 (5)
360 SGX Nifty 50 Index 10/26/2017 7,133 USD 7,058 (75)
59 Swiss Market Index 12/15/2017 5,317 CHF 5,563 72
71 TOPIX Index 12/07/2017 1,114,497 JPY 10,569 664
-------- ------
75,809 1,155
-------- ------
FOREIGN EXCHANGE CONTRACTS
1,100 Dollar Index 12/18/2017 101,514 USD $102,171 $ 657
-------- ------
TOTAL LONG FUTURES $177,980 $1,812
-------- ------
================================================================================
4 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS SECURITY DATE AMOUNT (000) VALUE (000) (000)
------------------------------------------------------------------------------------------------------------------
SHORT FUTURES
EQUITY CONTRACTS
(53) FTSE 100 Index 12/15/2017 (3,899) GBP $ (5,205) $ 19
(173) Mexican Bolsa Index 12/15/2017 (87,819) MXP (4,809) 14
(72) S&P TSX 60 Index 12/14/2017 (12,584) CAD (10,603) (517)
(90) SPI 200 Index 12/21/2017 (12,840) AUD (10,003) 68
-------- ------
(30,620) (416)
-------- ------
TOTAL SHORT FUTURES $(30,620) $ (416)
-------- ------
TOTAL FUTURES $147,360 $1,396
======== ======
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Exchange-Traded Funds:
Domestic Exchange-Traded Funds $263,014 $- $- $263,014
Fixed-Income Exchange-Traded Funds 93,356 - - 93,356
International Exchange-Traded Funds 117,804 - - 117,804
Bonds:
U.S. Treasury Securities 3,997 - - 3,997
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 2,843 - - 2,843
Futures(1) 2,008 - - 2,008
------------------------------------------------------------------------------------------------------------------
Total $483,022 $- $- $483,022
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (612) $- $- $ (612)
------------------------------------------------------------------------------------------------------------------
Total $ (612) $- $- $ (612)
------------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2017, through September 30, 2017, 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 | 5
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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 24.3% of net assets at
September 30, 2017.
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 - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus, the
fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
TIPS U.S. Treasury Inflation-Protected Securities
================================================================================
6 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at September 30, 2017.
(b) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(c) Securities with a value of $3,997,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(d) Rate represents the money market fund annualized seven-day yield at
September 30, 2017.
(e) The contract value of futures purchased and/or sold as a percentage of
net assets is 30.4%.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 7
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $430,136) $481,014
Cash 1,451
Cash denominated in foreign currencies (identified cost of $1,073) 1,072
Receivables:
Dividends and interest 762
Securities sold 7,459
Variation margin on futures contracts 1,418
--------
Total assets 493,176
--------
LIABILITIES
Payables:
Securities purchased 7,424
Accrued management fees 197
Other accrued expenses and payables 41
--------
Total liabilities 7,662
--------
Net assets applicable to capital shares outstanding $485,514
========
NET ASSETS CONSIST OF:
Paid-in capital $435,539
Accumulated undistributed net investment income 3,747
Accumulated net realized loss on investments and futures transactions (6,045)
Net unrealized appreciation of investments and futures contracts 52,274
Net unrealized depreciation of foreign currency translations (1)
--------
Net assets applicable to capital shares outstanding $485,514
========
Capital shares outstanding, no par value 44,274
========
Net asset value, redemption price, and offering price per share $ 10.97
========
See accompanying notes to financial statements.
================================================================================
8 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 5,221
Interest 47
-------
Total income 5,268
-------
EXPENSES
Management fees 1,182
Administration and servicing fees 118
Transfer agent's fees 118
Custody and accounting fees 37
Shareholder reporting fees 2
Trustees' fees 16
Professional fees 38
Other 10
-------
Total expenses 1,521
-------
NET INVESTMENT INCOME 3,747
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions (2,171)
Affiliated transactions (Note 7) 1,116
Foreign currency transactions (1)
Futures transactions (2,719)
Change in net unrealized appreciation/(depreciation) of:
Investments 20,892
Foreign currency translations (1)
Futures contracts 1,589
-------
Net realized and unrealized gain 18,705
-------
Increase in net assets resulting from operations $22,452
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
---------------------------------------------------------------------------------------------------------
9/30/2017 3/31/2017
---------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,747 $ 5,920
Net realized gain (loss) on investments (1,055) 13,247
Net realized gain on long-term capital gain distributions
from other investment companies - 5
Net realized loss on foreign currency transactions (1) -
Net realized gain (loss) on futures transactions (2,719) 95
Change in net unrealized appreciation/(depreciation) of:
Investments 20,892 28,554
Foreign currency translations (1) -
Futures contracts 1,589 (193)
-------------------------
Increase in net assets resulting from operations 22,452 47,628
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (5,816)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 268 40,102
Reinvested dividends - 5,816
Cost of shares redeemed - (40,832)
-------------------------
Increase in net assets from capital share transactions 268 5,086
-------------------------
Net increase in net assets 22,720 46,898
NET ASSETS
Beginning of period 462,794 415,896
-------------------------
End of period $485,514 $462,794
=========================
Accumulated undistributed net investment income:
End of period $ 3,747 $ -
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 26 3,881
Shares issued for dividends reinvested - 576
Shares redeemed - (4,049)
-------------------------
Increase in shares outstanding 26 408
=========================
See accompanying notes to financial statements.
================================================================================
10 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA Target Managed Allocation Fund (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 Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. 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 | 11
================================================================================
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 backtesting 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 sale 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 ask 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 sale or official closing price 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
================================================================================
12 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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.
5. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and ask price
closest to the last reported sale price.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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
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.
================================================================================
14 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at September 30, 2017,
did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest
rate risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is
required to deposit with the broker in either cash or securities an initial
margin in an amount equal to a certain percentage of the contract amount.
Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Upon entering into
such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF SEPTEMBER 30, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
----------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
----------------------------------------------------------------------------------------------------
Equity contracts Net unrealized Net unrealized
appreciation of depreciation of
investments and investments and
futures futures
contracts $1,351** contracts $612**
----------------------------------------------------------------------------------------------------
Foreign exchange contracts Net unrealized
appreciation of
investments and
futures
contracts 657** -
----------------------------------------------------------------------------------------------------
Total $2,008 $612
----------------------------------------------------------------------------------------------------
*For open derivative instruments as of September 30, 2017, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended September 30, 2017.
**Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2017 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED GAIN APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF (LOSS) ON (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION DERIVATIVES ON DERIVATIVES
----------------------------------------------------------------------------------------------------
Equity contracts Net realized loss on
Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts $ 1,437 $ 739
----------------------------------------------------------------------------------------------------
Foreign exchange Net realized loss on
contracts Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts (4,156) 850
----------------------------------------------------------------------------------------------------
Total $(2,719) $1,589
----------------------------------------------------------------------------------------------------
================================================================================
16 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
D. 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.
E. 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. 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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, 2017, there were no custodian
and other bank credits.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an
================================================================================
18 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
affiliate of the Manager. The purpose of the agreement is to provide temporary
or emergency cash needs, including redemption requests that might otherwise
require the untimely disposition of securities. Subject to availability
(including usage of the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $1,000, which represents 0.6% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had net capital loss carryforwards of $1,179,000,
for federal income tax purposes, as shown in the table below. It is
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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, 2017, 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, 2017, were
$199,281,000 and $198,073,000, respectively.
As of September 30, 2017, 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, 2017, were $50,937,000 and $59,000, respectively, resulting in net
unrealized appreciation of $50,878,000.
(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,
2017, 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
================================================================================
20 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
six-month period ended September 30, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $1,182,000.
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 0.05% of the Fund's average net assets for the fiscal year. For the
six-month period ended September 30, 2017, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $118,000.
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, 2017, 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. 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, 2017, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $118,000.
D. 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.
(6) TRANSACTIONS WITH AFFILIATES
The Fund offers its shares for investment by other USAA funds and is one of 19
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, 2017, the USAA
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Target Retirement Income 4.2
Target Retirement 2020 10.0
Target Retirement 2030 29.5
Target Retirement 2040 35.0
Target Retirement 2050 19.4
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, 2017, 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 Global Managed Volatility $16,023,000 $1,116,000
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
================================================================================
22 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31, MARCH 31,
---------------------------------------------------------
2017 2017 2016***
---------------------------------------------------------
Net asset value at beginning of period $ 10.46 $ 9.49 $ 10.00
-------------------------------------------------------
Income (loss) from investment operations:
Net investment income .08 .14 .12(a)
Net realized and unrealized gain (loss) .43 .97 (.51)(a)
-------------------------------------------------------
Total from investment operations .51 1.11 (.39)(a)
-------------------------------------------------------
Less distributions from:
Net investment income - (.14) (.12)
-------------------------------------------------------
Net asset value at end of period $ 10.97 $ 10.46 $ 9.49
=======================================================
Total return (%)* 4.88 11.72 (3.91)
Net assets at end of period (000) $485,514 $462,794 $415,896
Ratios to average net assets:**
Expenses (%) .64(c) .64(b) .65(c)
Expenses, excluding reimbursements (%) .64(c) .64 .65(c)
Net investment income (%) 1.58(c) 1.37 1.88(c)
Portfolio turnover (%) 42 125(d) 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, 2017, average net assets
were $471,699,000.
*** Fund commenced operations on August 7, 2015.
(a) Calculated using average shares.
(b) Prior to August 1, 2016, the Manager had voluntarily agreed to limit
the annual expenses of the Fund to 0.70% of the Funds' average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects overall increase in trading due to prior period's portfolio
turnover ratio not being indicative of 12 months of operations.
================================================================================
24 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,048.80 $3.29
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 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 4.88% for the six-month period of April 1, 2017, through September
30, 2017.
================================================================================
26 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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,
================================================================================
ADVISORY AGREEMENT | 27
================================================================================
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, shareholder 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 knowledge of the Manager,
including the professional experience and
================================================================================
28 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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 funds
of 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 mixed-asset target
allocation moderate funds and mixed-asset target allocation conservative funds
of ETFs, 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 equal to 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 group
and its expense universe. The Board took into account the various
================================================================================
ADVISORY AGREEMENT | 29
================================================================================
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 above the average of its performance universe and its Lipper
index for the one-year period ended December 31, 2016. 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, 2016. The Board also 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. 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 the Manager and its
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
================================================================================
30 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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 and other risks 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 | 31
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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)
=============================================================================
98356-1117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VIRGINIA BOND FUND]
==============================================================
SEMIANNUAL REPORT
USAA VIRGINIA BOND FUND
FUND SHARES (USVAX) o ADVISER SHARES (UVABX)
SEPTEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 31
ADVISORY AGREEMENT 33
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)2017, USAA. All rights reserved.
================================================================================
================================================================================
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 excludable from gross
income for federal income tax and Virginia state income tax purposes (referred
to herein as "Virginia tax-exempt securities"). During normal market conditions,
at least 80% of the Fund's net assets will consist of Virginia tax-exempt
securities. This policy may be changed only by shareholder vote. The Fund's
dollar-weighted average portfolio maturity is not restricted, but is expected to
be greater than 10 years.
In addition, during normal market conditions, at least 80% of the Fund's annual
net investment income dividends will be tax-exempt and excludable from the
calculation of the federal alternative minimum tax (AMT) for individual
taxpayers. This policy may be changed only by a shareholder vote.
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/17 o
(% of Net Assets)
Hospital ................................................................ 19.1%
Education ............................................................... 18.0%
Escrowed Bonds .......................................................... 15.5%
Appropriated Debt ....................................................... 6.6%
Water/Sewer Utility ..................................................... 5.6%
Toll Roads .............................................................. 5.4%
Airport/Port ............................................................ 4.0%
Health Miscellaneous .................................................... 4.0%
Nursing/CCRC ............................................................ 3.1%
Special Assessment/Tax/Fee .............................................. 2.9%
You will find a complete list of securities that the Fund owns on pages 4-11.
================================================================================
2 | USAA VIRGINIA BOND FUND
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/17 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 13.7%
AA 55.0%
A 13.0%
BBB 8.0%
BELOW INVESTMENT-GRADE 4.3%
UNRATED 6.0%
[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 4-11.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2017 (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
ETM Escrowed to final maturity
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
================================================================================
4 | 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:
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 one of the
following: Barclays Bank plc, JP Morgan Chase & Co., Northern Trust
Corp., 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 | 5
================================================================================
INVESTMENTS
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (83.1%)
VIRGINIA (74.3%)
$ 1,000 Alexandria IDA (PRE) 4.75% 1/01/2036 $ 1,082
2,000 Amherst IDA 5.00 9/01/2026 1,921
2,000 Amherst IDA 4.75 9/01/2030 1,801
15,000 Arlington County IDA 5.00 7/01/2031 16,021
2,615 Capital Region Airport Commission (INS) (PRE) 5.00 7/01/2031 2,696
700 Capital Region Airport Commission 4.00 7/01/2036 746
750 Capital Region Airport Commission 4.00 7/01/2038 797
10,000 Charles City County EDA 2.88 2/01/2029 9,889
5,000 Chesapeake Bay Bridge and Tunnel District (ETM) 5.50 7/01/2025 6,121
9,240 Chesapeake Bay Bridge and Tunnel District 5.00 7/01/2051 10,284
6,520 Chesapeake, 4.75%, 7/15/2023 4.65(a) 7/15/2032 5,465
3,000 Chesapeake, 4.88%, 7/15/2023 4.88(a) 7/15/2040 2,460
5,000 College Building Auth. 5.00 6/01/2029 4,734
2,725 College Building Auth. 5.00 9/01/2031 3,237
5,615 College Building Auth. 5.00 9/01/2032 6,647
6,380 College Building Auth. 5.00 9/01/2033 7,517
10,000 College Building Auth. 5.00 3/01/2034 10,805
8,000 College Building Auth. 4.00 2/01/2035 8,512
11,710 College Building Auth. 5.00 6/01/2036 10,404
2,540 College Building Auth. 5.00 3/01/2041 2,745
7,100 Fairfax County EDA (PRE) 5.00 10/01/2027 7,102
2,000 Fairfax County EDA 5.00 10/01/2029 2,396
2,000 Fairfax County EDA 5.00 10/01/2030 2,387
2,000 Fairfax County EDA 5.00 10/01/2031 2,380
1,500 Fairfax County EDA 5.00 10/01/2032 1,779
1,500 Fairfax County EDA 5.00 12/01/2032 1,591
2,200 Fairfax County EDA 5.00 10/01/2033 2,596
2,000 Fairfax County EDA 5.00 10/01/2034 2,350
2,620 Fairfax County EDA 5.00 10/01/2035 3,133
2,000 Fairfax County EDA 5.00 10/01/2036 2,382
7,500 Fairfax County EDA (PRE) 5.13 10/01/2037 7,502
2,750 Fairfax County EDA 4.00 10/01/2042 2,796
2,250 Fairfax County EDA 5.00 10/01/2042 2,477
2,800 Fairfax County EDA 5.00 12/01/2042 2,928
4,000 Fairfax County EDA 5.00 4/01/2047 4,646
1,500 Fairfax County IDA (PRE) 5.25 5/15/2026 1,604
14,000 Fairfax County IDA 5.00 5/15/2037 15,598
1,000 Fairfax County IDA 4.00 5/15/2042 1,024
================================================================================
6 | USAA VIRGINIA BOND FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 6,900 Fairfax County IDA 4.00% 5/15/2044 $ 7,098
5,770 Farms of New Kent Community Dev. Auth.,
acquired 9/08/2006-10/03/2007; cost $5,630(b),(c),(h) 5.45 3/01/2036 1,441
1,000 Fauquier County IDA (PRE) 5.00 10/01/2027 1,000
8,825 Fauquier County IDA (PRE) 5.25 10/01/2037 8,827
1,500 Greater Richmond Convention Center Auth. 5.00 6/15/2032 1,750
3,340 Hampton Roads Sanitation District (PRE) 5.00 4/01/2033 3,410
5,660 Hampton Roads Sanitation District (PRE) 5.00 4/01/2033 5,778
4,700 Hampton Roads Sanitation District 5.00 8/01/2043 5,461
2,795 Hanover County EDA 4.50 7/01/2030 2,857
1,100 Hanover County EDA 4.50 7/01/2032 1,118
2,000 Hanover County EDA 5.00 7/01/2042 2,073
1,870 Hanover County IDA (INS) 6.38 8/15/2018 1,955
1,200 Henrico County EDA 5.00 6/01/2024 1,342
140 Henrico County EDA 4.25 6/01/2026 149
2,105 Henrico County EDA 5.00 11/01/2030 2,355
2,500 Henrico County EDA 4.00 10/01/2035 2,535
3,175 Housing Dev. Auth. 4.50 10/01/2036 3,307
5,000 Housing Dev. Auth. 4.80 7/01/2038 5,514
4,480 Housing Dev. Auth. 4.60 9/01/2040 4,586
7,000 Housing Dev. Auth. 3.60 5/01/2046 7,024
1,516 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,392
730 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 701
2,370 Lewistown Commerce Center Community Dev. Auth.,
acquired 10/12/2007; cost $2,371(b) 6.05 3/01/2054 353
750 Lexington IDA 4.00 1/01/2031 775
5,000 Lexington IDA (PRE) 5.00 12/01/2036 5,338
1,000 Lexington IDA 4.00 1/01/2037 1,006
2,000 Lexington IDA 5.00 1/01/2043 2,240
1,135 Loudoun County EDA 5.00 12/01/2031 1,356
800 Loudoun County EDA 5.00 12/01/2032 952
775 Loudoun County EDA 5.00 12/01/2033 918
805 Loudoun County EDA 5.00 12/01/2034 949
5,000 Lynchburg 4.00 6/01/2044 5,251
3,000 Lynchburg EDA 5.00 9/01/2043 3,211
2,250 Lynchburg EDA 5.00 1/01/2047 2,517
5,389 Marquis Community Dev. Auth., acquired 3/01/2012; cost $468(b),(d) 5.63(e) 9/01/2041 739
3,532 Marquis Community Dev. Auth., acquired 3/01/2012; cost $2,926(b),(d) 5.63 9/01/2041 2,691
1,093 Marquis Community Dev. Auth., 7.50%, 9/01/2021,
acquired 10/27/2015; cost $711(b),(f) 7.50(a) 9/01/2045 729
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 5,000 Montgomery County EDA (PRE) 5.00% 6/01/2035 $ 5,517
5,500 Montgomery County IDA (PRE) 5.00 2/01/2029 5,576
1,000 Norfolk EDA 5.00 11/01/2030 1,119
3,500 Norfolk EDA 5.00 11/01/2043 3,894
1,000 Norfolk Redevelopment and Housing Auth. 5.50 11/01/2019 1,004
4,816 Peninsula Town Center Community Dev. Auth. 6.45 9/01/2037 4,821
3,000 Port Auth. (PRE) 5.00 7/01/2030 3,211
10,000 Port Auth. (PRE) 5.00 7/01/2040 10,703
1,000 Portsmouth 5.00 2/01/2033 1,151
1,705 Prince William County IDA (PRE) 5.50 9/01/2031 1,979
2,000 Prince William County IDA 5.50 9/01/2031 2,270
1,000 Prince William County IDA (PRE) 5.50 9/01/2034 1,161
10,000 Prince William County IDA 5.00 11/01/2046 10,800
10,000 Public School Auth. 5.00 8/01/2024 12,145
4,000 Radford IDA (NBGA) 3.50 9/15/2029 4,140
2,340 Rappahannock Regional Jail Auth. 5.00 10/01/2034 2,721
1,165 Rappahannock Regional Jail Auth. 5.00 10/01/2035 1,352
1,030 Resources Auth. 5.00 11/01/2032 1,195
1,270 Resources Auth. (PRE) 5.00 11/01/2040 1,422
165 Resources Auth. 5.00 11/01/2040 181
7,310 Resources Auth. 4.00 11/01/2041 7,617
2,000 Richmond Public Utility (PRE) 5.00 1/15/2035 2,104
6,000 Richmond Public Utility 5.00 1/15/2038 6,825
6,000 Richmond Public Utility 4.00 1/15/2040 6,311
4,500 Richmond Public Utility (PRE) 5.00 1/15/2040 4,734
5,120 Roanoke County EDA (INS) (PRE) 5.00 10/15/2027 5,339
2,850 Roanoke County EDA (INS) (PRE) 5.00 10/15/2032 2,972
1,150 Roanoke County EDA 5.00 7/01/2033 1,239
4,285 Roanoke County EDA (INS) (PRE) 5.13 10/15/2037 4,474
110 Roanoke County EDA (INS) (PRE) 5.00 7/01/2038 122
6,890 Roanoke County EDA (INS) 5.00 7/01/2038 7,321
420 Small Business Financing Auth. 5.00 4/01/2025 456
185 Small Business Financing Auth. 5.25 4/01/2026 201
855 Small Business Financing Auth. 5.50 4/01/2028 939
750 Small Business Financing Auth. 5.50 4/01/2033 816
11,945 Small Business Financing Auth. 5.00 11/01/2040 12,826
520 Stafford County and City of Staunton IDA (INS) 5.25 8/01/2036 521
5,900 Stafford County EDA 5.00 6/15/2036 6,583
6,495 Stafford County EDA 4.00 6/15/2037 6,629
10,000 Tobacco Settlement Financing Corp. 5.00 6/01/2047 9,744
10,000 Transportation Board 4.00 5/15/2042 10,667
6,315 Univ. Health System Auth. 4.75 7/01/2036 6,721
3,000 Univ. Health System Auth. 4.75 7/01/2041 3,183
4,405 Univ. of Virginia 5.00 6/01/2037 5,131
================================================================================
8 | USAA VIRGINIA BOND FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 4,000 Univ. of Virginia 5.00% 4/01/2042 $ 4,748
5,000 Univ. of Virginia 4.00 4/01/2045 5,292
5,000 Univ. of Virginia 5.00 4/01/2046 5,908
5,000 Univ. of Virginia 5.00 4/01/2047 5,903
5,000 Upper Occoquan Sewage Auth. 4.00 7/01/2039 5,336
1,795 Virginia Beach Dev. Auth. 5.00 5/01/2029 2,132
2,165 Washington County IDA (PRE) 5.25 8/01/2030 2,417
2,160 Washington County IDA (PRE) 5.50 8/01/2040 2,426
2,073 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 2,077
2,000 West Virginia Regional Jail Auth. 5.00 12/01/2038 2,317
3,250 Winchester EDA 5.00 1/01/2044 3,568
3,250 Winchester EDA 5.00 1/01/2044 3,614
3,000 Winchester IDA (PRE) 5.63 1/01/2044 3,174
--------
520,002
--------
DISTRICT OF COLUMBIA (6.1%)
2,825 Metropolitan Washington Airports Auth. 5.00 10/01/2029 3,029
12,465 Metropolitan Washington Airports Auth. 5.00 10/01/2030 12,944
5,500 Metropolitan Washington Airports Auth. (INS) 5.32(e) 10/01/2030 3,556
11,230 Metropolitan Washington Airports Auth. 5.00 10/01/2039 11,956
4,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 4,321
1,000 Washington MTA (PRE) 5.13 7/01/2032 1,072
5,000 Washington MTA 5.00 7/01/2042 5,877
--------
42,755
--------
GUAM (2.5%)
2,000 Government 5.00 11/15/2039 2,135
1,500 Government 5.00 1/01/2042 1,554
1,250 Government 5.00 12/01/2046 1,359
1,255 International Airport Auth. (INS) 5.75 10/01/2043 1,476
500 Power Auth. 5.00 10/01/2031 548
1,000 Power Auth. 5.00 10/01/2034 1,057
750 Power Auth. (INS) 5.00 10/01/2039 831
1,000 Power Auth. (INS) 5.00 10/01/2044 1,102
2,850 Waterworks Auth. 5.00 7/01/2035 3,091
4,000 Waterworks Auth. 5.50 7/01/2043 4,424
--------
17,577
--------
U.S. VIRGIN ISLANDS (0.2%)
2,000 Public Finance Auth. 5.00 10/01/2032 1,360
--------
Total Fixed-Rate Instruments (cost: $569,043) 581,694
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
PUT BONDS (1.1%)
VIRGINIA (1.1%)
$ 5,000 Wise County IDA 2.15% 10/01/2040 $ 5,089
3,000 York County EDA 1.88 5/01/2033 3,028
--------
8,117
--------
Total Put Bonds (cost: $8,000) 8,117
--------
VARIABLE-RATE DEMAND NOTES (14.8%)
VIRGINIA (13.5%)
1,000 Alexandria IDA (LOC - Bank of America Corp.) 0.98(g) 7/01/2038 1,000
14,850 College Building Auth. (LIQ) 0.94(g) 8/01/2034 14,850
200 College Building Auth. (LIQ) 0.92(g) 11/01/2036 200
4,200 Fairfax County EDA (LIQ) 0.92(g) 12/01/2033 4,200
8,925 Fairfax County EDA (LIQ) 0.98(g) 12/01/2033 8,925
4,230 Fauquier County IDA (LOC - BB&T Corp.) 0.93(g) 12/01/2033 4,230
1,355 Fauquier County IDA (LOC - PNC Financial Services Group) 0.96(g) 4/01/2038 1,355
8,420 Hanover County EDA (LOC - Bank of New York Mellon Corp.) 0.91(g) 11/01/2025 8,420
8,100 Hanover County EDA (LOC - U.S. Bancorp) 0.94(g) 11/01/2025 8,100
6,950 Lexington IDA 0.92(g) 1/01/2035 6,950
4,700 Loudoun County IDA 0.93(g) 2/15/2038 4,700
14,450 Loudoun County IDA 0.93(g) 2/15/2038 14,450
4,950 Loudoun County IDA 0.96(g) 2/15/2038 4,950
1,000 Loudoun County IDA 0.96(g) 2/15/2038 1,000
2,965 Norfolk EDA 0.91(g) 11/01/2034 2,965
5,000 Resources Auth. (LIQ)(f) 0.96(g) 11/01/2019 5,000
3,335 Tenet Healthcare Corp. (LIQ)(f) 0.96(g) 2/01/2028 3,335
--------
94,630
--------
DISTRICT OF COLUMBIA (1.3%)
8,690 Metropolitan Washington Airports Auth. (LOC - Toronto-Dominion Bank) 0.98(g) 10/01/2039 8,690
--------
Total Variable-Rate Demand Notes (cost: $103,320) 103,320
--------
TOTAL INVESTMENTS (COST: $680,363) $693,131
========
================================================================================
10 | USAA VIRGINIA BOND FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $580,253 $1,441 $581,694
Put Bonds - 8,117 - 8,117
Variable-Rate Demand Notes - 103,320 - 103,320
----------------------------------------------------------------------------------------------------------------------------
Total $- $691,690 $1,441 $693,131
----------------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
----------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
----------------------------------------------------------------------------------------------------------------------------
($ IN 000s) FIXED-RATE INSTRUMENTS
----------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2017 $1,442
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, 2017 $1,441
----------------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2017, through September 30, 2017, 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 | 11
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2017 (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 Trust's Board of Trustees
(the Board). The aggregate market value of these securities at September
30, 2017, was $5,953,000, which represented 0.9% of the Fund's net
assets.
(c) At September 30, 2017, the issuer was in default with respect to
interest and/or principal payments.
(d) Restricted security that is not registered under the Securities Act of
1933.
================================================================================
12 | 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) Variable-rate demand notes - interest rate is determined by the issuer
or agent based on current market conditions, and is not based on a
published reference rate and spread. These securities do not indicate a
reference rate and spread in their description.
(h) Security was fair valued at Level 3.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $680,363) $693,131
Cash 47
Receivables:
Capital shares sold 91
Interest 8,240
--------
Total assets 701,509
--------
LIABILITIES
Payables:
Capital shares redeemed 682
Dividends on capital shares 327
Accrued management fees 186
Accrued transfer agent's fees 8
Other accrued expenses and payables 75
--------
Total liabilities 1,278
--------
Net assets applicable to capital shares outstanding $700,231
========
NET ASSETS CONSIST OF:
Paid-in capital $693,791
Undistributed net investment income 4
Accumulated net realized loss on investments (6,332)
Net unrealized appreciation of investments 12,768
--------
Net assets applicable to capital shares outstanding $700,231
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $673,836/59,657 capital shares outstanding, no par value) $ 11.30
========
Adviser Shares (net assets of $26,395/2,338 capital shares outstanding, no par value) $ 11.29
========
See accompanying notes to financial statements.
================================================================================
14 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $12,431
-------
EXPENSES
Management fees 1,110
Administration and servicing fees:
Fund Shares 503
Adviser Shares 20
Transfer agent's fees:
Fund Shares 103
Adviser Shares 6
Distribution and service fees (Note 6E):
Adviser Shares 33
Custody and accounting fees:
Fund Shares 57
Adviser Shares 2
Postage:
Fund Shares 5
Shareholder reporting fees:
Fund Shares 10
Trustees' fees 16
Professional fees 47
Other 11
-------
Total expenses 1,923
-------
NET INVESTMENT INCOME 10,508
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 44
Change in net unrealized appreciation/(depreciation) 5,240
-------
Net realized and unrealized gain 5,284
-------
Increase in net assets resulting from operations $15,792
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2017 (unaudited), and year ended
March 31, 2017
---------------------------------------------------------------------------------------------------------------
/30/2017 3/31/2017
---------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,508 $ 21,462
Net realized gain on investments 44 270
Change in net unrealized appreciation/(depreciation) of investments 5,240 (19,873)
-----------------------
Increase in net assets resulting from operations 15,792 1,859
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (10,099) (20,696)
Adviser Shares (364) (718)
-----------------------
Distributions to shareholders (10,463) (21,414)
-----------------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 10,250 28,331
Adviser Shares 704 3,308
-----------------------
Total net increase in net assets from capital share transactions 10,954 31,639
-----------------------
Net increase in net assets 16,283 12,084
NET ASSETS
Beginning of period 683,948 671,864
-----------------------
End of period $700,231 $683,948
=======================
Undistributed (overdistribution of) net investment income:
End of period $ 4 $ (41)
=======================
See accompanying notes to financial statements.
================================================================================
16 | USAA VIRGINIA BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2017 (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 51 separate funds.
Additionally, USAA Virginia Bond Fund (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 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 | 17
================================================================================
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 backtesting 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 ask 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
================================================================================
18 | USAA VIRGINIA BOND FUND
================================================================================
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
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 | 19
================================================================================
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.
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.
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
================================================================================
20 | USAA VIRGINIA BOND FUND
================================================================================
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.
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, 2017, there were no custodian and other bank credits.
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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
affiliate of the Manager. The purpose of the agreement is to provide temporary
or emergency cash needs, including redemption requests that might otherwise
require the untimely disposition of securities. Subject to availability
(including usage of the facility by other funds of the Trusts), 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 Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended September 30, 2017, the Fund paid CAPCO facility
fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the
Funds. The Fund had no borrowings under this agreement during the six-month
period ended September 30, 2017.
(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, 2018, 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, 2017, the Fund had net capital loss carryforwards of $6,377,000,
for federal income tax purposes, as shown in the table below.
================================================================================
22 | USAA VIRGINIA BOND FUND
================================================================================
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 $1,007,000
Long-Term 5,370,000
----------
Total $6,377,000
==========
For the six-month period ended September 30, 2017, 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, 2017, were
$24,498,000 and $23,260,000, respectively.
As of September 30, 2017, 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, 2017, were $23,172,000 and $10,404,000, respectively, resulting in net
unrealized appreciation of $12,768,000.
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED ,
SEPTEMBER 30, 2017 MARCH 31, 2017
---------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------
FUND SHARES:
Shares sold 2,854 $ 32,276 8,209 $ 94,057
Shares issued from reinvested dividends 728 8,239 1,443 16,509
Shares redeemed (2,675) (30,265) (7,254) (82,235)
----------------------------------------------
Net increase from capital share transactions 907 $ 10,250 2,398 $ 28,331
==============================================
ADVISER SHARES:
Shares sold 249 $ 2,815 842 $ 9,641
Shares issued from reinvested dividends 26 291 49 563
Shares redeemed (213) (2,402) (609) (6,896)
----------------------------------------------
Net increase from capital share transactions 62 $ 704 282 $ 3,308
==============================================
(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 the average net assets of the Fund, 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.
Prior to July 27, 2017, the Fund's base fee was 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
================================================================================
24 | USAA VIRGINIA BOND FUND
================================================================================
combined. These fees were allocated on a proportional basis to each Fund
monthly based upon average net assets.
For the six-month period ended September 30, 2017, the Fund's effective
annualized base fee was 0.32% of the Fund's average net assets for the same
period.
The performance adjustment for each share class is calculated monthly by
comparing the Fund's performance to that of the Lipper Virginia Municipal
Debt Funds Index. The Lipper Virginia Municipal Debt Funds Index tracks the
total return performance of funds within the Lipper Virginia Municipal Debt
Funds category.
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
For the six-month period ended September 30, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $1,110,000, which
included a performance adjustment for the Adviser Shares of $(4,000). For
the Adviser Shares, the performance adjustment was (0.03)%. For the
six-month period ended September 30, 2017, the Fund 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, 2017, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $503,000 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, 2017, the Fund reimbursed the
Manager $9,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - Effective October 12, 2017, the Manager agreed,
through July 31, 2018, 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 would
reimburse the Adviser Shares for all expenses in excess of that amount. This
expense limitation arrangement may not be changed or terminated through July
31, 2018, without approval of the Board, and may be changed or terminated by
the Manager at any time after that date. For the period ended September 30,
2017, the Adviser Shares did not incur any reimbursable expenses.
================================================================================
26 | USAA VIRGINIA BOND 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 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, 2017, the Fund Shares and Adviser
Shares incurred transfer agent's fees, paid or payable to SAS, of $103,000
and $6,000, respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant
to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under
the plan, the Adviser Shares pay fees to USAA Investment Management Company
(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, 2017, 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,
2017, USAA and its affiliates owned 448,000 Adviser Shares, which represents
19.2% of the Adviser Shares outstanding and 0.7% of the Fund's total outstanding
shares.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules will have on the
financial statements and other disclosures. The compliance date for forms N-PORT
and N-CEN is June 1, 2018, with other staggered compliance dates extending
through December 2018. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
28 | USAA VIRGINIA BOND FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.21 $ 11.52 $ 11.53 $ 11.17 $ 11.60 $ 11.40
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .35 .41 .43 .44 .44
Net realized and
unrealized gain (loss) .09 (.31) (.01) .35 (.43) .20
-------------------------------------------------------------------------------
Total from investment
operations .26 .04 .40 .78 .01 .64
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.35) (.41) (.42) (.44) (.44)
-------------------------------------------------------------------------------
Net asset value at end
of period $ 11.30 $ 11.21 $ 11.52 $ 11.53 $ 11.17 $ 11.60
===============================================================================
Total return (%)* 2.33 .36 3.58 7.10 .23 5.65
Net assets at end
of period (000) $673,836 $658,452 $648,913 $648,331 $595,246 $671,320
Ratios to average
net assets:**
Expenses (%)(a) .54(b) .58 .60 .59 .59 .57
Net investment income (%) 13.02(b) 3.10 3.57 3.70 4.01 3.77
Portfolio turnover (%) 4 13 3 12 7 6
* 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, 2017, average net assets were
$669,208,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(9) 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,
------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.20 $ 11.51 $ 11.53 $ 11.17 $ 11.60 $ 11.40
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .33 .38 .40 .42 .42
Net realized and
unrealized gain (loss) .09 (.31) (.02) .36 (.43) .20
-----------------------------------------------------------------------------
Total from investment
operations .25 .02 .36 .76 (.01) .62
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.16) (.33) (.38) (.40) (.42) (.42)
-----------------------------------------------------------------------------
Redemption fees added
to beneficial interests - - .00(a) - - -
-----------------------------------------------------------------------------
Net asset value at end
of period $ 11.29 $ 11.20 $ 11.51 $ 11.53 $ 11.17 $ 11.60
=============================================================================
Total return (%)* 2.22 .12 3.24 6.84 .03 5.46
Net assets at end of
period (000) $26,395 $25,496 $22,951 $21,029 $12,701 $11,912
Ratios to average net assets:**
Expenses (%)(c) .78(d) .81 .84 .84(b) .79 .76
Expenses, excluding
reimbursements (%)(c) .78(d) .81 .84 .84 .79 .76
Net investment income (%) 2.79(d) 2.85 3.34 3.44 3.80 3.57
Portfolio turnover (%) 4 13 3 12 7 6
* 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, 2017, average net assets were
$26,145,000.
(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 as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
30 | USAA VIRGINIA BOND FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2017 (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, 2017, through
September 30, 2017.
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 | 31
================================================================================
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, 2017 -
APRIL 1, 2017 SEPTEMBER 30, 2017 SEPTEMBER 30, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,023.30 $2.74
Hypothetical
(5% return before expenses) 1,000.00 1,022.36 2.74
ADVISER SHARES
Actual 1,000.00 1,022.20 3.95
Hypothetical
(5% return before expenses) 1,000.00 1,021.16 3.95
*Expenses are equal to the annualized expense ratio of 0.54% for Fund Shares
and 0.78% 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
2.33% for Fund Shares and 2.22% for Adviser Shares for the six-month period of
April 1, 2017, through September 30, 2017.
================================================================================
32 | USAA VIRGINIA BOND FUND
================================================================================
ADVISORY AGREEMENT
September 30, 2017 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2017, 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 | 33
================================================================================
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, shareholder 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 experience of the Manager, including the professional experience
and qualifications of its senior and investment personnel, as well as
================================================================================
34 | USAA VIRGINIA BOND FUND
================================================================================
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 its expense universe. The data indicated that the Fund's total
expense ratio was below the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the nature and high quality of
services provided by
================================================================================
ADVISORY AGREEMENT | 35
================================================================================
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 below the average of its performance universe and its Lipper
index for the one-year period ended December 31, 2016, and was above the average
of its performance universe and its Lipper index for the three, five-, and
ten-year periods ended December 31, 2016. The Board also noted that the Fund's
percentile performance ranking was in the top 40% of its performance universe
for the one-year period ended December 31, 2016, was in the top 25% of its
performance universe for the three-year period ended December 31, 2016, was in
the top 5% of its performance universe for the five-year period ended December
31, 2016, and was in the top 20% of its performance universe for the ten-year
period ended December 31, 2016.
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 the Manager and its
affiliates provide shareholder
================================================================================
36 | USAA VIRGINIA BOND FUND
================================================================================
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 and other risks 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.
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ADVISORY AGREEMENT | 37
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TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
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
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UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
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TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
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CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 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)
=============================================================================
39604-1117 (C)2017, 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, 2017
By:* /S/ KRISTEN MILLAN
-----------------------------------------------------------
Signature and Title: Kristen Millan, Assistant Secretary
Date: 11/27/2017
------------------------------
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: 11/27/2017
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 11/27/2017
------------------------------
*Print the name and title of each signing officer under his or her signature.